Aberforth Smaller Companies Trust PLC · LSE:ASL
Aberforth Smaller Companies Trust — Aberforth Partners LLP — Investor Presentation (May 2022)
31 slides from Aberforth Smaller Companies Trust's investor presentation, May 2022
Slide 1: Presentation to AFUND Investors May 2022
Aberforth Partners LLP Presentation to AFUND Investors May 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 Mana
Slide 2: Performance – periods to 30 April
Performance – periods to 30 April CAGR AFUND Total Return % YTD 1 Year 3 Year 5 Year 10 Year inception FTSE All‐Share 0.8 8.7 4.5 4.8 7.2 7.8 FTSE 250 (XIC) ‐11.5 ‐6.7 2.9 2.8 8.6 10.4 FTSE SmallCap (XIC) ‐7.4 ‐1.5 9.8 5.9 11.5 7.7 NSCI (XIC) ‐11.2 ‐7.4 4.9 3.6 9.2 9.6 AFUND ‐5.1 ‐1.6 5.4 3.8 9.8 11
Slide 3: Macro overview
Macro overview The market is pondering recession and stagflation ─ War in Ukraine, COVID in China, supply chains, energy prices ─ The investee companies have little exposure to Russia and Ukraine ─ High inflation means that real rates are still very low ─ The Fed is contemplating the most severe t
Slide 4: The long term value premium
The long term value premium The chart shows the value premium over the long term 19% The Value Premium: NSCI (XIC) value component vs NSCI (XIC) * Index 870 17% – since Index inception +3.2% p.a. – since **ASCOT’s inception +1.8% p.a. 15% 670 13% Value component of NSCI (XIC) vs NSCI (XIC) 11% 9%
Slide 5: Opportunity from aversion to UK equities
Opportunity from aversion to UK equities Spread between UK and RoW equity valuations: 1989‐2022 (%) 40 UK and RoW equity valuation spread (%) 20 0 ‐20 UK equity valuations ‐40 37% lower than RoW 1989 1997 2005 2013 2021 UK equity valuations decoupled following the EU referendum, exacerbated by sec
Slide 6: M&A is recovering
M&A is recovering NSCI (XIC) companies 1200 140 1,085 116 1,024 120 1000 945 858 100 800 731 662 80 67 583 600 56 505 509 495 54 52 60 50 448 430 422 45 389 400 363 369 359 38 349 349 350 346 334 337 35 40 27 19 18 18 200 15 16 17 17 13 14 12 12 20 5 0 0 NSCI (XIC) companies at the start of the year
Slide 7: Winners and losers – year to date
Winners and losers – year to date Attribution is the contribution to relative performance in basis points 15 Best winners Total return Attribution 15 Worst losers Total return Attribution Rank Company (%) (bp) Rank Company (%) (bp) 1 EnQuest 74 121 1 Reach ‐42 ‐91 2 Brewin Dolphin Holdings 43 94 2
Slide 8: 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 2.0 1 Brewin Dolphin Holdings 7.3 2 Go‐Ahead Group 0.7 2 Stagecoach Group 3.0 3 Micro Focus Top0.6 10 3 Hollywood Bowl Group 1.8 4 Rank Group purchases 0.4 4 Forterra 1.4 5 Mitchells & Butlers
Slide 9: M&A case study – wealth managers
M&A case study – wealth managers A consolidating industry – two of three holdings have been acquired recently Aberforth Valuation Premium Company Held since Acquirer Market cap stake multiple paid Charles Stanley 19% 2007 Raymond James 1.7% FUM 44% £0.3bn RBC Wealth Brewin Dolphin 5% 2002 2.8% FUM
Slide 10: M&A case study – wealth managers
M&A case study – wealth managers Rathbones ─ It was the trailblazer, showing that 20%+ margins are achievable ─ The original wealth manager holding – it outgrew the NSCI (XIC) but returned in 2020 ─ Our long term view of the business did not change ─ We try to take advantage of the market’s incons
Slide 11: Historical PEs – contemplating slowdown
Historical PEs – contemplating slowdown 20x Absolute historical PE: Aberforth portfolio *Aberforth absolute PE is 8.9x 18x +1 Standard deviation 16x 14x ─ 23% discount to its 31 PE x 12x 10x year average of 11.6x 8x ‐1 Standard deviation 6x 4x ─ AFUND PE 8.7x at 30 April Aberforth PE 1.20 Relative
Slide 12: Valuation – EV/EBITA
Valuation – EV/EBITA The portfolio’s valuations are low ─ Discounts of 31% to Tracked Universe and 59% to growth stocks in 2022 Estimates are likely to decline as macro issues take their toll ─ But there is a margin of safety in these valuations NSCI Number Weighted avg. EV/EBITA 2021 2022 2023
