European Smaller Companies Trust posts positive first half

(Sharecast News) - The European Smaller Companies Trust reported a positive first half on Tuesday, as net asset value outperformed its benchmark and the company completed its combination with European Assets Trust, lifting net assets to £839.6m and introducing a new dividend policy targeting distributions of at least 5% of NAV. For the six months ended 31 December, NAV per share total return was 7.7%, ahead of the 7.1% return from the MSCI Europe ex UK Small Cap Index.

The FTSE 250 company's share price total return was 4.1%.

Over one year, NAV total return was 33.2% versus 26.9% for the benchmark, while three-, five- and 10-year NAV total returns of 47.3%, 51.5% and 227.8% respectively also exceeded the index's 39.4%, 35.6% and 158.1%.

The share price total return over five years was 54.1% and 232.9% over 10 years.

Net assets rose to £839.6m from £510.7m on 30 June following the completion of the combination with European Assets Trust on 15 October, under which £304.1m of net assets were acquired in exchange for the issue of 131.1m new shares.

NAV per share increased to 238.18p from 224.45p at the year end, while the discount widened to 9.1% from 5.8%.

The company repurchased 6.1m shares for treasury at a cost of £13m during the period.

Gearing stood at 5.5%, up from 1.3%.

Total comprehensive income for the half year was £45.9m, compared with a loss of £59.9m in the prior-year period, comprising revenue return of £2.1m and capital return of £43.9m.

Earnings per share were 16.31p, including 15.58p of capital return and 0.73p of revenue return.

"The six months to 31 December was a good period for your company," said chairman James Williams.

"The fund management team has once again delivered strong performance and the combination with European Assets Trust completed successfully on 15 October, bringing the company's net assets to £839.6m at the period end."

The board said it had adopted a new dividend policy following the EAT combination, targeting quarterly interim dividends totalling at least 5% of NAV per share at the preceding financial year end.

An interim dividend of 2.81p per share was declared and would be paid on 27 February.

Based on the 30 June NAV of 224.4p per share, the company anticipated dividends of at least 2.81p per share would also be paid in May and August.

In the outlook statement, Williams said that while Europe had faced headwinds from the pandemic supply shock, energy prices, inflation, interest rates and US tariff policy, "the supply-chain shock has unwound, energy prices have normalised to a degree, inflation is under control, interest rates are declining and there is a degree of visibility around tariffs."

He added that Germany's fiscal stimulus and rearmament plans "will have a further positive effect on the European economy over the coming quarters".

The fund managers said performance in the half year was driven by stock selection, highlighting contributions from Acast, Pfisterer and Safilo, while Stroeer and Ionos detracted.

"The portfolio is positioned for recovery, but with stocks that have sensible capital structures and management teams that understand how to unlock value," they said.

"The opportunity set that we hunt in is rich with undervalued companies and we continue to uncover exciting opportunities for your company."

At 1004 GMT, shares in the European Smaller Companies Trust were down 0.01% at 222.47p.

Reporting by Josh White for Sharecast.com.