Aberforth Smaller Companies Trust PLC · LSE:ASL

Aberforth Smaller Companies Trust — Aberforth Partners LLP — Investor Presentation (November 2023)

34 slides from Aberforth Smaller Companies Trust's investor presentation, November 2023

  1. Slide 1: Presentation to AFUND Investors, November 2023

    Aberforth Partners LLP Presentation to AFUND Investors November 2023 14 Melville Street - Edinburgh EH3 7NS Tel 0131 220 0733 enquiries@aberforth.co.uk - www.aberforth.co.uk Aberforth Partners LLP is authorised and regulated by the Financial Conduct Authority Aberforth Unit Trust Managers Limited is

  2. Slide 2: Aberforth Partners

    Aberforth Partners  33 years of UK small cap value investing  Partnership structure is aligned with clients’ interests ─ Significant “skin in the game”  Funds under management of £1.8 billion ─ Available capacity of over £300m  A team of seven investment managers with average experience of 20 ye

  3. Slide 3: Total returns to 31 October 2023

    Total returns to 31 October 2023 CAGR AFUND Total Return % YTD 1 Year 3 Year 5 Year 10 Year inception FTSE All-Share 0.3 5.9 11.7 3.9 4.7 7.5 FTSE 250 (XIC) -6.3 0.1 3.3 -0.1 3.1 9.4 FTSE SmallCap (XIC) -2.5 5.3 10.7 3.7 4.9 6.8 NSCI (XIC) -5.4 0.8 4.2 1.2 3.7 8.7 AFUND -4.0 3.8 13.1 2.4 4.5 10.8 In

  4. Slide 4: The value premium is re-emerging

    The value premium is re-emerging Value component of NSCI (XIC) against NSCI (XIC) 19% 870 17% 15% 13% 670 11% Value component of NSCI (XIC) vs NSCI (XIC) 9% 470 7% 5% 3% 270 1% -1% 70 -3% -5% -7% -130 Dec-68 Dec-93 Dec-18 Aug-60 Oct-64 Nov-66 Jan-71 Mar-75 Apr-77 May-79 Jun-81 Aug-85 Oct-89 Nov-91 J

  5. Slide 5: The opportunity – a triple discount

    The opportunity – a triple discount Historical PEs AFUND’s opportunity World 15.9 15.1 13.9 1. The UK Politics and inflation Flows UK 13.4 2. Small caps 10.2 10.7 Liquidity Domestic exposure Small cap 13.7 3. Value portfolio 10.2 Resilient 8.2 Differentiated 54% PE discount to RoW *Aberforth 12.1 7.

  6. Slide 6: Income

    Income Portfolio categorised by holding's most recent dividend action 40 35 30 Number of companies 25 20 35 15 10 15 12 13 5 3 0 Cutters Nil payers No changers Increasers Returners  Resilient portfolio dividend experience  Historical portfolio yield of 4.6%  Some offset to economic headwinds from

  7. Slide 7: M&A continues and exposes low valuations

    M&A continues and exposes low valuations Completed or new offers within the NSCI (XIC) in 2022 and 2023 120% Seraphine Group (206%) John Menzies Micro Focus Pendragon 100% Innovaderma Offer price premium 80% RPS Group Restaurant Group SCS Group Air Partner Hyve Group Brewin Dolphin Holdings Devro DW

  8. Slide 8: How we engage – purposeful and discreet

    How we engage – purposeful and discreet  We have always engaged to improve investment outcomes  We have the resource to engage effectively  We engage with executives and non-executives, prioritising the chair  Any issue that affects value is relevant ─ Capital allocation, sustainability, board c

  9. Slide 9: Engagement example – recommended offer for Lookers

    Engagement example – recommended offer for Lookers .Backdrop Valuation plagued by worries about the economic cycle Bid from Alpha Auto in June at 120p, a 35% premium Valuation – 8.5x 2023 PE We had conviction in the valuation and worked to stop the deal Engagement Stake Second largest shareholder wi

  10. Slide 10: Value roll – year to date

    Value roll – year to date Top 10 Purchases Top 10 Sales Rank Company £m Rank Company £m 1 Close Brothers Group 3.1 1 Lookers 3.7 2 Avon Protection 2.0 2 FirstGroup 3.4 3 Redrow 1.9 3 RPS Group 3.0 4 NCC Group 1.8 4 Medica Group 2.9 5 Workspace Group 1.5 5 Energean 2.1 6 Quilter 1.2 6 Vanquis Banking

  11. Slide 11: 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 10 Worst losers Total Attribution Total Attribution Rank Company return (%) (bp) Rank Company return (%) (bp) 1 FirstGroup ▲ 59 145 1 Videndum ▲ -70 -140 2 International Person

  12. Slide 12: Resilient companies

    Resilient companies 50% Leverage profile of AFUND and the Tracked Universe 45% 40% 35% % by value of Tracked Universe & Portfolio 30% 25% 20% 15% 10% 5% 0% Net cash balance sheets Balance sheets < 2x Balance sheets > 2x AFUND 2023 Basis Tracked 2023 Basis  Balance sheets have not been this strong s

