BlackRock Smaller Companies NAV during October outperformed benchmark index

BlackRock

BlackRock Smaller Companies Trust plc (LON:BRSC) has announced its latest portfolio update.

All information is at 31 October 2022 and unaudited.

To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc

Performance at month end is calculated on a Total Return basis based on NAV per share with debt at fair value 

One month
%
Three months
%
One
 year
%
Three
 years
%
Five
 years
%
Net asset value4.3-11.8-30.15.99.3
Share price4.8-12.0-34.4-6.810.4
Numis ex Inv Companies + AIM Index2.1-9.5-24.94.9-2.1

Sources:  BlackRock and Datastream

At month end

Net asset value Capital only (debt at par value):1,402.56p
Net asset value Capital only (debt at fair value):1,446.60p
Net asset value incl. Income (debt at par value)1:1,435.87p
Net asset value incl. Income (debt at fair value)1:1,479.92p
Share price:1,276.00p
Discount to Cum Income NAV (debt at par value):11.1%
Discount to Cum Income NAV (debt at fair value):13.8%
Net yield2:2.9%
Gross assets3:£770.6m
Gearing range as a % of net assets:0-15%
Net gearing including income (debt at par):2.2%
Ongoing charges ratio (actual)4:0.7%
Ordinary shares in issue5:48,829,792
  1. Includes net revenue of 33.31p
  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 final ex-dividend of 22.00 pence per share (announced on 29 April 2022, ex-date on 12 May 2022, and pay date 17 June 2022), and an interim dividend of 14.50 pence per share (announced on 3 November 2022, ex-dividend on 10 November 2022, and payable 9 December 2022).
  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 2022.
  5. Excludes 1,163,731 ordinary shares held in treasury.

Ten Largest Equity Investments

Company% of portfolio
CVS Group3.1
4imprint Group3.0
Gamma Communications2.8
Watches of Switzerland2.5
Bloomsbury Publishing2.3
Qinetiq Group2.3
Ergomed2.2
Spirent Communications2.1
Auction Technology1.9
Oxford Instruments1.9

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

During October the Company’s NAV per share rose by 4.3%1 to 1,479.92p on a total return basis (with debt at fair value), while our benchmark index rose by 2.1%1. For comparison the large-cap FTSE 100 Index returned 3.0%1.

After a weak and volatile third quarter, equity markets stabilised in October as signs began to emerge that tightening monetary policy from many major central banks may be finally feeding through to economic activity and importantly helping to curb inflationary pressures.

Sentiment towards the UK turned more positive during the month, albeit from a very low base. Liz Truss resigned as Prime Minister, less than two months after assuming the post and following a chaotic period where her plans for large, unfunded tax cuts sparked market turmoil and forced a total policy reversal. Late in the month Rishi Sunak assumed the role as leader of the Conservative party and was appointed as Prime Minister, the third in as many months. Following his appointment, he quickly announced his new cabinet and reinforced his desire for stability during this challenging time for the UK economy. The announcement brought some calm to UK equities and    Sterling strengthened, providing support to domestic earners. As a result, and in contrast to the trend that has been witnessed throughout most of 2022, the mid-cap FTSE 250 Index outperformed during the month, however it remains some way behind the large-cap FTSE 100 Index (year to date). The small-cap index however, continued to lag through October.

The largest positive contributor to performance was Bloomsbury Publishing, which saw its shares rally after reporting record first half sales and profits, and as a result increasing the dividend. Sales growth in their consumer publishing business remained strong as demand for books has continued since the COVID pandemic emerged, and management remain confident in the outlook for the business given its breadth across consumer and academic markets, growth of digital and global diversification. Impax Asset Management reported positive net inflows in the third quarter despite the macroeconomic backdrop, with notable progress in Asia-Pacific and United States. A focus on the sustainability transition continues to attract investors to Impax, which has proven itself as a market leader in this space and we therefore remain confident in the long-term outlook for the business to take share and grow. Shares in Watches of Switzerland (WOSG) also rallied during the month. Despite no stock specific newsflow, industry data continues to show no deterioration in trading across luxury retailers, and the de-rating that WOSG has experienced during the year could now be catching the attention of investors.

The largest detractor during the month was Serica Energy which gave back some recent performance after being caught up in concerns over the impact of UK windfall tax legislation. While the impact is likely to be more detrimental to smaller companies in the oil sector, we remain comfortable with our holding in Serica given it owns producing assets with good cashflow and over £500m in net cash. Shares in Inspecs tumbled after the company reported a deterioration in trading, particularly in Europe and as a result has delayed investment into its new factories in Vietnam and Portugal.

The coming months are likely to remain highly uncertain, with heightened volatility as investors continue to focus on the path for monetary policy, inflation data, the oil price and geopolitics. The political environment is likely to remain a key driver of short-term swings in the currency, which will have the potential to drive outsized sector level moves. As a result we are continuing to keep gearing in the portfolio low at this time, in order to protect shareholders from the ongoing volatility, however we remain prepared to put capital to work when we feel the time is right. While the macro environment is likely to present its fair share of challenges for lots of companies, it is important to remember that the effects of the challenging environment will not be felt evenly. We are therefore sticking to our core beliefs and focusing on bottom-up company specific analysis to identify high quality, nimble businesses, operated by entrepreneurial management teams, with strong market positions and resilient cash-flows. These are the types of businesses that we believe will be best placed to manage and thrive in the current environment. Historically these periods have been followed by strong returns for the strategy and presented excellent investment opportunities. We thank shareholders for their ongoing support and look forward to providing further confirmation of the investment cases that we are exposed to within the portfolio in the coming months.

     1Source: BlackRock as at 31 October 2022

To learn more about the BlackRock Smaller Companies Trust plc please follow this link: blackrock.com/uk/brsc

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