Schroder British Opportunities Trust PLC (SBO) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen, and welcome to the Schroder British Opportunities Trust PLC Half Yearly results coming to you today from the Schroder's headquarters in the heart of the city of London. I'm Roland Jones. I'm responsible for our Investment Trust business. And I'm joined today by your 2 portfolio managers, Rory Bateman and Tim Creed. Now over the next 40 minutes or so, we will be discussing the performance of the Trust over the last 6 months, looking at some of the stocks that have done well for us, maybe a couple that have done less well for us. And then moving on to a broader outlook on the U.K. market and economy post the budget in the U.K., focusing on some of those small and mid-cap opportunities. There'll be plenty of time to ask questions. I have my iPad with me, so please do ask those questions. On the website, there's the opportunity to download the annual report and accounts and also the presentation that we'll be using over the next few moments or so. So as I said, please ask those questions. We're looking forward to answering them all. But moving straight across the presentation now. Tim, you've had an interesting 6 months or so in U.K. markets, particularly both public and private. Tell us how the trust has fared over this time period, please?

Perfect. Hello. Good afternoon, everyone. It's a pleasure being here with Rory to present the results of the trust. The way the format will go is I will start with an introduction about what's happened in the trust in aggregate. Then I'll move into a deep dive into the private equity part where I've got 7 slides, which will go into just the private equity part of the portfolio. And then I'll hand over to Rory, who will be able to give you the full update on what's happened in the public part. So to answer your question, well, just before we answer your question, let's kind of do a recap of why we set up this trust and why this trust is so unique and really what the opportunity is that we've been able to exploit over the last few years. The first slide shows the team, which is a brief reminder, it's a public team and the private team. Although there's only 4 head shots, mugshots up here on the page, there's a much larger team behind this.. Rory obviously representing the full public platform of Schroder's and myself representing the private equity part where there's over 180 people working on private equity companies around the world. The next page shows the rationale and really the rationale of why we set up this trust was it gave us or gives us the greatest universe to choose from. We're not held to only invest in public or only invest in private. We are able to choose the best stocks that there are out there, whether they're public or private. And what we've seen over the last 3 or 4 years, is the last 3 and 4 years have obviously been quite a few turmoils, quite a few changes in the market and having this flexibility to pivot back and forth between the public and private has been a real differentiator for us and has allowed us to access what we believe to be some very strong companies. The next slide shows the performance for this 6-month period. And here is where you can see the aggregate performance of what's happened. This last 6 months has actually been the first time I believe we've had a slight dip and we'll go into the details of why that's happened. We've been down by 2.4% over the last 6-month period from March 31 until September 30. And on the left-hand side, you can see the 3 companies that had the greatest contribution positively, but also the 3 companies that had the greatest negative contribution. And we'll explain what's happened in those companies in a few slides' time. In the middle part of the slide, you can see the activity that we've been going through this last 6 months, and it's been a very busy period. Despite now having the trust for a number of years, we're still actively making new investments and growing our existing companies and also exiting companies where we feel it's the right time to exit those companies. And you see there's been 5 significant events, 3 on the public side and 2 on the private side. The right-hand side of the page is quite interesting actually in the fact that this has barely changed over the course of the last year or 2. Despite all the turmoil around the world with the U.K. election and the U.S. election, we continue to see a strong outlook, a strong opportunity set, both on the private side and the public side in the U.K. Slide 5 is a slide that shows both the NAV progress and also the share price progress. Here, the green line is the NAV, and you see the net asset value, the NAV has been relatively steady. It's had a bit of an uptick in '22 and '23 and has been relatively flat in 2024. But clearly, the really poor or under -- the really disappointing news happened during the calendar year of 2022 when the share price went to a very large discount. That's something that is not unique to this trust. It's something we've seen in private investment trust and it's something that we, as an investment team, but also the investment trust team are working very actively to see if we can reduce. We sit at a point today where the discount is still sizable, but it's now less than a number of the other investment trusts out there that also focus on private