Results analysis: BlackRock Income and Growth

• BlackRock Income and Growth (BRIG) has published results for the full year period ending 31/10/2023. The trust saw positive NAV total returns of 5.2% and a share price total return of 8.1%, which compares to a 5.9% total return from the FTSE All-Share Index. BRIG outperformed the index for much of 2023, but market downturn in October reversed that outperformance.
• The board announced a final dividend for the year of 7.40p per share, which is an increase of 1.4% compared to the previous year, despite a small decline in revenue earnings which fell from 6.77p to 6.54p per share. This represents a dividend yield of 4.2%, slightly higher than the FTSE All-Share Index’s yield of 4.0%.
• Over the period, BRIG’s average discount was 9.6%, though it narrowed slightly to 8.7% by the end of the year. The board have been active in managing the discount when it has widened, buying back 568,428 ordinary shares at an average discount of 11.7% over the period. At the time of writing, as of 21/12/2023, BRIG’s discount has widened again to 13.6%.
• BRIG’s net gearing stood at 7.7% at the end of the period, which is lower than the average across the peer group, but towards the higher end of BRIG’s typical range.
• Chairman Graeme Proudfoot commented, “In a world currently dominated by macroeconomic and geopolitical factors, our portfolio managers remain cautiously positioned. … They believe their long held focus on well capitalised and cash generative companies will serve the Company well against a backdrop of higher interest rates and a deterioration in the availability and increase in the cost of credit.”

Kepler View

As the chairman of BlackRock Income and Growth (BRIG) notes, economies are being influenced by a slew of political and macroeconomic issues, so there is plenty of reason for caution when navigating equity markets. BRIG was ahead of the index for most of 2023, but towards the end of the summer, UK market sentiment fell materially, which reversed some of the outperformance. Over the period, up to 31/10/2023, BRIG underperformed the FTSE All-Share Index by 0.7%, however absolute returns were positive. Since then, looking at the calendar year to 29/12/2023, BRIG has outperformed both the FTSE All-Share and AIC UK Equity Income sector by 2.3 and 2.1 percentage points respectively, aided by the bounce back in the FTSE 250. This places BRIG as 6th out of 21 in the AIC UK Equity Income peer group based on NAV total returns over one year.

While performance over the financial year was not exceptional, during a challenging period for UK equities, BRIG has outperformed the index since April 2012, when Adam Avigdori took over as manager. Adam co-manages the portfolio with David Goldman, and the pair target companies with strong balance sheets, sustainable free cash flows, discipline in capital allocation and integration of ESG considerations. The outperformance over Adam’s tenure reflects the differentiated approach they take when it comes to income investing, preferring to stay style-agnostic, meaning it’s not strongly tilted to either growth or value, but rather focused on quality companies trading at attractive valuations. Over the last five years, BRIG’s NAV total return has been strong, placing it 7th out 21 when looking at the AIC UK Equity Income sector.

Over the period, there were a variety of stocks that contributed and detracted from performance. 3i Group, Standard Chartered and RELX were among the top contributors, and while RELX saw a steady increase of revenue growth across its major divisions and Standard Chartered delivered strong results, beating market expectations, 3i Group took the mantle for top contributor. Its share price rose 72% in absolute terms, buoyed by the performance of its European discount retailer Action. On the other hand, RentoKil Initial failed to deliver on earnings expectations, hurting its share price, and a change in CFO, coupled with softer trading in its jewellery business, saw Watches of Switzerland’s share price fall too.

During the period, BRIG’s board reported a 3.4% decrease in revenues but announced the total dividend for the year of 7.40p per share, an increase of 1.4% compared to the previous year, representing a yield of 4.2%. BRIG does not have the highest yield compared to others in the sector, given the total return ethos, but we believe its focus on dividend and capital growth should be attractive to long-term investors. Given the opportunity set in the UK currently, the managers have also employed more gearing into the market to help enhance the underlying portfolio’s income generation and take advantage of businesses trading at attractive valuations. At the end of the period, BRIG’s net gearing was 7.7%.

The investment process reflects a more balanced factor approach than most peers in the sector, in our view. We would argue this could be a good way to invest in market environments where value and growth rotations are no longer driving performance, but where quality is more important. BRIG’s discount is also wider than its historical average so if performance picks up, this could lead to the discount narrowing, providing an extra kicker to returns.

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