Aberforth Smaller Companies Trust PLC · LSE:ASL
Aberforth Smaller Companies Trust — Aberforth Partners LLP — Investor Presentation (November 2024)
39 slides from Aberforth Smaller Companies Trust's investor presentation, November 2024
Slide 1: Presentation to Investors, November 2024
Aberforth Partners LLP Presentation to Investors November 2024 This presentation is intended for investment professionals. It does not represent investment advice. 14 Melville Street - Edinburgh EH3 7NS Tel 0131 220 0733 enquiries@aberforth.co.uk - www.aberforth.co.uk Aberforth Partners LLP is autho
Slide 2: Aberforth Partners
Aberforth Partners ▪ Valuations offer a compelling opportunity in small UK quoted companies ▪ 34 years of experience managing small cap money ─ Consistency: one asset class, value investment, collegiate process, engagement ─ Capacity discipline: focus on our existing clients; c.£200m of AuM capacity
Slide 3: Aberforth Geared Value & Income Trust (AGVIT)
Aberforth Geared Value & Income Trust (AGVIT) ▪ £147m total assets split across Ordinary and ZDP shares IPO on 1 July 2024 ▪ Support from investors rolling out of ASLIT and £15m new money raised ▪ Partners of Aberforth increased their investment by £4m in the IPO ▪ To take advantage of the investmen
Slide 4: ASCoT – dividends and gearing
ASCoT – dividends and gearing Dividend records since ASCoT's inception at the end of 1990 Dividends since launch 1000 +7.4% pa 900 ▪ Aim to grow the dividend in real terms 800 700 600 ▪ 2024 interim dividend +5% 500 +5.1% pa 400 ▪ Revenue reserves 80.1p = 1.9 years at 31 Dec. 2023 300 +3.5% pa 200 +
Slide 5: Total returns to October 2024
Total returns to 31 October 2024 CAGR ASCoT Total Return % YTD 1 Year 3 Year 5 Year 10 Year inception FTSE All-Share 8.1 16.3 6.2 5.7 6.2 8.1 FTSE 250 (XIC) 7.5 26.2 -0.7 2.9 5.4 10.4 FTSE SmallCap (XIC) 13.8 28.8 1.5 9.1 7.6 8.0 DNSCI (XIC) - benchmark 7.8 25.4 -0.6 5.2 6.1 9.7 ASCoT NAV 10.5 25.3
Slide 6: Value style and size
Value style and size Value component of DNSCI (XIC) against DNSCI (XIC) Value style 19% 17% 870 ▪ The value style remains helpful to performance 770 15% ─ Influenced by inflation and bond yields Value component of DNSCI (XIC) vs DNSCI (XIC) 670 13% 11% 570 9% 470 ─ A slight tailwind year-to-date 7%
Slide 7: Valuations – the triple discount
Valuations – the triple discount Historical PEs PE relatives – the 17.0 triple discount: 15.9 World 1. The UK vs. RoW 33Y average 0.96 15.3 Today 0.86 UK 14.7 2. Small caps vs. UK 13.6 33Y average 0.89 Small cap* 12.3 Today 0.84 *London Business School series till 2013, then Aberforth’s Tracked Univ
Slide 8: The UK – the tide is turning
The UK – the tide is turning ▪ Total return from DNSCI (XIC) +25% over 12 months to 31 October 2024 ─ All re-rating – the market is looking through the impact of the recession on profits ▪ Why? ─ There are marginal buyers: bigger companies, private equity, share buy-backs ─ UK economic performance i
Slide 9: Winners and losers – year to date
Winners and losers – year to date 15 Best winners Total return Attribution 15 Worst losers Total return Attribution Rank Company (%) (bp) Rank Company (%) (bp) 1 Wincanton 94 237 1 Close Brothers Group -71 -87 2 CMC Markets 199 183 2 Playtech 62 -60 3 Galliford Try Holdings 75 103 3 SIG -31 -57 4 Ba
Slide 10: Value roll in action – year to date
Value roll in action – year to date Top 10 Purchases Top 10 Sales Rank Company £m Rank Company £m 1 Dowlais Group 28.4 1 Wincanton 72.3 2 MONY Group 21.7 2 Centamin 36.4 3 Hilton Food Group 18.9 3 Redrow 23.2 4 Halfords Group 15.5 4 XPS Pensions Group 22.3 5 XP Power 14.7 5 Avon Technologies 11.1 6
