REG-Aberforth Smaller Companies Trust Plc: Half-year Report
29/07/2025 13:00
Aberforth Smaller Companies Trust plc
Half Yearly Report for the six months to 30 June 2025
The following is an extract from Aberforth Smaller Companies Trust plc’s
(“the Company” or “ASCoT”) Half Yearly Report for the six month period
to 30 June 2025.
FINANCIAL HIGHLIGHTS
Total Return Performance %
Net Asset Value per Ordinary Share 1 (#_ftn1),5 6.3
DNSCI (XIC) 2,5 7.0
Ordinary Share Price 3 ,5 7.3
30 June 2025 31 December 2024 30 June 2024
Shareholders’ Funds 4 £1,414m £1,397m £1,426m
Market Capitalisation £1,256m £1,232m £1,272m
Gearing 5 4.7% 7.2% 6.5%
Net Asset Value per Ordinary Share 4 1,731.97p 1,666.95p 1,694.73p
Ordinary Share Price 5 1,538.00p 1,470.00p 1,512.00p
Ordinary Share Discount 5 11.2% 11.8% 10.8%
Dividends per Ordinary Share 6 14.30p 49.60p 13.60p
First interim dividend of 14.30p per share for the year ended 31 December
2025, which is 5.1% higher than the previous year’s 13.60p per share.
1 Represents net asset value return with dividends reinvested.
2 Represents the return on the DNSCI (XIC) with dividends reinvested.
3 Represents Ordinary Share price return with dividends reinvested.
4 UK GAAP Measure.
5 Alternative Performance Measures (refer to Note 10 and the 2024 Annual
Report)
6 Dividends are in respect of the six months to 30 June 2025 and 30 June 2024
and for the year to 31 December 2024. A special dividend of 6.00p per share
was included in the year to 31 December 2024.
INVESTMENT OBJECTIVE
The investment objective of the Company is to achieve a net asset value total
return (with dividends reinvested) greater than that of the Deutsche Numis
Smaller Companies Index (excluding Investment Companies) (“DNSCI (XIC)”)
over the long term.
Chairman’s Statement
Review of performance
In the six months to 30 June 2025, ASCoT’s net asset value total return was
+6.3%. The share price total return was +7.3%, which was influenced by a
narrowing of the share price’s discount to the net asset value from 11.8% to
11.2%.
ASCoT’s small company benchmark is the Deutsche Numis Smaller Companies
Index (excluding investment companies), which is abbreviated throughout this
report as DNSCI (XIC). Its total return was +7.0% over the six months to 30
June 2025. In one of the important themes of the period, which the Managers’
Report explores in detail, large companies performed more strongly. The total
return of the FTSE All-Share was +9.1%.
ASCoT’s positive total return was welcome, though it was achieved in a
volatile fashion as geopolitics buffeted financial markets in the UK and
further afield. At the root of much of the volatility was Donald Trump’s
presidency. It is not for me to judge whether tariffs and trade wars are in
the best interests of the American economy, but it is absolutely clear that
they are confusing businesses around the world and therefore impeding
investment decisions. The climate of uncertainty intensified towards the end
of June with the bombing of Iranian nuclear sites, an event that was somewhat
at odds with the otherwise isolationist tendencies of the Trump
administration.
It does seem likely that American policy has called some investors to question
their exposure to US equity markets. As investment horizons broadened over
recent months, interest in other stockmarkets – notably Germany’s but also
the UK’s – has improved. The frustration for ASCoT is that larger UK
companies have been the main beneficiaries so far. The October 2024 Budget
takes some of the blame since it imposed a greater burden on domestically
oriented smaller companies. However, this threatens to distract from the
underlying appeal of the asset class. The Managers’ Report contains a timely
reminder of the qualities of small UK quoted companies, from their superior
historical total returns, through their resilience, to today’s attractive
income and valuations.
Dividends
The resilience of smaller companies can be seen in ASCoT’s income
performance in the first half of 2025. The revenue return per Ordinary Share
was 32.64p, which was ahead of the Managers’ estimates at the start of the
year and of the 28.12p earned in the corresponding period in 2024. The
year-on-year improvement is somewhat flattered by the receipt of a special
dividend and by the timing of other dividends, but the outlook for the full
year is nevertheless encouraging and points to growth.
The Board targets dividend increases in a full year above the year end rate of
inflation, currently expected to be just over 3% in Bloomberg’s aggregation
of forecasts. The Board is pleased to declare an interim dividend of 14.30p,
which represents year on year growth of 5.1%.
When thinking ahead to the final dividend, the Board is cognisant of the macro
economic and geopolitical uncertainties with which ASCoT’s investee
companies must contend at present. We do also take comfort from ASCoT’s
significant revenue reserves. At 31 December 2024, these totalled 87.89p per
Ordinary Share, which was twice the 43.60p underlying dividend paid in respect
of 2024. On the basis of the Managers’ current forecasts, and assuming total
dividends in respect of 2025 that pass the investment trust retention test, it
is likely that dividend cover will rise above two times. The Board and
Managers balance near term distributions to Shareholders with maintaining
sufficient flexibility to allow the Managers to run the portfolio for the
achievement of total returns over time.
The interim dividend will be paid on 28 August 2025 to Shareholders on the
register at the close of business on 8 August 2025. The ex dividend date is 7
August 2025. The Company operates a Dividend Reinvestment Plan, details of
which are available from Aberforth Partners LLP or on its website,
www.aberforth.co.uk.
Gearing
An important tool available to ASCoT as a closed-ended fund is the ability to
gear. ASCoT has a credit facility with The Royal Bank of Scotland
International Limited. This £130m facility runs to June 2026, which is
aligned with the three yearly continuation vote.
The Board’s policy is to deploy gearing tactically to take advantage of
periods of stress in equity markets. Consistent with this, ASCoT has been
geared on four occasions in its 34 years. The current phase started amid the
pandemic in early 2020 and has since enhanced ASCoT’s net asset value
performance. The Board and Managers regularly review the appropriateness of
gearing and judge that current smaller company valuations merit its continued
deployment. At 30 June 2025, £74m of the facility was deployed and the
gearing ratio was 4.7%.
Beyond the potential to enhance investment returns, the credit facility
provides flexibility to conduct share buy-backs and allows the Managers to
react nimbly to new opportunities without disturbing existing investments.