Slide 13: Balance sheets are strong
Balance sheets are strong Balance sheets have emerged from the pandemic at their strongest since 2014 60% Leverage profile of AFUND and the Tracked Universe 55% 50% X X 45% % by value of Tracked Universe & Portfolio X 40% X X 35% 30% X 25% X 20% 15% X X 10% 5% 0% Net cash balance sheets Balance sh
Slide 14: Dividends are growing
Dividends are growing Portfolio categorised by holding's most recent dividend action 30 25 Number of companies 20 15 27 22 10 12 5 6 7 0 cutters nil payers no changers increasers returners Dividends are recovering more quickly than we had expected ─ The main influence is the tailwind from returner
Slide 15: Conclusion
Conclusion Considerable macro economic and geopolitical uncertainty ─ Markets are contemplating issues not seen in decades The portfolio offers exposure to ─ An under‐valued geography ─ Resilient and well managed businesses ─ Low valuations, in many cases reflecting the risk of a downturn ─ Retu
Slide 16: Morningstar style box categorisation
Morningstar style box categorisation Small cap fund positioning by style (x‐axis) remain polarised *Aberforth Investment Trusts Mid Cap ITs Unit Trusts Size Aberforth Style Aberforth Partners LLP *Aberforth “Standard Value” portfolio. Source: Aberforth Partners LLP; Morningstar. Data available as
Slide 17: Appendix
Appendix Aberforth Partners LLP 16
Slide 18: AFUND – sector exposure
AFUND – sector exposure NSCI (XIC) AFUND Sector Significant holdings weight weight Technology 6.7% 3.5% Micro Focus Telecommunications 1.1% 0.0% Health Care 2.0% 1.5% International Personal Finance, Just Group, CMC Markets, Provident Financial, Financials 17.9% 15.4% Rathbone Brothers Real Estate 7.
Slide 19: Top 20 holdings
Top 20 holdings Total Rank Company Activity portfolio (%) 1 FirstGroup Bus & rail operator 3.4 2 EnQuest Oil & gas exploration and production 3.2 3 Rathbones Group Private client fund manager 2.9 4 Redde Northgate Van rental 2.9 5 Wincanton Logistics 2.8 6 Robert Walters Recruitment 2.6 7 Videndum P
Slide 20: 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 21: 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 = 6.8% N/A Structural (ZDPs) = 24.5%
Slide 22: Unit trust
Unit trust Aberforth UK Small Companies Fund (AFUND) As at 30 April 2022 Issue Price Cancellation Price Units in Issue Accumulation Units £301.81 £295.98 360,128 Income Units £210.80 £206.73 269,400 Limited issue Fund with Accumulation and Income units value at cancellation price: £169m no entry
Slide 23: 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‐in up to 13,299,587 shares was granted at the AGM 86,951,924 cumulative shares bought‐in for cancellation since inception = 11,857,8
Slide 24: 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 25: 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 is based on Aberforth Smaller Companies Trust plc, Aberforth’s longest standing client. Accumulation Units: units not
Slide 26: Glossary – Aberforth Funds
Glossary – Aberforth Funds Redemption Yield (Ordinary Share) is the annualised rate at which projected future income and capital cash flows (based on assumed future capital/dividend growth rates) is discounted to produce an amount equal to the share price at the date of calculation. Redemption Y
Slide 27: Important information
Important information Aberforth Partners LLP 26
Slide 28: 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 29: 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 30: 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 31: Risk warnings
Risk warnings The dealing spread of Aberforth UK Small Companies Fund, which represents the difference between the buying and selling prices, will have an impact on the realisable value of any investment made in this fund, particularly in the short term. To mitigate the impact of capital erosion,
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