Lowland Investment Company plc

July was a strong month for UK equities as they substantially outperformed US equities. This may have been helped by the comparative lack of technology stocks in UK indices, as global investors reappraised the valuations of some companies exposed to artificial intelligence (AI) following a period of strong performance.

The strongest performers during the month included oil majors Shell and BP following a partial rise in the oil price. Shares in some companies perceived to be at risk from AI disintermediation also performed well as their results appeared to be largely resilient (or, in some cases, even improving) due to AI. RELX, for example, reported that its legal division (the division perceived to be most at risk from AI) saw an acceleration of revenue growth in the most recent quarter.

Among the best performers during July were two companies that received takeover offers: ferry company Irish Continental (a proposed management buy-out) and actuator manufacturer Rotork (which received an offer from Swiss firm ABB). Following the takeover offer, we sold the position in Rotork and switched the proceeds into mining equipment and services provider Weir, where its shares had recently performed poorly due to concerns the firm was losing market share to competitors. The two takeover offers continued the high level of takeover activity we have seen so far this year, which, in our view,

may indicate relatively attractive valuation levels for UK equities more broadly.

The largest detractor was consumer lender Vanquis, which reported disappointing lending growth in its credit card business, leading it to downgrade its earnings expectations. Steel consumables producer Vesuvius was also among the detractors following operational issues at some of its sites, which resulted in the company losing market share as well as seeing increased costs.

During the month we added to existing holdings including defence services provider Babcock, which had seen its share price fall substantially from its highs, textile rental company Johnson Service Group, and consumer goods producer PZ Cussons.

While the uncertainty surrounding the economic outlook has increased as a result of the evolving conflict in the Middle East, UK valuations entered the month at lower levels relative to overseas equities. This meant that at the end of July, the portfolio was trading on a 12-month historic price-to-earnings (P/E) ratio of around 13x, a level we continue to view as attractive for businesses which are often market leading, well managed and have conservative balance sheets.