Trojan Income Fund (Ireland)

Industrial engineer Spirax Group was the Fund’s top contributor in August, rising +15% on the back of reporting solid half-year results. Spirax shares have had a difficult few years. The company benefitted from a booming life sciences end market during the pandemic which contributed to the shares becoming considerably over valued, reaching an eye-watering >50x Price to earnings ratio (P/E) in 2021. Since then, the company has suffered earnings downgrades and a de-rating to c.20x P/E, resulting in a more than halving of the share price. We have long considered Spirax to be an extremely high-quality business and so with earnings downgrades potentially bottoming and cash flows improving, we started a position earlier this year and have added to it since. These results were a step in the right direction, with group sales and profits growing organically by +3% and +7% respectively despite the difficult economic and tariff background.

Global spirits leader Diageo and distributor Bunzl were also strong contributors in the month, both rising by +11%. Diageo announced full year results that were in line with market expectations with guidance for profit growth for the year ahead also supportive for the shares given the low valuation of c.15x P/E. Bunzl’s half year results were also reassuring, particularly after the company announced a surprise profit warning in April which revealed the company was suffering specific issues in their North American business. We added to the shares following this warning at a valuation of c.12x P/E, and having met with the company in the month, we are cautiously optimistic that the key issues are beginning to resolve.

The main detractors to performance were information services company RELX and accountancy software provider Sage, which sold off 12% and 11% respectively on market-wide concerns around the threat of generative AI. Only a few months ago, Sage and RELX were deemed to be “AI winners”, taking valuations towards 30x P/E in both cases. Given the nascency of the technology, it is too early to say how AI will impact software and data companies in the long term. We do however take significant comfort from the fact that both RELX and Sage provide critical services, based on deep expert knowledge, and are highly embedded into their customers’ workflows. They are also integrating generative AI into their products and so far, both are seeing uplifts in their growth rates from this new functionality. Having reduced our holdings in both companies over the past year, valuations have once again become more interesting to us.