Aberdeen Smaller Companies returns twice as much as benchmark – Aberdeen Smaller Companies has published results for the year ended 31 December 2017. The company’s NAV rose by 32.9% for the year ended 31 December 2017, on a total return basis, compared to the performance of its benchmark, the Small Cap (ex investment trusts) Index, which rose 15.6%. The share price total return was 46.0% reflecting a narrowing of the discount over the year from 22.1% to 15.1%. The board has declared four interim dividends during the year ended 31 December 2017, making a total dividend of 7.05p, an increase of 2.9% from the 6.85p paid last year.
Extract from the manager’s statement
“The three biggest contributors to outperformance were XP Power, Burford Capital and Dechra Pharmaceuticals. XP Power had a very good year and is enjoying the fruits of its recent labours to transition the businesses into one that designs and manufactures the majority of its own products. In doing so it has not only increased the penetration of sales with existing customers but also created multiple new ones. XP’s acquisition strategy will further enhance its product range and aid expansion into new markets. Consistent earnings upgrades have followed as the company has exceeded market expectations and the share price has responded. Burford Capital has benefited from being the dominant player in what is a vast litigation financing market worldwide. Investment commitments have continued at elevated levels and the market is continuing to develop internationally which should provide ample further opportunities for growth. Dechra Pharmaceuticals’ results this year have benefited from strong sales of newly acquired products, through the Putney acquisition in the US in particular, and supported by good growth and strong fundamentals in the companion animals market. The company’s strong cash flow generation has provided fuel for new acquisitions that will help to build a distribution platform and drug pipeline for long-term growth.
Despite the strong year, there are always one or two investments that encounter more difficult times. The two largest detractors last year were Dignity and Interserve. After a very challenging last few years we exited the remaining position in Interserve. The increased uncertainty, and at this stage unquantifiable liability, related to their troublesome Energy from Waste contracts as well as the fact that this small holding contributed no dividend to the portfolio was ultimately what led us to sell. It is worth noting though that the impact of its significant share price decline in 2017 was mitigated by the fact that it had been held at a very small weight in the portfolio. Dignity has been a poor performer this year. The funeral services provider has faced an increasingly competitive industry environment as competitors have cut prices, in an effort to steal market share, and price transparency in the market has vastly improved. The business faces significant challenges ahead but as long term investors we gain some reassurance from the fact that they have a robust Crematoria business – with substantial asset backing – as well as an appropriately structured balance sheet with fixed interest payments and a long maturity profile.”
ASCI : Aberdeen Smaller Companies returns twice as much as benchmark