REG-BlackRock Smaller Companies Trust Plc: Portfolio Update Correction

Blackrock Smaller Companies TrustAnnouncement

30/04/2024 15:15

This announcement has been corrected to reflect changes to the performance
table, specifically the benchmark comparative figures (and the three month
share price figure changed to -3.8%). All other information remains unchanged.

The information contained in this release was correct as at 31 March 2024. 
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 March 2024 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      Three     Five      
                   %           %              year     years     years    
                                              %        %         %        
 Net asset value  2.7         0.3            6.0      -11.2     19.9      
 Share price      0.3         -3.8           5.9      -19.7     9.9       
 Benchmark*       3.0         -0.8           3.0      -12.7     14.9      

 

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):      1,464.16p   
 Net asset value Capital only (debt at fair value):     1,514.14p   
 Net asset value incl. Income (debt at par value) 1 :   1,492.50p   
 Net asset value incl. Income (debt at fair value) 1 :  1,542.48p   
 Share price:                                           1,330.00p   
 Discount to Cum Income NAV (debt at par value):        10.9%       
 Discount to Cum Income NAV (debt at fair value):       13.8%       
 Net yield 2 :                                          3.0%        
 Gross assets 3 :                                       £774.4m     
 Gearing range as a % of net assets:                    0-15%       
 Net gearing including income (debt at par):            12.2%       
 Ongoing charges ratio (actual) 4 :                     0.7%        
 Ordinary shares in issue 5 :                           47,229,792  
                                                                    

  
1. Includes net revenue of 28.34p 
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 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).
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 2,763,731 ordinary shares held in treasury.
 

 

                         
 Sector Weightings       % of portfolio  
 Industrials             33.5            
 Consumer Discretionary  17.2            
 Financials              16.9            
 Basic Materials         10.5            
 Technology              6.9             
 Consumer Staples        3.3             
 Health Care             2.9             
 Telecommunications      2.6             
 Real Estate             2.2             
 Energy                  2.2             
 Communication Services  1.8             
                         -----           
 Total                   100.0           
                         =====           
                                         
                                         
 Country Weightings      % of portfolio  
 United Kingdom          98.0            
 United States           1.5             
 Ireland                 0.5             
                         -----           
 Total                   100.0           
                         =====           
                                           

 

 Ten Largest Equity Investments  % of portfolio  
  Company                                        
 Gamma Communications            2.6             
 4imprint Group                  2.6             
 Hill & Smith                    2.4             
 Breedon                         2.3             
 Chemring Group                  2.2             
 Workspace Group                 2.1             
 Bloomsbury Publishing           2.0             
 IntegraFin                      1.7             
 Tatton Asset Management         1.7             
 Sigmaroc                        1.6             
                                                 
                                                 

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

During March the Company’s NAV per share returned 2.7% to 1,542.48p on a
total return basis, while our benchmark index returned 3.0%. For comparison
the large cap FTSE 100 Index outperformed small & mid-caps, returning 4.8%.

 

Equity markets moved higher in March as the dovish backdrop set up by the
world’s major central banks helped boost risk sentiment. In the US, the
Federal Reserve (Fed) signalled its inclination to cut rates, assuaging market
concerns by keeping the three rate cuts pencilled in for the year unchanged,
even as it revised up growth and inflation forecasts. The Bank of England
(BoE) kept interest rates on hold. The inflation rate fell sharply in February
with headline inflation lower than forecasted at 3.5%, the lowest rate since
2021, while core inflation fell to 4.5% from 5.1%. The Office for National
Statistics reported the consumer prices index rose by 3.4% in the previous
month up from 4% year-on-year. The FTSE All Share Index rose 4.8% with Basic
Materials, Oil & Gas and Financials as the top performing sectors in the
market.

 

Central Asia Metals was the largest contributor during March. The company
reported a fall in revenue and free cash flow during the 12 months to 31
December 2023 as a result of the challenging demand environment, ongoing cost
pressures and falling commodity prices. However, more important was the
investment that the company has made for the future, which should see the
business benefit from firmer copper pricing and the multi-year demand from the
ongoing global transition to net zero. Gamma Communications, which provides
solutions to small and medium sized corporates, was the second-largest
contributor. The company’s enduring and expanding recurring revenue, which
contrasts with its 12x PE (price to earning ratio) multiple at the start of
2024, has been a subject of our recent extensive discussions. The monthly
results underscored the company’s steadfastness, prompting the initiation of
its first share buyback. This was judiciously done, utilising a portion of its
£130m net cash reserves, while preserving ample funds for further strategic
acquisitions. Despite the shares’ revaluation to a mid-teens PE this year,
they remain significantly undervalued when compared to other companies with
similar financial characteristics. TT Electronics reported a strong financial
and operational year in 2023, with a £43 million adjusted pre-tax profit. The
company anticipates a 10% operating margin in 2024, backed by a robust order
book and strategic sales of select businesses.

 

CVS Group’s shares were hit by the announcement that the CMA (Competition
and Markets Authority) 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. YouGov experienced
a setback after results revealed a greater slowdown in the Data Products
division than anticipated. While we’ve reduced our stake, we continue to see
value in YouGov’s unique data and advanced analytics capabilities.
Housebuilder MJ Gleeson gave back some of February’s share price gain
despite no stock specific newsflow. As a reminder, the company recently
reported in-line interim results and highlighted signs of recovery in demand
against the backdrop of improving mortgage rates. This narrative certainly
aligns to our view and recent additions to the sector which we believe will
benefit as volumes recover and the economic backdrop/affordability improves.

 

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 are 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 are 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 31 March 2024

 

29 April 2024

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.



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