Share buy-back
The Board believes that share buy-backs are a benefit to Shareholders and are
an important element of ASCoT’s investment proposition. They provide an
increase in liquidity at the margin for those Shareholders looking to
crystallise their investment and deliver an economic uplift for those
Shareholders wishing to remain invested in the Company. In addition,
consistently applied share buy-backs may bring some tension to the share price
of an investment trust when the market loses sight of the net asset value.
Accordingly, the Board and Managers are keen that ASCoT continues to buy back
shares. In the first half of 2025 2,205,500 shares were bought back and
cancelled, up from 275,000 in the corresponding period last year. The
2,205,500 shares were bought back at an average discount to net asset value of
11.4% and the consideration was £31.3m.
Abnormal market circumstances may influence the pace, but ASCoT can fund
buy-backs over time through cash generated from the natural turnover of the
portfolio. This is consistent with the Managers’ value investment philosophy
and has been supported by the high level of M&A activity in recent years.
Additional flexibility is provided by the facility with the Royal Bank of
Scotland International.
Annual General Meeting (AGM)
All resolutions at the AGM held on 6 March 2025 were passed, including
approval for the renewal of authority to buy back up to 14.99% of ASCoT’s
Ordinary Shares.
Conclusion
Much has changed in a mere six months. The US has gone from a beacon of
stability in the real and financial worlds to a source of uncertainty.
Confidence to invest has been undermined and I fear that we will see the
ramifications of this in weaker growth later this year. The economic heft of
the US means that activity in other countries is also at risk, especially in
view of the continuing tariff negotiations. However, change also brings
opportunity. The strong performances of the German and UK stockmarkets in
recent months perhaps show the way.
It is frustrating that this interest in UK equities has not benefited smaller
companies to the extent that it has large. This seems to me to be a matter of
time, a function of the leads and lags of investment in a less liquid asset
class. From my discussions with the Managers, it is clear that small companies
have traded well through the first half of 2025 and a year of profit growth
looks likely. There are clouds on the horizon, not least those scudding across
the Atlantic, but these are certainly not an issue exclusive to small UK
quoted companies. Domestically, the government’s fiscal position threatens
private sector activity, though I would note that the large banks have seen
their share prices perform rather well despite their reliance on the UK
economy.
Considering the proven resilience of smaller companies, the low valuations of
ASCoT’s portfolio look very attractive. This is a view corroborated by
rational players such as private equity and larger companies, mostly based
overseas, who are taking advantage of depressed sentiment through takeovers.
ASCoT has benefited from this unusually high rate of M&A activity: recommended
bids for six of its holdings were received in 2024, with another four so far
in 2025. This seems likely to continue while stockmarket valuations remain
unreasonably low. Whether by this or some other means as yet unknown, the
Board remains optimistic that today’s valuations can rise to their
historical averages and contribute to good returns from ASCoT’s portfolio.
When it considers ASCoT’s offering to Shareholders, the Board recognises
that portfolio performance, while likely to be the main influence on returns,
is not the only influence. Dividend growth and share buy-backs also play a
role and ASCoT is well placed for both. Revenue reserves are strong and give
the Board confidence in its ambition to keep dividends growing above the rate
of inflation. Meanwhile, the discount of the share price to the net asset
value allows further buy-backs of shares on terms that enhance returns to
Shareholders.
My fellow Directors and I always welcome the views of Shareholders on
ASCoT’s capital allocation or any other topic. Please contact me at my
e-mail address, which is noted below.
Richard Davidson
Chairman
29 July 2025
richard.davidson@aberforth.co.uk
Managers’ Report
Introduction
Over the six months to 30 June 2025, ASCoT’s net asset value total return
was +6.3%, which compares with the DNSCI (XIC)’s +7.0%. Larger UK companies
were stronger, with the FTSE All- Share generating a total return of +9.1%.
Larger companies started the year very strongly compared with smaller
companies. Indeed, the first three months of 2025 were the second worst
calendar quarter for the DNSCI (XIC) relative to the FTSE All-Share in
ASCoT’s 35 year history. However, the gap between the two indices narrowed
through the second quarter as the attractive valuations of smaller companies
were exposed by further M&A activity.
Investment background
The positive returns from equities, in the UK and further afield, are
remarkable in view of the top-down developments in the first half of 2025.
Towards the end of June, war was again making the headlines. The attacks by
Israel and the US on Iran’s nuclear facilities added to the uncertainty from
on-going conflicts in Ukraine and Gaza. The oil price fluctuated accordingly,
but the more significant geopolitical drama for markets has been playing out
in the US itself.
Centre stage has been Donald Trump, from the theatre of his Oval Office
set-pieces with other world leaders to his much-anticipated tariffs. A series
of announcements earlier in the year set the scene, but the “Liberation
Day” revelations in April were worse than financial markets had expected.
The deeply negative reaction of equity markets underlined the risk of trade
wars to economic activity and investment. Much of this original threat has
subsequently been diluted or deferred pending negotiations, which allowed
markets to rally, but damage has been done. The apparent capriciousness with
which tariffs have been imposed and then rescinded undermines confidence to
invest. Lower confidence feeds through to lower economic activity over time
and it may not be till the autumn that we understand the full ramifications
for the US and world economies of those announcements.
If there was a silver lining to the “Liberation Day”, it was to jolt other
countries out of their complacent reliance on US leadership. Germany has been
the best illustration so far. Its change of government was accompanied by the
promise of a significant boost to fiscal spending on defence and
infrastructure. The potential significance of this change can be gauged from
the relative performance of the German and US stockmarkets: in dollar terms,
the Dax outstripped the S&P 500 by 29% in the six months to 30 June 2025.
Tariffs imposed by the US have a limited direct effect on small UK quoted
companies. This reflects where these businesses operate. The UK economy
accounts for 53% of the revenues generated by companies in the DNSCI (XIC),
whereas the US economy accounts for just 11%. Moreover, that exposure to the
US is overwhelmingly revenue generated from assets within the US itself,
rather than from goods manufactured in the UK and transported across the
Atlantic. In meetings with ASCoT’s investee companies, the Managers
identified just a handful of holdings whose businesses could face a direct
impact from the tariffs originally set out on “Liberation Day”. In each
case, the exposure was manageable. The greater risk for small UK quoted
companies is the second order effects of tariffs through the hit to
confidence, investment and economic activity. To be clear, virtually all
businesses around the world, whether small or large, must contend with this.
