Murray Income Trust Plc
Q3 2026 update

Market review

Like much of 2026, the third quarter was, to say the very least, eventful. Investors had much to contend with, from strong corporate earnings growth to spiralling AI capex, giant IPOs and unprecedented corporate debt issuance. As if that were not enough, bond markets were in an unforgiving mood. Longer-dated yields moved sharply higher in response to swelling inflationary pressures, better-than-expected economic growth and the ongoing deterioration of government finances. The latter raised questions about the creditworthiness of the US, the UK and France, in particular.

Performance

Artemis took control of the trust on 2 March 2026 and changed about 75% of the portfolio that month. From 1 April, at which point the transition was largely complete, until 30 September, the trust achieved a net asset value (NAV) return of 10.1% and a share price return of 13.2%. The FTSE All-Share index gained 7.2%.

After a strong start to Artemis’ tenure between April and June, the most recent three-month period has been disappointing. The trust delivered a slightly positive NAV return of 0.9% and its shares rose 1.4%. Both were behind the FTSE All-Share index, which gained 2.4%.

The trust’s shares ended September on a 6.2% discount to its NAV, compared with 6.7% on 30 June.

From a relative performance perspective, what the trust didn’t own was as important as what it did. Some of the biggest beasts in the UK market performed strongly. HSBC shares posted another decent quarter and defence-adjacent Rolls-Royce and BAE Systems also rallied (none of which we own). Oil & gas and mining – large sectors where we are underweight – performed well given higher energy prices and enthusiasm for AI-related commodities.

Concentration in the UK (as well as many other markets globally) looks elevated versus history. The top 10 stocks now account for 43% of the FTSE All-Share but we believe better opportunities can be found outside the largest index constituents.

Past performance is not a guide to the future. Source: Lipper Limited/Artemis to 30 September 2026. All figures show total returns with dividends and/or income reinvested, net of all charges. Performance does not take account of any costs incurred when investors buy or sell the trust.

*Artemis was appointed as manager of Murray Income Trust on 2 March 2026. Since then, the trust has delivered an NAV return of -0.3% and a share price return of 1.0%, versus 0.1% for the FTSE All-Share. Artemis repositioned the portfolio holdings during March and the new portfolio was in place by 1 April 2026. Performance since repositioning is shown in the table above as six months.

Contributors

RS Group shares hit an 18-month high, supported by improving macroeconomic data in the US and an AGM trading update that highlighted a positive start to FY27 across all regions. Multi-year investments into technology and process improvements are beginning to manifest in business performance; thanks to the company's differentiated multi-channel offering, it is well placed to take share in what remains a highly fragmented industrial repair and maintenance market. As volumes recover, we think the company has plenty of ‘self-help’ levers it could pull to improve margins and returns, such as cutting costs and improving processes. We judge a 7% free cash-flow yield to offer attractive risk-reward.

EasyJet shares performed strongly as the battle to acquire the airline continued. US private equity firm Castlelake had four proposals rejected before easyJet agreed in principle to a sweetened offer in early July, only for Apollo to subsequently enter the race with a higher proposal, which the board has backed. Our view for some time has been that easyJet's shares are materially undervalued. They traded below the replacement cost of the company's fleet of aircraft even before attributing any value to its holidays business, brand or desirable slots at capacity-constrained airports. We are therefore reassured to see more widespread recognition of this value through Castlelake and Apollo's approaches.

Aviva's FY26 earnings release contained some good news for investors. Operating profit grew by 24% and earnings per share (EPS) by 10% year-over-year. The company increased the interim dividend per share by 7%. Management reiterated confidence in the three-year targets set in 2025, including 11% annual EPS growth, as well as progress towards Aviva's business mix being 75% 'capital light' by 2028.

We continue to believe Aviva's technology capability to be ahead of peers. This means the company should be able to capitalise on what is a material cross-sell opportunity: of Aviva's 25 million customers, only 7 million currently have two or more policies. The stock offers a 6% dividend yield, which we believe is well placed to grow at mid-single digits over time and make a healthy contribution to total returns in the process.

Detractors

IG Group was the most significant stock-specific disappointment. The shares initially sold off (despite robust results) after the company announced the suspension of its share-buyback programme and the $1.3bn (£1bn) acquisition of US sports prediction platform Underdog. We were not surprised by the negative reaction; IG's pattern of beating estimates, raising guidance and buying back shares was replaced with the uncertainty of an acquisition. Nevertheless, we thought the reaction was overdone. While there is regulatory uncertainty around prediction markets, Underdog doubles IG's US revenues and gives the company a foothold in an area of rapid growth.

IG’s shares then fell by around a quarter following an early-October trading update in which the company forecast a 14% year-on-year decline in Q3 revenue. In addition, 'revenue retention’ (which measures how much of the spread from clients' trading activity IG retains as revenue) fell from a recent average of around 80% to approximately 70%. IG's market capitalisation has roughly halved since the acquisition of Underdog to around £3bn. In other words, investors are now assigning a negative value to the deal, while the multiple afforded to IG's existing business has also de-rated sharply despite several years of strategic and fundamental improvement.

