Liontrust UK Smaller Companies Fund

February 2018 review

The Liontrust UK Smaller Companies Fund returned -1.7%* in February, compared with the -3.9% return from the FTSE Small Cap (excluding investment trusts) Index.

 

The Fund’s monthly return reflected an environment of soft investor sentiment towards equities as January’s concerns over the impact of tighter monetary policy spilled over into February.

 

While a range of portfolio holdings registered modest losses as UK equities experienced broad-based weakness, newsflow was predominantly upbeat and allowed a number of stocks to make gains despite the headwinds.

 

GlobalData (+7.0%) was one such stock, after reporting 22% revenue growth in the year to 31 December. Of this, 15 percentage points was organic expansion with the remainder the result of two acquired businesses in the healthcare and construction fields – Infinata and MEED. The company extended its acquisitive strategy with the announcement of another possible acquisition; it is exploring the purchase of Views Limited, a data analytics company serving the energy, construction and financial services sectors. The proposed deal would be financed through the issue of shares equivalent to 18% of GlobalData’s current share capital.

 

Procurement software provider Proactis (+4.9%) updated on trading in the six months to 31 January 2018. It experienced a 123% increase in revenues to over £26m and a 183% rise in earnings before interest, taxes, depreciation and amortisation (EBITDA) to £8.5m. The majority of the growth can be attributed to the inclusion of Perfect Commerce, which was acquired in August 2017. The business’s integration is progressing well, with £3.3m in annualised cost synergies achieved so far out of the £5m targeted by the end of the financial year in July 2018. New customer wins and cross-selling activity are also described as strong.

 

A trading update from Next Fifteen Communications (+5.7%) stated that it expects to meet guidance for the year ended 31 January despite the adverse impact of US dollar weakness on the c.60% of revenues which are generated in the US. It experienced an improvement in organic revenue growth, which rose by a high single-digit rate in the second half of the year. The company also commented that it expects a long-term positive earnings impact from the recent changes to US tax law, although it is too early to quantify this.

 

An AGM statement from intellectual property support services company RWS Holdings (+4.1%) indicated that it performed in line with expectations in the quarter ending 31 December 2017. It further stated that it is confident of further substantial progress in 2018 “notwithstanding US exchange rate headwinds”.

 

Keywords Studios (+5.0%), a provider of technical services to the global video games industry, issued a 2017 trading update stating that both revenues and EBITDA are “comfortably ahead” of consensus market expectations at over €150m and €22.5m respectively. The company has accelerated its growth through the completion of 11 acquisitions in 2017, which were partly financed by a £75m share placing in October. At the end of the year Keywords Studios retained over €30m in cash and has almost €17m of headroom within its €35m rolling credit facility in order to fund further selective acquisitions in the year ahead.

 

Of the largest negative contributors listed below, none issued newsflow of significance. Further down the detractors list we find Dotdigital (-5.6%), which issued interim results in February. The company recorded a 25% revenue increase in the six months to 31 December 2017, a rise which was driven by both direct customer wins and partnership sales. Recurring revenues now comprise around 80% of the total. The results include a contribution from Comapi, a business acquired in November for £10.7m. Comapi is an “omnichannel” messaging specialist that supports Dotdigital’s push to deliver its services across channels including email mobile push, SMS, Facebook messenger, Apple business messenger, Twitter and live chat. The company reiterated its guidance for the full-year and noted that the need for GDPR (General Data Protection Regulation) compliance is likely to create client demand for additional features.

 

Vermeg’s 13p per share takeover offer for Lombard Risk Management announced last month completed in February. As Lombard exited the portfolio, we were able to initiate a new position – IntegraFin, which joined the London market via an IPO. The fund participated in the IPO at 196p per share. The stock had a strong debut, rallying to 263p by month-end. IntegraFin owns the Transact investment wrap platform, and in our view possesses intangible Economic Advantage assets in the form of its distribution network and high level of recurring revenues. 

 

Positive contributors included:

StatPro (+11.5%), AB Dynamics (+8.5%), GlobalData (+7.0%), Bioquell (+6.4%) and F.W.Thorpe (+6.1%).

 

Negative contributors included:

Charles Stanley (-10.4%), Ideagen (-10.1%), Paypoint (-10.0%), Quixant (-9.6%) and Clipper Logistics (-8.8%).

 

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

 

 

Dec-17

Dec-16

Dec-15

Dec-14

Dec-13

Liontrust UK Smaller Companies I Inc

27.2

13.3

23.8

4.4

30.5

IA UK Smaller Companies

27.2

8.1

14.9

-1.7

37.2

Quartile

3

1

1

1

4

 

*Source: Financial Express, as at 28.02.2018, total return (net of fees and income reinvested), bid-to-bid, institutional 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. 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.

Monday, March 19, 2018, 11:55 AM