Montanaro UK Smaller Companies
Investment Trust Plc
(Incorporated in England and
Wales)
Company Number:
03004101
ISIN:
GB00BZ1H9L86
LEI: 213800UDDXXTXIF29P85
('Montanaro UK Smaller Companies
Investment Trust', or the 'Company')
17 June 2024
Montanaro Uk Smaller
Companies Investment trust PLC
2024 ANNUAL RESULTS
ANNOUNCEMENT
and
notice of annual general
meeting
Montanaro UK Smaller Companies
Investment Trust PLC announces its annual results for the year
ended 31 March 2024 and the publication of its annual report and
accounts for the same period, which includes the notice of its 2024
annual general meeting.
HIGHLIGHTS
For the year ended 31 March
2024
Performance
Total Returns
|
1 year
|
3 year
|
5 year
|
10 year
|
Since
launch
|
Ordinary share
price1
|
0.7%
|
(20.7%)
|
18.6%
|
40.2%
|
843.4%
|
Net Asset Value ("NAV")
1
|
8.3%
|
(9.6%)
|
12.4%
|
36.3%
|
876.0%
|
Benchmark2
|
9.0%
|
(0.7%)
|
21.8%
|
56.2%
|
555.5%
|
Capital Returns
|
1 year
|
3 year
|
5 year
|
10 year
|
Since
launch
|
Ordinary share
price1
|
(3.8%)
|
(30.3%)
|
(4.7%)
|
(0.1%)
|
431.6%
|
Net Asset Value ("NAV")
1
|
3.9%
|
(19.9%)
|
(7.9%)
|
1.1%
|
495.8%
|
Benchmark2
|
5.0%
|
(9.7%)
|
5.6%
|
17.2%
|
168.7%
|
Sources: Deutsche Numis, Bloomberg,
Association of Investment Companies ("AIC"), Montanaro Asset
Management Limited ("MAM")
As
at 31 March
|
2024
|
2023
|
%
Change
|
Ordinary share price
|
101.0p
|
105.0p
|
(3.8)
|
NAV per Ordinary
share1
|
118.9p
|
114.5p
|
3.9
|
Discount to
NAV1
|
15.1%
|
8.3%
|
|
Gross assets1
|
£219.1m
|
£211.6m
|
3.5
|
Net assets
|
£199.1m
|
£191.6m
|
3.9
|
Market capitalisation
|
£169.1m
|
£175.7m
|
(3.8)
|
Net gearing
employed1
|
2.7%
|
4.8%
|
|
Year
ended 31 March
|
2024
|
2023
|
%
Change
|
Revenue return per Ordinary
share
|
3.2p
|
2.3p
|
39.1
|
Dividends per Ordinary
share
|
4.6p
|
4.5p
|
2.2
|
Ongoing
charges1
|
0.9%
|
0.9%
|
|
Portfolio
turnover1
|
23.4%
|
22.2%
|
|
¹ Details
provided in Alternative Performance Measures on pages 62 to 63 of
the Annual Report.
² The
Benchmark is a composite index with the Deutsche Numis Smaller
Companies Index (excluding investment companies) ("NSCI") used
since 1 April 2013.
HOW TO INVEST
The Board has dedicated a great deal
of time to make MUSCIT readily available to all investors. MUSCIT
has continued to grow its presence across the UK's investment
platforms. We are delighted to see a steady increase in MUSCIT's
retail following.
Together with Montanaro Asset
Management, we have appointed Marten & Co to provide sponsored
research. The latest report published in June 2023 is available
here: https://quoteddata.com/research/montanaro-uk-smaller-companies-a-coiled-spring-qd/
.
For further details about how to
invest, please refer to the website:
https://montanaro.co.uk/trust/montanaro-uksmaller-companies-investment-trust/
CHAIRMAN'S STATEMENT
I am pleased to present the
twenty-ninth annual report of MUSCIT for the year ended 31 March
2024.
