Miton UK Micro Cap - Annual Financial Report
11/07/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230711:nRSK5663Fa&default-theme=true
RNS Number : 5663F Miton UK MicroCap Trust plc 11 July 2023
Miton UK Microcap Trust plc
ISIN: GB00BWFGQ085
LEI: 21380048Q8UABVMAG916
11 July 2023
2023 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 2023 and the publication of its annual
report and accounts for the same period, which includes the notice of its 2023
Annual General Meeting.
SUMMARY OF RESULTS
Year to Year to
30 April 30 April
2023 2022
Total net assets attributable to equity shareholders (£'000) 60,754 99,475
NAV per Ordinary Share* 64.20p 91.05p
Share price (last close) 59.50p 86.50p
Discount to NAV* (7.32)% (5.00)%
Investment income £0.8m £1.0m
Revenue return per Ordinary Share 0.03p 0.15p
Total return per Ordinary Share* (28.93)p (13.77)p
Ongoing charges(#)* 1.72% 1.41%
Ordinary Shares in issue 94,638,561 109,253,560
*Alternative Performance Measure ("APM"). Details provided in the Glossary of
the Annual Report.
#The ongoing charges are calculated in accordance with AIC guidelines.
CHAIRMAN'S STATEMENT
The report covers the full year to 30 April 2023, a period which has proved to
be very testing for equities, and especially for the smallest UK quoted
companies. The UK Bank rate moved from 0.75% in April 2022 to 5.0% in June
2023, a scenario which has seldom proved advantageous to small cap stock
prices. In the aftermath of the ill-fated Liz Truss administration's
Mini-Budget in September 2022, Sterling fell to a forty year low against the
Dollar, hitting $1.07. Global equities had already suffered a significant
decline since the unwarranted Russian invasion of Ukraine on 24 February 2022.
This adverse trend persisted into the year under review, although stock
markets generally staged a modest recovery in the second half of the year to
April 2023.
Usually, during unsettled markets the most resilient equities are often equity
income or 'value' stocks. Given the large weightings of these stocks in the
main UK market, it was amongst the better performing indices globally, both
during the period of market weakness up to September 2022, and subsequently.
In total return terms the Numis Large Cap Index is up 8.3% (April 2022 to
April 2023).
Over the past few years, investment managers have substantially reduced their
holdings in UK equities. I was astonished to learn from New Financial, a think
tank, that in 1997 53% of British pension funds' total assets were invested in
UK stocks: the figure 25 years later is 6%. Looking at it another way, since
2000, the share of the UK stock market owned by UK pensions and insurance
companies has fallen from 39% to just 4%. Against these headwinds it is
unsurprising that many UK equities continue to languish on low valuations. In
your Manager's view, the outperformance of the Numis Large Cap Index over the
last two years highlights the scale of UK inflows from overseas investors as
they start unwinding their underweight positions in low-beta equities.
In marked contrast to the UK mainstream stocks, whilst the share prices of
AIM-listed small and microcaps had already declined severely in the first four
months of 2022, they have fallen quite a lot further during the period. It is
disappointing that they did not recover during the second half of year.
It appears that the ongoing OEIC redemptions from domestic investors have not
yet been offset by inflows from global investors into UK small and microcaps.
Over the year to April 2023, the Numis 1000 Index was down 11.2%.
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 the Trust.
Earnings and Dividends
Earnings for the year were 0.03p per share (2022: 0.15p per share) on the
revenue account. Earnings on the capital account consisted of a loss of
28.96p per share (2022: a loss of 13.91p per share). Earnings on the revenue
account reflect both portfolio changes and microcap companies seeking to
retain cash to invest. As far as setting the dividend is concerned, the
Directors have always given the Manager maximum flexibility to follow the
course that will lead to the best results for 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 to maintain the prior
year final dividend of 0.15p per ordinary share, subject to approval by
shareholders at the AGM; this will be paid on 26 October 2023 to shareholders
on the register on 29 September 2023.
Performance
With the dearth of buying interest in UK microcaps over the last two years,
marginal sellers have dominated the direction of share prices. In light of
current market trends, even microcaps which reported results better than
expectations continue to languish in terms of share price appreciation.
