uk alpha south west retreat - may 2012

LEGAL & GENERAL UK ALPHA TRUST MAY 2012

Richard Penny - Senior Fund Manager

This is not a consumer advertisement. It is intended for professional financial

advisers and should not be relied upon by private customers or any other persons

Legal & General UK Alpha Trust

Citywire South West Investor Retreat

LEGAL & GENERAL UK ALPHA TRUST MAY 2012 LEGAL & GENERAL UK ALPHA TRUST 2

L&G UK Alpha Trust

-50

-25

0

25

50

75

100

2006 2007 2008 2009 2010 2011 2012 YTD

Alpha Trust Sector Median

Source: Lipper as at 31st March 2012. Basis: net of fees, income reinvested.

(%) • High conviction, focused, unconstrained fund

- Best idea investments

- Micro – mega cap (FTSE All Share + AIM)

• Best ideas – typically 40-50 holdings

• Bottom-up stock picking fund

- Targets best of both strong growth & deep value

• Targets 5% out-performance vs. IMA UK All Companies


“If you want to outperform other people, you have got to hold

something different from other people.

If you want to outperform the market… the one thing you

mustn't hold is the market itself”

Anthony Bolton


51%51%

52%64%

78%80%

87%88%

92%102%

102%108%110%

116%144%

150%170%

194%195%

212%274%

344%

50%51%

Exillon

DSG

Johnson Service Group

3i

Gemfields

Globo

Smart M etering Systems

Endace

TT Electronics

Cap-XX

Ncipher

Nord Anglia

Eservglobal

Xaar

Redstone

iomart

Restore

Easydate/Cupid

Tepnel

Hutchinson China M

Coal of Africa

Supergroup*

Tanfield

Immunodiagnostics

L&G UK Alpha selected success stories

*Initial IPO purchase

Price increases calculated as per average prices as at 31st March 2012.

All figures represent absolute returns over holding period and may reflect realised or unrealised gains.


How we are different

Our Philosophy

• Owner of businesses

• Long term investments

• Aggressive stock picking

• Fundamental analysis (trust in valuations)

• Contrarian

Market behaviour

• Trader of shares

• Short term

• Benchmark hugger

• P/E upgrades

• Consensus

LEGAL & GENERAL UK ALPHA TRUST MAY 2012 LEGAL & GENERAL UK ALPHA TRUST 6 6

Seeking investments that could double over 3 years

Deep Value Organic sales growth

Macro Trends

Micro Trends

Refinancings

Asset Plays

Double

whammy


Blasts from the past – difficult markets lead to opportunities

0p

200p

400p

600p

800p

Nov 00 Nov 01 Nov 02 Nov 03 Nov 04 Nov 05 Nov 06

Datamonitor

Holding Period

Return +500%

0p

100p

200p

300p

400p

Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11

Xaar

Holding Period

Return +135%

0p

200p

400p

600p

May 06 May 07 May 08 May 09 May 10 May 11

Holding Period

Return +167%

Hutchinson China Meditech

0p

40p

80p

120p

160p

Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10

Coal of Africa

Holding Period

Return +235%

Source: Thomson DataStream/Bloomberg L.P. Holding period returns may reflect realised or unrealised gains.

Core Value


0

5

10

15

20

25

2009 2010 2011 2012 2013 2014

(£m)

Sales Profits

Smart Metering Systems Supercharged utility

Source: Company projections. *Grant Thornton Quoted Company Awards.

• Winner of IPO of the Year 2012

QCA awards*

• Defensive demand patterns

• Contracted recurring revenues

• Scope for earnings upgrades

• Smart meters have a significant upside

LEGAL & GENERAL UK ALPHA TRUST MAY 2012 LEGAL & GENERAL UK ALPHA TRUST 9 9

Current portfolio

Refinancings

Asset Plays

Double

whammy

Deep Value Organic sales growth

Ablon Group

Central Asia Metals

Corac

Firestone Diamonds

Johnson Service

Mecom

Noventa

Redstone

Restore

Rurelec

Skilport

Smiths Group

Snacktime

Sylvania Platinum

SQS

Vectura

Vernalis

Weatherly International

Eservglobal Plc

eXpansys

London Capital

Nature Group

Optimal Payments

CSF

Hutchinson Chi Med

iomart

OPG

Planet Payments

Avanti Comms

Brightside Group

Cupid

Endace

Globo

InternetQ

Progressive Digital Media

Rambler

Servicepower

Smart Metering Solutions

Zotefoams

Refinancings

Asset plays

Combination

Macro Trends

Micro Trends

Source: LGIM internal data as at 31st March 2012.

African Minerals

Allied Gold

BATM

Cap-XX

Conygar Investments

Corin

Gemfields

IFG

Independent Resources


Conclusions

• UK Alpha has performed strongly since launch*

• Seeking investments that could double over the medium term

• Different approach drives performance

• Compelling opportunities arising for the selective contrarian investor

*3rd out of 210 funds in IMA UK All Companies Sector since 27th May 2005, source: Lipper as at 31st March 2012, net of fees.


