Schroder British Opportunities (SBO)

12/07/2024

Results analysis from Kepler Trust Intelligence

Schroder British Opportunities (SBO) has released its annual financial results for the year ending 31/03/2024. Over the year, the trust saw its NAV per share increase by 2.5% on a total return basis. This has contributed to a NAV total return of 12.3% since inception in 2020.

NAV growth in the past year has been primarily driven by performance in the private equity portion of the portfolio. The focus on growth capital and buyout has led to upwards fair value adjustments in valuations, leading to a gain of 6.3% over the year.

The public equity portfolio benefitted from the takeover of City Pub Group. Whilst beneficial, this was not enough to offset the negative performance seen elsewhere in the public equities.

The managers made commitments to two unquoted holdings in the year, meaning NAV consisted of 65% unquoted and 23.9% quoted holdings at year-end. In the period post results, the trust announced an investment in HeadFirst, an unquoted HR service provider for an undisclosed amount.

Cash and cash equivalents totalled £11.6m at year end, including uncalled capital commitments.

The discount narrowed in the year, from 36.2% to 27.8% as a result of share price appreciation.

Chairman Neil England stated: "The UK stock market represents one of the cheapest equity markets in the world and the UK mid-cap sector looks particularly attractive," adding, "inflation numbers are better which suggests a more positive medium-term outlook for growth companies."

Kepler View

Schroder British Opportunities (SBO), managed by a four-strong team, owns a portfolio of both public and private equities consisting predominantly of UK companies. This portfolio will contain between 30 and 50 holdings, with a tilt towards mid-sized companies. The ability to invest across both public and private offers flexibility to identify the best growth opportunities regardless of status.

SBO has delivered a year of solid performance, having returned 2.5% in NAV terms. This has predominantly come from the uplift in value of the private equities, which increased by an aggregate of 6.3%. EasyPark was the best performer partly as a result of an acquisition that will expand the company's global reach. We believe this is a good demonstration of the managers' expertise.

Despite some bright spot the public equities were a drag on performance. The focus on mid-caps and sector bias has meant their portfolio has had greater sensitivity to macro factors. They believe that valuations are very attractive and have the potential to recover.

The share price return was a positive which the managers argue could be a sign that investors are recognising the growing momentum in the portfolio. This has contributed to the discount narrowing at year end. We believe this discount could be attractive for long-term investors, especially in the context of the portfolio composition, inferring an even wider discount on the private equities.

The managers made two additions to private holdings in the period and sold three public equities. This has resulted in nine unquoted holdings totaling 65% of NAV, and 21 quoted holdings totaling 24%. Since the period end, the managers added one new unquoted holding. The managers believe this demonstrates the opportunity set in private markets, despite the negative sentiment.

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