The exposure of small UK quoted companies to the UK economy insulates them
from the direct effects of tariffs, but it also means that they are more
reliant on domestic policy. This was relevant in the first half as sentiment
towards smaller companies contended with the fallout from the October 2024
Budget. The changes to employers’ national insurance contributions and to
the national living wage took effect in April, but companies’ profit
forecasts and, by extension, stockmarket valuations moved in anticipation as
management teams articulated how they would address the incremental cost
pressures. The impact is being spread through a combination of cost
reductions, price increases and narrower profit margins, with the balance
varying by company. While this is unhelpful for businesses operating in the
domestic economy, overall trading conditions have not been as bad as the
headlines might suggest. Indeed, the retail and leisure companies in which
ASCoT invests have generally traded well through the first part of the year,
with revenues typically growing at low to mid single digit rates. Demand is
benefiting from wages that are presently growing above the rate of inflation
and from strong household balance sheets, with the saving ratio, excluding the
pandemic period, at its highest level for 30 years.
Analysis of performance and portfolio characteristics
ASCoT’s net asset value total return in the six months to 30 June 2025 was
+6.3%. The DNSCI (XIC)’s was +7.0%. The table below is an analysis of the
difference between the two numbers. The most important influence on ASCoT’s
return was the total return performance of the companies that make up its
portfolio of investments.
For the six months ended 30 June 2025 Basis points
Attributable to the portfolio of investments, based on mid prices (71)
(after transaction costs of 6 basis points)
Movement in mid to bid price spread 21
Cash/gearing (16)
Purchase of ordinary shares 29
Management fee (34)
Other expenses (7)
Total attribution based on bid prices (78)
Note: 100 basis points = 1%. Total Attribution is the difference between the
total return of the NAV and the Benchmark Index (i.e. NAV = 6.25%; Benchmark
Index = 7.03%; difference is -0.78% being 78 basis points).
The next table sets out a series of characteristics of both the portfolio and
the DNSCI (XIC). The paragraphs that follow provide context and explanation
for these characteristics and for ASCoT’s performance in the first half of
2025.
Portfolio characteristics 30 June 2025 30 June 2024
ASCoT DNSCI (XIC) ASCoT DNSCI (XIC)
Number of companies 79 343 77 339
Weighted average market capitalisation £586m £1,132m £624m £986m
Weighting in “smaller small” companies * 52% 20% 56% 27%
Portfolio turnover over prior 12 months 19% n/a 19% n/a
Active share 78% n/a 73% n/a
Price earnings (PE) ratio (historical) 10.1x 14.9x 10.2x 13.5x
Dividend yield (historical) 4.0% 3.4% 3.8% 3.4%
Dividend cover (historical) 2.5x 2.0x 2.6x 2.2x
*“Smaller small” companies are members of the DNSCI (XIC) that are not
also members of the FTSE 250
Size
Size exposure was an important influence on ASCoT’s returns in the first
half of 2025. There are two aspects to this.
First, small UK quoted companies significantly under-performed larger
companies in the six months. The first quarter of 2025 was the second worst
calendar quarter for the DNSCI (XIC) against the FTSE All-Share in ASCoT’s
35 year history. There were several reasons for the out-performance of larger
companies.
• The DNSCI (XIC) and FTSE All-Share have different geographical
exposures. Larger companies are much less reliant than smaller companies on
the domestic UK economy. They have therefore been less affected by the
negative sentiment associated with last October’s Budget.
• The DNSCI (XIC) and FTSE All-Share have different sector exposures.
Two sectors – Banks and Aerospace & Defence – accounted for over half of
the FTSE All-Share’s rise in the first half of 2025. These sectors account
for less than 2% of the value of the more diversified DNSCI (XIC).
• If the tariff uncertainty has prompted asset allocators to reduce US
exposure and increase weightings in other markets, it is plausible that larger
companies will have benefited earlier than have smaller companies.
Second, size was a significant influence within the DNSCI (XIC). In the first
half of 2025, it was a case of the smaller the company, the poorer the share
price performance. The Managers analyse this effect by splitting the portfolio
and DNSCI (XIC) into “larger small” companies (those that are also members
of the FTSE 250) and “smaller small” companies (everything else). ASCoT
has a high exposure to the “smaller smalls”: at 31 December 2024 it was
55%, against just 21% for the DNSCI (XIC). This weighting differential,
combined with the under-performance of “smaller smalls” against “larger
smalls” explained all of ASCoT’s shortfall against the DNSCI (XIC) in the
six month period.
The sector and geographical profiles of “smaller small” and “larger
small” companies are similar and so cannot explain the divergent performance
of the two cohorts. The more important influence was the risk aversion in
equity markets leading up to and in the aftermath of the tariff announcements.
In these circumstances, investors were reluctant to embrace the greater
illiquidity of “smaller smalls”, leading to additional pressure on their
share prices. As the stockmarket’s mood improved through May and June, it is
notable that the relative performance of “smaller smalls” picked up.
The reason for the Managers’ current preference for “smaller small” over
“larger small” companies is twofold. First, there is little fundamental
difference between the two cohorts – geographical exposures, sector
exposures, balance sheet strength, profit growth, return on equity, etc.
Second, there is a significant valuation difference – the 2025 EV/EBITA for
“smaller smalls” in the DNSCI (XIC) is 8.9x, which is 20% lower than the
11.1x for the “larger smalls”. These attributes matter – notwithstanding
the experience so far in 2025, “smaller smalls” have out-performed
“larger smalls” over the past five years.
Style
The Managers invest ASCoT’s assets in accordance with their value investment
philosophy. Consequently, ASCoT’s investment returns are influenced by the
stockmarket’s preference for more expensively priced growth stocks or more
modestly rated value stocks. To understand style effects within the DNSCI
(XIC), the Managers use analysis by London Business School (LBS). This is
based on price to book ratios: a high price to book denotes a growth stock and
a low price to book a value stock. When selecting stocks for ASCoT, the
Managers use a broader range of valuation techniques, but the LBS approach
provides a useful indication of the market’s style preference. In the first
half of 2025, value stocks out-performed growth stocks, which suggests that
the Managers’ value style was helpful to ASCoT’s investment performance.
