Bellevue Healthcare Trust outperforms its benchmark in a challenging half-year

Bellevue Healthcare Trust PLC (LSE:BBH) has issued its half-year report for the period ending 31 May 2023, during which the trust’s performance beat the MSCI World Healthcare Index in a challenging period for the healthcare sector.

Over the six-month period, however, the trust’s net asset value (NAV) total return still declined by 4.9% year-on-year to 159.62p which its investment managers, Paul Major and Brett Darke at Bellevue Asset Management (UK) Ltd, said “represented a positive relative performance and glimmers of a more constructive market dynamic were evident; one that leaves us more optimistic for the second half of the year”.

In the half-year statement, Randeep Grewal, Bellvue Healthcare chairman commented: “In this post-Covid world, we face numerous challenges - many of which are interlinked. Coming out of Covid we have seen a 'reset' of global supply chains and a backlog of healthcare demand. The shortage of workforce has been particularly acute in the healthcare sector so the 'demand - supply' balance appears to be particularly out of balance in this sector.”

He added: “The consequences of the invasion of Ukraine include rising energy prices, rising fertiliser costs and consequently rising food prices. This has perhaps exacerbated the inflation we would have seen coming out of Covid - and the healthcare sector has, in particular, faced increased wage costs. Inevitably rising interest rates, as central banks seek to tame demand and hence inflation, has impacted valuations.”

As of 31 May 2023, the company's net gearing was £8.0mln, equivalent to 0.9% of the gross exposure. The low figure reflects caution on the part of the investment manager relating to the US federal debt ceiling negotiations which were ongoing at the time; the net gearing is likely to rise in H2 2023.

In line with company policy, for the financial year ending 30 November 2023, Bellvue Healthcare said it will be paying two dividends (interim and final) of 2.995p each in August 2023 and April 2024, again funded from its distributable reserves.

After monitoring the cost-effectiveness of its scrip programme, the trust said its board has “reluctantly decided to suspend the scrip dividend option for the time being” given a low uptake.

During the six months to 31 May 2023, the company’s shares traded at an average of 6.6% discount to NAV, hence it commenced a share buyback programme purchasing 7,490,560 ordinary shares in the period. Bellvue Healthcare said it anticipates continuing the discount management programme with its current shareholder authority (from the last AGM) permitting the board to repurchase a maximum of 82,516,203 ordinary shares.

In conclusion, the company’s chairman said: “Covid-19 had a profound impact on healthcare. As backlogs are processed, and the focus of healthcare systems changes from crisis management to more strategic issues it is likely that we will see improved adoption of the products and technologies of the companies the portfolio is invested in. Indeed, one might argue that the pressures we have seen on healthcare systems makes this inevitable.

“Your board remains fully supportive of the approach to healthcare investing adopted by the manager and considers that the portfolio is well positioned to benefit in the long term.”

Annual Redemption facility

In the first five years since inception, Bellevue Heathcare noted that the uptake for redemptions was low and the company’s directors managed the facility by "matched bargains" where any shares redeemed were matched with buyers in the market by its broker.

In November 2022, however, it saw a markedly higher uptake of the redemption facility - 30,577,550 ordinary shares representing 5.21% of its share capital at that time - and in these circumstances the directors managed the redemption uptake using the cash resources and debt facilities available - all of which were redeemed and cancelled by the company.

Given current market conditions, and that it continues to trade at a discount to NAV, were there to be material redemption requests, Bellevue Healthcare said its directors may exercise the redemption pool method. Were this to be exercised, the costs of establishing the pool and liquidating proportions of the portfolio to fund the redemptions would be directly ascribed to the redemption pool and thus borne by shareholders wishing to redeem. This should have no practical impact on its long-standing investors, it added.