REG-BlackRock Throg Tst: Portfolio Update

Blackrock Throgmorton TrustAnnouncement

23/06/2023 12:30

The information contained in this release was correct as at 31 May 2023. 
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 THROGMORTON TRUST PLC (LEI: 5493003B7ETS1JEDPF59)
 

All information is at 31 May2023 and unaudited.
Performance at month end is calculated on a cum income basis

                      One     Three     One    Three     Five  
                    Month    months    year    years    years  
                         %         %       %        %        % 
 Net asset value      -2.0      -3.4    -6.4     17.2     11.8 
 Share price          -1.2      -7.1    -5.9     10.8     18.1 
 Benchmark*           -3.5      -6.4   -11.1     22.2     -0.1 

Sources: BlackRock and Datastream

*With effect from 22 March 2018 the Numis Smaller Companies plus AIM
(excluding Investment Companies) Index replaced the Numis Smaller Companies
excluding AIM (excluding Investment Companies) Index as the Company’s
benchmark. The performance of the indices have been blended to reflect this.

 At month end                                                                   
 Net asset value capital only:                                          610.05p 
 Net asset value incl. income:                                          618.57p 
 Share price                                                            587.00p 
 Discount to cum income NAV                                                5.1% 
 Net yield (1):                                                            1.9% 
 Total Gross assets (2):                                                £620.4m 
 Net market exposure as a % of net asset value (3):                      108.1% 
 Ordinary shares in issue (4):                                      100,295,785 
 2022 ongoing charges (excluding performance fees) (5,6):                 0.54% 
 2022 ongoing charges ratio (including performance fees) (5,6,7):         0.54% 

1. Calculated using the 2022 interim dividend declared on 20 July 2022 and
paid on 26 August 2022, together with the 2022 final dividend declared on 10
February 2023 and paid on 31 March 2023.

2. Includes current year revenue and excludes gross exposure through contracts
for difference.

3. Long exposure less short exposure as a percentage of net asset value.

4. Excluding 2,914,079 shares held in treasury.

5. 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 performance fees, finance costs, direct transaction
charges, VAT recovered, taxation and certain other non-recurring items for the
year ended 30 November 2022.

6. With effect from 1 August 2017 the base management fee was reduced from
0.70% to 0.35% of gross assets per annum. 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, including performance fees,
but excluding finance costs, direct transaction charges, VAT recovered,
taxation and certain other non-recurring items for the year ended 30 November
2022.

7. Effective 1st December 2017 the annual performance fee is calculated using
performance data on an annualised rolling two year basis (previously, one
year) and the maximum annual performance fee payable is effectively reduced to
0.90% of two year rolling average month end gross assets (from 1% of average
annual gross assets over one year). Additionally, the Company now accrues this
fee at a rate of 15% of outperformance (previously 10%). The maximum annual
total management fees (comprising the base management fee of 0.35% and a
potential performance fee of 0.90%) are therefore 1.25% of average month end
gross assets on a two-year rolling basis (from 1.70% of average annual gross
assets).

 Sector Weightings        % of Total Assets 
                                            
 Industrials                           30.0 
 Consumer Discretionary                24.9 
 Financials                            16.0 
 Technology                             8.4 
 Basic Materials                        4.6 
 Health Care                            4.0 
 Consumer Staples                       3.7 
 Telecommunications                     3.0 
 Communication Services                 1.8 
 Real Estate                            1.1 
 Energy                                 0.9 
 Net Current Assets                     1.6 
                                      ----- 
 Total                                100.0 
                                      ===== 
                                            
 Country Weightings       % of Total Assets 
                                            
 United Kingdom                        94.8 
 United States                          2.9 
 France                                 0.9 
 Australia                              0.8 
 Ireland                                0.6 
                                            
                                      ----- 
 Total                                100.0 
                                      ===== 

   

 Market Exposure (Quarterly)                                 
                                                             
                  31.08.22   30.11.22   28.02.23   31.05.23  
                          %          %          %          % 
 Long                 102.0      105.8      110.3      111.7 
 Short                  4.1        2.5        2.3        3.6 
 Gross exposure       106.1      108.3      112.6      115.3 
 Net exposure          97.9      103.3      108.0      108.1 

   

 Ten Largest Investments                          
                                                  
 Company                  % of Total Gross Assets 
                                                  
 Gamma Communications                         3.0 
 WH Smith                                     3.0 
 Breedon Group                                2.8 
 4imprint Group                               2.8 
 CVS Group                                    2.8 
 YouGov                                       2.8 
 Diploma                                      2.7 
 Grafton Group                                2.6 
 Watches of Switzerland                       2.5 
 Ergomed                                      2.5 
                                                  

Commenting on the markets, Dan Whitestone, representing the Investment Manager
noted:

