BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.
All information is at 31 January 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 | -0.1 | 13.1 | -2.4 | -4.5 | 24.8 |
| Share price | -3.3 | 16.0 | -1.1 | -12.3 | 16.4 |
| Benchmark* | -1.6 | 13.1 | -3.3 | -5.5 | 15.7 |
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): | 1,462.01p |
| Net asset value Capital only (debt at fair value): | 1,512.19p |
| Net asset value incl. Income (debt at par value)1: | 1,486.24p |
| Net asset value incl. Income (debt at fair value)1: | 1,536.43p |
| Share price: | 1,336.00p |
| Discount to Cum Income NAV (debt at par value): | 10.1% |
| Discount to Cum Income NAV (debt at fair value): | 13.0% |
| Net yield2: | 3.0% |
| Gross assets3: | £778.0m |
| Gearing range as a % of net assets: | 0-15% |
| Net gearing including income (debt at par): | 9.0% |
| Ongoing charges ratio (actual)4: | 0.7% |
| Ordinary shares in issue5: | 47,672,292 |
- Includes net revenue of 24.23p
- 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 2,321,231 ordinary shares held in treasury.
| Ten Largest Equity Investments Company | % of portfolio |
| Gamma Communications | 2.6 |
| 4imprint Group | 2.4 |
| Workspace Group | 2.2 |
| Hill & Smith | 2.2 |
| Chemring Group | 2.2 |
| CVS Group | 2.1 |
| YouGov | 2.0 |
| Breedon | 1.9 |
| Bloomsbury Publishing | 1.9 |
| IntegraFin | 1.8 |
Commenting on the markets, Roland Arnold, representing the Investment Manager noted:
During January the Company’s NAV per share retuned by -0.1% to 1,536.43p on a total return basis, while our benchmark index returned -1.6%. For comparison the large cap FTSE 100 Index outperformed small & mid-caps, returning -1.3%.
The UK market fell during January as investors scaled back their expectations of rate cuts from the Bank of England after a surprise increase in UK inflation in December. Consumer prices rose at a rate of 4%, up from 3.8% in November; the first month on month increase in almost a year. Services inflation rose to 6.4% in December from 6.3% in November and core inflation was 5.1% in December, unchanged from the previous month. The release of the consumer confidence index in the UK indicated a rise of three points month-on-month to minus 19; the third consecutive month-on-month increase and a two-year high. Notably, consumer expectations of personal finance for the next 12 months were positive for the first time in two years. January’s purchasing manager index reading indicated economic activity rising at the fastest pace in seven months. In addition, wage growth in the UK slowed to 6.5% in the three months to November, down from a peak of 8.5% in the summer.
Shares in 4imrpint surged after the company announced solid progress through the course of 2023 and as a result upgraded full year guidance. SigmaRoc reported impressive trading with upgrades to full-year guidance despite a reduction in volumes. The company has completed a number of acquisitions throughout 2023 which are integrating well, and in November announced the significant acquisition of CRH’s limestone assets. SigmaRoc management remain confident on their prospects, with ongoing strength in infrastructure and industrial markets and potential for a recovery in residential construction. Defence technology business QinetiQ was another top contributor during the month as their Q3 trading update was received well by the market. The cash flow generation was of particular importance as the company had disappointed the market with poor working capital management at the interim stage.
The largest detractor was Watches of Switzerland. The company issued a profit warning in the month which showed a deceleration in sales in lower/mid-tier watches and jewellery in the UK. More importantly, the company flagged a profit shortfall in the US caused by a change in product mix supply from Rolex, where they received a greater number of lower value steel watches and less high end-end gold watches. Given gold watches can sell at c.3x the price of steel, the impact on ASP (average selling price) for the group was significant and was the primary cause of the downgrade. We continue to like the industry dynamics for luxury watches, however, as a result of these developments we have significantly reduced the position within the portfolio. Mobile commerce business, Bango, warned that full year earnings will be below analyst expectations as a result of lower than expected revenue recognition due to customer launch timings and additional unplanned costs. Shares in Big Technologies fell after the company warned that its electronic tagging contract with a large Columbian based client would be coming to an end during the first half of 2024. Furthermore, investments made during 2023, which are expected to accelerate sales in the medium term, are expected to reduce margins until the new sales are realised.
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 & 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, we believe we are closer to the end of monetary tightening and 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 31 January 2024
To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc
