12
February 2024
Brown Advisory US Smaller
Companies PLC (the 'Company' or 'BASC')
Half yearly financial results
for the six months ended 31 December 2023
(unaudited)
Legal Entity Identifier:
549300HKKL9K1NY4TW55
Financial highlights for the six months ended 31 December
2023
Ordinary share performance
|
31 December
2023
|
30 June
2023
|
% change
|
Net asset value (pence)*
|
1,459.2
|
1,431.9
|
+1.9
|
Closing price (pence)
|
1,292.5
|
1,220.0
|
+5.9
|
Russell 2000 Total Return Index
(sterling adjusted)
|
8,471.8
|
7,860.0
|
+7.8
|
Discount to net asset value
(%)*
|
(11.4)
|
(14.8)
|
-
|
Ongoing charges ratio
(%)*
|
1.03
|
1.00
|
-
|
|
|
|
| |
*For definitions of the above
Alternative Performance Measures please refer to the Glossary of
Terms
Stephen White, Chairman, Brown Advisory US Smaller Companies
PLC, said:
"We are pleased to report a net
asset value (NAV) per share increase of 1.9% for the Company during
a period where smaller companies performed reasonably well despite
the mega caps once again leading the advance. The US Federal
Reserve's (Fed) December meeting increased optimism and a sudden
inflow of funds to the smaller company sector pushed up the share
prices of many of the more speculative, unprofitable and leveraged
situations which the Company prefers to avoid, impacting relative
performance. While geopolitical developments are difficult to
forecast, the prospects for the US economy itself and its financial
markets appear still reasonably favourable and we remain confident
in the Portfolio Manager's ability to identify strong opportunities
and to deliver positive results for our shareholders over the long
term."
Chris Berrier, Portfolio Manager, Brown Advisory US Smaller
Companies, said: "The Company's
absolute returns were once again solid for the period despite
meaningful market volatility; relative performance was impacted by
the surge in the final weeks of the year. We added a number of new
businesses to our portfolio in 2023, many of which are below our
ultimate intended weight and therefore offer significant buying
potential going forward. When combined with our legacy positions,
we are well positioned to deploy cash across the portfolio and,
more importantly, respond nimbly to market swings. We are
unconvinced that the drivers behind December's rally, despite it
being a signal of improving investor sentiment and the extreme
market concentration towards mega-caps, will hold indefinitely. As
such, we believe that our current sector biases and capital
deployment plan remain sound as we eagerly anticipate a return to
small-cap market leadership, from which BASC will be well
positioned to benefit in the long-term."
Contact:
Chairman's statement
Dear fellow Shareholder
Over the six months ended 31
December 2023, your Company's net asset value (NAV) per share rose
from 1,431.9p to 1,459.2p, an increase of 1.9%. Having moved within
a narrow trading range for much of the period, US equity markets
moved ahead again in December as a result of comments made by the
US Federal Reserve (the Fed) that the peak in interest rates had
probably been seen. While the mega caps again led the advance,
smaller companies also performed reasonably well and showed signs
of returning investor interest.
Over the period, the Company's
benchmark, the sterling adjusted Russell 2000 Total Return index,
realised a gain of 7.8%. The underperformance of the Company's NAV
as compared with the benchmark arose largely in December. This
followed a sudden inflow of funds into the more speculative,
unprofitable and leveraged smaller company sector - an area which
the Company prefers to avoid.
Over the six months, the Company's
share price rose from 1,220.0 p to 1,292.5p, a gain of 5.9%. This
resulted in a small narrowing of the discount from 14.8% to
11.4%.
Market review
As mentioned above, for much of the
half year under review, US equity markets moved within a narrow
trading range, with low volatility, reduced trading volumes and
restrained corporate activity.
Geopolitical risks remained elevated
with the ongoing war between Russia and Ukraine and then, in
October, the Hamas terrorist assaults on Israel and the latter's
significant response, but these only impacted to a limited extent
on financial markets.
US domestic news, be it political,
economic or corporate, continued to be mixed, pulling markets in
both directions, unsure as to whether the economy would hit a
'hard' or a 'soft' landing in 2024.
However, the main driver of markets
in this period, was the perceived direction of US monetary policy
and interest rates as well as an assessment of when a pivot was
likely to take place.
Having paused in June, the Fed at
their July meeting raised the benchmark interest rate by 25 basis
points to a 5.25%-5.50% target range, a 22-year high. The Chairman,
Jerome Powell, reiterated that the Fed was focused on bringing down
inflation to its 2% target, suggesting that they had 'a long way to
go', even though tighter conditions would weigh on economic
activity. At subsequent meetings and important speeches, such as
Jackson Hole, the Fed and its members stuck to their mantra that
inflation risks remained on the upside and that rates would have to
stay higher for longer.
Against this background, coupled
with data showing the economy and the jobs market to be resilient,
bond yields climbed steadily higher, with the 10-year Treasury bond
yield briefly touching 5 percent in October. The US equity markets
reflecting the bond markets lost value, falling for three
consecutive months. Small cap stocks were again the laggards, as
investors continued to favour the mega-caps, particularly those now
known as the 'Magnificent Seven', and other technology stocks with
any perceived connection to artificial intelligence.
November saw the start of a rebound
in markets as the Fed began to change its tune. While it held the
federal funds rate steady, its Chairman noted that financial
conditions had tightened 'significantly'. Reinforced by softening
employment and inflation data, this encouraged hopes that the Fed's
tightening cycle was over and that a 'soft economic landing' was
likely. 10-year yields dropped quickly and as much as they had done
at the time of the global financial crisis.