Balance Sheets
The following table sets out the balance sheet profile of ASCoT’s portfolio
and of the Managers’ Tracked Universe. This subset of the DNSCI (XIC)
represents 98% by value of the index as a whole and is made up of the 230
companies that the Managers follow closely.
Weight in companies with: Net cash Net debt/EBITDA < 2x Net debt/EBITDA > 2x Other*
Tracked Universe 2025 30% 43% 21% 6%
Portfolio: 2025 32% 51% 12% 5%
– Portfolio “smaller smalls” 34% 47% 13% 5%
– Portfolio “larger smalls” 30% 55% 10% 5%
*Includes loss-makers and lenders
The balance sheet profile of the portfolio and the Tracked Universe are
similarly robust. Around one third of each is represented by companies with
net cash on their balance sheets. The more highly leveraged companies tend to
be those with asset backing, such as pub businesses and property companies.
The final two lines of the table show that there is no meaningful difference
between the balance sheet profiles of “smaller small” and “larger
small” companies. The lower valuations of the former cohort are not
justified by weaker balance sheets.
Strong balance sheets are supporting dividend growth, as the next section
explains, and a continued high rate of share buy-backs. In the first half of
2025, 21 of ASCoT’s 79 investee companies bought back shares, taking
advantage of the attractive stockmarket valuations of their equity. The
economic logic of buy-backs at such valuations is compelling as long as they
do not deprive underlying businesses of capital needed for the maintenance of
assets and prudent growth.
Income
While ASCoT’s capital performance through the first half of 2025 was
volatile, it made steady progress in income terms. Revenue earned from
dividends paid by investee companies rose at double digit rates. The table
below categorises ASCoT’s 79 holdings at 30 June 2025 according to each
company’s most recent dividend action.
Nil P ayer Cutter Unchanged Payer Increased Payer New/Returner
16 11 19 30 3
ASCoT’s positive income experience was driven by the 30 Increased Payers and
three New / Returners. These out-weighed the drag from the 11 companies that
reduced their most recent dividends. Of the 16 Nil Payers, the Managers expect
five to resume dividend payments over the next two years.
At 30 June 2025, the average historical dividend yield of ASCoT’s holdings
was 4.0% and the average dividend cover was 2.5x. These numbers, together
with the analysis in the table, demonstrate the resilience of smaller
companies, a quality that is often overlooked by the stockmarket. Looking
ahead, the tariffs and other macro economic challenges will have to be
navigated, but history suggests that yield and dividend growth will continue
to be an important component of the total returns delivered by both small UK
quoted companies and ASCoT.
Corporate Activity
The Managers are frequently asked what the catalyst will be for a re-rating of
small UK quoted companies. The answer is increasingly clear as the high rate
of takeovers continues. In the first half of 2025, agreed bids for eight
constituents of the DNSCI (XIC) were announced. ASCoT held four of these. In
addition, approaches for three companies were outstanding at the period end.
ASCoT held one of these. In five of the eight bids, the bidder was from
overseas, while in two cases the bidder was private equity. Bid premiums
remain high: for agreed deals within the DNSCI (XIC) over the twelve months to
30 June 2025, the average premium to the undisturbed share price was 40%,
while the average EV/EBITA at the bid price was 16.2x.
As long as valuations across small companies remain so attractive, it is
likely that takeovers will continue. There is the opportunity for those
invested in the asset class to enjoy good investment returns by harvesting
takeover premiums as they await a broader re-rating.
The downside of takeovers could be a shrinking of the Managers’ investment
universe. However, there are reasons to believe that the opportunity set will
remain broad.
• First, last year’s changes to the Listing Rules should improve the
attractiveness of the UK stockmarket to IPOs over time.
• Second, ten AIM companies have recently moved or announced an
intention to move to the Main List. This makes them eligible investments for
ASCoT. The Managers have already started a holding in one of the ten and are
scrutinising others. The relisting trend is influenced by the new Listing
Rules, which level the governance playing field between AIM and the Main List,
and by the tax changes announced in the October Budget.
• Third, the definition of the DNSCI (XIC) – the bottom 10% by value
of the total UK stockmarket – means that there is a natural refreshing of
the index on its annual rebalancing. The number of companies in the DNSCI
(XIC) has been flat at around 350 for the past decade.
Engagement
Since ASCoT’s inception in 1990, an integral part of Aberforth’s
investment process has been engagement with the boards of the investee
companies. The approach to engagement is purposeful, discreet and
constructive. Its aim is to improve investment outcomes for Aberforth’s
clients and investors. The Managers may engage on any topic that they perceive
to be affecting the valuation of a company. Their ability to engage is
improved by the large stakes – up to 25% of issued share capital – that
Aberforth’s clients can collectively take in investee companies.
As highlighted last year, the high rate of takeover activity means that M&A
terms are a frequent topic of engagement. The Managers often seek to improve
terms or, if these are unattractive, to work with the boards of investee
companies to discourage takeover interest. The Managers wrote to investee
companies in 2024 to reinforce their expectations of boards when they receive
a takeover approach.
Another reason for engagement in 2025 stems from the new Listing Rules, which
were introduced last year. One of the changes removes the need for a
shareholder vote to approve significant transactions. The purpose was to
increase the attractiveness of the UK market to IPOs, but the unintended
consequence is that boards can more easily embark on transactions that are not
in the interests of shareholders. Solutions include a voluntary vote on a
potential transaction or timely consultation with shareholders before
agreement is reached with a counterparty. Without these, the Managers will
vote against the board of a company undertaking a transaction that is not in
shareholders’ interests.
ASCoT’s gearing
ASCoT employs gearing tactically to take advantage of periods of stress in
economies and financial markets. It is currently geared for the fourth time in
its history, having drawn on its borrowing facility amid the pandemic in early
2020. Since then, gearing has enhanced ASCoT’s returns. The valuations of
small UK quoted companies are still attractive and so the Managers consider it
appropriate that ASCoT remains geared. At 30 June 2025, the gearing ratio was
4.7%, though this varies with moves in the share prices of the investee
companies and as proceeds from holdings subject to takeover have been
realised.
