Temple Bar Investment Trust PLC (TMPL) Earnings Call Transcript & Summary

Welcome to the Temple Bar 2026 AGM, a year in which the Temple Bar Investment Trust celebrates its centenary. The presentation today is going to split into two parts. We're going to talk a little bit about the Trust itself, how it's structured today, how it's done in performance terms recently, and of course, how the Trust performed in 2025. And at the end, the second part, I'm going to go on and talk about a bit of -- give a bit of stock market history, talk a bit about what investors should realistically expect over time through their equity investments and talk about why it is that we adopt within the Temple Bar Investment Trust, a value-driven investment strategy. We start by looking backwards. At the last few years, we've had the privilege of looking after the Temple Bar Investment Trust for 5.5 years now. We took on the Trust in November 2020. And in the 5.5 years from November 2020 to the end of March of this year, the Trust was able to deliver a return -- an NAV return of around 200%, which compares very favorably with the stock market return of around 100%. Now, clearly, that is a very satisfying result, and I'll talk a bit more about why the Trust did particularly well in calendar 2025 later. But I probably want to start out by saying it's important to -- there is a little bit of good fortune involved in that. If you cast your minds back to November 2020 when we took on the Trust, obviously, we were still in the midst of the COVID pandemic. Sentiment in the stock market was extremely poor. Investors generally were very risk-averse, and starting valuations were very, very depressed. And of course, as the world has returned to some sort of normality so that has allowed for some strong levels of corporate profits growth and valuations to normalize upwards from extremely low levels. And it's that growth in profits and that normalization in valuation across the portfolio, which has enabled the Trust to deliver those sorts of returns over the last 5.5 years. Now we'd be the first to say that shareholders should not expect a similar level of return in the next 5 years. Although we want to try and show you today why it is that we continue to be confident that the trust can deliver excess return over and above the wider equity market going forward. The dividend record of the Trust in that 5 years, again, remember that in 2020, 2021, when we took on the Trust, again, corporate profits were low. And what that meant was that companies generally were paying out a low level of dividend. Now obviously, again, as economies have recovered and corporate profits have grown quite strongly in the last few years, so dividends have obviously recovered to where they were and more pre the COVID pandemic. And that's been reflected in the growth in the Trust's dividend over the last few years. So you can see, again, from 2021 to 2025, a 4-year period, the Trust dividend has more than doubled in that period. Now, again, trying to set expectations correctly. There was a certain amount of recovery in there, and we wouldn't expect that the Trust dividend will continue to grow at that rate. But nevertheless, we are confident that the Trust dividend can continue to grow at a reasonable rate from here. I think we'd also want to highlight an innovative approach that the Board is taking to the dividend. And in 2025, and this policy will most likely continue into 2026. In 2025, the Board took the view that it was worth translating a portion of the capital return that the Trust achieved and paying it out as a dividend. So the 15p or so dividend that the shareholders received in respect of 2025, around GBP 0.03 of that was a capital return, and that was about 1% of the starting NAV. So I think an indication -- we think an indication that the Board is very much operating in the shareholders' interest. On the back of strong performance over the last few years, the discount that was seen in the Trust's share price has narrowed and actually, today, the shares trade at a small premium to NAV. Again, I think we want to highlight the Board's active approach to shareholder value, to maximizing shareholder value. And whilst the Trust was trading at a discount, the Board were actively seeking to manage that discount, the level of discount through share buybacks. And in the last 4 or so years, the Trust has actually retired about 10% of its starting shares in issue. And of course, what that does is that drives an increase in the NAV per share for the shareholders that choose not to sell into the buyback. And so, again, another illustration of the fact that the Board are actively managing the Trust for shareholder value. If we look at how the Trust is positioned today, we believe that the Trust is -- continues to be well positioned in the areas of the stock market offering what we see, anyway, as the greatest degree of undervaluation. I certainly won't go through all of these names, but sectors we'd highlight would be financials sitting there at around 22% and energy at around 13%. Both of those sectors have been strong drivers of return and are a principal cause of the level of outperformance that the Trust was able to demonstrate in calendar 2025 and then on to the year to March 2026. Financials and energy, both good examples of sectors where if you go back two to three years, sentiment was extremely poor, and you could buy the stocks on mid-single digit multiples of a reasonable view of mid-cycle or what we call normalized earnings. We show here the largest 10 positions in the portfolio, accounting for between 40% and 50% of the overall portfolio. And I think, again, I won't go through each of these names. And we would be the first to admit that a number of these companies have their fair share of challenges to deal with. What we would -- how we would characterize these companies as being reasonable businesses with an ability to grow profits over time, but which today are available at low valuations. And therefore, shareholders should expect to fully participate in the earnings growth that the companies achieve into the future. The portfolio characteristics. Now remember, of course, that we are looking to cherry-pick individual companies to invest in the U.K. index. 