BlackRock Smll Cos Portfolio Update
January 26 2023 - 11:10AM
UK Regulatory
TIDMBRSC
The information contained in this release was correct as at 31 December2022.
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 December 2022 and unaudited.
Performance at month end is calculated on a Total Return basis based on NAV per
share with debt at fair value
One Three One Three Five
month months year years years
% % % % %
Net asset value -1.0 11.6 -26.4 -1.7 14.8
Share price 0.3 12.5 -34.3 -15.3 15.8
Numis ex Inv Companies + AIM Index -1.2 6.9 -21.9 -1.7 1.1
Sources: BlackRock and Datastream
At month end
Net asset value Capital only (debt at par value): 1,498.30p
Net asset value Capital only (debt at fair value): 1,544.71p
Net asset value incl. Income (debt at par value)1: 1,521.60p
Net asset value incl. Income (debt at fair value)1: 1,568.01p
Share price: 1,356.00p
Discount to Cum Income NAV (debt at par value): 10.9%
Discount to Cum Income NAV (debt at fair value): 13.5%
Net yield2: 2.7%
Gross assets3: £812.5m
Gearing range as a % of net assets: 0-15%
Net gearing including income (debt at par): 2.7%
Ongoing charges ratio (actual)4: 0.7%
Ordinary shares in issue5: 48,829,792
1. Includes net revenue of 23.30p
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 paid 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.
Sector Weightings % of portfolio
Industrials 33.9
Consumer Discretionary 19.9
Financials 14.1
Technology 8.3
Consumer Staples 5.4
Basic Materials 5.0
Energy 4.9
Health Care 3.9
Telecommunications 2.7
Real Estate 0.8
Utilities 0.6
Communication Services 0.5
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Total 100.0
=====
Country Weightings % of portfolio
United Kingdom 99.2
United States 0.8
-----
Total 100.0
=====
Ten Largest Equity Investments % of portfolio
Company
4imprint Group 2.9
CVS Group 2.8
Gamma Communications 2.7
Watches of Switzerland 2.4
Qinetiq Group 2.0
Ergomed 2.0
Spirent Communications 1.9
Oxford Instruments 1.9
Bloomsbury Publishing 1.9
Impax Asset Management 1.8
Commenting on the markets, Roland Arnold, representing the Investment Manager
noted:
During December the Company's NAV per share fell by -1.0% to 1,568.01p on a
total return basis (with debt at fair value), while our benchmark index fell by
-1.2%. For comparison the large cap FTSE 100 Index returned -1.5%.
Equity markets fell in December as investors priced in expectations of higher
for longer interest rates. The Federal Reserve, the Bank of England and the
European Central Bank, all hiked rates by 50bps during the month. In the UK the
base rate is now 3.5%, which after 8 increases in 2022, is 3.25% higher than
where it started the year. Central bankers continue to take a relatively
hawkish stance highlighting, whilst goods inflation may be easing, that supply
side pressures, notably tight labour markets, are keeping services inflation at
elevated levels.
In China, the government announced a relaxation to the contentious zero-COVID
policy and signalled a shift in focus from battling COVID-19 to stabilising the
economy. Whilst bulls are encouraged by the likely rebound in demand this
should have as China reopens, it has simultaneously led to concerns that
surging infections will lead to temporary labour shortages and further supply
chain disruptions.
While markets sold off during the month and small & mid-caps appeared to bear
the brunt of the pain, particularly within the more growth orientated stocks,
the Company was able to marginally outperform thanks to positive trading
updates from our holdings. Energy services provider Hunting rose after the
company announced robust trading in 2022 with upgrades to guidance for 2023 as
a result of a strong sales book which will be monetised in the coming years.
Online travel agent, On the Beach, rallied after reporting a return to profit
for the full year to September 2022. The company pointed to success being
driven by investments made in brand, technology and customer proposition over
the last 12 months. Despite the ongoing challenges facing the travel industry
in 2023 as a result of the cost of living crisis, management feel confident in
their position due to the foundations that they have laid over the last year.
Games Workshop contributed to the Company's performance, where its positive
returns were the result of the company's announcement of a potential deal with
Amazon to develop a new TV series with the Warhammer franchise.
A key feature during the month of December was the reversal in many of the best
performing shares from November, as many gave back gains during the market
sell-off, for example Watches of Switzerland, Auction Technology Group and
Impax Asset Management. Shares in Serica Energy slumped after the company
reported disappointing drilling results from its North Eigg well off the coast
of Scotland. This latest disappointment added pressure to the shares, which
have been impacted recently by the UK Governments increased windfall tax
legislation.
We believe 2023 will see continuation of recent themes of uncertainty; Russia/
Ukraine war, China, supply chains and inflation. However, we expect to see an
end to interest rate rises and we think inflation is peaking. Generally
speaking, financial conditions are not too stretched; corporates and consumers
are reasonably well capitalised, and banks have plenty of capital. As such the
path of employment will dictate the consumer outlook but we continue to expect
the trough to be shallower than in previous recessions.
Industrial activity is likely to decline as inventory works through the system
but given major markets such as automotive and aerospace were seeing choked
demand through supply chain issues, again we expect a shallower trough.
Housebuilding and RMI (repair, maintenance and improvement) will have a tough
H1, but given the rapid re-pricing of mortgages post Prime Minister Truss, the
outlook isn't as bad as it was in September. Valuations have corrected quickly
and looking back it appears all consumer orientated stocks overshot to the
downside during the chaotic period around the Truss budget.
We expect to see M&A (Mergers & Acquisitions) picking up through the course of
the year as management teams shift the focus away from returning excess cash
flow to deploying it.
We are not out of the woods yet. In the face of a likely tough reporting
season, we could very easily see another sell off. Therefore, gearing within
the portfolio remains low and we are keeping our powder dry for the time being.
However, with oil and gas prices lower year-on-year, China re-opening, US$
weakening, shipping / logistics / factory gate prices dropping, much of the
inflation pressure of last year could become deflationary during the course of
this year.
Against this difficult backdrop, we remind ourselves that many equity markets
(Europe, UK) are structurally under owned and could benefit as sentiment turns
and investors begin to reduce these underweights. We remain focused 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.
1Source: BlackRock as at 31 December 2022
26 January 2023
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.
END
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