Portfolio Update

BLACKROCK GREATER EUROPE INVESTMENT TRUST PLC (LEI - 5493003R8FJ6I76ZUW55)

All information is at 31 January 2024 and unaudited.

Performance at month end with net income reinvested
 

	One Month	Three Months	One Year	Three Years	Launch (20 Sep 04)
Net asset value (undiluted)	1.4%	19.4%	13.8%	22.5%	741.0%
Share price	0.5%	22.0%	13.4%	11.7%	700.0%
FTSE World Europe ex UK	0.3%	11.2%	8.8%	29.5%	417.2%

Sources: BlackRock and Datastream
 

At month end

Net asset value (capital only):	605.33p
Net asset value (including income):	605.50p
Share price:	569.00p
Discount to NAV (including income):	6.0%
Net gearing:	9.2%
Net yield1:	1.2%
Total assets (including income):	£610.4m
Ordinary shares in issue2:	100,812,161
Ongoing charges3:	0.98%

1  Based on an interim dividend of 1.75p per share, and a final dividend of 5.00p per share, for the year ended 31 August 2023.

2  Excluding 17,116,777 shares held in treasury.
3  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, write back of prior year expenses and certain non-recurring items for the year ended 31 August 2023.

Sector Analysis Total Assets (%) Technology 24.5 Industrials 23.4 Consumer Discretionary 22.8 Health Care 15.4 Financials 8.3 Basic Materials 5.0 Consumer Staples 1.7 Net Current Liabilities -1.1 ----- 100.0 =====

Country Analysis Total Assets (%) France 21.8 Netherlands 19.2 Switzerland 17.3 Denmark 13.8 United Kingdom 7.0 Sweden 6.1 Ireland 5.2 Italy 3.4 United States 2.3 Belgium 1.7 Germany 1.7 Spain 1.6 Net Current Liabilities -1.1 ----- 100.0 =====

Top 10 holdings	Country	Fund %
Novo Nordisk	Denmark	9.3
ASML	Netherlands	7.1
RELX	United Kingdom	6.2
LVMH	France	6.0
BE Semiconductor	Netherlands	4.4
Hermès	France	3.9
Safran	France	3.6
STMicroelectronics	Switzerland	3.4
ASM International	Netherlands	3.4
Ferrari	Italy	3.4

Commenting on the markets, Stefan Gries and Alexandra Dangoor, representing the Investment Manager noted:

During the month, the Company’s NAV rose by 1.4% and the share price was up by 0.5%. For reference, the FTSE World Europe ex UK Index returned 0.3% during the period.

Europe ex UK markets were slightly up during January, although markets were on a roller coaster: initial weakness in January following incredibly strong markets during Q4 2023, was soon replaced by a number of strong earnings reports from European and US large/ mega cap stocks, as well as evidence of a strong underlying economy. US jobs reports that were published during the month showed a tight labour market and strong wage growth in December.

The start of the earnings season has so far shown robust earnings but generally mixed guidance for the year. As at the time of writing, we have not seen concerning profit warnings with implications for wider industries. So far, banks reports have also shown limited losses in the system which is encouraging. Many analysts had cut expectations going into the earnings season which, together with a degree of short covering, has so far resulted in some extreme share price moves on better-than-expected results. 

Market performance was driven by technology, health care and telecommunications whilst utilities, materials and real estate were the worst performers in January. The Company outperformed its reference index during the month, driven by positive sector allocation.

In sector terms, the Company benefited from its overweight to the technology sector which delivered some very promising individual results. Our zero weight in utilities also aided relative returns as the sector struggled given a collapse in gas prices, as well as concerns around the pace of the renewables build-out. Lower weights towards materials, consumer staples and real estate were also positive.

The health care sector was the strongest contributor to relative returns during the month, largely driven by positions in Novo Nordisk and Lonza. Novo Nordisk delivered Q4 results, beating consensus expectations with sales 4% ahead and earnings per share (EPS) 5% ahead. Company issued guidance for 2024 suggests sales and earnings before interest and taxes will grow in the mid 20% range. While growth has been impressive over the past year, we believe we are still in the early stages of growth potential here, as prescription trends required to meet consensus is undemanding in our view while the use of GLP-1 drugs in other categories such as diabetes, cardiovascular, liver disease, and potentially Alzheimer’s, provides further growth opportunities. Ultimately, we still think the stock can continue to deliver upgrades through 2024.

