Portfolio Update

The information contained in this release was correct as at 30 June 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 June 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	-1.0	-0.5	-1.9	16.3	-0.1
Share price	-2.6	-0.1	1.4	6.9	-7.0
Numis ex Inv Companies + AIM Index	-1.0	-1.6	-2.8	19.9	-0.7

Sources:  BlackRock and Datastream

At month end

Net asset value Capital only (debt at par value):	1,393.30p
Net asset value Capital only (debt at fair value):	1,445.58p
Net asset value incl. Income (debt at par value)1:	1,411.42p
Net asset value incl. Income (debt at fair value)1:	1,463.69p
Share price:	1,270.00p
Discount to Cum Income NAV (debt at par value):	10.0%
Discount to Cum Income NAV (debt at fair value):	13.2%
Net yield2:	3.1%
Gross assets3:	£755.6m
Gearing range as a % of net assets:	0-15%
Net gearing including income (debt at par):	11.3%
Ongoing charges ratio (actual)4:	0.7%
Ordinary shares in issue5:	48,609,792

1. Includes net revenue of 18.12p
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 1,383,731 ordinary shares held in treasury.

Sector Weightings % of portfolio Industrials 34.2 Consumer Discretionary 20.0 Financials 13.3 Technology 8.4 Basic Materials 8.0 Consumer Staples 5.4 Health Care 3.5 Telecommunications 2.8 Energy 2.2 Communication Services 1.5 Real Estate 0.7 ----- Total 100.0 ===== Country Weightings % of portfolio United Kingdom 98.3 United States 0.9 Ireland 0.8 ----- Total 100.0 =====

Ten Largest Equity Investments Company	% of portfolio
Gamma Communications	2.8
4imprint Group	2.7
CVS Group	2.6
Oxford Instruments	2.1
Watches of Switzerland	2.0
Hill & Smith	1.9
YouGov	1.9
Chemring Group	1.8
Bloomsbury Publishing	1.8
Moneysupermarket.Com	1.7

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

During June the Company’s NAV per share fell by -1.0% to 1,463.69p on a total return basis, while our benchmark index also fell by -1.0%. For comparison the large cap FTSE 100 Index rose by 1.4%.

Equity markets globally were mostly positive during June, with UK small & mid-caps as a standout exception. Early signs that inflation may be moderating began to emerge and the Fed (Federal Reserve) elected to pause rate hikes in June, albeit reiterating the need for further policy tightening in the fight against inflation. In Europe, data showed that the region entered a technical recession in the first quarter of the year. The European Central Bank raised interest rates by 25bps and indicated further tightening ahead as the economy stuttered. In the UK, inflation remained elevated and wage growth came in hotter than expectations, which led the Bank of England to hike the base rate by 50bps to 5%, the 13th consecutive hike since December 2021. With the growing concerns around the outlook for the UK economy and persistent inflation as a result of tight labour markets, small and mid-caps continued to underperform during the month.

The largest positive contributor during the month was Alfa Financial Software which rose on the back of an announced bid, which has subsequently been withdrawn, from private equity business EQT. Baltic Classified performed well after the company reported strong growth across all four of its business lines (Autos, Real Estate, Jobs & Services and Generalist Businesses). Revenues across the group grew by 19% to record levels, and management provided a positive ongoing outlook. Shares in Kitwave, the food wholesale business, continued to rise during June after their positive trading update in May. The business is seeing a strong recovery in its end markets, despite the challenging macroeconomic environment and inflationary pressures. As a result, and with trading typically accelerating into the second half of the year, management now expect full year results will be ahead of market expectations.

Watches of Switzerland was the biggest detractor amongst our holdings, as the shares continued to fall, caught up in the general drawdown in UK midcap shares following June's inflation data. As noted last month, the company recently reported strong full-year results, however the market was clearly spooked by the small cost-related downgrade. Despite the markets concerns, demand remains robust, the waitlist continues to grow, and the industry backdrop remains favourable with demand for luxury watches continuing to outweigh supply. Other notable detractors included Carnival and Aston Martin, two shares which we do not own and that entered our benchmark in the annual index rebalance at the beginning of the year. Shares in both have rallied through the year, with large spikes during June, however we have continued to avoid as they fail to meet our quality growth investment criteria.

2023 has seen a continuation of the themes of uncertainty, Russia/Ukraine war, China, supply chains and inflation. However, we are closer to the end of monetary tightening and we think inflation is peaking, albeit this is happening slower than we would have expected. As the year-on-year impact on inflation starts to roll over, we could see the environment turn to disinflation quite quickly. Generally speaking, financial conditions are not too stretched; corporates and consumers are reasonably well capitalised, and banks have plenty of capital. As such the path of employment will dictate the consumer outlook but we continue to expect the trough to be shallower than in previous recessions.

Industrial activity is likely to decline as excess inventory works through the system, but given major markets such as automotive and aerospace were already seeing choked demand through supply chain issues, again we expect a shallower trough. Housebuilding and RMI (Renovation, Maintenance, Investment) had a tough first half of year, but we still believe the outlook isn’t as bad as it was in September. Valuations have corrected quickly and looking back it appears all consumer orientated stocks overshot to the downside during the chaotic period around the Truss budget.

Whilst there is much that can be discussed with regards to the economic outlook, one thing is irrefutable; the valuation of UK small and mid-sized companies is more attractive than it has been for some time, and if that valuation is not recognized by the stock market, it will be recognized by others. As stated in recent updates, we expected to see M&A (Mergers & Acquisitions) picking up through the course of the year and this certainly spiked in recent months, with approaches for several companies in the UK as Private Equity have decided to start deploying their substantial cash piles.

We are not out of the woods yet, but the recent round of trading updates from our investments have generally been in line or better than expectations. However, with oil and gas prices lower year-on-year, China re-opening, US$ weakening, shipping / logistics / factory gate prices dropping, much of the inflation pressure of last year could become deflationary during the course of this year, and we have tentatively started to utilise more of our gearing facilities.

Against this difficult backdrop, we remind ourselves that many equity markets (Europe, UK) are structurally under owned and could benefit as sentiment turns and investors begin to reduce these underweights. We remain focused on bottom-up company specific analysis to identify high quality, nimble businesses, operated by entrepreneurial management teams, with strong market positions and resilient cash-flows. These are the types of businesses that we believe will be best placed to manage and thrive in the current environment. Historically these periods 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 June 2023

25 July 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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