Results analysis from Kepler Trust Intelligence

Schroder BSC Social Impact Trust

30 October 2023

 

Schroder BSC Social Impact (SBSI)

30/10/2023

Results analysis from Kepler Trust Intelligence

Schroder BSC Social Impact (SBSI) has released its financial results for the year ending 30/06/2023. Over the year, the trust saw its NAV increase by 0.8% on a total return basis, which compares to an average NAV total return of -5.8% for the AIC Flexible sector.

The portfolio consists of investments in projects that are designed to provide a meaningful impact on those otherwise underserved. These are private, illiquid assets whose valuations are affected by factors such as development milestones or revenue changes and valued regularly. During the year, the board decided to value the whole portfolio quarterly in future to provide more clarity to investors, rather than semi-annually as before.

In the period, the key drivers of the NAV performance were valuation gains in the high impact housing portfolio, and capital and income gains in social outcomes contracts, though this was somewhat offset from a write down in one holding. The period also saw an increase in net revenue mostly because of higher interest generation from floating rate loans and mature investments. This improved revenue has led to a final dividend of 2.3p per share versus 1.3p in 2022.

Chair Susannah Nicklin commented on the managers delivering both NAV returns and a social impact, saying: "the social impact created by the company's investments is needed more than ever". She also highlighted that the "portfolio has shown resilience within a turbulent market".

Kepler View

SBSI has shown good resilience with a stable NAV performance which we believe demonstrates the benefits of social investment as an asset class. The managers categorise the portfolio into committed capital, called the high impact portfolio which are divided into different maturities, and undrawn commitments. The investment phase holdings contributed the most to returns in the period, adding 1.58% to NAV, with the more mature holdings contributing 0.17% and liquidity assets, which is capital invested in best-in-class, liquid ESG funds in order to fund capital commitments in future, contributing 0.16%. 

The key drivers behind the performance in the period came from the high impact housing portfolio. Two projects completed development which meant they began producing income which has led to valuation uplifts. A number of holdings in the social outcomes contracts delivered a combination of both capital gains and income for the trust. With the exception of a write-off in Skills Training UK, the trust's holdings in the high impact portfolio contributed positive returns in the period. This shows the performance has come from across the portfolio, rather than any one holding driving performance which we believe is evidence of diversification.

An increase in revenue has supported an increase in the dividend for this year. The managers believe this improvement is sustainable and have therefore upgraded the long-term guidance. We have previously described the dividend as a positive, supplementary feature of the investment case, though this change in policy could, in our opinion, increase the attraction for potential investors.

Despite the resilience shown, the trust has fallen to a wide discount. The board has begun trying to narrow this with share buybacks which we believe could be a turnaround catalyst. For investors, this could prove a compelling entry point with the discount around its widest level since inception. 

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