Liontrust UK Micro Cap Fund

August 2018 review

The Liontrust UK Micro Cap Fund returned 2.9%* in August. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned -0.9%, the FTSE AIM All-Share Index returned 1.1% and the average return of funds in the IA UK Smaller Companies sector was 0.3%.

 

Shares in Bioquell (+36.9%) rallied throughout August as investors digested interim results released on 24 July. An operational restructuring is feeding through to an improvement in profitability which led management to predict full year profits will exceed consensus market expectations. In the first six months of the year the provider of bio decontamination solutions grew revenues 13% in constant currency terms to £15.7m while profit before tax jumped to £2.0m from £1.4m last year. The resulting upgrade to broker forecasts was the fourth double-digit increase in the last year, which goes a long way towards explaining Bioquell’s share price momentum. In May, the company had announced the sale of its MDH Defence business for an initial consideration of £0.4m, with a further £0.6m in potential contingent payments. This disposal follows on from the 2017 sale of its Airflow division. Bioquell is now focused purely on bio decontamination for the pharmaceutical, life sciences & healthcare industries.

 

Pennant International (+36.5%) received a boost from its provisional selection, subject to contract, on a three year deal worth in the region of £25m - £30m. The company provides equipment to the defence industry and its main products are highly realistic simulators of pieces of capital equipment (such as tanks) which military colleges and departments of defence use in training programs. The nature of selling to the defence sector is that contract details often cannot be disclosed; Pennant is unable to name the customer on this order – which is the largest in its history – but expects a deal to be formally confirmed later in 2018.

 

On the last day of August, Murgitroyd (+16.0%) issued a trading update for the full year to 31 May which confirmed it is on track to announce the £4.1m expected by the market. With a year-end cash of over £3m, the company also hiked its final dividend to 14.5p, taking the FY2018 total to 21p, up from 17p last year.

 

FireAngel (-23.1%) was sold out of the portfolio after issuing the latest in a long line of disappointing updates. Already this year its shares had been knocked by a dispute with BRK Brands, one of its suppliers of smoke detectors, over an alleged breach of contract, overstocking in the German market and disruption at a new manufacturing site in Poland. August’s announcement – an interim trading statement – warned that the full year loss was likely to be £0.5m, worse than already-depressed expectations. In the face of mounting evidence that the company is failing to generate acceptable financial returns from its Economic Advantage intangible assets, the fund managers chose to cut losses and sell the position.

 

Statpro (-22.0%) also fell reasonably heavily. On first glance, the release seemed to contain little cause for share price weakness. Revenue rose 22% to £27.2m in the first half of 2018 while adjusted EBITDA increased 23% to £4.3m. This growth primarily reflected the impact of the Delta acquisition, which has integrated well so far. Furthermore, the company stated that it is on course to meet analysts’ full year expectations. The sell-off appeared to have been sparked by concerns over a 2% drop in annualised recurring revenues.

 

Positive contributors included:

Bioquell (+36.9%), Pennant International (+36.5%), Murgitroyd (+16.0%), Tatton Asset Management (+15.8%) and Solid State (+15.3%).


Negative contributors included:

FireAngel Safety Technology (-23.1%), Statpro (-22.0%), Lighthouse Group (-10.1%), Instem (-9.5%) and Mind Gym (-6.9%).


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

 

 

Jun-18

Jun-17

Liontrust UK Micro Cap I Acc

21.4

33.7

FTSE Small Cap ex ITs

6.4

28.4

IA UK Smaller Companies

17.2

36.3

Quartile

1

3

 

*Source: Financial Express, as at 31.08.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

 

**Source: Financial Express, as at 30.06.2018, 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. Some of the Funds managed by the Economic Advantage team invest primarily 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. The performance of the  GF UK Growth Fund may differ from the performance of the  UK Growth Fund and will be lower than its corresponding Master Fund due to additional fees and expenses.

Disclaimer

The information and opinions provided 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.  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.


Monday, September 17, 2018, 2:57 PM