Liontrust UK Smaller Companies Fund

May 2018 review

The Liontrust UK Smaller Companies Fund returned 2.8%* in May, compared with the 1.3% return from the FTSE Small Cap (excluding investment trusts) Index.


The global video gaming industry is already very substantial and looks set to enjoy rapid growth in coming years. The Fund already has exposure to the sector via Keywords Studios and Sumo Group. Sumo estimates that global videogaming is already worth over US$113bn and forecast to grow at an average annual rate of 8% through to 2021. In May the Fund was able to add another sector play: Team17 Group. Team17 is a leading video games label and creative partner for independent developers. Shares in Team17 were admitted to trading on AIM in May, raising £108m in the process at a new share issue price of 165p. It went on to enjoy a strong debut, finishing at 230p. The fund managers believe Team17 possesses Economic Advantage in the form of its intellectual property.


Keywords Studios (-6.2%) continued its acquisitive growth with the purchase of Fire Without Smoke, which provides video game publishers and developers with marketing services such as game trailer and marketing art. The consideration comprises an initial £3.5m payment, a further £0.5m in a year’s time and contingent on performance targets, and the issue of new shares taking the total potential consideration to £5.2m, about 7.5x its profit before tax in the year to 31 March. The deal is the fourth acquisition completed this year, following 11 in 2017.


Market research and data analytics group YouGov (+18.8%) also made an acquisition, expanding its presence in the sports data market through the purchase of SMG Insight Limited. YouGov bought 20% of SMG in 2010 and is now purchasing the remaining 80% from the firm’s founder Frank Saez. A cash consideration of £1m is payable at completion, a further £1m is due after 12 months and deferred consideration of 4.25x EBITDA over the next three years will be paid under an earn-out which keeps Saez at the head of the SMG business. The total consideration is capped at £21m, which would be about 17.5x this year’s profit before tax.


As flagged in last months’ trading update, First Derivatives (+23.3%) reported results for the year to 28 February which were slightly ahead of prior consensus: revenue of £186m (+23%) versus consensus of £180m, and adjusted EBITDA of £34m (+19%) versus £33m consensus. The company’s Kx technology supports high-volume, data intensive analytics. At present the majority of the customers for First Derivatives’ technology offering are in financial services, building off the back of the company’s established consultancy offering to that sector, and marketing technology.  However, it is actively trying to broaden Kx’s appeal to other verticals such as sensor analytics, automotive and gaming – and describes current activities in these nascent sectors as merely a “scratch on the surface of the market opportunity”. First Derivatives further commented that the new financial year has started well with strong demand and a healthy pipeline of opportunities.


By contrast, Animalcare Group (-10.5%) warned in an April trading update that 2018 results would be below market expectations due to gross margin contraction, and the stock lost further ground on the release of full year 2017 results in May. 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.


A couple of short AGM statements generated positive share price momentum on two portfolio holdings. Accesso Technology (+19.2%) commented on a solid performance during the first four months of 2018. The company provides ticketing, guest management and e-commerce solutions to the leisure and entertainment market. Shares in Accesso have performed very strongly over the last year; the company was able to report 2017 earnings which were substantially ahead of consensus expectations.  Medica Group (+27.4%) stated that 2018 has started well, with strong recruitment of radiologists. It is on track to meet its 2018 targets. 


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.


Specialist social care provider Caretech Holdings (-8.1%) stated that trading in the six months to 31 March had been in line with its expectations. Its net capacity increased by 38 places to 2,572. Reconfigured beds accounted for 15 of the net increase. Reconfigured beds have a higher contribution and form part of an effort to enhance margins. Both mature estate and blended occupancy levels are unchanged at 93% and 89% respectively. The company anticipated that annual fee rate negotiations with local authorities will result in a “more positive outcome… than in recent years”. Interim results are due to be released in June.


Metrology group Renishaw (+13.9%) grew revenues by 12% in the nine months to 31 March 2018, a top-line uplift which dropped through to an almost 40% expansion in adjusted profit before tax. The strength of trading led it to upgrade its full-year financial forecasts. Revenue guidance has been increased from £575m - £605m to £585m - £605m while the profit before tax range has been raised from £127m - £147m to £135m - £150m.


Positive contributors included:

Medica Group (+27.4%), JTC (+24.3%), First Derivatives (+23.3%), Accesso Technology Group (+19.2%) and YouGov (+18.8%).


Negative contributors included:

DotDigital Group (-18.6%), AnimalcareGroup (-10.5%), Caretech Holdings (-8.1%), Tracsis (-7.1%) and Keywords Studios (-6.2%).

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 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, 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. 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, 2:45 PM