equity content. Slide 6 shows the aggregate performance of the NAV development. And here, you see the precise numbers, the fact that the NAV in aggregate was down by GBP 1.9 million, where the quoted part of the portfolio, and this is again one of the benefits of having both parts of the portfolio, the quoted part of the portfolio was up, the private equity part, the unquoted was down, and we'll talk about those stocks in a few moments' time. In fact, Slide 7 shows this in the most detail. And you can see on Slide 7, the companies that are up on the left and the companies that are down on the right. Probably the one thing I'd really want to highlight is the biggest number on the page, which is Rapyd. Rapyd is the main for the down valuation across the trust. This is a private company. It's a company that has been growing well since our investment a couple of years ago. And what I'd like to highlight is this down valuation is due to multiples only. So the company itself has grown revenue and profitability in this last 6 months, but its peer group has started to trade at a lower revenue multiple. And therefore, our valuation team have reduced the revenue multiple that we hold the company at. So the company has continued to trade positively, but its valuation is lower because the multiple that's been applied to it is also a bit lower. And that's had a consequence on the trust overall. Slide 8 is a slide that we have shown every year since we've had the trust. And you can see in 2019, the NAV -- the share price and the NAV per share were up. 2022, as I mentioned previously, was a very unfortunate year with the share price dropping significantly. But also you can see that in these numbers, this comes out a bit clearer on this page than it did in the line graph earlier. There was a small decrease in NAV that year, which has almost rebounded back in 2023. And then at the end of this calendar year, we'll update it with the 2024 numbers. And of course, when there's a factual slide like this, there's always a risk slide straight afterwards, which normally we skip over, but I do encourage people to make sure they are aware of the risks of investing in a trust with private equity content. Slide 10 shows the aggregate portfolio -- sorry, the aggregate top 10. And here, you can see that 8 of the top 10 companies are private. We've got -- when we go into private equity deep dive, we can go into these companies in a bit more detail. And when we go into the public equity deep dive, Rory will go into the public side a bit more. You'll see here, there's a couple of companies that went up in value from the middle part of the pink, which is March to the blue part on the right-hand side, which is September. And there's a couple that went up and a couple went down. And then there was one new investment, Headfirst, which we talked about on the last webinar that we held. The portfolio is shown in aggregate on Page 11. And here, you can see that now 70% -- just over 70% of the portfolio is in the private side, which is why this presentation today is a bit more private content than the public content. On the right-hand side, you do see the balance of industries. We had always said that we like technology and software. That part of the portfolio is actually a bit broader and more diversified than it may imply because often you get software companies that feed into different industries. And when we talk about some of the examples, we have a number of software companies that feed into financial services or industrials or other areas. So the trust overall has quite a nice diversification, we feel. With that, I will now go into the deep dive into private equity. And just before I do so, I want to encourage people that if you do have questions, please do use the question section of the website, as was mentioned earlier. So moving into the private equity part of the portfolio, the private equity deep dive. As mentioned, this is now 71% of the portfolio. This is a slide that we had in the early years of the trust. We then didn't use it for a few years, but I felt it was useful to bring it back this last quarter, just as a reminder of exactly what part of private equity we focus on and just as importantly, what parts we don't focus on. So the areas that this trust focuses on are the dark blue areas in the middle, which is growth, small buyout and mid- buyout. This is really the engine, the bread and butter of the U.K. private equity industry. It's the area that we feel is the lowest risk, but also in aggregate, a very highest returning segment of private equity in the U.K. The 2 left and right-hand side of the spectrum of this chart are the 2 areas that we don't focus. I must say venture seed and early stage can perform really, really well, and it does perform really well. The challenge is you generally have to do it through a fund portfolio rather than direct investments like here. The area to avoid on the venture side is the venture late stage and pre-IPO phase -- stage. And then on the buyout -- on the right-hand side, the large buyout segment. And the reason those 2 segments should be avoided is they're the areas that have the greatest procyclicality. They're the areas that you see the most excitement in boom times and the most challenges in periods where there's economic challenges. And so those segments tend to be boom and bust, which is why we tend to avoid them