Aberforth Smaller Companies Trust PLC · LSE:ASL

Aberforth Smaller Companies Trust — Aberforth Split Level Income Trust — Investor Presentation (May 2022)

32 slides from Aberforth Smaller Companies Trust's investor presentation, May 2022

  1. Slide 1: Presentation to ASLIT Investors May 2022

    Aberforth Partners LLP Presentation to ASLIT Investors May 2022 14 Melville Street ‐ Edinburgh EH3 7NS Tel 0131 220 0733 ‐ Fax 0131 220 0735 enquiries@aberforth.co.uk ‐ www.aberforth.co.uk Aberforth Partners LLP is authorised and regulated by the Financial Conduct Authority Aberforth Unit Trust Mana

  2. Slide 2: Performance – periods to 30 April

    Performance – periods to 30 April CAGR Total Return % YTD 1 Year 3 Year *Launch **Inception FTSE All‐Share 0.8 8.7 14.1 4.6 4.6 FTSE 250 (XIC) ‐11.5 ‐6.7 9.1 3.1 3.1 FTSE SmallCap (XIC) ‐7.4 ‐1.5 32.3 6.1 6.1 NSCI (XIC) ‐11.2 ‐7.4 15.3 3.8 3.8 ASLIT Total Assets ‐6.3 ‐2.7 6.8 2.0 1.4 ASLIT ORD NAV ‐

  3. 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

  4. 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%

  5. 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 1989 1997 2005 2013 2021 37% lower than RoW  UK equity valuations decoupled following the EU referendum, exacerbated by sec

  6. 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

  7. Slide 7: Winners and losers – year to date

    Winners and losers – year to date 10 Best winners Total return Contribution 10 Worst losers Total return Contribution Rank Company (%) (bp) Rank Company (%) (bp) 1 Brewin Dolphin Holdings 43 148 1 Reach ‐42 ‐147 2 Anglo Pacific Group 36 67 2 TI Fluid Systems ‐36 ‐91 3 Drax Group 35 54 3 Crest Nichol

  8. 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 3.1 1 Brewin Dolphin Holdings 7.7 2 C&C Group 1.8 2 Stagecoach Group 2.6 3 DFS Furniture Top1.510 3 Drax Group 2.0 4 Jupiter Fund Management purchases 1.5 4 Essentra 2.0 and sales 5 Micro Focu

  9. Slide 9: M&A case study – wealth managers

    M&A case study – wealth managers  A consolidating industry Aberforth Valuation Premium Company Held since Acquirer Market cap stake multiple paid RBC Wealth Brewin Dolphin 5% 2002* 2.8% FUM 62% £1.6bn Management Brewin Dolphin FUM multiple implies Rathbones 4% 2020 £1.3bn c.40% upside *Held in Aber

  10. 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 ─ 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 inconsistency when valuations (and size) all

  11. 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 ─ ASLIT PE 9.4x at 30 April Aberforth PE 1.20 Relative

  12. Slide 12: Valuation – EV/EBITA

    Valuation – EV/EBITA  The portfolio’s valuations are low ─ Discounts of 21% to Tracked Universe and 53% 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

  13. 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 ASLIT and the Tracked Universe 55% 50% X 45% X % by value of Tracked Universe & Portfolio X 40% X X X 35% 30% 25% 20% X 15% X 10% X 5% 0% Net cash balance sheets Balance sh

  14. Slide 14: Dividends are growing

    Dividends are growing Portfolio categorised by holding's most recent dividend action 35 30 25 Number of companies 20 15 31 10 12 5 10 9 4 0 cutters nil payers no changers increasers returners  Dividends are recovering more quickly than expected – tailwind from returners ─ Four special dividends fro

  15. Slide 15: ASLIT valuation statistics as at 30 April 2022

    ASLIT valuation statistics as at 30 April 2022 Ordinary shares ZDP shares Redemption yields: Redemption yields: (p.a. returns to 30 June 2024) Capital Terminal Dividend growth p.a. growth p.a. NAV ‐10.0% ‐5.0% +0% +5% +10% Now 4.35% 116p to 127.25p at 30 June 2024 +0.0% 77.1p 6.5% 7.0% 7.5% 8.1% 8.7

  16. Slide 16: Conclusion

    Conclusion  Considerable macro economic and geopolitical uncertainty ─ Markets are contemplating issues not seen in decades  ASLIT ordinary shares are on a discount and offer geared exposure to ─ An under‐valued geography ─ Improving dividends from resilient and well managed businesses ─ Low valua

  17. Slide 17: Morningstar style box categorisation

    Morningstar style box categorisation  Small cap fund positioning by style (x‐axis) remain polarised ASLIT *Aberforth Investment Trusts Mid Cap ITs Unit Trusts Size ASLIT Aberforth Style Aberforth Partners LLP *Aberforth “Standard Value” portfolio. Source: Aberforth Partners LLP; Morningstar. Data a

  18. Slide 18: Appendix

    Appendix Aberforth Partners LLP 17

  19. Slide 19: ASLIT – sector exposure

    ASLIT – sector exposure NSCI (XIC) ASLIT Sector Significant holdings weight weight Technology 6.7% 3.8% Micro Focus Telecommunications 1.1% 0.0% Health Care 2.0% 0.0% Brewin Dolphin Holdings, International Personal Finance, CMC Markets, Financials 17.9% 20.8% Provident Financial, Rathbone Brothers,

  20. Slide 20: Top holdings

    Top 20 holdings Total Rank Company Activity portfolio (%) 1 Rathbones Group Private client fund manager 4.2 2 Wincanton Logistics 3.5 3 Redde Northgate Van rental 3.5 4 Anglo Pacific Group Natural resources royalties 2.8 5 Micro Focus Legacy software assets 2.6 6 Centamin Gold miner 2.5 7 Reach UK n

  21. Slide 21: 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

  22. Slide 22: 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%

  23. Slide 23: 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,

  24. Slide 24: 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

  25. Slide 25: 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

  26. Slide 26: 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

  27. Slide 27: 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

  28. Slide 28: Important information

    Important information Aberforth Partners LLP 27

  29. Slide 29: 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

  30. Slide 30: 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

  31. Slide 31: 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.

  32. Slide 32: 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 Split Level Income Trust — Investor Presentation (May 2022) on 6ix