Brown Advisory US - Half Yearly Results to 31 December 2023
12/02/2024 07:00
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RNS Number : 7220C Brown Advisory US Smaller Cos. PLC 12 February 2024
12 February 2024
Brown Advisory US Smaller Companies PLC (the 'Company' or 'BASC')
Half yearly financial results for the six months ended 31 December 2023
(unaudited)
Legal Entity Identifier: 549300HKKL9K1NY4TW55
Financial highlights for the six months ended 31 December 2023
Ordinary share performance
31 December 2023 30 June % change
2023
Net asset value (pence)* 1,459.2 1,431.9 +1.9
Closing price (pence) 1,292.5 1,220.0 +5.9
Russell 2000 Total Return Index (sterling adjusted) 8,471.8 7,860.0 +7.8
Discount to net asset value (%)* (11.4) (14.8) -
Ongoing charges ratio (%)* 1.03 1.00 -
*For definitions of the above Alternative Performance Measures please refer to
the Glossary of Terms
Stephen White, Chairman, Brown Advisory US Smaller Companies PLC, said:
"We are pleased to report a net asset value (NAV) per share increase of 1.9%
for the Company during a period where smaller companies performed reasonably
well despite the mega caps once again leading the advance. The US Federal
Reserve's (Fed) December meeting increased optimism and a sudden inflow of
funds to the smaller company sector pushed up the share prices of many of the
more speculative, unprofitable and leveraged situations which the Company
prefers to avoid, impacting relative performance. While geopolitical
developments are difficult to forecast, the prospects for the US economy
itself and its financial markets appear still reasonably favourable and we
remain confident in the Portfolio Manager's ability to identify strong
opportunities and to deliver positive results for our shareholders over the
long term."
Chris Berrier, Portfolio Manager, Brown Advisory US Smaller Companies, said:
"The Company's absolute returns were once again solid for the period despite
meaningful market volatility; relative performance was impacted by the surge
in the final weeks of the year. We added a number of new businesses to our
portfolio in 2023, many of which are below our ultimate intended weight and
therefore offer significant buying potential going forward. When combined with
our legacy positions, we are well positioned to deploy cash across the
portfolio and, more importantly, respond nimbly to market swings. We are
unconvinced that the drivers behind December's rally, despite it being a
signal of improving investor sentiment and the extreme market concentration
towards mega-caps, will hold indefinitely. As such, we believe that our
current sector biases and capital deployment plan remain sound as we eagerly
anticipate a return to small-cap market leadership, from which BASC will be
well positioned to benefit in the long-term."
Contact:
Brown Advisory US Smaller Companies InvestmentTrustEnquiries@brownadvisory.com
(mailto:InvestmentTrustEnquiries@brownadvisory.com)
Chris Berrier, Portfolio Manager
+44 203 301 8130
FundRock Partners Limited, ukfundscosec@apexfs.com (mailto:ukfundscosec@apexfs.com)
Company Secretary
Singer Capital Markets, + 44 207 496 3000
Broker to the Company
Robert Peel
Asha Chotai
TB Cardew, Financial PR to BASC brownadvisory@tbcardew.com (mailto:brownadvisory@tbcardew.com)
Tania Wild 07425 536903
Henry Crane 07918 207157
Chairman's statement
Dear fellow Shareholder
Over the six months ended 31 December 2023, your Company's net asset value
(NAV) per share rose from 1,431.9p to 1,459.2p, an increase of 1.9%. Having
moved within a narrow trading range for much of the period, US equity markets
moved ahead again in December as a result of comments made by the US Federal
Reserve (the Fed) that the peak in interest rates had probably been seen.
While the mega caps again led the advance, smaller companies also performed
reasonably well and showed signs of returning investor interest.
Over the period, the Company's benchmark, the sterling adjusted Russell 2000
Total Return index, realised a gain of 7.8%. The underperformance of the
Company's NAV as compared with the benchmark arose largely in December. This
followed a sudden inflow of funds into the more speculative, unprofitable and
leveraged smaller company sector - an area which the Company prefers to avoid.
Over the six months, the Company's share price rose from 1,220.0 p to
1,292.5p, a gain of 5.9%. This resulted in a small narrowing of the discount
from 14.8% to 11.4%.
Market review
As mentioned above, for much of the half year under review, US equity markets
moved within a narrow trading range, with low volatility, reduced trading
volumes and restrained corporate activity.
Geopolitical risks remained elevated with the ongoing war between Russia and
Ukraine and then, in October, the Hamas terrorist assaults on Israel and the
latter's significant response, but these only impacted to a limited extent on
financial markets.
US domestic news, be it political, economic or corporate, continued to be
mixed, pulling markets in both directions, unsure as to whether the economy
would hit a 'hard' or a 'soft' landing in 2024.
However, the main driver of markets in this period, was the perceived
direction of US monetary policy and interest rates as well as an assessment of
when a pivot was likely to take place.