The Fed's meeting in December
boosted optimism again as the inflation numbers continued to
improve and members of the committee suggested that cuts in
interest rates would come during 2024. Share prices responded
positively to the further fall in bond yields as investors
reallocated monies to the equity market in anticipation of a
year-end rally.
Although the mega caps continued to
perform well, a general broadening of buying interest fuelled a
renewed demand for smaller companies. The sudden large inflow of
funds into the sector boosted share prices with especially large
gains seen in the more speculative stocks or those that had been
heavily shorted as operators rushed to buy back their
positions.
As a result, the Russell 2000 had
its best December rally ever. However, this did not really benefit
the Company, given its limited exposure to lower quality, heavily
indebted and speculative stocks. This was the main cause of our
underperformance relative to the benchmark. Over the six-month
period, in sterling terms the Russell 2000 achieved a total return
of 7.8%, comparable to that from the S&P 500 of 7.7%, and only
slightly below that of the Nasdaq of 11.0%.
Portfolio Manager and continuation vote
A more detailed commentary on the
development of the US smaller company sector over the past six
months and our activity and performance is included in the
Portfolio Manager's review.
Between 1 April 2021, the date on
which Brown Advisory took over the management of the portfolio, and
6 February 2024 the Company's NAV rose by 1.0%, compared to a
return of 0.3% from the benchmark. So, over this period, our
manager has outperformed the benchmark by 0.7%, despite the
above-mentioned headwinds in the last months of 2023. We continue
to believe that, over the long term, their philosophy and process
will identify successful quality companies enabling them to deliver
the positive results they have achieved in the past.
In accordance with the three-year
cycle prescribed in the Company's Articles of Association, we held
a continuation vote at our Annual General Meeting (AGM) on 6
November 2023. I am pleased to report that the resolution in favour
of continuation was passed with 90.5% of voters being in favour of
continuation.
Share price and discount
In our annual report, we informed
shareholders about a revision to the Company's share buyback
policy. The Board remains committed to using share buybacks to
reduce discount volatility. Rather than targeting a fixed discount
level the Board aims to prevent any discount from diverging
significantly from that of similar investment trusts.
Over the period under review, the
Company's share price rose 5.9% from 1,220.0p to 1,292.5p. This
helped to narrow the discount to NAV from 14.8% on 30 June 2023 to
11.4% on 31 December 2023. Given that for the entire period the
discount was within our tolerated range we did not buy in any
shares.
As at 31 December 2023, the number
of shares held in treasury was unchanged at 6,271,254 and the total
number in public hands at 11,952,159.
Gearing
Against an unsettled interest rate
background for much of the period and taking into consideration the
views of the Portfolio Manager regarding investment opportunities
and outlook, the Board did not feel it appropriate to deploy any
gearing. However, should conditions improve going forward and the
outlook for smaller companies brighten, the Board will review their
decision, mindful that the ability to gear to enhance returns is
one of the advantages of a closed-end vehicle.
Shareholder communications
The Board encourages shareholders to
visit the Company's website (www.brownadvisory.com/
basc) for the latest information,
podcasts and monthly factsheets.
Outlook
US equity markets have begun 2024 on
a more restrained note, having closed 2023 with a two-month rally
which saw values near to their all-time highs and looking somewhat
overbought. Certainly, there are good reasons for renewed caution
in the short term. The geopolitical situation has, if anything,
deteriorated with no resolution to the Russia/Ukraine conflict,
rising tensions between China and Taiwan, and risks that the
Israel/Hamas hostilities spread to involve Iran or Saudi Arabia.
The latter situation has also been made worse by the Iran backed
Houthi attacks on shipping in the Red Sea which has given a fillip
to oil prices. This, coupled with a still resilient US economy and
jobs market, risks putting renewed upward pressure on prices, just
at a time when markets and central banks were pointing to a turn in
inflation and a downward trajectory in interest rates. Finally,
there is the risk that markets are ahead of themselves in their
expectations for corporate earnings in the reporting season now
underway.
The headwinds cited above may lead
to more uncertain and volatile markets in the short term. That
said, looking further ahead, while geopolitical developments are
difficult to forecast, the prospects for the US economy itself and
its financial markets still appear reasonably favourable. Consumer
spending, a key driver of the economy, is holding up well,
supported by high confidence, continuing jobs growth and rising
wages. Despite occasional blips, inflation should continue to trend
lower, allowing the Fed to make its first interest rate cut
sometime this year, albeit maybe later than the market currently
expects.
A resilient economy, falling
inflation and cuts in interest rates should provide a favourable
background for US equities, with sentiment possibly moving away
from the mega caps given their recent performance. In this
environment smaller US companies should do well given their
sensitivity to the local economy and to interest rates, their
attractive valuations versus large caps and the fact that many
investors have little exposure to the asset class, being heavily
exposed to a small number of mega caps. Within the sector, we also
see a return of interest to the quality companies in which we
invest.
Having cash in hand and the ability
as an investment trust to gear, we will take full advantage of
market opportunities as they arise.
Stephen White
Chairman
9 February 2024
Portfolio Manager's review
Our game plan heading into 2023 was
to leverage our historical preparation for what would likely be a
volatile, sawtooth equity market following a growth-led decline in
2022. Our fundamental assumption was volatility would reign as the
crosscurrents of economic growth, inflation, interest rates, and
profound geopolitical events push and pulled against one another.