The largest holding in the fund, Yu Group, was easily the best contributor
over the year, adding 2.5% to returns.
Regrettably, there have been precious few other microcap winners this year.
Your Manager invested in a secondary issue by Petro Matad mid-year, a
Mongolian oil business with some high impact wells. If it performed strongly,
the Manager anticipated not even having to wait for the drilling results, and
so it has proved. To date it is the second-best contributor to returns and the
Manager has been selling some shares at more than double the placing price.
Meanwhile, small and microcaps that have, even modestly, missed their targets
have typically been subject to dramatic weakness in their share prices. For
example, the share prices of HeiQ fell 74%, Aferian dropped 73%, and Saietta
dived 71% over the year to April 2023, even though all three companies appear
to retain strong balance sheets, attractive corporate prospects, and the
potential to generate significant cash surpluses albeit after slight delays.
They were the second, third and fourth worst detractors during the year. Your
Manager retains all three as they continue to have strong balance sheets, and
anticipates that they will generate substantial cash surpluses.
Live Company Group was the biggest detractor during the year, given that its
share price had risen well during March and April 2022, ahead of a K-POP
concert it was organising. Although the Trust took some profits at 6.2p, and
modestly supported a fund raising in July at 4p, Live Company has not ended up
generating the paybacks that were anticipated. Hence, the Trust has
subsequently sold down the holding later in the year at lower prices, at a
cost to returns of 1.8%.
In addition, with the ongoing strength of large UK companies, the FTSE Put
Option cost the Trust 0.9% over the year to April 2023. Unfortunately, there
is no 'over the counter' Put Option which more closely correlates with our
microcap universe.
Overall, the Trust's NAV has fallen by 29.3%, from 91.05p at the end of the
April 2022 to 64.20p as of 30 April 2023. Generally, the share prices of some
small caps further up the market capitalisation range did pick up a little
during the second half of the year, but at this stage most microcap share
prices remain deeply depressed and almost wholly underappreciated.
Portfolio activity
Your Manager has become more cautious about UK-quoted microcaps operating in
economies where there is an increasing risk of them running out of hard
currency as the Federal Reserve and other central banks seek to control
inflation.
Profits were taken in microcap holdings that had performed strongly to enable
reinvestment in others that remain on unusually low valuations. Your Manager
continues to avoid stocks that risk running out of cash, as distressed fund
raisings by microcaps are not only destructively dilutive, but can suck
capital from successful holdings to fund companies with more uncertain
prospects.
Numerous portfolio holdings reported resilient trading despite their weak
share prices. Some of these were added to using the capital released from
sales. When global markets bottomed out during September and October last
year, your Manager also reduced the portfolio's cash weighting.
Additionally, opportunities remain to invest in stocks that appear to have
disproportionate upside potential. Your Manager is most interested in those
companies with prospects that are not closely correlated with others in the
portfolio. Improved diversification enhances portfolio returns, especially
when unexpected geopolitical events occur.
Over the year, the largest new portfolio holding was Shield Therapeutics, a
lowly valued FDA-approved iron-supplement pill business with rapidly growing
sales. Shield's management plans to accelerate the Company's future cash
surpluses greatly by sharing the upside with a business that has a much larger
sales force. The Trust also invested in two maturing resource stocks:
Cleantech Lithium, a company that can bring low-cost lithium-infused brine
into production relatively quickly, and Petro Matad, as noted earlier. Both
share prices appreciated rapidly after the placings, and the Trust has already
taken some profits.
Given the weak valuation comparatives, there were very few microcap IPOs. Only
those that are really lowly valued, with prospects that are uncorrelated with
the rest of the portfolio, have been considered. SmartTech247, a cybersecurity
company that appears to be taking market share rapidly, has performed well
since issue, although Lifesafe Holdings, a manufacturer of a universal fire
suppressant that actively cools fires, has suffered share price weakness
despite exceeding market forecasts since issue.
Finally, the Trust supported a number of secondary placings to fund
acquisitions and growth. The most significant this year was Journeo, which
provides train and bus information systems, and made an acquisition that it is
anticipated will greatly enhance the Company's prospective surplus cash
balances.