Having paused in June, the Fed at their July meeting raised the benchmark
interest rate by 25 basis points to a 5.25%-5.50% target range, a 22-year
high. The Chairman, Jerome Powell, reiterated that the Fed was focused on
bringing down inflation to its 2% target, suggesting that they had 'a long way
to go', even though tighter conditions would weigh on economic activity. At
subsequent meetings and important speeches, such as Jackson Hole, the Fed and
its members stuck to their mantra that inflation risks remained on the upside
and that rates would have to stay higher for longer.
Against this background, coupled with data showing the economy and the jobs
market to be resilient, bond yields climbed steadily higher, with the 10-year
Treasury bond yield briefly touching 5 percent in October. The US equity
markets reflecting the bond markets lost value, falling for three consecutive
months. Small cap stocks were again the laggards, as investors continued to
favour the mega-caps, particularly those now known as the 'Magnificent Seven',
and other technology stocks with any perceived connection to artificial
intelligence.
November saw the start of a rebound in markets as the Fed began to change its
tune. While it held the federal funds rate steady, its Chairman noted that
financial conditions had tightened 'significantly'. Reinforced by softening
employment and inflation data, this encouraged hopes that the Fed's tightening
cycle was over and that a 'soft economic landing' was likely. 10-year yields
dropped quickly and as much as they had done at the time of the global
financial crisis.
The Fed's meeting in December boosted optimism again as the inflation numbers
continued to improve and members of the committee suggested that cuts in
interest rates would come during 2024. Share prices responded positively to
the further fall in bond yields as investors reallocated monies to the equity
market in anticipation of a year-end rally.
Although the mega caps continued to perform well, a general broadening of
buying interest fuelled a renewed demand for smaller companies. The sudden
large inflow of funds into the sector boosted share prices with especially
large gains seen in the more speculative stocks or those that had been heavily
shorted as operators rushed to buy back their positions.
As a result, the Russell 2000 had its best December rally ever. However, this
did not really benefit the Company, given its limited exposure to lower
quality, heavily indebted and speculative stocks. This was the main cause of
our underperformance relative to the benchmark. Over the six-month period, in
sterling terms the Russell 2000 achieved a total return of 7.8%, comparable to
that from the S&P 500 of 7.7%, and only slightly below that of the Nasdaq
of 11.0%.
Portfolio Manager and continuation vote
A more detailed commentary on the development of the US smaller company sector
over the past six months and our activity and performance is included in the
Portfolio Manager's review.
Between 1 April 2021, the date on which Brown Advisory took over the
management of the portfolio, and 6 February 2024 the Company's NAV rose by
1.0%, compared to a return of 0.3% from the benchmark. So, over this period,
our manager has outperformed the benchmark by 0.7%, despite the
above-mentioned headwinds in the last months of 2023. We continue to believe
that, over the long term, their philosophy and process will identify
successful quality companies enabling them to deliver the positive results
they have achieved in the past.
In accordance with the three-year cycle prescribed in the Company's Articles
of Association, we held a continuation vote at our Annual General Meeting
(AGM) on 6 November 2023. I am pleased to report that the resolution in favour
of continuation was passed with 90.5% of voters being in favour of
continuation.
Share price and discount
In our annual report, we informed shareholders about a revision to the
Company's share buyback policy. The Board remains committed to using share
buybacks to reduce discount volatility. Rather than targeting a fixed discount
level the Board aims to prevent any discount from diverging significantly from
that of similar investment trusts.
Over the period under review, the Company's share price rose 5.9% from
1,220.0p to 1,292.5p. This helped to narrow the discount to NAV from 14.8% on
30 June 2023 to 11.4% on 31 December 2023. Given that for the entire period
the discount was within our tolerated range we did not buy in any shares.
As at 31 December 2023, the number of shares held in treasury was unchanged at
6,271,254 and the total number in public hands at 11,952,159.
Gearing
Against an unsettled interest rate background for much of the period and
taking into consideration the views of the Portfolio Manager regarding
investment opportunities and outlook, the Board did not feel it appropriate to
deploy any gearing. However, should conditions improve going forward and the
outlook for smaller companies brighten, the Board will review their decision,
mindful that the ability to gear to enhance returns is one of the advantages
of a closed-end vehicle.
Shareholder communications
The Board encourages shareholders to visit the Company's website
(www.brownadvisory.com/ basc) for the latest information, podcasts and monthly
factsheets.
Outlook
US equity markets have begun 2024 on a more restrained note, having closed
2023 with a two-month rally which saw values near to their all-time highs and
looking somewhat overbought. Certainly, there are good reasons for renewed
caution in the short term. The geopolitical situation has, if anything,
deteriorated with no resolution to the Russia/Ukraine conflict, rising
tensions between China and Taiwan, and risks that the Israel/Hamas hostilities
spread to involve Iran or Saudi Arabia. The latter situation has also been
made worse by the Iran backed Houthi attacks on shipping in the Red Sea which
has given a fillip to oil prices. This, coupled with a still resilient US
economy and jobs market, risks putting renewed upward pressure on prices, just
at a time when markets and central banks were pointing to a turn in inflation
and a downward trajectory in interest rates. Finally, there is the risk that
markets are ahead of themselves in their expectations for corporate earnings
in the reporting season now underway.