Although our turnover remained low, our opportunism led to a high
degree of productivity as we added a number of new positions (seven
in the second half of 2023), largely to soak up a half dozen
historical and present year merger and acquisition driven exits.
Overall, absolute returns were solid, although relative returns
were negatively impacted by a "dovish" Federal Reserve pivot that
led to a fund flow induced surge in the final weeks of the
year.
Portfolio philosophy & process
As Shareholders know, the goal of
our strategy is to produce an "all-weather" portfolio capable of
being owned over a full market cycle where attractive risk-adjusted
returns will be generated via bottom-up security selection
(offence) and portfolio construction (defence). The bedrock is our
3G approach - we seek businesses with durable Growth, sound
Governance, and scalable Go-to-market ability. These
characteristics help concentrate our gaze on companies with an
above average potential to compound earnings/ cash flows over a
multi-year period. The expected result is a high-quality portfolio
(i.e. low leverage, above average liquidity, generally historically
solid business execution, attractive margins/returns and
consistency of earnings...) with defensible valuation
characteristics woven in a manner that seeks to produce adequate
diversification.
The successful execution of the
process is contingent on 1) a strong, well-organised team; 2) deep
domain/company expertise; 3) consistent new idea generation; 4) a
rigorous sell discipline; and 5) resilience.
Our approach yields high active
share, causing substantial short-term variation when compared to
standard small-cap benchmarks. Over the long term, however, our
results are greatly smoothed. The historical outcome has been
higher returns with less risk, and we aim
to keep it this way going forward.
"Under the hood": economy, markets &
positioning
Most of the absolute gains for
period were driven during the final weeks of the year. Our relative
underperformance occurred during the same time. Fuelled by $10-12bn
of inflows following "dovish" Federal Reserve commentary, the
Russell 2000 Index experienced its largest December rally in
history. As is typical of these jerky moves, the small-cap market
was led by extremely shorted, negative earnings, highly shorted,
single-digit share price, penny stocks, negative cash flow, high
volatility, stock issuers, low return on equity (ROE), return on
invested capital (ROIC), high bankruptcy risk and zombie
stocks.
The relative results witnessed at
the tail end of the year are not a new stylistic phenomenon. We
have experienced very similar short-term variations many times over
the past 2 - 3 years... and dozens of times over the past 17 - 18
years. To say that we have become comfortably numb to these
gyrations might be a stretch, but we do know they are part of the
process of striving to achieve attractive risk-adjusted
returns.
The conclusion to 2023 was the
predominant force governing our year. However, we would be remiss
if we did not take a moment to illuminate a slightly more
microscopic view of the portfolio for our shareholders. The topic
is relative cyclicality.
The small-cap benchmarks have grown
a bit more economically sensitive of late. Strategically, we seek
to embrace cyclical businesses that have an excellent chance of
driving to demonstrably higher highs and higher lows through the
cycle. One could say this makes us quite picky. In addition, based
on the uncertainties associated with inflation/interest rate and
economic normalisation post-Covid, we placed a premium on
stability, resilience, and fundamental visibility as we turned the
page from 2022 to 2023. The result was an underweight to cyclicals:
consumer, industrials and information technology.
This tilt was not just expressed
with sector weights, but the types of businesses owned. For
example, Bright Horizons (BFAM, consumer), Waste Connections (WCN,
industrials), Casella Waste (CWST, industrials), and CCC
Intelligent Solutions Holdings (CCCS, technology) are all housed in
cyclical areas, but are relatively stable businesses. This general
thread of lower cyclicality hurt returns in 2023 as the severe
slowdown in economic growth that occurred in the fourth quarter
2022 stabilized, causing an immense sentiment shift and valuation
expansion in these areas. It was further exacerbated by the Fed's
dovish pivot - at a time of economic strength! - from December 1st
to 13th by Chairman Powell.
On a final note, 2023 cannot be
ushered out without a sentence or two on generative artificial
intelligence (AI) and GLP-1s (weight loss drugs). These innovations
provided structural narratives for investors to hold onto when the
rest of the environment appeared muddled. AI was an elixir for
Technology, prompting valuations to once again swell. And GLP-1
weight loss drugs weighed on smaller capitalisation health care
companies on the logic that skinnier is healthier, thus
theoretically lowering long-term demand for certain products and
services (i.e. hip/knee replacements, stents, cancer tests,
etc...). Added to our lack of high-beta cyclicality, our health
care overweight position was not particularly helpful as the sector
badly lagged.
Portfolio attribution
For the period under review, the top
contributors to performance were: Pinterest, Inc., Neurocrine
Biosciences, Inc., Prosperity Bancshares, Inc., Karuna
Therapeutics, Inc. and TopBuild Corp.
Pinterest (PINS) continued to
demonstrate revenue growth and margin expansion, bolstering
confidence in the new management team's strategic plan amidst an
improving advertising market backdrop. Prosperity Bancshares (PB)
reported reasonably solid results all year. However, it took decent
economic growth, a somewhat benign credit environment, and a more
dovish Fed to push the stock off the lows incurred post the
collapse of Silicon Valley Bank earlier in the year. TopBuild
(BLD), a leading residential and commercial insulation provider,
rode a surprisingly strong new housing market as the supply of
existing homes for sale contracted. Furthermore, the company has
been able to add scale through selective acquisitions,
consolidating its market share even further.
In contrast, the bottom five were:
Establishment Labs Holdings, Inc., Rentokil Initial plc Sponsored
ADR, agilon health inc., SI-BONE, Inc. and Phreesia,
Inc.
