BlackRock Smaller Companies Trust NAV retuned 7.8%, outperforming benchmark in May

BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.

All information is at 31 May 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 

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

1. Includes net revenue of 16.96p
2. 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 15.00 pence per share (announced on 26 October 2023, ex-date on 02 November 2023, and paid 04 December 2023) and the final dividend of 27.00 pence per share (announced on 14 May 2024, ex-date on 23 May 2024, and payment date 27 June 2024).
3. Includes current year revenue.
4. 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.
5. Excludes 2,893,731 ordinary shares held in treasury.

Commenting on the markets, Roland Arnold, representing the Investment Manager noted: 

During May the Company’s NAV per share retuned 7.8% to 1,676.53p on a total return basis, outperforming our benchmark index which returned 6.4%. For comparison the large cap FTSE 100 index underperformed small & mid-caps, returning 2.1%.¹

UK equities made a positive return during May, with small and mid-caps outpacing large caps, driven by takeover activity, a brighter macroeconomic outlook, and expectations of more buybacks and IPOs. UK inflation dropped to 2.3% year-on-year, hitting its lowest level since summer 2021. Additionally, the surprise announcement of a UK general election in July could finally lift the political cloud that has been hanging over the UK market for a number of years.

The largest positive contributor was textile service provider Johnson Service Group. The company reported 8.9% revenue growth in the first quarter, with its hotel, restaurant, and catering division (HORECA) having a positive impact. Meanwhile, the general downward trend in energy costs since the end of 2023 has been beneficial and the business’s strategy of locking in forward energy prices leaves the business well set to improve operating margins further from here. Future PLC was another positive contributor as markets reacted to 2024 interim results that suggested some form of stability had returned to their end markets. UK revenue grew by 3%, driven by a 30% increase in its insurance comparison subsidiary, Go.Compare and solid performance from Future’s B2B offering. IntegraFin, the operator of the Transact investment platform, reported a 13% year on year increase in funds under direction, which rose to £61bn as at the end of March 2024. Net inflows onto the platform rose by 4% during the year, with advisers using the platform also growing at the same rate to 7,900.

The largest detractor to performance during May came from not owning Keywords Studios, the video games service provider, as the company agreed to accept a £2bn buyout offer from the Swedish private equity investor, EQT Group. Macfarlane Group was another detractor. The company reported a ‘challenging start to 2024’ with first quarter sales and profits below the same period in 2023 amidst continued weak consumer demand and price deflation. TT Electronics fell after reporting ongoing destocking, notably in its shorter-cycle components products in North America. However, considering a book-to-bill ratio still greater than 1x and having just navigated their toughest year on year comparable period with comps easing from here we feel somewhat reassured, and then of course there is the valuation which stands at 7.5x p/e for 2024 and 6.8x for 2025.

In summary, and as we have highlighted for a long period of time now, the current valuation of the UK market, and in particular UK small and mid-cap, is about as attractive as we have ever seen. Meanwhile, the economic backdrop is certainly improving. Unemployment remains low, balance sheets remain strong, inflation is falling, consumer confidence and PMIs are improving. This backdrop gives confidence that the earnings outlook for our businesses is broadly supportive for an earnings recovery. At the same time, the announcement of the UK General Election in July could be just what our market needs to finally end this persistent investor aversion from the UK and stem the outflows from UK small & mid-caps, which saw their first month of inflows in April in almost three years. In this scenario, we could see an environment where small & mid-caps, and in particular the holdings in this trust, could move a long way on limited liquidity.

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.

21 June 2024
 

     ¹Source: BlackRock as at 31 May 2024

To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc