Annual Financial Report
12/07/2024 07:00
LEI: 21380048Q8UABVMAG916
MITON UK MICROCAP TRUST PLC
(the "Company")
2024 Annual Results, Dividend announcement and Notice of Annual General
Meeting
Miton UK Microcap Trust plc ("MINI" or the "Trust") announces its annual
results for the year ended 30 April 2024 and the publication of its annual
report and accounts for the same period, which includes the notice of its 2024
Annual General Meeting.
SUMMARY OF RESULTS
Year to 30 April 2024 Year to 30 April 2023
Total net assets attributable to equity shareholders including fair value of warrants (£000) 43,297 60,754
Statutory NAV including fair value of warrants* 56.29p 64.20p
Adjusted NAV per Ordinary Share* 55.79p 64.20p
Share price (last close) 50.50p 59.50p
Discount to Adjusted NAV* (9.48)% (7.32)%
Investment income £0.9m £0.8m
Revenue return per Ordinary Share 0.09p 0.03p
Total return per Ordinary Share including value of warrants (9.17)р (28.93)p
Ongoing charges # * 1.99% 1.72%
Ordinary Shares in issue 76,923,603 94,638,561
*Alternative Performance Measure ("APM"). Details provided in the Glossary of
the Annual Report. The Adjusted NAV is the Statutory NAV presented in the
financial statements adjusted to exclude the fair value of the warrants held
by the Trust
#The ongoing charges are calculated in accordance with AIC guidelines.
CHAIRMAN'S STATEMENT
The report covers the full year to 30 April 2024, a period which was, in
football parlance, a game of two halves. In the first half to end of October
2023, the Trust's Adjusted Net Asset Value ("Adjusted NAV") fell by 15.5%,
from 64.20p to 54.10p. The second half saw a tentative recovery with the
Adjusted NAV rising by 3.1% to 55.79p. This somewhat anaemic return was
greatly outpaced by other indices, as local selling was offset hardly at all
by few corporate buybacks within microcaps, and which led to UK-quoted
microcap valuations declining even further. Over the period as a whole,
therefore, the Trust's Adjusted NAV fell 12.9%, compared to a rise in the
Deutsche Numis Smaller Companies 1000 Index of 7.2%. The vast majority of UK
microcaps were already standing on unusually low valuations even prior to
their share price weakness over this past year. The low average Price to Book
of holdings in the portfolio highlights the value to be found in owning shares
in the Trust.
Earnings and Dividends
Earnings for the year, after costs, were 0.09p per share (2023: 0.03p) on the
revenue account. Earnings on the capital account consisted of a loss of 9.26p
per share (2023: loss of 28.96p). Earnings on the revenue account remain
depressed as microcap companies seek to retain cash rather than paying it out
in dividends to shareholders. As far as setting the dividend is concerned, the
Directors have always given the Manager maximum flexibility to follow which
ever course is believed to lead to the best results for our shareholders. As
Directors, we regard the dividend as a useful by-product of the investment
process but not a target in itself. This year, your Board is recommending a
final dividend of 0.09p per ordinary share, reflecting the revenue for the
year. Subject to approval by shareholders at the AGM, this will be paid on 25
October 2024 to shareholders on the register on 27 September 2024.
Performance
With the dearth of buying interest in UK microcaps over the last three years,
marginal sellers have dominated the direction of share prices. Every excuse in
the book has been rolled out for why institutions and individuals should not
buy UK equities - a close Scottish referendum, Brexit, four Prime Ministers in
five years, the UK's lack of exposure to technology stocks, an egregious 0.5%
stamp duty on the purchase of equities not paid by investors in other first
world stock markets, the sudden imposition of an additional tax on North Sea
oil producers, a major land war in Europe and the ongoing conflict in the
Middle East. To add insult to injury, the investment trust sector has been
discriminated against by the iniquitous double counting of fees such that
wealth managers find real difficulties explaining why they should be buying
closed end vehicles for their clients, given the apparently high level of
fees.