Results
In the year to 31 March 2024, the
Net Asset Value ("NAV") of MUSCIT returned 8.3% (with dividends
reinvested). In comparison, our benchmark, the Deutsche Numis
Smaller Companies (excluding investment companies) Index (the
"NSCI") gained 9.0%. During the same period, the share price of
MUSCIT returned 0.7% (with dividends reinvested) as the discount
widened from 8.3% to 15.1%. Compared with the NSCI including AIM,
MUSCIT's NAV outperformed by c5%.
Since its inception in 1995, the
Company has delivered a cumulative NAV total return of 876%,
significantly outperforming the composite benchmark which delivered
a return of 555%.
Dividends
The Company's investment objective
has always been to generate capital growth. This remains unchanged.
Dividends are now paid each quarter equivalent to 1% of the
Company's NAV on the last business day of the preceding financial
quarter, being the end of March, June, September and
December.
During the financial year, the
Company paid four quarterly dividends amounting to a total of
4.60p, equivalent to 4.4% of the share price at the start of the
year and 4.6% of the share price at the end of the period. MUSCIT
remains one of the highest yielding UK small cap investment
trusts.
The Company holds substantial
reserves which are available for distribution in future.
Discount
In common with many other investment
companies, over the the last financial year, the discount of
MUSCIT's share price to NAV, widened from 8.3% to 15.1%. The
average discount for the year was 11.6%.
The Board and the Manager have
worked hard to make MUSCIT attractive to private clients, including
implementing a five-for-one share split in 2018; introducing the
new dividend policy; reducing costs; and increasing the focus on
marketing. These initiatives continue to bear fruit as more and
more retail investors appear on the share register. This should
help to reduce discount volatility in the shares of
MUSCIT.
Gearing
The Board is responsible for setting
the Company's gearing strategy and approves the arrangement of any
gearing facilities. Montanaro Asset Management, the Company's
Alternative Investment Fund Manager (the "AIFM"), is responsible
for determining the net gearing level within the parameters set by
the Board. The ability to issue debt to gear the portfolio is a key
feature of investment trusts that we believe offers a strong
competitive advantage over open-ended investment funds. Gearing can
enhance investment returns to shareholders. The Board strongly
encourages active use of the gearing facility by the Manager but
delegates the decision about optimum levels to him.
On 17 December 2021, the borrowing
facilities with ING Bank were renewed for a period of three years.
The interest rate on the £20 million Fixed Rate Term Loan was
reduced by approximately 0.2% p.a., which represents a welcome
saving for shareholders. Similarly, the £10 million Revolving
Credit Facility was renewed with a lower commitment fee.
At 31 March 2024, net gearing was
2.7%, a level that the Manager considered to be appropriate in
light of the macroeconomic uncertainty and volatility in financial
markets.
Share Buybacks
The Board is responsible for share
buybacks which are undertaken at arm's length from the Manager.
These are regularly considered by the Board and implemented when
considered to be in the best interest of shareholders. No shares
were bought back during the period under review.
During the life of MUSCIT, the
Company has bought back and cancelled 29% of the shares
outstanding.
Board
The Board consists exclusively of
independent non-executive Directors with a good balance of skills,
experience, diversity and knowledge of the Company and its
business.
On 1 January 2024, Yuuichiro
Nakajima was appointed as a non-executive Director. Yuuichiro is
the founder and managing director of Crimson Phoenix, a specialist
cross-border M&A advisory firm, providing advice on
Japan-related transactions and a range of corporate strategy
initiatives from offices in Tokyo, London and Frankfurt. Yuuichiro
spent 10 years with S.G. Warburg (later SBC Warburg) and four years
with PricewaterhouseCoopers. For nine years until July 2023,
Yuuichiro was a non-executive director of JPMorgan Japan Small Cap
Growth & Income plc. We are delighted to welcome such an
experienced Director to the Board and he has already made a
valuable contribution.
Environmental, Social and Governance ("ESG")
The Board and Montanaro believe
there is a strong correlation between how well a business fares on
ESG grounds and the value it creates for its shareholders. This is
why ESG considerations form an integral part of the Manager's
assessment of a company's "quality" and have been fully integrated
into the investment process for many years.