The headwinds cited above may lead to more uncertain and volatile markets in
the short term. That said, looking further ahead, while geopolitical
developments are difficult to forecast, the prospects for the US economy
itself and its financial markets still appear reasonably favourable. Consumer
spending, a key driver of the economy, is holding up well, supported by high
confidence, continuing jobs growth and rising wages. Despite occasional blips,
inflation should continue to trend lower, allowing the Fed to make its first
interest rate cut sometime this year, albeit maybe later than the market
currently expects.
A resilient economy, falling inflation and cuts in interest rates should
provide a favourable background for US equities, with sentiment possibly
moving away from the mega caps given their recent performance. In this
environment smaller US companies should do well given their sensitivity to the
local economy and to interest rates, their attractive valuations versus large
caps and the fact that many investors have little exposure to the asset class,
being heavily exposed to a small number of mega caps. Within the sector, we
also see a return of interest to the quality companies in which we invest.
Having cash in hand and the ability as an investment trust to gear, we will
take full advantage of market opportunities as they arise.
Stephen White
Chairman
9 February 2024
Portfolio Manager's review
Our game plan heading into 2023 was to leverage our historical preparation for
what would likely be a volatile, sawtooth equity market following a growth-led
decline in 2022. Our fundamental assumption was volatility would reign as the
crosscurrents of economic growth, inflation, interest rates, and profound
geopolitical events push and pulled against one another. Although our turnover
remained low, our opportunism led to a high degree of productivity as we added
a number of new positions (seven in the second half of 2023), largely to soak
up a half dozen historical and present year merger and acquisition driven
exits. Overall, absolute returns were solid, although relative returns were
negatively impacted by a "dovish" Federal Reserve pivot that led to a fund
flow induced surge in the final weeks of the year.
Portfolio philosophy & process
As Shareholders know, the goal of our strategy is to produce an "all-weather"
portfolio capable of being owned over a full market cycle where attractive
risk-adjusted returns will be generated via bottom-up security selection
(offence) and portfolio construction (defence). The bedrock is our 3G approach
- we seek businesses with durable Growth, sound Governance, and scalable
Go-to-market ability. These characteristics help concentrate our gaze on
companies with an above average potential to compound earnings/ cash flows
over a multi-year period. The expected result is a high-quality portfolio
(i.e. low leverage, above average liquidity, generally historically solid
business execution, attractive margins/returns and consistency of earnings...)
with defensible valuation characteristics woven in a manner that seeks to
produce adequate diversification.
The successful execution of the process is contingent on 1) a strong,
well-organised team; 2) deep domain/company expertise; 3) consistent new idea
generation; 4) a rigorous sell discipline; and 5) resilience.
Our approach yields high active share, causing substantial short-term
variation when compared to standard small-cap benchmarks. Over the long term,
however, our results are greatly smoothed. The historical outcome has been
higher returns with less risk, and we aim to keep it this way going forward.
"Under the hood": economy, markets & positioning
Most of the absolute gains for period were driven during the final weeks of
the year. Our relative underperformance occurred during the same time. Fuelled
by $10-12bn of inflows following "dovish" Federal Reserve commentary, the
Russell 2000 Index experienced its largest December rally in history. As is
typical of these jerky moves, the small-cap market was led by extremely
shorted, negative earnings, highly shorted, single-digit share price, penny
stocks, negative cash flow, high volatility, stock issuers, low return on
equity (ROE), return on invested capital (ROIC), high bankruptcy risk and
zombie stocks.
The relative results witnessed at the tail end of the year are not a new
stylistic phenomenon. We have experienced very similar short-term variations
many times over the past 2 - 3 years... and dozens of times over the past 17 -
18 years. To say that we have become comfortably numb to these gyrations might
be a stretch, but we do know they are part of the process of striving to
achieve attractive risk-adjusted returns.
The conclusion to 2023 was the predominant force governing our year. However,
we would be remiss if we did not take a moment to illuminate a slightly more
microscopic view of the portfolio for our shareholders. The topic is relative
cyclicality.
The small-cap benchmarks have grown a bit more economically sensitive of late.
Strategically, we seek to embrace cyclical businesses that have an excellent
chance of driving to demonstrably higher highs and higher lows through the
cycle. One could say this makes us quite picky. In addition, based on the
uncertainties associated with inflation/interest rate and economic
normalisation post-Covid, we placed a premium on stability, resilience, and
fundamental visibility as we turned the page from 2022 to 2023. The result was
an underweight to cyclicals: consumer, industrials and information technology.
This tilt was not just expressed with sector weights, but the types of
businesses owned. For example, Bright Horizons (BFAM, consumer), Waste
Connections (WCN, industrials), Casella Waste (CWST, industrials), and CCC
Intelligent Solutions Holdings (CCCS, technology) are all housed in cyclical
areas, but are relatively stable businesses. This general thread of lower
cyclicality hurt returns in 2023 as the severe slowdown in economic growth
that occurred in the fourth quarter 2022 stabilized, causing an immense
sentiment shift and valuation expansion in these areas. It was further
exacerbated by the Fed's dovish pivot - at a time of economic strength! - from
December 1st to 13th by Chairman Powell.