Given the continuing mergers of wealth managers, the barriers to liquidity are
now so high that in order to attract the selector's eye, investment trusts
need to have market capitalisations of £1bn+. There are precious few of those
around. The Association of Investment Companies (AIC) is trying to get the
Financial Conduct Authority (FCA) to reverse the cost disclosure position but
the latter does not appear to grasp the urgency, whilst the government seems
unable to appreciate the seriousness resulting from the UK falling from its
position as the premier global centre for finance. Many large companies are
voting with their feet, seeking listings in the US, where valuations are far
higher and the climate more benign - even the mighty Shell is contemplating
such a move.
At the end of April, for example, it was reported that Coutts & Co. was
cutting its UK equity allocation by almost £2bn from 33% to 2%, even below
the UK's now feeble 3% weighting in global equity indices. The consequence is
that UK equities are almost wholly unloved and, as at the end of April 2024,
were trading on 12x forward price earnings ratio vs the world on 17x and the
US on 21x, (source: Bloomberg). The Price to Book ratios are even more extreme
with the UK on 1.6x, the world on 2.7x and the US on a lofty 4.4x, whilst the
UK also offers a meaningfully higher dividend yield at 3.8% than both the US
(1.4%) and world markets (2.1%). I thought that the nadir of selling of UK
equities was reached a year ago but I was sadly mistaken; as the chart below
shows the rate of selling has in fact accelerated. Capitalism abhors a vacuum
and the recent high and rising level of corporate take overs of listed
companies demonstrates the value to be found in the UK. Canny contrarians are
buying UK equities at what appear to be knock down prices.
Prospects
The last three years have been incredibly frustrating for the management teams
of numerous UK quoted companies and for our shareholders. UK microcap share
prices have steadily declined, even whilst the underlying companies have often
continued to deliver results in line with expectations.
Whilst this is disappointing, the Trust was set up because quoted microcaps
possess extraordinary upside potential. When microcaps succeed, sometimes
their share prices can appreciate very dramatically. We liken this to an
option-value upside, where the term of the option is open-ended, and its cost
comes almost for free, embedded within the quoted microcap share price.
Currently the media is marvelling because Nvidia has delivered an annualised
return of 86% in sterling terms over the last four years. And yet, the Trust's
holding in Yü Group (a microcap exemplar), has appreciated at an annualised
rate over the same period of 130%. In short, Yü Group's share price has risen
some 27-fold, compared with Nvidia which has risen 11-fold.
Furthermore, after Nvidia's rise, it has moved up to a high-expectation
valuation (Price to Book of 51.8x), whereas Yü Group is still on a modest
valuation - even now its Price to Book is only 6.2x. Thus, Yü Group still
retains bags more upside potential, even in the short-term.
Microcap share prices generally have been severely repressed over the last
three years, so these abnormally large upsides have been more infrequent. To
catch the discerning investor's eye, small stocks have to be exceptional. Yü
Group is a good example and is currently one of the multi-baggers in the
Company's portfolio.
Hopefully, by the time that you read this, the green shoots in UK equities
which started emerging in mid-April, will have blossomed into something more
substantial. The UK is now officially out of recession and `animal spirits'
are evident. After largely flatlining since 2000, the UK stock market has
recently broken out on the upside. Rather similar to the Japanese stock
market, we believe this is the start of a new longer-term trend. In our view,
the mainstream UK stocks are now set to enter a period when they will
outperform their international comparators.
But the greatest upside potential has always lain within UK-quoted microcaps -
and they now are starting from shockingly low valuations. Those that succeed
from here have the potential to perform so much better than large caps. The
old stock exchange adage that `Elephants don't gallop' is normally the rule.
If the UK stock market itself may be starting a long-term trend of
outperformance, and if UK microcaps outperform the UK majors as they have done
historically, then they are set to outperform international comparatives.
In conclusion, it is hard to overstate the scale of the current upside
potential for the Miton UK Microcap Trust in absolute terms, as well in the
context of other equities internationally.
