uk smaller companies investment trust (“muscit”) agm ...€¦ · 2 30 june 2018 unless stated...

UK Smaller Companies Investment Trust (“MUSCIT”)AGM Presentation18 July 2018

Montanaro Asset Management Ltd53 Threadneedle Street, London EC2R 8AR

www.montanaro.co.uk [email protected] Tel: +44 (0)20 7448 8600Follow us on Twitter: @MontanaroAM Blog: http://www.montanaro.co.uk/blog

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1

30 June 2018unless stated otherwise

What is a “Montanaro” company?

1. Simple business we can understand

2. Niche business in a growth market

3. Market leader

4. Business with high operating margins

5. Profitable company at a sensible valuation

6. Good management we trust

Source: Montanaro.

2


Top 20 holdings

Source: Montanaro.

Company Country % Company Country %

Hilton Food UK 3.2% Rathbone Brothers UK 2.5%

Big Yellow UK 3.1% 4Imprint UK 2.5%

Cranswick UK 3.0% Polypipe UK 2.5%

Dechra Pharmaceuticals UK 2.9% GB UK 2.3%

Entertainment One UK 2.9% FDM UK 2.3%

Consort Medical UK 2.8% XP Power UK 2.3%

Smart Metering Systems UK 2.7% Clipper Logistics UK 2.2%

Marshalls UK 2.6% Brewin Dolphin UK 2.2%

Restore UK 2.6% Cineworld UK 2.1%

Diploma UK 2.6% Ricardo UK 2.1%

Top 10 28.3% Top 11 - 20 23.0%

3


A high quality portfolio

Source: Montanaro, Factset, Bloomberg. * Relative to the Numis Smaller Companies Index (ex-IC). Risk statistics over 3 years.

# AIM Companies

% AIM

19

30%

Portfolio Characteristics

Portfolio Benchmark

# Stocks 54 344

Weighted Market Cap £1.1b £889m

EBIT Margin (19F) 19% 18%

RoE (19F) 15% 12%

Gearing 4.1% n/a

Risk

Portfolio Benchmark

Beta* 1.09 1.00

Standard Deviation* 12.5% 10.4%

Tracking Error* 5.3% n/a

Net Debt/Equity (19F) 0% 10%

% Companies with Net Cash (19F) 28% 19%

4


… offering higher EPS growth than the market

Source: Montanaro, Factset, Bloomberg. Note: PE & EPS growth figures are calculated excluding loss-makers.Note: The Sales Growth estimate for 2018 falls to +10.9% excluding Cineworld.

Growth (2019F)

Portfolio Benchmark

Sales Growth 7.1% 4.7%

EPS Growth 11.7% 9.9%

DPS Growth 8.8% 8.7%

Valuation (2019F)

Portfolio Benchmark

P/E 18.0 12.2

P/E Premium v. Index 48% n/a

5


MUSCIT typically delivers higher EPS growth

Source: Montanaro, Factset. Note: EPS growth figures are calculated excluding loss-makers.

18%

14%

6%

13%11%

-3%

8% 7%

12%

9.3%

5%

9%

-3%

6%

-1%

-9%

-1%

2%

10%

1.7%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2011 2012 2013 2014 2015 2016 2017 2018e 2019e CAGR

EPS Growth

MUSCIT NSCI ex-IC index

6


A good start to FY19 after a strong FY18 (+5% vs index)

Source: Montanaro, Numis. All returns in Sterling.***The benchmark for the UK Trust changed from the FTSE SmallCap Index (ex-IC) to the Numis Smaller Companies Index (ex-IC) effective 1 April 2013.

Annualised NAV Returns

Annual Returns to June 2018

Montanaro NAV

UK Small Cap

Composite (ex

ICs) (£)***

Relative

3 Months 7.8% 4.9% 2.9%

6 Months -0.4% -2.7% 2.3%

1 Year 11.0% 4.7% 6.3%

3 Years 7.2% 6.0% 1.1%

5 Years 7.8% 8.4% -0.6%

10 Years 9.4% 6.6% 2.8%

15 Years 11.2% 5.5% 5.7%

20 Years 7.7% 3.0% 4.7%

Launch (03/95) 8.9% 4.5% 4.4%

7


Relative outperformance of 4.4% p.a. over 23 years

Source: Montanaro, FTSE, NSCI. The benchmark for the UK Trust changed from the FTSE SmallCap Index (ex-IC) to the Numis Smaller Companies Index (ex-IC) effective 1 April 2013. Note: Years 1-3 undiluted NAV, years 4-5 diluted NAV and years onwards basic NAV as no longer any warrants in issue

13%14%

2%

-9%

17%

4%

-1%-3%

-12%

17%16%

8%

13% 12%

-10%

29%

12%

-9%-11%

-3%

7%

-11%

9%

2%4.4%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 YTD

MUSCIT v. Benchmark - Relative Returns per Calendar Year (NAV)

Dash-for-Trash

Dash-for-Trash

Dash-for-Trash

CAGR

8


The recent underperformance appears to be coming to an end

Source: Montanaro, Bloomberg.

