Portfolio Update

The information contained in this release was correct as at 30 September 2023.  Information on the Company’s up to date net asset values can be found on the London Stock Exchange Website at

https://www.londonstockexchange.com/exchange/news/market-news/market-news-home.html.

BLACKROCK SMALLER COMPANIES TRUST PLC (LEI:549300MS535KC2WH4082)
 

All information is at 30 September 2023 and unaudited.
Performance at month end is calculated on a Total Return basis based on NAV per share with debt at fair value
 

	One month %	Three months %	One year %	Three years %	Five years %
Net asset value	-0.1	-0.3	5.5	12.8	2.1
Share price	-0.9	-1.1	6.2	10.6	-1.6
Numis ex Inv Companies + AIM Index	-1.6	-1.3	3.3	9.9	-1.0

Sources:  BlackRock and Datastream

At month end

Net asset value Capital only (debt at par value):	1,373.72p
Net asset value Capital only (debt at fair value):	1,429.07p
Net asset value incl. Income (debt at par value)1:	1,403.30p
Net asset value incl. Income (debt at fair value)1:	1,458.64p
Share price:	1,256.00p
Discount to Cum Income NAV (debt at par value):	10.5%
Discount to Cum Income NAV (debt at fair value):	13.9%
Net yield2:	3.2%
Gross assets3:	£748.7m
Gearing range as a % of net assets:	0-15%
Net gearing including income (debt at par):	10.0%
Ongoing charges ratio (actual)4:	0.70%
Ordinary shares in issue5:	48,402,292

1. Includes net revenue of 29.58p
2. Yield calculations are based on dividends announced in the last 12 months as at the date of release of this announcement and comprise the interim dividend of 14.50 pence per share (announced on 3 November 2022, ex-dividend on 10 November 2022, and paid 9 December 2022) and the final dividend of 25.50 pence per share (announced on 05 May 2023, ex-date on 18 May 2023, and paid 27 June 2023).
3. Includes current year revenue.
4. The Company’s ongoing charges are calculated as a percentage of average daily net assets and using the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items for year ended 28 February 2023.
5. Excludes 1,591,231 ordinary shares held in treasury.

Sector Weightings % of portfolio Industrials 33.5 Consumer Discretionary 19.6 Financials 14.3 Basic Materials 8.4 Technology 8.1 Consumer Staples 4.2 Energy 3.2 Health Care 2.9 Telecommunications 2.6 Communication Services 1.8 Real Estate 1.4 ----- Total 100.0 ===== Country Weightings % of portfolio United Kingdom 98.2 United States 1.1 Ireland 0.7 ----- Total 100.0 =====

Ten Largest Equity Investments Company	% of portfolio
4imprint Group	2.9
Gamma Communications	2.6
CVS Group	2.2
Hill & Smith	2.2
Workspace Group	2.0
Breedon	1.8
Chemring Group	1.8
Oxford Instruments	1.7
Tatton Asset Management	1.7
Bloomsbury Publishing	1.7

Commenting on the markets, Roland Arnold, representing the Investment Manager noted:

During September the Company’s NAV per share fell by -0.1% to 1,458.64p on a total return basis, while our benchmark index fell -1.6%. For comparison the large cap FTSE 100 index rose by 2.4%.1

September was another month of significant market divergence in the UK, with large caps moving higher whilst small & mid-caps finished the month lower. Oil prices surged higher as a result of OPEC (Organization of the Petroleum Exporting Countries) supply cuts and underpinned concerns of another spike in inflation, which benefited the FTSE 100. The Bank of England decided to hold interest rates at 5.25% after 14 consecutive rate hikes, sending the pound to its lowest level in six months against the US Dollar. Manufacturing and Services PMIs (Purchasing Managers’ Index) fell into contraction territory while Construction PMI continued to expand. Services hit a seven-month low but beat estimates. UK Core inflation slowed to 6.2% year-on-year (YoY), from 6.9%, while headline inflation YoY slowed to 6.7% from 6.8%.

The portfolio outperformed the falling market in September, helped by positive stock specific selection. Our holding in Ergomed was a top contributor during the period after it announced a takeover by UK private equity firm, Permira in a deal estimated at £700 million. Shares in Alfa Financial Software rose in response to robust first half results, where the company maintained guidance despite the challenging economic backdrop. The shares received an additional boost after the company confirmed, following press speculation, that it was in preliminary takeover talks with US private equity group, Thomas H Lee Partners (THL). Post month end, Alfa Financial Shares have fallen back following the news that THL will not make an offer for the business. Our holding in Hunting continued to rise during the month, benefitting from a strong oil price, which rose by more than 10% during the month, and more than 28% during the third quarter. This follows the positive H1 trading update back in July where the company raised full year guidance.

Our holding in CVS Group fell in response to a review launched into the UK veterinary services market by the Competition and Markets Authority after noticeably rising costs of vet services. We have been in contact with management to understand their view and will continue to monitor the situation closely. The second largest detractor was our holding in video game developer Team17. Against a backdrop of many of the company’s peers warning, Team17 reported solid revenues growth and maintained full year guidance. The shares weakened however, as profits will be second half weighted as the company has moved some game releases to later this year. We remain confident in the outlook for the business and given the pipeline of future releases we have added to the shares on the back of this weakness. Shares in YouGov have weakened in recent months on concerns over slowing growth and the potential of a warning from the company, something that did not materialise in their results in October. The shares subsequently rallied at the beginning of October.

Since the end of 2021, rising interest rates have been weighing on the valuations of long-duration, higher growth shares in the stock market. As a result, UK small & mid-caps (SMID) have continued to underperform large caps and we are now in the deepest and longest cycle of underperformance in recent history; worse than the Global Financial Crisis, COVID, Brexit, Tech sell-off or Black Monday. Against this backdrop, the question remains, what is the catalysts for this trend to change? Unfortunately, there is no simple answer. While there are many headwinds to the UK SMID market; economic and political uncertainty, the structural flow issues in the UK market and the risk of more pervasive inflation, to name a few, we remind ourselves and take comfort in the fact that many of our holdings continue to deliver against their objectives. Furthermore, we believe we are closer to the end of monetary tightening and at some point, we are confident that investors will decide the balance of probabilities is in favour of the opportunities, that the risks are more than adequately priced in, and that an increased allocation to UK Small and Mid-caps is warranted.

As ever, we remain focused on the micro, industry level change and stock specific analysis and the opportunities we are seeing today in our universe are as exciting as ever. Historically, periods of heightened volatility have been followed by strong returns for the strategy and presented excellent investment opportunities.

We thank shareholders for your ongoing support.

     1Source: BlackRock as at 30 September 2023

31 October 2023

ENDS
 

Latest information is available by typing www.blackrock.com/uk/brsc on the internet, "BLRKINDEX" on Reuters, "BLRK" on Bloomberg or "8800" on Topic 3 (ICV terminal).  Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.

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