Active share
Active share is a measure of how different a portfolio is from an index. The
higher a portfolio’s active share, the higher its chance of performing
differently from the index, for better or worse. The Managers target an active
share ratio of at least 70% for ASCoT’s portfolio compared with the DNSCI
(XIC). At 30 June 2025, it stood at 78%.
Value roll and portfolio turnover
The main influence on ASCoT’s portfolio turnover in any period is usually
the stockmarket’s appetite for small UK quoted companies. If prices and
valuations are rising, the upsides to the Managers’ target prices are likely
to be narrowing. All else being equal, this would encourage the rotation of
ASCoT’s capital from companies with lower upsides to those with higher
upsides. The Managers term this dynamic the “value roll” and it has played
an important role in ASCoT’s capital and income returns over the years. It
follows that periods of higher portfolio turnover are often associated with
strong returns for ASCoT.
Portfolio turnover is defined as the lower of purchases and sales divided by
the average portfolio value. ASCoT’s long term average rate of turnover is
33%. In the twelve months to 30 June 2025, turnover was 19%. The low rate of
value roll is symptomatic of the deep under-valuation of small UK quoted
companies – if the stockmarket does not reflect their true value, there is
no incentive to reduce the position.
Valuations
Price earnings (PE) ratio: 35 year average At 31 December 2024 At 30 June 2025
World equities* 15.8x 17.7x 18.0x
FTSE All-Share 15.3x 14.6x 16.2x
Smaller companies** 13.5x 11.9x 12.5x
ASCoT’s portfolio 12.0x 9.6x 10.1x
* Source: Bloomberg; Panmure Liberum ** DNSCI (XIC) to 2013 then Tracked
Universe
As the table above shows, ASCoT’s portfolio continues to benefit from the
triple valuation discount that was described in last year’s reports –
ASCoT’s portfolio PE is below that of smaller companies, which is below that
of large UK companies, which is below that of world equities. The meaningful
change since the end of 2024 has been the re-rating of large UK companies: the
FTSE All-Share’s historical PE has risen from 14.6x to 16.2x, which is still
below that of world equities but above its own long term average. The
re-rating of large UK companies shows what is possible for smaller companies.
From these starting valuations it is plausible that re-rating can contribute
to total returns from smaller companies and more particularly from ASCoT’s
portfolio in coming years.
The next table turns to forward valuations and uses the Managers’ favoured
metric, EV/EBITA (enterprise value to earnings before interest, tax and
amortisation). Ratios are set out for the portfolio, the Tracked Universe and
certain subdivisions of the Tracked Universe. The profits underlying the
ratios are based on the Managers’ forecasts for each company that they
track. The bullet points following the table summarise its main messages.
EV/EBITA 2024 2025 2026
ASCoT’s portfolio (79 stocks) 8.0x 7.9x 6.7x
Tracked Universe (230 stocks) 11.2x 10.5x 9.3x
- Growth stocks - Other stocks 16.0x 10.6x 15.1x 9.9x 13.6x 8.7x
- Overseas facing stocks - Domestic facing stocks 10.2x 12.0x 9.8x 11.1x 8.3x 10.0x
- “Smaller small” stocks - “Larger small” stocks 9.3x 11.9x 8.9x 11.1x 7.6x 9.9x
* The ratios are lower for 2025 than for 2024. The Managers anticipate modest
profit growth in 2025, as lower interest rates and real wage growth still seem
likely to offset the increased uncertainty related to trade wars and the
Budget.
* The average EV/EBITA multiples of the portfolio are lower than those of the
Tracked Universe. This reflects the Managers’ value investment style and the
influence of the more highly valued growth stocks on the Tracked Universe’s
multiples.
* The valuation of overseas facing companies (those with more than 60% of
revenues outside the UK) is lower than that of domestic facing companies
(those with more than 60% of revenues in the UK). For much of the last ten
years, the reverse has been the case. Owing to the EU referendum and the
pandemic, domestically oriented companies have tended to trade on lower
multiples. However, tariff risk, which is more threatening to overseas facing
businesses, has narrowed the gap and broadened the opportunity base for the
value investor.
* As noted in the section above on size, the “smaller small” companies
within the DNSCI (XIC) remain more attractively valued than do the “larger
smalls”.
* Takeovers over the past twelve months were struck on average on a multiple
of 16.2. This compares with the portfolio’s 2025 EV/EBITA of 7.9x.
Outlook and conclusion
Six months ago, American exceptionalism was celebrated and gauged by the
success of the US stockmarket. Today, the investment outlook has been
complicated by Donald Trump’s convulsive second presidency and its challenge
to some of the assumptions that have long underpinned the financial world.
Dollar weakness may well be welcomed by the Trump administration and has been
seen before, but the present bout is accompanied by debate about whether the
dollar risks losing the exorbitant privilege of reserve currency status. There
is also debate about the risk-free nature of US government debt, as fiscal
spending looks set to rise under the “One Big Beautiful Bill Act” and as
foreign governments, disconcerted by the tariffs, question the wisdom of
parking their reserves in treasuries. Even the US stockmarket has lost some of
its lustre. The potential impact of the tariffs on the profits of US
businesses has seen European equities outshine their US counterparts so far in
2025. The uncertainty emanating from the US complicates investment decisions,
whether for businesses considering capital projects or fund managers selecting
stocks.
The UK is inevitably caught up in this, but its low reliance on exported goods
and its trade deficits can be seen as a relative advantage in the context of
trade war risk. The greater challenge for the UK economy is government policy
and its fiscal position. Last year’s Budget highlighted the Chancellor’s
difficulty in delivering growth while adhering to the fiscal rules. As this
year’s Budget approaches and as the government struggles to implement its
reforms, a degree of caution on the part of businesses and households is
understandable. On the other hand, the government’s pragmatism and growth
ambitions are encouraging, though it would be better to see more of the
rhetoric turn into action.
Against this backdrop, UK equities have made headway, with the re-rating of
larger companies taking the FTSE All-Share’s PE back to its long term
average. The valuation anomaly remains smaller companies, whose PE is still
well below its long term average. Over time, it would be reasonable to expect
some of the renewed interest in the UK to filter down into the DNSCI (XIC)
and, indeed, this started to play out through the second quarter of 2025.