Establishment Labs (ESTA), a leading
women's health company, experienced a product approval delay in
China and a degradation in market demand, particularly in Europe,
which forced channel inventory to correct. Our original thesis
hinged on US product approval, a likely 2024 event. Rentokil (RTO),
a leading pest control company, declined on weaker results in its
US division, which prompted competitive concerns. We believe these
trends are primarily related to its ongoing merger integration of
Terminex and should be transitory in nature. Agilon health (AGL),
an innovative value-based care company focused on the Medicare
Advantage market, was impacted by a continued rise in medical cost
trend that required to the company to increase its medical reserves
for a second sequential quarter. This raised some concerns around
the company's ability to accurately forecast future medical
expenses. Phreesia (PHR), a leading health care IT company focused
on patient intake, dropped when new customer growth came in
slightly below expectations for one quarter. Subsequently, the
company returned to on-trend customer growth and announced a plan
to dramatically improve profitability by curtailing a couple of
select near-term investments.
Outlook
We remain of the belief that the
future is always uncertain and a long-term view - time arbitrage -
is more important than ever in today's headline driven, rapidly
moving equity market.
We are deeply committed to our
bottom-up investment philosophy and believe in-depth company
knowledge is required to take advantage of inhuman volatility. We
added a number of new businesses to the portfolio this year, and
many of them saw intra-year price movements that altered the
risk/reward complexion enough for us to become interested in
investing. Although we strive to size all our new investments to
within their targeted range quickly, many of the 14 remain below
our ultimate intended weight. In fact, we estimate that there
remains more than 500 basis points of latent buying potential
across our list of new holdings. When combined with our legacy
positions, we have the capacity to deploy cash across the portfolio
and we are thus comfortable in our ability to respond to Mr.
Market's manic mood swings.
The ability to be flexible and
adaptable is one of the most important pieces of our investment
process. Perhaps the Goldilocks thesis of a solid economy, markedly
lower inflation, and lower interest rates that emerged in December
will hold, but perhaps it will not. Perhaps the continued
leadership of large-caps (8 of last 10 years) and extreme market
concentration will hold, but perhaps it will not. We see the
"perhaps not" outcome of the above scenarios as having a higher
probability than the market currently thinks. We also believe
geopolitical risk should be discounted above its current close to
0% rate. On balance, this leads us to conclude that our current
sector biases and capital deployment plan remain sound as we
prepare for an anticipated return to small-cap leadership, albeit
timing unknown.
Conclusion
We encountered a December rally that
was relatively unkind given our philosophical bent. However, these
vertical "risk-on" moves tend to be unsustainable - at least this
is what we have observed over the past 17 - 18 years. (In fact, the
first two weeks of 2024 have already rolled back some of December's
performance.) And although it may take some time to manifest
itself, we believe in a future of sustained small-cap leadership.
In our view, the market is simply too concentrated - the largest
five names by market capitalisation are 3x the total Russell 2000
Index - and the historical evidence too strong to ignore the
category's potential. Although we cannot say the area is a steal
(i.e. cheap), we remain off the highs, relative valuation is
compelling, and we believe the size segment should move as capital
disperses from the Magnificent 7.
Our goal remains to drive attractive
risk-adjusted returns over a full market cycle. As previously
stated, investment process success is contingent on the following:
1) a strong, well-organised team; 2) deep domain/company expertise;
3) consistent new idea generation; 4) a rigorous sell discipline;
and 5) resilience. While we are confident in all aspects of our
approach, we will continually strive to improve in each and every
area. We think time is on the side of our philosophical approach
and we appreciate Shareholders' trust and interest in the strategy
as we continue our investment journey.
Brown Advisory LLC
Portfolio Manager
9 February 2024
Twenty largest holdings as at 31 December
2023
|
|
31
December 2023
|
30
June 2023
|
|
|
Market
value
|
Percentage
of
Portfolio
|
Market
value
|
Percentage
of
Portfolio
|
Company
|
Sector
|
£'000
|
£'000
|
Waste Connections
Waste Connections, Inc. provides
non-hazardous solid waste collection services for commercial,
industrial, and residential customers. The company offers
collection, landfill disposal, and recycling services for various
recyclable materials, including compost, cardboard, office paper,
plastic containers, glass bottles, and ferrous and aluminium
metals.
|
Industrials
|
6,518
|
4.0
|
6,255
|
3.9
|
Bright Horizons Family Solutions Bright Horizons Family Solutions Inc. provides childcare and
early education services as well as other services designed to help
employees and families to better address the challenges of work and
life. The company provides services primarily under multi-year
contracts with employers who offer childcare and other dependent
care solutions as part of their employee benefits
packages.
|
Consumer discretionary
|
5,203
|
3.2
|
5,086
|
3.2
|
Prosperity Bancshares
Prosperity Bancshares, Inc. is the
holding company for Prosperity Bank. The Bank attracts deposits
from the general public and uses those funds to originate a variety
of commercial and consumer loans. Prosperity Bank operates in the
greater Houston metropolitan area and neighbouring counties in
Texas.
|
Financials
|
4,346
|
2.7
|
3,633
|
2.3
|
Casey's General Stores
Casey's General Stores, Inc.
operates convenience stores in the Midwest. The company offers
food, beverages, tobacco products, health and beauty aids,
automotive supplies, and other non-food items, as well as selling
gasoline.