Share Issuance
As the shares did not trade at a premium to the prevailing Adjusted NAV during
the year under report, there were no opportunities to issue shares. We will be
seeking approval at the AGM in September 2024 to renew this useful facility.
Issuing shares at a premium to Adjusted NAV is to the benefit of all
shareholders as it dilutes the fixed charges which the Company bears and thus
lowers the Ongoing Charges Figure ("OCF").
Share Redemption
Each year your Directors offer the facility for shareholders to redeem their
holdings in part or whole, at or close to the prevailing Adjusted Net Asset
Value. The Directors are offering this facility again this year and the
timetable is laid out in the annual report. Should the redemption be
substantial, then the Directors may take the decision to form a separate
redemption pool, as we did last year, and it may take a number of weeks, if
not months, to liquidate the pool carefully without disadvantaging the
remaining shareholders, or indeed the exiting ones. Thanks to microcaps having
been out of favour for almost three years, the Trust has suffered heavy
redemptions over each of the last two years, being 13.4% in 2022 and 18.7% in
2023. We have in place an agreement with the Trust's managers, Premier Miton,
that they will rebate their ongoing management fee to the extent required for
the Trust to maintain an ongoing charges ratio of no more than 2%. The Trust
thus has the facility to remain viable at a lower level of market
capitalisation than most investors would believe possible. It is also worth
noting that Premier Miton's fee is based on the Trust's market capitalisation
and not its Adjusted NAV, which, when it is trading at a significant discount,
is of material benefit to shareholders.
Board Refreshment
Your Directors have a policy that a non-executive Director should serve for no
more than nine years, from the date of first election. A well-structured
waterfall of directors' retirements is always difficult when coming after a
company has been launched, as directors should retire nine years after the
first election by shareholders. Davina Walter will take over from Peter Dicks
as Senior Independent Director on 1 May 2024. Louise Bonham will take over
from Peter on 1 September 2024 as Chair of the Audit Committee, whilst Peter
will be on hand to help with the redemption process and with the interim
results until he retires from the Company at the end of December 2024.
Environmental, Social and Governance (ESG) issues
Your Manager follows Premier Miton's responsible investing policy, which is to
consider Environmental, Social and Governance issues and actively to engage in
the investment process with investee companies, in order to deliver improved
outcomes for all stakeholders and to take an active approach to voting on
company resolutions at annual general meetings of investee companies. Premier
Miton has been a signatory of the UN Principles for Responsible Investment
since January 2020, an organisation which encourages and supports its
signatories to incorporate ESG factors into investment and ownership
decisions. Premier Miton also adopts a banned weapons exclusion and utilises
third party data to maintain a list of such companies.
Change of Service Providers
As reported in the interim report, following due process, evidenced by
extensive due diligence and interviews, on 4 March 2024, the Trust appointed
subsidiaries of Northern Trust as company secretary and registered office,
fund administrator and depositary, resulting in considerable savings for
shareholders.
Annual General Meeting
The Annual General Meeting of the Trust will be held at 11.30am on Tuesday 24
September 2024 at the offices of Stephenson Harwood, 1 Finsbury Circus, London
EC2M 7SH. Your Directors look forward to this opportunity to meet shareholders
and especially retail investors, as there are few other opportunities to
engage with the latter. Aside from the formal business of the AGM, Gervais
Williams and Martin Turner will give a presentation on the Trust's prospects
and at the end of proceedings we will be offering a sandwich lunch. We hope
that as many shareholders as possible will be able to attend and would
encourage those wishing to do so to register their interest via a link that
will be available on the Trust's website, www.mitonukmicrocaptrust.com, in the
preceding six weeks. There you will also find additional details regarding the
Trust including factsheets and a range of regularly updated videos, podcasts
and articles.
In conclusion, as I wrote in my last report, the Directors are grateful for
your tolerance in holding the Trust's shares over what has been a fairly
dismal period and we are hopeful that your patience will be amply rewarded in
the not-too-distant future. Two of your Directors added materially to their
holdings over the year, demonstrating their confidence in the long term
prospects for the Company.