Nevertheless, the medium term performance of smaller companies against large
has been disappointing. Over the three years to 30 June 2025, the DNSCI (XIC)
has lagged the FTSE All-Share by -0.7% per annum. This contrasts with longer
term out-performance of 1.5% per annum since ASCoT’s inception in 1990 and
3.0% per annum over the full history of the DNSCI (XIC) in 1955.
An important aspect of the recent performance of smaller companies is that it
is not driven by fundamental factors. Dividend growth is a useful gauge of
fundamental progress since there is a long history of data and it cannot
diverge meaningfully from profit growth over time. Using the most recent
London Business School data, dividend growth for smaller companies has
outstripped that of large companies by 1.4% per annum since both 1955 and
1990. Over the past three years, the differential has been higher at 3.2%
(9.7% versus 6.5%), which is clearly at odds with the total return data.
Indeed, the differential has been higher than average over the last five and
ten years as well, which indicates that smaller companies have coped better
than many would expect with the familiar challenges of Brexit, the pandemic,
the Truss Budget and the inflation spike of 2022.
Judging by the valuations, the stockmarket is uninterested in the resilience
and superior growth of smaller companies. Rather, it seems distracted by their
relative illiquidity and volatility, but this obsession risks missing the
point of investment in the asset class. The small company premium – i.e. the
long term out-performance by smaller companies against larger companies – is
inextricably tied up with a willingness to take on liquidity and volatility
risk. Those able and willing to commit their capital to smaller companies are
rewarded over time for taking on that risk.
ASCoT is well placed to take advantage of the present situation. Its valuation
advantage is even greater than that of smaller companies, as previously
demonstrated in this report. Its dividend record demonstrates that it benefits
from the superior dividend growth available from the asset class. Its
closed-ended structure means that it can commit to investment in the
attractively valued “smaller small” companies, without the concern of a
demand for liquidity. Its diversified portfolio reduces the volatility risk of
an individual small cap stock and spreads it over 79 holdings. Furthermore,
its tactical gearing and share buy-backs can enhance portfolio returns and
reward shareholders who commit their capital to ASCoT.
None of these points means that ASCoT is impervious to today’s
macro-economic and geopolitical threats, or indeed those to come. They do,
however, improve the likelihood of a good investment experience over time,
particularly when other companies, overseas investors and private equity are
already taking advantage of the valuations on offer among small UK quoted
companies.
Aberforth Partners LLP
Managers
29 July 2025
INTERIM MANAGEMENT REPORT
A review of the half year and the outlook for the Company can be found in the
Chairman’s Statement and the Managers’ Report.
Risks and Uncertainties
The Directors have a process for identifying, evaluating and managing the
principal and emerging risks faced by the Company. The Board believes that the
Company has a relatively low risk profile in the context of the investment
trust industry. This belief arises from the fact that the Company has a simple
capital structure; invests only in small UK quoted companies; is not exposed
to derivatives and does not presently intend any such exposure; and outsources
all the main operational activities to recognised, well established firms.
The principal risks faced by the Company relate to investment
strategy/performance, market risk, share price discount, gearing, reputational
risk and regulatory risk. An explanation of these risks and how they are
managed can be found in the Strategic Report contained within the 2024 Annual
Report. These principal risks and uncertainties continue to apply as disclosed
in the 2024 Annual Report and as updated by the Managers' Report in these
interim statements.
Going Concern
The Directors are satisfied that the Company has sufficient resources to
continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. The Directors' assessment included
consideration of the triennial continuation vote; the next vote will take
place at the March 2026 AGM. The Company’s assets comprise mainly readily
realisable equity securities and funding flexibility can typically be achieved
through the use of the Company’s borrowing facilities. Accordingly, they
continue to adopt the going concern basis in preparing the financial
statements.
DIRECTORS’ RESPONSIBILITY STATEMENT
The Directors confirm that, to the best of their knowledge:
(i) the condensed set of financial statements has been prepared in accordance
with Financial Reporting Standard 104 “Interim Financial Reporting”.
(ii) the Half Yearly Report includes a fair review of information required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events during the first six months of the year and
their impact on the financial statements together with a description of the
principal risks and uncertainties for the remaining six months of the year;
and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
disclosure of related party transactions and changes therein.
(iii) the Half Yearly Report, taken as whole, is fair, balanced and
understandable and provides information necessary for Shareholders to assess
the Company’s performance, objective and strategy.
On behalf of the Board
Richard Davidson
29 July 2025
INCOME STATEMENT (unaudited)
For the six months ended 30 June 2025
Revenue Capital Total
£’000 £’000 £’000
Realised net gains on sales - 57,056 57,056
Movement in fair value - (651) (651)
_______ _______ _______
Net gains on investments - 56,405 56,405
Investment income 30,034 - 30,034
Other income 47 - 47
Investment management fee (Note 2) (1,789) (2,981) (4,770)
Portfolio transaction costs - (894) (894)
Other expenses (473) - (473)
_______ _______ _______
Net return before finance costs and tax 27,819 52,530 80,349
Finance costs (Note 2) (1,028) (1,714) (2,742)
_______ _______ _______
Return on ordinary activities before tax 26,791 50,816 77,607
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity shareholders 26,791 50,816 77,607
_______ _______ _______
Returns per Ordinary Share (Note 4) 32.64p 61.92p 94.56p
Dividends
On 29 July 2025, the Board declared an interim dividend for the year ending 31
December 2025 of 14.30p per Ordinary Share (2024 – 13.60p), which will be
paid on 28 August 2025.