The depth of Montanaro's commitment
to ESG is perhaps best exemplified by the fact that they are one of
the few UK asset managers to be a certified B Corporation - a
certification Montanaro have held since 2019. Certified B
Corporations are businesses that meet the highest standards of
verified social and environmental performance, public transparency
and legal accountability to balance profit and purpose. The
certification was renewed for a further three years in 2022.
Montanaro's score rose from 81.8 to 105.5 (classified as
"outstanding"), demonstrating their commitment to continual
improvement.
Please refer to pages 6 and 7 of the
Annual Report for more on ESG.
Annual General Meeting
The Company's Annual General Meeting
(the "AGM") will be held on Thursday, 25 July 2024 at 12pm at the
offices of Montanaro Asset Management, 53 Threadneedle Street,
London EC2R 8AR. Shareholders are warmly invited to attend the AGM
where, after the formal business has been concluded, there will be
an opportunity to meet and ask questions of the Board and the
Manager over tea and coffee.
Continuation Vote
We are pleased to report that, at
the AGM held on 12 August 2021, over 99% of shareholders voted in
favour of continuation of MUSCIT for a further five years. The next
Continuation Vote is scheduled to be held in 2027.
Outlook
In recent years, the landscape of
the UK stock market has undergone a noticeable transformation,
characterised by a gradual shrinkage in its size and scope. One
indicator of this trend is the dwindling number of companies quoted
on the Main Market. The number of companies in MUSCIT's benchmark,
the NSCI, has fallen to c.350 compared to around 1,000 at the turn
of the century. The number of those companies traded on AIM has
shrunk by 56% since its peak in 2007.
This is, to say the least, a very
negative development for the UK as a whole. Historically, the
British stock market has been renowned for its diversity and
breadth, offering investors a wide array of investment
opportunities across various sectors. The UK has been home to many
world-leading companies with outstanding management teams and
excellent corporate governance. However, the UK equity market has
faced numerous challenges: relatively poor performance especially
compared to the United States and some other overseas markets,
multiple regulatory changes and of course Brexit. As a result, an
increasing number of companies have chosen to delist, move abroad
or to seek funding from private equity.
The ramifications of this trend
extend beyond mere numerical decline, impacting the vibrancy and
competitiveness of the UK stock market as a whole. A shrinking
market not only reduces the breadth of investment opportunities
available to investors but also diminishes the market's role as a
catalyst for economic growth and innovation. With fewer companies
listed on the stock exchange, there is a risk of reduced liquidity
and market depth, potentially deterring international companies
from listing in the UK. It makes international investors less
interested in investing in the UK and drives our own savers to look
overseas. It is a sorry state of affairs when the average UK
pension fund holds less than 4% in UK equities, a far cry from 39%
back in 2000.
Sadly, for years the UK has been a
notable outlier in its absence of support for its domestic stock
market compared to other countries with an active investment
environment. China has recently been stepping in to support
domestic share prices through investments from state institutions,
whilst part of the resurgence in the Japanese equity market has
been attributed to the Nippon ISA that has been supporting domestic
retail flows. Since 2014, France has had its own version of a
Stocks & Shares ISA dedicated to supporting domestic and
European quoted smaller companies. Investments in these ISAs now
stands at over £2 billion.
We were pleased to hear the
Chancellor of the Exchequer recently announced plans to introduce a
UK ISA. Although this initiative alone is unlikely to revive the UK
equity market, it is nonetheless a step in the right direction. The
possible re-bundling of research and broker commissions - currently
disallowed under the MiFID II regime - could also help encourage
retail investors back into the market. There are other avenues to
explore in future such as: incentivising companies to list and
remain listed by reviewing tax incentives and simplifying listing
rules; abolishing Stamp Duty; and addressing the implications for
the smaller end of the market of the ever-growing consolidation
amongst wealth managers.
There is a silver lining, however.
Today's challenging environment presents a compelling opportunity
for long-term investors to capitalise on favourable valuations for
UK smaller companies. The Board was pleased to see Montanaro Asset
Management recently take advantage of this opportunity to increase
its own stake in the Company.
