Bellevue Healthcare (BBH) has published its annual results for the year ended 30 November 2024, during which it provided NAV and share price total returns of 11.1% and 13.7%, which compare against a return of 11.5% for the MSCI World Healthcare Index (all in sterling terms). BBH’s chair, Randeep Grewal, says that while it is encouraging to note that share price and NAV performance matched the index in the financial year to end November 2024, longer term performance has been disappointing in both relative and absolute terms. The portfolio focus is on a small number of high conviction ideas, mainly concentrated in small or mid-cap stocks where the manager believes their research and investment expertise find added value. However, Grewal comments that the index performance has been dominated by the rerating of a few very large‑cap stocks, similar to the ‘Magnificent Seven’ impact on the broader market. Grewal says that he “cannot emphasise enough the focus of the Board and Bellevue on improving performance and tightening risk management” and that two areas of discussion are implementing a more rigorous sell discipline and increasing the number of portfolio positions which would reduce volatility.
Board succession planning
Three of BBH’s current director line up (Jo Dixon, Paul Southgate and myself) joined BBH ahead of its listing in December 2016 and hence would be expected to retire over the next year (i.e. nine years from appointment). With an eye to succession planning, the appointment of Sarah MacAulay as a non-executive director, and Clare Brady as non-executive director and audit chair-elect were recently announced. Both Sarah and Clare are experienced investment trust directors and both are currently chairs of investment trusts. Paul Southgate and Randeep Grewal are not putting themselves up for re-election at the forthcoming AGM. However, to ensure institutional continuity, Jo Dixon will remain as senior independent director until the AGM of 2026. Kate Bolsover will be succeeding Grewal as chair.
Fees and costs
The current management fee is 0.95% per annum, based on market capitalisation (i.e. not AUM), which more closely aligns the manager’s interests with shareholders. Bellevue has absorbed a number of costs over the years that help reduce the ongoing charges ratio (OCR). The OCR for this year was 1.03% (2023: 1.02%). Grewal says that he would have liked to get this ratio below 1% before he retired but a decreasing market capitalisation has worked against that ambition.
Gearing
BBH has historically had a multi-currency revolving (unsecured) credit facility (RCF) with The Bank of Nova Scotia. BBH says that changes brought about by Basel IV regulations have meant that some banks have withdrawn from the market, so it is fortunate that The Bank of Nova Scotia continues to provide a facility. However, due to the Basel IV regulations, the new facility, which commenced in December 2024 is on a secured basis.
Share capital and the redemption facility
BBH’s issued share capital (excluding treasury shares of 31,782,418) was 283,369,891 ordinary shares (post redemptions) as of 30 November 2024; a decrease from 462,588,550 as of the end of the previous financial year. BBH did not issue any shares during the year and, in November, it received redemption notices for 163,834,887 shares. In addition, it bought back 15,383,772 shares during the year.
BBH says that there have been both company specific (performance) and market factors (investment trust discounts have widened over the last few years) that have led to it trading at a discount and, not surprisingly, this situation has led to increased levels of redemption requests – this year that equated to 36.6% of the shareholder base as of the redemption point.
BBH says that it has become apparent that the redemption facility, whilst prima facie, laudable by giving shareholders an annual opportunity to exit near to NAV, has unintended consequences. In particular, it attracts shareholders with a short-term focus to buy shares with no regard to the underlying investment proposition but rather to take advantage of the possibility of an unlimited redemption structure within a defined time horizon.
Following extensive shareholder consultation, a general meeting was called in December to address the redemption facility. The proposal was to replace the redemption facility with a performance-related tender offer to support the long-term nature of a closed‑ended investment structure and portfolio ethos, while still providing liquidity for shareholders. However, BBH says that this was abandoned following a change in stance of one of its significant shareholders and an increase in holdings by short-term focused shareholders (a change in BBH’s articles a special resolution is required, which to pass requires a majority of not less than 75%).
BBH’s board says that, with increased confidence in the performance of the underlying portfolio, the company has been active in share buybacks, adding that this is accretive to longer-term shareholders and, for those shareholders seeking to exit, buybacks provide immediate liquidity rather than having to wait for an annual redemption.
Dividend
The company targets an annual dividend of 3.5% of the preceding year-end NAV, paid out in two equal instalments. In May 2024, the company paid out a final dividend of 2.995p in respect of the year 2023. In August 2024, an interim dividend of 2.52p in respect of the financial year 2024 was paid. The board has proposed a final dividend of 2.52p for the financial year 2024 and, if approved at the forthcoming annual general meeting, this will be paid to shareholders in May 2025.
For the financial year 2025, the board is proposing a total dividend of 5.40p per ordinary share (this being 3.5% of the NAV as of the close on 30 November 2024), composed of interim and final dividends of 2.70p per ordinary share each, to be paid in August 2025 and April/May 2026 respectively, subject to shareholder approval.
