BlackRock Throgmorton Trust (THRG) has released its annual results for the financial year ending 30 November 2023.
- Over the 12 month period THRG reported a NAV total return of -2.3% and share price total return of -0.8%. Both these represented an outperformance relative to THRG’s benchmark index, the Numis Smaller Companies plus AIM (excluding Investment Companies) Index, which returned -6.0%.
- The largest contributor to THRG’s performance was Ergomed, a leader in oncology and orphan drug development, which announced a takeover by a private equity firm for a 28% premium on its close price. The second largest contributor was a short position in a UK listed software company, which reflects the benefits of THRG’s ability to take both long and short positions. The third largest contributor was its investment in Computacentre, an IT services provider, which reported strong earnings. The largest detractor was CVS Group, which fell on the back of a government inquiry into veterinary services provision.
- THRG’s 12 month outperformance marks a reversal in the trust’s previous underperformance, where THRG has underperformed its benchmark by 4.3% over the last three years. However it has outperformed it by 17% over the last five, and by 72.5% over the last 10.
- THRG declared a final dividend of 11.45p per share, up from the 8.5p of the previous year.
- THRG’s discount ranged from 1.0% to 9.2% over the financial year, and ended it on a 3.6% discount, narrower then the 5.0% it finished the pervious year on. This narrowing discount can be in part attributed to the buyback activity of THRG, whereby it bought back 5.3m shares over the year, for a total consideration of £29.8m, more than double the £11.5m that was spent in the prior year.
THRG’s manager, Dan Whitestone, commented:
“For UK domestic focused PLCs, 2024 will likely see growing dispersion in financial returns as those with strong market share stories (digital, trading down, new product verticals, etc) will outperform and grow despite a more challenging backdrop. Input costs have now reversed for many and so the attention will focus on top line and in particular underlying volume growth as price will become a far less significant lever to flex. The converging valuations of many UK consumer shares has been a source of immense frustration for us, with well-capitalised market share winners, with high gross margins trading on similar price to earnings ratios and free cash flow yields to their far inferior peer group. We hope 2024 will mark the year of more dispersion in valuations between winners and losers which should benefit this Company well.
“Looking ahead to 2024, market volatility is unlikely to abate, and 2024 will mark a significant year for Elections worldwide which may well inject further turbulence into the macro backdrop. However, there are reasons for optimism. We enter 2024 with inflation and mortgage rates falling, whilst productivity and factory construction and corporate profits are rising. Labour markets are showing signs of softness but remain robust, and with low levels of unemployment many are experiencing the benefits of real wage growth for the first time in years, which should in time lead to higher services PMIs. Inventory balances are low after a prolonged period of destocking and so our hope is that manufacturing PMIs turn upwards which will boost the outlook for growth. As for inflation, we believe pressure will ease this year with deflationary pressures gaining traction during the course of 2024. Oil and gas prices are low (at the time of writing) amidst concerns of oversupply which will continue to alleviate pressure on corporate input costs and consumer wallets. In the US, the indications over recent weeks are that the Fed is likely to hold rates (with a bias to cut). As we’ve seen in the last couple of months, we think this has the potential to catalyse a broadening out of market leadership away from some very narrow areas of outperformance, both in the US and the UK, which overall should be a net positive for our positioning. In summary, the picture we see is one of a gradual recovery, and in our view this is not reflected in valuations of UK small and medium sized companies which we think offer compelling value in both absolute and relative terms. Indeed, the Company now possesses many companies on single digit price to earnings ratios, with double digit Free Cash Flow yields, but unlike so many archetypical “value” sectors, have far superior growth prospects. As a result, the net market exposure of the Company is slowly increasing and is now around 106%, while the gross is c.114%.”