Prospects
Underlying stock market trends often persist for many years.
Over the decades of globalisation, large cap strategies with the prospect of
enhanced capital appreciation outperformed. In your Manager's view, the Nifty
Fifty of the 1960s have parallels to today's "FAANG" megacaps (Facebook,
Amazon, Apple, Netflix and Google). The Nifty Fifty also had a very strong
period of outperformance in the early 1970s when inflationary pressures first
became an issue. Later in the decade, when central banks made combating
inflation their highest priority, market valuations normalised, and later
corporate profit margins collapsed, so the Nifty Fifty in the US
underperformed badly for many years. If the FAANG megacaps were to mimic this
outcome, there would be a degree of institutional urgency to identify asset
classes that can generate attractive returns in a genuinely less correlated
manner.
Your Manager believes that companies generating decent cash surpluses will
become sought after. The returns of corporates generating a stream of good and
growing cash surpluses should prove independent of the fluctuations of the
market. Given that most institutional investors are heavily weighted in
megacaps, we believe their most pressing issue in the future will be to
identify different investment pools that can deliver attractive returns and
that are less reliant on the appreciation of markets.
In this regard, I remain reassured that the Trust has a greater investment
universe and opportunity to add value through stock selection than mainstream
funds as the number of companies with a market capitalisation of less than
£150m remains greater than those that are larger. Furthermore, the upside
potential for microcaps should be greater than that of the largest UK stocks,
for as the old Stock Exchange maxim goes: 'Elephants don't gallop!' After
all, the Numis Small Cap Plus AIM Index has underperformed the Numis Large Cap
Index by 36.1% over the last two years. It is not just that AIM-listed
valuations are starting from much lower levels than those of larger company
equivalents, but also that the large UK company valuations themselves are also
cheap relative to international comparatives.
In short, your Directors believe that Miton UK MicroCap Trust has the
potential to have bursts of strong returns (as it did between March 2000 and
May 2021). And when quoted microcaps start at what we consider to be
extraordinarily low valuations, combined with such modest institutional
allocations, favourable trends such as these can easily be sustained over the
coming decade or two.
As I wrote in my last report, the Directors are grateful for your forbearance
in holding the Trust's shares over what has been a dismal period and we are
hopeful that your patience will be rewarded in the not-too-distant future.
Share Issuance
As the shares did not trade at a sufficient premium to the prevailing Net
Asset Value (NAV) during the year under report, there were no opportunities to
issue shares. We will be seeking approval at the AGM in September 2023 to
renew this useful facility. Issuing shares at a premium to NAV is to the
benefit of all shareholders as it dilutes the fixed charges which the company
bears.
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 net asset value. The
directors are offering this facility again this year and the timetable is laid
out in the full Annual Report and Accounts. Should the redemption be
substantial then the Directors may take the decision to form a separate
redemption pool and it may take a number of weeks/months to liquidate the pool
appropriately. As has previously been reported, the Directors moved the 2023
redemption point from 30 June 2023 to 2 November 2023, to align with the
interim report.
Board Refreshment
I am delighted to report that, following the engagement of a full service
executive search consultant, Mrs Louise Bonham joined the Board on 15 December
2022. Louise replaces Ms Jan Etherden, who stepped down on the same date. We
will miss Jan's wise counsel, her legendary ability to put her finger on any
emerging problems and we wish her well. Louise, whose background is mostly in
property, is a chartered accountant by training and is a Fellow of the
Institute of Chartered Accountants of England and Wales. Louise cut her teeth
with Deloitte and Deutsche Bank and has held a wide range of senior
appointments, including at CBRE and Cushman & Wakefield. Louise will take
over from Peter Dicks by the end of 2024 as Chair of the Audit Committee.
Directors' Remuneration
The Directors are entitled to an increase in their fees by the percentage
uplift in CPI each Spring, in line with the Directors' Remuneration Policy.
The figure which applies to fees from 1 May 2023 is just over 10%. Cognisant
of the disappointing performance of the Company's net asset value and share
price, the Directors have unanimously agreed not to take any increase in their
fees this year.