On a final note, 2023 cannot be ushered out without a sentence or two on
generative artificial intelligence (AI) and GLP-1s (weight loss drugs). These
innovations provided structural narratives for investors to hold onto when the
rest of the environment appeared muddled. AI was an elixir for Technology,
prompting valuations to once again swell. And GLP-1 weight loss drugs weighed
on smaller capitalisation health care companies on the logic that skinnier is
healthier, thus theoretically lowering long-term demand for certain products
and services (i.e. hip/knee replacements, stents, cancer tests, etc...). Added
to our lack of high-beta cyclicality, our health care overweight position was
not particularly helpful as the sector badly lagged.
Portfolio attribution
For the period under review, the top contributors to performance were:
Pinterest, Inc., Neurocrine Biosciences, Inc., Prosperity Bancshares, Inc.,
Karuna Therapeutics, Inc. and TopBuild Corp.
Pinterest (PINS) continued to demonstrate revenue growth and margin expansion,
bolstering confidence in the new management team's strategic plan amidst an
improving advertising market backdrop. Prosperity Bancshares (PB) reported
reasonably solid results all year. However, it took decent economic growth, a
somewhat benign credit environment, and a more dovish Fed to push the stock
off the lows incurred post the collapse of Silicon Valley Bank earlier in the
year. TopBuild (BLD), a leading residential and commercial insulation
provider, rode a surprisingly strong new housing market as the supply of
existing homes for sale contracted. Furthermore, the company has been able to
add scale through selective acquisitions, consolidating its market share even
further.
In contrast, the bottom five were: Establishment Labs Holdings, Inc., Rentokil
Initial plc Sponsored ADR, agilon health inc., SI-BONE, Inc. and Phreesia,
Inc.
Establishment Labs (ESTA), a leading women's health company, experienced a
product approval delay in China and a degradation in market demand,
particularly in Europe, which forced channel inventory to correct. Our
original thesis hinged on US product approval, a likely 2024 event. Rentokil
(RTO), a leading pest control company, declined on weaker results in its US
division, which prompted competitive concerns. We believe these trends are
primarily related to its ongoing merger integration of Terminex and should be
transitory in nature. Agilon health (AGL), an innovative value-based care
company focused on the Medicare Advantage market, was impacted by a continued
rise in medical cost trend that required to the company to increase its
medical reserves for a second sequential quarter. This raised some concerns
around the company's ability to accurately forecast future medical expenses.
Phreesia (PHR), a leading health care IT company focused on patient intake,
dropped when new customer growth came in slightly below expectations for one
quarter. Subsequently, the company returned to on-trend customer growth and
announced a plan to dramatically improve profitability by curtailing a couple
of select near-term investments.
Outlook
We remain of the belief that the future is always uncertain and a long-term
view - time arbitrage - is more important than ever in today's headline
driven, rapidly moving equity market.
We are deeply committed to our bottom-up investment philosophy and believe
in-depth company knowledge is required to take advantage of inhuman
volatility. We added a number of new businesses to the portfolio this year,
and many of them saw intra-year price movements that altered the risk/reward
complexion enough for us to become interested in investing. Although we strive
to size all our new investments to within their targeted range quickly, many
of the 14 remain below our ultimate intended weight. In fact, we estimate that
there remains more than 500 basis points of latent buying potential across our
list of new holdings. When combined with our legacy positions, we have the
capacity to deploy cash across the portfolio and we are thus comfortable in
our ability to respond to Mr. Market's manic mood swings.
The ability to be flexible and adaptable is one of the most important pieces
of our investment process. Perhaps the Goldilocks thesis of a solid economy,
markedly lower inflation, and lower interest rates that emerged in December
will hold, but perhaps it will not. Perhaps the continued leadership of
large-caps (8 of last 10 years) and extreme market concentration will hold,
but perhaps it will not. We see the "perhaps not" outcome of the above
scenarios as having a higher probability than the market currently thinks. We
also believe geopolitical risk should be discounted above its current close to
0% rate. On balance, this leads us to conclude that our current sector biases
and capital deployment plan remain sound as we prepare for an anticipated
return to small-cap leadership, albeit timing unknown.
Conclusion
We encountered a December rally that was relatively unkind given our
philosophical bent. However, these vertical "risk-on" moves tend to be
unsustainable - at least this is what we have observed over the past 17 - 18
years. (In fact, the first two weeks of 2024 have already rolled back some of
December's performance.) And although it may take some time to manifest
itself, we believe in a future of sustained small-cap leadership. In our view,
the market is simply too concentrated - the largest five names by market
capitalisation are 3x the total Russell 2000 Index - and the historical
evidence too strong to ignore the category's potential. Although we cannot say
the area is a steal (i.e. cheap), we remain off the highs, relative valuation
is compelling, and we believe the size segment should move as capital
disperses from the Magnificent 7.
Our goal remains to drive attractive risk-adjusted returns over a full market
cycle. As previously stated, investment process success is contingent on the
following: 1) a strong, well-organised team; 2) deep domain/company expertise;
3) consistent new idea generation; 4) a rigorous sell discipline; and 5)
resilience. While we are confident in all aspects of our approach, we will
continually strive to improve in each and every area. We think time is on the
side of our philosophical approach and we appreciate Shareholders' trust and
interest in the strategy as we continue our investment journey.
