BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.
All information is at 29 February 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 | -2.2 | 5.9 | -3.6 | -9.6 | 19.8 |
| Share price | -0.7 | 1.4 | -0.8 | -15.8 | 12.5 |
| Benchmark* | -2.2 | 4.5 | -5.8 | -11.6 | 11.9 |
Sources: BlackRock and Deutsche Numis
*With effect from 15 January 2024 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index to Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).
At month end
| Net asset value Capital only (debt at par value): | 1,423.83p |
| Net asset value Capital only (debt at fair value): | 1,475.94p |
| Net asset value incl. Income (debt at par value)1: | 1,450.13p |
| Net asset value incl. Income (debt at fair value)1: | 1,502.24p |
| Share price: | 1,326.00p |
| Discount to Cum Income NAV (debt at par value): | 8.6% |
| Discount to Cum Income NAV (debt at fair value): | 11.7% |
| Net yield2: | 3.1% |
| Gross assets3: | £755.7m |
| 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: | 47,319,792 |
- Includes net revenue of 26.30p
- 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 2,673,731 ordinary shares held in treasury.
| Ten Largest Equity Investments Company | % of portfolio |
| Gamma Communications | 2.7 |
| 4imprint Group | 2.5 |
| Bloomsbury Publishing | 2.2 |
| Hill & Smith | 2.2 |
| Chemring Group | 2.1 |
| Workspace Group | 2.1 |
| Breedon | 2.0 |
| YouGov | 1.9 |
| Tatton Asset Management | 1.8 |
| CVS Group | 1.8 |
Commenting on the markets, Roland Arnold, representing the Investment Manager noted:
During February the Company’s NAV per share retuned -2.2% to 1,502.24p on a total return basis, while our benchmark index also returned -2.2%. For comparison the large cap FTSE 100 Index outperformed small and mid-caps, returning 0.5%.1
The UK market was mixed during February, with the large-cap FTSE 100 making a modest gain while small and mid-caps ended the month lower. In the UK, data revealed that the country fell into technical recession last year and Consumer Price Index (CPI) data showed that inflation was still well above the Bank of England’s (BOE) 2% target. The United Kingdom Manufacturing Purchasing Managers’ Index (PMI) increased to 47.5 in the month of February, marking a 10-month high. Input costs and selling prices grew modestly, with the latter reaching a five-month high, tempering rate cut expectations from investors.
February was another month that saw small and mid-caps in the UK remain under pressure, however, despite the broad underperformance of the market, a number of our holdings continued to demonstrate their resilience and delivered positive updates to buck the downward trend of the wider market. The largest positive contributor was Bloomsbury Publishing, which soared after the company reported that full-year revenue and profit would be significantly ahead of recently upgraded market consensus. The business has benefited from strength across its consumer division, helped by its recently released, number one Sarah J. Maas novel, which has spurred a surge in demand for the authors previous 15 titles, which Bloomsbury also published worldwide. The second largest contributor was housebuilder MJ Gleeson. Having recently warned the market of the difficult trading conditions during the first half, investors were clearly encouraged by the “in-line” interim results. Furthermore, the company highlighted signs of a recovery in demand against the backdrop of improving mortgage rates, which they expect to continue in the coming months. The third largest contributor was Tatton Asset Management, which rose despite no stock specific newsflow.
The largest detractor during the month was operator of vet practices CVS Group. The shares drifted lower during February, with the overhang of the ongoing CMA (Competition and Markets Authority) review (launched in September last year), weighing on the shares. Post month end, the shares were hit by the announcement that the CMA will launch a market investigation into veterinary services in the UK. We have remained in discussion with the company on the matter and will continue to monitor the situation closely. Serica Energy fell after reporting 2023 annual production at the low end of its guidance range. Additionally, the company announced that CEO Mitch Flegg will be stepping down after the release of its 2023 final results. Shares in XP Power fell after the company issued a profit warning, highlighting demand weakness as a result of ongoing de-stocking in the Healthcare and Industrial Technology sectors. While disappointing in the near term, we continue to believe in the longer-term investment thesis or the business, however the recovery is taking longer to come through than we anticipated.
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 is 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 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 29 February 2024
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