The Company returned -2.0% in May, outperforming the Numis Smaller Companies +
AIM (excluding Investment Companies) benchmark which fell by -3.5%.(1)

May was another volatile month in global markets with significant dispersion
in returns across geographies and sectors. The FTSE 100 Index fell by 4.9% and
the FTSE 250 Index fell by 3.4%, whilst the S&P 500 Index was roughly flat and
the Nasdaq was up by 7.6% in the month. While investors may read this update
and question the relevance of US large cap indices to a UK small and mid-cap
focused company, we thought it was an interesting datapoint to highlight the
level of divergence across equity markets during the month. This dispersion
was driven by two main trends, firstly continued fears over global growth,
with particular fears about the state of the Chinese recovery in the month,
and secondly the rapid rise of Generative AI and its implications across
sectors.

We have little to add on the global growth debate that we haven’t already
said in previous monthly updates. However, Generative AI continues to excite
us; it is a technology that has the potential to change business models and
industry structures in profound ways that will be felt over many years to
come. Many of these changes are inconceivable to us today with the technology
still in its infancy but it is already having huge impact in some specific
companies and indeed financial markets. Such seismic industry change happens
only rarely, and whilst there are few ways in our universe to truly capitalise
in the near term (Bytes an indirect play on Microsoft perhaps a rare
exception) we are likely to focus more of our attention on the emerging risks
AI may present to shares we own or those stocks we can short. Moreover, for
all the hype AI has attracted, the dispersion in returns across many parts of
the market are extreme, with the valuations of many UK small and mid-cap
companies compelling in my view.

The largest positive contributor to performance during the month was Diploma
which rose in response to impressive first-half results which showed better
than expected organic revenue growth, improving margins and strong cash
generation. The company has delivered over 10% organic revenue growth in the
period and raised their full year guidance reflecting the strength of
underlying trading. YouGov rallied strongly after an investor day which
confirmed a strong growth outlook and laid out a plan to double revenues over
the medium term. We have owned the shares for many years and continue to think
the size and duration of the growth opportunity offered by their unique
platform of consumers and data remains under appreciated by the market even
after their run this month. Bytes Technology made a positive contribution in
the month as the shares rose after the company reported a 21% increase in
gross profit (which is effectively their revenue) accompanied by a positive
outlook statement. Despite the challenging macroeconomic backdrop, demand for
their services remains robust as businesses continue to prioritise investment
in IT infrastructure, and Bytes have been taking a greater share of wallet in
this space, winning share from weaker peers.  

The biggest detractor during the month was Watches of Switzerland who issued a
trading statement which was ahead of expectations but highlighted margin
pressure in the coming financial year, principally from the rising cost of
interest free credit products in a higher interest rate environment. This is
certainly disappointing, but we do not consider it investment case
threatening. The company is still growing strongly and has an enviable market
position as a key route to market for luxury watch brands globally. Recent
feedback from industry conferences suggests demand for the category remains
strong. A valuation, at under 12x price to earnings, for this current
financial year with a net cash balance sheet looks extremely attractive to us
given the runway of growth to take market share in both the US and Europe, and
its management’s stated desire to do value accretive acquisitions. Future,
the media company, was the second largest detractor. This is a company that we
bought back into very recently (having sold some years back) thinking the
sell-off had gone too far and a challenging advertising outlook had already
been priced into the shares which were around <7x current year’s earnings.
Since the purchase, the company has downgraded its guidance at its recent H1
results by 7% as several of its key websites in the US are seeing lower than
anticipated traffic. We acknowledge that this is worse than our expectations
but thought this had been partly priced in and certainly didn’t merit the
subsequent additional 30% fall in the share price seen since the results were
released as we think these headwinds are cyclical rather than structural. With
the shares trading on 5x price to earnings for this current year we think the
shares are grossly undervalued and have continued to add to the position,
effectively doubling the size of it within the portfolio. Shares in RS Group
were down during the month after the company reported full year results
highlighting a more downbeat outlook as a result of the challenging economic
environment.

We remain optimistic about prospects for the Company. Within the long book,
the vast majority of our companies continue to report positive results, demand
remains robust and management are confident in their outlook, both in terms of
end market strength and their ability to take market share. Meanwhile, the
short book has made a positive relative contribution in recent months,
providing an element of protection during periods of negative market returns.
We continue to see several areas of significant mispricing in markets, notably
UK midcaps where in general results remain strong and share prices and
valuations remain depressed. It seems odd to us that nirvana is starting to be
priced in some parts of the stock market and the apocalypse in others. We
continue to gently re-cycle capital into these opportunities as we see them on
a stock specific basis. As a result, the net of the portfolio is slowly
increasing and is now around 113%, while the gross is c.116%.

(1)Source: BlackRock as at 31 May 2023

23 June 2023

ENDS

Latest information is available by typing www.blackrock.com/uk/thrg 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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