Liontrust UK Micro Cap Fund

April 2018 review

The Liontrust UK Micro Cap Fund returned 3.1%* in April. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned 7.0%, the FTSE AIM All-Share Index returned 3.9% and the average return of funds in the IA UK Smaller Companies sector was 4.8%.

Following on from an exceptionally strong debut in March after its initial public offering (IPO), GRC International (+30.5%) again made strong gains, this time fuelled by a trading update. The company provides training and consultancy services which help customers meet IT governance, risk management and compliance requirements. Although the company gave detailed financial guidance as part of its admission to the market, it seems it kept some good news up its sleeve. It commented that trading in the year to 31 March 2018 was ahead of the Board’s expectation with total billings rising 122% over the twelve months to £16.2m. The statement also noted that website visits were 538,000 in March 2018 – up from 329,000 in January 2018 – an increase which GRC expects to feed through to billings and underpinning a strong start to the new financial year. 

Another recent addition was also among the Fund’s top contributors. Sumo Group (+28.8%), a provider of a range of services to the video game industry, was added to the Fund in December of last year during its IPO. Shares in the company rallied strongly on the release of its first set of final results as a listed company. The rise was catalysed by outlook comments referring to a strong start to 2018, leaving it on course to be slightly ahead of consensus market expectations for the full year. Due to its change of ownership structure in late 2017 – moving from private equity to public ownership – and the associated reduction in debt and financing costs, the audited results are not an accurate guide to the balance sheet and profit & loss picture we might expect to see in 2018. The accounting impact of such a change in ownership/financing structure is one of the many investment considerations when deciding whether to participate in an IPO. On an underlying, adjusted basis, Sumo Group’s revenues rose 40% year-on-year to £28.6m while adjusted PBT increased by a similar rate to £7.5m.

Unfortunately, results from Proactis Holdings (-44.1%) were less well received. In the six months to 31 January 2018, revenues more than doubled to £26.4m and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) rose 180%. The sales increase was almost entirely the effect of acquisitions; underlying revenue growth was 3%. Proactis commented that up-selling and cross-selling between existing customers and acquired businesses had been positive. However, it stated that revenues had not increased as it would hope due to the loss of some customers and the restrictive effect of sterling on sales into the US. The company commented that it does not expect further customer losses this year, and has a strong order book of £47.8m, with annualised contracted revenue to £45.5m. Nevertheless, the shares were de-rated on the news of customer departures. 

Animalcare (-27.9%) was another one of the portfolio’s largest detractors. A trading update warned that 2018 earnings will be below market expectations due to “a changing sales mix and competitive pressures” squeezing gross margins. Investors paid little heed to management’s indication that synergies and cross-selling from recent acquisitions should boost profit margins from 2019 onwards. Shares in the company peaked in March 2017 but have drifted since the £134m reverse takeover of Belgian Animal Pharmaceutical business Ecuphar last summer. 

On last day of April Sanderson Group (+22.9%) released a trading update which indicated results for the six months to 31 March 2018 would be slightly ahead of management’s expectations. The provider of enterprise software to the retail, manufacturing & distribution sectors commented that revenues and operating profit both grew by over 30% - to £14.5m and £2m respectively. The majority of this expansion comes courtesy of its November 2017 acquisition of Anisa Group. The company commented that order intake had been good, taking its order book to over £8m. 

Solid State (-35.4%) issued a trading statement outlining that profit before tax for the year to 31 March 2018 will be in line with market consensus of around £3m while revenue will be over £45.5m, up 15% year-on-year and slightly ahead of expectations. However, shares in the manufacturer and distributor of computing products and electronic components moved lower in response to attempts to manage expectations lower for the new financial year. Within its Communications division the lead time to win new business is increasing while export sales have been weaker than expected. Solid State is therefore reducing its expectations for Communication division sales, which will have a negative impact on margin mix. 

Having last month flagged a legal dispute with one of its suppliers, Sprue Aegis (-20.8%) in April commented that discussions with BRK were ongoing. At the centre of the disagreement was unsold BRK stock with a book value of £4.3m. While this legal issue dragged on, Sprue Aegis continued to postpone the release of 2017 final results.

An AGM statement from Science Group (+18.8%) lifted the shares due to the indication that revenue and profits have both been ahead of management’s expectations in the first quarter of 2018. 

A new holding in Sopheon was added to the Fund in April. Sopheon provides enterprise innovation management software to a variety of industries. The fund managers believe it possesses Economic Advantage intangible assets in the form of its intellectual property and distribution network. 

Positive contributors included: 
GRC International Group (+30.5%), Sumo Group (+28.8%), Instem (+27.6%), Sanderson Group (+22.9%) and Science Group (+18.8%).

Negative contributors included: 
Proactis Holdings (-44.1%), Solid State (-35.4%), Animalcare Group (-27.9%), Sprue Aegis (-20.8%) and K3 Capital Group (-10.0%).

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




Liontrust UK Micro Cap I Acc



FTSE Small Cap ex ITs



IA UK Smaller Companies






*Source: Financial Express, as at 30.04.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class. Discrete data is not available for five full 12 month periods due to the launch date of the portfolio. Investment decisions should not be based on short-term performance.
For a comprehensive list of common financial words and terms, see our glossary here.

Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital.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.

The portfolio is primarily 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.


This content 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, faxed, reproduced, divulged or distributed, in whole or in part, without the express written consent of Liontrust. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Thursday, May 17, 2018, 3:47 PM