Schroder British Opportunities off to a good start

Schroder British Opportunities off to a good start – Schroder British Opportunities Trust, managed by Rory Bateman and Tim Creed, has published its first results, covering the period from its incorporation on 21 September 2020 to 30 June 2021. The trust has got off to a good start with NAV growth of 10.6% over the seven month period since launch. On an annualised basis, this is significantly well ahead of its declared total return target of 10% per annum. This performance has continued since the period end, and at the time of writing the NAV has increased by 16.5% since the IPO. The listed equities have driven much of this growth assisted by an early valuation uplift in one of the private holdings, Rapyd. Other private investments are currently being held at close to cost.

The share price grew by 5% in the period but has not kept pace with the increase in NAV and the shares traded at a slight discount. This discount has narrowed recently and the board intends to take steps to continue this trend. Its objective is that the shares trade at a slight premium to NAV to enable the trust to expand. The discount is currently 0.2%.

The board is proposing not to pay a dividend for this first period – the trust is not designed to produce income.

At 30 June, the IPO proceeds were more than 93% invested across public equities, private equities and futures and the portfolio contained 35 holdings: 29 public and 6 private businesses. £75m was raised at IPO (£73.5m net of costs). Since 30 June, the company has made an investment in LendInvest, an asset management property finance platform that provides bridging loans, development finance, and buy-to-let mortgages to intermediaries, landlords and developers across the UK. The portfolio now consists of 30 public equities and six private businesses.

Extract from the managers’ report

“As a reminder, the private equity investments within the Company’s portfolio will be valued on a quarterly basis in line with the ‘Unquoted Securities Valuation Policy’. The policy provides an objective, consistent and transparent basis for estimating the fair value of private equity investments in accordance with generally accepted valuation principles and procedures, and in particular the International Private Equity and Venture Capital Valuation Guidelines. 

On 3 August 2021, that is, after the Company’s period end, we confirmed that Rapyd was the portfolio company that had earlier announced its completion of a further funding round. This led to an unaudited uplift in the fair value of SBO’s investment, and consequently, a 3.3 pence increase in the Company’s NAV per ordinary share. 

SBO’s NAV per ordinary share rose by c.10% from launch to period end. Whilst the aforementioned uplift in Rapyd’s valuation helped, the increase in the value of the Company’s assets was primarily driven by the public equity sleeve of the portfolio. We discuss some of the contributors in further detail below: 

A number of our portfolio companies exposed to the ‘Repair, Maintenance & Improvement’, housing, infrastructure and construction end markets saw their share prices rise significantly by as much as c.84%, driven by a series of strong results showing a consistent robust underlying demand environment that continued to be positive for pricing. As such, our investments in Genuit Group and Volution Group did extremely well for example, as did other holdings in the portfolio exposed to these themes. All of our holdings exposed to these varying end markets have different business models; however for Genuit Group and Volution Group specifically, we continue to believe they should benefit from strong regulatory tailwinds and conducive government policies over the long term. 

Meanwhile Trainline was one of the main detractors of performance in the period. This was due to market fears following a proposal in the ‘Williams-Shapps Plan for Rail’ report, published in May 2021, that the government would create its own website and app to retail train tickets. The market assumed that this would result in material loss of market share for Trainline but didn’t, in our opinion, take into account the opportunity for Trainline to provide white-label services to the government. The firm’s share price fell by c.40% in the weeks following the release of the report, but our decision to hold at that point appeared to be validated, as the stock rebounded by c.14% from its lows by the end of the Company’s period end. At the time of writing this commentary in September 2021, in total, the shares have rebounded c.43% since the lows hit after the report’s release. We continue to monitor both the government’s intentions and Trainline’s responses and will react as appropriate as the situation becomes clearer.”

[Tim Creed was on the weekly show recently, talking primarily about Schroder UK Public Private but we also discussed Schroder British Opportunities. Rory Bateman will be on the show on 5 November, please tune in.]

SBO : Schroder British Opportunities off to a good start