abrdn UK Smaller Companies Growth Trust has published results covering the 12 month period ended 30 June 2022. The trust underperformed its Numis Smaller Companies plus AIM (ex Investment Companies) Index benchmark by some margin, returning -27.3% in NSAV terms and -34.3% in share price terms against -19.0% for the index. The dividend increased by 5.2% to 8.1p and this was covered by earnings of 9.07p.
In the face of the widening discount, over the year, 4.7m shares were bought back (about 4.7% of the issued share capital) at a total cost of £29.7m. The weighted average discount at which the shares were repurchased was 9.1%. The board calculates that this has added 2.9p per share to the NAV for remaining shareholders.
The chairman’s statement highlights the effect that the market rotation out of growth stocks into value stocks had on the trust. It also draws attention to the trust’s long term success under Harry Nimmo, who plans to retire with effect from 31 December 2022. [It is a shame that the past year has been a poor one for the trust, but the long term record is very good.] Harry was appointed as the portfolio manager when Standard Life Investments, as it then was, took on the mandate on 31 August 2003. At that time, the share price was 47.75p and net assets were £44m. 19 years later, the share price was 482p and net assets are almost £500m. With dividends reinvested, the total return is over 12 times the amount invested. To put this in context, the All-Share Index has delivered a total return of less than 3 times and the benchmark index has returned less than 5 times.
This year, the board is participating in the Board Apprentice programme. This has been running for a number of years and is dedicated to increasing diversity on boards by increasing the pool of board-ready candidates. After interviewing a number of candidates, Jessica Norell Neeson was appointed in this role for a 12-month period from May 2022. She will attend all board and committee meetings and will take part in discussions when invited to do so. The role is unpaid.
Extract from the managers’ report
The five leading performers during the year were as follows:
- Telecom Plus 118 basis points [bps – equivalent to 1.18%] (+72%): supportive end market conditions given the exit of low-priced competitors from the industry, and the strong position the nPower contract has in Utility Warehouse’s pricing offering. Sales force fully engaged again post Covid-19. Strong cash generation and dividends.
- Safestore 90bps* (+12%): solid demand in the self-storage industry with the constant of the 3Ds (divorce, death, dislocation). Rate increases and strong utilisation have ensured consistent earnings and dividend growth.
- Alpha Financial Markets 77bps* (+10%): continues to take market share as consultant specialists in asset management, as well as expanding into insurance and alternatives through the acquisition of Lionpoint.
- Clipper Logistics 51bps* (+4%): strong growth through new and improving relationships with a range of retailers, given its full service offering and strong customer service proposition. Clipper was bid for by GXO Logistics during the year.
- Hilton Food 40bps* (-6%): resilient demand in the food industry, with a broad global presence, and with strong contracts and relationships with the supermarkets ensuring margin protection. Hilton has expanded in the fish protein market through acquisitions.
The five worst performers during the year were as follows:
- Gamma Communications -102bps* (shares -46%): disappointing growth in Europe given a slow recovery in corporate decision making and investment post Covid-19. However, Gamma offers a reliable and resilient revenue stream with high visibility, and continues to innovate in the latest service offerings.
- XP Power -94bps* (-49%): has navigated the challenges of the supply chain and Vietnam factory challenges well, to ensure continued delivery of products to customers. Shares were hit by the loss of a legal dispute, which came through an acquisition.
- Future -90bps* (-45%): has continued to deliver strong earnings growth, however the shares have been hit by sentiment around consumer exposure, as well as headwinds from energy and paper costs. Future continues to drive growth opportunities, both organically and through bolt on acquisitions.
- Impax Asset Management -82bps* (-46%): despite resilient asset inflows, the shares have been de-rated given the earnings downgrades from lower market levels. Impax continues to be a highly respected asset manager in the ESG space, which remains a growth market.
- GB Group -80bps* (-52%): whilst the Company’s performance has remained solid, the shares were hit by a poorly managed placing to fund the Acuant acquisition. Since then, there has been a continued solid execution from the business, and good integration of the deal.
AUSC : abrdn UK Smaller Companies Growth struggles as Nimmo bows out