Ashe Windham
Chairman
11 July 2024
INVESTMENT MANAGER'S REPORT
Which fund managers have day-to-day responsibility for the Trust's portfolio?
Since the launch of the Trust in April 2015, the day-to-day management of the
Trust's portfolio has consistently been carried out by Gervais Williams and
Martin Turner.
Gervais Williams
Gervais joined Miton in March 2011 and is Head of Equities at Premier Miton.
He has been an equity fund manager since 1985, including 17 years at Gartmore.
He was named Fund Manager of the Year by What Investment? In 2014. Gervais is
President of the Quoted Companies Alliance and a member of the AIM Advisory
Council.
Martin Turner
Martin joined Miton in May 2011. He and Gervais have had a close working
relationship since 2004, with complementary expertise that led them to back a
series of successful companies. Martin qualified as a Chartered Accountant
with Arthur Anderson and had senior roles and extensive experience at Merrill
Lynch and Collins Stewart.
What were the principal stock contributors and detractors in the portfolio
over the year to April 2024?
Over the last three years, including throughout the year to April 2024,
institutional investors have sought to reduce their holdings of UK equities,
so that capital could be invested elsewhere. Hence, there have been persistent
sellers of microcap shares that have often outnumbered the buyers, such that
most microcap share prices have fallen, even when their prospects remained
unchanged.
However, occasionally, the prospects of a quoted microcap improve so
significantly that even though its share price might appreciate by many
multiples, its valuation still remains relatively modest. With the overhang of
quoted microcaps sellers, this outcome has been somewhat more frequent than
usual this year. The best example in this period was Yü Group, which
appreciated three-fold over the year to April 2024 and yet still stands on an
overlooked valuation. Whilst the Trust's holding in Yü Group was trimmed to
keep its percentage of the portfolio below 10%, it still appears to have an
unusually attractive risk/reward ratio at its current share price. Serabi
Gold, a gold mining company in Brazil, was somewhat similar, having
appreciated by 130% over the year.
Given the generally unfavourable background, the share prices of portfolio
holdings that chose to raise additional capital were often particularly weak.
A good example is CyanConnode, a market leader in Indian smart meters. The
Trust held this in its portfolio because the Indian government is tendering to
install 250 million meters over the coming years. In November 2023, the
company raised £2.5m to increase its component inventory, anticipating that
this would help it to win a larger proportion of its tenders. Even though
CyanConnode has continued to meet market expectations, with the additional
share issuance, its share price fell 53% over the year to April 2024. Whilst
corporate prospects may have been enhanced by raising additional capital, the
holding was the worst detractor in terms of the Trust's Adjusted NAV return
this year.
Alongside, there are always a number of portfolio holdings where prospects
deteriorate, and which are therefore sold from the portfolio, typically
crystalising losses. This year the most significant of these were Cap-XX,
Ethernity Networks, FireAngel, Graft Polymer, MusicMagpie, Saietta and
Velocys. In addition, the management team of Accrol Group recommended a
takeover offer, even though it was only at a modest premium to its share
price. They feared global competition setting up in the UK would degrade their
profitability.
In a normal year, when buyers and sellers of microcap holdings are in balance,
there will always be a number of microcap share prices that appreciate
significantly. With microcap transactions being out of balance, however, these
were comparatively scarce in the year under review. In addition, even
microcaps that excelled did not necessarily appreciate in valuation as much as
might be expected. Even so, where valuations of individual holdings moved well
above others, these were sold, giving the potential to reinvest capital in
other stocks standing on extremely overlooked valuations. For this reason,
positions in Corero Network Securities, DX Group, Journeo, Oxford BioDyanmics,
React Group and Sureserve were sold during the year.
In summary, with the persistent sellers of microcap shares over the year to
April 2024, their share prices have been unusually weak even when their
prospects remained unchanged. This is the principal reason why the Adjusted
NAV of the Trust fell 12.9% over the year.