|
Consumer staples
|
4,020
|
2.5
|
4,050
|
2.6
|
SPDR S&P Biotech ETF
SPDR S&P Biotech ETF is an
exchange-traded fund incorporated in the US. The Fund seeks to
replicate the performance of the S&P Biotechnology Select
Industry Index, an equal-weighted index. The index tracks all the
US common stocks listed on the NYSE, American Stock Exchange,
NASDAQ National Market and NASDAQ Small Cap exchanges.
|
Biotechnology
|
3,980
|
2.5
|
4,003
|
2.5
|
Pinterest 'A'
Pinterest, Inc. operates and
maintains a social networking site. The Company provides an online
platform that helps users gather ideas on oddities, decorations,
places to visit, recipes and other items. Pinterest serves
customers worldwide.
|
Communication services
|
3,923
|
2.4
|
2,905
|
1.8
|
Neurocrine Biosciences
Neurocrine Biosciences, Inc. is
focused on the discovery and development of therapeutics for
neuropsychiatric, neuroinflammatory and neurodegenerative diseases
and disorders. The Company is developing therapeutic interventions
for anxiety, depression, Alzheimer's disease, insomnia, stroke,
malignant brain tumours, multiple sclerosis, obesity and
diabetes.
|
Healthcare
|
3,874
|
2.4
|
2,778
|
1.8
|
NeoGenomics
Operates a network of clinical
laboratories that specialises in cancer genetics diagnostic testing
services. The Company's services include cytogenetics, fluorescence
in-situ hybridization (FISH), flow cytometry, morphology, anatomic
pathology, and molecular genetic testing. NeoGenomics serves
pathologists, oncologists, urologists and hospitals.
|
Healthcare
|
3,785
|
2.3
|
2,388
|
1.5
|
HB
Fuller
H.B. Fuller Company manufactures and
markets adhesives, sealants, coatings, paints and other specialty
chemical products worldwide. The company's products are sold in
countries that include North America, Europe, Latin America, the
Asia Pacific region, India, the Middle East, and Africa.
|
Materials
|
3,508
|
2.2
|
3,091
|
1.9
|
ChampionX
ChampionX Corporation provides
energy solutions. The company focuses on upstream and midstream
oilfield technology such as chemistry programs and drilling
activities. ChampionX serves customers worldwide.
|
Energy
|
3,375
|
2.1
|
3,498
|
2.2
|
Dynatrace
Dynatrace, Inc., through its
subsidiaries, develops software intelligence platforms for the
enterprise cloud. Its software intelligence platforms allow
customers to modernize and automate IT operations, develop and
release high quality software faster and improve user experiences
for better business outcomes.
|
Information technology
|
3,212
|
2.0
|
3,742
|
2.4
|
Quaker Chemical
Quaker Chemical Corporation, trading
as Quaker Houghton, produces, develops and markets industrial
chemical products. The Company offers heat treatment, metal
forming, forging and tin plating fluids, as well as cleaners,
casting lubricants, greases, ground control agents and metal
rolling oils. Quaker Houghton serves customers globally.
|
Materials
|
3,093
|
1.9
|
2,834
|
1.8
|
Entegris
Entegris, Inc. provides materials
management products and services to the microelectronics industry
on a worldwide basis. The company provides products such as wafer
shippers, wafer transport and process carriers, pods and
work-in-process boxes. Entegris also provides chemical delivery
products such as valves, fittings, tubing, pipe and
containers.
|
Information technology
|
3,053
|
1.9
|
2,831
|
1.8
|
EastGroup Properties, REIT EastGroup Properties, Inc. is an equity real estate investment
trust. The trust acquires and develops industrial properties in
major sunbelt markets throughout the US with a special emphasis in
the states of California, Florida, Texas and Arizona.
|
Real estate
|
2,912
|
1.8
|
2,761
|
1.7
|
CCC
Intelligent Solutions Holdings Provides cloud-based software as a service (SaaS) platform
connecting trading partners, facilitating commerce and supporting
mission-critical, artificial intelligence-enabled digital
workflows.
|
Industrials
|
2,906
|
1.8
|
301
|
0.2
|
Mister Car Wash
Mister Car Wash, Inc. operates as a
car wash company. The Company offers car exterior and interior
cleaning services. Mister Car Wash serves customers across the
US.
|
Consumer discretionary
|
2,883
|
1.8
|
2,749
|
1.7
|
BlackLine
BlackLine, Inc. develops and markets
enterprise software. The company offers cloud-based software that
automates and manages complex, manual, and repetitive accounting
processes. BlackLine serves customers globally.
|
Information technology
|
2,856
|
1.8
|
2,468
|
1.5
|
Casella Waste Systems A Provides integrated and non-hazardous solid waste services
throughout the Eastern United States. The Company offers
collection, transfer, disposal and recycling services, generates
steam, and manufactures finished products utilising recyclable
materials.
|
Industrials
|
2,846
|
1.8
|
1,208
|
0.8
|
Encompass Health
Provides inpatient rehabilitative
healthcare services. The Company operates inpatient rehabilitation
hospitals, outpatient and rehabilitation satellites, and home
health agencies. Encompass Health provides treatment on both an
inpatient and outpatient basis.
|
Healthcare
|
2,813
|
1.7
|
2,620
|
1.6
|
MSA
Safety
MSA Safety Inc. develops,
manufactures and supplies safety products that protect people and
facility infrastructures. The company's core products include
self-contained breathing apparatus, fixed gas and flame detection
systems, portable gas detection, head protection and fall
protection products.
|
Industrials
|
2,808
|
1.7
|
2,900
|
1.8
|
Total
|
|
71,914
|
44.5
|
|
|
The value of the twenty largest
equity holdings represents £71.9 million (30 June 2023: £69.6
million) and 44.5% (30 June 2023: 43.8%) of the Company's total
investments.