Brown Advisory LLC
Portfolio Manager
9 February 2024
Twenty largest holdings as at 31 December 2023
31 December 2023 30 June 2023
Market value Percentage Market value Percentage
of Portfolio of Portfolio
Company Sector £'000 £'000
Waste Connections Industrials 6,518 4.0 6,255 3.9
Waste Connections, Inc. provides non-hazardous solid waste collection services
for commercial, industrial, and residential customers. The company offers
collection, landfill disposal, and recycling services for various recyclable
materials, including compost, cardboard, office paper, plastic containers,
glass bottles, and ferrous and aluminium metals.
Bright Horizons Family Solutions Bright Horizons Family Solutions Inc. Consumer discretionary 5,203 3.2 5,086 3.2
provides childcare and early education services as well as other services
designed to help employees and families to better address the challenges of
work and life. The company provides services primarily under multi-year
contracts with employers who offer childcare and other dependent care
solutions as part of their employee benefits packages.
Prosperity Bancshares Financials 4,346 2.7 3,633 2.3
Prosperity Bancshares, Inc. is the holding company for Prosperity Bank. The
Bank attracts deposits from the general public and uses those funds to
originate a variety of commercial and consumer loans. Prosperity Bank operates
in the greater Houston metropolitan area and neighbouring counties in Texas.
Casey's General Stores Consumer staples 4,020 2.5 4,050 2.6
Casey's General Stores, Inc. operates convenience stores in the Midwest. The
company offers food, beverages, tobacco products, health and beauty aids,
automotive supplies, and other non-food items, as well as selling gasoline.
SPDR S&P Biotech ETF Biotechnology 3,980 2.5 4,003 2.5
SPDR S&P Biotech ETF is an exchange-traded fund incorporated in the US.
The Fund seeks to replicate the performance of the S&P Biotechnology
Select Industry Index, an equal-weighted index. The index tracks all the US
common stocks listed on the NYSE, American Stock Exchange, NASDAQ National
Market and NASDAQ Small Cap exchanges.
Pinterest 'A' Communication services 3,923 2.4 2,905 1.8
Pinterest, Inc. operates and maintains a social networking site. The Company
provides an online platform that helps users gather ideas on oddities,
decorations, places to visit, recipes and other items. Pinterest serves
customers worldwide.
Neurocrine Biosciences Healthcare 3,874 2.4 2,778 1.8
Neurocrine Biosciences, Inc. is focused on the discovery and development of
therapeutics for neuropsychiatric, neuroinflammatory and neurodegenerative
diseases and disorders. The Company is developing therapeutic interventions
for anxiety, depression, Alzheimer's disease, insomnia, stroke, malignant
brain tumours, multiple sclerosis, obesity and diabetes.
NeoGenomics Healthcare 3,785 2.3 2,388 1.5
Operates a network of clinical laboratories that specialises in cancer
genetics diagnostic testing services. The Company's services include
cytogenetics, fluorescence in-situ hybridization (FISH), flow cytometry,
morphology, anatomic pathology, and molecular genetic testing. NeoGenomics
serves pathologists, oncologists, urologists and hospitals.
HB Fuller Materials 3,508 2.2 3,091 1.9
H.B. Fuller Company manufactures and markets adhesives, sealants, coatings,
paints and other specialty chemical products worldwide. The company's products
are sold in countries that include North America, Europe, Latin America, the
Asia Pacific region, India, the Middle East, and Africa.
ChampionX Energy 3,375 2.1 3,498 2.2
ChampionX Corporation provides energy solutions. The company focuses on
upstream and midstream oilfield technology such as chemistry programs and
drilling activities. ChampionX serves customers worldwide.
Dynatrace Information technology 3,212 2.0 3,742 2.4
Dynatrace, Inc., through its subsidiaries, develops software intelligence
platforms for the enterprise cloud. Its software intelligence platforms allow
customers to modernize and automate IT operations, develop and release high
quality software faster and improve user experiences for better business
outcomes.
Quaker Chemical Materials 3,093 1.9 2,834 1.8
Quaker Chemical Corporation, trading as Quaker Houghton, produces, develops
and markets industrial chemical products. The Company offers heat treatment,
metal forming, forging and tin plating fluids, as well as cleaners, casting
lubricants, greases, ground control agents and metal rolling oils. Quaker
Houghton serves customers globally.
Entegris Information technology 3,053 1.9 2,831 1.8
Entegris, Inc. provides materials management products and services to the
microelectronics industry on a worldwide basis. The company provides products
such as wafer shippers, wafer transport and process carriers, pods and
work-in-process boxes. Entegris also provides chemical delivery products such
as valves, fittings, tubing, pipe and containers.
EastGroup Properties, REIT EastGroup Properties, Inc. is an equity real estate Real estate 2,912 1.8 2,761 1.7
investment trust. The trust acquires and develops industrial properties in
major sunbelt markets throughout the US with a special emphasis in the states
of California, Florida, Texas and Arizona.
