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Strategic Equity Capital shows strong performance against a weak UK market

Baillie Gifford UK Growth BGUK

Strategic Equity Capital (SEC) released its annual results today, for the period ending 30 June 2023.

  • Over the 12 months SEC reported a NAV total return of 9.2%, and a share price total return of 11.2%. This compares to the (0.4%) loss of its comparative index, the FTSE Small Cap (ex Investment Trusts). SEC’s management attributes its performance to the strategy’s focus on higher quality companies exposed to areas of structural growth where they have a degree of pricing power.
  • SEC’s average discount to NAV of the company’s shares during the period was 7.4%, and the trust currently trades on a 8.3% discount. The board undertook methods to proactively address SEC’s discount over the year, including 10% tender offers and the implementation of a share buyback programme. SEC’s manager, Gresham House, committed £5m of its own cash to purchase shares in SEC, with Gresham now having a c.11% stake in SEC. The board is also expanding its marketing efforts to increase awareness of the trust.
  • The board has proposed a final dividend of 2.50p per share.

SEC’s investment managers commented:

“The Investment Manager’s core planning assumption is that continued geopolitical and macroeconomic uncertainty will drive market volatility throughout the remainder of 2023. The shift to a period of higher inflation and higher interest rates has fundamentally impacted asset markets and equities in particular. It is likely that increasing focus on company fundamentals and valuation discipline will be required to outperform in this environment which plays to the strengths of the Company’s investment strategy and the Investment Manager’s approach.

“The elevated levels of corporate activity within the UK equity market continue to play out and the volume of takeover activity amongst smaller companies has not been seen since H2 2019, despite overall UK takeover volumes (of all sizes) remaining marginally below H1 2022 levels. Bid premia in the period were also elevated, providing further evidence of attractive valuations amongst UK smaller companies despite the higher cost of capital environment today. The investment process and private equity lens across public markets enables the identification of investment opportunities with potential strategic value that could be attractive acquisitions for both corporate and financial buyers.

“We continue to believe that our fundamentals focused investment style has the potential to continue outperforming over the long term. We see significant opportunities for long term investors to back quality growth companies at attractive valuations in an environment where agile smaller businesses with strong management teams can take market share and build strong long-term franchises. We will maintain our focus on building a high conviction portfolio of less cyclical, high quality, strategically valuable businesses which we believe can deliver strong returns through the market cycle regardless of the performance of the wider economy.”

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