ARTHUR COPPLE
Chairman
14
June 2024
Manager's Report
The
Attractions of Quoted UK Smaller Companies
('SmallCap')
The key attraction of investing in
SmallCap is their long-term record of delivering higher returns to
investors than large companies. In the UK, over the last 69 years,
this has amounted to an average of 3.1% per annum ("the SmallCap
Effect"). £1 invested in UK large companies in 1955 would now be
worth £1,357 whereas the same £1 invested in SmallCap would now be
worth £9,171 - almost seven times more.
The market for SmallCap is
inefficient. While some large companies are analysed by more than
50 brokers, many smaller companies have little or no such coverage.
We believe that this makes it easier for those with a high level of
internal resources to identify attractive, undervalued and
overlooked investment opportunities. This in turn makes it possible
to deliver long-term performance over and above that of the
benchmark.
Montanaro Asset Management
Montanaro was established in 1991.
We have one of the largest and most experienced specialist teams in
the UK dedicated exclusively to researching and investing in quoted
smaller companies. Our team of thirty-nine includes twelve
nationalities and eighteen Analysts and Portfolio Managers, which
gives us the breadth of resources to conduct thorough in-house
research.
At 31 March 2024, we were looking
after around £3.3 billion of client assets.
Investment Philosophy and Approach
We specialise in researching and
investing in quoted small companies.
We have a disciplined, two-stage
investment process. Firstly, we identify "good businesses" within
our investable universe. In the second stage, we determine the
intrinsic value of each company to ensure they will make a "good
investment" (the two are not always the same).
When we consider that we have
identified a good company, it must pass our stringent Quality and
Ethical, Social and Governance ("ESG") Checklists and be approved
by our Investment Committee before it can be added to our "Approved
List". ESG has been integrated in our disciplined investment
process for almost two decades. Only the most attractive companies
make it on to the Approved List and it is from these that we
construct your Portfolio.
Our in-house team of Analysts, who
are sector specialists, is one of the largest specialist teams in
the country. Utilising their industry knowledge and a range of
proprietary screens, they are continually searching for new ideas.
With around 1,500 quoted companies in the UK to choose from, we are
spoiled for choice.
We look for high quality companies
in markets that are growing. They must be profitable; have good and
experienced management; deliver sustainably high returns on capital
employed; enjoy high and ideally growing profit margins reflecting
pricing power and a strong market position; and provide goods and
services that are in demand and likely to remain so. We like
focused companies that are wellestablished with a long history so
that we can see how they perform over different cycles. Ideally,
they should deliver selffunded organic growth rather than rely on
acquisitions and stick to their core areas of expertise.
Conversely, we avoid those with
stretched balance sheets; poor free cash flow generation;
incomprehensible or heavily adjusted accounts; unproven or
unreliable management; or those which face structurally challenged
business models with stiff competition.
We believe that a deep understanding
of a company's business model and the way it is managed are
essential. We meet or speak to our investee companies on a regular
basis, typically after they announce their semi-annual or annual
figures. Site visits are particularly useful. They allow us to meet
management in situ when they can give us more time and we can talk
to more people. Investing in small companies is all about meeting
the executive team. It is a privilege for us and where we can add
most value.
Management's past track record is
examined in detail as we seek to understand their goals and
aspirations. In smaller companies, the decisions of the
entrepreneurial management can make or break a company (which is
why meeting them is so important). We look closely at the board
structure; consider the level of insider ownership; and carefully
examine remuneration and corporate governance policies.
Once a company has been added to the
Portfolio, our Analysts conduct ongoing reviews. We will sell a
holding if we believe that the company's underlying quality is
deteriorating or if there has been a fundamental change to the
investment case or management. We will get things wrong and make
mistakes, but we try to learn from them.
In summary, we invest in well
managed, focused, high quality, growing companies bought at
sensible valuations. We keep turnover and transaction costs low and
follow our companies closely over many years. We would rather pay
more for a higher quality, more predictable company that can be
valued with greater certainty.
