Black Rock Throgmorton has announced results for the 12 months ended 30 November 2024. Over that period, its NAV return was 16.3%, ahead of the benchmark Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies) Index which returned 14.1%. However, the discount widened from 3.6% to 13.2% and that meant the return to shareholders was 5.0%.
During the period, the trust bought back 8,600,297 shares for about £52m. Since 30 November 2024, a further 5,850,000 shares have been bought back for £34.2m, and as at 18 February 2025, the discount was 10.6% versus an average discount for the rest of the peer group of 11.9%. At the AGM, shareholders will be asked to cancel the company’s share premium account – freeing up more firepower for buybacks.
This period’s outperformance extends the company’s lead over its benchmark over 10 years to 88.8 percentage points (more if you looked at share price returns).
The revenue earnings per share grew by 12% to 18.4p and from that the company is proposing a full year dividend of 18p, up 22% on last year.
The chairman rightly praises the result in what has been a difficult year for UK small cap investors. Noting that:
- With little demand for UK equities, UK small/mid-cap valuations started the year weak;
- Wealth manager consolidation and exposure limits led to selling (of both the company and likely other UK small/mid cap funds) throughout the year;
- Capital Gains Tax planning drove further selling ahead of the tax year end in April 2024 and the UK Budget in October 2024; and
- US elections and the UK budget led some investors, in particular UK wealth managers, to allocate away from the UK and further reduce their UK small/mid-cap investments.
The performance was good enough to earn the manager a performance fee (based on two-year rolling performance to end November) – which is reflected in the returns above – and the outperformance has continued into the new accounting year.
Extracts from the manager’s report
The Company’s outperformance during the first half of the year can be attributed to a number of strong stock specifics across a broad range of companies such as IntegraFin, Gamma Communications and Morgan Sindall (see table below for the top 10 contributors and detractors to performance during the year). 2024 has been one of the most difficult years to navigate in the 10 years I have managed the Company’s portfolio. Outflows in the asset class have continued, pressuring share prices and valuations of thinly traded shares, where valuation alone was an insufficient catalyst for a reversal of performance, despite in many cases far more robust trading than their valuations would suggest. Meanwhile, mergers and acquisitions (“M&A”) in UK small and medium sized companies continues at pace as private equity and international companies take advantage of weaker GBP and depressed valuations. This is only good news if you own the shares (though then there is a debate about whether one is selling out on the cheap and forgoing future capital growth for a cash bid today), but for Throgmorton in 2024 the M&A activity cost around 300 basis points (“bps”) of relative performance in the year (i.e. companies being acquired in the benchmark that Throgmorton didn’t own), a material headwind to relative performance. I expect 2025 to be another year of elevated M&A activity, so only time will tell if that is a tailwind or headwind to relative and absolute performance this year.
Positive contributors to performance in the second half of the year were well spread across sectors. Our largest position, aggregates business Breedon, delivered resilient results despite adverse weather and subdued market conditions. Breedon continues to be impacted by negative volumes but has continued to make headway with pricing increases and cost efficiencies to grow profitability while it waits for a volume recovery in the market. Morgan Sindall’s “fit out” division, another large holding within the portfolio, won several large contracts during the year, resulting in upgrades. Morgan Sindall is the number one player in the market and post the recent demise (bankruptcy) of the number 2 player, this favourable evolution of market structure should lead to improved returns and further market share gains from here. Shares in tour operator Jet2 rose after the company upgraded guidance having seen record passengers during the first half of its financial year. Demand increased for both package holidays and flight only options as consumers prioritised overseas vacations despite a more challenging economic backdrop. Industry capacity remains constrained, whilst Jet2’s stronger balance sheet and fleet additions leave them well placed to grow market share and support pricing/mix in margin accretive holiday packages. In the technology sector a notable contributor during the period included Baltic Classifieds which experienced strong growth in its market leading Real Estate, Autos and Jobs & Services divisions. Within the financial sector Tatton Asset Management and IntegraFin both saw positive inflows and benefitted from overall strength in financial markets.
Detractors during the period were a combination of negative stock specifics (i.e. shares falling in response to negative trading developments), shares that fell despite a lack of negative news, and also shares we did not own in the benchmark that performed well, either through trading or by being acquired. As mentioned at the start, we estimate M&A has cost the Company in terms of relative performance in 2024. The largest detractor was Next 15, a media company, which delivered a material profit warning in the period as a 5-year contract with a Middle Eastern client was cancelled after only 3 years, resulting in a significant hit to profits for the full year. We had already been reducing the position and subsequently fully exited by the end of the year given the large contribution of this one client and the broader slowdown in spending that Next 15 is experiencing from some of its technology clients. Shares in Zotefoams drifted lower during the period despite resilient trading. We ascribe the weakness to broader concerns around European industrials (especially those with Chinese exposure), in addition to weakness at its key customer, Nike, which accounts for around a quarter of group revenues. Other notable detractors included shares we didn’t own that performed well in the period, such as gaming software provider Playtech and media business Ascential (acquired by its peer Informer for a +50% premium).
THRG : BlackRock Throgmorton extends lead over benchmark in difficult year
