BlackRock Smaller Companies Trust Plc - Portfolio Update

The information contained in this release was correct as at 30 September 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 30 September 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 30.98p
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 29 February 2024.
5. Excludes 2,893,731 ordinary shares held in treasury.

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

During September the Company’s NAV per share returned -3.8% to 1,620.85p on a total return basis, while our benchmark index returned -2.1%. For comparison the large cap FTSE 100 Index fell by -1.5%.1

Equity markets experienced significant volatility early in September, as concerns over global economic slowdown and heightened tensions in the Middle East dampened investor sentiment. During the second half of the month, optimism around rate cuts and new economic stimulus in China helped to stabilise most developed equity markets. The European Central Bank delivered its second rate cut in September, and the Federal Reserve announced a 50bps cut halfway through the month, while The Bank of England held interest rates at 5%. UK economic data remained reasonably stable during the month. However, uncertainty over the upcoming budget continued to weigh on the market overall, notably the impact of potential changes to pensions and capital gains tax, while changes to IHT (inheritance tax) relief put further selling pressure on AIM listed shares.

September was a difficult environment for the UK small & mid-cap market, with broad based selling across the market as a whole in the run-up to the budget. However, the portfolio did also experience certain stock specific disappointments which detracted from relative performance. Our holding in TT Electronics fell following a profit warning as a result of reduced demand in one division and operational issues in another, resulting in cost overruns and substantial negative revisions to forecasts. We maintain a holding, albeit we have reduced, believing that these issues are temporary and that the current valuation does not accurately reflect the business's long-term prospects. Next Fifteen also issued a profit warning during the period due to the cancellation of a 5-year contract with a Middle Eastern client after just 3 years. Additionally, the company experienced a reduction in spending from technology clients. Ashtead Technology Group fell, reporting half year results which showed a 60% increase in revenues. However, this growth was driven by acquisitions and organic growth was far less impressive at 16%. This coupled with a fall in margins compared to last year clearly disappointed investors and saw the shares move lower during the month.

The largest positive contributor during the month was Gamma Communications. The company reported double digit growth in both pre-tax profit and revenue, with its expanded suite of product offerings fuelling an increase in demand from clients with more complex communication needs. Funding Circle rallied after the business reported an unexpected profit for the first half of 2024 and upgraded guidance. The company has made a strategic shift to focus on the profitable UK market, selling its loss-making US business in July 2024, and now looks set to capitalise on the opportunity to drive growth in the UK. Shares in our largest holding, Workspace Group continued to move higher during September, despite no stock specific newsflow.

With potential changes to IHT, pensions, and capital gains tax, investors are doing what they traditionally do in the face of an information vacuum, selling. We, like everyone else with exposure to the UK stock market, await budget day with keen interest, and hope that once everyone has the certainty the budget will bring, they will be able to position for the long term. And this long term is where we have more confidence. Whilst consumer confidence has recently weakened as a consequence of the current uncertainty, with real wages rising, unemployment remaining low, and household disposable income increasing, a more confident consumer has an ability to spend. Survey data suggests UK corporations are still positive and are themselves awaiting clarity before deciding to invest. And that clarity could (and should) come from the Labour Party, as they move away from the budget and start to enact their agenda; developing the infrastructure to build one and a half million homes, investing in infrastructure and public services whilst at the same time reducing waste, lifting the skills and education of the workforce, and fostering innovation. On a global basis the more recent economic data suggests a soft landing is still the likely outcome. Finally, and importantly, the valuation of UK Small and Mid-cap companies is attractive on a historic basis. As we move through this near-term noise, the opportunities presented by the UK Small and Mid-cap market will present itself, and maybe we will finally see investors looking to allocate back to what has historically been an profitable asset class.   

We thank shareholders for your ongoing support.
 

     1Source: BlackRock as at 30 September 2024

24 October 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.