ESG
Montanaro became a certified B
Corporation in 2019, placing sustainability at its core. This was
achieved by meeting verified standards of social and environmental
performance, transparency and accountability. It is regarded as one
of the toughest sustainability standards to achieve globally.
Montanaro recertified for "B Corp" status in 2022 and achieved a
score of 105.5, well above the 81.8 originally achieved in 2019 and
an achievement of which we are proud.
In 2021, Montanaro was the only UK
investment boutique to be invited to join the Glasgow Financial
Alliance for Net Zero ("GFANZ") taskforce, chaired by former Bank
of England Governor, Mark Carney.
In 2023, we announced our commitment
to becoming carbon negative and removing 100% of our historical
emissions by 2030. We have partnered with Klimate, a Danish carbon
removal specialist. Together, we are building an innovative
portfolio of carbon removal projects to achieve our targets. This
includes projects such as direct air capture; deep storage bio-oil;
ocean kelp; and restorative tree-planting. All will be
independently verified to ensure their integrity.
We believe that we are the first asset manager in
the world to have publicly stated such ambitious
goals. We try to be pioneers and to lead
by example.
Montanaro's long track record of
sustainable investing has always been reflected in the way the
Portfolio has been managed. Ethical restrictions mean that we do
not invest in companies that generate a significant proportion of
sales from products with negative societal impact such as
tobacco.
The analysis of ESG factors has long
formed part of our definition of a company's "Quality". The
analysis of such information allows us to better understand the
risks and opportunities that our companies may be exposed to, from
factors such as climate change and supply chain challenges. We
continue to participate in collaborative engagements. We joined the
Farm Animal Investment Risk and Return ("FAIRR") initiative
engagement with Cranswick to discuss labour rights. Through
discussions with the CFO, we established that the majority of its
workforce is directly employed and labour metrics are reported to
the Board on a monthly basis, with follow-up reports on actions
taken to mitigate problems. We will continue to monitor labour
practices at the company but are satisfied with the policies,
approach and transparency.
We are pleased that MUSCIT was
awarded an 'AA' rating for its ESG credentials by MSCI, the
second-best rating out of a possible seven.
In March 2022, Montanaro won
"the Best Small & Mid-Cap Sustainable
Investment Boutique" award from Ethical
Finance. This recognised Montanaro's continuing commitment to
sustainable investing within its own business, across the
investment industry and in our investment process. We were
delighted to receive this award once again in 2024.
Examples of recent investee company
engagement
During the year, we continued our
ongoing engagement on sustainability with Tristel, the leader in
antiseptic wipes used in hospitals. One area in particular that we
brought up was the use of plastics in the company's clinical wipes
and whether the company could consider recyclable substitutes. We
were pleased to hear that Tristel is now working towards fully
recyclable packaging, although regulatory requirements still
necessitate some plastic use in clinical wipes. Tristel is also
putting pressure on suppliers to develop eco-friendly alternatives,
indicating a broader shift towards sustainability.
For the past few years, we have also
been engaging with Marshalls, the leader in paving slabs
and landscaping products, on their net zero carbon initiatives
including the development of products aligned with a circular
economy. Over the past twelve months, Marshalls has demonstrated
significant progress in permanent carbon removal in the
manufacturing process of its concrete products. They have also
developed a comprehensive climate strategy that includes both
mitigation and adaptation efforts, positioning them as leaders in
sustainable practices.
We engaged with Diploma, the global supplier of
consumable products in seals, controls and healthcare. This was by
means of a shareholder consultation on the new remuneration policy,
focused in particular on the proposed salary increases for the CEO
and CFO. Despite some concerns about the frequency of changes to
the remuneration arrangements, we believe that the proposed policy
is fair in light of the positive strategic acquisitions made by the
company. We voted in favour of the resolution at the AGM,
recognizing the critical role of the executive team in Diploma's
success.