from this trust and focus on just these 3 segments in the middle. Now if we look at Slide 14, we see the full breakdown of the valuation progress of just the private portfolio. So this is not public, it's just private. And here, you see in the beginning in Q1, GBP 52.9 million and as of Q3, we have GBP 51.3 million. So relatively flat. Really, the 2 or 3 things to highlight in the middle are the fact that the blue box right in the middle, the GBP 2.9 million is what we call trading gains. So this is revenue and EBITDA growth of the underlying companies, including actually of Rapyd, where we saw growth in the companies. Where you see the biggest negative is you see the GBP 1.8 million subtraction or negative under valuation multiple. And that's because the valuation team have applied lower EBITDA multiples and revenue multiples to a number of the companies compared to the price that we paid because we've seen a contraction in the market. I'd say that this is something that the investment team are very comfortable about because we generally across all of our exits and all of our companies that we've sold over the last 6 or 7 years have seen considerable uplift at exit as people end up buying companies at much higher multiples. But of course, from a prudent perspective, it's right to make sure that we match the public comps and the transaction comps. Slide 15 goes through the private companies in a bit more detail. Here, I think it's important to highlight that we've invested just over GBP 38 million into these companies, and that GBP 38 million is now worth GBP 56 million, driven mostly by revenue growth and earnings growth. And even with a lower revenue multiple and EBITDA multiple, that's still a 1.5x investment return on those investments. Of course, this is fully unrealized, which means this is not companies that have been exited. You see the company names. And then you see in the middle the percent of total equity investments. So this basically shows how big is the company within the trust. And you can see that the top companies is sorted by size. And so Expana, Cera care, Pirum are the 3 largest companies by far, while Learning Curve down at the bottom is now a very small holding. And on the right-hand side, you can see how we see the status where all companies apart from one are really trading very well. And they are, of course, the companies that are the greatest valuation trust because of their good performance. And you can read all the details about the commentary of the progress of these companies over the course of the last 6 months. We -- Slide 16 puts the companies into the 3 buckets I mentioned or similar to the buckets where we've now chosen to use the exact phrasing of growth, growth/buyout and buyout, where the buyout is a mix between small buyout and mid- buyout. And you can see that the companies that we've moved -- invested in are really mostly in the buyout category. So these are the small buyout and mid- buyout companies. These are mature companies. They're normally nicely growing, nice and very -- sorry, growing nicely and highly profitable, and a significant way that we generate growth is by transformation within these companies to really grow them significantly, and this is actually shown on Page 17, where we highlight the progress made across each of the companies that we invest in against 3 of our criteria or 3 of the ways that we try and make sure the companies grow. The first is organic growth, and you can see almost all of the companies have very strong organic growth. The second is add-on acquisitions, and we use the phrase multiple add-on acquisitions. That means these companies have been buying small companies to add them into their overall platform. And then the final column is the large transformational merger. And this is where companies have been through very, very big transformations. So Expana, for example, bought a very large business. So this is a small -- was a small U.K. leader in the agribusiness space. It bought a large competitor in the U.S. and is now the global leader in what it does. And we like to see these large transformational mergers and acquisitions because they can really transform the size and the scope and the profitability of the companies that we invest in. And our view is if we can deliver against 1, 2 or 3 of these things, let alone all 3 of these in each of our companies, then we have the greatest chance of a great success of an investment. Slide 18 has a lot of text, and so I'll skip it for now. But what I'd suggest is if people would like to know about the companies in a bit more detail, then please do go in and read this afterwards at your leisure. Slide 19 is the newest investment. This investment is not -- it was not in the portfolio as of Q3. And so it is not part of the financials as of September 30, but we made the investment afterwards. And so we wanted to include a bit of information about it here. This company is a leading software provider and it provides software for the global insurance space, so demonstrating that software can be provided against -- into a number of different industries. We invested in this company alongside Astorg, which is one of the best pan-European private equity firms that we've invested with for a long period of time. And with that, I will now pass the microphone over to Rory to go into detail on the public part of the portfolio.