As at 30 June 2023 and 31 December
2023, none of the Company's assets were invested in the securities
of other listed closed-ended investment companies.
Interim management report
Related party transactions
During the first six months of the
current financial year no transactions with related parties have
taken place which have materially affected the financial position
or performance of the Company. Details of related party
transactions are contained in the Annual Report & Financial
Statements for the year ended 30 June 2023 and in this
report.
Principal and emerging risks and
uncertainties
The Company is exposed to the effect
of variations in the price of its investments. A fall in the value
of its portfolio will have an adverse effect on shareholders'
funds. It is not the aim of the Board to eliminate entirely the
risk of capital loss; rather it aims to seek capital growth. The
Board reviews the Company's investment strategy and the risk of
adverse share price movements at its quarterly board meetings
considering the economic climate, market conditions and other
factors that may have an effect on the sectors in which the Company
invests. Other key risks faced by the Company relate to liquidity
risk, the discount to net asset value, regulatory risk, credit and
counterparty risk, loss of key personnel, and operational and
financial risks.
Further details of the principal and
emerging risks and uncertainties associated with the Company's
business are set out in the Annual Report & Financial
Statements for the year ended 30 June 2023. In the view of the
Board, these principal and emerging risks and uncertainties
continue to apply and they are constantly under review.
Going concern
The Half Yearly Financial Report has
been prepared on a going concern basis. The Directors consider that
this is the appropriate basis as they have a reasonable expectation
that the Company has adequate resources to continue in operational
existence for the foreseeable future. In considering this, the
Directors took into account the Company's investment objective,
risk management policies and capital management policies, the
diversified portfolio of readily realisable securities which can be
used to meet short-term funding commitments and the ability of the
Company to meet all of its liabilities and ongoing
expenses.
Directors' responsibility statement
The Directors confirm to the best of
their knowledge that:
(a) the condensed
set of financial statements, prepared in accordance with the
applicable set of accounting standards, gives a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company at, or, as applicable, for the period ended 31
December 2023.
(b) the Chairman's
statement, the Portfolio Manager's review and the interim
management report include a fair review of the information required
by Disclosure Guidance and Transparency Rule 4.2.7R; and
(c) the interim
management report includes a fair review of the information
required by Disclosure Guidance and Transparency Rule 4.2.8R on
related party transactions.
The Half Yearly Financial Report has
not been audited or reviewed by the Company's auditors.
For and on behalf of the
Board
Stephen White
Chairman
9 February 2024
Income statement
For the six months ended 31 December
2023 (unaudited)
|
|
|
|
Six months to 31 December
2023
|
Six months to 31 December
2022
|
|
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
|
|
|
|
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Gains from investments held at fair
value through profit or loss (Note 2)
|
-
|
3,715
|
3,715
|
-
|
9,184
|
9,184
|
Currency exchange loss
|
-
|
(120)
|
(120)
|
-
|
(40)
|
(40)
|
Investment income
|
|
|
613
|
-
|
613
|
452
|
-
|
452
|
Total income
|
|
|
613
|
3,595
|
4,208
|
452
|
9,144
|
9,596
|
Management fee
|
(603)
|
-
|
(603)
|
(583)
|
-
|
(583)
|
Other expenses
|
(263)
|
(1)
|
(264)
|
(234)
|
(1)
|
(235)
|
(Loss)/return before taxation
|
(253)
|
3,594
|
3,341
|
(365)
|
9,143
|
8,778
|
Taxation
|
|
|
|
(80)
|
-
|
(80)
|
292
|
-
|
292
|
Net
(loss)/return after taxation
|
(333)
|
3,594
|
3,261
|
(73)
|
9,143
|
9,070
|
Net
(loss)/return per Ordinary share (Note 3)
|
(2.78)p
|
30.07p
|
27.29p
|
(0.62)p
|
76.50p
|
75.88p
|
The 'Total' column of this statement
is the profit and loss account of the Company.
The 'Revenue' and 'Capital' columns
represent supplementary information prepared under guidance issued
by the Association of Investment Companies. The Company has no
other comprehensive income, and therefore the net return after
taxation is also the total comprehensive income for the
year.
All items in the above statement
derive from continuing operations. No operations were acquired or
discontinued in the period.
The financial information does not
constitute 'accounts' as defined in section 434 of the Companies
Act 2006.
Statement of financial position
As at 31 December 2023
(unaudited)
|
31 December
2023
(unaudited)
|
30 June
2023
(audited)
|
|
£'000
|
£'000
|
Fixed assets
|
|
|
Investments at fair value through
profit or loss
|
161,564
|
159,134
|
Current assets
|
|
|
Debtors
|
79
|
67
|
Cash at bank and in hand
|
13,377
|
12,444
|
|
13,456
|
12,511
|
Creditors: amounts falling due
within one year
|
(612)
|
(498)
|
Net
current assets
|
12,844
|
12,013
|
Total assets less current liabilities
|
174,408
|
171,147
|
|
|
|
|
Capital and reserves
|
|
|
Called up share capital
|
4,555
|
4,555
|
Share premium account
|
19,550
|
19,550
|
Non-distributable reserve
|
841
|
841
|
Capital redemption
reserve
|
9,628
|
9,628
|
Retained earnings - capital
reserve
|
149,684
|
146,090
|
Retained earnings - revenue
reserve
|
(9,850)
|
(9,517)
|
Total shareholders' funds
|
174,408
|
171,147
|
Net
asset value per Ordinary share (Note 6)
|
1,459.2p
|
1,431.9p
|
|
|
|
|
The financial statements were
approved by the Board of Directors and signed on its behalf on 9
February 2024.
