Liontrust UK Smaller Companies Fund

September 2021 review

The Liontrust UK Smaller Companies Fund returned -0.8%* in September. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -2.7% and the average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -2.6%.

 

Among the Fund’s top performers in September, Alpha FX (+12%) rose strongly – boosted by an upbeat set of interim results. The currency management consultancy grew revenues by 90% year-on-year in the first half of 2021 as client activity recovered strongly post-lockdown; its client base rose from 754 to 838 over the six months. Management commented that this trading momentum has so far carried over to the second half of its year, with market dynamics now normalising to the pre-Covid environment.

 

Animalcare (+15%) also announced that it is on track to beat market estimates. It saw favourable conditions in the six months to 30 June which have continued into the second half of the year; this momentum has led the company to raise its 2021 profit expectations. Interim revenues rose 13% to £39m, with particularly strong growth in its Companion Animals division, while gross profit margins expanded 260 basis points to 54.6% as it focused on higher-margin brands

 

Investors welcomed Instem’s (+13%) £11.4m acquisition of Swiss life sciences software company Pathology Data Systems (PDS).  PDS has historically been a direct competitor of Instem’s with a particularly strong market share in regulatory submissions using SEND (the Standard for the Exchange of Non-clinical Data). Instem expects to rationalise products and services in a manner which increases operating margins and contributes to an immediately earnings enhancing deal. Towards the end of the month, Instem also released interim results showing 8% organic revenue growth which was boosted to 41% by recent acquisitions (of The Edge Software Consultancy and d-Wise Technologies).

 

Shares in Mortgage Advice Bureau (MAB, -20%) fell on the release of interims despite reporting top-line growth of 46% and a 56% increase in profit before tax. The company’s rapid growth was also apparent through the 7% improvement in average adviser numbers to 1,694 over the six months to 30 June (and rising further to 1,800 by 24 September) while gross mortgage completions jumped 49% to £11.9bn. However, the company commented that the last few months have seen a softening in activity. This was expected as the impact of the stamp duty holiday phases out, and MAB has left its full-year financial guidance unchanged. But with the shares having experienced a very significant rating expansion over the last year, they may now be lacking catalysts to drive further upside in the short-term.

 

Smart Metering Systems (-13%) is on course to deliver 2021 profit before tax which is marginally ahead of its previous guidance. In the first half of the year, it saw a strong recovery in smart meter installation as Covid-19 lockdown measures ended; the installation pipeline has increased to 2.75 million units from 2.0 million at the start of the year. Although interim results were solid, Smart Metering Systems shares slipped due to investor concerns over the potential for the gas crisis to push smaller suppliers into financial difficulties. However, any loss of smaller suppliers is likely to be mitigated by end-customers being transferred to larger suppliers that may already contracted with Smart Metering Systems.

 

In September, Smart Metering Systems also announced a large share placing. It raised £175m at 900p, a 6.2% discount to the prevailing share price. The proceeds will be used to part-finance a £690m capital expenditure over the next five years as it delivers on its growth plans and installs its smart meter pipeline.

 

Positive contributors included:

Gateley Holdings (+17.0%), Animalcare Group (+15%), Instem (+13%), Alpha FX (+12%) and Pebble Group (+10%).

 

Negative contributors included:

Mortgage Advice Bureau (-20%), Dotdigital Group (-15%), Thorpe (-14%), Smart Metering Systems (-13%) and YouGov (-13%).

 

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

Sep-21

Sep-20

Sep-19

Sep-18

Sep-17

Liontrust UK Smaller Companies I Inc

46.9%

12.8%

-5.0%

19.7%

23.8%

FTSE Small Cap ex ITs

72.4%

-12.7%

-7.8%

0.6%

17.8%

IA UK Smaller Companies

51.1%

-0.4%

-7.1%

10.8%

25.0%

Quartile

3

1

2

1

3

 

*Source: Financial Express, as at 30.09.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.

 

**Source: Financial Express, as at 30.09.21, 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. The value of an investment and the income generated from it can fall as well as rise and is not guaranteed. You may get back less than you originally invested. 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.

 

Disclaimer

 

This blog 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, forwarded, reproduced, divulged or otherwise distributed in any form whether by way of fax, email, oral or otherwise, in whole or in part without the express and prior written consent of Liontrust. Always research your own investments and if you are not a professional investor please consult a regulated financial adviser regarding the suitability of such an investment for you and your personal circumstances.
Friday, October 8, 2021, 1:22 PM