Half-Yearly Report for the six months ended 31 July 2024
Registered in England and Wales number 1091347
Objective of the Company and Financial Highlights
North Atlantic Smaller Companies Investment Trust plc is a company incorporated and registered in England and Wales.
The objective of the Company is to provide capital appreciation through investment in a portfolio of smaller companies principally based in countries bordering the North Atlantic Ocean.
| 31 July2024(unaudited) | 31 January2023(audited) | %Change | |
| Net asset value (“NAV”) per 5p Ordinary Share*: | |||
| Basic and diluted | 5,551p | 5,127p | 8.3 |
| Basic and diluted adjusted# | 5,766p | 5,391p | 7.0 |
| Mid-market price of the 5p Ordinary Shares | 4,350p | 3,690p | 17.9 |
| Discount to net asset value | 21.6% | 28.0% | |
| Discount to adjusted net asset value | 24.6% | 31.6% | |
| Standard & Poor’s 500 Composite Index† | 4,301.90 | 3,810.10 | 12.9 |
| Russell 2000 Index† | 1,756.20 | 1,531.20 | 14.7 |
| Ongoing charges (annualised) | 1.2% | 1.2% |
* Includes current period revenue.
# Adjusted to reflect Oryx International Growth Fund plc (“Oryx”) under the equity method of accounting, which is how the Company previously accounted for its share of Oryx, prior to the adoption of IFRS 10. This is useful to the shareholder as it shows the NAV based on valuing Oryx at NAV. See note 6.
† Sterling adjusted.
Chief Executive’s Review
During the six months under review the net asset value adjusted for the dividend payment rose by 8.3% compared to a rise in the sterling adjusted Standard and Poor’s index of 12.9%. Performance was adversely impacted by the Trust’s large cash holdings and the underperformance of the Private Equity Portfolio although I expect that as a number of sales come through over the next few months this will be reversed.
The Trust reported net income for the period of £8,076,000 (2023: £4,615,000). Consistent with prior years no divided is being declared until the outcome for the current year becomes clearer. However based on my current expectations, it is anticipated that dividends in respect of the financial year ending January 2025 will comfortably exceed that paid in respect of fiscal 2024.
During the six month period the Trust purchased approximately 178,237 shares for cancellation at a discount to NAV of approximately 30%. This policy which is ongoing increased the NAV for all long term shareholders and helped to modestly reduce the discount compared to the end of January 2024, net asset value, at a time when many other trusts, particularly those with unquoted holdings, have seen a significant widening.
Quoted Portfolio
Quoted markets performed well over the period, helped by a number of takeovers which sadly did not benefit the Trust. Nevertheless, the performance of the quoted portfolio as a whole was a rise broadly in line with the comparable UK indices.
Stocks that performed notably well included Pinewood Technology at 50%, Gleeson at +22%, Hargreaves Services at +21.5%, Paypoint +26%, Polar Capital +33%, TP ICAP +17.5% and Restore +15.5% since purchase. On the other hand EKF fell by 8% despite very encouraging results and Niox only rose 2% despite excellent early growth. Frenkel Topping was also flat following concerns as to how the FCA application of the Consumer Duty issues might adversely impact the business.
Unquoted Portfolio
The UK Portfolio rose 2% during the period as there were no major realisations. However, this is expected to change over the next few months following a recent bid for Journey Group and the likely sale of another substantial holding at good premium to the end of July valuation.
The United States portfolio which was relatively small at £28 million was flat during the period. In reality there are only two investments, Crest Foods which was acquired in February and is performing in line with expectations and Performance Chemicals which is under offer at a modest premium to the July valuation.
Outlook
August saw very considerable turbulence in the financial markets, although other than the fall in Polar Capital which reduced the NAV by 0.6%, the impact on the balance of the portfolio was negligible. It is therefore frustrating to see the share price fall by 7%.
