Liontrust UK Smaller Companies Fund

April 2019 review

The Liontrust UK Smaller Companies Fund returned 6.3%* in April, compared with the 4.5% return from the FTSE Small Cap (excluding investment trusts) Index.


The AIM market and the lower capitalisation end of the UK Main Market drifted higher in April as investors continued to interpret the 2019 investment backdrop as benign for risk assets. Globally, the apparent easing in US-China trade tensions and the shift to a more dovish approach from the US central bank remained to the fore. In the UK, a ‘risk on’ trade also received encouragement from another postponement of the Brexit deadline, from 12 April to 31 October.


Among the portfolio holdings to issue updates to investors, AB Dynamics (+41.1%) was a highlight. It recorded a 69% increase in revenues to £25.8m and a near doubling of profit before tax to £6.4m in the six months to 28 February 2019. The company supplies advanced testing systems to the global motor industry. These systems, which include driving robots and guided soft targets, involve a substantial amount of intellectual property. We expect AB Dynamics to benefit from the growth of autonomous vehicle technology and Advanced Driver Assistance Systems. Within its interim results, the company commented on the size of its order book, noting that it provides “full visibility” for the remainder of this financial year (ending 31 October) and next.


The automotive market is also a key customer for Trifast (+27.0%), making up a third of its sales. The company supplies industrial fastenings to assembly industries which also include domestic appliances, electronics and telecoms. The auto industry’s shift to electrical vehicles is one trend driving “significant opportunities for organic growth” at Trifast and allowed it to guide that profits should be slightly ahead of expectations for the year to 31 March 2019. Its trading statement also struck an upbeat tone on the start of its new financial year, referring to recent contract wins and a solid pipeline.


A half-year trading statement from RWS Holdings (+25.3%) indicated that adjusted profit before tax for the period to 31 March 2019 will be at least £35.5m, a 24% year-on-year increase and ahead of expectations. Overall revenue growth amounted to 10% on an underlying like-for-like basis, boosted by a strong performance from the recently acquired Moravia business. RWS is a provider of intellectual property support services such as translation and localisation.


Keywords Studios (+34.7%), the provider of outsourced art, localisation and testing services to the video games industry, released 2018 results. These illustrated an acquisition-fuelled revenue increase of 66% to €251m, after eight companies were incorporated into the business during 2018. On a like-for-like basis, revenue still rose by a healthy 10%. The company commented that the start to 2019 has been encouraging, with first quarter trading being in line with its expectations.


As usual, Keywords Studios’ outlook comments also included reference to a healthy pipeline of acquisition opportunities. Keywords Studios’ has already made two acquisitions in 2019 – Sunny Side Up and GetSocial – and in April it announced another deal. It agreed to pay ¥120m for Tokyo-based Wizcorp, a video game develop specialising in HTML5 and other mobile technologies. The deal strengthens Keywords Studios’ presence in Japan, a key video gaming development hub where it already employs 300 people. There should be substantial opportunities to cross-sell Wizcorp’s services into Keywords’ client base.


Fund administrator JTC (+32.3%) was also acquisitive in 2018, with this source of growth contributing 21 percentage points to its 29% revenue expansion to £77.3m. EBITDA (earnings before interest, tax, depreciation and amortisation) rose 65% to £23.8m after margins improved more rapidly than expected, to 31%. Organic growth of 8.7% included £9.7m in annualised new business won from existing and new clients. In 2019, JTC is trading in line with its expectations and is on course for net organic growth of 8% - 10% and EBITDA margins of 30% - 35%. As with Keywords Studios, JTC is on the lookout for further acquisitions this year.


Smart Metering Systems’ (-8.8%) 2018 revenue rose 24% to £99m, with annualised recurring revenues amounting to £75m (a 32% increase), comfortably above the 70% level at which we consider a company’s repeat business may represent a barrier to competition. Total gas and electricity metering and data assets rose by 1.1 million to 3.1 million at the end of 2018. Shares in the company gave up some ground in 2018 on worries that a shift to the next generation of smart meters (from SEMTS1 to SMETS2) would slow installations. A December 2018 trading update confirmed that the company shared this concern, and 2018 full-year results released in April gave further details. Installation run rates dipped in the second half of 2018 but the company said it expects installation rates to accelerate into the second half of 2019. It has also written down the value of its first generation meter portfolio. This charge, together with increased investment to its supply chain to handle second generation meters, led to a large drop in the company’s profitability during 2018.


The transition in smart meter technology standards was an unexpected obstacle that has potentially set back Smart Metering Systems’ growth plans by a year or two. Nevertheless, powerful regulatory drivers continue to underpin the company’s prospects and the fund managers believe that the delay in achieving this growth has already been discounted in the shares. 


Following a strong Q1 run, shares in YouGov (-5.8%) saw some profit-taking following interim results. In the six months to 31 January the company grew adjusted operating profit by 41% to £12.5m after revenue rose 18% to £66.5m. YouGov now generates over half of sales from its high margin Data Products and Services division. The company announced new five year strategic targets to double revenue and adjusted operating profit margin and to grow adjusted earnings per share at an average of more than 30% a year.


Kainos Group (-4.4%) also looked to be a victim of profit-taking after an in-line trading update saw its shares ease off their highs. For the year to 31 March 2019, Kainos stated trading was in line with market expectations following strong growth for its Digital Transformation and Workday Services divisions.


The Fund’s position in Pressure Technologies was sold. John Hayward’s retirement as CEO last October, the company’s director’s share ownership slipped below the 3% minimum level we require of all smaller company holdings. A managed exit was implemented, which concluded in April.


Positive contributors included:

AB Dynamics (+41.1%), Keywords Studios (+34.7%), JTC (+32.3%), Trifast (+27.0%) and RWS Holdings (+25.3%).


Negative contributors included:

Quixant (-10.7%), Smart Metering Systems (-8.8%), Eco Animal Health Group (-6.8%), YouGov (-5.8%) and Kainos Group (-4.4%).


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








Liontrust UK Smaller Companies I Inc






FTSE Small Cap ex ITs






IA UK Smaller Companies













*Source: Financial Express, as at 30.04.2019, 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 31.03.2019, total return (net of fees and income reinvested), bid-to-bid, primary class.


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.




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, May 17, 2019, 11:54 AM