Bellevue Healthcare (BBH)

13/07/2022

Results analysis from Kepler Trust Intelligence

Bellevue Healthcare (BBH) has reported its interim results for the six months to 31 May 2022, a period in which the board resolved to change the name from 'BB Healthcare Trust plc' to 'Bellevue Healthcare Trust plc'. Over the period, the share price and NAV decreased 17.5% and 18.7% respectively. Including the final dividend for the financial year ended 2021, the company's shares delivered a total return of -16.1%. In comparison, the MSCI World Healthcare Index delivered a total return in sterling of +4.5%. Since inception, BBH has delivered a NAV total return of 79.3%, which is 15.5% behind the MSCI World Healthcare Index return of 94.8%. The managers have been gradually 'buying the dip' and increasing the gross exposure of the company by increasing the gearing. The leverage ratio stood at 11.5% as of May 2022.

Kepler View

BBH's managers are fundamental stock pickers, and pay little attention to benchmarks when constructing the portfolio. As a result, one might imagine that performance will deviate from indices. As of 31 May 2022, BBH's portfolio consisted of 15.1% mega-cap companies and 8.5% large-cap companies. In contrast, the MSCI World Healthcare Index consisted of 76.2% mega-cap and 21.7% large-cap. This small-cap exposure has left the portfolio very much out of favour, which has contributed to the short-term underperformance relative to the healthcare index. This is a departure from the longer-term picture, as we illustrate in our February research note. Prior to 2022, on a rolling three-year basis, BBH has been consistently ahead of the index and therefore in line with its investment objective.

We think it instructive that the managers report that they are seeing a divergence between share prices and operating performance. As one might expect from stock pickers, the managers are reacting. The interims highlight that the team have been "taking advantage of the current weakness to re-establish some exposure to the dental sector…[and] added to our holdings in the diagnostics, healthcare technology, tools and services holdings". This has been funded by sales of companies in "managed care and diversified therapeutics, which have held up well on a relative basis".

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