BlackRock Smaller Companies Trust Plc - Portfolio Update
PR Newswire
London, April 28
The information contained in this release was correct as at 31 March2023. Information on the Company's up to date net asset values can be found on the London Stock Exchange Website at
https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.
BLACKROCK SMALLER COMPANIES TRUST PLC (LEI:549300MS535KC2WH4082)
All information is at 31 March2023 and unaudited.
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 | -6.6 | -4.6 | -18.9 | 38.2 | 11.9 |
| Share price | -6.1 | -4.4 | -19.4 | 23.8 | 7.4 |
| Numis ex Inv Companies + AIM Index | -5.7 | -0.6 | -13.4 | 45.2 | 7.0 |
Sources: BlackRock and Datastream
At month end
| Net asset value Capital only (debt at par value): | 1,422.89p |
| Net asset value Capital only (debt at fair value): | 1,466.97p |
| Net asset value incl. Income (debt at par value)1: | 1,452.07p |
| Net asset value incl. Income (debt at fair value)1: | 1,496.15p |
| Share price: | 1,296.00p |
| Discount to Cum Income NAV (debt at par value): | 10.7% |
| Discount to Cum Income NAV (debt at fair value): | 13.4% |
| Net yield2: | 2.8% |
| Gross assets3: | £775.6m |
| Gearing range as a % of net assets: | 0-15% |
| Net gearing including income (debt at par): | 8.0% |
| Ongoing charges ratio (actual)4: | 0.7% |
| Ordinary shares in issue5: | 48,624,792 |
- Includes net revenue of 29.18p
- Yield calculations are based on dividends announced in the last 12 months as at the date of release of this announcement and comprise the final ex-dividend of 22.00 pence per share (announced on 29 April 2022, ex-date on 12 May 2022, and pay date 17 June 2022), and an interim dividend of 14.50 pence per share (announced on 3 November 2022, ex-dividend on 10 November 2022, and paid 9 December 2022).
- 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 2022.
- Excludes 1,368,731 ordinary shares held in treasury.
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| Ten Largest Equity Investments Company | % of portfolio |
| Gamma Communications | 2.7 |
| 4imprint Group | 2.7 |
| CVS Group | 2.7 |
| Watches of Switzerland | 2.5 |
| Oxford Instruments | 2.1 |
| Bloomsbury Publishing | 1.8 |
| Breedon | 1.8 |
| YouGov | 1.7 |
| Qinetiq Group | 1.6 |
| Ergomed | 1.6 |
Commenting on the markets, Roland Arnold, representing the Investment Manager noted:
During March the Company's NAV per share fell by -6.6% to 1,49615p on a total return basis, while our benchmark index fell -5.7%.1 For comparison the large cap FTSE 100 Index continued to outperform, falling -2.5%.1
March was a tumultuous month with equity markets falling sharply in the first half of the month in response to emerging pressures in the financial sector. Bank shares led losses across all developed markets after concerns with Credit Suisse and troubles at U.S. regional banks following the collapse of Silicon Valley Bank and Signature Bank. Oil prices tumbled to their lowest levels in more than a year as the crises in the banking sector unsettled financial markets and stoked fears for the broader economy. The announcement that HSBC had stepped in to buy the UK subsidiary of SVB added calm to markets and customers of the bank, particularly those in the UK technology sector. Further weaknesses being exposed in the financial sector led to a ripple effect on European banks resulting in the downfall of Credit Suisse, which was later rescued by UBS and the Swiss government. The Bank of England was one of many central banks to continue hiking interest rates by 25bps whilst the ECB (European Central Bank) elected to increase its key policy rate by 50bps bringing it to 3.0%.
The Company's underperformance of the benchmark during the month was disappointing, particularly because companies, many of which we own, continue to trade well, are passing through costs and are not seeing the earnings recession that many investors have been predicting. The largest detractor during the month was Hunting. Oil prices fell -5% during March following increased macro concerns in response to US regional banking stress, and the shares were also subject to broker downgrades given the increased downside risks after a period of strong performance. Shares in Next Fifteen weakened during the month, as UK small & mid-caps once again came under pressure as a result of the broader market volatility. Shares in video game developer Team17 were weak after CEO and founder Debbie Bestwick surprised the market with the announcement of her retirement.
4imprint, which has been a top performer over the last year, once again reported impressive results showing 45% revenue growth year-on-year, while profits before tax rose by more than 240%. What's more, these results demonstrate the company's ability to win share within its highly fragmented end market, something that we believe will continue for the foreseeable future. 4imprint is a prime example of a company with a leading market position that emerged from the pandemic in an even stronger position, a theme replicated across many of our holdings. Bloomsbury Publishing rose in response to a positive trading update where management raised full-year guidance for revenues and profits. The company continues to see strong demand in print, digital and audio books, across both fiction and academic titles, as reading remains an affordable pastime despite the challenges faced by consumers. Shares in Kitwave, the food wholesale business, continued to appreciate following their impressive full year results which were announced at the end of February. As mentioned in our portfolio update last month, the business is seeing a strong recovery in its end markets, which is clearly at odds with what we would be led to believe from reading the headlines.
Equity volatility has remained extremely high as we have entered 2023, with the new year seen in by an unexpected splurge from consumers, a re-awakening of demand in some of the more cyclical industrial sectors, a fall in bond yields, a rise in bond yields, oil falling in anticipation of economic weakness, oil rising in response to OPEC cuts, China re-opening, a belief inflation may have peaked, and stubbornly high inflation prints. In short, we believe 2023 will see a continuation of recent themes of uncertainty; Russia/Ukraine war, China, supply chains and inflation. However, we do expect 2023 to see an end to rising interest rises and the start of disinflation. Generally speaking, financial conditions are not too stretched; corporates and consumers are reasonably well capitalised, and banks have plenty of capital. As such the path of employment will dictate the consumer outlook but we continue to expect the trough to be shallower than in previous recessions.
Industrial activity is likely to decline as excess inventory works through the system but given major markets such as automotive and aerospace were already seeing choked demand through supply chain issues, again we expect a shallower trough. Housebuilding and RMI (repair, maintenance and improvement) will have a tough H1, but given the rapid re-pricing of mortgages post the brief Truss premiership, the outlook isn't as bad as it was in September. Valuations have corrected quickly and looking back it appears all consumer orientated stocks overshot to the downside during the chaotic period around the Truss budget.
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. We expect to see M&A (mergers & acquisitions) picking up through the course of the year and indeed in the last few days we have seen approaches for several companies in the UK as Private Equity have decided to start deploying their substantial cash piles.
We are not out of the woods yet, but the recent round of trading updates from our investments have generally been in line or better than expectations. However, with oil and gas prices lower year on year, China re-opening, US$ weakening, shipping / logistics / factory gate prices dropping, much of the inflation pressure of last year could become deflationary during the course of this year, and we have tentatively started to utilise more of our gearing facilities.
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 March 2023
28 April 2023
ENDS
Latest information is available by typing www.blackrock.com/uk/brsc on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal). Neither the contents of the Manager's website nor the contents of any website accessible from hyperlinks on the Manager's website (or any other website) is incorporated into, or forms part of, this announcement.