Appendix


Fund Manager, Richard Penny • Richard is a Senior Fund Manager of the UK

Smaller Companies team and the manager of the

L&G UK Alpha Trust.

• He has over 18 years of investment experience

across 3 economic cycles.

• Richard joined LGIM in 2002 having previously

worked for five years as a Fund Manager for

M&G Investment Management and four years as

a Fund Manager at Scottish Amicable Investment

Management. Richard began his career in 1992

at Scottish Amicable Investment Managers.

• Richard has a Masters degree in Engineering and

Economics, Oxford University.


The ingredients to our success

a Investment Process

Fund Manager & Resources

Market Position

Investment Approach


Mergers &

Acquisitions

Legal and General Investment Management AAA advantage from managing 4.5% of UK Stock market

• Access to build conviction

• Meetings when we want them

• Invited to participate in all Rights Issues and refinancing

• Management want a long term supportive shareholder

• Consulted when there is corporate activity

• Visibility helps to build picture of opportunity

Access

Allocation


Investment Approach

• Target investments that can double

• Bottom up stock selection

• Long Term: 2 – 3 years’ horizon

• Contrarian

• Unconstrained

• Whole market

• Hunting away from the index

• Target low financial risk

• Target low valuation

• Target consistent performance

We seek substantial upside

Price vs. Value Unconventional vs. Conservative

Target appropriate reward for risk


Investment Process

• Trusted network

• Company meetings

• AAA advantage

• Refinancing/Rights Issues

• Third party research

• Directors’ dealing

• Management owning

• Cross fertilisation

• Typically 40-50 best ideas

• Deep value and strong growth

• Set to double over 2-3 years

Target bottom decile of

• P&L based: P/E, EV/EBITDA

• BS based: P/B, P/Sales

• EV/FCF%

• Management

• Return on Capital

• Cash Conversion

• Predictability

• Growth

• Price targets continuously reviewed

• Automatic review when

target hit

• Momentum factors considered for

optimal timing for disposal

• Potential triggers: change in

management, corporate activity, a

high fair value score

Sell


“In the 20th century, the United States endured two world

wars and other traumatic and expensive military conflicts; the

Depression; a dozen or so recessions and financial panics;

oil shocks; a flu epidemic; and the resignation of a disgraced

president. Yet the Dow rose from 66 to 11,497.”

Warren Buffett


Exceptional uncertainty vs. exceptional valuation

Source: Thomson Datastream, Evolution Securities.

0

5

10

15

20

25

30

35

40

45

sub-8x 8x-to-12x 12x-to-16x 16x to 20x 20x-plus

% o

f m

on

thly

ob

serv

ati

on

s f

or

each

P/E

ban

d

sub-8x 8x-to-12x 12x-to-16x 16x to 20x 20x-plus

% of months equities have traded in

various P/E bands

-10%

0%

10%

20%

30%

40%

50%

sub-8x 8x-to-12x 12x-to-16x 16x to 20x 20x-plusA

vera

ge a

nn

ual co

mp

ou

nd

retu

rn s

ince 1

973 (

%)

1-year 3-year 5-year

UK: compound returns by P/E group &

time-period (%)

Source: Thomson Datastream, Evolution Securities.


Disclaimer

Important Information

This presentation, and any information it contains, has been produced for use by professional managers and advisors only and should not be distributed without the permission of Legal & General Investment Management Limited or Legal & General (Unit Trust Managers) Limited.

The UK Alpha Trust (“the Fund”) is authorised unit trust, established as UCITS fund, managed by Legal & General (Unit Trust Managers) Limited. Legal & General Investment Management Limited has been appointed as the Investment Advisor and Distributor of the Funds and its main function is to invest the assets of the Fund. Both companies are authorised and regulated by the Financial Services Authority.

The Fund is designed to be held for the longer term.

The risks associated with this Fund are set out in the Prospectus and these should be understood before making any investment decisions. Additional information in relation to the Risk Management process is available on request. A copy of the Prospectus can be obtained from:

Legal & General Investment Management Limited - Telephone number 020 3124 3583

All rights in the FTSE All Share (the “Index”) vest in FTSE International Limited (“FTSE”).“FTSE®” is a trade mark of the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence. The Legal & General UK Alpha Trust has been developed solely by Legal & General (Unit Trust Managers) Limited. The Index is calculated by FTSE or its agent. FTSE and its licensors do not sponsor, advise, recommend, endorse or promote this fund and are not in any way connected to it and do not accept any liability (including in negligence or otherwise) to any person for any loss arising out of use of the Index by any person or in relation to the fund’s issue, operation or trading or as a result of an investment in the fund. FTSE makes no claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the fund or as to the fitness or suitability of the Index for the particular purpose to which it is being put by Legal & General Investment Management

The information in this document and the views expressed are provided by Legal & General Investment Management who act as investment adviser to the Legal & General UK Alpha Trust

uk alpha south west retreat - may 2012

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