Aberforth Smaller Companies Trust PLC · LSE:ASL
Aberforth Smaller Companies Trust — Aberforth Geared Value & Income Trust plc (AGVIT) — Investor Presentation (November 2024)
36 slides from Aberforth Smaller Companies Trust's investor presentation, November 2024
Slide 1: Presentation to AGVIT Investors
Aberforth Partners LLP Presentation to AGVIT 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
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: AGVIT
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 ▪ c.£1.1m = c.1.1p per Ordinary Share Transaction costs ▪ Net of a contribut
Slide 4: Illustrative returns
Illustrative returns Ordinary shares ZDP shares Redemption yields: Redemption yields: (p.a. returns to 30 June 2031) Capital Terminal Dividend growth p.a. growth p.a. NAV 0.0% 2.5% 5.0% 7.0% +10% Now 6.43% 106p to 160.58p at 30 June 2031 -10.0% 2.1p -20.0% -18.6% -17.1% -15.9% -14.0% -5.0% 29.6p -6.
Slide 5: Attractive income
Attractive income Portfolio categorised by holding's most recent dividend action ▪ A backdrop of resilient small cap income 40 35 ▪ Supported by strong balance sheets 30 ▪ Cutters influenced by recession Number of companies 25 20 38 15 10 15 5 10 4 3 0 Cutters Nil payers No changers Increasers Retur
Slide 6: Valuations – the triple discount
Valuations – the triple discount Historical PEs PE relatives – the 17.0 triple discount: World 15.9 1. The UK vs. RoW 33Y average 0.96 15.3 Today 0.86 UK 14.7 2. Small caps vs. UK 33Y average 0.89 13.6 Today 0.84 Small cap* 12.3 *London Business School series till 2013, then Aberforth’s Tracked Univ
Slide 7: 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 8: Winners and Losers – 4 months to 31 October
Winners and Losers – 4 months to 31 October 10 Best Winners Total return Contribution 10 Worst Losers Total return Contribution Rank Company (%) (bp) Rank Company (%) (bp) 1 Centamin 39 123 1 Vesuvius -23 -113 2 Galliford Try Holdings 60 77 2 TT Electronics -48 -70 3 TI Fluid Systems 35 57 3 Morgan
Slide 9: Purchases and Sales – 4 months to 31 October
Purchases and Sales – 4 months to 31 October Top 10 Purchases Sales Rank Company £m Rank Company £m 1 Dowlais Group 1.9 1 Centamin 4.8 2 Morgan Advanced Materials 1.6 2 Energean 1.2 3 Jupiter Fund Management 1.3 3 National World 0.1 4 FirstGroup 1.2 5 Rathbones Group 1.2 6 Card Factory 1.1 7 MONY Gr
Slide 10: 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 11: Eurocell – a domestic earner re-rating
Eurocell – a domestic earner re-rating Aberforth clients’ stake: 24% = £45m AGVIT weight: 1.9% 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 improveme
Slide 12: 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 13: 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 cha
Slide 14: 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 15: Appendix
Appendix Aberforth Partners LLP 14
Slide 16: Top 20 holdings
Top 20 holdings Total Rank Company Activity portfolio (%) 1 Vesuvius Metal flow engineering 3.8 2 Rathbones Group Private client fund manager 2.7 3 PayPoint Alternative payment services 2.7 4 Morgan Advanced Materials Manufacture of carbon & ceramic materials 2.7 5 Bakkavor Group Food manufacturer 2
Slide 17: Sector exposure
Sector exposure DNSCI (XIC) AGVIT Relative Sector Significant holdings (>1.5% portfolio weight) weight weight weight Technology 6.2% 5.5% -0.7% NCC Group, MONY Group Telecommunications 4.0% 0.0% -4.0% Health Care 3.0% 0.0% -3.0% International Personal Finance, CMC Markets, Sabre Insurance Group, Fin
Slide 18: EV/EBITA – our favoured metric
EV/EBITA – our favoured metric Number of EV/EBITA 2023 2024 2025 stocks AGVIT 70 7.6x 7.9x 7.1x 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 19: Balance sheets
Balance sheets Profile of Net debt/EBITDA bandings 40% 35% 30% Weight of portfolio 25% 20% 15% 10% 5% 0% Net Cash < 1x 1x to 1.99x 2x to 2.99x > 3x Net debt/EBITDA bandings AGVIT Tracked Universe ▪ Strong balance sheets among small companies ▪ Higher leverage for pub and property companies ▪ 16 Aber
Slide 20: 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 21: 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 22: 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. 21
Slide 23: 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 24: 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 25: 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 26: 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 27: 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 28: 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 29: 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 30: 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:
Slide 31: 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
Slide 32: Important information
Important information Aberforth Partners LLP 31
Slide 33: 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 34: 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 35: 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 36: 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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