Great. Well, thanks, Tim. It's great to be here today. So thank you for taking the time out in your schedules to listen to Tim and I talk about SBO. So on the public side, we are unadulterated growth fans in this portfolio. We are looking for the positive growth gap. And you'll see throughout the public holdings that they are substantially growing ahead of the market. And indeed, on the earnings side, something like double to triple the earnings growth rates we would expect versus market performance overall. We've got a very diversified portfolio as well. It's less focused on the software side, but it's clearly very diversified. And even within some of those segments, there's an element of technology within a lot of the names. So very diversified portfolio. And if you combine the Tim's holdings, then you'll go back to the sort of overall mix that Tim showed in the previous pie chart. We've been relatively successful on the number of takeouts. You'll see here 7 takeouts overall. We've currently got 22 companies on the public side of the portfolio. We had got a few more. We've seen some takeouts, as you can see here, and these have been very profitable trades for us in the main. I mean, clearly, since 2022, the beginning of 2022, the markets have seen incredible volatility. It's been a very tough place to be on the public side, and I'll come back to some numbers on that in a minute. But we have seen a fair amount of takeout activity and corporate activity, particularly last year in small cap and more so mid-cap in the FTSE Mid-Cap this year. So that continues and is indeed one of the attractions of the U.K. small and mid-cap space. In terms of key contributors, you saw it earlier on one of the slides, which was showing accretion to the portfolio, overall Volution that they do lots of equipment for residential new builds in terms of ecological equipment, in terms of that ability to transform the way houses are heated and ventilated and that's a really fantastic company. Watches of Switzerland has been very volatile since we owned it. Now we're talking about companies here, including SSP and DiscoverIE, that have really been volatile over the last 2 or 3 years. In fact, Volution has been as high as GBP 6 then came back down to GBP 2 and it's back up to GBP 6. It's been an incredibly volatile ride. We've made plenty of money out of that by sticking to our knitting and believing in the company over the long term. The Watches of Switzerland, I think we bought that around GBP 4. We ended up selling half our position, would you believe, something like GBP 15, we held on to the rump of that position, and it got as low as GBP 3, and we're now trading at GBP 5. So there's significant volatility in these names. Watches of Switzerland, fortunately, in this quarter has come through as a key contributor to the positive performance. And they had a positive update in terms of their trading update. SSP and DiscoverIE, again, these have been flat liners for a little while. We are expecting them to come through. SSP is in a very competitive food catering business, and that's where they do concessions within airports and other transport locations. It's quite a competitive market, and they've seen a tick up in their CapEx and the earnings have come in a little bit below expectations, hence, the detractor this year. On the DiscoverIE, they do electronic components, and there's been some destocking in the end markets. So they have been relatively small detractors, but nonetheless, they've been 2 of the worst performers on the public side. We did add 2 names on the public side over the half year. And I'm really pleased to see this because we've been very hesitant. We've been running elevated cash levels in the portfolio. I'm sure we'll come on to that during the Q&A. We did add a couple of names, Warpaint and Forterra in the run-up to the budget and post the Labour government winning the landslide election. So we felt generally a bit more positive about the U.K. small and mid-cap market, and these are 2 companies that we added. Warpaint, as the name suggests, is for -- is a cosmetic company. It's actually fairly international. It's got about just over 1/3 of its business in the U.K. And they do makeup and cosmetics for typically the 16- to 35-year-old category. And indeed, it's not just female, it's male as well, and they're present in all the shops that you would recognize boots and Superdrug and so on. Forterra was really -- is really very dominated by the U.K. housebuilders housing market. And clearly, with the Labour government coming in, these companies have been relatively depressed in terms of valuations. And we feel there's a lot of activity underlying in this space at the moment. So to be able to partake and participate in the expansion of new housebuilding developments given the Labour government promises, we felt this was a great opportunity to get into Forterra. And so that's -- they're both relatively small positions at the moment, and that's typically what we do. We build up our positions. We hold these companies. A number of the companies have been in the portfolio since inception. We've done some IPOs. And as I said, we've had some volatility, but we would expect a number of these positions to come through over time as indeed many of them have. Ascential is one of those that sadly suffered some significant volatile performance. In the end, we exited that position following the bid from Informa earlier this year. And whilst I don't think we clear -- we washed our face in terms of the overall P&L on this particular name, it was great to make a number, a lot of that money back as we received the bid. So with regards to the overall opportunity, and I'm sure that Tim and I can talk about small and mid-cap ad infinitum in terms of the opportunity. But there are a number of reasons on this slide as to why small and mid-cap might be a great place to invest. I'm sure we'll get on to some of that during the Q&A. The budget was difficult. And one of the reasons why we've still got a little bit more cash than perhaps we might is because -- the -- we've got some exciting private equity deals coming down the pipe. But also, I wasn't overly enamored with what the Labour government did in the budget. I thought the NII increases were particularly penal. And we've got to be very selective about which companies we put into particularly on the public side. You can see that there was a bit of a relief, the 50% relief from IHT, particularly on the AIM side. But nonetheless, it's not all guns are blazing with regards to the opportunity set on the public side. But nonetheless, there are some opportunities. And I think from a valuation perspective, we've consistently said that small and mid-cap does look attractive. If you think about U.K. and Europe ex U.K., small and mid-cap companies, they've been the worst 2 -- with the exception of China, the worst performing developed market asset classes over the last 3 years. And the difference versus large cap is very significant. If you think about U.K., in particular, large cap has been up about 10% per annum over the last 3 years. Small cap is down 3%. So there's a 13% per annum delta on small versus large. And we think there's a reversion to mean coming. And so with some careful stock selection, we think we can benefit from that. And this slide really does show the underperformance of SMID versus -- small and mid versus large over that period. So looking forward, we've got a good portfolio of stocks. We're really trying to take advantage of that valuation opportunity, but we're being very stock-specific about the companies that we own in the portfolio. And I think one of the benefits of the private side, Tim did say that there's been some valuation downsides within some of the private companies, but it's a much more stable field. In the public markets, it's been incredibly volatile. We are beginning to claw back some of the alpha that we lost during that market correction in January 2022. We've been very disciplined on the overall exposure within public. We've been overweight cash. And some of those names that we bought early on, such as Trainline, Trustpilot in the IPO, Volution, I've mentioned, Watches of Switzerland, these businesses are all coming through, and we're now well in the money on all those names that I've just mentioned. So lots to look forward to, lots of growth ahead in the names that we're talking about. I'm not entirely sure that the Labour government is going to do that many favors, but nonetheless, you're starting off from a very attractive valuation, and we're beginning to see the market's appetite for small cap pick up. And in fact, over the last 12 months, small cap has actually outperformed large cap. So that momentum trade, that reversion to mean, we think is going to come through over time. I think I've covered U.K. equity performance. And I think on that, we should hand over to Roland for some Q&A.

