Results analysis: BlackRock Throgmorton

• Last week, BlackRock Throgmorton (THRG) released its final results for the financial year (FY) 2020. Over the 12 months ending 30 November 2020, the trust delivered NAV total returns of 9.1%, in comparison to a 3.8% total return from the benchmark Numis Smaller Companies plus AIM excluding Investment Companies. Over the same period, THRG’s share price rose 8.2%, with the premium marginally narrowing.  
• Revenue returns per share for the year amounted to 6.57 pence per share, compared with 8.56 pence per share for the previous year. This represents a fall of 23.2%, predominantly as a result of the COVID-19 pandemic which has meant that many companies have suspended their dividend payments due to the uncertain outlook. Despite this, the board were able to utilise their substantial revenue reserves to maintain the total dividend of 10.20 pence per share.
• Looking forward, the manager, Dan Whitestone, believes that UK small and mid-sized companies will continue to provide many exciting investment opportunities. Dan stated, “by focusing on stock and industry analysis and backing the advantaged and the differentiated, we believe the company remains well set to capitalise on the opportunities ahead”. We think the extreme challenges of 2020 have demonstrated his ability to capitalise on such prospects, and proves his thesis that stock and industry specifics can triumph over macroeconomic factors. Alongside this, Dan will be looking to benefit from a period of ‘corporate Darwinism’, where market leaders expand their market shares and the weaker companies fall by the wayside.

Kepler View

BlackRock Throgmorton (THRG) has delivered another set of exceptional results. The trust has now outperformed the benchmark by 30.1% over three years, by 58.4% over five years and by 155.0% over ten years to the end of the results period (30/11/2020). In share price absolute return terms, this represents an outperformance of 55.3% over three years, by 89.8% over five years and by 280.1% over ten years. Since the company’s year end, the NAV has increased by 14.5% to the 6 February 2021 compared to the benchmark which has increased by 12.8%. The share price over the same period has increased by 15.8%, outperforming the benchmark by 3.0%.

Over FY20, the strong contributions to outperformance came from both the long and short book, the latter of which is a major differentiator in comparison to the rest of the UK Smaller Companies sector. Over the results period, the long book returned +9.5%, while the short book generated +1.8%. These returns, which have been delivered consistently in a range of market conditions, demonstrate to us that Dan is able to identify compelling offerings which have the ability to deliver strong growth regardless of what is thrown at them. We think this illustrates the benefits of THRG’s highly differentiated structure and of being able to generate alpha from shares that can fall as well as rise. Despite the positive contribution from the short book, the top ten largest contributors were all long positions. These were broadly diversified in terms of sector and growth drivers. However, we observe that the common theme among them was that they are all unique companies with compelling product offerings that in many cases have been able to leverage the power of technology to enhance their digital offerings. The trust’s ability to invest up to 15% of the portfolio in non-UK listed shares has once again helped deliver outperformance to shareholders, with three of the top ten contributors coming from international holdings.

Even after such a strong run and despite the uncertain economic outlook, we continue to be excited about the year ahead for THRG. The doubts surrounding the UK due to Brexit have been removed, which could see valuations rise should inflows into the area pick up (as we anticipate). Furthermore, the opportunities caused by COVID-19, with large divergences among the corporate ‘winners’ and ‘losers’, have created, and to continue to create, opportunities for the manager in both the long and short books. Dan notes that he anticipates a period of ‘corporate Darwinism’, where strong and innovative companies consolidate and expand their market position at the expense of weaker peers. Given the exceptional performance of the trust over the short and long term, we believe that Dan will likely be able to capitalise on these trends. A net long position of c. 119%, with only 4% short at present, demonstrates, in our opinion, the depth of opportunities Dan is currently seeing in the long book, with net exposure above the long-term expected average.

Currently THRG is the only trust in the sector trading at a premium, however we see this not necessarily as a negative, but a reflection of the fact that the trust has ‘broken the shackles’ of association with the rest of the peer group, with a truly differentiated offering and a strong track record.

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