For the six months ended 30 June 2024
Revenue Capital Total
£’000 £’000 £’000
Realised net gains on sales - 73,968 73,968
Movement in fair value - 72,570 72,570
_______ _______ _______
Net gains on investments - 146,538 146,538
Investment income 27,050 - 27,050
Other income 57 - 57
Investment management fee (Note 2) (1,770) (2,950) (4,720)
Portfolio transaction costs - (1,102) (1,102)
Other expenses (427) - (427)
_______ _______ _______
Net return before finance costs and tax 24,910 142,486 167,396
Finance costs (Note 2) (1,239) (2,066) (3,305)
_______ _______ _______
Return on ordinary activities before tax 23,671 140,420 164,091
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity shareholders 23,671 140,420 164,091
_______ _______ _______
Returns per Ordinary Share (Note 4) 28.12p 166.78p 194.90p
For the year ended 31 December 2024
Revenue Capital Total
£’000 £’000 £’000
Realised net gains on sales - 114,531 114,531
Movement in fair value - 1,833 1,833
_______ _______ _______
Net gains on investments - 116,364 116,364
Investment income 54,506 - 54,506
Other income 118 - 118
Investment management fee (Note 2) (3,708) (6,180) (9,888)
Portfolio transaction costs - (2,179) (2,179)
Other expenses (858) - (858)
_______ _______ _______
Net return before finance costs and tax 50,058 108,005 158,063
Finance costs (Note 2) (2,427) (4,045) (6,472)
_______ _______ _______
Return on ordinary activities before tax 47,631 103,960 151,591
Tax on ordinary activities - - -
_______ _______ _______
Return attributable to equity shareholders 47,631 103,960 151,591
_______ _______ _______
Returns per Ordinary Share (Note 4) 56.59p 123.50p 180.09p
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS
(unaudited)
For the six months ended 30 June 2025
Share capital £’000 Capital redemption reserve £’000 Special reserve 1 £’000 Capital reserve 1 £’000 Revenue reserve £’000 Total £’000
Balance as at 31 December 2024 838 150 30,469 1,262,006 103,854 1,397,317
Return on ordinary activities after tax - - - 50,816 26,791 77,607
Equity dividends paid - - - - (29,960) (29,960)
Purchase of Ordinary Shares (22) 22 (30,469) (873) - (31,342)
_______ _______ _______ ________ _______ ________
Balance as at 30 June 2025 816 172 - 1,311,949 100,685 1,413,622
_______ _______ _______ ________ _______ ________
1 see Note 8.
For the year ended 31 December 2024
Share capital £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000
Balance as at 31 December 2023 844 144 38,840 1,158,046 99,353 1,297,227
Return on ordinary activities after tax - - - 103,960 47,631 151,591
Equity dividends paid - - - - (43,130) (43,130)
Purchase of Ordinary Shares (6) 6 (8,371) - - (8,371)
_______ _______ _______ ________ _______ ________
Balance as at 31 December 2024 838 150 30,469 1,262,006 103,854 1,397,317
_______ _______ _______ ________ _______ ________
For the six months ended 30 June 2024
Share capital £’000 Capital redemption reserve £’000 Special reserve £’000 Capital reserve £’000 Revenue reserve £’000 Total £’000
Balance as at 31 December 2023 844 144 38,840 1,158,046 99,353 1,297,227
Return on ordinary activities after tax - - - 140,420 23,671 164,091
Equity dividends paid - - - - (31,686) (31,686)
Purchase of Ordinary Shares (3) 3 (3,695) - - (3,695)
_______ _______ _______ ________ _______ ________
Balance as at 30 June 2024 841 147 35,145 1,298,466 91,338 1,425,937
_______ _______ _______ ________ _______ ________
BALANCE SHEET
(unaudited)
As at 30 June 2025
30 June 31 December 30 June
2025 2024 2024
£’000 £’000 £’000
Fixed assets
Investments at fair value through profit or loss (Note 5) 1,479,851 1,497,304 1,519,222
________ ________ ________
Current assets
Investment income receivable 3,410 2,794 2,086
Amounts due from brokers 4,764 - 894
Other debtors 104 80 93
Cash at bank 4,719 1,349 5,691
________ ________ ________
12,997 4,223 8,764
________ ________ ________
Creditors (amounts falling due within one year)
Amounts due to brokers (4,746) (34) (3,892)
Bank debt facility (Note 2) (73,940) - -
Other creditors (540) (268) (282)
________ ________ ________
(79,226) (302) (4,174)
________ ________ ________
Net current (liabilities)/assets (66,229) 3,921 4,590
________ ________ ________
Total assets less current liabilities 1,413,622 ________ 1,501,225 ________ 1,523,812 ________
Creditors (amounts falling due after more than one year)
Bank debt facility (Note 2) - (103,908) (97,875)
________ ________ ________
TOTAL NET ASSETS 1,413,622 1,397,317 1,425,937
________ ________ ________
CAPITAL AND RESERVES: EQUITY INTERESTS
Share Capital
Ordinary Shares 816 838 841
Reserves
Capital redemption reserve 172 150 147
Special reserve (Note 8) - 30,469 35,145
Capital reserve (Note 8) 1,311,949 1,262,006 1,298,466
Revenue reserve 100,685 103,854 91,338
________ ________ ________
TOTAL SHAREHOLDERS’ FUNDS 1,413,622 1,397,317 1,425,937
________ ________ ________
Net Asset Value per share (Note 6) 1,731.97p 1,666.95p 1,694.73p
CASH FLOW STATEMENT
(unaudited)
For the six months ended 30 June 2025
Six months ended Six months ended Year ended
30 June 2025 30 June 2024 31 December 2024
£’000 £’000 £’000
Net cash inflow from operating activities 24,451 22,441 43,673
Investing activities
Purchases of investments (112,510) (163,680) (307,701)
Sales of investments 185,422 156,872 288,596
_______ _______ _______
Cash inflow/(outflow) from investing activities 72,912 (6,808) (19,105)
Financing activities
Purchases of Ordinary Shares (31,342) (3,695) (8,371)
Equity dividends paid (29,960) (31,686) (43,130)
Interest and fees paid (2,691) (3,295) (6,452)
Gross drawdowns of bank debt facilities (before any costs) 45,000 56,000 79,000
Gross repayments of bank debt facilities (before any costs) (75,000) (30,000) (47,000)
_______ _______ _______
Cash (outflow) from financing activities (93,993) (12,676) (25,953)
Change in cash during the period 3,370 2,957 (1,385)
_______ _______ _______
Cash at the start of the period 1,349 2,734 2,734
Cash at the end of the period 4,719 5,691 1,349
_______ _______ _______
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Standards
The financial statements have been prepared on a going concern basis and in
accordance with the Financial Reporting Standard 104 and the AIC’s Statement
of Recommended Practice “Financial Statements of Investment Trust Companies
and Venture Capital Trusts”. The total column of the Income Statement is the
profit and loss account of the Company. All revenue and capital items in the
Income Statement are derived from continuing operations. No operations were
acquired or discontinued in the period. The same accounting policies used for
the year ended 31 December 2024 have been applied.
