Aberforth Smaller Companies (ASL) has published its annual results for the year ended 31 December 2024, during which it provided NAV and share price total returns of 12.1% and 10.7% respectively, both ahead of ASL’s benchmark – the Deutsche Numis Smaller Companies Index (excluding investment companies), whose total return in 2024 was 9.5%. It also beat the All-Share, which ASL says provided a total return of 9.5%. The difference between the NAV and share price performances reflects a widening of the discount from 10.3% to 11.8% over the year.

ASL’s chairman, Richard Davidson, says that it was a good year for UK equities, which saw renewed interest that cannot easily be explained by the global investment backdrop since macro economic and geopolitical uncertainty remained elevated. Most major economies, with the notable exception of America’s, were in the doldrums and amid this, the UK’s economic performance was unspectacular as it emerged from the recession in the second half of 2023. However, interest rates started to decline and there have been encouraging signs that activity has started to recover.

Davidson adds that, on the political front, Labour’s decisive victory heralded some political stability, though October’s budget was unconvincing and undeniably bad for businesses. Nevertheless, the impression developed through 2024 that the UK is less of an outlier in both political and economic terms than it seemed just over a year ago. This was enough to stimulate interest in UK equities given how depressed sentiment had been and further impetus came from the persistently high level of M&A activity in the UK stockmarket (takeovers contributed significantly to ASL’s performance in 2024).

Dividends and revenue income

The revenue return per ordinary share of 56.59p was above the managers’ estimates at the start of the year (the manager had been cautious following the recession in the second half of 2023) and the second highest in ASL’s history (bettered only by the 59.79p earned in 2023). Excluding special dividends received in both years, the revenue return per ordinary share rose by 1% in 2024 compared with 2023.

ASL’s board is proposing a final dividend of 30.00p per ordinary share, which would represent growth of 5.1% on the previous year’s 28.55p (thereby meeting its ambition of growing the dividend ahead of inflation which was 2.5% in December 2024). Together with the interim dividend of 13.60p, the full year dividend would be 43.60p, so growth for the full year would also be 5.1%.

In addition to the ordinary dividend, ASL’s board is proposing a special dividend of 6.00p, which ensures that ASL complies with HMRC’s minimum retention test for investment trusts. After paying these dividends, ASL would be able to retain 6.99p of revenue per ordinary share. This would increase revenue reserves to 87.89p per ordinary share to keep the ordinary dividend covered a healthy two times.

Gearing

ASL has a credit facility with The Royal Bank of Scotland International Limited. This £130m facility runs to June 2026, which is aligned with the three yearly continuation vote. Gearing is deployed tactically with the aim of taking advantage of periods of stress in equity markets and ASL has been geared on four occasions in its 34 years. The current phase started amid the pandemic in early 2020 and has since enhanced the trust’s NAV performance. At the year end, £104m of the facility was deployed and the gearing ratio was 7%.

Share buyback

In the year to 31 December 2024, 590,000 shares were bought back and cancelled. The total value of these repurchases was £8.4m, on an average discount of 11.7%. Since 2008, ASL’s share buy-backs have totalled £166m and added £25m of value to shareholders.