CCC Intelligent Solutions Holdings Provides cloud-based software as a service Industrials 2,906 1.8 301 0.2
(SaaS) platform connecting trading partners, facilitating commerce and
supporting mission-critical, artificial intelligence-enabled digital
workflows.
Mister Car Wash Consumer discretionary 2,883 1.8 2,749 1.7
Mister Car Wash, Inc. operates as a car wash company. The Company offers car
exterior and interior cleaning services. Mister Car Wash serves customers
across the US.
BlackLine Information technology 2,856 1.8 2,468 1.5
BlackLine, Inc. develops and markets enterprise software. The company offers
cloud-based software that automates and manages complex, manual, and
repetitive accounting processes. BlackLine serves customers globally.
Casella Waste Systems A Provides integrated and non-hazardous solid waste Industrials 2,846 1.8 1,208 0.8
services throughout the Eastern United States. The Company offers collection,
transfer, disposal and recycling services, generates steam, and manufactures
finished products utilising recyclable materials.
Encompass Health Healthcare 2,813 1.7 2,620 1.6
Provides inpatient rehabilitative healthcare services. The Company operates
inpatient rehabilitation hospitals, outpatient and rehabilitation satellites,
and home health agencies. Encompass Health provides treatment on both an
inpatient and outpatient basis.
MSA Safety Industrials 2,808 1.7 2,900 1.8
MSA Safety Inc. develops, manufactures and supplies safety products that
protect people and facility infrastructures. The company's core products
include self-contained breathing apparatus, fixed gas and flame detection
systems, portable gas detection, head protection and fall protection products.
Total 71,914 44.5
The value of the twenty largest equity holdings represents £71.9 million (30
June 2023: £69.6 million) and 44.5% (30 June 2023: 43.8%) of the Company's
total investments.
As at 30 June 2023 and 31 December 2023, none of the Company's assets were
invested in the securities of other listed closed-ended investment companies.
Interim management report
Related party transactions
During the first six months of the current financial year no transactions with
related parties have taken place which have materially affected the financial
position or performance of the Company. Details of related party transactions
are contained in the Annual Report & Financial Statements for the year
ended 30 June 2023 and in this report.
Principal and emerging risks and uncertainties
The Company is exposed to the effect of variations in the price of its
investments. A fall in the value of its portfolio will have an adverse effect
on shareholders' funds. It is not the aim of the Board to eliminate entirely
the risk of capital loss; rather it aims to seek capital growth. The Board
reviews the Company's investment strategy and the risk of adverse share price
movements at its quarterly board meetings considering the economic climate,
market conditions and other factors that may have an effect on the sectors in
which the Company invests. Other key risks faced by the Company relate to
liquidity risk, the discount to net asset value, regulatory risk, credit and
counterparty risk, loss of key personnel, and operational and financial risks.
Further details of the principal and emerging risks and uncertainties
associated with the Company's business are set out in the Annual Report &
Financial Statements for the year ended 30 June 2023. In the view of the
Board, these principal and emerging risks and uncertainties continue to apply
and they are constantly under review.
Going concern
The Half Yearly Financial Report has been prepared on a going concern basis.
The Directors consider that this is the appropriate basis as they have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. In considering this, the
Directors took into account the Company's investment objective, risk
management policies and capital management policies, the diversified portfolio
of readily realisable securities which can be used to meet short-term funding
commitments and the ability of the Company to meet all of its liabilities and
ongoing expenses.
Directors' responsibility statement
The Directors confirm to the best of their knowledge that:
(a) the condensed set of financial statements, prepared in accordance
with the applicable set of accounting standards, gives a true and fair view of
the assets, liabilities, financial position and profit or loss of the Company
at, or, as applicable, for the period ended 31 December 2023.
(b) the Chairman's statement, the Portfolio Manager's review and the
interim management report include a fair review of the information required by
Disclosure Guidance and Transparency Rule 4.2.7R; and
(c) the interim management report includes a fair review of the
information required by Disclosure Guidance and Transparency Rule 4.2.8R on
related party transactions.
The Half Yearly Financial Report has not been audited or reviewed by the
Company's auditors.
For and on behalf of the Board
Stephen White
Chairman
9 February 2024
Income statement
For the six months ended 31 December 2023 (unaudited)
Six months to 31 December 2023 Six months to 31 December 2022
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains from investments held at fair value through profit or loss (Note 2) - 3,715 3,715 - 9,184 9,184
Currency exchange loss - (120) (120) - (40) (40)
Investment income 613 - 613 452 - 452
Total income 613 3,595 4,208 452 9,144 9,596
Management fee (603) - (603) (583) - (583)
Other expenses (263) (1) (264) (234) (1) (235)
(Loss)/return before taxation (253) 3,594 3,341 (365) 9,143 8,778
Taxation (80) - (80) 292 - 292
Net (loss)/return after taxation (333) 3,594 3,261 (73) 9,143 9,070
Net (loss)/return per Ordinary share (Note 3)
(2.78)p 30.07p 27.29p (0.62)p 76.50p 75.88p
The 'Total' column of this statement is the profit and loss account of the
Company.
