Schroder BSC Social Impact (SBSI)
10/04/2024
Results analysis from Kepler Trust
Intelligence
Schroder BSC Social Impact
(SBSI) has released its interim results for the six months ending
31/12/2023. Over the period, the trust saw its NAV increase by 0.4%
on a total return basis, which compares to an average total return
of 2.4% for the AIC Flexible sector over the same period. The FTSE
All Share Index, which is a comparator though not the formal
benchmark, rose 5.2%.
Assets are divided into
'mature' and 'investment phase' investments depending on their
stage of capital deployment. The portfolio was split 68% to 23%
respectively as at 31/12/2023. Investment phase assets contributed
positively, adding 0.55% to NAV though this was offset by the
mature investments which detracted 0.17%, most notably in the
Bridges Evergreen portfolio which detracted in the period due to
the sale of Agility Eco at below the previous book value, though
SBSI's overall return was 2.7x the initial investment. The mature
investments overall have performed well since launch in absolute
terms, delivering a total return of c. 10.6%.
To minimise cash drag that
could come from projects with staged capital deployment, the
managers can allocate to liquidity assets, which represented 7% of
NAV as at 31/12/2023, and contributed NAV returns of 0.55% over the
six months.
The positive NAV total return
included a dividend of 2.3 pence per share, in-line with the
updated guidance that shareholders should expect an increased yield
on NAV of between 2% to 3%. Investment income was the biggest
contributor to performance, particularly interest income from the
Charity Bond and Charity Bank Co-Investment portfolios which were
the two largest contributors to performance.
The managers made a new
investment in a renewable energy project with community benefits.
This was funded through a partial disposal of a property letting
fund in the first half of 2023 as well as scheduled debt repayments
from a number of other investments.
The share price total return
over the six months was -4%, with the discount on the trust
widening to 15.1% from 10.9% over the period. The board has been
active with share buybacks with the aim of narrowing this,
contributing 0.14% to NAV over the six months.
Chair Susannah Nicklin
commented on the outlook for impact investing, indicating that the
"long-term effects of the recent economic instability are expected
to continue… [which].. leads to continued and growing demand for
the services that the Company's investments are
offering".
Kepler View
Schroder BSC Social Impact
(SBSI) owns a portfolio of investment projects that will deliver a
meaningful impact to the most disadvantaged members of society. The
portfolio has continued to demonstrate strong resilience over the
past six months and delivered a modest increase in NAV total
return. This has been primarily driven by strong investment income,
including an increased contribution from floating rate loans in the
higher interest rate environment. This in our opinion is a prime
example of the portfolio's resilience, showing the ability to
offset some of the difficulties the higher interest rate
environment has presented and even in some cases benefit from
it.
The revaluation of the
portfolio's assets has also contributed to performance. The
managers categorise their projects into mature and investment phase
depending on their level of capital deployment with the portfolio
split 68% and 23% respectively as at 31/12/2023. That investment
phase assets contributed positively at the same time as the mature
assets marginally detracted from returns, demonstrates the
diversification benefits of the trust and supports a less volatile
performance profile.
Within the mature assets
allocation, SBSI made a new investment into Community Energy
Together Ltd (CETL) which provides renewable energy and community
benefits. This investment was funded through the recycling of cash
from a disposal and capital repayments from elsewhere in the
portfolio. We believe this demonstrates prudent management and
provides evidence that there remain many investment opportunities
available in the impact investment space, especially in the current
environment.
The strong investment income,
in part due to higher interest rates, has contributed to the
managers meeting their increased dividend guidance of between 2-3%.
We believe this reinforces the fact that income is an important
contributor to total returns going forward. The sale of Agility Eco
at a level that is 2.7x SBSI's initial investment also demonstrates
the strong return potential of the portfolio, in spite of the
challenging backdrop. As such, we believe the period covered by the
interim statement has reinforced the qualities of impact investing
as an asset class.
Despite these positives, the
trust's discount widened in the period. The board has continued
share buybacks, though the discount has subsequently widened post
period end to c. 25%, the widest level since the trust's inception.
We believe this discount level overlooks the resilience of the
portfolio and could offer an attractive entry point for long-term
investors.
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