Thank you, Rory. Thank you, Tim. Yes, we've actually had quite a few questions rattling, which is fantastic. So we still have plenty of time for your questions, ladies and gentlemen. So please keep them coming. The first couple of questions are actually around the nature of U.K.-based private assets. Basically, how international are they? Where are we generating the revenue streams from? And then also perhaps talk more about the size of the holding that we as Schroder's have in some of these businesses. So Tim, that's obviously 1 or 2 questions for you, please.

Certainly. So Slide 15 has the kind of the largest companies, but I can go through a few. So we really look for 2 different things. We look for companies that are or that can become international global leaders in what they do. Now the classic phrase within the private world is international global leaders in their niche. We tend not to like the word niche because even if it's on a global basis, the word niche still suggests quite small. But these companies are companies that with their development and with the growth and transformation within them, they can become very big. So Expana, I mentioned, this company provides data about all types of commodity pricing, particularly food commodities. Now that sounds quite small and like a niche. But actually, if you think of all the kind of different types of food that is out there, if you think of even eggs, different types of eggs, different weights of eggs, different -- eggs from different geographies or any other type of food commodity, there's pricing. And that pricing and that data can be hourly, monthly, weekly -- sorry, hourly, week, daily, weekly, monthly, yearly. Expana is the global leader at accessing that data set of pricing of food commodities. And so what we did here is this was a lovely U.K. and European business, and we gave the capital to the company in order to help finance a very large acquisition in the U.S., and it's now the global leader. The same happened for a company that was called Waterlogic that's now called Culligan. Waterlogic when we invested was a company that produced basically water coolers in offices. So you know when you're in the office and you want to get a little glass of water, you go to a water cooler. Culligan at the time when we invested has already become the European leader of water distribution in offices. With the capital that we helped to put into it as well as a number of other people who helped drive this change, it bought another -- a different U.S. competitor or merged, I should say, with a different U.S. company called Culligan and is now the global leader at water provision for offices. And in fact, it's moved from those big kind of plastic round bottles to often now being very nice state-of-the-art water filtration devices. So there are examples where we help to finance the growth of a small U.K. or European company and help transform them to become a global leader. We also have companies that are purely U.K. or almost purely. So Cera Care is really the opposite in the fact that it's a U.K. company. This is a company that provides the technology that helps people who provide in-care services at home, helps provide the technology to help those carers provide the right kind of care to the right kind of patients in their own home. So it's very much a U.K. business. Our capital here really helped to ensure that the technology that they use in order to help the carers help their clients was the right state-of-the-art technology. This company can expand abroad, and it may do a bit, but really it is mostly a domestic U.K.-focused business.