Slide 11: Geography – performance divergence in the DNSCI (XIC)
Geography – performance divergence in the DNSCI (XIC) 90 GBP/EUR [RHS] Domestic sectors relative to Overseas sectors within the DNSCI (XIC) [LHS] 1.24 1.22 85 Total Return (100 Dec 2014) 1.20 Currency - GBP/EUR 1.18 80 1.16 1.14 75 1.12 70 1.10 ▪ Domestic earners have re-rated while overseas earners
Slide 12: Eurocell – a domestic earner re-rating
Eurocell – a domestic earner re-rating Aberforth clients’ stake: 24% = £45m ASCoT weight: 1.7% Market cap.: £186m ▪ PVC products for windows, doors and roofing Business ▪ Customers are fabricators; ancillary products sold through 210 branches ▪ Cyclical pressures mask underlying operational improvem
Slide 13: M&A continues to expose low valuations
M&A continues to expose low valuations Completed or new offers within the DNSCI (XIC) since 31/12/2021 120% Pendragon Wincanton Micro Focus 100% John Menzies Spirent Communications RPS Group Kin and Carta 80% Devro Restaurant Group Offer price premium Innovaderma Hyve Group SCS Group DWF Group Brewi
Slide 14: Aberforth's engagement – an active period
Aberforth’s engagement – an active period Instances of influential engagement in 2024 Aberforth’s engagement M&A terms 11 ▪ To improve investment returns Strategy 11 ▪ Purposeful and discreet Capital allocation 17 ▪ Through the chair Additional equity 2 ▪ Influence from significant stakes Board chan
Slide 15: Conclusion
Conclusion ▪ Good performance from the asset class and more to go for ─ Led by domestic companies as the market starts to discount profit recovery ─ Increasing value opportunity among the overseas earners ▪ M&A continues apace, exposing the attractiveness of valuations ▪ Encouragingly, more consulta
Slide 16: Aberforth's long term performance record
Aberforth’s long term performance record 33 year Total return performance since ASCoT's inception CAGR +11.8% 3200 +9.7% Total Return rebased to 100 - Log scale 1600 +8.1% 800 400 £100k invested at ASCoT inception: 200 ASCoT: £4.4m DNSCI (XIC): £2.3m 100 FTAS: £1.4m 50 ASCoT NAV TR FTSE All-Share TR
Slide 17: Appendix
Appendix Aberforth Partners LLP 16
Slide 18: Top 20 holdings
Top 20 holdings Total Rank Company Activity portfolio (%) 1 Wilmington Business information & training 3.4 2 Just Group Annuity provider 2.8 3 Galliford Try Holdings Building & infrastructure contractor 2.7 4 CMC Markets Financial derivatives trading platform 2.7 5 Morgan Advanced Materials Manufact
Slide 19: Sector exposure
Sector exposure DNSCI (XIC) ASCoT Relative Sector Significant holdings (>1.5% portfolio weight) weight weight weight Technology 6.2% 4.1% -2.1% NCC Group Telecommunications 4.0% 1.8% -2.2% Zegona Communications Health Care 3.0% 0.0% -3.0% International Personal Finance, Just Group, CMC Markets, Rath
Slide 20: EV/EBITA – our favoured metric
EV/EBITA – our favoured metric Number of EV/EBITA 2023 2024 2025 stocks ASCOT 80 7.7x 7.7x 6.8x Tracked Universe 219 10.2x 9.5x 8.7x Growth stocks 31 18.2x 15.0x 13.7x Other stocks 188 9.3x 8.8x 8.0x Stocks < £600m mkt. cap.* 131 8.8x 8.5x 7.4x Stocks > £600m mkt. cap.* 88 10.8x 9.9x 9.2x * Roughly
Slide 21: Balance sheets and dividend experience
Balance sheets and dividend experience Profile of Net debt/EBITDA bandings ▪ Strong balance sheets among small companies 40% 35% ▪ Higher leverage for pub and property companies 30% Weight of portfolio 25% ▪ 16 holdings have bought back shares in 2024 20% ▪ Free cash flow boost from pension de-riski
Slide 22: The early 1990s precedent – history rhymes?
