BlackRock Smaller Companies Trust PLC Regulatory News (BRSC)

The information contained in this release was correct as at 31 March 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 March 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 changed to the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).

At month end

Commenting on the markets, Roland Arnold, representing the Investment Manager noted:During March the Company’s NAV per share retuned 2.7% to 1,542.48p on a total return basis, while our benchmark index returned 3.0%. For comparison the large cap FTSE 100 Index outperformed small & mid-caps, returning 4.8%.

Equity markets moved higher in March as the dovish backdrop set up by the world’s major central banks helped boost risk sentiment. In the US, the Federal Reserve (Fed) signalled its inclination to cut rates, assuaging market concerns by keeping the three rate cuts pencilled in for the year unchanged, even as it revised up growth and inflation forecasts. The Bank of England (BoE) kept interest rates on hold. The inflation rate fell sharply in February with headline inflation lower than forecasted at 3.5%, the lowest rate since 2021, while core inflation fell to 4.5% from 5.1%. The Office for National Statistics reported the consumer prices index rose by 3.4% in the previous month up from 4% year-on-year. The FTSE All Share Index rose 4.8% with Basic Materials, Oil & Gas and Financials as the top performing sectors in the market.

Central Asia Metals was the largest contributor during March. The company reported a fall in revenue and free cash flow during the 12 months to 31 December 2023 as a result of the challenging demand environment, ongoing cost pressures and falling commodity prices. However, more important was the investment that the company has made for the future, which should see the business benefit from firmer copper pricing and the multi-year demand from the ongoing global transition to net zero. Gamma Communications, which provides solutions to small and medium sized corporates, was the second-largest contributor. The company’s enduring and expanding recurring revenue, which contrasts with its 12x PE (price to earning ratio) multiple at the start of 2024, has been a subject of our recent extensive discussions. The monthly results underscored the company’s steadfastness, prompting the initiation of its first share buyback. This was judiciously done, utilising a portion of its £130m net cash reserves, while preserving ample funds for further strategic acquisitions. Despite the shares’ revaluation to a mid-teens PE this year, they remain significantly undervalued when compared to other companies with similar financial characteristics. TT Electronics reported a strong financial and operational year in 2023, with a £43 million adjusted pre-tax profit. The company anticipates a 10% operating margin in 2024, backed by a robust order book and strategic sales of select businesses.

CVS Group’s shares were hit by the announcement that the CMA (Competition and Markets Authority) will launch a market investigation into veterinary services in the UK. We have remained in discussion with the company on the matter and will continue to monitor the situation closely. YouGov experienced a setback after results revealed a greater slowdown in the Data Products division than anticipated. While we’ve reduced our stake, we continue to see value in YouGov’s unique data and advanced analytics capabilities. Housebuilder MJ Gleeson gave back some of February’s share price gain despite no stock specific newsflow. As a reminder, the company recently reported in-line interim results and highlighted signs of recovery in demand against the backdrop of improving mortgage rates. This narrative certainly aligns to our view and recent additions to the sector which we believe will benefit as volumes recover and the economic backdrop/affordability improves.

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-caps have continued to underperform large caps 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. The fourth quarter of 2023 saw markets reflect the expectation of rate cuts in 2024 in response to easing inflation data. However, as we have entered 2024, the backup in bond yields has led to a volatile start to the year in equity markets.

Against this backdrop, the question remains, what is the catalysts for this trend to change? Unfortunately, there is no simple answer. While there are many headwinds to the UK SMID market; economic uncertainty, political uncertainty, the structural flow issues in the UK market, 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, inflation and mortgage rates falling, business confidence is improving and consumers are experiencing real wage growth for the first time in years. 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-caps 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 March 2024

29 April 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.