Lonza delivered a strong set of results, reporting better than expected sales and margins for the full year 2023. Most notably, the company reiterated 2024 guidance and mid-term margin targets which alleviated market concerns of potential downgrades. The company also announced the replacement of the current chairman which was positively welcomed by the market. We retain conviction on the medium to long-term investment case for the company and see the developments as positive, whilst the company works to rebuild trust with the market and the ability to execute on their strategy.

Within consumer, LVMH reported better-than-expected Q4 results. Sentiment around the shares had been negative since last summer due to evidence around deteriorating demand trends and concerns around operating deleverage. Yet, the key Fashion and Leather Goods division grew by 9% organically during the last quarter of the year and revenue for the group was up by 10%. Cost control was also impressive with margins improving year-on-year despite headwinds.

A number of semiconductor-exposed businesses were also amongst the best performers. ASML’s stellar results boosted the whole sector: Europe’s largest tech stock reported record profits during Q4 with net profit up by 9%, as well as the highest ever order book of more than €9bn in new orders. Demand for capex in the industry is improving and supports 2025 guidance, whilst ASML retain a conservative outlook for 2024. Secular tailwinds appear intact. Whilst high, valuations remain reasonable considering ASML is one of the most attractive large cap tech names.

ASML’s update also moved shares in ASMi higher. Elsewhere in the sector, however, shares in STMicro dropped. STMicro is a highly cyclical company where demand is largely driven by the automotive industry and industrial segments. Weakening news flow around electric vehicle (EV) demand in developed markets and a decline in orders from the industrials sector, particularly reflecting China weakness, challenged the stock during the month. Whilst revenue is likely to fall this year, we expect all STMicro key markets to recover going into 2025. Valuations are extremely low at 10x P/E.  Not owning Infineon was helpful as the company is also highly exposed to the auto industry which continues to see a slowdown.

Finally, a position in Sika was the largest detractor to relative returns after the company gave an update on Q4 sales and revenues which missed consensus expectations. The weaker results highlighted a new risk with their America’s business slowing and driving downgrades to EPS. With a full valuation and consensus estimates priced for perfection, we have rethought the active weight of this position in the context of the portfolio’s overall exposure to construction.

Outlook

We remain fairly constructive on European equities as the set-up should be positive: inflation is on a downwards trajectory and the economy appears relatively robust. Eurozone inflation figures have fallen and whilst there may be volatility in month-to-month data, the economy can handle these levels of inflation. This also means that we have come to, or are close to, peak rates and at some point, it is fair to assume interest rates will come down. We have already started to see a positive impact on falling mortgage rates in many European countries.

The corporate sector in Europe is healthy. There is limited corporate debt, margins are strong, there is no need for major layoffs and the end of destocking across most industries is in sight. This in turn is good news for the consumer: a supply chain and energy crisis that is largely done, combined with high employment numbers and falling inflation suggest that the cost-of-living crisis has cooled off. This puts the region in a much better position compared to one year ago.

Nevertheless, the asset class has been under-owned ever since the Russian invasion of Ukraine in February 2022. As always in Europe, it is key to remain selective. Assessing the economy from the bottom-up can uncover areas for greater optimism than traditional economic indicators may suggest. Our regular contact with management teams helps us understand whether the direction of earnings and cashflows on a medium to long-term view for the companies in our portfolio remains on track.

Long-term structural trends and large amounts of fiscal spending via the Recovery fund, Green Deal and the REPowerEU plan in Europe can also drive demand for years to come, for example in areas such as infrastructure, automation, innovation in medicines, the shift to electric vehicles, digitization or decarbonisation. Valuations are attractive versus history and especially versus US equities. Overall, evidence of a resilient consumer, healthy corporate sector and decent outlooks underpinned by green stimulus, give us confidence that many of the companies in our portfolio can continue to weather the storm.

ENDS

Latest information is available by typing www.blackrock.com/uk/brge 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.

19 February 2024

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