What are the main factors that have driven the Trust's returns since it first
listed in April 2015?
As highlighted in previous annual reports, the best performing part of the UK
stock market since 1955 (the start of the relevant data series) has been the
microcap sector.
When the investment universe is narrowed further, solely to include microcaps
standing on undemanding valuations (typically determined by low Price to Book
ratios), the scale of their outperformance is even more marked. With this
background in mind, the Trust's portfolio principally invests in UK-quoted
microcaps standing on what we consider to be overlooked valuations at the time
of purchase. When these microcaps succeed, their share prices can appreciate
by many multiples of the purchase price.
The globalisation trend was already declining when the Trust was set up in
April 2015, and we anticipated that it would gradually fade. Whilst economic
trends have indeed evolved as expected, governments and central banks have
been fearful of unwinding the debt burden, so have adopted unconventional
policies to keep the prior stock market status quo in place. This has led to
perverse outcomes. Whereas the smaller company effect is near-ubiquitous,
recent policy gymnastics have boosted megacap outperformance dramatically.
Although this pattern is likely to prove unsustainable over time, it has had
the unwelcome side effect of making market conditions for quoted microcaps
increasingly hostile since the Trust's listing in April 2015.
Over recent years, the cost of raising additional microcap capital has
typically become far more onerous, as investors have become increasingly
cautious about committing additional capital to assets that continue to
underperform. Thus, quoted microcaps seeking to raise additional capital have
either contemplated issuing new shares at a discount to their subnormal
valuations or chosen to live without additional capital. While issuing
additional capital typically enhances prospects, many microcaps have preferred
to grow at a slower pace over recent years rather than issue heavily dilutive
new capital. Microcaps that have run out of cash meanwhile have often been
obliged to raise new capital irrespective of its dilutive effect. In these
cases, the prospective returns for existing shareholders will have been
downgraded, other than for those that invested additional capital and
therefore maintained their percentage ownership.
For these reasons, over the nine years since issue, the share prices of many
UK-quoted microcaps in the Trust's portfolio have suffered a valuation
headwind, even amongst those that were successful. Those that disappointed
have typically delivered poorer returns than normal.
In spite of these severe microcap headwinds, the Adjusted NAV of the Trust has
nevertheless modestly risen since inception in April 2015, and outperformed
the return of the Deutsche Numis Alternative Markets Index. Whilst the
portfolio does include a list of holdings that have delivered poor returns,
there are many others that have generated excellent returns despite the
adverse microcap conditions. Further up the market capitalisation scale,
conditions have typically been less hostile, which explains why the returns of
the comparative indices are generally better than that of the Trust's Adjusted
NAV total return. In addition, the returns of larger market capitalisations
stocks by definition have larger index weightings, and hence skew the overall
return of the comparative indices further upwards when they outperform.
Total returns of the Trust and various comparative indices since launch in
April 2015
%
Deutsche Numis All Share Index 60.8
Deutsche Numis Smaller Companies Index 45.4
Deutsche Numis SC 1000 Index 55.3
Deutsche Numis Alternative Markets Index 12.0
MINI adjusted NAV 16.2
Source: Morningstar
In the light of the substantial decline in the Trust's Adjusted NAV over the
last three years, have its longer-term prospects deteriorated?
The period of globalisation can be characterised as favouring `bigness', which
may explain why the US stock market has greatly outpaced others over recent
decades. During globalisation, the valuations of other exchanges such as the
UK have trailed behind the US comparatives. This position is even more extreme
within UK-quoted microcaps, where over the last three years valuations have
fallen to what we consider to be absurdly low levels.
Over the last decade or so however, the electorate has come to distrust the
compromises that come with globalisation. This was evident as long ago as 2016
with the Brexit and Trump votes. Thereafter, the logistics nightmares of the
pandemic have made the compromises that come with globalisation all the more
prominent, and electoral pressure for change has become more persistent.
