Temple Bar Investment Trust (TMPL) has announced impressive results for the year ended 31 December 2024, delivering a net asset value (NAV) total return of 19.9%, comfortably outperforming its All-Share benchmark, which it says returned 9.5%. The share price total return was 19.1%, reflecting a modest narrowing of the discount to NAV, which stood at 6.6% at year-end. Since Redwheel took over management in October 2020, the NAV total return has been 123.9%, versus 64.2% for the benchmark — a notable outperformance over the period.

Dividend rise and new policy proposal

The board has declared a total dividend of 11.25p per share for 2024, up 17.2% from 9.60p in 2023. Looking ahead, TMPL is proposing a change to its dividend policy, with plans to pay an enhanced quarterly dividend of 3.75p per share (previously 3.0p), part-funded from capital reserves. This would equate to an annualised yield of approximately 5.0%, based on the current share price.

Chairman Richard Wyatt noted that the proposal reflects changes in the way companies are returning capital to shareholders, increasingly favouring buybacks over dividends. As buybacks are not recognised as revenue under accounting rules, the board sees this adjustment as necessary to maintain an attractive and progressive dividend.

Subject to shareholder approval at the May 2025 AGM, the new policy would take effect from the first interim dividend of the 2025 financial year.

Portfolio performance and positioning

Co-managers Nick Purves and Ian Lance reported that portfolio performance was driven in large part by holdings engaging in share buybacks, including NatWest, Barclays, Standard Chartered, and Marks & Spencer, as well as takeover activity in holdings such as Currys.

Currys rallied over 80% during the year, buoyed by a takeover offer from Elliott Capital and improved trading, while ITV and M&S also contributed positively. Stellantis was the main detractor, impacted by a downgrade to profit guidance in the face of slowing global auto demand.

New positions were initiated in IAG, Direct Line, ABN Amro, and Abrdn, funded in part by the sale of Royal Mail (now IDS), which was subject to a successful bid during the year.

Despite the strong returns, the portfolio remains attractively valued, trading on just 9x 2024 forecast earnings, with more than half of holdings undertaking buybacks in the year. Gearing was modest at 8.4% and portfolio turnover declined to 11.6%, reflecting the managers’ high conviction and longer holding periods.

Outlook: UK equities remain overlooked

The managers continue to see value in the UK equity market, which remains deeply unloved and under-owned. They argue that investor expectations for US equities are stretched, while UK stocks are priced with low expectations, offering a fertile hunting ground for long-term value investors.

They note that the bulk of excess returns from US equities in recent years has come from re-rating, not profit growth — something they highlight as being unlikely to continue indefinitely. In contrast, UK stocks, many of which are strongly cash generative and returning capital to shareholders, offer attractive returns even without a re-rating.

“The ability to be truly long-term is the biggest advantage one can have in markets today,” the managers said. “The prize is great, but shareholders must be prepared for a bumpy road.”

Discount control and shareholder engagement

TMPL continued to actively manage its discount, buying back 5.2m shares in 2024, adding 0.4p per share to NAV, and has repurchased a further 791k shares in early 2025.

The board is also reviewing its UK-only investment remit, noting the ongoing trend of companies delisting or redomiciling. While the current opportunity set remains sufficient, this may change if de-equitisation of the UK market continues. Any changes to the investment policy would require shareholder approval.

AGM details

The AGM will be held on 6 May 2025 at Barber-Surgeons’ Hall, London. Shareholders will hear from the portfolio managers and the board, with a video of the presentation to be made available online afterwards.

[QD comment MR: Temple Bar’s strong long-term outperformance since the Redwheel handover continues to support the case for long-term value investing in UK equities. The proposed dividend enhancement adds appeal in an income-starved market, and with valuation gaps widening further, the trust’s contrarian positioning could continue to pay off for patient shareholders. We think it will be interesting to see what conclusion the board comes to regarding TMPL’s UK equities exposure. TMPL is unashamedly deep value in its approach and, at present, the UK equity market certainly fits that bill as it remains deeply unloved. Nonetheless, boards should regularly regularly revisit mandates to see if they remain relevant and if there is room for improvement. This won’t be an easy task as there is always a risk of shifting away from a poorly performing market and missing out on strong upside if and when a recovery occurs. Similarly, there is an opportunity cost of not swapping into an area that subsequently outperforms. The board will no doubt be considering these challenges in making this assessment.]