I have had a chance to meet with all our major quoted holdings over the past three weeks and in not a single case do I see cause for alarm and in some cases such as Spire Health we will be adding to the holdings if we can find attractive entry points. I am also hopeful that some of our indirect holdings through Oryx and Odyssean will be subject to corporate activity in the coming months.
Our unquoted portfolio is, I believe, well positioned to build value for shareholders both in the short and long term and it would be disappointing if it failed to deliver over £40 million of capital over the next eighteen months at a good uplift from the current valuations.
In short I remain optimistic for the portfolio as a whole and shareholder returns will hopefully be enhanced by a higher dividend and further share buybacks over the course of the next twelve months.
Finally is it my intention that in addition to the shareholder annual general meeting, there will be a meeting of shareholders towards the end of each calendar year which will be announced through an RNS. I very much hope you will be able to join us.
C H B Mills
Chief Executive
24 September 2024
Top Ten Investments as at 31 July 2024
| Fairvalue£’000 | % ofnet assets | ||
| Oryx International Growth Fund Limited* | UK Quoted | 106,249 | 14.4 |
| US Treasury Bills | US Treasury Stock | 64,095 | 8.7 |
| Polar Capital Holdings Plc | UK Quoted on AIM | 42,000 | 5.7 |
| Hargreaves Services Plc | UK Quoted on AIM | 38,304 | 5.2 |
| Harwood Private Equity Fund V LP | UK Unquoted | 34,388 | 4.7 |
| MJ Gleeson Group Plc | UK Quoted | 30,952 | 4.2 |
| Odyssean Investment Trust Plc | UK Quoted | 27,520 | 3.7 |
| Conduit Holdings Limited | UK Quoted | 26,150 | 3.5 |
| EKF Diagnostics Holdings Plc | UK Quoted on AIM | 26,112 | 3.5 |
| Niox Group Plc | UK Quoted on AIM | 23,250 | 3.2 |
| 419,020 | 56.8 |
* Traded Price under IFRS10, incorporated in Guernsey.
All investments are valued at fair value.
Interim Management Report
Investment Objective
The objective of North Atlantic Smaller Companies Investment Trust PLC is to provide capital appreciation to its shareholders through investing in a portfolio of smaller companies which are principally based in countries bordering the North Atlantic Ocean.
Material Events
There were no material events during the period.
Material Transactions
There were no material transactions during the period.
Risk Profile
The principal risks and uncertainties for the remaining six months of the year continue to be as described in the Annual Report for the year ended 31 January 2024. The principal risks arising from the Company’s financial instruments are market price risk, including currency risk, interest rate risk and other price risk, liquidity risk and credit risk. The Directors review and agree policies with the Manager, Harwood Capital LLP, for managing these risks. The policies have remained substantially unchanged in the six months since the year end.
The Company does not have any significant exposure to credit risk arising from any one individual party. Credit risk is spread across a number of counterparties, each having an immaterial effect on the Company’s cash flows, should a default happen. The Company assesses the credit worthiness of its debtors from time to time to ensure that they are neither past due or impaired.
To support its investment in unquoted companies, the Company may periodically agree to guarantee all or part of the borrowings of investee companies. Provision is made for any costs that may be incurred when the Directors consider it likely that the guarantee will crystallise.
The Company’s exposure to market price risk comprises mainly movements in the value of the Company’s investments. It should be noted that the prices of options tend to be more volatile than the prices of the underlying securities. The Manager assesses the exposure to market risk when making each investment decision and monitors the overall level of market risk on the whole of the investment portfolio on an ongoing basis.
The functional and presentational currency of the Company is Sterling, and therefore, the Company’s principal exposure to foreign currency risk comprises investments priced in other currencies, principally US Dollars.
The Company invests in equities and other investments that are realisable.
Related Party Transactions
These are listed in note 9 to the half yearly condensed financial statements on page 23.
By Order of the Board
Sir Charles Wake
Chairman
24 September 2024