Aberforth Smaller Companies Trust PLC · LSE:ASL
Aberforth Smaller Companies Trust — Investor Presentation (November 2022)
37 slides from Aberforth Smaller Companies Trust's investor presentation, November 2022
Slide 1: Presentation to ASCoT Investors
Aberforth Partners LLP Presentation to ASCoT Investors November 2022 14 Melville Street - Edinburgh EH3 7NS Tel 0131 220 0733 - Fax 0131 220 0735 [email protected] - www.aberforth.co.uk Aberforth Partners LLP is authorised and regulated by the Financial Conduct Authority Aberforth Unit Trust
Slide 2: Aberforth Partners
Aberforth Partners ▪ A consistent investment approach deployed by a well resourced team ─ Small UK quoted companies with a value investment philosophy ─ Fundamental analysis backed up by stewardship and engagement ▪ Prioritising our existing clients ─ Ceiling on the business: 1.5% of the NSCI (XIC)’
Slide 3: Total returns to 31 October 2022
Total returns to 31 October 2022 CAGR ASCOT Total Return % YTD 34 Month 3 Year 5 Year 10 Year inception FTSE All-Share -5.0 1.4 2.3 2.4 6.2 7.9 FTSE 250 (XIC) -23.7 -17.3 -3.0 -1.1 6.3 10.3 FTSE SmallCap (XIC) -23.4 2.2 4.5 0.9 8.6 7.5 ASCoT vs. NSCI (XIC) NSCI (XIC) - Benchmark -22.9 -10.0 0.6 -0.6
Slide 4: Winners and losers – year to date
Winners and losers – year to date ▪ Attribution is the contribution to relative performance in basis points 10 Best winners Total return Attribution 10 Worst losers Total return Attribution Rank Company (%) (bp) Rank Company (%) (bp) 1 RPS Group 80 203 1 Reach -65 -127 2 Go-Ahead Group 132 125 2 RM
Slide 5: Purchases and sales – year to date
Purchases and sales – year to date Top 10 Purchases Top 10 Sales Rank Company £m Rank Company £m 1 Energean 19.8 1 Brewin Dolphin Holdings 54.1 2 Mitchells & Butlers 11.2 2 Micro Focus 34.6 3 Bodycote 10.1 3 Go-Ahead Group 32.8 4 Micro Focus 9.6 4 McKay Securities 21.5 5 Fisher (James) & Sons 8.8 5
Slide 6: Politics have rendered the UK a “special situation”
Politics have rendered the UK a “special situation” ▪ Fundamentals obscured by poor management of common issues ─ A large open economy with laws and a governance regime supporting asset ownership ─ The UK’s debt to GDP ratio is lower than that of most major economies ─ A free floating currency can t
Slide 7: The opportunity for the portfolio
The opportunity for the portfolio Value Size Recession & recovery UK "special situation" Value stretch still wide High exposure to smaller Small cap cyclicality Political uncertainty in a historical context small companies Rotation to value - Still wide valuation c.50% portfolio sales Resilience und
Slide 8: Value – a tailwind
Value – a tailwind 19% Value component of NSCI (XIC) against NSCI (XIC) ▪ The 66 year perspective 870 17% 15% ─ NSCI (XIC) value premium since 670 13% ─ Index’s inception: +3.3% p.a. Value component of NSCI (XIC) vs NSCI (XIC) 11% 9% Yields: 1.5% to 3.0% 470 7% “The great rotation” ─ ASCoT’s incepti
Slide 9: M&A – a busy year
M&A – a busy year 30 25 27 20 1 19 18 15 17 6 14 10 12 12 12 12 5 5 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Deals completed Offers 31 Oct 22 Approaches 31 Oct 22 ▪ 18 M&A deals announced within the NSCI (XIC) so far in 2022 ─ A lull is likely: macro uncertainty and debt markets hindering
Slide 10: RPS – an excellent outcome through M&A
RPS – an excellent outcome through M&A ▪ Opportunity A good business, respected by its peers Valuation affected by cyclicality and governance doubts Buyer: Tetra Tech Multiple bids from Tetra Tech and its rival WSP Price: 222p 90% premium Valuation: 19.4x 2022 EV/EBITA Above industry average acquisi
Slide 11: EV/EBITA – low portfolio valuation
EV/EBITA – low portfolio valuation ▪ Discounts of 28% to Tracked Universe and 52% to growth stocks in 2022 ─ Portfolio helped by size positioning – 65% weight in smaller smalls ▪ The portfolio also stands out against 2022 M&A multiples ─ Average 2022 EV/EBITA multiple of NSCI (XIC) deals 14x Number
Slide 12: Valuation context – historical PE
