BMO Capital & Income Investment Trust PLC – Overstretched amid Covid-19 uncertainty.

BMO Capital & Income Investment Trust PLC (LON: BCI) is a UK based trust seeking to generate income growth from its portfolio primarily consisting of FTSE All-Share companies.

Rationale for Valuation – Expensive at GBX 290.00

• The Company has Return on Equity and Return on Assets of around negative 23.27% and negative 22.14%, respectively.
• BCI had demonstrated a downtrend in the Return per share from positive during FY19 to negative during FY20.
• BCI’s NAV (“Net Asset Value”) total return of negative 21.0% during FY20 remained lower than its benchmark index FTSE All-Share (-16.6%) total return during a similar period.
• From a technical standpoint, 20-day SMA (GBX 291.7) is supporting the downside potential.

Key Risks

• The Company has investments in multiple industries and geographies, and profits can be impacted negatively due to foreign exchange rate fluctuations.
• The Company’s operations are negatively impacted by risks related to interest rate and Liquidity.

Recent Developments

On 18 February 2021, BCI had provided a portfolio update as of 31 January 2021 as shown below –

 (Source: Company update)

On 16 February 2021, the Company had announced its first interim dividend of 2.65 pence per share for FY21 ending 30 September 2021. The dividend will be paid on 31 March 2021, and the ex-dividend date will be 11 March 2021.

FY20 Financial Highlights (for the twelve months to 30 September 2020, as on 26 November 2020)

(Source: Company result)

• The Company had delivered an increase of 0.9% in the FY20 total dividend to 11.50 pence per share, which remained ahead of the CPI inflation figure of 0.5% for a similar period.
• The return per share for FY20 remained at negative 66.99 pence, while it was 16.55 pence during FY19.
• BCI has cash & cash equivalents of £1.18 million as of 30 September 2020, while it was £4.22 million as of 30 September 2019.
• Moreover, BCI had a NAV of 300.70 pence per share as of 02 March 2021.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

The Company usually pays dividends at the end of calendar quarters. Moreover, BCI’s portfolio consisted of those companies which tend to pay reliable income to shareholders. However, most companies have faced several operational headwinds caused by the Covid-19 pandemic, and uncertainty may persist for an unknown duration. Furthermore, the Company had managed to pay dividends more than CPI inflation during FY20. Currently, the Company is trading around a 4.46% discount from the last published NAV of 300.70 pence per share as of 02 March 2021. Overall, BCI would continue to identify and invest in those companies which have growth potential in the near future. The stock made a 52-week low and high of GBX 181.50 and GBX 323.00, respectively.

Based on the headwinds faced by the Company, we have given an “Expensive” stance on BMO Capital & Income Investment Trust at the current market price of GBX 290.00 (as of 04 March 2021, before the market close at 09:00 AM GMT) while we will watch out and update when market dynamics become favourable.

BMO Real Estate Investments Ltd

BMO Real Estate Investments Ltd (LON: BREI) is an FTSE All-Share listed Company, which delivers lucrative income through investments in the UK commercial property portfolio.

Rationale for Valuation – Expensive at GBX 77.00

• BREI had witnessed a declining trend in its top-line and bottom-line business during FY20 as compared to FY19.
• The first two interim dividends declared for FY21 (0.85 pence per share each) is lower than the first two interim dividends paid during FY20 (1.25 pence per share each).
• The stock is trading near its 52 weeks high of GBX 81.50, which raises doubt regarding its upside potential.
• From the technical standpoint, 14-day RSI stood at around ~59.82, which is supporting the downside movement.

Key Risks

• Failure in cybersecurity and a critical data breach could hamper the operation as well as the reputation of the company.
• Changes in government policies and regulations could affect the overall business of the Company.

Recent News

On 01 March 2021, BREI had announced a second quarterly interim dividend of 0.85 pence per share for the financial year ending 30 June 2021. The dividend will be paid on 31 March 2021, and the ex-dividend date will be 11 March 2021.

Trading Update (as on 27 January 2021)

(Source: Company update)

• BREI had reported a NAV of 98.1 pence per share as of 31 December 2020.
• The overall collection for the period remained at 94.4% for the period from 26 March 2020 to 01 December 2020.
• BREI had around £14.1 million of cash balance as of 31 December 2020.
• The Loan to Value (LTV) ratio stood at 25.8% as of 31 December 2020.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

Conclusion

BREI had anticipated a partial recovery during FY21, ending on 30 June 2021. However, the Company had raised concerns regarding operational headwinds caused by the Covid-19 uncertainty and Brexit. Moreover, the Company has declared two interim dividends of 0.85 pence per share each for FY21, which is lower than 1.25 pence per share each paid during FY20. Furthermore, the stock is hovering around its 52-week high price. The stock made a 52-week low and high of GBX 38.72 and GBX 81.50, respectively.

Based on the various business challenges mentioned above, we have given an “Expensive” stance on BMO Real Estate Investments Ltd at the current market price of GBX 77.00 (as on 04 March 2021, before the market close at 08:10 AM GMT), while we will revisit our stance once the restrictions are lifted.  

* The dividend yield is subject to change as per the stock price movement.

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