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BlackRock Smaller Companies Trust Remain Confident in Portfolio Outlook

BlackRock Smaller Companies Trust plc (LON: BRSC) have provided a portfolio update dated 31st July 2019.

All information is at 31 July 2019 and unaudited.
Performance at month end is calculated on a capital only basis

One month
Three months
One
 year
Three
 years
Five
 years
Net asset value*0.5-1.3-8.846.866.8
Share price*-3.2-4.1-7.765.577.7
Numis ex Inv Companies + AIM Index0.0-2.2-9.914.916.3

*performance calculations based on a capital only NAV with debt at par, without income reinvested. Share price performance calculations exclude income reinvestment.

Sources: BlackRock and Datastream

At month end
Net asset value Capital only(debt at par value):1,487.61p
Net asset value Capital only(debt at fair value):1,476.86p
Net asset value incl. Income(debt at par value)1:1,507.49p
Net asset value incl. Income(debt at fair value)1:1,496.75p
Share price1,398.00p
Discount to Cum Income NAV (debt at par value):7.3%
Discount to Cum Income NAV (debt at fair value):6.6%
Net yield2:2.2%
Gross assets3:£771.5m
Gearing range as a % of net assets:0-15%
Net gearing including income (debt at par):6.0%
2019 Ongoing charges ratio4:0.7%
Ordinary shares in issue5:47,879,792

  1. includes net revenue of 19.89p.
  2. Yield calculations are based on dividends announced in the last 12 months as at the date of release of this announcement, and comprise of the final dividend of 19.20 pence per share, (announced on 03 May 2019, ex-dividend on 16 May 2019).
  3. includes current year revenue.
  4. As reported in the Annual Financial Report for the year ended 28 February 2019 the Ongoing Charges Ratio (OCR) was 0.7%. The OCR is calculated as a percentage of net assets and using operating expenses, excluding performance fees, finance costs and taxation.
  5. excludes 2,113,731 shares held in treasury.
Sector Weightings% of portfolio
Industrials29.5
Financials22.1
Consumer Services16.7
Consumer Goods8.8
Health Care7.4
Technology5.7
Basic Materials5.1
Oil & Gas4.3
Telecommunications0.4
—–
Total100.0
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Ten Largest Equity Investments
Company% of portfolio
4imprint Group2.8
YouGov2.4
IntegraFin2.0
Liontrust Asset Management1.8
Johnson Service Group1.7
Polar Capital Holdings1.7
Dechra Pharmaceuticals1.6
Robert Walters1.6
Fuller Smith & Turner – A Shares1.6
RWS Holdings1.6

Commenting on the markets, Roland Arnold, representing the BlackRock Smaller Companies Trust Investment Manager noted:

During July the Company’s NAV per share rose by 0.5% to 1,487.61p, whilst our benchmark index, Numis ex Inv Companies + AIM Index, was flat, returning 0.0%; the FTSE 100 Index rose by 2.2% (all calculations are on a capital only basis).

July was month where equity markets were once again dominated by the macro and political environment. Increasing concerns around the likelihood of a no-deal Brexit added further pressure to Sterling and resulted in our benchmark delivering a flat return during the month. Against this backdrop it was pleasing for the portfolio to continue to benefit from strong stock specifics in order to drive a positive return.

The largest positive contributor to performance was asset manager Liontrust which rose after the company provided a trading update highlighting that assets under management had increased to £14 billion, helped by strong inflows, particularly in the UK retail market, with market moves also contributing to this increase. The CEO commented that the positive start to the financial year was achieved through factors including strong investment performance and the quality of sales and marketing teams and shows that the growth strategy is on track. Shares in YouGov rose after the company highlighted that full year results are likely to be “comfortably ahead” of expectations as sales growth continues to outpace the rest of the market research sector. This company is a great example of a nimble business that continues to expand its product offering, adapting to changing customer demands and opening up future channels for growth. Specialist media publisher, Future, issued a positive trading update confirming that revenues and profits are ahead of expectations and UK textile rental provider, Johnson Service Group, confirmed that trading in the business remains strong and upgraded guidance.

Recruiter, Robert Walters, reported strong international growth, however the shares fell in response to a slowdown in UK net fee income. Uncertainty caused by Brexit has led to cooling in the UK jobs market, however at group level Robert Walters continues to perform well with growth in international markets more than offsetting weakness in the UK. The business is well diversified globally, operating in 31 countries and it generates more than three quarters of its profits from outside of the UK, and is therefore not dependent on strength in any single market. Within industrials, Trifast and Bodycote, both detracted during the month as the volatile economic environment has led to challenges in some of their end markets.

Equity markets have made strong progress throughout 2019, in many cases shrugging off the ongoing geopolitical uncertainty and softening economic data; however, the economic environment remains challenged. Macroeconomic and geopolitical concerns will add to market volatility. In times like these it is often smaller companies that are the first to be impacted by changes in sentiment and spikes in market volatility. Therefore, despite our view that we are not approaching the end of the cycle, we continue to operate with a lower level of gearing than the historical average. We do however remain confident in the outlook for the companies in our portfolio. Our portfolio consists of market leading global businesses, which are operating in attractive end markets, that are well capitalised and run by strong management teams, which we believe have the ability to navigate the current economic environment.

1Source: BlackRock as at 31 July 2019