70% of the portfolio is invested in the U.K. index today. And so you probably would have heard many people -- a number of people say that the U.K. stock market as a whole is trading at a discount to global equity markets generally. The global equity market trades on a price-earnings ratio, so price divided by this year's earnings of around 20x. The U.K. index, the wider U.K. index stands at a significant discount to that on this measure here is just over 14x. But of course, we're trying -- we're not investing the Trust's assets in the wider index. We're trying to cherry-pick individual companies where we think the valuations are particularly attractive. And therefore, despite the strong performance that's come out of the Trust in the recent years, it's pleasing to be able to say that even today, the price-to-earnings ratio of the Trust stands just below 10x. So a significant discount to the wider U.K. index and around half the rating attached to the global index. And the lesson of stock market history in our minds is that starting valuation is the most important determinant of future medium- and long-term returns. And providing the companies in which you are invested are of reasonable quality, have the ability to grow their profits over time and have strong finances, then if you can invest in those types of businesses at very -- at low starting valuations, and we would say that around 10x earnings is a low starting valuation, then you can expect over time to enjoy an excess investment return. Returning to the Trust's centenary. As I said earlier, the Trust celebrates its 100th-year in 2026. It was launched in 1926, obviously, the year of the general strike. We think it's an opportune moment to look back at stock market history, look at the lessons that we can learn and think about how different types of stock, different types of company have fared during that long period. We show here the historic returns on -- available on a number of different assets. We show the 125-year returns, actually, returns since 1900. On equities, bonds, bills, that's quasi-cash, and also, we give the inflation rate over that period so that investors can calculate a real return. And of the three asset classes, equities, bills and bonds, equities have delivered by far and away the largest return, around just over 9% per annum for U.K. investors. If you deduct the rate of inflation, you can do the math. That results in a real return per annum of around 5.5% to 6%. And of course, with the miracle of compounding, what that 9% per annum has meant is that over that extremely long period, GBP 1 invested in 1900 would be worth just over GBP 67,000 today. Now of course, there's always a catch. The catch is, of course, that those returns come with volatility attached. And as you all know very well, during that 125-year period, we've seen two world wars, a depression in the 1930s, the inflationary period of the 1970s and the global financial crisis, to mention a few. And of course, markets have reacted to those events by giving you quite elevated levels of volatility. We show here the U.K. equity real returns by year, and we categorize them into groupings by the return for that year. And you can see, although obviously, there's a positive skew, there is a significant amount of volatility around that 9% per annum total return. The standout numbers there, of course, are 1974, when the market declined by around 60% before doubling again -- doubling in 1975. And I think the lesson that we would take from the market -- take from these numbers is that volatility is part and parcel of equity investing. And it's important to recognize that ahead of time be diversified and ensure that you can ride out the volatility and thereby harness that excess return over time. We think the worst thing you can do is try to time the market because that's incredibly hard to do and can mean that as investors, you miss out on any recovery. We've had the good fortune of looking after one client for just over 25 years now. And during that period, the index return, total return, has been a total of just under 340%. The clients' portfolio has enjoyed a return of just over 750%. So we've more than doubled the index return in that 25-year period. If you -- on a per annum basis, the index return has been around 6%. The clients' return's been around 9%. So again, it's interesting how just compounding a difference of 3% per annum over 25 years can make such an enormous difference to your long-run return. But what's really interesting is that in that 25-year period, if you remove simply the 12 best months for the fund, obviously, that's 4% of the total time period, so 12 months out of 25 years. The portfolio return of 750% becomes 135%. So it completely destroys the total long-term return. And again, we think the message is loud and clear is recognize that volatility is part and parcel of equity investing. It's uncomfortable at the time, but investors should resist the temptation to try and time the market. We think it's important to stick with an equity strategy and ensure you're sufficiently diversified to make sure that you're not a forced seller into a stock market downdraft. Again, I've talked about the long-run equity return, looking at U.K. equities. Of course, remember that we're not buying the wider market. We're trying to cherry-pick individual companies, which we think are looking undervalued. And you can divide the market, of course, into buckets according to valuation. And that's what we do here. And what we're trying to demonstrate here is that there has been systematically an excess return enjoyed by investors who invest in lowly valued companies. If you look at the U.K. index, this time looking over a 70-year period, you can see -- you can define low valuation in a number of ways. It can be priced to the assets. It can be priced to dividend, it can be priced to earnings. Here, we look at price-to-assets or what's called book-to-market, book value of the assets to the market value of the assets or the shares. And in that 70-year period, you can see that high book-to-market, so that's low price-to-book, if you turn it upside down, those companies have delivered a return of 15% per annum over that 70-year period, a significant excess return to the more highly valued stocks, low book-to-market of just under 10% per annum. And again, you can see on the right there, the effect of compounding that around 5% per annum difference over 70 years. It's not just the U.K. that a value investment strategy or systematically buying lowly valued stocks has delivered an excess return. It's also happened in the U.S. Here, the excess return has been about 3% per annum this time over a 100-year period. I said that you can think about low valuation in more than one way. Here, we look at a high dividend yield strategy. Remember, of course, that the Temple Bar Investment Trust is looking to deliver a higher dividend yield than the market. But again, systematically investing in high dividend yield stocks, again in the U.K. market has delivered an excess return. Again, you can see cycling back to where we were. The U.K. market has -- the wider market has delivered a return of just over 9%, 9.2%, low-yielding stocks, just under 8%, high-yielding stocks around 10.5%. And again, you can see on the right there, the effect of compounding what seemed like relatively small differences over a long time period. So the message we want to leave you with, I think, is we would encourage investors to be diversified, think long term, try as much as you can to ignore the noise in the market. Obviously, we've seen a lot of -- we've seen a heightened level of volatility in the last few weeks based on the back of what the events in the Middle East. We would encourage investors to look through the noise, think long term, ignore the market as long as you can and holding equities for the long run. And if you -- where you can stick to more lowly valued equities because these have been shown to deliver an excess return. We would say that the Temple Bar Investment Trust is one of the few investment trusts to deliver a genuine exposure to value investing and the disciplines that go with it at a time when actually fewer and fewer market participants seem to be focusing on valuation and the true and the fundamentals of the underlying business in which they're investing. Thank you for your time and thank you for your ongoing support of the Temple Bar Investment Trust.