Liontrust UK Smaller Companies Fund

September 2018 review

The Liontrust UK Smaller Companies Fund returned 2.1%* in September, compared with the -0.2% return from the FTSE Small Cap (excluding investment trusts) Index.

A number of portfolio holdings released interim results relating to the first half of 2018. While these displayed the variance in short-term fortunes one would expect from companies operating in diverse sectors, it is fair to say that, on balance, the tone was positive. A number of companies upgraded guidance or gave upbeat outlook comments.


At the head of this group was Craneware (+47.4%), the largest provider of pricing and billing systems to US hospitals. Revenue increased 16% to US$67.1m. Its new sales in the year – which included five significant contract wins or extensions – more than doubled while renewal rates were above 100% by US dollar value. In a bullish outlook comment, Craneware’s management highlighted a record sales pipeline for its new financial year and increasing long-term revenue visibility.


Shares in Learning Technologies (+42.3%) also had a stellar month after releasing interim results which included an upgrade to full- year guidance. The catalyst for the upwards reappraisal of its prospects has been the reverse acquisition of PeopleFluent earlier this year.


The integration is progressing better than management had expected, and the division’s operating margin is now expected to be at least 25% for 2019. In the first half of 2018, group revenues rose 60% to £33.8m, with operating margins also expanding to 26.3% from 17.8% a year earlier – both reflecting the effect of PeopleFluent’s inclusion. Another key impact of the acquisition has been a rise in recurring revenues, which are now over 51% of the total, up from 37% in the first half of 2017. The company highlighted the increased level of recurring revenues and the size of its order book when stating that full-year profits are on course to be significantly ahead of its prior expectations.


Another portfolio holding to upgrade guidance was scientific instruments specialist Judges Scientific (+12.6%). It now expects adjusted profit before tax and earnings per share to both exceed prior expectations. The company noted that order intake at the start (the first 10 weeks) of the second half of its year has been significantly ahead of last year’s comparable, giving it the confidence to lift its forecasts. In the first half of 2018, the company achieved 13% revenue growth – 5.7% organic with the remainder by acquisition.


September saw the maiden set of interims from Team17 (+20.2%), a leading video games label and creative partner for independent developers which completed an initial public offering on AIM in May. Investors welcomed evidence of strong growth in revenues (+48% to £15.4m) and profits (earnings before interest, tax, depreciation and amortisation +36% to £4.9m). The second-half weighting to the company’s activity levels makes full-year forecasting slightly trickier than it would otherwise be, but Team17 stated its confidence in meeting consensus full-year expectations.


Last month’s largest portfolio riser became September’s biggest drag on performance, as Bioquell shares lost 20%. In the managers’ view, this needs to be viewed in the context of August’s 37% gain, which was catalysed by interim results and a full year guidance increase, and the 100%+ share price appreciation in 2018. With no newsflow this month, profit-taking seems to blame for the weakness.


Of the portfolio detractors to issue newsflow, James Cropper (-16.3%) caused most concern. It is experiencing a substantial headwind in the form of high pulp prices – an input cost for the company, which makes paper products as well as technical fibres. While the Technical Fibre division is experiencing demand levels which have caused it to invest in a 50% capacity expansion, effective from 2021, the Paper unit is now expected to take a £2m hit at the pre-tax level. This is not insignificant in the context of £4.5m group profit before tax for the year to 31 March 2018. The scale of the setback is, however, tempered by the knowledge that it results from an exogenous fluctuation in a cyclical input rather than any fault in James Cropper’s growth strategy.


Focusrite (-12.7%) also weakened on the back of a trading update, but its share price fall seems to reflect an absence of further short-term upside catalysts than any negative developments of note. The audio software and hardware company expects revenue for the financial year ending 31 August 2018 to grow by 15% year-on-year to around £75m, in-line with market expectations.


Positive contributors included:

Craneware (+47.4%), Learning Technologies (+42.3%), Team17 Group (+20.2%), Proactis Holdings (+18.5%) and Judges Scientific (+12.6%).


Negative contributors included:

Bioquell (-20.0%), James Cropper (-16.3%), Quartix (-13.9%), Focusrite (-12.7%) and Renishaw (-12.3%).


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 30.09.2018, total return (net of fees and income reinvested), bid-to-bid, institutional class.

**Source: Financial Express, as at 30.09.2018, 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. 

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. 

Monday, October 15, 2018, 3:12 PM