Finally, we have been pleased with
the progress made by Greggs, the restaurant chain best known
for its sausage rolls, with respect to their "Greggs Pledge"
towards social responsibility. The company has achieved a 10%
reduction in food waste through partnerships with the app Too Good
to Go, charities and outlet stores in deprived areas. In addition,
Greggs has been accredited by the UK's National Equality Standard
for their Diversity, Equity and Inclusion policies, which include
training for ex-offenders and a charity partnership aiding
employment for people with Down's syndrome. Separately, we continue
to monitor Greggs' progress on nutrition as part of our membership
in the ShareAction Healthy Markets Initiative.
The
Portfolio
At 31 March 2024, the Portfolio
consisted of 35, high conviction investments of which the top ten
holdings represented 46% of the portfolio by value. MUSCIT held 11
companies traded on AIM, representing 21% of the Portfolio by
value. Sector distribution within the Portfolio is driven by stock
selection. Although weightings relative to the market are
monitored, overweight and underweight positions are held based on
where the greatest value and upside are perceived to be.
Gearing
The Board is responsible for setting
the Company's gearing strategy and approves the arrangement of any
gearing facilities. The AIFM is responsible for determining the net
gearing level within the parameters set by the Board. At 31 March
2024, gearing stood at 2.7%.
Performance Review
The NAV returned 8.3% (with
dividends reinvested) over the year, less than 1% behind the
Benchmark. However, compared to the Deutsche Numis Smaller
Companies Index (including AIM), MUSCIT outperformed by more than
5%. The discount widened from 8.3% to 15.1% in line with a general
widening of discounts in the sector. Since its launch in March
1995, MUSCIT has delivered NAV returns of 8.2% p.a. (including
dividends reinvested) and outperformed the benchmark by 1.5%
p.a.
Performance Attribution
The largest positive contributors
over the period were:
XPS
Pensions, leading pension fund
consultants and administrators, reported record growth and new
clients, winning several awards. The mini budget from Liz Truss in
September 2022 caused a dramatic sell-off in gilts, sparking a
liability driven investment (LDI) crisis as pension funds were
forced to liquidate assets. Demand for their services and advice
unsurprisingly increased as a result.
4imprint supplies promotional
merchandise - the place to go to if you want, for example, a pen or
laptop bag with your company logo on it. During the year, it
announced several upgrades to forecasts and ended the year
announcing record sales. The share price has risen by 31% over the
past twelve months (to March 31st).
Dechra Pharmaceuticals offers
pharmaceutical products and services to vets. A long-standing
investment mentioned in last year's annual report, it has been
acquired by EQT. We are sorry to see it go and feel it makes for a
good case study, please see above.
There will always be some
investments that do not go as expected. The largest negative
contributors over the period were:
Kainos provides IT services
primarily to the UK Government to deliver digital transformation
programmes. Examples include DVLA, where you can now view driving
license records online; updating the MOT system with a new online
service; and the Register to Vote on-line system. The other strand
to Kainos' business is its partnership with Workday Inc, a $70bn
market cap. US-listed software company that provides a cloud-based
software system for Finance and HR to large enterprises. With
a forthcoming change in Government, investors seem concerned that
fewer contracts will be awarded.
Watches of Switzerland, the
international retailer of luxury Swiss watches such as Rolex, faced
two unexpected disappointments in the year. In August, Rolex bought
Bucherer, their distributor in Switzerland. Overnight, Rolex became
a competitor for the first time as well as a key supplier, raising
questions about Watches of Switzerland's long-term strategy. In
addition, this year they surprised investors by announcing a poor
Christmas selling season (the UK accounts for over half of
sales).
XP
Power is one of the world's leading
providers of power converter solutions that ensure critical
electrical and electronic equipment is powered safely and reliably.
There are three divisions: "Industrial Technology" includes
analytical instrumentation, testing, industrial printing, smart
manufacturing, warehousing and robotics; "Healthcare" includes end
products going to patient monitoring and diagnostics, clinical
labs, surgical robotics; and "SemiConductors", which can be highly
cyclical. The normally defensive Healthcare division saw weak
demand due to customer destocking. In addition to a profit warning,
the company announced a fund raising of over £40 million to reduce
gearing in which MUSCIT participated.