Environmental, Social and Governance (ESG) issues
Your Company's Manager follows Premier Miton's responsible investing policy,
which is to integrate responsibility for ESG into the investment process. It
also actively engages with investee companies in order to deliver improved
outcomes for all stakeholders whilst taking 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 has adopted a banned weapons policy exclusion and
utilises third party data to maintain a list of such companies.
Whilst Premier Miton does not exclude any other companies or sectors for ESG
reasons, its active investment approach ensures that exposure to so called
'controversial companies' is generally low.
Annual General Meeting
The Annual General Meeting of the company will be held at 11.00 am on Tuesday
26 September 2023 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
Company's prospects and at the end of proceedings we will be offering a
sandwich lunch. We hope that a number of shareholders 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 Company website,
www.mitonukmicrocaptrust.com (http://www.mitonukmicrocaptrust.com) , in the
preceding six weeks. There you will also find an option to sign up to receive
details of future investment trust events organised by Premier Miton.
Ashe Windham
Chairman
10 July 2023
INVESTMENT MANAGER'S REPORT
Which fund managers have day-today responsibility for the make up of 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 now 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 also a board member of the Quoted Companies Alliance and a member
of the AIM Advisory Council.
Martin Turner
Martin joined Miton in May 2011. Martin 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
2023?
In general, the Trust's portfolio is invested in stocks that have relatively
strong balance sheets, and hence, even if there is a delay in meeting their
current targets, they are unlikely to carry the risk of requiring additional
risk capital when their share prices are weak. Over the year to April 2023
however, sellers of microcap shares were persistent and tended to outnumber
microcap buyers, so the share prices of most microcap stocks fell, even if
their prospects remained unchanged. This is the principal reason why the NAV
of the Trust fell 29.3% this year.
Given the unfavourable background, when the prospects of portfolio holdings
did deteriorate somewhat, their share prices often fell precipitously. For
example, the share prices of Saietta, HeiQ and Aferian all fell by between 70%
and 75% because they announced certain contracts were delayed in the current
year. These holdings have been retained in the portfolio because we believe
their very substantial longer term upside potential remains in place. They
collectively reduced the Trust's return by 4.1% over the year under review.
Interestingly, Accrol which was the most adverse detractor to the Trust's
return last year, was retained in the portfolio for the same reasons and
became one of the best contributors to the Trust's return this year adding
0.5%.
As is usual even in a year when the Trust's return is strong, there are some
stocks where prospects deteriorated, and the upside originally envisaged now
appears to be compromised. These stocks have been sold, and this year included
Pressure Technology, IOG and Lamprell. Collectively they reduced the Trust's
return in the year by 2.9%.
Even when stocks exceeded forecasts the unfavourable background meant that
their share prices did not necessarily rise as much as might have been
expected. There were a few exceptions - a new holding in Zoo Digital,
purchased early in the year, appreciated significantly and given that the
capital could be reinvested in other portfolio holdings at even lower
valuations, it was sold for a profit later. The share price of a new holding
in Petro Matad, also appreciated so rapidly that a portion was sold later in
the year. Yu Group, a utility that supplies energy to corporates, was the most
significant contributor to return as its share price appreciated by 176% after
a series of above expectation statements. Yu Group alone added 2.5% to the
Trust's return in the year, and yet, given its prospects, it is still standing
on a very overlooked valuation in our view even after its appreciation.
Overall, this example underlines why a microcap portfolio can deliver such
strong returns over the longer term. The Trust's individual holdings have the
potential to appreciate by a multiple of their initial purchase price. There
were a few examples this year, but in a normal year these would be more
numerous.
In the light of the substantial decline in the Trust's NAV over the last two
years, to what degree have its longer-term prospects deteriorated?
After the global pandemic, and the giant financial stimulus, global assets
valuations rose to very elevated levels in early 2021. Subsequently, over the
two years to April 2023, global asset valuations have retreated somewhat, back
towards prior norms, due to inflationary pressures and interest rate rises.