So thank you, Tim. Would you -- is it fair to say that investors in the trust are getting more of an international or domestic exposure on the trust? Or is it more 50-50? And will that change?

Yes, certainly. It's probably a bit more international. But where we go for domestic, we go for companies that we feel are real local champions. But it's fair to say there's more companies that are international in nature.

Okay. And the size of these companies that we're investing in, are they -- if they were fully quoted, where would they end up being where would Expana or Cera be? Are you able to disclose or indicate as to what the sizes of these companies in terms of market cap as much as we can?

Certainly, the companies generally range from a couple of hundred million to a couple of billion in size. And I should also mention that although our investments in these companies have only added up to about GBP 38 million from this trust, we, as Schroder's Capital also invest from many other vehicles. So in many cases, where we might have invested GBP 3 million, GBP 4 million, GBP 5 million GBP 6 million from this trust, we actually invested GBP 30 million, GBP 40 million, GBP 50 million as a private equity investor. So our share in these companies is far larger than it may be implied if you just look at the amount that's invested directly from this trust.

So a bit of diversification going on there within the broader Schroder business rather than just purely on, the SBO is not the only holder of these particular assets.

Correct.

Tim, is it worth talking about the fact that the growth in the buyout story here and the fact that the valuations and the volatility of some of the names or in fact, all of the names in this -- in your private equity business at the minute are far more, let's say, stable than venture and therefore, we can be far more reliant on the cash flows and the steadiness or resilience of the valuation?

Yes. I think that's very fair to say. Certainly, when people think of the world of private companies, they often think of the world of dot-coms or technology businesses that are going to be IPO-ed. We do have a few companies that are very, very fast-growing technology businesses like Rapyd. But the challenge with those is you generally see big changes and big swings in the revenue valuations, revenue multiples that they're held at. Whereas the bulk of the portfolio, the likes of Expana, Pirum, CFC, Headfirst, Culligan, et cetera, these are classic small and mid- buyout companies. So these are highly profitable, fast-growing low debt companies that we feel are very resilient to any forms of external changes that may have happened as a result of either the U.K. election or the U.S. election. But because of their high growth, we feel they're well positioned also for the future.

I think that's really important because if you think about the NAV of the portfolio, if you take the public section of the portfolio and you take the cash, that's very -- these are very liquid, obviously, by definition. And then you take the private side, the implied discount on the private businesses right now within SBO is very significant. It's 40% to 50%. And that is what we believe is the market is misinterpreting that because these are not venture companies. These are companies that are very profitable, and we feel that the market is maybe complicating a bit of the venture element of the private equity scenario versus growth and buyout, which the companies in Tim's portfolio very much are.

And that's a good point because actually we have had a couple of questions about the discount and the size of the trust and what action we're taking to try and improve that situation. But I mean, obviously, doing a webinar such as this is a start, but there's a lot more to do. And I suppose communicating the fact that exactly what we are buying or what investors should expect within the trust is important as well and don't bracket us with the smaller venture trusts. But are there any other steps that we're doing to improve the discount in particular on the trust that we can allude to?

I think talking about the quality of the companies, emphasizing that they are high -- they're growing profitable businesses rather than venture businesses, also demonstrating that the changes in valuation from one quarter to another are generally relatively small. We've had almost continuous NAV increase of the private portfolio since we set up the trust with kind of this last 6 months being one point where it's slightly flattened off or slightly dropped. But generally, it's been a very steady, steady journey. And I think this really goes back to what Rory was saying about this being kind of a very stable investment trust, which maybe is in contrast to some more venture-focused vehicles.

To add to that, we've seen clearly a lot of volatility on the public side. It does feel as if that volatility is easing. I don't think, as I said before, we've had 3 years of such poor performance of smaller mid-cap relative to the rest of the market. We've obviously seen the mega cap explosion over recent years. So there is this sort of reversion to mean and sentiment in the market around small and mid-cap, which seems to be changing. And we've already seen a tick up not only in this half, but since the half end in terms of that NAV increase coming through on the public side as well as on the private side. So it's been -- I can't say that on the private side, sorry. But anyway, it is interesting to see how the market is beginning to be a little bit more comfortable, much more breadth in the market, and therefore, that will help smaller mid-cap valuations, which we're seeing in the trust.

