RCS - Down MicroCap InvTst - Results analysis from Kepler Trust Intelligence

Downing Strategic Micro-Cap Investment TrustAnnouncement

10/05/2023 09:45

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RNS Number : 9489Y  Downing Strategic Micro-Cap IT PLC  10 May 2023

Downing Strategic MicroCap (DSM)

10/05/2023

Results analysis from Kepler Trust Intelligence

·    In the full year to 28/02/2023, Downing Strategic MicroCap (DSM)
reported a NAV decrease of 8.7% and a 9.7% decrease in the share price,
outperforming the FTSE AIM All-Share TR index over the period, which fell
17.4%

·    This marked the third consecutive year of outperformance for the
trust, as several of its investments reach maturity

·    A couple of headline realisations over the period, including one sale
at a 74.8% premium to the share price, demonstrated the DSM investment case,
which seeks out mispriced companies with clear improvement potential

·    The managers believe that small caps' ability to be nimble will prove
fertile over the coming year despite challenging conditions, with the trust's
portfolio holdings largely holding cash on their balance sheets

·    The trust currently sits on a discount of -15.5% as small caps more
broadly remain out of favour in a rising rate environment

Kepler View

Downing Strategic Micro-Cap (DSM) has published another set of strong results,
outperforming both the AIM and FTSE Small Cap indices for the third year
running. Having consistently touted the long-term potential of its investments
- with the investment case across the board generally focused on realising
value over time as a result of improvement stories - the trust's strategy
appears to now be proving its effectiveness over a challenging market cycle.

Notable highlights during the year include the acquisition of AdEPT by
Macquarie Group subsidiary Wavenet Group at a premium of 74.8% to the closing
price on 07/02/2023. This process was at least in part driven by DSM's
managers, Judith Mackenzie and Nick Hawthorn, with the pair believing that
AdEPT would struggle to improve the multiple it was trading on given the
significant debt on its balance sheet.

Other highlights in a portfolio focused on idiosyncratic opportunities include
a 23.9% rise in the share price of Centaur Media over the period, despite an
apparently challenging environment for media-oriented businesses. Judith and
Nick believe the business has potential to grow further in 2023, with a strong
balance sheet allowing for further distributions to shareholders.

All this good news aside, the NAV fell by 8.7% over the year, as small caps
generally suffered from a perception of riskiness in a rising rate
environment. Within the portfolio, the companies that suffered most were
FireAngel, as a result of supply chain issues impacting delivery, and
DigitalBox, where headwinds for ad spending caused market sentiment to decline
dramatically.

Looking forward, the managers say that there is significant potential for
earnings upgrades in many of the trust's 10 largest portfolio holdings over
the next 12-24 months. These come from mixed sources, including latent COVID
recovery and improving online and digital offerings from several portfolio
companies. The team provide a detailed explanation on the investment case for
each of their holdings in the announcement, accessible via the link below.
With acquirers circling the UK, the portfolio is poised for further M&A.

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(https://www.trustintelligence.co.uk/investor/articles/news-investor-results-analysis-downing-strategic-microcap-retail-may-2023?utm_source=RNS&utm_medium=news)

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