Schroder BSC Social Impact (SBSI)

25/10/2024

Results analysis from Kepler Trust Intelligence

Schroder BSC Social Impact (SBSI) has released its annual results for the year ending 30/06/2024. Over the period, the trust saw its NAV increase by 1.5% on a total return basis, which compares to an average total return of 8.1% for the AIC Flexible sector.

The portfolio is categorised into three asset classes: debt and equity for social enterprise, high impact housing, and social outcome contracts, plus liquidity assets for committed capital not yet required. Over the year to 30/06/2024, high impact housing has increased the most to 47%, with social outcome contracts falling as capital was returned.

The biggest positive to performance was investment income, supported by higher rental income as a result of its inflation-linkage. Whilst there were some positive valuation gains, these were not enough to offset valuation write downs, which overall detracted from NAV.

There were new investments into a renewable energy project, and an affordable homes project. The trust's capital is now either fully invested or allocated, though the pipeline remains attractive.

Two-thirds of the portfolio is now considered mature and the remainder investment. As projects develop, they are expected to contribute to future valuation gains and increasing income.

The board announced an increased dividend of 2.94p per share, equivalent to a 3.6% share price yield, towards the top end of the improved guidance range.

Despite the resilient NAV performance, the discount widened in the year. The board bought back c. 1.6m shares in the year, and has continued in the period post results.

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

We believe these results show the resilience of Schroder BSC Social Impact's (SBSI) portfolio and asset class. The managers have weathered a challenging economic period, whilst still delivering positive NAV returns and improving the trust's income profile. The managers highlight features with very low correlation to GDP and a growing pipeline as reasons for optimism.

Over half of the portfolio involves projects that are inaccessible to new investors, with further allocations to projects which are not easily available. We think this contributes to SBSI being a unique proposition for investors, as does investing in an asset class that benefits from reliably backed income sources, as well as its strong focus on impact outcomes.

The dividend outlook for the trust continues to look strong, in our opinion. This year's dividend has grown significantly meaning the trust is now at the top end of its income goal. This goal was increased just last year which we believe shows the strength of the income picture. We understand that investment income could continue to strengthen too adding to the trust's potential.

These positive factors are not reflected in the trust's current rating in our opinion, as shown by the wide discount, currently at one of the widest points in the trust's history. We understand the board is exploring multiple options for how to rectify this, which we believe this could present an attractive entry point for long-term investors whilst also enabling them to invest in a portfolio that has shown good resilience and has generated differentiated and highly defensive income.

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