London, UK, 12 May 2023
Edison issues update on Henderson Smaller Companies Investment Trust (HSL)
Henderson Smaller Companies Investment Trust (HSL) has been managed by Neil Hermon for the last 20 years. He explains that small-cap stock price weakness in 2022 was due to valuation compression and was not a reflection of lower earnings; in essence macroeconomic events outweighed business trends at the micro level. However, the manager believes the interest rate cycle is close to peaking given that inflation is rolling over and the UK economy is relatively weak. Hermon considers the valuations of small-cap UK growth stocks to be 'very appealing' and believes that there could be a significant pickup in merger and acquisition (M&A) activity in a more robust economic environment when credit is more freely available.
HSL's 13.5% share price discount to cum-income NAV is wider than the 9.0% to 12.7% average range of discounts over the last one, three, five and 10 years. However, once the trust's performance is back on track and investor risk aversion declines, there is scope for HSL to be afforded a higher valuation, more befitting of its strong long-term pedigree.
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