Interestingly, although the UK stock market underperformed most international
exchanges during the globalisation decades, over the last two years it has now
started outperforming all the international major indices. Specifically, the
recent outperformance is all the more impressive given that UK open ended
investment companies ("OEICs") have been redeemed at a near-record pace for
several quarters. In our view, this underlines just how undervalued the UK
stock market had become over the globalisation decades when assets paying good
and growing dividends were outpaced by those with ambitious growth targets.
During the globalisation decades, UK-quoted microcaps were also overlooked.
Whilst they did outperform during the year to April 2021, as few pay
significant dividends, their share prices have been vulnerable to the global
decline in asset valuations and the ongoing selling of UK equities over the
last two years. The share prices of quoted microcaps have underperformed those
of the UK majors by a very wide margin. Since many were undervalued relative
to the UK majors even prior this underperformance, microcaps are in many cases
now standing on low valuations in our view.
Clearly, the rise in interest rates and the economic slowdown will have
reduced the longer-term prospects for some. But when their prospects are
considered in absolute terms, it should be remembered that corporate sales
tend to rise with inflation. In addition, those with strong balance sheets
stand at an advantage compared to those which are capital constrained.
Furthermore, if there is a major rise in corporate insolvencies, then those
that are well financed can expand into the vacated markets, or acquire the
overindebted but otherwise viable businesses, debt-free from the receiver at
very low prices.
The bottom line is that despite the current economic slowdown and weak
microcap share prices, we believe the prospects for most of the Trust's
holdings are actively improving. Their relatively unleveraged balance sheets,
and ongoing access to external risk capital (albeit at weak share prices)
become all the more valuable when most private competitors are facing
increasingly binding debt and capital constraints.
What are the main factors that have driven the Trust's returns since it first
listed in April 2015?
As noted earlier in the report, the best performing group of stocks in the UK
stock market since 1955
(the start of the data series) have been quoted microcaps. When the investment
universe is narrowed further, to include solely microcaps standing on
undemanding valuations (this is typically determined by a low Price/Book
ratio), the scale of microcap outperformance is even more marked. With this
background in mind, the Trust's portfolio is principally invested in UK quoted
microcaps standing on what we consider to be cheap valuations at the time of
purchase. When these microcaps succeed, their share prices can rise by a
multiple of the purchase price whereas this is less usual amongst the
mainstream stocks.
After the Trust was set up in April 2015, initially globalisation continued to
enhance the returns of global stock markets, with the UK stock market being
outpaced by other international exchanges. With the global pandemic and
Ukrainian war, the vulnerabilities of globalisation were highlighted, and
inflationary pressures returned. Interestingly, whilst most global stock
markets have declined over the last two years, the largest UK stocks have
outperformed.
This change of pattern is all the more remarkable, as over the period of
Brexit negotiations, most UK institutional investors have become more cautious
about investing in the UK stock market. Alongside, UK institutions have
further redeemed UK equities to increase weightings in other assets over the
last two years. Crucially, in our view, international investors have become
more interested in dividend income strategies over recent years, and hence the
UK mainstream stocks have outperformed, even through a period of heavy OEIC
redemptions. In contrast, UK microcaps missed out on international interest,
so for them the local selling of UK equities have further depressed their
share prices.
The net effect is that microcap share prices that had already fallen to
unusually low valuations a couple of years ago, have suffered additional share
price weakness. If anything, these adverse effects have been particularly
concentrated at the bottom end of the market capitalisation range where the
Trust invests, and hence the Trust's returns are lower than the comparative
indices at present.
Total returns since launce in April 2015
%
Numis All-Share 49.6
Numis Smaller Companies ex ICs + AIM 42.5
Numis 1000 Index 44.8
MINI NAV 33.7
As outlined elsewhere in this report, we are greatly encouraged to see the UK
stock market outperforming most international peers again. In time, we
anticipate the new pattern will spread down the market capitalisation bands,
enhancing the returns of the Trust's strategy. In our view, we saw a glimpse
of the Trust's potential between March 2020 and April 2021 when its NAV rose
by almost 250%.
Will institutional investors ever return to the UK quoted microcap investment
universe?