Stephen White
Chairman
Company Registration Number
02781968
Statement of cash flows
For the six months ended 31 December
2023
|
Six months
ended
31 December
2023
(unaudited)
|
Six months
ended
31 December
2022
(unaudited)
|
|
£'000
|
£'000
|
Cash flows from operating activities
|
|
|
Investment income received
(gross)
|
517
|
358
|
Deposit interest received
|
88
|
23
|
Investment management fee
paid
|
(591)
|
(292)
|
Other cash expenses
|
(291)
|
(140)
|
Net
cash outflow from operating activities before taxation and
interest
|
(277)
|
(51)
|
Taxation
|
(80)
|
(49)
|
Net
cash outflow from operating activities
|
(357)
|
(100)
|
Cash flows from investing activities
|
|
|
Purchases of investments
|
(18,975)
|
(28,799)
|
Sales of investments
|
20,385
|
32,588
|
Net
cash inflow from investing activities
|
1,410
|
3,789
|
Cash flows from financing activities
|
|
|
Net
cash inflow from financing activities
|
-
|
-
|
Increase in cash
|
1,053
|
3,689
|
Cash and cash equivalents at the
start of the period
|
12,444
|
8,218
|
Realised loss on foreign
currency
|
(120)
|
(40)
|
Cash and cash equivalents at end of period
|
13,377
|
11,867
|
|
|
|
|
Statement of changes in equity
For the six months ended 31 December
2023 (unaudited)
|
|
|
|
|
Retained
earnings
|
|
|
Called up share
capital
|
Share
premium
|
Non-distributable
reserve
|
Capital redemption
reserve
|
Capital
reserve
|
Revenue
reserve*
|
Total
|
For
the six months to 31 December 2023
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Balance at 1 July 2023
|
4,555
|
19,550
|
841
|
9,628
|
146,090
|
(9,517)
|
171,147
|
Net return for the period
|
-
|
-
|
-
|
-
|
3,594
|
(333)
|
3,261
|
Balance at 31 December 2023
|
4,555
|
19,550
|
841
|
9,628
|
149,684
|
(9,850)
|
174,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
Called up share
capital
|
Share
premium
|
Non-distributable
reserve
|
Capital redemption
reserve
|
Capital
reserve
|
Revenue
reserve*
|
Total
|
For
the six months to 31 December 2022
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Balance at 1 July 2022
|
4,555
|
19,550
|
841
|
9,628
|
129,726
|
(8,460)
|
155,840
|
Net return for the period
|
-
|
-
|
-
|
-
|
9,143
|
(73)
|
9,070
|
Balance at 31 December 2022
|
4,555
|
19,550
|
841
|
9,628
|
138,869
|
(8,533)
|
164,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings
|
|
|
Called up share
capital
|
Share
premium
|
Non-distributable
reserve
|
Capital redemption
reserve
|
Capital
reserve
|
Revenue
reserve*
|
Total
|
For
the year ended 30 June 2023 (audited)
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Balance at 1 July 2022
|
4,555
|
19,550
|
841
|
9,628
|
129,726
|
(8,460)
|
155,840
|
Net return for the year
|
-
|
-
|
-
|
-
|
16,364
|
(1,057)
|
15,307
|
Balance at 30 June 2023
|
4,555
|
19,550
|
841
|
9,628
|
146,090
|
(9,517)
|
171,147
|
|
|
|
|
|
|
|
|
| |
* Under the Company's Articles of Association any
dividends may be distributed only from the revenue reserve element
of retained earnings and, as at 31 December 2023, there were no
available earnings of this type.
Notes to the financial statements
For
the six months to 31 December 2022
1. Accounting policies
The accounting policies applied for
the condensed financial statements are as set out in the Company's
Annual Report & Accounts for the year ended 30 June 2023. They
have been applied consistently during the period ended 31 December
2023.
FRS 104, 'Interim Financial
Reporting', issued by the FRC in March 2015 has been applied in
preparing the financial statements included in this half yearly
report.
Basis of accounting
The accounts of the Company are
prepared on a going concern basis under the historical cost
convention, modified to include fixed asset investments at fair
value through profit or loss and in accordance with the Companies
Act 2006, UK GAAP and with the Statement of Recommended Practice
('SORP') for Investment Trust Companies and Venture Capital Trusts
issued by the Association of Investment Companies ('AIC') in
November 2014 and updated in April 2021.
The functional and reporting
currency of the Company is pounds sterling because that is the
currency of the primary economic environment in which the Company
operates.
In accordance with the SORP, the
Income Statement has been analysed between a revenue account
(dealing with items of a revenue nature) and a capital account
(relating to items of a capital nature). Revenue returns include,
but are not limited to, dividend income, operating expenses
and tax. Net revenue
returns are allocated via the revenue account to
the retained earnings, out of which dividend payments may be made.
Capital returns include, but are not limited to, profits and losses
on the disposal and revaluation of fixed asset investments and
currency profits and losses on cash and borrowings. Net
capital returns may not be distributed by way of
dividend and are allocated via the capital account to the retained
earnings.
