North Atlantic Smaller Companies (NAS) has announced its 12 month results for the financial year ending 31 January 2023:
- Over the 12 month period NAS generated a NAV total return of -11.8%, and a share price return of -9.9%.
- The investment team attributes this negative return to the difficulty of markets, which was “one of the hardest the Company has encountered for many years”. The team notes that even in the case that holdings reported record profits, they would remain either down or flat over the period. Where, for example, Hargreaves Services and Frenkel Topping fell 10% despite their record profits. The greatest impact came from NAS’s emerging life sciences exposure, with one asset alone (Renalytix) impacting the NAV by £1.50 per share.
- The majority of NAS assets remain in the UK, with the trust having only 1 quoted US investment at the time of its annual report publication.
- NAS unlisted assets fared better than its listed. NAS’s principle exposure to private equity is through its investments in two Harwood Private Equity Funds. The team expects several of the underlying investments to be sold soon, which will result in an uplift in the net asset value and a material return of cash.
- NAS retains a sizeable cash position, standing at £109m at its financial year end.
- NAS’s board repurchased 58,932 shares in an attempt to control the trust’s discount over the year.
- An interim dividend of 22p was paid for the year, with the board not proposing a final dividend be paid. We note that no dividend was paid in 2022. The resumption of its dividend reflects the 229% increase in NAS revenue over the year.
NAS’s chairman, Sir Charles Wake, commented:
“The current year has seen a total reversal of economic thinking which has presided over the past twenty years. The war in Ukraine, record employment and levels of inflation not seen for several decades have resulted in central governments across OECD nations significantly raising interest rates to choke off economic activity to contain inflationary pressures. Although many commodity prices are now normalising, the scarcity of labour has meant that there is a real risk of wage based inflation becoming imbedded despite the fact that growth in economic activity has fallen to virtually nothing at best. In my view interest rates will go higher and stay higher than many equity investors currently anticipate. Minimal economic growth and rising labour costs will squeeze corporate profit margins and higher interest rates obviously have negative implications for equity markets. Indeed, in the US, if energy companies are excluded, corporate profits for the fourth quarter were some 16% below earlier expectations.
“It is my view that this trend will continue into 2023 and therefore the Company will continue to pursue a cautious approach to equity markets. We are, however, mindful of the fact that markets will begin to recover in anticipation of an economic rebound.”