BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.
All information is at 30 April 2024 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 | 2.5 | 2.9 | 5.4 | -16.7 | 15.3 |
| Share price | 6.0 | 5.5 | 9.1 | -20.6 | 9.1 |
| Benchmark* | 1.9 | 2.8 | 2.0 | -16.0 | 12.5 |
Sources: BlackRock and Deutsche Numis
*With effect from 15 January 2024 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index changed to the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).
At month end
| Net asset value Capital only (debt at par value): | 1,488.67p |
| Net asset value Capital only (debt at fair value): | 1,543.45p |
| Net asset value incl. Income (debt at par value)1: | 1,525.95p |
| Net asset value incl. Income (debt at fair value)1: | 1,580.73p |
| Share price: | 1,410.00p |
| Discount to Cum Income NAV (debt at par value): | 7.6% |
| Discount to Cum Income NAV (debt at fair value): | 10.8% |
| Net yield2: | 2.9% |
| Gross assets3: | £788.2m |
| Gearing range as a % of net assets: | 0-15% |
| Net gearing including income (debt at par): | 11.5% |
| Ongoing charges ratio (actual)4: | 0.7% |
| Ordinary shares in issue5: | 47,099,792 |
- Includes net revenue of 37.28p
- Yield calculations are based on dividends announced in the last 12 months as at the date of release of this announcement and comprise the first interim dividend of 15.00 pence per share (announced on 26 October 2023, ex-dividend on 2 November 2023, and paid on 4 December 2023) 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 2,893,731 ordinary shares held in treasury.
| Ten Largest Equity Investments Company | % of portfolio |
| Gamma Communications | 2.5 |
| 4imprint Group | 2.5 |
| Hill & Smith | 2.4 |
| Chemring Group | 2.3 |
| Breedon | 2.3 |
| Workspace Group | 2.0 |
| Bloomsbury Publishing | 2.0 |
| IntegraFin | 1.9 |
| TT Electronics | 1.7 |
| Oxford Instruments | 1.7 |
Commenting on the markets, Roland Arnold, representing the Investment Manager noted:
During April the Company’s NAV per share retuned 2.5% to 1,580.73p on a total return basis, outperforming our benchmark index which returned 1.9%. For comparison the large cap FTSE 100 Index outperformed small and mid-caps, returning 2.7%.1
UK markets showed resilience as signs of easing inflation, expectations of early interest rate cuts by the Bank of England and attractive prices have helped boost investor interest in UK equities. Blue chip companies in particularly had strong gains. The FTSE 100 Index rose steadily over the month, before reaching a record high of 8,147 points, thanks to a substantial exposure to mining and energy sectors which benefitted from the strength in oil, copper, and precious metals. The healthcare and consumer staples sectors, which are significant dollar earners, also contributed to the UK market’s relative performance, aided by sterling’s weakness against the US currency. Although not quite to the same extent, we did witness performance trickling down to UK small and mid-cap stocks, a healthy signal of market breadth.
The pace of M&A (mergers and acquisitions) activity continued through April, with the portfolio benefiting via our holding in UK self-storage provider, Lok’nStore. The company agreed to the £378mn takeover bid by the Belgian Listed rival Shurgard, a circa 30% premium to the share price on the day. This was yet another example of UK listed business trading far below the price that strategic buyers are willing to pay. TT Electronics contributed positively to performance as the share price reacted to the new CEO Peter France’s plans to improve performance and create long term value for stakeholders. Shares in XPS Pensions Group performed well after the company released its pre-close trading update, stating that full year results will be ahead of previously upgraded guidance.
YouGov was the largest detractor during the month. The company reported in-line results. However, the underlying mix has proved to be worrying, with a marked slowdown in its core data products business and a larger than expected weighting to H2 to meet their full year guidance. Having recently acquired the Consumer Panel Services business from Gfk, YouGov has moved from net cash to net debt, and with the slowdown in its core business, we have moderated the holding slightly. Gamma Communications was another detractor as the share price drifted downward during the month on no fundamental news. Auction Technology Group (ATG) also detracted from performance after releasing financial results which showed lower than expected profit before tax causing a selloff in the shares. We continue to believe there are signs ATG is through the worst of the post COVID trading disruption, and that the shares offer considerable value once end markets normalise.
Since the end of 2021 rising interest rates have been weighing on the valuations of long-duration, higher growth shares in the stock market. As a result, UK small and mid-caps have continued to underperform large caps and we are now in the deepest and longest cycle of underperformance in recent history; worse than the Global Financial Crisis, COVID, Brexit, Tech sell-off or Black Monday. The fourth quarter of 2023 saw markets reflect the expectation of rate cuts in 2024 in response to easing inflation data. However, as we have entered 2024, the backup in bond yields has led to a volatile start to the year in equity markets.
Against this backdrop, the question remains, what are the catalysts for this trend to change? Unfortunately, there is no simple answer. While there are many headwinds to the UK SMID market; economic uncertainty, political uncertainty, the structural flow issues in the UK market, the risk of more pervasive inflation, to name a few, we remind ourselves and take comfort in the fact that many of our holdings continue to deliver against their objectives. Furthermore, inflation and mortgage rates are falling, business confidence is improving, and consumers are experiencing real wage growth for the first time in years. At some point, we are confident that investors will decide the balance of probabilities is in favour of the opportunities, that the risks are more than adequately priced in, and that an increased allocation to UK small and mid-caps is warranted.
As ever, we remain focused on the micro, industry level change and stock specific analysis and the opportunities we are seeing today in our universe are as exciting as ever. Historically, periods of heightened volatility 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 30 April 2024
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