Beyond globalisation, policies such as reshoring manufacturing, which tend to
boost inflation, are expected to lead to a much more challenging economic
outlook. Interestingly, we believe changes like this favour companies funded
with risk capital, such as those listed on stock markets, over those
principally funded by debt, like private equities. Quoted companies generating
cash surpluses (such as those that dominate the UK mainstream stock market)
now have the potential to outperform greatly. In this context, we are not
surprised that this is the moment when the mainstream UK stock market has
broken out of its trading range on the upside. This is all the more
significant given that it has done so at a time when numerous local investors
have been aggressively reducing their UK equity weightings. Breakouts such as
that of the UK tend to bring in new participants from overseas, boosting the
outperformance trend further. As local selling moderates and in time ceases,
we anticipate the new UK outperformance trend will accelerate further and
become persistent.
Furthermore, we also anticipate that market trends will start to favour small
cap stocks over large ones, in which the UK exchange is better represented
than most other markets. Hence, far from being worried about the Trust's
prospects deteriorating after its recent underperformance, we believe its
upside potential is now even greater than before, and more immediate. In part,
this is due to UK-quoted microcaps standing on absurdly low valuations, but
also because we anticipate that the current political and geopolitical trends
will favour UK-quoted equities, and most particularly UK-quoted microcaps in
future.
Will institutional investors ever return to the UK quoted microcap investment
universe?
Inflationary pressures were benign during the period of globalisation, and
asset valuations in general rose considerably. In addition, the opening up of
international trade also enhanced world growth, so most businesses expanded.
Overall, the returns of many assets have been unusually strong during
globalisation.
As the favourable pattern persisted over decades, stock market returns were
routinely well above inflation, and additional returns from smallcap
portfolios became apparently optional for institutions. Indeed, institutions
progressively favoured concentrating capital in large and megacap equities
because they came with abundant market liquidity. Hence, although quoted
smallcaps may have outperformed the majors during globalisation, the
commercial returns from all sorts of mainstream assets were so copious that
most institutional investors steadily reduced their smallcap participation.
The adverse pattern has been most pronounced within the UK-quoted microcap
investment universe, where the vast majority of capital is now provided by
private investors. Amongst institutional investors, even those with dedicated
UK smallcap strategies now routinely disregard quoted companies below a
minimum market capitalisation, say, of £150m.
Recent elections have led to a Balkanisation of international relationships,
and globalisation is now in retreat. There are fewer opportunities to sell
goods across all international geographies, which constrains opportunity for
many global businesses. Furthermore, the reshoring of manufactured goods, and
greater immigration controls add to inflationary pressures, and hence are also
expected to reduce asset valuations. The return on mainstream stock markets by
implication may be much poorer in the future. Given that many quoted megacaps
are currently standing on incredibly high valuations, many stock markets
around the world may fail to deliver a commercial return for many years.
Even if UK-quoted microcaps were to start outperforming very substantially
over the coming quarters, we doubt that institutions would immediately crowd
into them. However, if the mainstream indices were to fail to deliver a
commercial return for a long period, in time we do expect institutional
capital to be reallocated into areas that are outperforming.
Number of quoted companies in the UK below and above £150m market
capitalisation
No of Companies
<£150m 538 Combined market capitalisation £14bn
>£150m 468 Combined market capitalisation £2,296bn
Source: Premier Miton
The smallcap investment universe is typically defined as comprising the bottom
ten percent of market capitalisations of the overall stock market, so an
allocation from the large cap ninety percent, into the smallcap ten percent
tends to amplify its performance. Furthermore, as microcaps are typically
defined as being the bottom two percent, an allocation from the large and
smallcap ninety-eight percent into the microcap two percent can be expected to
have an even greater amplification impact on performance. Alongside, as UK
mainstream companies have fallen to undemanding valuations during
globalisation, and UK-quoted microcaps have fallen to absurdly low valuations,
the new outperformance trends have the potential to persist in scale for
years.