And of course, we're -- as a firm, we are more positive on the U.K. market as a whole and speaking to a lot of our intermediary clients, we're detecting a more positive outlook for -- or willingness to buy into vehicles such as these. So all of those measures, I hope will improve the discount situation. We've had a couple of more questions on actually where the fund is positioned within the AIC sector. I think this is quite interesting actually because we're classified in the growth sector, but the questioner is suggesting that actually we're more of a classic buyout fund. So shouldn't we be in the buyout sector? Is that a fair comment? I wonder.

So that's something that we've debated extensively within the team. It really does kind of -- it could be in either. They are really growth -- growing -- fast-growing companies, but it's definitely not venture. And I think that's where there is a good argument to say that it could be more comparable to some of the more buyout-focused vehicles. But at the same time, we do like growth. We like both on the public side and the private side, we like to look for companies that are growing. This is not a deep value vehicle where we look to buy things at huge discounts that are struggling. We're looking on both sides to buy good quality companies that can continue to grow.

That focus on growth has been particularly painful. We've seen growth underperform significantly, particularly on the public side. But likewise, you'll see a reversal of that when things begin to normalize and the market begins to change its sentiment towards growth companies again, and that will happen, this reversion that we're talking about.

Well, interesting, we've had a question -- another question. The TVPI is 1.5x on 70% of the portfolio. Why isn't the NAV at least GBP 135 million?

So the TVPI is based on the amount that was invested. So the amount that's been invested in private equity is GBP 38 million. So it's effectively half of the original size of the trust. And it took some time for that to be invested. And this is where the balance of public and private has been very powerful. And the way that we've managed to work together as 2 teams, we feel that we've got lots of synergies as we've been able to see what's happening in each part of the market. But that's really the reason why it's not -- the NAV is not -- it's not 1.5x the total current NAV. It's 1.5x the total initial cost.

Understood. I hope that clarifies that particular situation. Here's a very simple question. Is there much growth in retail suggesting the high street? Or is it a dead duck as our questioner suggests?

Well, we did feel that after -- I thought we were going to get some sort of consumer relief after the election, it is true. Hence, we partake in the Warpaint acquisition in the portfolio. I would say that the jury is out as to where the economy goes from here. And we have a significant fiscal expansion going on with the budget. We've had somewhat of a contraction, you could say, on the corporate side. So I think it's less euphoric optimistic than we hoped on the consumer side. I would also say that retail is incredibly tough. In fact, one of the exits that we've made in the portfolio was because they transitioned their strategy from much more of an online strategy to a physical store strategy. And that has been difficult for us to stomach and therefore, because of the -- obviously, the costs involved in that and the CapEx requirement. So I would say that there are -- there's still plenty of opportunities we would much rather -- less infrastructure, more on the software side, more on the Internet-enabled retail space.

Because I know we were talking earlier about the cash levels on the fund around about 11%. That -- so they were around 11%, and you brought them down to a 6% level. I was interested looking at the industrial allocation on the portfolio on Page 11. And it's -- I wonder where some of those assets might be deployed or those cash assets might be deployed in the future. Have you got some ideas or some sectors which are catching your eye, gentlemen?

On the private side, if we look at kind of the bigger picture of sectors, we invest on a full global basis and also in Europe and the U.K., we invest more than 30% to 40% in technology, which includes software and related segments. We invest about the same in health care. And then we split the other 30%, 40% between all the other industries of business services, consumer and industrials. So if you look at the trust overall, the one segment that we are quite underweight on is health care. We've been looking for health care assets. Generally, they've been trading at very, very high prices. And so we haven't quite felt comfortable to do many health care transactions within this trust on the private side. We, of course, do have Cera Care, but it's been difficult to find other companies as high quality as that company. And so maybe the next investment might be in -- is likely to be in the technology space because that's where we've had so much success. It might also be in health care because we are a bit underweight there. But at the same time, we try not to look at targeting one specific industry. As a platform, we regularly make investments across the U.K. every year for many, many, many years now. And so we felt that the most successful way to implement successful private equity is by consistently investing over the long run in the highest quality assets bought at the most sensible prices at that point of time. And if at a point in time, there are only health care assets that are too expensive, then our investment volumes will drop a bit. But if they are health care assets at sensible prices, then we're likely to see more of those assets in the portfolio.