Typically, over multi-decade periods, the returns on global stock markets are
principally driven by the initial dividend yield at the time of purchase and
how much it grows over time. In contrast, during globalisation periods, stock
market returns are typically less closely correlated to dividend yields.
Specifically, during globalisation, the deflation on imported goods offsets
local inflation so inflationary pressures become subnormal. During these
periods, asset valuations and corporate profit margins both rise to
exceptional levels. Typically, stock exchanges related to growth companies are
the best performers.
The bottom line is that substantial capital gains have been abundant during
globalisation. Stock markets with returns principally related to compounding
good and growing dividends, such as the UK, have been outpaced. Over three
decades, institutional interest in the UK stock market has deteriorated, so it
has become undervalued and underrepresented compared with others. More
recently, Brexit and the ongoing OEIC liquidations have led to UK microcaps
falling to valuations that are even more overlooked than the majors, coupled
with little institutional participation at present.
We believe the new pattern will also be associated with an ongoing
depreciation of asset valuations and corporate profit margins that will
generally undermine the returns for international stock markets. In contrast
to the period of globalisation, the net effect could be that most
international stock markets deliver disappointing returns. Meanwhile, we
anticipate that the UK stock market will continue to outperform, as it did
between 1965 and 1985, with UK microcaps being the best element, like a rich
seam within a world of relatively disappointing returns.
In time, as UK institutions skew their portfolios back into cash compounding
dividend stocks, we expect them to rebuild their UK holdings. As the best UK
returns are likely to be found within microcaps, we anticipate that
institutional capital will start to waterfall down the market capitalisation
range. It is important to note that more than half of all quoted companies
listed in London are microcaps with market capitalisations of below £150m.
Number of quoted companies in the UK below and above £150m market
capitalisation
No of Companies
<£150m 598 Combined market capitalisation £15.9bn
>£150m 569 Combined market capitalisation £2.039bn
Source: Premier Miton
Overall, as the recent lag in microcap performance begins to unwind, we
believe there are excellent
opportunities for a specialist Trust like Miton UK Microcap Trust to gather
very significant institutional interest.
What are the prospects of the Trust?
As noted above, we believe that the Miton UK MicroCap Trust strategy differs
from most others, in having the potential to deliver an attractive return even
at times when the mainstream stock market indices may not be rising. Given
that it has underperformed so considerably over recent years, why do we retain
such strong confidence in its prospects?
1. Specifically, UK quoted microcaps tend to operate in industry sectors
where demand is often growing on a structural basis, rather than in line with
the cyclical fluctuations of the global economy. Whilst this feature was easy
to ignore when the global economy was growing rapidly, it becomes more obvious
when global demand is constrained by interest rate rises. Clearly, as
globalisation fades, this feature is a major advantage for the Trust's quoted
microcap investment universe. Alongside it was worth noting that the historic
data is reassuring, as when global growth was challenged in the past, UK
quoted microcaps tended to outperform.
2. When the cost of labour is rising and corporate profit margins are
under pressure, it is not uncommon for numerous businesses to run out of cash.
Over-indebted businesses in particular often find they are obliged to sell
parts of their company, even at disappointing valuations, to repay debt.
Others end up in insolvency. At these times, quoted companies specifically
have the advantage, as they can raise additional capital to acquire these
operations at low valuations, with the prospect of rapid cash paybacks. Whilst
such transactions enhance the returns of large mainstream quoted companies,
the same deal for a quoted microcap has proportionally a much greater impact.
Hence during periods when mainstream stock market indices might be unsettled,
quoted microcaps sometimes have the potential to step up their returns.
To summarise, whilst global share prices have steadily appreciated during
globalisation, institutions have been disinterested in UK microcaps because
they were withdrawing capital from the UK. In contrast, now that the UK stock
market is starting to outperform again, we anticipate that UK institutional
capital will also return. Hence, whilst Miton UK MicroCap Trust may have
delivered modest returns since issue, we believe its strategy is ready to
deliver premium returns in the post globalisation era.
The distinctive features of the Miton UK MicroCap Trust strategy are, in our
view, superbly crafted for the changing global dynamics. Importantly, since
the scale of the UK quoted microcap investment universe is, by definition,
tiny even marginal changes in institutional interest can quickly become
self-reinforcing, further enhancing their prospective returns, justifying even
greater allocations. Prospects for quoted microcaps are the best they have
been for thirty years.