For all these reasons, we expect UK-quoted microcaps to outperform greatly
global large and megacaps, in a new trend that is boosted further by
institutional capital being allocated increasingly further down the market
capitalisation range. Even a tiny incremental allocation of institutional
capital would have a major impact on UK-quoted microcap returns. And as the
cost of microcap capital becomes less onerous, we foresee they will enhance
their returns yet further through share issuance. Over time, the more that
quoted microcaps outperform, the greater will be the willingness of
institutional capital to participate. We anticipate something of a virtuous
spiral from here, with additional institutional capital allocations being
matched by an accelerating pattern of UK-quoted microcap outperformance in a
new trend that could last for decades!
What are the prospects for the Trust?
In the sections above, we outline why we believe the current political and
geopolitical trends are now set to favour quoted equities and specifically
UK-quoted equities from here. In addition, we also outline why we believe
market trends will now start to favour smallness over bigness. When these
factors are set in the context of UK-quoted microcaps that are currently
standing on unusually low valuations, the reasoning for being upbeat about the
Trust's prospects should be obvious.
Even after setting out these arguments however, we believe that the full
upside potential of the Trust's strategy is still not fully captured. The
issue is that investors' expectations are currently framed in the context of a
stock market that has become increasingly hostile towards UK-quoted microcaps.
Investors may gauge the ultimate upside potential of the Trust with reference
to the return from a holding such as Yü Group, whose share price has
appreciated 21-fold between first purchase in May/June 2020 and the end of
April 2024. This is twice as fast as that of Nvidia for example (by far the
best performing US-listed member of the Magnificent Seven over that period)
and hence may be assumed to represent a UK-quoted microcap at its best.
And yet, when UK-quoted microcap market conditions are less hostile, microcaps
like Yü Group may have even greater upside potential. To repeat, many
UK-quoted microcaps currently stand on very overlooked valuations. So, even
after Yü Group's astronomical returns, for example, its Price to Book ratio
is still only 6.2x, whereas that of Nvidia is over 50x (even though it has
delivered lesser, though still stellar, returns). In short, without wishing to
debate the relative investment merits of Yü Group versus Nvidia, we believe
that if Yü Group's share price were to rise to a valuation that fairly
reflects its prospects, it would offer plenty of upside potential from here.
As it is, following its recent deal with Shell, Yü Group no longer needs to
commit tens of millions of pounds in cash collateral when it hedges the energy
price for its customers. With Yü Group's collateral constraints now lifted,
it can now take the brakes off its full growth potential and hence a potential
valuation that fairly reflects its prospects may now be even greater than it
was a few months ago.
The bottom line is that when UK-quoted market conditions become less hostile,
we anticipate that the Trust's returns have considerable potential. There was
a glimpse of its scale when, over only a fourteen-month period, the Trust's
Adjusted NAV rose from 37.28p on 19 March 2020 to 107.5p on 10 May 2021.
Now that the mainstream UK stock market has broken out of its historic trading
range on the upside, we believe that local market conditions are improving.
Stock market breakouts tend to bring in new participants from overseas,
boosting the outperformance trend further and help it become embedded. When
institutional capital starts to be allocated further down the market
capitalisation range, market conditions within UK-quoted microcaps will
normalise again and investors should start to recognise the full potential of
the Trust's strategy. The key point is that even tiny increments of
institutional capital have the potential to make a giant difference to
UK-quoted microcaps market conditions, and hence the scale of their return
potential.
In summary, the Trust's strategy seeks to pick out stocks that have the
potential to appreciate by many multiples of the original share price, and in
our view the prospects for the Trust's UK-quoted microcap strategy are now the
best they have been for over thirty years. Enough said.
