BlackRock Smaller Companies Trust PLC Regulatory News (BRSC)

The information contained in this release was correct as at 31 October 2023. 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 October 2023 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 Datastream

At month end

Commenting on the markets, Roland Arnold, representing the Investment Manager noted:During October the Company’s NAV per share fell by -5.9% to 1,372.58p on a total return basis, while our benchmark index fell by -7.0%. For comparison the large cap FTSE 100 index fell by -3.7%.1

Equity markets fell in October as geopolitical conflict and the prospect of higher-for-longer interest rates continued to weigh on market sentiment. The UK economy showed positive growth as month-on-month (MoM) GDP grew by 0.2% after retracting last month. Meanwhile, inflation proved persistent as the September figures showed the annual rate stuck at 6.7%, as lower prices in food and drink were offset by higher energy prices. UK retail sales showed signs of easing while employment remains resilient with the unemployment rate dropping to 4.2%. The Bank of England (BoE) Governor Bailey commented on how wage growth is still uncomfortably strong and has yet to respond to the BoE’s 14 back-to-back interest rate hikes. Though inflation is far lower than this time last year, stickier-than-thought price pressure remain a concern for the UK economy.

The largest positive contributor during the month was long-term core holding, YouGov. The shares have come off in recent months as the market was becoming increasingly concerned that the business would start to see slowing growth. However, during October the company reported that full year profits had increased by 77% year-on-year (YoY) despite the challenging macroeconomic backdrop and as a result the shares rallied. Qiniteq Group share price rose after the company reiterated full year guidance, reporting significant organic revenue growth, record first half order intake of £950m and improving margins. The attractive valuations of UK small & mid-cap companies continued to generate interest from opportunistic private equity money during the month, as Kin and Carta surged after it announced it had received a £230m cash offer from Apax Partners.

The largest detractor was the recently listed B2B payments business, CAB Payments, which fell after the company downgraded its full year revenue guidance, citing volatility in African currencies causing a drag on margins and trading volumes. XP Power fell during the month after warning that profits would be below expectations as customers have been deferring shipments into 2024, while the challenging backdrop in China has also weighed on demand. As stated in our update for September, Alfa Financial Software’s share price fell at the beginning of October in response to the news that the potential bid from US private equity group, Thomas H Lee Partners (THL), would not materialise.

Since the end of 2021, rising interest rates have been weighing on the valuations of long-duration, higher growth shares in the stock market. As a result, UK small & mid-cap companies have continued to underperform large cap companies and we are now in the deepest and longest cycle of underperformance in recent history; worse than the Global Financial Crisis, COVID, Brexit, Tech sell-off or Black Monday. Against this backdrop, the question remains, what is the catalyst for this trend to change? Unfortunately, there is no simple answer. While there are many headwinds to the UK SMID (small & mid cap) market; economic uncertainty, political uncertainty, the structural flow issues in the UK market, and the risk of more pervasive inflation, to name a few, we remind ourselves and take comfort in the fact that many of our holdings continue to deliver against their objectives. Furthermore, we believe we are closer to the end of monetary tightening and at some point, we are confident that investors will decide the balance of probabilities is in favour of the opportunities, that the risks are more than adequately priced in, and that an increased allocation to UK small and mid-cap companies is warranted.

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 October 202323 November 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.