Valuation context – historical PE Absolute historical PE: Aberforth portfolio 20x 18x 16x +1 Standard deviation 14x PE x 12x 10x -1 Standard deviation 8x 6x 4x Aberforth PE ▪ Historical PE at 31 October of 7.7x ─ Likely to move lower: earnings boosted by pandemic recovery are still being reported ▪
Slide 13: Starting valuations and prospective total returns
Starting valuations and prospective total returns ASCoT's starting historical PE against subsequent 5 year NAV total return CAGR, from 31 March 1991 30% 7.7x 25% 20% 5 year CAGR (%) 15% 10% 5% 0% -5% 5.0x 7.0x 9.0x 11.0x 13.0x 15.0x 17.0x 19.0x 21.0x Starting P/E Aberforth Partners LLP Source: Aberf
Slide 14: Aberforth’s differentiation
Aberforth’s differentiation ▪ The pricing basis of financial markets has changed as interest rates rise ─ But style positioning among peers has changed little *Aberforth Investment Trusts Mid Cap ITs Unit Trusts Size Aberforth Style Aberforth Partners LLP *Aberforth “Standard Value” portfolio. Sourc
Slide 15: Resilience – the portfolio owns good businesses
Resilience – the portfolio owns good businesses Leverage profile of ASCoT and the Tracked Universe 50% 45% ▪ Strong balance sheets 40% 35% ─ Both portfolio and index % by value of Tracked Universe & Portfolio 30% 25% ─ Unusual at this stage in the cycle 20% 15% ─ Strongest since 2014 10% 5% ─ Many b
Slide 16: Income growth from the portfolio and ASCoT
Income growth from the portfolio and ASCoT Portfolio categorised by holding's most recent dividend action ▪ Portfolio dividend experience remains strong 40 35 ─ Tailwind from reinstated dividends 30 ─ Boost from special dividends in 2022 Number of companies 25 20 15 35 ─ 6 holdings declared specials
Slide 17: ASCoT
ASCoT ▪ Dividends ─ 3% historical yield (2021’s dividends and 1166p share price at 31 October 2022) ─ The board aims to grow the dividend in real terms – interim +10% to 12.05p ─ Special dividends are usually prompted by special dividends paid by holdings ─ Interim dividend + income so far earned in
Slide 18: Conclusion
Conclusion ▪ Portfolio – well positioned ─ Balance sheets are unusually strong and valuations are very attractive ─ Macro developments have been favourable to the value style ─ Plentiful opportunities for the value investor, particularly in the UK ▪ ASCoT – advantages of its closed end structure and
Slide 19: ASCoT’s continuation vote
ASCoT’s continuation vote ▪ In respect of the three years to 31 December 2022 ▪ Ordinary resolution a part of the agenda for March 2023’s AGM ▪ The Board and Aberforth encourage all shareholders to vote ▪ The Chairman, Richard Davidson, is available to meet shareholders [email protected]
Slide 20: Appendix
Appendix Aberforth Partners LLP 19
Slide 21: ESG integration – update
ESG integration – update ▪ Early adopters of the FRC Stewardship Code 2020 ─ Confirmed again as a signatory in 2022 ▪ We launched our enhanced ESG database module in 2022 ▪ Our framework analyses company specific risks and opportunities against a sector determined risk score ─ Environmental: climate
Slide 22: Top 20 holdings
Top 20 holdings Total Rank Company Activity portfolio (%) 1 RPS Group Energy & environmental consulting 4.9 2 FirstGroup Bus & rail operator 3.8 3 EnQuest Oil & gas exploration and production 3.1 4 Redde Northgate Van rental 2.8 5 Videndum Photographic & broadcast accessories 2.8 6 Wincanton Logisti
Slide 23: ASCoT – sector exposure
ASCoT – sector exposure NSCI (XIC) ASCoT Relative Sector Significant holdings weight weight weight Technology 7.8% 2.5% -5.3% Telecommunications 1.7% 0.0% -1.6% Health Care 2.3% 1.4% -0.9% Financials 18.1% 14.3% -3.8% International Personal Finance, Just Group, CMC Markets, Rathbones Group Real Esta
Slide 24: 2022 growth stocks
2022 growth stocks Securities 4imprint Group JTC AJ Bell Kin and Carta Alfa Financial Software Holdings Made Com Group Allied Minds Molten Ventures Alphawave IP Group Moonpig Group AO World Network International Holdings Aptitude Software Group Oxford Biomedica Arix Bioscience Oxford Instruments Ast
Slide 25: Gearing
