Liontrust UK Micro Cap Fund

July 2021 review

The Liontrust UK Micro Cap Fund returned 0.4%* in July. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned 1.2% and 0.3% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was 1.9%.


The UK equity market recovered from a mid-month dip to add to this year’s strong gains. The initial decline was caused by growing concerns that the spread of the Delta variant of coronavirus would weigh on economic growth. These concerns come against a backdrop of rising inflation as data for June showed UK consumer price inflation of 2.5%.


Within the Fund, shares in investment management company Charles Stanley Group (+50%) surged after it agreed to be acquired by US-based investment bank Raymond James Financial. The 515p per share offer represented a 44% premium to the company’s share price immediately prior to the offer announcement and valued the company at £279m.


There were also a number of trading updates from Fund holdings. Mobile payments and messaging company Fonix Mobile’s (-15%) shares have traded strongly since admission onto AIM in October 2020, but July’s full-year update saw some profit taking. The results themselves looked solid; for the 12 months to end June 2021, gross profit and adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) grew 13% and 14% respectively and underlying cashflows were robust enough for the company to indicate its intentions to pay a dividend. Following this strong growth, the board said it is confident about the company’s growth potential in the new financial year.


AdEPT Technology Group’s (-13%) full-year results showed that the group swung to a £505k pre-tax loss in the 12 months to 31 March 2021 from a £2m profit in the previous financial year, a result of the pandemic disruption. However, the multi-site managed IT and telecoms provider said consumer confidence returned in the final quarter and has continued into its new financial year as pandemic restrictions are lifted. The company believes that IT investment will continue to be key for its customers and will help improve its position in the market in the current financial year.


An interim update from Science Group (+9.3%) was more warmly received as the company said its results for the first half of 2021 were well ahead of its expectations. Revenue grew 10% to £41m and adjusted operating profit rose 47% with good trading in all of its three divisions: R&D Consultancy, Regulatory & Compliance, and Frontier Smart Technologies.


Despite Solid State’s (-13%) shares ending the month lower, its full year results displayed the company’s resilience to the pandemic. The company manufactures ruggedised electronic components for use by industrial and military customers in harsh environments. It saw record profitability following a 110 basis point improvement in adjusted operating margins to 8.3% during the 12 months to 31 March 2021. This helped adjusted pre-tax profit increase 15% as revenue slipped 1.6%. Management stated that the completion of two bolt-on acquisitions late in the year significantly enhance the group's capabilities and leave it confident for the current year’s prospects.


The Fund participated in the initial public offerings of CMO Group and Microlise Group. CMO is the UK’s leading online retailer of general building materials. The company enjoys a capital-light business model, providing the e-commerce platform sitting between manufacturers and customers, but avoiding getting involved with the inventory-heavy physical distribution of product between the two. It is aiming to play a key part in disrupting the building products industry, which has so far been slow to move online and is still dominated by bricks-and-mortar players. CMO has strong proprietary intellectual property in its modular software platform, as well as a key distribution network advantage in having built up hundreds of relationships with product suppliers over the years.


Microlise is a provider of telematics software to improve the efficiency of its customers’ logistics operations. The company already enjoys very high market share – its customers include almost 60% of the UK enterprise logistics market (companies with over 500 vehicles in their fleet) and 46% of the medium size logistics providers (those with fleets of 250-500 vehicles).


There is significant breadth and depth in its software intellectual property, with a range of modules developed over many years. These range from solutions to track the location and monitor the performance of customers’ vehicles, through to a complex planning and optimisation module which enables customers to optimise driver routes and asset utilisation. The software is also sold on a recurring, software-as-a-service (SaaS) model and so the business enjoys highly predictable revenues.


Future growth is likely to be driven by cross- and up-selling of additional software products into existing customers, as well as international expansion. Since a management buyout in 2008, Microlise has been led by current chief executive Nadeem Raza, who still holds over 50% of the equity and did not sell any stock at the IPO.


The Fund sold Accesso Technology Group after its senior management equity ownership level fell below the 3% threshold required of all smaller companies held under the Economic Advantage process. The position in Inspecs Group was exited after the company outgrew the market capitalisation limits for the Fund.


Positive contributors included:

CMO Group (+59%), Charles Stanley Group (+50%), Belvoir Group (+18%), Frenkel Topping Group (+16%) and Tatton Asset Management (+15%).


Negative contributors included:

Surgical Innovations Group (-16%), Fonix Mobile (-15%), AdEPT Technology Group (-13%), Crimson Tide (-13%) and Solid State (-13%).


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







Liontrust UK Micro Cap I Acc






FTSE Small Cap ex ITs






FTSE AIM All Share






IA UK Smaller Companies













*Source: Financial Express, as at 31.07.21, total return (net of fees and income reinvested), bid-to-bid, institutional class. Non fund-related return data sourced from Bloomberg.


**Source: Financial Express, as at 30.06.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.


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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.


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.

Friday, August 13, 2021, 10:02 AM