Liontrust UK Micro Cap Fund

May 2018 review

The Liontrust UK Micro Cap Fund returned 1.9%* in May. The Fund does not have a formal benchmark, but for reference, the FTSE Small Cap (excluding investment trusts) Index returned 1.3%, the FTSE AIM All-Share Index returned 3.0% and the average return of funds in the IA UK Smaller Companies sector was 2.6%.


For the third month in a row since the Fund took part in GRC International’s (+39.2%) initial public offering (IPO), the company has notched up an impressive share price gain. This time, there was no newsflow to catalyse the rise, with investors instead continuing to digest a late-April trading statement which raised guidance for the year to 31 March 2018. The shares have now more than trebled since IPO in March.


Another recent Fund addition was among the top contributors – Lighthouse Group (+25.0%). Aided by the announcement of a few contract renewals, the shares re-rated in May, narrowing the valuation gap which exists versus its peers. Lighthouse partners with ‘affinity groups’, such as trade unions, becoming the preferred provider of financial advice to their members


Shares in Medica Group (+27.4%) rallied on the back of a reassuring AGM statement, regaining some of the ground lost since a January trading statement which lowered guidance. The company commented that 2018 has started well, with strong recruitment of radiologists. It is on track to meet its 2018 targets. 


The Fund’s weakest stock in May was Sprue Aegis (-33.9%). The company had previously revealed in March that it was in dispute with BRK Brands, one of its suppliers of smoke detectors and other home safety products, over an alleged breach of contract. In May, the company announced it had reached agreement with BRK to settle the dispute, albeit at an exceptional cost of £3.8m – the majority of which reflects the write down of £3.4m of BRK inventory to £nil mandated by the settlement agreement. Sprue was subsequently able to release its preliminary results to December 2017, which had been delayed by the dispute. The outlook statement rattled investors again with the comment that sales in the first four months of 2018 have been 20% behind 2017 levels, thanks to prior year overstocking in the key German market and disruption from transitioning to a new manufacturing site in Poland. This, along with concerns over the cashflow impact of the BRK settlement and the strength of the company’s balance sheet, led to the sharp contraction in the share price.

Surgical Innovations (-20.5%), the designer of technology for minimally invasive surgery, also disclosed problems with a supplier. A product used in complex abdominal wall and breast reconstruction procedures, and supplied by Meccellis Biotech, has experienced delays in certification with new European regulatory body. Without visibility on the timing of certification, Surgical Innovations has conservatively assumed no sales from the product this year; previously it had been around 10% of the 2018 sales forecast. Profit before tax for 2018 is now expected to show only “modest growth”.


A couple of Fund holdings followed up April trading statements with the release of results. Sanderson Group (+13.3%) delivered results which – as flagged last month – were ahead of prior expectations. Revenue grew 34% to £14.6m and there was a 34% increase in operating profit to £2.1m in the year to 31 March. Looking forward to the rest of the year, the company highlighted a large order book (£8.6m, up 16% like-for-like and significantly boosted by acquisitions) and robust recurring revenue (up to 56% from 50% a year ago).


Having last month warned in a trading update that 2018 results would be below market expectations due to gross margin contraction, Animalcare Group (-10.5%) lost further ground on the release of full year 2017 results. Revenue rose 22% to £83.6m and underlying operating profit was 15% higher at £7.7m. These numbers were boosted by the inclusion of Ecuphar, acquired in July 2017. On a proforma basis, revenue growth was 9.6%, while reported operating profit shrunk 80% to £1.2m on exceptional items including acquisition and integration costs. Outlook comments from the company were reasonably upbeat, referring to the likelihood of further acquisitions and predicting that cross-selling opportunities from Ecuphar will start to have a financial benefit from Q4 2018.


Ideagen (+14.9%) released a trading update confirming that results for the year to 30 April will be in line with market expectations. In July, it expects to report 33% revenue growth to £36.1m and a 40% increase in earnings before interest, tax, depreciation and amortisation to £11m. Ideagen – a provider of governance, risk and compliance software solutions – commented that trading has been strong in all its key verticals, and that organic revenue growth overall amounted to 11%. Medforce, the recently acquired business, is also performing in line with its expectations.


In other portfolio newsflow, medical device specialist Inspiration Healthcare Group (+13.2%) announced that a company in which it has an 8% shareholding (NeuroproteXeon) had signed a distribution agreement with German large-cap Linde. The agreement will net NeuroproteXeon tiered royalty payments as well as up to €23m in payments contingent on milestones such as achieving cumulative sales of €100m within four years. 


dotDigital (-18.6%) featured on the downside, albeit due to investor speculation rather than concrete newsflow. The EU’s General Data Protection Regulation (GDPR) standards were implemented in May. While these should support demand for dotDigital’s omnichannel marketing software tools in the long term, the company has previously commented that clients are initially reacting by lengthening purchasing cycles. In addition, e-commerce platform Magento – one of dotDigital’s most important channel partners – was acquired by Adobe in May, creating some uncertainty over which direction Adobe will take the relationship.


Three new stocks were added to the Fund in May. Adept Telecom and Frenkel Topping both possess Economic Advantage in the managers’ opinion due to significant recurring revenues. Adept Telecom provides managed IT and telecoms to around 20,000 customers, over 70 of whom are multi-site. Frenkel Topping provides asset management and financial advice to its clients, who are predominantly the recipients of clinical negligence and personal injury awards. A position in StatPro was also initiated. The company provides financial performance analytics software to the asset management industry and is a relatively rare instance of a stock that possesses all three Economic Advantage intangible assets: intellectual property, recurring revenues and a strong distribution network.



Positive contributors included:

GRC International Group (+39.2%), Medica Group (+27.4%), Lighthouse Group (+25.0%), Solid State (+21.0%) and Ideagen (+14.9%).


Negative contributors included:

Sprue Aegis (-33.9%), Surgical Innovations (-20.5%), dotDigital Group (-18.6%), Animalcare Group (-10.5%) and Tracsis (-7.1%).

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 31.05.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 31.03.2018, 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.

Friday, June 15, 2018, 2:39 PM