Schroder UK Mid Cap (SCP)
28/06/2024
Results analysis from Kepler Trust
Intelligence
Schroder UK Mid Cap (SCP) has
released its interim results for the period ending 31/03/2024. Over
the period, the trust delivered a 9.3% NAV total return, versus its
benchmark which returned 11.4%. The trust's peer group returned an
average of 11.7%.
Relative returns were
affected by areas that would benefit from lower interest rates. The
managers' focus on quality factors meant they were underweight
these areas. However, more cyclical holdings such as Just Group
were beneficiaries of the improved economic outlook and contributed
positively.
Long-term returns remain
strong, with the managers significantly ahead over one, five and 10
years.
The discount widened to 15.2%
at the end of the period, a trend seen across the peer group. We
note that the discount has narrowed post period end as the trust
has outperformed.
The board has declared an
interim dividend of 6p per share, an increase of 9.1%. This was
more than covered by first-half revenue. Based on this dividend,
and the previous year's final dividend, SCP offers a yield of 3.4%.
However, we note the final dividend has been regularly
increased.
Net gearing increased to 8.2%
as at the end of the period. Gearing was a net benefit to
performance as a result of the rising market.
Chairman Robert Talbut
discussed the valuation opportunity stating: "the UK stock market
represents one of the cheapest regional equity markets in the
world, with the UK mid-cap sector looking particularly
attractive".
Kepler
View
The managers of Schroder UK
Mid Cap (SCP), Jean Roche and Andy Brough, look to build a
concentrated portfolio of the best ideas from the FTSE 250. Both
managers have extensive experience to support their stock selection
approach, which should drive outperformance of the
benchmark.
In the interim period covered
by the results, the trust returned 9.3% on a NAV total return
basis. Whilst this was a strong return in absolute terms, the
managers underperformed the benchmark. However, the trust
outperformed in the period post results to cement long-term
outperformance.
The managers believe that
M&A could be a feature going forward, due to depressed
valuations. When combined with the potential for an improved
political and regulatory backdrop, there is significant support for
a long-term recovery in UK equities.
The board announced an
increase to the interim dividend in the period to 6p per share
which was 1.1x covered by revenue. The dividend is one of the
standout features of SCP in our opinion. The increase in the 2023
dividend marked a 'ten-bagger' (or 10x) rise from its first annual
dividend (2004). As the dividend remains well supported, we believe
it continues to add to SCP's investment case.
The discount widened in the
period though the board did not buy back any shares. Post results,
the discount has come in slightly though remains wide, despite the
strong performance and improved outlook. As such, we believe the
current discount could be an attractive entry point for long term
investors.
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