Aberforth underpreforms against benchmark in H1; raises dividend

Aberforth Smaller Companies Trust said first-half net asset value fell 11.6% as it missed its benchmark return, but rewarded shareholders with a 5.2% increase in interim dividend to 8.60p a share.

The company said the NAV decline compared with a return of -5.6% from the Numis Smaller Companies Index excluding investment companies.

Aberforth said the UK's decision to leave the European Union in June's referendum would “undermine the UK’s economic growth in the near term”.

“Small companies have less overseas exposure and so, all else being equal, will suffer more than their larger peers from a UK recession,” it said.

“The referendum result also ushers in an indeterminate period of intense uncertainty for financial markets. Crucial issues – such as government, the timescales for the exit itself, terms of trade, the make-up of the UK – are up in the air. Accordingly, it is difficult to argue that UK equities do not now merit lower valuations, even if, over the longer term, the “Brexiteers” are proved right in their belief that the economy has been stifled by EU membership.”

Aberforth said in the first half it had to contend with the adversities of a weakening UK economy, small and mid-cap underperformance, 10 year gilt yields at less than 1% and a resurgent resources sector and a large widening of the share price discount which produced “one of the most painful six monthly results for shareholders” in its history.

“Such setbacks have in the past been followed by sharp rebounds in performance. This time round, headwinds for small companies and the value style may blow for longer as much of the developed world becomes subsumed by negative real interest rates,” said chairman Paul Trickett.

“However, with valuations already almost a third below their peak of the last three years and with ASCoT’s robust income characteristics, this situation will not last indefinitely. Moreover, the managers are well placed to take advantage of the market volatility that has followed the referendum and that has given rise to some anomalous valuations for good businesses.”

Aberforth shares were up 0.77% to 986.5p at 1237 BST.