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APQ Global — CULS issuance and income target achieved

APQ Global — CULS issuance and income target achieved

Following shareholder approval at the December EGM, APQ has issued an additional £10.3m in 3.5% convertible unsecured loan stocks (CULS) at a 3% premium to par value. The CULS provide long-term structural gearing at a fixed cost, the proceeds of which will be deployed in line with the company’s business and investment strategy. APQ has also changed its reporting currency from sterling to US dollars so as to more closely match its investments. Separately, it has reported an unaudited 31 December net book value per share of US$128.1 and declared a fourth quarterly DPS of 1.5p. Total DPS of 6.0p declared in respect of 2017 matches the target set at IPO and takes the annual US$ NAV total return to 9.9%.

Martyn King

Written by

Martyn King

Director, Financials

APQ Global

CULS issuance and income target achieved

CULS issue and trading update

Investment companies

29 January 2018

Price

102p

Market cap

£79m

Estimated net debt (£m)*

30.1

*30 June 2017 cash of £0.2m adjusted for £30.3m CULS issuance. Excludes cash held for working capital purposes within unconsolidated APQ Cayman subsidiary.

Shares in issue

78.055m

Free float

7.8%

Code

APQ

Primary exchange

TISE

Secondary exchange

AIM

Share price performance

%

1m

3m

12m

Abs

0.0

0.0

(2.9)

Rel (local)

(0.9)

(2.3)

(10.3)

52-week high/low

104.8p

101.5p

Business description

APQ Global is an emerging markets investment company with a focus on Asia, Latin America, emerging Europe, the Middle East, and Africa. It aims to deliver a sustainable and growing dividend as well as capital growth for shareholders by focusing on investment opportunities with the potential to generate significant income and long-term growth.

Next events

January 2018 book value

Mid February 2018

Q417 dividend payment

2 March 2018

Analysts

Martyn King

+44 (0)20 3077 5745

Andrew Mitchell

+44 (0)20 3681 2500

APQ Global is a research client of Edison Investment Research Limited

Following shareholder approval at the December EGM, APQ has issued an additional £10.3m in 3.5% convertible unsecured loan stocks (CULS) at a 3% premium to par value. The CULS provide long-term structural gearing at a fixed cost, the proceeds of which will be deployed in line with the company’s business and investment strategy. APQ has also changed its reporting currency from sterling to US dollars so as to more closely match its investments. Separately, it has reported an unaudited 31 December net book value per share of US$128.1 and declared a fourth quarterly DPS of 1.5p. Total DPS of 6.0p declared in respect of 2017 matches the target set at IPO and takes the annual US$ NAV total return to 9.9%.

Year end

EPS**
(p)

Book value/share***
(US$)

DPS
(p)

P/E
(x)

P/Book value****
(x)

Yield
(%)

12/16*

0.71

122.5

0.5

N/A

1.16

0.5

12/17

N/A

128.1

6.0

N/A

1.11

5.9

Note: *Period commencing at inception on 11 August 2016 until 31 December 2016. **EPS in sterling until re-stated for change in functional currency to US$. ***12/17 book value per share is unaudited as at 31 December 2017. ****Calculated at an exchange rate of 1.3950.

CULS provide long-term structural gearing…

APQ first issued CULS in September 2017, raising £20.1m, and these have subsequently traded on the International Securities Market of the LSE at a premium to the issue price and par value. Encouraged by this success, the board decided to increase the size of the issue as a means of increasing gearing, which it believes will enhance total return over the longer term. The CULS may be converted from 31 March 2018 at an initial conversion price of 105.358p, equivalent to a 10% premium to the unaudited book value per share at 31 July 2017. Outstanding CULS are repayable at par in 2024. Old Mutual, a 23.1% holder of the ordinary shares, participated in the issue.

