For fourteen consecutive years BlackRock Smaller Companies has outperformed its benchmark and increased its dividend. Over that period, the NAV has grown nearly ten-fold whereas the benchmark has almost quadrupled. The compound annual increase in dividends paid over the past five years has been 20% per annum.
During the year to 28 February 2017, the NAV increased by 25.7% to 1,247.03p per share, compared with its benchmark, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which increased by 20.4%. During the financial year, the share price increased by 22.8%1 to 1,060.00p per share, and subsequently reached an all-time high of 1,151.50 pence per share on 26 April 2017. They are paying a total dividend for the year of 21.00p, an increase of 20.0% over a total dividend of 17.50p paid in the previous year. The compound annual increase in dividends paid over the past five years has been 20% per annum.
The chairman’s statement says that he significant outperformance was largely attributable to good stock selection and to the positive impact of gearing. The best individual stock performances came from companies with exposure to leisure and UK consumer discretionary spending and the mining and biotechnology sectors.
Despite the positive contribution from mining companies held within the portfolio, their underweight exposure to this sector detracted from relative performance in the year. Other detractors from relative performance included the overweight portfolio exposure to general retailers and an exposure to certain individual companies supplying the housing sector.
The stocks contributing most positively to outperformance were Fevertree Drinks, 4imprint Group, MaxCyte, Keywords Studios, KAZ Minerals and Tharisa, each of which contributed at least 0.5% to relative performance. With the exception of 4imprint Group, share prices in each of the others comfortably doubled.
Fevertree Drinks continues to grow strongly, with 73% organic sales growth in 2016, helped by a focus on new product development and good international distribution. The company is competing effectively in a large global market in which it still has a small share for its superior premium mixers. 4imprint Group generates virtually all of its profits in the US and should be helped by a stronger US economy. Revenues increased by 14% in 2016 on a like for like basis. MaxCyte is a developer and supplier of cell engineering products and technologies to biopharmaceuticals firms. Revenues, although still quite modest, grew by more than 30% in 2016 and look set to continue growing strongly. Keywords Studios is a leading international technical services provider to the global video games industry. It is seeing further strong organic growth and geographic expansion complemented by suitable acquisitions. The growth of virtual and augmented reality platforms is increasing the complexity of video games and providing more opportunities, enabling them to deliver better than expected profit growth. KAZ Minerals is executing well as it ramps up production at its two large mines in Eastern Kazakhstan. The increase in the copper price is timely and should help it achieve significant improvement in cash flow in 2017. Tharisa is a producer of platinum group metals and chrome from a shallow and large scale, long life open pit. Chrome prices rose sharply in late 2016 adding significantly to Tharisa’s margins and cash flows. Management are very positive about the prospects for 2017.
The only holding which detracted more than 0.5% from relative performance was Topps Tiles, the UK’s leading retailer of ceramic tiles, which saw weakening like for like sales post the EU referendum; they reduced the Company’s position.
However, not holding a number of strongly performing stocks in the benchmark also detracted from relative performance, notably mining stocks such as Evraz and Vedanta. The portfolio was underweight the mining sector for most of the year and this detracted 1.0% from relative performance. The overweight sector position in general retailers also materially detracted from relative performance.
BRSC : 14th consecutive year of outperformance for BlackRock Smaller