Liontrust UK Micro Cap Fund

January 2018 review

The Liontrust UK Micro Cap Fund returned 3.4%* in January. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned -0.8%, the FTSE AIM All-Share Index returned 1.9% and the average return of funds in the IA UK Smaller Companies sector was 0.5%.

 

The small and micro-cap end of the UK market found itself somewhat insulated from the late-month equity market weakness which appeared to be triggered by concerns over inflationary pressures and the pace of interest rate rises – factors which had been contributing to a bond market sell-off since the start of the year.

 

The Fund participated strongly in the solid showing from micro-caps as positive updates outweighed the disappointments in a busy month for newsflow.

 

K3 Capital Group (+47.4%) was the foremost riser after the private company mergers and acquisitions specialist released interim results for the six months to 30 November 2017. It achieved 34% growth in revenues to £7.5m and a 28% increase in EBITDA (earnings before interest, tax, depreciation and amortisation). Transaction volumes were up 25% year-on-year and new client wins increased 26%. In a bullish outlook statement the company states that key performance indicators continue to track higher and that a number of significant transactions are in the pipeline for the remainder of the year. It expects full year earnings to be “comfortably in line” with consensus forecasts.

 

Avingtrans (+25.7%), the manufacturer of components for the energy and medical sectors, released an interim trading update for the six months to 30 November 2017. The company expects to meet full-year market forecasts, referring to revenue, gross margin and EBITDA all developing in-line with its expectations while new business wins benefit from improving market conditions. The initial integration of its Hayward Tyler group acquisition has been successfully completed, and Avingtrans continues to see substantial opportunities for market synergies and growth potential.

 

These instances of positive portfolio newsflow were tempered by one or two adverse developments. For example, shares in Medica Group (-23.0%) slid after the teleradiology specialist announced it expects results for 2017 to be “slightly behind” market expectations. While still posting an 18% year-on-year increase in revenues, the company announced that it experienced some capacity constraints in the period and demand for its NightHawk and Cross Sectional services was lower than expected in Q4. Investors in Attraqt Group (-13.4%) also reacted negatively to the news that its founder and CEO André Brown had stepped down with immediate effect. Its Chairman has assumed the role in an interim capacity while candidates for the role are assessed. The company also gave an update on trading, stating that full year revenue is expected to be between £13.5m and £13.6m and that trading has otherwise progressed in line with the guidance it gave in its October trading update.

 

Returning to more upbeat company releases, Ideagen’s (+22.3%) interims show that the company grew revenues by 43% year-on-year to £17.2m in the six months to 31 October. Underlying organic growth of 13% was supplemented by full period contributions from the previous year’s acquisitions Logen, Covalent, IPI and Pleasetech. The company, which supplies compliance-based information management software, has net cash of £5.9m, so has firepower to make further selective acquisitions which will accelerate its growth within a fragmented market. 

 

Shares in recruiter Empresaria Group (+23.3%) recovered some of the ground lost late last year, after market forecasts were downgraded in November thanks to the dual impact of regulatory change in Germany and generalised weakness in the Middle East. The company stated in January that profits for the year to 31 December 2017 will be in line with revised expectations, showing a 17% increase in net fee income and profit before tax growth of around 20%.

 

Financial planning and discretionary portfolio manager Harwood Wealth Management (-16.9%) lost ground despite issuing a good set of full year 2017 numbers which marginally beat expectations.  In a year during which it acquired Network Direct, a network of regulated financial advisers, the company saw revenues rise 123% to £25.9m while it recorded an 81% increase in ‘assets under influence’. Similarly, Cello Group (-11.2%) was in negative territory for the month after releasing a trading statement predicting 2017 results will be in line with expectations. Cello Health was the stronger performer of the group’s two marketing consulting divisions, posting like for like gross profit growth of over 9% during the year. The division won significant levels of new business, in particular in the high growth US market. However, the broader-based Cello Signal division noted a degree of caution on the part of some UK clients in committing to project work during the year, echoing customer budget pressures cited by larger agencies in the sector.

 

There was one change to the portfolio in January. The holding in 1Spatial was sold due to its management shareholding slipping below the 3% level required of small and micro-caps.

 

Positive contributors included:

K3 Capital Group (+47.4%), Avingtrans (+25.7%), Ideagen (+22.3%), Tatton Asset Management (+24.1%) and Empresaria Group (+23.3%).

 

Negative contributors included:

Medica Group (-23.0%), AB Dynamics (-19.0%), Harwood Wealth Management (-16.9%), Attraqt Group (-13.4%) and Cello Group (-11.2%).

 

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

 

 

Dec-17

Liontrust UK Micro Cap I Acc

22.1

FTSE Small Cap ex ITs

15.6

IA UK Smaller Companies

27.2

Quartile

4


Discrete data is not available for five full 12 month periods due to the launch date of the portfolio.

 

*Source: Financial Express, as at 31.01.2018, 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.

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.

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

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.

Friday, February 16, 2018, 4:19 PM