…targeted to enhance long-term returns

The change of reporting currency should give a clearer indication of progress with the underlying investments, that are managed on a US$ basis. Sterling weakness through much of the past year has obscured this, with the US$ NAV total return of 9.9% for 2017 translating into 0.5% in sterling terms. The increase in gearing through the current year, assuming a continuation of market trends and no early conversion of CULS, should have a positive impact on the income earned from investments, and supports the expectation that dividends may at least be maintained in the current year.

Valuation: Attractive EM income

Management is cautious about G7 markets but believes that 2018 will continue to be supportive of emerging markets (EM). Within this context, APQ targets long-term sustainable EM income growth which it believes is under-appreciated by investors and mitigates some of the risks of market volatility. Assuming an unchanged FY18 DPS, the yield on the current share price is 5.9%.

Investment summary

In its 2018 outlook document (www.apqglobal.com/media/news/) APQ expresses caution about the outlook for G7 markets with the key US markets vulnerable to mid-term election uncertainty and further increases in interest rates. For emerging markets it expects GDP growth to continue to outpace the G7 by a wide margin, gaining support from firm commodity prices, and less inflationary pressure on interest rates.

During 2017, APQ deployed the bulk of its resources in liquid instruments in EM equities, bonds, and currencies. Management remains eager to expand its activities in more strategic and direct investment opportunities but continues to be disciplined in targeting investments that will meet its long-term return objectives. It is hopeful of closing some opportunities during 2018. The company provides the breakdown of the 9.9% total return generated in the year by asset class, as shown in Exhibit 1.

Exhibit 1: 2017 return contribution by asset class (US$)

Credit

6.88%

Equity

5.78%

FX

-8.54%

Rates

5.78%

Total

9.90%

Source: APQ Global

At the end of 2017, prior to the second £10.3m CULS issue, the bulk of the company’s overall exposure remained in EM credit and government bonds. The overall positioning suggests some increased caution in relation to equities since end-September 2017, EM credit and government bond as well as EM local currency bond exposure both increasing and equity exposure decreasing. The cash exposure, substantially retained for collateral and working capital purposes was also higher.

Exhibit 2: Portfolio breakdown as a percentage of book value

31 December 2017

30 September 2017

EM Credit and government bonds

66.5%

60.7%

EM local markets

25.1%

16.2%

EM Equities

25.7%

60.4%

Cash

20.0%

13.4%

Total

137.3%

150.7%

Source: APQ Global

The bond and equity exposures remain highly diversified. By geography, the largest equity exposure at end-2017 were in China and South Korea, followed by Russia and South Africa. APQ’s bullish view on commodities is reflected in the equity sector positioning. The largest credit positions are in Brazil, Russia and Turkey with sector exposure concentrated on government entities, banks, and corporations in the energy sector.

APQ’s unaudited stress test scenario results support management’s belief that book value sensitivity to overall market movements remains low (Exhibit 3) although exposure to a change in yields has increased along with the credit exposure.

Exhibit 3: Management stress test results – predicted change in book value

31 December 2017

30 September 2017

Equity stress test (S&P -10%)

-0.43%

-0.38%

Credit stress test (Credit spreads +10%)

-0.96%

-0.93%

Interest rate stress test (yields +1%)

-2.90%

-1.02%

Source: APQ Global

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by APQ Global and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by APQ Global and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

BlackRock Emerging Europe — Outperformance from concentrated fund

BlackRock Emerging Europe (BEEP) aims to generate long-term capital growth from a concentrated portfolio of emerging European equities. Managers Sam Vecht and Christopher Colunga are upbeat about prospects for the region due to relatively attractive company valuations and an improving macro backdrop. The trust has outperformed the MSCI Emerging Europe 10/40 index over one, three and five years, and since BlackRock took over management of the fund on 1 May 2009. The board is mindful of its corporate governance responsibilities, and in June 2013 announced that before 21 June 2018, it would offer shareholders the ability to realise their investment in BEEP at NAV minus costs and, if the fund is not liquidated, at five-yearly intervals thereafter.

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