And Rory, on the public side.

Just to add to that, yes, I mean, it's very, very stock specific. We've got a very diversified portfolio, and that was very deliberate since the launch of the portfolio. So I would rather not chase themes and sectors that happen to be hot or whatever. I think it's very much down to the quality of the businesses, the cash flow generation. Strongly cash-generative businesses typically outperform, I have to say. And when we're being able to buy a number of businesses with significantly high single-digit free cash flow yields. And -- but it really does depend on which sector and it's a very stock-specific long-term bottom-up process that gets us to those individual companies that we select.

Okay. All understood. Okay. Actually, just we've got time for just a couple of more questions. And we just had one in on the private side, specifically on Rapyd, Tim, valuations nearly halved. And the questioner is asking whether -- how comparables -- have the comparables halved in such over the same time period? And what's the -- what sort of rating is Rapyd on now?

Yes. So probably the most relevant comp is a company called Stripe, which is a U.S.-based venture-backed company. It is actually also, believe it or not, an investor in Rapyd, where Stripe focuses on providing solutions to larger, more U.S. domiciled businesses, whereas Rapyd provides a very similar service, but more to emerging markets, particularly in South America and also in Asia and particularly to smaller companies. So they're very, very complementary. If you look at the Stripe valuation, this is also another private business, so I've got to be careful to only say things that are in the public domain. The valuation of Stripe has come has come on over the course of the last 2 years, even though its revenue has significantly increased. And so we've seen something similar in Rapyd. In both cases, they're very high-quality businesses, and we're expecting to see great success in both businesses in the coming years ahead. But at the same time, it's very clear that the valuations from 2 or 3 years ago are not the valuations that you'll see in these kind of businesses today.

Wonderful. Thank you, Tim. Now ladies and gentlemen, we're rattling towards the 45-minute mark. I said we'd wrap up by Quarter 2. Thank you for all of your questions, though. And if we haven't answered them, I'm sorry, but we will -- we only have so much time. But just in the last couple of minutes available, gentlemen, could each of you perhaps give a couple of lines on your sort of -- to summarize the outlook for the U.K. market, both from a public perspective and a private perspective and to give our investors some direction as to the outlook for the funds.

I'll go first, Tim. Just so that you can have the last word. I really think that at the moment, we are at a bit of an inflection point. As I said earlier, we've seen U.K. small cap outperforming large cap over recent months. I think that's set to continue. Valuations at 13x earnings or forward-looking earnings look very attractive relative to history, relative to U.S. small cap, relative to large cap. So this is a really exciting opportunity. And the thing we've got right now is a belief that things are improving for U.K. small and mid-cap. We haven't had that momentum. We haven't had that confidence, and I think it is now happening. I think it would be even better if we got a Labour government that was to do something really pro-business in the coming months, but that's an unknowable. But it's certainly an interesting time.

And of course, all of this helps with the potential discount and trying to improve the fortunes of the transfer. So Tim, the last word for you.

That's very kind of you, Rory. I think I'll narrow the answer down just to within the world of private equity. So I've been doing this for more than 20 years. Schroder's Capital has been doing it for a lot longer than that. And what we've seen is the U.K. small and mid-buyout market has consistently performed really well. It did in the '90s. It did in the 2000s, 2010, 2020 so far. It's a segment that performs well because there's a large number of high-quality, highly profitable, fast-growing businesses that are bought at generally sensible valuations with relatively low leverage. And so over cycles and through cycles, so through the kind of challenging period of the kind of '99, 2000 period, during the global financial crisis of '07, '08, '09, during the COVID and post-COVID years, private equity has managed to perform through those bad times as well as all the good times in between. And so if I look at the portfolio, but if I also look at the private equity market overall in the U.K., I have good optimism about the success for the industry in the future.

Well, thank you both, encouraging words. And thank you, ladies and gentlemen, for joining our webinar this afternoon. That concludes the interim results for Schroder British Opportunities. Just a couple of things. Remember, you can download the presentation and the annual report on the website. But most importantly, and please, please do this. We have the survey that if you could take a couple of minutes just to complete, that will be fantastic because it allows us to tailor these types of events more closely to what you, the investor, would like in the future. So please do that. And with that, I will bid you all good afternoon, and thank you once again. Goodbye.