Gervais Williams and Martin Turner
11 July 2024
PORTFOLIO INFORMATION
As at 30 April 2024
Rank Company Sector & main activity Valuation £'000 % of net assets
1 Yü Group Utilities 3,967 9.2
2 MTI Wireless Edge Telecommunications 1,267 2.9
3 TruFin Financials 1,238 2.9
4 Serabi Gold Basic Materials 1,023 2.3
5 CyanConnode Holdings (including warrants) Telecommunications 889 2.0
6 Zephyr Energy (including warrants) Energy 859 2.0
7 Supreme Consumer Staples 834 1.9
8 Braemar Industrials 774 1.8
9 Concurrent Technologies Technology 743 1.7
10 UP Global Sourcing Holdings Consumer Discretionary 732 1.7
Top 10 investments 12,326 28.4
11 Frontier IP Group Industrials 705 1.6
12 Ingenta Technology 694 1.6
13 Zoo Digital Group Technology 691 1.6
14 STM Group Financials 659 1.5
15 Zinc Media Group Consumer Discretionary 645 1.5
16 Beeks Financial Cloud Technology 645 1.5
17 Amaroq Minerals Basic Materials 645 1.5
18 Andrada Mining Basic Materials 620 1.4
19 Marwyn Value Investors Financials 600 1.4
20 Capital Basic Materials 596 1.4
Top 20 investments 18,826 43.4
21 Savannah Resources Basic Materials 591 1.4
22 Record Financial Group Financials 570 1.3
23 Elemental Altus Royalties Basic Materials 508 1.2
24 Xeros Technology Industrials 507 1.2
25 CT Automotive Group Consumer Discretionary 506 1.2
26 Zotefoams Basic Materials 476 1.1
27 Van Elle Holdings Industrials 476 1.1
28 Mercia Asset Management Financials 467 1.1
29 Enteq Technologies Energy 465 1.1
30 Feedback Health Care 465 1.1
Top 30 investments 23,857 55.2
Balance held in equity investments (including warrants) 17,435 40.3
Total equity investments 41,292 95.5
Listed Put Option
UKX - June 2024 5,900 Put 2 0.0
Other net current assets 2,003 4.5
Net assets 43,297 100.0
* Source: Refinitiv. Based on historical yields and therefore not
representative of future yields. Includes special dividends where known.
Portfolio as at 30 April 2024
Portfolio exposure by sector (%) £43.30 million
Basic Materials 17.4
Technology 15.6
Financial Services 12.5
Industrials 10.2
Utilities 10.0
Energy 9.1
Consumer Discretionary 6.1
Telecommunications 5.9
Cash and cash equivalents 4.5
Health Care 4.0
Consumer Staples 2.8
Real Estate 1.9
Actual annual income by sector (%) £0.64 million
Financial Services 32.9
Industrials 16.2
Telecommunications 10.2
Basic Materials 9.1
Consumer Discretionary 7.2
Technology 5.6
Real Estate 4.8
Energy 4.6
Consumer Staples 4.3
Utilities 3.8
Health Care 1.3
Net asset by asset allocation (%) £43.30 million
AIM/AQUIS Exchanges 78.7
Main Market 15.6
Cash and cash equivalents 4.5
International Equities 1.2
FTSE 100 Option 0.0
Source: Refinitiv.
DIVIDEND RECOMMENDATION
The Directors have recommended the payment of a final dividend in respect of
the year of 0.09 pence per Ordinary Share, payable on 25 October 2024 to
shareholders who appear on the register on 27 September 2024. The ex-dividend
date will be 26 September 2024.
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the ninth annual general meeting of Miton UK
MicroCap Trust plc (the "Company") will be held on 24 September 2024 at 11.30
am at the offices of Stephenson Harwood LLP. The Notice of AGM can be found
within the full Annual Report and Accounts.
FURTHER INFORMATION
Miton UK MicroCap Trust plc's Annual Report and Accounts for the year ended 30
April 2024 (which includes the notice of meeting for the Company's AGM) will
be available today on https://www.mitonukmicrocaptrust.com/documents/.
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://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.
Enquiries:
Miton UK MicroCap Trust plc
Gervais Williams, Martin Turner, Claire Long Tel: 020 3714 1500
Peel Hunt LLP (Broker)
Liz Yong, Huw Jeremy Tel: 020 7418 8900
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