Growth liquidation hits BlackRock’s small businesses

BlackRock Smaller Companies (BRSC) has fallen behind reference over the 12 months ended February 28, 2022, return of 16.7% for the Numis Smaller Companies plus AIM excluding investment companies Hintis 24.9%. 35p in dividends was 5.1% higher than a year earlier as revenue recovered from the effects of the pandemic – the revenue yield for the year was 35.29p. The trust has now increased its annual budget dividend every year since 2003. Costly debt maturing in July 2022 is expected to be replaced with lower-cost financing, which will save on interest charges.

Excerpt from the managers’ report

Watches of Switzerland made further improvements as demand for high-end jewelry and watches continued after their outlets reopened. Their success as a distributor has been recognized by major brands, which translates into new opportunities in the United States (US) and Europe. The recovery in business spending was felt in several areas, from Next Fifteen Communications benefiting from increased demand for digital content, to YouGov and its suite of data products. In an ever-changing world, it’s critically important for companies to know not just who their customers are, but how best to access them, and while big tech companies are doing more to protect their customers’ data , the value of companies that can provide other mechanisms to identify and target audiences will multiply. Morgan Sindall made several upgrades during the year as the domestic infrastructure and regeneration markets recovered. Morgan Sindall management takes great pride in the relationship it has with the supply chain, with prompt payment being a key element. In an industry that has always been characterized by adversarial relationships between customers and suppliers, this is an undeniable source of competitive advantage that will likely help Morgan Sindall run its business more efficiently than others in today’s environment. shortage of components.

Even before the recent dislocation in energy markets caused by events in Ukraine, oil and gas prices were rising as the additional demand required by a post-COVID-19 world responded to supply-side realities. an industry that has not invested in growth for a number of years. While high commodity prices will inevitably put pressure on businesses and consumers, they are of course positive for the resource sector, with Serica Energy and Gulf Keystone Petroleum among the top performers this year.

No year is ever perfect, there are always companies that fall short of expectations. When this happens, our role is to understand whether the changes are temporary and ultimately have no impact on longer-term fundamentals and value, or whether they represent a more permanent change in opportunity. Joules is an example of the twin pressures of a weakened consumer backdrop and supply chain strains impacting the retail sector, with stocks weakening following two downgrades . Unfortunately, we expect these difficult conditions for Joules to continue and have sold the position. In contrast, shares of Moonpig have also fallen significantly since their 2021 peak despite meeting earnings expectations set at the time of their Initial public offering (Initial Public Offering). The greeting card supply chain is much less complicated than fashion, less exposed to the logistical and inflationary pressures we see elsewhere, while there is a structural shift to online cards and gifts that will continue to generate revenue. With this in mind, we maintain our position.

In an environment of rising costs, it is essential that companies have pricing power. Unfortunately, International Greetings has shown what happens when customers are unwilling to accept price increases, no matter how justified by commodity inflation, and the company finds itself in the grip of clenched jaw of cost and price. With the outlook showing no signs of improvement and nothing to suggest they will suddenly develop more pricing power, we exited the position.

A combination of significant resources available liquidity and favorable valuations catalyzed a pick-up in mergers and acquisitions (M&A) activity. The Company was fortunate enough to take advantage of this on several occasions this year, with offers on Sumo, Sanne, Stock Spirits and Vectura. It should be noted how many of these deals have corporate buyers rather than capital investment, highlighting the increased confidence of management teams and the value they see in the UK market. This confidence extends to our own investments as well, as Auction Technology Group, Team17 and Learning Technologies have taken advantage of the stock markets to raise capital for deals, while myriad others have used their own cash to complete deals. bolted. However, the health of M&A markets stands in stark contrast to IPO markets, where this year’s offerings were generally substandard or at unattractive valuations. As such, our participation in deals this year has been minimal, with only Kitwave Group, In The Style Group, Big Technologies and Devolver Digital added to our holdings.

Although we have a fundamental bottom-up investment process, fault that selection of titles aggregates to produce sector exposures. This year, we have reduced our index

Overweight is used as a relative term, generally to something neutral, generally an index and in the context of a benchmark.

The opposite is underweight

See also neutral weight

Example

Stock A is 10% of an index.  A portfolio holds 12% of Stock A.  The portfolio is overweight Stock A by 2%

Germany is 10% of the European Index. Investment manager likes Germany. Portfolio holds 12% and is 2% overweight

Outcome

If stock A's share price rises, the portfolio performs well relative to the index because it holds 2% more than the index

If German markets fall, the portfolio performs badly relative to the index because it holds 2% more than the index

" class="glossary_term">Overweight in consumer-related stocks, moderating the position as the outlook for consumer spending becomes more opaque. Employment is still high, salary increases are materializing, but it is still unclear whether these increases will be enough to cover the rapid changes in the cost of living. Overlay the macro Dynamics are unknown shifts in consumer spending habits. After two years of shutdowns, home shopping and home repairs, it’s unclear where consumers will be looking to spend their tight budgets over the next twelve months. However, while consumer spending may be more contested, it’s clear that businesses have their checkbooks. While some of this may be post-COVID-19 catch-up, most is a response to fundamental changes in global supply chains. Traditional business patterns are changing, ‘just in time’ is being replaced by ‘just in case’, and global supply chains are localized or offshored. As a result, our exposure to business spending, whether through capital goods or media, has increased. Finally, our exposure to the resource sector increased. Typically, this is an area where we struggle to identify valuations that adequately offset risk, but with resource prices reaching new highs throughout the year, some of these companies are generating now strong cash flows.

BRSC: Growth sale hits BlackRock’s small businesses

previous story | next story