BlackRock Smaller Companies Trust Plc - Portfolio Update

The information contained in this release was correct as at 31 August 2024.  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 August 2024 and unaudited.
Performance at month end is calculated on a Total Return basis based on NAV per share with debt at fair value
 

Sources:  BlackRock and Deutsche Numis

*With effect from 15 January 2024 the Numis Smaller Companies plus AIM (excluding Investment Companies) Index to Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).

At month end

1. Includes net revenue of 27.57p
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 Interim dividend of 15.00 pence per share (announced on 26 October 2023, ex-date on 02 November 2023, and paid 04 December 2023) and the final dividend of 27.00 pence per share (announced on 14 May 2024, ex-date on 23 May 2024, and paid 24 June 2024).
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 2023.
5. Excludes 2,893,731 ordinary shares held in treasury.

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

During August the Company’s NAV per share returned -2.0% to 1,684.48p on a total return basis, while our benchmark index returned -1.2%. For comparison the large cap FTSE 100 Index rose by 0.9%.1

Equity market volatility remained a feature during August. Early in the month, markets around the world saw sharp declines in response to a combination of disappointing economic data out of the US and an interest rate hike by the Bank of Japan. Market sentiment improved during the second half of the month as investors found reassurance in the potential interest rate cuts by the Federal Reserve (Fed), especially following comments made by Powell at the economic symposium at Jackson Hole, as well as a robust Q2 earnings season. As a result, most markets were able to recover their losses and end the month in positive territory, however despite the second half pullback, UK small and mid-caps ended the month down.

During the month, The Bank of England (BoE) cut the base interest rate by 0.25 percentage points to 5%, marking the first reduction since the pandemic. The BoE also upgraded its growth forecast for 2024 to 1.25%. Additionally, the Office for National Statistics reported that the UK economy grew by 0.6% in the second quarter of 2024, all of which contributed to the upshift and stabilization of the markets.

The Company’s performance during the month was somewhat disappointing, as positive updates from our holdings far outweighed any negative stock specific developments. However, there are sometimes months where the overall portfolio performance is more impacted by what we don’t own than what we do. August was one of those months where four of the top five detractors to performance were shares that we do not own; Bank of Cyprus, Playtech, Plus500 and Just Group all saw double digit share prices, causing a significant headwind to relative performance. Shares in 4imprint drifted lower after the company reported H1 results with a slightly more cautious tone. Although the company continued to grow revenue and profits, while maintaining a double-digit operating margin, management highlighted ongoing softness in industry demand, with recession, interest rates and inflation, weighing on their customers budgets.

The largest positive contributor during the month was specialist business advisory firm, FRP Advisory. The company recently reported solid full year results to the end of April, highlighting excellent growth in both revenues and profits, with all five of its key pillars making a positive contribution. Strong organic growth across the group has been supplemented by targeted acquisitions, and the company maintains a net cash balance sheet with healthy M&A pipeline, which was further demonstrated post month-end with the acquisition of WlliamsAli Corporate Finance. Other notable contributors included Gamma Communications, which has seen a steady increase in its share price through the course of the year, and Baltic Classifieds which continued to appreciate following solid full-year results in July.

In summary, and as we have highlighted for a long period of time now, the current valuation of the UK market, and in particular UK small and mid-cap, is about as attractive as we have ever seen. Meanwhile, the economic backdrop is certainly improving. Unemployment remains low, balance sheets remain strong, inflation is falling, consumer confidence and PMIs are improving. This backdrop gives confidence that the earnings outlook for our businesses is broadly supportive for an earnings recovery. Meanwhile, Labour’s victory in the General election could now mark the end of the persistent investor aversion from the UK and stem the outflows from UK small and mid-caps. Labour’s business friendly policies and some much-needed stability in government, should provide a more positive backdrop for businesses to start investing with some level of certainty and investors to once again look to the UK market for an attractive return. Furthermore, the first interest rate cut announced by the BoE could be a catalyst for equity market leadership to broaden beyond US mega cap tech, which should begin to filter down into the UK SMID universe. In this scenario, we could see an environment where small and mid-caps, and in particular the holdings in this portfolio, could move a long way on limited liquidity.

As ever, we remain focused on the micro, industry level change and stock specific analysis and the opportunities we are seeing today in our universe are as exciting as ever. Historically, periods of heightened volatility have been followed by strong returns for the strategy and presented excellent investment opportunities.

We thank shareholders for your ongoing support.

     1Source: BlackRock as at 31 August 2024

30 September 2024

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.