2. Investment Management Fee and Bank Borrowings
The Managers, Aberforth Partners LLP, receive an annual management fee,
payable quarterly in advance, equal to 0.75% of net assets up to £1 billion,
and 0.65% thereafter.
The investment management fee and finance costs of bank borrowings have been
allocated 62.5% to capital reserve and 37.5% to revenue reserve, in line with
the Board’s expected long term split of returns, in the form of capital
gains and income respectively, from the investment portfolio of the Company.
The Company has a three year unsecured £130m Facility Agreement with Royal
Bank of Scotland International. This is due to expire on 15 June 2026.
3. Dividends
Six months ended Six months ended Year ended
30 June 2025 30 June 2024 31 December 2024
£’000 £’000 £’000
Amounts recognised as distributions to eligible equity holders in the period:
Final dividend of 28.55p for the year ended 31 December 2023 - 24,091 24,091
Special dividend of 9.00p for the year ended 31 December 2023 - 7,595 7,595
Interim dividend of 13.60p for the year ended 31 December 2024 - - 11,444
Final dividend of 30.00p for the year ended 31 December 2024 24,967 - -
Special dividend of 6.00p for the year ended 31 December 2024 4,993 - -
______ ______ ______
29,960 31,686 43,130
______ ______ ______
The interim dividend for the year ending 31 December 2025 of 14.30p (2024 –
13.60p) will be paid on 28 August 2025 to shareholders on the register on 8
August 2025. The ex dividend date is 7 August 2025. The interim dividend has
not been included as a liability in these financial statements.
4. Returns per Ordinary Share
The returns per Ordinary Share are based on the following.
30 June 2025 30 June 2024 31 December 2024
Returns attributable to Ordinary Shareholders £77,607,000 £164,091,000 £151,591,000
Weighted average number of shares in issue during the period 82,068,645 84,192,569 84,175,009
Return per Ordinary Share 94.56p 194.90p 180.09p
5. Investments at fair value
In accordance with FRS 102 and FRS 104, fair value measurements have been
classified using the fair value hierarchy:
Level 1 - using unadjusted quoted prices for identical instruments in an
active market;
Level 2 - using inputs, other than quoted prices included within Level 1, that
are directly or indirectly observable (based on market data); and
Level 3 - using inputs that are unobservable (for which market data is
unavailable).
Investments held at fair value through profit or loss
Level 1 Level 2 Level 3 Total
As at 30 June 2025 £'000 £'000 £'000 £'000
Listed equities 1,479,851 - - 1,479,851
Unlisted equities - - - -
________ ________ ________ ________
Total financial asset investments 1,479,851 - - 1,479,851
________ ________ ________ ________
At 30 June 2024 and 31 December 2024, all investments were held at fair value
through profit and loss and were classified as Level 1 and listed equities.
6. Net Asset Value per Ordinary Share
The net assets and the net asset value per share attributable to the Ordinary
Shares at each period end are calculated in accordance with their entitlements
in the Articles of Association and were as follows.
30 June 2025 31 December 2024 30 June 2024
Net assets attributable £1,413,622,000 £1,397,317,000 £1,425,937,000
Ordinary Shares in issue at end of period 81,619,105 83,824,605 84,139,605
Net Asset Value per Ordinary Share 1,731.97p 1,666.95p 1,694.73p
7. Share Capital
During the period, the Company bought back and cancelled 2,205,500 shares
(2024: 275,000) at a cost of £31,342,000 (2024: £3,695,000). During the
period 1 July to 29 July 2025, 212,500 shares have been bought back for
cancellation.
8. Special and Capital Reserves
During the period, the Special Reserve, which was used to account for the cost
of purchasing Ordinary Shares, was exhausted. Following this, the Capital
Reserve represented by realised capital profits, is being used.
9. Related party transactions
There have been no transactions with related parties during the first six
months of the current financial year that have materially affected the
financial position or the performance of the Company. Under UK accounting
standards, the Directors have been identified as related parties and their
fees and interests are disclosed in the 2024 Annual Report.
10. Alternative Performance Measures
Alternative Performance Measures ("APMs") are measures that are not defined by
FRS 102 and FRS 104. The Company believes that APMs, referred to within
‘Financial Highlights’ and in the Half Yearly Report, provide Shareholders
with important information on the Company and are appropriate for an
investment trust. These APMs are also a component of reporting to the Board. A
glossary of APMs can be found in the 2024 Annual Report.
11. Further Information
The foregoing do not constitute statutory accounts of the Company (as defined
in section 434(3) of the Companies Act 2006). The financial information for
the year ended 31 December 2024 has been extracted from the statutory
accounts, which have been filed with the Registrar of Companies. The Auditor
issued an unqualified opinion on those accounts and did not make any
statements under section 498(2) or (3) of the Companies Act 2006. All
information shown for the six months to 30 June 2025 is unaudited.
Certain statements in this report are forward looking. By their nature,
forward looking statements involve a number of risks, uncertainties or
assumptions that could cause actual results or events to differ materially
from those expressed or implied by those statements. Forward looking
statements regarding past trends or activities should not be taken as
representation that such trends or activities will continue in the future.
Accordingly, undue reliance should not be placed on forward looking
statements.
Copies of the Half Yearly Report will be sent to shareholders and will be
available shortly from Aberforth Partners LLP, 14 Melville Street, Edinburgh,
EH3 7NS or from the website www.aberforth.co.uk. A copy will also shortly be
available for inspection at the National Storage Mechanism at:
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
CONTACT:
Euan Macdonald or Jeremy Hall (Telephone: 0131 220 0733)
Aberforth Partners LLP, Managers and Secretaries
29 July 2025
Copyright (c) 2025 PR Newswire Association,LLC. All Rights ReservedRecent news on Aberforth Smaller Companies Trust
See all newsREG-Aberforth Smaller Companies Trust Plc: Net Asset Value(s)
AnnouncementREG-Aberforth Smaller Companies Trust Plc: Net Asset Value(s)
AnnouncementREG-Aberforth Smaller Companies Trust Plc: Net Asset Value(s)
AnnouncementREG-Aberforth Smaller Companies Trust Plc: Transaction in Own Shares
AnnouncementREG-Aberforth Smaller Companies Trust Plc: Net Asset Value(s)
Announcement