Gervais Williams and Martin Turner
10 July 2023
PORTFOLIO INFORMATION
As at 30 April 2023
Rank Company Sector & main activity Valuation % of net assets Dividend Yield
£'000 %
1 Yu Group Utilities 2,830 4.6 0.5
2 MTI Wireless Edge Telecommunications 1,938 3.2 4.7
3 Cyanconnode Holdings Telecommunications 1,721 2.8 -
4 Andrada Mining Basic Materials 1,580 2.6 -
5 Frontier IP Group Industrials 1,438 2.4 -
6 TruFin Financials 1,400 2.3 -
7 Accrol Group Consumer Staples 1,226 2.0 -
8 Shield Therapeutics Health Care 1,026 1.7 -
9 Braemar Industrials 973 1.6 3.9
10 Petro Matad Energy 945 1.6 -
Top 10 investments 15,077 24.8
11 Eneraqua Technologies Industrials 929 1.5 0.4
12 Kistos Energy 928 1.5 -
13 Feedback Health Care 909 1.5 -
14 Sureserve Group Industrials 891 1.5 -
15 Van Elle Holdings Industrials 863 1.4 3.3
16 Totally Health Care 860 1.4 4.7
17 Kinovo Industrials 840 1.4 -
18 Supreme Consumer Staples 805 1.3 4.5
19 SmartTech247 Technology 785 1.3 -
20 Elemental Altus Royalties Basic Materials 727 1.3 -
Top 20 investments 23,614
38.9
21 UP Global Sourcing Holdings Consumer Discretionary 715 1.2 5.2
22 Kefi Gold and Copper Basic Materials 708 1.1 -
23 Savannah Resources Basic Materials 698 1.1 -
24 Zinc Media Group Consumer Discretionary 686 1.1 -
25 Marwyn Value Investors Financials 675 1.1 10.1
26 Conygar Investment Company Real Estate 668 1.1 -
27 Atlantic Lithium Basic Materials 664 1.1 -
28 Tirupati Graphite Basic Materials 656 1.1 -
29 CML Microsystems Technology 649 1.1 2.0
30 Journeo Industrials 647 1.1 -
Top 30 investments 30,380
50.0
Balance held in equity investments 25,688
42.3
Total equity investments 56,068
92.3
Listed Put Option
FTSE 100 - December 2023 169 0.3
Other net current assets 4,517 7.4
Net assets 60,754
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 2023
Portfolio exposure by sector (%) £60.75 million
Basic Materials 16.2
Industrials 15.3
Energy 10.1
Financial Services 10.0
Health Care 7.7
Telecommunications 7.6
Consumer Discretionary 7.6
Technology 7.5
Cash and cash equivalents 7.4
Utilities 4.7
Consumer Staples 4.0
Real Estate 1.9
Actual annual income by sector (%) £0.80 million
Financial Services 31.2
Industrials 15.0
Telecommunications 12.8
Consumer Discretionary 11.2
Basic Materials 9.2
Health Care 5.3
Consumer Staples 4.5
Technology 4.2
Real Estate 4.1
Energy 2.5
Net asset by asset allocation (%) £60.75 million
AIM/AQUIS Exchanges 79.7
Main Market 11.4
Cash and cash equivalents 7.4
International Equities 1.2
FTSE 100 Option 0.3
DIVIDEND RECOMMENDATION
The Directors have recommended the payment of a final dividend in respect of
the year of 0.15 pence per Ordinary Share, payable on 26 October 2023 to
shareholders who appear on the register on 29 September 2023. The ex-dividend
date will be 28 September 2023.
NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the eighth annual general meeting of Miton UK
MicroCap Trust plc (the "Company") will be held on 26 September 2023 at 11.00
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 2023 (which includes the notice of meeting for the Company's AGM) will
be available today on https://www.mitonukmicrocaptrust.com/documents/
(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, Luke Simpson, Huw Jeremy Tel: 020 7418 8900
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END ACSURRKROOUBAAR