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Fund Profile

Schroder British Opportunities 01 February 2023

Disclaimer

This is a non-independent marketing communication commissioned by Schroder Investment Management. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
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Overview

Schroder British Opportunities (LON:SBO) employs a highly differentiated approach that invests in both public and private companies, targeting small and mid-sized UK businesses to facilitate and drive growth. The trust provides investors with access to a larger universe of high-quality, high-growth UK companies than would tend to be available in vehicles that focus purely on public markets. Managers Tim Creed and Rory Bateman have the extensive resources of the wider Schroders company to draw on to find high-quality growth companies at attractive valuations in the UK market. Furthermore, they have the flexibility and ability to invest across a wider spectrum of private companies than those trusts predominantly focussed in the crowded ‘crossover’ capital space can, which marks the trust out as being truly differentiated (see Portfolio).

The managers avoid speculative blue-sky companies that have been associated with much earlier-stage private equity strategies, and instead predominantly focus on profitable, established businesses across a number of industries that have considerable potential to grow further – c. 80% of the portfolio is currently generating profit. This has contributed to stable NAV performance since launch (see Performance).

The trust slipped to a wide Discount in the market sell-off of 2022, but has otherwise traded close to NAV since inception. While widening discounts have been seen across the AIC Growth Capital sector in which SBO features, we think the trust’s current discount level could provide investors with an attractive entry point.

Analyst's View

The crossover between private and public markets has been an area of increased interest over the past few years, with a number of trusts operating in, and recently struggling with, the space between the two. We believe such travails are causing investors to mischaracterise SBO, and this has led to a potentially attractive opportunity. As we discuss in Portfolio, SBO has a more traditional, longer-term approach to private equity with a focus on profitability which should offer resilience.

The managers have strength in the depth of equity investment resources at their disposal; these resources include the widely known public equities team, while they can also draw on the capabilities of the Schroders Capital private equity team (see Management). We believe this offers the managers the ability to select investments from a deeper pool of UK growth companies, which can be considered pretty unique in the UK equity investment landscape. Furthermore, the trust’s private equity allocation focusses on growth capital and small/mid-market buyout areas of the market, as opposed to concentrating solely on the crowded ‘crossover’ capital or pre-IPO space, which also sets the strategy apart from other trusts.

Despite these credentials, the trust is trading on a very wide Discount. We believe the current share price is pricing in a fall in private equity valuations, as these often lag public markets. This is despite the majority of the trust’s private holdings having demonstrated strong underlying performance to justify their valuations, based on the high revenue growth reported by the managers. Additionally, the trust’s focus on the public equity side is on the smaller- and mid-cap area of the UK market that sold off considerably in 2022, although its valuations, broadly speaking, currently stand at a discount to longer-term averages. While we cannot be certain of the immediate future, we think this may potentially offer long-term investors a good entry point.

Bull

  • Trust trading on a wide discount
  • Flexible blend of private and public companies to take advantage of the best opportunities
  • Strength in depth of resources to support both public and private company investment

Bear

  • Risk of valuation downgrades in private equity holdings
  • Exposed to higher interest rates and potential funding requirements
  • Trust is biased to smaller UK companies which have been out of favour
Continue to Portfolio

Fund History

06 Dec 2023 Results analysis: Schroder British Opportunities
Robust performance of SBO’s private holdings has driven performance…
26 Sep 2023 Fund Analysis
SBO’s unique portfolio is gathering momentum and the discount remains compelling…
16 Aug 2023 Time to take the plunge
UK smaller companies have historically outperformed after every fall. Is this the moment to brave the uncertainty..?
01 Feb 2023 Fund Analysis
SBO is trading on a wide discount despite its highly differentiated approach…
16 Dec 2022 Investment Trusts: opportunities in all market conditions
How are current market conditions impacting the Schroders investment trust range?
27 Oct 2022 Podcast: Trust Issues #4 - Why are UK stocks so cheap?
We speak to Schroders analyst Uzo Ekwue about opportunities in London-listed companies…
08 Jul 2021 London Calling
UK equities represent a ‘once in a generation’ opportunity for investors according to the managers who joined us to discuss the outlook at our event last week…
07 Jul 2021 Slides and Audio: Schroder British Opportunities
Download the presentation and listen to the audio from our 'Cool Britannia' Summer conference on 01 July...
07 Jul 2021 Slides and Audio: Roundtable - The outlook for UK plc
Download the presentation and listen to the audio from our first roundtable discussion with James Henderson, James de Uphaugh and Rory Bateman...
30 Jun 2021 Fund Analysis
SBO seeks to capitalise on the recovery of confidence in British equities…
23 Jun 2021 Time to back Britain?
After a challenging period for the United Kingdom, we wonder if it could be the most exciting market on a five-year view…
09 Jun 2021 Cool Britannia?
Join the team at Kepler Trust Intelligence and six leading UK fund managers as we examine the prospects for UK equities with COVID in retreat and Brexit uncertainty finally behind us…
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