BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.
All information is at 31 August 2023 and unaudited.
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
Performance at month end is calculated on a Total Return basis based on NAV per share with debt at fair value
| One month % | Three months % | One year % | Three years % | Five years % | |
| Net asset value | -2.0 | -1.3 | -4.7 | 9.7 | 0.6 |
| Share price | -1.9 | -2.8 | -2.8 | 10.7 | -4.0 |
| Numis ex Inv Companies + AIM Index | -2.4 | -0.6 | -3.2 | 10.6 | -0.3 |
Sources: BlackRock and Datastream
At month end
| Net asset value Capital only (debt at par value): | 1,381.90p |
| Net asset value Capital only (debt at fair value): | 1,434.88p |
| Net asset value incl. Income (debt at par value)1: | 1,407.02p |
| Net asset value incl. Income (debt at fair value)1: | 1,460.00p |
| Share price: | 1,268.00p |
| Discount to Cum Income NAV (debt at par value): | 9.9% |
| Discount to Cum Income NAV (debt at fair value): | 13.2% |
| Net yield2: | 3.2% |
| Gross assets3: | £753.1m |
| Gearing range as a % of net assets: | 0-15% |
| Net gearing including income (debt at par): | 10.3% |
| Ongoing charges ratio (actual)4: | 0.70% |
| Ordinary shares in issue5: | 48,582,292 |
- Includes net revenue of 25.12p
- Yield calculations are based on dividends announced in the last 12 months as at the date of release of this announcement and comprise the interim dividend of 14.50 pence per share (announced on 3 November 2022, ex-dividend on 10 November 2022, and paid 9 December 2022) and the final dividend of 25.50 pence per share (announced on 05 May 2023, ex-date on 18 May 2023, and paid 27 June 2023).
- Includes current year revenue.
- The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for year ended 28 February 2023.
- Excludes 1,411,231 ordinary shares held in treasury.
| Ten Largest Equity Investments Company | % of portfolio |
| 4imprint Group | 2.8 |
| CVS Group | 2.7 |
| Gamma Communications | 2.6 |
| Hill & Smith | 2.2 |
| Workspace Group | 2.0 |
| Breedon | 1.9 |
| Chemring Group | 1.9 |
| Watches of Switzerland | 1.8 |
| Oxford Instruments | 1.7 |
| Baltic Classifieds Group | 1.7 |
Commenting on the markets, Roland Arnold, representing the Investment Manager noted:
During August the Company’s NAV per share fell by -2.0% to 1,460.00p on a total return basis, while our benchmark index fell -2.4%. For comparison the large-cap FTSE 100 index fell by -2.5%.
Equity markets were negative in August on the back of weak macroeconomic data out of China leading to increased concerns around the growth outlook. With credit demand remaining weak in China and consumer spending continuing to remain below pre-COVID levels, the country cut interest rates. In addition, concerns around the property sector, stalling growth, rising deflation risk and a weakening currency has contributed to the weaker market performance, in turn affecting global market performance. In the UK, the Bank of England hiked interest rates by 25bps due to mixed inflation data, bringing the Bank Rate to 5.25%, and further emphasising the intention to hold rates at a restrictive level for some time. UK GDP growth showed the economy grew 0.2% during the second quarter, which was slightly stronger than the Bank of England forecast of 0.1%, and an acceleration compared to the prior two quarters.
4imprint reported better than expected performance in their H1 results and raise full year guidance. The company highlighted record levels of demand with order growth of 18% year-on-year and favourable returns on marketing spend. Shares in Hill & Smith rose sharply in response to reporting better than expected trading during the first six months of the year with upgrades to full year guidance. The group has seen positive organic growth during the first half, while recent acquisitions have also been performing well. Looking ahead, the geographic mix of the business has also shifted, with a heavier weighting to the fast-growing US market which now accounts for more than 70% of group profits. Electrical components business, TT Electronics, reported solid start to the year showing improving profit growth with good cash conversion.
Watches of Switzerland (WOSG) was the top detractor from performance during the month after the announcement of Rolex acquiring Bucherer (a privately held luxury watch retailer and competitor of WOSG). Investors were clearly spoked by the news of the deal, and in particular what it means for allocations of Rolex watches to distributors going forward. Whilst we remain confident of the strategic position of Watches of Switzerland, and the positive industry dynamics, it is going to take time for the market to get comfortable that there is no change to their outlook. Clearly the range of outcomes has now increased and as a result we have reduced the position sizing to reflect this. Our holding in YouGov fell on the back of in-line results, which also reiterated previous comments around longer sales cycles and delayed client decision making. In addition, the company announced that it is considering relisting in the US. Other notable detractors were shares that we do not own which outperformed the falling market, for example EMIS Group and Domino’s Pizza.
The economic backdrop remains challenging which continues to be reflected in share prices, and we therefore remain cognisant that we are not out of the woods yet. However, as has been our view for some time, we continue to believe that the economic backdrop is nowhere near as bad as markets have been predicting. Inflation has been coming down, financial conditions are not stretched, corporates and consumers are reasonably well capitalised, and banks have plenty of capital.
Whilst there is much that can be discussed with regards to the economic outlook, one thing is irrefutable; the valuation of UK small and mid-sized companies is more attractive than it has been for some time, and if that valuation is not recognized by the stock market, it will be recognized by others. As stated in recent updates, we expected to see M&A (mergers and acquisitions) activity picking up through the course of the year and this certainly spiked in the last month, with approaches for several companies in the UK as private equity firms have decided to start deploying their substantial cash piles.
Against this difficult backdrop, we remind ourselves that many equity markets (Europe, UK) are structurally under-owned and could benefit as sentiment turns and investors begin to reduce these underweights. We remain focused on bottom-up company specific analysis to identify high quality, nimble businesses, operated by entrepreneurial management teams, with strong market positions and resilient cash-flows. These are the types of businesses that we believe will be best placed to manage and thrive in the current environment. Historically these periods have been followed by strong returns for the strategy and presented excellent investment opportunities.
We thank shareholders for your ongoing support.
1Source: BlackRock as at 31 August 2023
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
