BlackRock Smallers extends outperformance record – BlackRock Smaller Companies reports that its NAV return for the year to the end of February 2019 was -4.8%. However, the share price rose a little over the period, giving shareholders a return of 2.4%, and the dividend was increased by 20% to 31.2p. The benchmark (Numis Smaller Companies plus AIM) returned -5.7%. The AIM Index did even worse, falling by 12.4% in capital terms.
This year’s outperformance adds to an already impressive track record. For sixteen consecutive years the fund has beaten its benchmark and increased its dividend. Over that period, the NAV has increased nearly 12 times whereas the benchmark has increased less than four-fold. The compound annual increase in dividends paid over the past ten years has been 20% a year.
Mike Prentis retiring
After a long and successful 32 year career as an investment manager, of which the last 14 years was with BlackRock, Mike Prentis has announced his decision to retire from the industry. Roland Arnold, who has worked closely with Mike for 14 years and was appointed co-manager in April 2018, will be named as sole manager of the portfolio upon Mike’s retirement at the AGM.
Extract from the manager’s report
“Key contributors to performance during the year were IntegraFin, YouGov, Faroe Petroleum, Gulf Keystone Petroleum and AB Dynamics, with each contributing between 0.4% and 0.6% to relative performance.
IntegraFin, the UK savings platform for financial advisers, was the largest contributor to performance during the year. Since purchasing the shares at the IPO last year the company has delivered good results, with the platform seeing continued strong net inflows despite the increased levels of volatility in the market. YouGov continues to deliver strong organic growth and improving margins with profits significantly ahead of consensus. The company has been successfully delivering on its strategy of expanding and developing data analytics products for specialised sectors beyond its traditional market research business. We believe this offers a large opportunity for growth.
Shares in Faroe Petroleum soared following a hostile bid, which was ultimately successful, from its largest shareholder, Norwegian oil and gas firm DNO. Shares in Gulf Keystone Petroleum rallied as its Shaikan oil field is performing well, with average production above the upper end of guidance for the company’s 2018 financial year. The company agreed an investment plan to increase the field’s production over the next 12-18 months, and with construction work now underway, the business remains on track to meet production targets by early 2020.
AB Dynamics reported record full year revenue and adjusted profits, which increased by 51% and 78% respectively year on year, and management commented on the positive outlook for the new financial year. AB Dynamics is involved in the manufacture of testing products for the global automotive industry, where the move to more autonomous vehicle technologies has driven, and will continue to drive, an increase in automotive research and development spend from which AB Dynamics is well placed to benefit.
Aside from those shares that were caught up in the falls of the fourth quarter of 2018, which in our portfolio were frequently shares that simply erased gains from earlier in the year, some of the largest negative contributors during the year have been businesses exposed to the challenging trading environment facing UK retailers. Fashion brand Superdry, for example, fell after the company issued a number of profit warnings during the year. Some elements, such as the “Beast from the East” were beyond their control, however there were also system issues resulting in clearance activity that impacted gross margins. With a lack of clarity on the solution to these issues, we sold the position during the year.
Gear4Music, the UK’s leading supplier of musical instruments and accessories, fell after the company warned that earnings for the 2019 financial year are expected to be “slightly below the 2018 financial year”. The company delivered strong sales growth of 41%, however the focus on gaining market share came at the cost of gross margins. In addition capacity issues in its York distribution centre between Black Friday and Christmas, where the company failed to meet demand, held back further sales growth.”
BRSC : BlackRock Smallers extends outperformance record