The 'Revenue' and 'Capital' columns represent supplementary information
prepared under guidance issued by the Association of Investment Companies. The
Company has no other comprehensive income, and therefore the net return after
taxation is also the total comprehensive income for the year.
All items in the above statement derive from continuing operations. No
operations were acquired or discontinued in the period.
The financial information does not constitute 'accounts' as defined in section
434 of the Companies Act 2006.
Statement of financial position
As at 31 December 2023 (unaudited)
31 December 2023 30 June 2023
(unaudited) (audited)
£'000 £'000
Fixed assets
Investments at fair value through profit or loss 161,564 159,134
Current assets
Debtors 79 67
Cash at bank and in hand 13,377 12,444
13,456 12,511
Creditors: amounts falling due within one year (612) (498)
Net current assets 12,844 12,013
Total assets less current liabilities 174,408 171,147
Capital and reserves
Called up share capital 4,555 4,555
Share premium account 19,550 19,550
Non-distributable reserve 841 841
Capital redemption reserve 9,628 9,628
Retained earnings - capital reserve 149,684 146,090
Retained earnings - revenue reserve (9,850) (9,517)
Total shareholders' funds 174,408 171,147
Net asset value per Ordinary share (Note 6) 1,459.2p 1,431.9p
The financial statements were approved by the Board of Directors and signed on
its behalf on 9 February 2024.
Stephen White
Chairman
Company Registration Number 02781968
Statement of cash flows
For the six months ended 31 December 2023
Six months ended Six months ended
31 December 2023 31 December 2022
(unaudited) (unaudited)
£'000 £'000
Cash flows from operating activities
Investment income received (gross) 517 358
Deposit interest received 88 23
Investment management fee paid (591) (292)
Other cash expenses (291) (140)
Net cash outflow from operating activities before taxation and interest
(277) (51)
Taxation (80) (49)
Net cash outflow from operating activities (357) (100)
Cash flows from investing activities
Purchases of investments (18,975) (28,799)
Sales of investments 20,385 32,588
Net cash inflow from investing activities 1,410 3,789
Cash flows from financing activities
Net cash inflow from financing activities - -
Increase in cash 1,053 3,689
Cash and cash equivalents at the start of the period 12,444 8,218
Realised loss on foreign currency (120) (40)
Cash and cash equivalents at end of period 13,377 11,867
Statement of changes in equity
For the six months ended 31 December 2023 (unaudited)
Retained earnings
Called up share capital Share premium Non-distributable reserve Capital redemption reserve Capital reserve Revenue reserve* Total
For the six months to 31 December 2023 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 July 2023 4,555 19,550 841 9,628 146,090 (9,517) 171,147
Net return for the period - - - - 3,594 (333) 3,261
Balance at 31 December 2023
4,555 19,550 841 9,628 149,684 (9,850) 174,408
Retained earnings
Called up share capital Share premium Non-distributable reserve Capital redemption reserve Capital reserve Revenue reserve* Total
For the six months to 31 December 2022 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 July 2022 4,555 19,550 841 9,628 129,726 (8,460) 155,840
Net return for the period - - - - 9,143 (73) 9,070
Balance at 31 December 2022
4,555 19,550 841 9,628 138,869 (8,533) 164,910
Retained earnings
Called up share capital Share premium Non-distributable reserve Capital redemption reserve Revenue reserve* Total
Capital reserve
For the year ended 30 June 2023 (audited) £'000 £'000 £'000 £'000 £'000 £'000
£'000
Balance at 1 July 2022 4,555 19,550 841 9,628 129,726 (8,460) 155,840
Net return for the year - - - - 16,364 (1,057) 15,307
Balance at 30 June 2023 4,555 19,550 841 9,628 146,090 (9,517) 171,147
* Under the Company's Articles of Association any dividends may be
distributed only from the revenue reserve element of retained earnings and, as
at 31 December 2023, there were no available earnings of this type.
Notes to the financial statements
For the six months to 31 December 2022
1. Accounting policies
The accounting policies applied for the condensed financial statements are as
set out in the Company's Annual Report & Accounts for the year ended 30
June 2023. They have been applied consistently during the period ended 31
December 2023.
FRS 104, 'Interim Financial Reporting', issued by the FRC in March 2015 has
been applied in preparing the financial statements included in this half
yearly report.
Basis of accounting
The accounts of the Company are prepared on a going concern basis under the
historical cost convention, modified to include fixed asset investments at
fair value through profit or loss and in accordance with the Companies Act
2006, UK GAAP and with the Statement of Recommended Practice ('SORP') for
Investment Trust Companies and Venture Capital Trusts issued by the
Association of Investment Companies ('AIC') in November 2014 and updated in
April 2021.
The functional and reporting currency of the Company is pounds sterling
because that is the currency of the primary economic environment in which the
Company operates.
In accordance with the SORP, the Income Statement has been analysed between a
revenue account (dealing with items of a revenue nature) and a capital account
(relating to items of a capital nature). Revenue returns include, but are not
limited to, dividend income, operating expenses and tax. Net (http://tax.Net)
revenue returns are allocated via the revenue account to the retained
earnings, out of which dividend payments may be made. Capital returns include,
but are not limited to, profits and losses on the disposal and revaluation of
fixed asset investments and currency profits and losses on cash and
borrowings. Net (http://borrowings.Net) capital returns may not be distributed
by way of dividend and are allocated via the capital account to the retained
earnings.
