A Tale of Two Halves: BGUK’s Mixed Bag
Baillie Gifford UK Growth Trust (BGUK) just dropped its annual results to April 2025, and it’s a story of resilience peppered with frustration. Chairman Neil Rogan aptly summed up the year as feeling like “one step forward and one step back.” Let’s unpack the numbers and see where the steps landed.
The Headline Act: NAV and Share Price
- NAV Total Return: +7.1% for the year. Solid, but slightly trailing the FTSE All-Share Index’s +7.5%.
- Share Price Total Return: A much healthier +13.6%. Why the gap? A significantly narrowing discount – down from 15.3% to 10.5% by year-end.
This divergence tells a key story: while the underlying portfolio performance was slightly behind the index, active management by the Board to tackle the persistent discount issue delivered tangible benefits for shareholders *today*.
Performance Drivers: Winners and Drags
The portfolio’s journey was a rollercoaster. A strong first half was undone by a tougher second half, heavily influenced by global jitters (yes, President Trump’s tariff moves get a mention) and a collapse in UK growth confidence hitting growth stocks particularly hard.
Top Contributors:
- Games Workshop: The Warhammer powerhouse continues to deliver.
- St James’s Place: The wealth manager provided some welcome ballast.
- Other notable positives: Autotrader, Volution Group, Experian, Wise, AJ Bell, Moonpig, Rightmove.
Biggest Detractors:
- 4imprint: Hit by US economic fears.
- Renishaw: The world-leading engineer felt the pinch.
- Other strugglers: Howden Joinery (the sole top-ten laggard), Inchcape, Ashtead, Bodycote, PageGroup – largely economically sensitive names. Diageo, Bunzl, and Kainos faced company-specific issues.
The Managers, Iain McCombie and Milena Mileva, emphasise their long-term lens. They’ve largely held firm on these positions, believing in the underlying businesses’ strength to weather the storm and emerge stronger, citing Howdens’ continued investment during tough times as a prime example of this conviction.
The Discount Crusade: Buybacks in Overdrive
This is arguably the *most significant* narrative for shareholders right now. The Board is waging war on the discount with impressive vigour:
- Massive Buybacks: 17,403,697 shares bought back into treasury during the year – a whopping 11.9% of the issued share capital at the start of the period.
- Post-Year-End Activity: A further 1,623,033 shares snapped up by 10th June 2025.
- Aggressive Target: Following a January 2025 announcement, the Board is explicitly targeting a single-digit discount in normal market conditions. The average discount since that announcement? 9.6% (to 30th April) and 9.9% since year-end. They’re walking the talk.
- Seeking Fresh Authority: Such is the pace, they’re convening a General Meeting on 3rd July 2025 to refresh buyback authority *before* their AGM in September, ensuring they don’t run out of firepower.
This aggressive stance directly explains the outperformance of the share price relative to the NAV. It’s a clear signal the Board is focused on shareholder value realisation, not just portfolio performance.
Income, Gearing, and the Bottom Line
- Dividend: A final dividend of 5.70p per share is recommended (2024: 5.60p), payable 12th September 2025. Remember, BGUK’s primary focus is capital growth, not income – this is maintained from revenue reserves.
- Revenue Return: 5.32p per share (down from 5.68p), mainly due to reduced dividends from 4imprint and St James’s Place and sales of Rio Tinto and Hargreaves Lansdown.
- Gearing: Ended the year at 9% (drawn and invested), up from 6% and 5% respectively a year earlier. The Board caps drawn gearing at 20% of shareholders’ funds at drawdown. This reflects Manager optimism but used prudently.
- Ongoing Charges Ratio (OCR): Remains highly competitive at 0.71% (2024: 0.70%).
- Active Share: A very high 89.5%, confirming this is a truly active, benchmark-agnostic portfolio.
Looking Ahead: The “Each-Way Bet”
Chairman Rogan doesn’t sugarcoat it: “The Directors are all acutely aware that the Company remains in a recovery situation.” However, the case for optimism is firmly laid out:
- UK Market Valuation: Seen as “unusually cheap” historically and versus global peers.
- Growth Stock Potential: If these cheap growth stocks rebound or UK economic growth accelerates, BGUK’s style should benefit significantly (“the Baillie Gifford tailwind”).
- Discount Normalisation: A broader narrowing of investment trust discounts would provide a further boost.
- Shareholder Safeguards: The Board highlights the “each-way bet” structure implemented:
- A conditional tender offer in 2029 (100% of shares at NAV -2% if 5-year performance lags the FTSE All-Share).
- An additional continuation vote in 2027 for those unwilling to wait until 2029.
Post-Year-End Glimmer (to 10th June 2025): NAV +8.7%, Share Price +9.7% (vs FTSE All-Share +5.3%), discount at 9.9%. A more encouraging start to the new year.
The Verdict: Potential, Patience, and Proactive Boards
Baillie Gifford UK Growth Trust’s year was a mixed performance bag, slightly overshadowed by a genuinely impressive and aggressive discount management strategy. The Board’s commitment to single digits, backed by substantial buybacks, is delivering tangible share price benefits now.
The core portfolio holds businesses the Managers believe have long-term growth potential, even if some are currently out of favour. Combined with the structural shareholder protections (the tender and 2027 vote), the compelling valuation argument for the UK market, and BGUK’s low fees, the setup looks interesting.
It remains a recovery story, demanding patience. But the Board and Managers are clearly aligned in their focus: enhancing shareholder returns and proving BGUK’s potential. As Rogan concludes, “We look forward with confidence.” For investors sharing that long-term view of the UK growth opportunity and appreciating proactive discount control, BGUK warrants close attention. The next steps, particularly around that 2027 vote, will be crucial.