Case Study - Dechra Pharmaceuticals
("Dechra")
Dechra resulted from a management
buy-out from Lloyds Chemist in 1997 when they spun-off their
veterinary business. Floated in September 2000 at £1.20p per share,
it had a market capitalisation of £60 million and was too small for
many of the larger financial institutions. It was perfect for
MUSCIT. According to the first annual report, in September 2002 we
held a stake of 5.3% and were the fourth largest institutional
investor.
In November 2001, Ian Page was
appointed Chief Executive having started his career as a van
driver. Sadly, the Chairman Peter Redfern, who guided Dechra
through the MBO to flotation, died in January 2002. I have long
argued that investing in SmallCap is all about getting to know the
people who manage the businesses. It is an honour and a privilege
that Ian and his colleagues have given so much of their time to
meeting us to share their ambitions and plans for Dechra. For our
part, in a small way, we may have helped by supporting Ian in
acquisitions and possibly at times in advice.
Ian and his team grew Dechra from a
small company with sales of less than £150 million to an
international veterinary pharmaceuticals company with sales of more
than £750 million and almost 2,500 employees in 26 countries. They
now offer a wide range of products and services to vets: 75% to
dogs and cats; pigs and cows 11%; horses 7% and pet foods 5%.
Dechra is ranked seventh in the world.
EQT made a bid on 23 June 2023 for
£4.46 billion or £38.75 per share, a premium of around 45% and a
multiple of 26x EBITDA (earnings before interest, taxes,
depreciation, and amortisation). The take-over was completed on 16
January 2024.
If ever you wanted to find a reason
for investing in SmallCap, Dechra is it. A small company with
little research coverage at first, it was too small for major
institutional investors. For many years it was largely unknown, an
"undiscovered gem". With an outstanding management team, it became
a global market leader and a FTSE-100 company. This is why investing in
SmallCap is so exciting.
From the flotation in September 2000
to 12 April 2023, the FTSE-100 rose by 177% and the FTSE-250 by
425%. Dechra has delivered total shareholder returns of 3,471%.
Thank you, Ian.
Outlook
The supply chain challenges of
recent times appear to be normalising and companies are returning
to their past ordering and stock patterns. The period of building
up raw materials and finished goods "just in case" appears to be
over as companies are coming to the end of a programme
of destocking.
Nonetheless, it has been a difficult
period for SmallCap.
SmallCap has outperformed LargeCap in
every decade after the Second World War with just one exception:
the 1990s, which saw five crises over five years including LTCM,
the Asian Crisis and a recession. In times of crisis, investors
tend to sell SmallCap and seek refuge in cash and liquidity.
Although it is still early days in this decade, already we have
seen a pandemic and the Ukraine war with all
its ramifications.
Assuming there are no more black swan
events or geo-political crises, we may be entering a more "normal"
period when SmallCap typically does well. If inflation and interest
rates continue to fall, investor confidence should return. The big
lesson of March 2003 and March 2009 is that sentiment is remarkably
fickle and can improve both dramatically and quickly. It is
important to be invested before the recovery.
It is customary to write that we look
forward to the "future with confidence". Actions speak louder than
words: Montanaro Asset Management recently increased its investment
in MUSCIT to over 6%, making us one of the
larger investors.
CHARLES MONTANARO
14 June 2024
Top
20 Holdings
Twenty Largest Holdings
as at 31 March 2024
1.
4imprint - a supplier of
promotional merchandise.
2.
Big
Yellow - a REIT focused on the
self-storage market.
3.
Games
Workshop - the largest hobby
miniatures company in the world and the owner of the Warhammer
brand.
4.
Clarkson - a leading shipping
brokerage business.
5.
Marshalls - the UK's leading
provider of landscaping products.
6.
discoverIE - a designer and
manufacturer of components for electronic applications.
7.
Greggs - the bakery
chain.
8.
Cranswick - the leading UK
supplier of fresh pork meat products.
9.
