British Smaller Companies VCT2 Reports Interim NAV Dip Amid Strong Total Return and Dividend Boost

British Smaller Companies VCT2: solid first half, softer NAV, dividend turned up

British Smaller Companies VCT2 (BSC2) has reported its unaudited results for the six months to 30 June 2025. The headline is a modest dip in net asset value (NAV) as dividends went out the door, while Total Return ticked up and the dividend run-rate has been lifted. Investment activity stayed busy, exits were profitable overall, and cash levels are healthy.

Key numbers investors should know

NAV per share (30 June 2025)	55.05p
NAV per share (31 December 2024)	57.10p
Total Return per share (NAV plus cumulative dividends)	146.80p
Change in Total Return	+0.50p in the half; +0.45p in the quarter
Dividends in 2025	4.00p per share (includes 1.50p declared for October)
Cash and money market funds	£67.9 million
Weighted average return on liquid assets	4.0% at period-end (3.8% at publication)
New and follow-on investments (H1)	£7.7 million
Invested post period-end	£3.8 million
Realisations proceeds (H1)	£4.3 million
Fundraising net proceeds	£28.3 million (fully subscribed offer)

NAV down, Total Return up: here’s why that’s ok

NAV per share fell to 55.05p from 57.10p. The main reason is cash out to shareholders – 2.50p in dividends was paid during the period. When a VCT pays dividends, NAV usually drops by roughly the same amount. Despite that drag, Total Return – NAV plus all dividends ever paid – moved up to 146.80p per share.

For reference, the Company recorded a 0.50p Total Return gain over the half and a 0.45p uplift in the quarter. In plain English, the portfolio gains and income more than covered the paid dividend, which is the direction shareholders want to see.

Portfolio momentum: more growers than stumblers

The growth profile is encouraging. Of the 27 companies valued on a revenue basis, 22 increased sales year-on-year and 12 grew by more than 25%. Those faster growers delivered aggregate revaluation gains of £7.1 million in H1.

Upward revaluers included Summize, AutomatePro, Vypr, Unbiased, DrDoctor, Xapien and SharpCloud. Offsetting that were downward moves in three names: Matillion (hit by a weak US dollar), Wooshii (disposed of post period-end with no initial proceeds) and Outpost (industry disruption from the Hollywood writers’ strike).

Net-net, the portfolio valuation increased by £2.7 million in the period. The top 10 investments are £69.9 million, which is 62.6% of the total portfolio and 38.4% of NAV. The largest single position represents 10.0% of NAV – meaningful, but not domineering.

Busy half for deal flow: where new money went

Deployment stayed active. BSC2 invested £7.7 million across eight companies in H1 – two new and six follow-ons. The new additions were:

• S4labour (£1.6 million) – workforce management for hospitality.
• Stormharvester (£1.4 million) – AI-led wastewater analytics to detect blockages, prevent flooding and reduce pollution.

Follow-on capital supported several existing winners, including Vypr (£1.6 million), Workbuzz (£1.4 million) and DrDoctor (£1.2 million), plus smaller top-ups to Force24, Relative Insight and Immunobiology.

After the period-end, BSC2 added £3.8 million more: new investment in cyber risk platform DynaRisk (£1.2 million) and follow-ons into Panintelligence, Fuuse and AutomatePro. Year to date, that takes total deployment to £11.5 million.

Exits: one standout, one washout

Realisations totalled £4.3 million in the half, a gain of £0.1 million over opening carrying value and £4.2 million over cost. The highlight was ACC Aviation, sold for £3.1 million upfront plus up to £1.5 million deferred (with £1.2 million recognised at period-end). To date, ACC has generated £6.7 million, a 4.8x return on the original £1.4 million cost, potentially rising to £8.2 million and 5.9x if all deferred comes in.

On the other side, Wooshii’s trade and liabilities were sold post period-end with no proceeds initially. There could be a small return depending on future trading, but for now it’s effectively written off. That is disappointing, but it reflects tougher market conditions for certain marketing spend categories.

Dividend dial turned up to 4.00p for 2025

Shareholders have already had a 1.00p special dividend (27 January) and a 1.50p interim (23 June). The Board has now declared a second interim dividend of 1.50p, payable on 31 October 2025 to holders on the register on 26 September (ex-dividend 25 September). Add them up and 2025 dividends will total 4.00p per share, equivalent to 7.0% of the opening NAV per share.

For VCT investors, remember dividends are tax-free subject to the usual rules – one of the key reasons people hold VCTs.

Plenty of firepower and a steady yield on cash

Liquidity remains strong with £67.9 million held in cash and money market funds at 30 June. Those liquid assets earned £1.3 million of income in the period and yielded a weighted average of 4.0% at period-end, easing to 3.8% as rates drift down.

The fully subscribed 2024/25 offer raised net proceeds of £28.3 million (gross £29.2 million), and the Company plans a new joint offer later this year alongside British Smaller Companies VCT plc, targeting up to £60 million in aggregate with an additional over-allotment facility of up to £25 million in aggregate before costs. A prospectus is expected on or around 25 September.

Valuations, fees and risk: what to watch

Valuations follow IPEV guidelines. Sensitivity analysis suggests a 5% swing in key discount assumptions would move unquoted valuations by roughly ±£4.2–£4.3 million (about ±3.7–3.8%). That gives a feel for the inherent judgement in private company pricing.

There’s an accrual for a £298,000 performance incentive fee, based on the estimate that the share price total return could exceed the 143.800p hurdle for 2025. It is only payable if the year-end share price total return meets the test, so it may change.

The principal risks are unchanged: macroeconomic, portfolio, ESG, strategic, legislative and regulatory, operational, liquidity, plus cyber and IT as an emerging risk. Importantly, management notes no direct portfolio exposure to tariffs, and many holdings sell into large markets with room to grow despite the choppy backdrop.

My take: steady progress, sensible capital allocation

There’s a lot to like here. The core of the portfolio is growing – 22 of 27 revenue-valued companies up year-on-year, and the faster 12 driving £7.1 million of H1 gains. Deployment is focused on profitable themes like AI-enabled SaaS, data and automation, and the fund is not shy about doubling down on outperformers via follow-ons. Cash is ample, and the dividend has been nudged up to 4.00p for the year.

On the flip side, FX pressure on Matillion, the Wooshii outcome and sector-specific issues at Outpost are reminders that early-stage portfolios carry bumps. The NAV drop is largely mechanical due to dividends, but it still means the share price needs the portfolio to keep compounding to maintain momentum.

Overall, this reads as a resilient half: NAV modestly lower after distributions, Total Return higher, exits profitable on balance, and more capital to support the winners. If the current revenue growth across the book continues, BSC2 is well set for the second half and into 2026.