Results analysis from Kepler Trust Intelligence

Bellevue Healthcare Trust PLC

05 March 2024

 

Bellevue Healthcare (BBH)

05/03/2024

Results analysis from Kepler Trust Intelligence

Over the financial year to 30/11/2023, the NAV total return was -12.7%, whilst the comparator index (the MSCI World Healthcare total return index in Sterling) produced a total return of -7.1% representing an underperformance of 5.6% over the year. The share price (on a total return basis) fell by 15.1%, with the discount to NAV finishing the year at 10.3%, compared to the previous year, when the shares closed at a 7.6% discount.

The trust targets an annual dividend of 3.5% of preceding year-end NAV, paid out in two equal instalments. The board has proposed a final dividend of 2.995p which will be paid to shareholders in May 2024, representing a total dividend for the last financial year of 5.99p. For the 2024 financial year, the board is proposing a total dividend of 5.04p. The lower dividend than last year reflects the fall in NAV and represents a prospective dividend of 3.3% at the current share price of 151p.

14.3% of the outstanding shares were redeemed at the annual redemption point of 30 November 2023. In addition, BBH bought back 16.4 million shares (or c. 3.4% of the company) during the financial year.

The managers comment that the reporting period was yet another year where external factors and extraneous information served to pressure sentiment toward portfolio holdings for non-fundamental reasons. The managers state that "what we crave, more than anything else, is a bottom-up stock-driven market environment where operationally superior companies outperform poorer ones". 

Kepler View

As the managers highlight in their report, the financial year ending 30/11/2023 "has not been smooth sailing".  Fundamentals appear to be ignored by a market that is focusing on momentum and themes. This echoes the wider market, which is obsessed by developments in AI. In the Healthcare sector, it is GLP-1 obesity drugs which sees the market divided very simply into either obesity winners or losers. The managers state that they have "not seen anything quite so kneejerk since the tail end of the 1990s, and the similarly ludicrous 'old versus new economy' debate over emerging tech companies".

Bellevue Healthcare's (BBH) strategy remains to invest in `healthcare change'. The past few years may have been very challenging, but BBH's managers believe fundamentals remain attractive, and the last financial year is just one in which fundamentals were not recognised. BBH has seen a welcome recovery in relative and absolute performance in the three months to the end of February 2024.

BBH has a highly differentiated and active strategy, noteworthy because of the highly concentrated nature of the portfolio, and its specialist focus. The north star for the managers investment process is valuation, and in a market in which fundamentals are being ignored, it is perhaps not surprising that they are struggling to deliver outperformance. With a sustained recovery in sentiment, or fundamentals being reflected in share prices, one might hope that the previous track record of outperformance may return. In the meantime, the trust has best of class structural characteristics that in our view are very much on shareholders' side. For example, management fees are charged on market capitalisation rather than Net Assets, and there is an annual tender opportunity for shareholders to exit at NAV.

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