2. Gains on investments held at fair value through profit or loss
Six months to 31 December 2023 Six months to 31 December 2022
£'000 £'000
Net (losses)/gains realised on sale of investments (3,382) 1,901
Movement in investment holdings gains 7,097 7,283
Gains on investments held at fair value through profit or loss
3,715 9,184
3. Return per Ordinary share
Six months to 31 December 2023 Six months to 31 December 2022
£'000 £'000
Net revenue loss (333) (73)
Net capital return 3,594 9,143
Net total return 3,261 9,070
Weighted average number of Ordinary shares in issue during the period
11,952,159 11,952,159
Net revenue loss per Ordinary share (2.8)p (0.6)p
Net capital return per Ordinary share 30.1p 76.5p
Net return per Ordinary share 27.3p 75.9p
4. Transaction costs
During the period, expenses were incurred in acquiring or disposing of
investments classified as fair value through profit or loss. These have been
expensed through capital and are included within gains on investments in the
Income Statement. The total costs were as follows:
Six months to 31 December 2023 Six months to 31 December 2022
£'000 £'000
Purchases 20 27
Sales 18 19
Total 38 46
5. Comparative information
The financial information contained in this interim report does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. The
financial information for the six months to 31 December 2023 and 31 December
2022 has not been audited.
The information for the year ended 30 June 2023 has been extracted from the
latest published audited financial statements. The audited financial
statements for the year ended 30 June 2023 have been filed with Companies
House. The report of the auditors on those accounts contained no qualification
or statement under section 498(2) or (3) of the Companies Act 2006.
6. Net asset value per Ordinary share
The net asset value per Ordinary share as at 31 December 2023, calculated in
accordance with the Articles of Association, was as follows:
31 December 2023 30 June 2023
Net asset value per share attributable Net asset value per share attributable
Net assets attributable Net assets attributable
(p) £'000 (p) £'000
Ordinary shares 1,459.2 174,408 1,431.9 171,147
Net asset value per Ordinary share on the balance sheet is based on net assets
of £174,408,000 (30 June 2023: £171,147,000) and on 11,952,159 (30 June
2023: 11,952,159) Ordinary shares, being the number of Ordinary shares in
issue at the end of the period.
7. Fair valuation of investments
The fair value hierarchy analysis for investments held at fair value at the
period end is as follows:
31 December 2023 30 June 2023
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Investments 161,564 - - 161,564 159,134 - - 159,134
Financial instruments include fixed asset investments, derivative assets and
liabilities.
Accounting standards recognise a hierarchy of fair value measurements for
financial instruments which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (level 1) and the
lowest priority to unobservable inputs (level 3). The classification of
financial instruments depends on the lowest significant applicable input, as
follows:
Level 1 - Unadjusted, fully accessible and current quoted prices in active
markets for identical assets or liabilities. Included within this category are
investments listed on any recognised stock exchange.
Level 2 - Quoted prices for similar assets or liabilities, or other directly
or indirectly observable inputs which exist for the duration of the period of
investment. Examples of such instruments would be those for which the quoted
price has been recently suspended, forward exchange contracts and certain
other derivative instruments.
Level 3 - External inputs are unobservable. Value is the Directors' best
estimate, based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar instruments.
Included within this category are unquoted investments.
8. Related parties and transactions with the manager
FundRock Partners Limited (FundRock) has been appointed as AIFM to the Company
pursuant to an Alternative Investment Fund Management Agreement between
FundRock and the Company. FundRock has also been appointed to provide company
secretarial services to the Company.
Brown Advisory has been appointed to provide portfolio management services
pursuant to a Portfolio Management Agreement between the Company, FundRock and
Brown Advisory.
The management fee has been calculated at an annual rate of 0.7% on the first
£200 million; 0.6% of the next £300 million; and 0.5% thereafter of the
Company's adjusted net assets.
The management fee is payable by the Company to FundRock, who shall deduct
from the management fee the amounts due to it as AIFM and for company
secretarial services and shall pay the balance to Brown Advisory.
The management fee is calculated and payable on a quarterly basis.
The investment management fee payable to FundRock for the period 1 July 2023
to 31 December 2023 was £603,000. For the period 1 July 2022 to 31 December
2022 the fee payable was £583,000.
The appointment of Brown Advisory and FundRock may be terminated by not less
than six months' notice.
There are no transactions with the directors other than the remuneration paid
to the directors as disclosed in the Directors' Remuneration Report on pages
51 to 54 of the 2023 Annual Report & Accounts and as set out in Note 5 to
the Accounts on page 71 and the beneficial interests of the directors in the
ordinary shares of the Company as disclosed on page 53 of the 2023 Annual
Report & Accounts.
Availability of Half Yearly Financial Report
The Half Yearly Financial Report will shortly be available on the Company's
website www.brownadvisory.com/basc
A copy of the Half Yearly Financial Report will also be submitted to the
National Storage Mechanism and will soon be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
End
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