The early 1990s precedent – history rhymes? ▪ A downturn caused by inflation and tighter monetary policy Cumulative The slingshot in action: 1990 1991 1992 1993 2022 2023 1991-1993 Economic context UK GDP YoY +0.6% -1.4% +0.2% +2.3% +1.1% +0.6% -0.2% UK CPI YoY +7.0% +8.5% +4.2% +2.5% +15.9% +10.5%
Slide 23: Aberforth's differentiation
Aberforth’s differentiation ASCoT & AFUND AGVIT Investment Trusts Size Mid Cap ITs Unit Trusts AGVIT ASCoT & AFUND Style Aberforth Partners LLP Source: Aberforth Partners LLP; Morningstar. Data available as at 6 November 2024. 22
Slide 24: ASCoT – share price and discount
ASCoT – share price and discount Monthly premium/(discount) and share price: last 15 years 0 1,600 -3 1,400 -6 1,200 % Premium/(discount) Share price (GBp) -9 1,000 -12 800 -15 600 -18 -21 400 -24 200 ASCoT ORD share price [RHS] ASCoT [LHS] AIC UK Smaller Companies sector (weighted average) [LHS] AS
Slide 25: ASCoT – buy-backs
ASCoT – buy-backs ASCoT buy-backs - cumulative value bought back 180 20% 160 140 15% 120 100 10% 80 60 40 5% 20 - 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Cumulative value bought back at year ends and 30 September 2024 (£m) [LHS] ASCoT weighted avg disc
Slide 26: 2024 growth stocks
2024 growth stocks All non-holdings at 31 October 2024 4imprint Group IP Group AJ Bell JTC Alphawave IP Group Kainos Group AO World Kin and Carta Arix Bioscience Molten Ventures Auction Technology Group Oxford Biomedica Baltic Classifieds Group Oxford Instruments Bytes Technology Group PensionBee Gr
Slide 27: ESG framework and methodology
ESG framework and methodology Factors Environmental Social Governance Sub factors ▪ Climate change ▪ Employee culture ▪ Board composition and ▪ Pressure on natural resources ▪ Health and safety succession ▪ Pollution and waste ▪ External stakeholders ▪ Effectiveness ▪ Product liability and consumer
Slide 28: Investment managers
Investment managers SAMUEL G FORD MEng Sam joined Aberforth in August 2019 and became a Partner in May 2021. As a fund manager on M&G Investments’ equity income team for the previous 5 years, he managed UK equity portfolios for a range of clients. Prior to that he was an investment manager with Alli
Slide 29: 3 collective investment vehicles
3 collective investment vehicles Aberforth Smaller Companies Aberforth UK Small Aberforth Geared Value & Trust (ASCoT) Companies Fund (AFUND) Income Trust (AGVIT) Inception December 1990 March 1991 July 2024 Structure Closed-end Open-end Closed-end Gearing Tactical = 5.8% N/A Structural (ZDPs) = 39.
Slide 30: Investment trust
Investment trust Aberforth Smaller Companies Trust plc (ASCoT) ▪ next continuation vote in March 2026 and every 3 years thereafter Ordinary shares ▪ authority to buy back up to 12,626,767 shares in the calendar year granted at AGM 84,139,605 ▪ cumulative shares bought back for cancellation since inc
Slide 31: Unit trust
Unit trust Aberforth UK Small Companies Fund (AFUND) Issue Price Cancellation Price Units in Issue Accumulation Units £340.72 £335.07 276,413 Income Units £217.20 £213.60 235,820 Limited issue fund with Accumulation and Income units ▪ value at cancellation price: £143m ▪ no entry or exit fees charge
Slide 32: 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 33: Glossary – Aberforth Funds
Glossary – Aberforth Funds ▪ GFC: Global Financial Crisis, was a severe worldwide economic crisis that occurred in 2007 to 2008. ▪ GHG: Green House Gas emissions. ▪ Hurdle rate is the rate of capital growth per annum to return a stated amount per share at the planned winding-up date. ▪ Income Units
Slide 34: Glossary – Aberforth Funds
Glossary – Aberforth Funds ▪ Scope 4: Relates to a category of Green House Gas emissions. Termed as avoided emissions, Scope 4, can be defined as reductions that occur outside of a product’s life cycle or value chain, but as a result of the use of that product. ▪ Share buy backs/buybacks: A share bu
Slide 35: Important information
Important information Aberforth Partners LLP 34
Slide 36: Important information
Important information ▪ Throughout this presentation references to: SMALL COMPANIES mean constituents of the Deutsche Numis Smaller Companies Index (Excluding Investment Companies) which are referred to as “DNSCI (XIC)”; LARGE COMPANIES mean constituents of the FTSE All-Share Index which are referre
Slide 37: Important information
Important information ▪ This presentation is intended only for persons who satisfy the requirements of Article 19 (Investment Professionals) and Article 49 (High Net Worth Companies etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and may not be copied or passed
Slide 38: 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 39: 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
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