XPS
Pensions - a leading pensions
consulting and administration business fully focused on UK pension
schemes.
10.
Porvair - a specialist in
industrial filtration and environmental technology.
11.
Kainos
- a software developer headquartered
in Belfast that specialises in digital transformation.
12.
LondonMetric
Property - a REIT involved primarily
in the logistics, healthcare and leisure sectors.
13.
Tracsis - a provider of
software and consulting services to UK rail and transportation
markets.
14.
Bytes
Technology - a reseller of computer
software in the UK.
15.
Hilton
Food - a leading food packing
business.
16.
Genuit - a manufacturer of
plastic piping systems.
17.
Boku - a mobile payments
company.
18.
XP
Power - a provider of power
solutions.
19.
Globaldata - a data analytics
and consulting company.
20.
SThree - a staffing company
specialising in life sciences, technology, engineering and data
analytics.
Holding
|
Sector
|
Value
£'000
|
Market cap
£m
|
% of
portfolio
31 March
2024
|
%
of
portfolio
31 March
2023
|
4imprint
|
Media
|
11,095
|
1,786
|
5.4
|
7.2
|
Big Yellow
|
Real Estate Investment
Trusts
|
10,640
|
2,086
|
5.2
|
3.6
|
Games Workshop
|
Leisure Goods
|
10,040
|
3,305
|
4.9
|
4.8
|
Clarkson
|
Industrial Transportation
|
10,025
|
1,231
|
4.9
|
3.9
|
Marshalls
|
Construction and Materials
|
9,618
|
694
|
4.7
|
3.5
|
discoverIE
|
Electronic and Electrical
Equipment
|
9,463
|
722
|
4.6
|
3.8
|
Greggs
|
Personal Care, Drug and Grocery
Stores
|
9,341
|
2,939
|
4.6
|
4.5
|
Cranswick
|
Food Producers
|
8,192
|
2,207
|
4.0
|
2.6
|
XPS Pensions
|
Financial Services
|
8,085
|
477
|
3.9
|
2.0
|
Porvair
|
Industrial Engineering
|
7,775
|
288
|
3.8
|
3.0
|
Kainos
|
Software and Computer
Services
|
7,241
|
1,214
|
3.5
|
3.8
|
Londonmetric Property
|
Real Estate Investment
Trusts
|
7,112
|
2,220
|
3.5
|
0.9
|
Tracsis
|
Software and Computer
Services
|
6,750
|
271
|
3.3
|
3.5
|
Bytes Technology
|
Software and Computer
Services
|
6,388
|
1,228
|
3.1
|
-
|
Hilton Food
|
Food Producers
|
6,323
|
755
|
3.1
|
2.1
|
Genuit
|
Construction and Materials
|
5,513
|
1,099
|
2.7
|
1.7
|
Boku
|
Industrial Support
Services
|
5,460
|
541
|
2.7
|
2.8
|
XP Power
|
Electronic and Electrical
Equipment
|
5,450
|
258
|
2.7
|
2.0
|
Globaldata
|
Media
|
5,400
|
1,521
|
2.6
|
2.1
|
SThree
|
Industrial Support
Services
|
5,375
|
580
|
2.6
|
2.1
|
Twenty Largest Holdings
|
|
155,286
|
|
75.8
|
|
All investments are in Ordinary
shares.
As at 31 March 2024, the Company did
not hold any equity interests comprising more than 3% of any
company's share capital.
FURTHER INFORMATION
Montanaro UK Smaller Companies
Investment Trust PLC's annual report and accounts for the year
ended 31 March 2024 (which includes the notice of meeting for the
Company's AGM) will be available today on
https://montanaro.co.uk/trust/montanaro-uk-smaller-companies-investment-trust/
It has also been submitted in full
unedited text to the Financial Conduct Authority's National Storage
Mechanism and is available for inspection at
data.fca.org.uk/#/nsm/nationalstoragemechanism
in accordance with DTR 6.3.5(1A) of the Financial
Conduct Authority's Disclosure Guidance and Transparency
Rules.