  13. Slide 13: Starting valuations matter

    Starting valuations matter  History suggests compelling prospective returns from current valuations Aberforth's starting historical PE against subsequent 5 year NAV total return CAGR, from 31 March 1991 30% AFUND PE at 31 Oct 2023: 6.9x 25% 20% 5 year CAGR (%) 15% 10% 5% 0% -5% 5x 6x 7x 8x 9x 10x 1

  14. Slide 14: Time in, not timing, the stockmarket

    Time in, not timing, the stockmarket Growth (TSR) of £100,000 invested in AFUND 20 March 1991 - 31 October 2023 £3,200,000 3200% 2900% £2,800,000 2747% 2600% £2,400,000 2300% % Total Returns Portfolio Value £2,000,000 2225% 2000% 1700% £1,600,000 1641% 1400% £1,200,000 1100% 1148% 800% £800,000 500%

  15. Slide 15: Conclusion

    Conclusion  Two lessons from history ─ History suggests compelling prospective mid-term returns from current valuations ─ But it is easy to miss the turn  AFUND’s characteristics de-risk the timing ─ Purposeful engagement ─ M&A optionality ─ The value style is not a headwind ─ Resilient investee c

  16. Slide 16: Appendix

    Appendix Aberforth Partners LLP 15

  17. Slide 17: Aberforth's differentiation

    Aberforth’s differentiation Size *Aberforth Investment Trusts Mid Cap ITs Aberforth Unit Trusts Style  Less repositioning among peers than might have been expected ─ Value should benefit from a cycle of higher interest rates Aberforth Partners LLP *Aberforth “Standard Value” portfolio. Source: Aber

  18. Slide 18: Top 20 holdings

    Top 20 holdings Total Rank Company Activity portfolio (%) 1 Wilmington Business publishing & training 3.1 2 FirstGroup Bus & rail operator 3.1 3 International Personal Finance Home credit provider 2.7 4 Redde Northgate Van rental 2.5 5 Vesuvius Metal flow engineering 2.5 6 Wincanton Logistics 2.5 7

  19. Slide 19: AFUND – sector exposure

    AFUND – sector exposure NSCI (XIC) AFUND Relative Sector Significant holdings weight weight weight Technology 8.6% 3.8% -4.8% Telecommunications 1.0% 0.4% -0.7% Health Care 1.4% 0.0% -1.4% Financials 19.8% 17.3% -2.5% International Personal Finance, Just Group, Conduit Holdings, Close Brothers Group

  20. Slide 20: EV/EBITA – our favoured metric

    EV/EBITA – our favoured metric Number EV/EBITA 2022 2023 2024 of stocks Low portfolio valuation in AFUND 78 6.2x 7.1x 6.4x absolute and relative terms Tracked Universe 229 8.9x 9.2x 8.3x Small cap profits to fall in 2023 as the economy slows Growth stocks 40 12.4x 12.0x 11.8x Growth stocks still on

  21. Slide 21: 2023 growth stocks

    2023 growth stocks Securities 4imprint Group Integrafin Holdings AJ Bell IP Group Alfa Financial Software Holdings JTC Alphawave IP Group Kin and Carta AO World Molten Ventures Aptitude Software Group Oxford Biomedica Arix Bioscience Oxford Instruments Aston Martin Lagonda Global Holdings Pensionbee

  22. Slide 22: 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

  23. Slide 23: 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 = 3.7% N/A Structural (ZDPs) = 44.9%

  24. Slide 24: 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 12,778,915 shares in the calendar year granted at AGM 84,414,605  cumulative shares bought back for cancellation since inc

  25. Slide 25: Unit trust

    Unit trust Aberforth UK Small Companies Fund (AFUND) As 31 October 2023 Issue Price Cancellation Price Units in Issue Accumulation Units £274.23 £269.41 287,726 Income Units £181.10 £177.92 259,919 Limited issue fund with Accumulation and Income units  value at cancellation price: £124m  no entry

  26. Slide 26: 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,

  27. Slide 27: 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

  28. Slide 28: Glossary – Aberforth Funds

    Glossary – Aberforth Funds  IPO: Initial Public Offering.  IRRs: Internal Rate of Return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments.  Issue refers to the issue of units by the Trustee.  Leverage is a measurement of the use of debt.  LTCM:

  29. Slide 29: Glossary – Aberforth Funds

    Glossary – Aberforth Funds  SONIA: Sterling Overnight Index Average is a measure of the rate at which interest is paid on sterling short-term wholesale funds in circumstances where credit, liquidity and other risks are minimal.  TCFD: Task Force on Climate-Related Disclosures.  Terminal NAV (Ordi

  30. Slide 30: Important information

    Important information Aberforth Partners LLP 29

  31. Slide 31: 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

  32. Slide 32: 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

  33. Slide 33: 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.

  34. Slide 34: 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,

Aberforth Partners LLP — Investor Presentation (November 2023) on 6ix