Liontrust Special Situations Fund

September 2021 review

The Liontrust Special Situations Fund returned -2.0%* in September. The FTSE All-Share Index comparator benchmark returned -1.0% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -1.8%.

 

While petrol panic-buying added an unwelcome element to the UK’s energy landscape in September, supply-side shortages are a global phenomenon at the moment, with the post-lockdown demand recovery placing significant stress on logistics networks. 

 

The resultant inflationary pressures in many sectors of the economy – labelled transitory by some of the world’s leading central bankers – were particularly notable within energy markets in September. The Brent crude oil price climbed 8% to finish the month at $78.5 a barrel.

 

Against this backdrop, the FTSE All-Share’s Energy sector was its strongest area, up 15%, and BP (+15%) and Royal Dutch Shell (+15%) were the Fund’s two largest individual contributors to performance.

 

Elsewhere among the Fund’s top performers, Alpha FX (+12%) rose strongly – boosted by an upbeat set of interim results. The currency management consultancy grew revenues by 90% year-on-year in the first half of 2021 as client activity recovered strongly post-lockdown; its client base rose from 754 to 838 over the six months. Management commented that this trading momentum has so far carried over to the second half of its year with market dynamics now normalising to the pre-Covid environment

 

Having rallied in August after a trading statement upgraded full-year guidance, Next Fifteen Communications (+7.6%) edged higher again on the release of interim results. Revenue growth of 32% fed through to a 69% increase in profit before tax due to operational gearing and some favourable mix effects. The company’s roots are in digital marketing but following a number of acquisitions recently it is now styling itself more broadly as a tech and data-driven consultancy.

 

TP ICAP’s (-20%) shares moved lower after it blamed subdued secondary markets and Covid-19 disruption for a 7% year-on-year fall in revenues in the first half of the year (constant currency, excluding its Liquidnet acquisition). Despite the quiet market conditions in the first six months, the interdealer broker noted that trading activity in July and August were broadly in line with last year’s level. It still expects full-year revenue to be broadly in line with 2020 but warned that currency headwinds and increased investment costs will push operating margins lower.

 

Having risen by over 40% since the start of the year, shares in Gamma Communications (-20%) suffered a sharp correction on the release of half-year results. The ‘Unified Communications as a Service’ provider generated 23% revenue growth and a 32% increase in profit before tax. While its outlook comments painted a relative benign picture of demand for its services, it was not accompanied by the usual earnings upgrade that the stockmarket has come to expect.

 

Shares in Mortgage Advice Bureau (MAB, -20%) also fell on the release of interims despite reporting top-line growth of 46% and a 56% increase in profit before tax. The company’s rapid growth was also apparent through the 7% improvement in average adviser numbers to 1,694 over the six months to 30 June (and rising further to 1,800 by 24 September) while gross mortgage completions jumped 49% to £11.9bn. However, the company commented that the last few months have seen a softening in activity. This was expected as the impact of the stamp duty holiday phases out, and MAB has left its full-year financial guidance unchanged. But with the shares having experienced a very significant rating expansion over the last year, they may now be lacking catalysts to drive further upside in the short-term.

 

Smart Metering Systems is on course to deliver 2021 profit before tax which is marginally ahead of its previous guidance. In the first half of the year, it saw a strong recovery in smart meter installation as Covid-19 lockdown measures ended; the installation pipeline has increased to 2.75 million units from 2.0 million at the start of the year. Although interim results were solid, Smart Metering Systems shares slipped due to investor concerns over the potential for the gas crisis to push smaller suppliers into financial difficulties. However, any loss of smaller suppliers is likely to be mitigated by end-customers being transferred to larger suppliers that may already contracted with Smart Metering Systems.

 

In September, Smart Metering Systems also announced a large share placing. The Fund participated in the placing which raised £175m at 900p, a 6.2% discount to the prevailing share price. The proceeds will be used to part-finance a £690m capital expenditure over the next five years as it delivers on its growth plans and installs its smart meter pipeline.

 

Positive contributors included:

Royal Dutch Shell (+15%), BP (+15%), Alpha FX (+12%), Next Fifteen Communications (+7.6%) and Reckitt Benckiser (+5.3%).

 

Negative contributors included:

Gamma Communications (-20%), TP ICAP (-20%), Mortgage Advice Bureau (-20%), TI Fluid Systems (-17%) and Smart Metering Systems (-13%).

 

Discrete years’ performance** (%), to previous quarter-end:

Sep-21

Sep-20

Sep-19

Sep-18

Sep-17

Liontrust Special Situations I Inc

27.6%

-3.7%

2.8%

13.8%

13.7%

FTSE All Share

27.9%

-16.6%

2.7%

5.9%

11.9%

IA UK All Companies

32.4%

-12.8%

0.0%

5.5%

13.6%

Quartile

3

1

2

1

2

 

*Source: Financial Express, as at 30.09.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.

 

**Source: Financial Express, as at 30.09.21, total return (net of fees and income reinvested), bid-to-bid, primary class.


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Key Risks

 

Past performance is not a guide to future performance. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term. A proportion of the portfolio is invested in smaller companies and companies traded on the Alternative Investment Market. These stocks may be less liquid and the price swings greater than those in, for example, larger companies.

 

Disclaimer

 

This blog should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy.  It contains information and analysis that is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content of this document, no representation or warranty, express or implied, is made by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified. It should not be copied, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
Friday, October 8, 2021, 1:22 PM