2. Gains on investments held at fair value through
profit or loss
|
Six months to 31 December
2023
|
Six months to 31 December
2022
|
|
£'000
|
£'000
|
Net (losses)/gains realised on sale
of investments
|
(3,382)
|
1,901
|
Movement in investment holdings
gains
|
7,097
|
7,283
|
Gains on investments held at fair value through profit or
loss
|
3,715
|
9,184
|
3. Return per Ordinary share
|
Six months to 31 December
2023
|
Six months to 31 December
2022
|
|
£'000
|
£'000
|
Net revenue loss
|
(333)
|
(73)
|
Net capital return
|
3,594
|
9,143
|
Net
total return
|
3,261
|
9,070
|
Weighted average number of Ordinary
shares in issue during the period
|
11,952,159
|
11,952,159
|
Net revenue loss per Ordinary
share
|
(2.8)p
|
(0.6)p
|
Net capital return per Ordinary
share
|
30.1p
|
76.5p
|
Net
return per Ordinary share
|
27.3p
|
75.9p
|
4. Transaction costs
During the period, expenses were
incurred in acquiring or disposing of investments classified as
fair value through profit or loss. These have been expensed through
capital and are included within gains on investments in the Income
Statement. The total costs were as
follows:
|
Six months to 31 December
2023
|
Six months to 31 December
2022
|
|
£'000
|
£'000
|
Purchases
|
20
|
27
|
Sales
|
18
|
19
|
Total
|
38
|
46
|
5. Comparative information
The financial information contained
in this interim report does not constitute statutory accounts as
defined in section 434 of the Companies Act 2006. The financial
information for the six months to 31 December 2023 and 31 December
2022 has not been audited.
The information for the year ended
30 June 2023 has been extracted from the latest published audited
financial statements. The audited financial statements for the year
ended 30 June 2023 have been filed with Companies House. The report
of the auditors on those accounts contained no qualification or
statement under section 498(2) or (3) of the Companies Act
2006.
6. Net asset value per Ordinary share
The net asset value per Ordinary
share as at 31 December 2023, calculated in accordance with the
Articles of Association, was as follows:
|
31 December
2023
|
30 June
2023
|
|
Net asset value per share
attributable
|
Net assets
attributable
|
Net asset value per share
attributable
|
Net assets
attributable
|
|
(p)
|
£'000
|
(p)
|
£'000
|
Ordinary shares
|
1,459.2
|
174,408
|
1,431.9
|
171,147
|
Net asset value per Ordinary share
on the balance sheet is based on net assets of £174,408,000 (30
June 2023: £171,147,000) and on 11,952,159 (30 June 2023:
11,952,159) Ordinary shares, being the number of Ordinary shares in
issue at the end of the period.
7. Fair valuation of investments
The fair value hierarchy analysis for
investments held at fair value at the period end is as
follows:
|
31 December
2023
|
30 June
2023
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Investments
|
161,564
|
-
|
-
|
161,564
|
159,134
|
-
|
-
|
159,134
|
Financial instruments include fixed
asset investments, derivative assets and liabilities.
Accounting standards recognise a
hierarchy of fair value measurements for financial instruments
which gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (level 1) and
the lowest priority to unobservable inputs (level 3). The
classification of financial instruments depends on the lowest
significant applicable input, as follows:
Level 1 - Unadjusted, fully
accessible and current quoted prices in active markets for
identical assets or liabilities. Included within this category are
investments listed on any recognised stock exchange.
Level 2 - Quoted prices for
similar assets or liabilities, or other directly or indirectly
observable inputs which exist for the duration of the period of
investment. Examples of such instruments would be those for which
the quoted price has been recently suspended, forward exchange
contracts and certain other derivative instruments.
Level 3 - External inputs are
unobservable. Value is the Directors' best estimate, based on
advice from relevant knowledgeable experts, use of recognised
valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar
instruments. Included within this category are unquoted
investments.
8. Related parties and transactions with the
manager
FundRock Partners Limited (FundRock)
has been appointed as AIFM to the Company pursuant to an
Alternative Investment Fund Management Agreement between FundRock
and the Company. FundRock has also been appointed to provide
company secretarial services to the Company.
Brown Advisory has been appointed to
provide portfolio management services pursuant to a Portfolio
Management Agreement between the Company, FundRock and Brown
Advisory.
The management fee has been
calculated at an annual rate of 0.7% on the first £200 million;
0.6% of the next £300 million; and 0.5% thereafter of the Company's
adjusted net assets.
The management fee is payable by the
Company to FundRock, who shall deduct from the management fee the
amounts due to it as AIFM and for company secretarial services and
shall pay the balance to Brown Advisory.
The management fee is calculated and
payable on a quarterly basis.
The investment management fee
payable to FundRock for the period 1 July 2023 to 31 December 2023
was £603,000. For the period 1 July 2022 to 31 December 2022 the
fee payable was £583,000.
The appointment of Brown Advisory
and FundRock may be terminated by not less than six months'
notice.
There are no transactions with the
directors other than the remuneration paid to the directors as
disclosed in the Directors' Remuneration Report on pages 51 to 54
of the 2023 Annual Report & Accounts and as set out in Note 5
to the Accounts on page 71 and the beneficial interests of the
directors in the ordinary shares of the Company as disclosed on
page 53 of the 2023 Annual Report & Accounts.
Availability of Half Yearly Financial Report
The Half Yearly Financial Report
will shortly be available on the Company's website
www.brownadvisory.com/basc
A copy of the Half Yearly Financial
Report will also be submitted to the National Storage Mechanism and
will soon be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
End