Montanaro European Smaller Companies has announced its annual results for the year ended 31 March 2016. During the period the trust’s NAV grew by 11.1% thereby outperforming its benchmark, the MSCI Europe Small Cap (ex UK) Index, which increased by 7.6%. During the same, the trust’s share price increased by 4.9%, which reflects a widening of the discount from 10.0% to 15.1%. The board say that the discount is wider than the average for the year, but that this was a movement that was also seen in other European smaller companies trusts, which experienced a widening of discounts in the first part of the calendar year.
In terms of the performance of individual companies, this was not available at the time of writing so we cannot comment on it here. However, the board say that in the prior year, performance was held back by the weakness of the underlying currencies, whereas in the current year the trust has benefitted from the strength of them. They say that the Euro, for instance, which accounted for over two thirds of the currency exposure, rose by 9.5% against sterling. Moreover, the trust’s portfolio rose in value in both local currency and sterling terms. The board comment that the trust’s three and five year NAV relative performance is behind that of its benchmark index but that this is primarily a function of the headwinds faced by the trust’s style of investing during the financial year to 31 March 2014.
In terms of revenue earnings, these were 6.0p per share (2015: 9.0p per share). The board say that this is primarily because, during the 2015 year, the trust received one-off proceeds from a withholding tax reclaim. An interim dividend of 1.75p per share was paid on 8 January 2016. The Board recommends the payment of a final dividend of 5.75p per share, brings the total dividends for the year to 7.50p per share.
Towards the end of the year, the Company entered into a further fixed rate secured loan amounting to €10m. The board say that this reflects the low interest rate environment, higher asset base of the Company and their positive outlook for the portfolio. This will mature and become repayable in September 2018 at the same time as the existing €15 million loan.
In terms of outlook, the board say that, in their view, the outlook for the portfolio remains encouraging, supported by record low interest rates, an improving employment situation and a benign inflation outlook. They say that, historically, such a backdrop has proven to be positive for smaller companies, which tend to derive a greater portion of their profits from the domestic economy than larger companies. The board say that they continue to believe that valuations are not obviously cheap. However, they comment that the P/E premium of smaller companies versus large companies remains well below average. Moreover, in their view, when compared to other developed markets, such as the US, stocks in Europe do appear to offer relatively good value.
Montanaro European Smaller Companies benefits from sterling weakness : MTE