Schroder British Opportunities (SBO)

Schroder British Opportunities (SBO) owns a portfolio of companies across both public and private markets. The recently expanded four-strong Management team look for small and medium-sized companies with a market cap of £50m to £2bn. A typical company in the portfolio may offer growth potential through characteristics such as strong sales growth, good margins and free cash flow generation.

Performance has held up in the past 12 months, primarily due to valuation increases in the private equity element of the portfolio. This is a result of strong trading gains, aided by good underlying performance of their companies and supported by acquisitions. The team remain prudent regarding valuations though and have accounted for a weaker market backdrop by factoring multiple contraction into a number of holdings.

The Portfolio has seen some M&A activity, with three takeouts in the public equity sleeve in the past year. This has led to an increase in the cash level of the trust, which does not currently utilise Gearing, unlike many comparators in the private equity space. The cash has been partially redeployed in one new holding and to top up weaker quoted holdings. The managers are also monitoring an attractive pipeline of potential opportunities.

The managers believe that the recent underlying performance and positive corporate activity shows that the strategy is starting to build momentum. This has begun to be recognised in the share price, which has seen improved performance this year. However, the trust still trades at a wide Discount, likely due in part to negative sentiment towards the wider private equity sector. There will be a continuation vote in 2028, which the managers believe could act as a catalyst to help narrow the discount.