We think this is an extreme reaction. Lower revenue retention reflects less supportive (meaning less volatile) market conditions, while changes to IG's hedging policy may depress retention in the shorter term but should support profitability over longer time horizons. What was lost in the announcement was that Underdog's revenues are growing at around 100% and we continue to believe its strategic direction is the right one. The shares now trade on around 7x earnings (and given close to 100% cash conversion, a free cash-flow yield of 13%) and the company has no debt. We therefore added to the position, given what we believe to be a significant improvement in the risk-reward. The company has a strategy day later in October which we will be following with interest; it is not impossible to imagine that sentiment may become more positive again in short order.

ITV agreed to sell its broadcast and streaming business to Sky in July. However, the regulatory assessment of this deal is expected to take some time, which is one of the reasons behind lacklustre share price performance. There has also been weaker guidance around advertising revenues, which is perhaps unsurprising given higher interest rates and increased macroeconomic uncertainty. We think the market is paying too much attention to that part of the business. Instead, our investment thesis focuses on ITV Studios, on which ITV will become a ‘pure play’, assuming the Sky transaction completes. ITV Studios is one of the largest production houses in the world. It has around £2bn in annual turnover and an enviable catalogue of 100,000 hours of content, spanning some of the world's most successful television productions, including the second series of The Gentlemen. We have argued for some time that ITV Studios is worth significantly more than the current market capitalisation of the group. We hope that focusing ITV on Studios will create a simpler story for investors and begin to unlock this value. A single-digit price-to-earnings (p/e) multiple and an 11% free cash-flow yield – as well as plenty of recent M&A in the sector – would suggest significant upside in the shares from here.

Imperial Brands shares fell to their lowest level since November 2024. The market reacted negatively to news of a significant headcount reduction in the US – reportedly numbering in the thousands – alongside comments from industry peers suggesting combustible volumes were declining more quickly than expected. We believe the weakness to be overdone. Right-sizing Imperial's cost base arguably makes sense in a structurally declining industry, while declining combustible volumes are hardly a new feature of our investment case and are factored into our analysis. We still believe a valuation of 7x next year's earnings and a 15% free cash-flow yield offer reasonable risk-reward, even with these volume declines in mind. We would also point to a 21% reduction in Imperial's share count over the past four years, which demonstrates the substantial cash generation of the business and the accretive impact of buying back shares at low valuations.

Activity

We initiated a position in British American Tobacco, a company we have owned in the past but not for several years. The shares currently offer a dividend yield of around 6%, which we think can grow at mid-single digits over time. We judge BAT’s scaled portfolio of next generation products to be undervalued by the market, given their high growth and evidence that incremental margins are more attractive than combustibles. Velo (nicotine pouches) has an industry-leading position in a rapidly growing category and we believe there is scope for BAT to take share from Philip Morris in the US (which, as an aside, trades on more than double [23x versus 11x] the p/e multiple). We are under no illusions about the structural and regulatory risks faced by the tobacco industry, but our conclusion from revisiting the sector was that it makes sense to have exposure to both Imperial and BAT. 

We also added Standard Chartered to the portfolio. It has a strong foothold in fast-growing economies in Asia and an attractive position in wealth management. As wealth (which is capital light and generates higher returns) accounts for a larger proportion of Standard Chartered’s profits going forward, this should drive an acceleration in returns on tangible equity (ROTE). The shares have done well in recent years, but taking into account management’s ambitions of mid-to-high teen ROTE by 2030 and significant capital returns, then a price-to-book ratio of 1.3x does not look too demanding, in our view.

Finally, we have built a position in Marks & Spencer. Its food business is taking market share, while the clothing business has made substantial progress in recent years. Despite this better fundamental performance, a valuation of around 12x next year’s earnings does not imply particularly high expectations. The key from here will be execution. We think M&S has a long way to go with respect to investment in technology, warehousing, distribution and the broader infrastructure supporting the business. Put simply, the quality of the ‘front end’ customer proposition is some way ahead of the ‘back end’. If management can close this gap, we think better efficiency and continued sales growth could lead to accelerating returns on capital and cash flow over the medium term.

Outlook

We believe the trust’s portfolio possesses attractive characteristics. It trades on 11.7x forward earnings versus 12.4x for the FTSE All-Share and offers a 4.1% dividend yield compared with 3.1% for the market. On top of this, portfolio companies are buying back shares equivalent to approximately 3% of their aggregate market capitalisation each year. Dividends and buybacks combined therefore imply a cash return to shareholders of around 7% before allowing for any growth in earnings, dividends or cash flow. The portfolio also has better cash conversion than the market and, fundamentally, we believe its prospective returns are superior.

We also think there is an interesting opportunity for our companies to create value through M&A and industry consolidation. Higher interest rates have made this more challenging for private equity at a time when pressure is building to distribute capital to investors. This should create opportunities for well-capitalised strategic buyers to acquire attractive assets at sensible valuations. Informa's latest acquisition is a good example: it is using its balance sheet and existing position of strength to further consolidate the global events industry and reinforce its position as the world's number one operator.

To make the most of the investment trust structure, we are using a modest amount of gearing. This should enable us to increase income and total returns without taking on too much additional risk. It is akin to steering a boat with a slightly bigger sail, and indeed, this has been our experience of managing the trust so far.