Gearing Gearing [RHS] NSCI (XIC) Total Return [LHS] 2,100 25.0% 2,000 1,900 Recession 1,800 LTCM GFC Covid-19 20.0% 1,700 & recovery 1,600 NSCI (XIC) rebased to 100 at 29 Feb 1992 1,500 15.0% 1,400 1,300 1,200 10.0% Gearing % 1,100 1,000 900 5.0% 800 700 600 0.0% 500 400 300 -5.0% 200 100 Old econom
Slide 26: ASCoT – share price, discount and buy-backs
ASCoT – share price, discount and buy-backs 0 Monthly premium/(discount) and share price: last 15 years 1,600 -3 1,400 -6 1,200 % Premium/(discount) -9 Share price (GBp) 1,000 -12 800 -15 600 -18 -21 400 -24 200 ASCoT ORD share price [RHS] ASCoT [LHS] AIC UK Smaller Companies sector (weighted averag
Slide 27: 3 collective investment vehicles
3 collective investment vehicles Aberforth Smaller Companies Aberforth UK Small Aberforth Split Level Trust (ASCoT) Companies Fund (AFUND) Income Trust (ASLIT) Inception December 1990 March 1991 July 2017 Structure Closed-end Open-end Closed-end Gearing Tactical = 4.3% N/A Structural (ZDPs) = 28% Si
Slide 28: Investment trust
Investment trust Aberforth Smaller Companies Trust plc (ASCoT) ▪ next continuation vote in March 2023 and every 3 years thereafter Ordinary shares ▪ authority to buy back up to 13,108,495 shares in the calendar year granted at AGM 85,444,605 ▪ cumulative shares bought back for cancellation since inc
Slide 29: Unit trust
Unit trust Aberforth UK Small Companies Fund (AFUND) As 31 October 2022 Issue Price Cancellation Price Units in Issue Accumulation Units £265.08 £259.52 324,878 Income Units £181.55 £177.74 226,456 Limited issue fund with Accumulation and Income units ▪ value at cancellation price: £125m ▪ no entry
Slide 30: Investment trust
Investment trust Aberforth Split Level Income Trust plc (ASLIT) Ordinary shares ▪ all net income, plus all net assets on a winding up – after ZDP 190,250,000 entitlements met Zero Dividend Preference ▪ no dividends, but final capital entitlement of 127.25p on planned (ZDP) shares winding up date 47,
Slide 31: Glossary – Aberforth Funds
Glossary – Aberforth Funds ▪ Aberforth’s investment philosophy and putting it into practice is explained further at www.aberforth.co.uk/about-Aberforth/ ▪ Aberforth Standard Value refers to The Aberforth Smaller Companies Trust plc, Aberforth’s longest standing client. ▪ Accumulation Units: units no
Slide 32: Glossary – Aberforth Funds
Glossary – Aberforth Funds ▪ NSCI (XIC): The Numis Smaller Companies Index (excluding Investment Companies). ▪ PE: The price-earnings ratio (P/E ratio). ▪ Redemption Yield (Ordinary Share) is the annualised rate at which projected future income and capital cash flows (based on assumed future capital
Slide 33: Important information
Important information Aberforth Partners LLP 32
Slide 34: Important information
Important information ▪ Throughout this presentation references to: SMALL COMPANIES mean constituents of the Numis Smaller Companies Index (Excluding Investment Companies) which are referred to as “NSCI (XIC)”; LARGE COMPANIES mean constituents of the FTSE All-Share Index which are referred to as “F
Slide 35: Important information
Important information ▪ The information contained in this presentation does not constitute an offer of, or an invitation to apply for, securities in any jurisdiction where such an offer or invitation is unlawful or in which the person making such offer is not qualified to do so or to whom it is unla
Slide 36: Risk warnings
Risk warnings ▪ Capital may be at risk as the value of investments may go down as well as up and is not guaranteed; therefore investors may not get back the amount originally invested. ▪ Past performance is not a guide to future performance, nor a reliable indicator of future results or performance.
Slide 37: Risk warnings
Risk warnings ▪ An investment trust may only pay dividends to the extent that it has distributable profits available for that purpose. A reduction in the income from an investment trust's portfolio could adversely affect the yield, if any, on its shares. ▪ Investment trusts may borrow money in order
Aberforth Smaller Companies Trust — Investor Presentation (November 2022) on 6ix