RCS - Schroder Inc Growth - Results analysis from Kepler Trust Intelligence

Schroder Income Growth FundAnnouncement

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RNS Number : 5967E  Schroder Income Growth Fund PLC  18 May 2026

Schroder Income Growth (SCF)

18/05/2026

Results analysis from Kepler Trust Intelligence

·      Schroder Income Growth (SCF) delivered a NAV total return of
17.4% for the six months to 28/02/2026, against the FTSE All-Share Index
return of 18.9%. Positive performance came from stocks including Rio Tinto,
SSE and Balfour Beatty. Relative underperformance stemmed largely from an
unusually concentrated market, with a small number of index constituents
delivering exceptionally strong returns. Long-term returns remain strong with
an annualised NAV total return of 8.5% versus 7.8% for the index, since Sue
Noffke took responsibility for the portfolio in July 2011.

·      SCF's higher share price total return of 18.9% reflected the
discount narrowing from 8.2% to 7.2% over the reported period. Given the
discount, the board repurchased 803,214 ordinary shares during the half-year,
equivalent to 1.2% of the issued share capital. Shareholders voted 95.8% in
favour of the trust's five-year continuation vote. Further, the board noted
the recommended cash acquisition of Schroders by Nuveen, expected to complete
Q4 2026, with continuity of management intended.

Kepler View

We think these are good results from SCF, and the income picture is the
perfect place to start, as portfolio investment income rose 17.5% over the
period. This reflected a special dividend from Lancashire Holdings, alongside
a solid 7% rise in underlying ordinary dividend income, supported by
double-digit dividend increases from several holdings, including Prudential,
XPS Pensions, Hollywood Bowl and Balfour Beatty.

Buybacks are also worth noting. At period end, 30 of SCF's 46 holdings were
actively repurchasing their own shares, representing two thirds of the
portfolio. For income investors this can look like a headwind, and at the
market level it has modestly dampened headline dividend growth. But Sue Noffke
argues that the real effect has been on dividend cover, which has strengthened
considerably, making the portfolio's income more sustainable over time. She
also notes that the UK market may now have reached a peak in buyback activity,
with the partial re-rating of certain larger companies undermining the case
for further repurchases, and capital increasingly being redirected toward
organic investment and acquisitions. Among smaller and mid-sized companies,
however, which have not experienced the same degree of re-rating and remain
relatively lowly valued, buyback activity looks set to continue, something Sue
believes could be a source of ongoing return potential for the portfolio.

SCF has also showed a level of income consistency over the long term.
Dividends have compounded at 4.1% annually since 1996, against inflation of
2.5%, delivering genuine real income growth for investors. The board has made
clear its intention to pursue a 31st consecutive year of dividend growth,
supported by revenue reserves of 7.1p per share, covering 48% of last year's
dividend, and a larger pool of distributable capital reserves. Together, we
think the foundations to achieve another year of growth are in good shape.

Looking ahead, the conflict in the Middle East has complicated the inflation
and rate outlook since the period end, with cuts that had looked likely this
year now off the table. Top-tier cash ISAs offering above 4% will inevitably
draw some investors, as they did in 2022 and 2023, but they lack the capital
growth potential on offer with SCF, alongside the above-inflation dividend
growth record it has cultivated since 1996. SCF's smaller company exposure
remains a risk if sentiment stays cautious, but it equally represents the
trust's most interesting opportunity, those valuations sit at historically
wide discounts to larger peers, and any narrowing could be a meaningful driver
of returns. At a 6.5% discount, with a 4.3% yield and 30 years of dividend
growth ahead of inflation, we think the case for SCF is stronger than the
current price suggests.

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