Schroder British Opportunities (SBO)

06/12/2023

Results analysis from Kepler Trust Intelligence

Schroder British Opportunities (SBO) has released its interim management report for the six months to 30/09/2023. Over the period, the trust saw a NAV decrease of 2.5% on a total return basis.

The trust has a combination of unquoted and publicly listed companies. At the end of the period, the portfolio consisted of nine private companies, totalling 65% of NAV and 23 public companies making up 27% of NAV.

The private investments rose by an aggregate 2.9%, having delivered a positive return in every quarter since inception. Public equities fell by 4.9% due in part to a bias to small and medium-sized companies. The discount narrow from 36% to 30% in the period. In the post statement period SBO's NAV rose 4.7% driven mostly by the public equity holdings including some M&A activity.

Cash levels rose to 10.5% following corporate activity. This is reserved to take advantage of a pipeline of opportunities. There is no gearing. 

When discussing the private equities, Chairman Neil England said: "the companies we have invested in have generally shown robust revenue growth and continue to increase market share" and struck an optimistic outlook, noting: "the patient shareholder will benefit when market sentiment changes and the value and quality of the underlying portfolio becomes appreciated".

Kepler View

Schroder British Opportunities (SBO) owns a blend of small and medium-sized private and public equities. We believe this affords the four-strong management the flexibility to identify and access the best growth potential, whether a company be quoted or unquoted.

In the report period, the private holdings led performance, with four of the top five positive contributors unquoted. The managers' focus on the growth capital and buyout spaces of the sector has contributed to this. Valuations have been driven by strong trading, transactional activity and both organic and inorganic growth. These were partially offset by multiple contraction to the portfolio which we understand reflects the lower valuations seen in public markets.

The public equity holdings have been a headwind due to the portfolio's smaller company bias though since the period ended, SBO's holdings have bounced back strongly, including through M&A. We believe the macro headwinds have arguably eased recently and as such, the outlook is looking brighter.

Portfolio activity has been limited. Keywords Studios was sold due to concerns over the impact of artificial intelligence and City Pub Group (CPC) was trimmed following a strong period. Post period end, CPC was subsequently bid for, leading to an exiting of the position.

Positive share price returns have led to a narrowing of SBO's discount. However, we believe there is plenty of potential at the current level. Furthermore, the NAV reflects weakness in the public equities, implying the private equities are being discounted even further. The managers highlight robust underlying performance, as well as an improvement in markets post-statement as reasons to be optimistic. If the broader outlook continues to improve, we believe the current discount may prove an attractive entry point for long-term investors.

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