Liontrust UK Smaller Companies Fund

January 2018 review

The Liontrust UK Smaller Companies Fund returned 2.4%* in January, compared with the -0.8% return from the FTSE Small Cap (excluding investment trusts) Index.


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 FTSE Small Cap Index’s 0.8% decline outperformed the FTSE100 Index’s 2.0% drop, while the FTSE AIM All-Share managed to post a 1.9% gain.


There were number of updates to digest from portfolio constituents in January, as well as a takeover offer for one holding. A broadly positive tenor to the updates helped the Fund record a positive performance for the month.


Starting with the takeover bid, Lombard Risk Management (+106%) announced that it had agreed to a 13p per share offer from Vermeg, a Dutch financial software provider. The offer represents a chunky premium to Lombard Risk Management’s prior closing price, at almost double that level. It was also a welcome development in light of operational challenges faced by the company in 2017, when it struggled with contract delays despite seeing a record pipeline of opportunities for its regulatory compliance and risk management software.


Turning to updates on trading, Craneware (+28.2%) outlined an EBITDA (earnings before interest, tax, depreciation and amortisation) growth expectation of 15%-18% for the six months to 31 December 2017. Contract renewals ran at over 100% during the period when measured by US dollar value. With it also announcing a large contract win with a US healthcare network, shares in the company moved sharply higher. The contract with an unnamed US network will use Craneware’s IT solutions at over 75 facilities and is expected to generate revenues of more than US$16m over an initial five-year term.


Asset manager Brooks Macdonald (+18.8%) was another to gain on the back of a trading statement. It announced that funds under management (FUM) had risen by 12.3% to £11.7bn over the six months to 31 December 2017, with roughly two thirds of the rise driven by inflows and the remainder from rising asset prices. Although the company stated that its full year financial expectations remain unchanged, it did note that the revenue impact of the FUM increase had been offset by a number of margin pressures. Lower yields arose due to changes in product mix, the ongoing market shift towards all-in fees, and reduced transactional income due to low volatility.

While comments on trading from mobile payments company Bango (-22.1%) were solid, its shares traded lower later in the month on the news that it was raising £5m via a placing at a discounted share price of 180p. On 8 January, it gave details of a 105% increase in its preferred top line metric of end user spend (EUS) during 2017. EUS ended the year at an annualised run rate of £400m, compared with the £271m achieved during the year. It also announced a partnership with Netflix in Mexico to allow customers to charge their subscriptions to their pre or post-paid mobile phone bills. On 24 January, its shares adjusted to the news of a placing, which was conducted in order to finance the cash element of an acquisition of Audiens, the data management business of Italian company Digitouch. The management of Bango believes that Audiens’ data monetisation tools can accelerate revenue growth, bringing its data strategy forward by 12 – 18 months.


The weakest update came from teleradiology specialist Medica Group (-23.0%). 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.


Ideagen (+22.3%) interims showed 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. 


Cello Group (-11.2%) shares lost ground despite 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:

Lombard Risk Management (+106%), Craneware (+28.2%), Tatton Asset Management (+24.1%), Ideagen (+22.3%) and Brooks Macdonald Group (+18.8%).


Negative contributors included:

Medica Group (-23.0%), Bango (-22.1%), AB Dynamics (-19.0%), Smart Metering Systems (-13.9%) and Cello Group (-11.2%). 


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








Liontrust UK Smaller Companies I Inc






IA UK Smaller Companies













*Source: Financial Express, as at 31.01.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

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.


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, 4:32 PM