-5%

-3%

-1%

1%

3%

5%

7%

01' 02' 03' 04' 05' 06' 07' 08' 09' 10' 11' 12' 13' 14' 15' 16' 17'

5-Year rolling relative performance of MUSCIT v. NSCI ex-ICs

-0.6%

CM Handover CM Back

9


Absolute returns since launch more than double the All-Share

Source: Montanaro.Note: Years 1-3 undiluted NAV, years 4-5 diluted NAV and years onwards basic NAV as no longer any warrants in issue

14% 14%8%

-5%

66%

8%

-19%

-32%

24%28%

32%28%

-7%

-38%

43% 43%

-6%

23% 21%

-7%

14%

-3%

25%

0%

8.9%4.4%

-60%

-40%

-20%

0%

20%

40%

60%

80%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 YTD

MUSCIT - Absolute NAV Returns per Calendar Year

CAGR

FTSE All-Share

MUSCIT

10


Over almost all 5-year periods MUSCIT produced positive returns


-10%

-5%

0%

5%

10%

15%

20%

25%

30%

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

MUSCIT - 5-year rolling NAV return (annualised)

7.8%

11


MUSCIT has performed well since launch

Source: Montanaro, Bloomberg.Benchmark: Composite of the FTSE Small Cap (ex-ICs) until 1 April 2013 and the Numis Smaller Companies (ex-ICs) since then.Note: Returns are NAV / Capital Returns.

0

100

200

300

400

500

600

700

800

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Cumulative Returns since MUSCIT launch (31 Mar 1995 - 30 Jun 2018)

MUSCIT

Benchmark

FTSE All-Share

8.9% p.a.

4.4% p.a.4.5% p.a.

12


The last 18 months have been busy

1. April 2017 - we cut our Management Fee from 0.85% p.a. to 0.50% p.a.:

- in addition to other cost savings (gearing, new Company Secretary, new Broker)

- Ongoing Charge has fallen to 0.8% from 1.2% (down one third)

2. July 2017 - Continuation Vote passed with overwhelming support (97.4%)

3. March 2018 – Strong FY18 results to March 31st (NAV +7.3% and +5% vs index):

- Dividend Per Share +5% to 11p (+10% p.a. over the past 5 years)

4. May 2018 – Increased limit on AIM to 40% from 30%

5. July 2018 – Proposal for a 5-for-1 share split positive for liquidity / discount

Source: Montanaro.

13



Outlook: Global economic growth continues to gain momentum

3.0%

3.1%

3.2%

3.3%

3.4%

3.5%

3.6%

3.7%

3.8%

3.9%

Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

WORLD Real GDP Growth Consensus Forecast (2018e)

3.8%

14


… as the US & Europe are firing on all cylinders (UK is lagging)


June 2016:Brexit

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

2.2%

2.4%

2.6%

2.8%

3.0%

Feb-16 Apr-16 Jun-16 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Jun-18

Real GDP Growth Consensus Forecast (2018e)

UK

Euro Area

US

2.4%

2.9%

1.3%

15


SmallCap is trading in line with its long-term average P/E

Source: Montanaro, Numis.

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

UK SmallCap - NSCI ex-ITs - 12-month trailing P/E

Median = 13.5x13.9x

16


Plenty of profit warnings nowadays – it pays to stick to Quality

Source: Montanaro, EY.

17


Gearing - just over 4%

Source: Montanaro.

0%

2%

4%

6%

8%

10%

12%

14%

11 12 13 14 15 16 17

MUSCIT Gearing

2015 = 6.6%

2014 = 7.6%

2013 = 2.3%

2012 = 4.8%

2017 = 3.6%

2016 = 10.1%

4.1%

18


-30%

-25%

-20%

-15%

-10%

-5%

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

The discount is above its long-term average good entry point


Average = -16%

-22%

Buybacks(Dec 07 – Jul 08)

Buybacks(Sep 01)

Buybacks(Aug 03)

Buybacks(May – Jul 04)

19


Summary

1. Back in the saddle after a disappointing period - outperformed by 5% last year

2. The portfolio has been refreshed (more AIM)

3. Fees / costs have been cut

4. Good long-term track record:

- 4.4% p.a. outperformance over 23 years

- the sixth most consistent Trust over 10 years according to the AIC

5. UK SmallCap valuations look attractive

6. BUT: Geo-political risks are high … so best to stick to Quality

Source: Montanaro.

20


Disclaimer

Important Notice

This document is issued by Montanaro Asset Management Limited (“MAM”) for distribution only to persons of the kind described in Article11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or of a kind to whom this document mayotherwise lawfully be issued or passed on. It may not be copied or distributed or otherwise made available to any recipient without theexpress written consent of MAM. The document is neither a prospectus, nor listing particulars, nor an offer or invitation to subscribe for,underwrite or purchase securities.

The information contained in this memorandum is intended for the use of professional and institutional investors only. It is forbackground purposes, is not to be relied upon by any recipient, and is subject to material updating, revision and amendment. Norepresentation or warranty, expressed or implied, is made, and no liability whatsoever is accepted in relation thereto. This memorandumdoes not constitute investment advice. References to the outlook for markets are intended simply to help investors with their thinking aboutmarkets and the multiple possible outcomes. Investors should always consult their advisers before investing.

All data contained herein have MAM as its source unless otherwise stated. All data contained herein is at the date specified at the top of thepage unless stated otherwise. All performance data have been calculated by MAM. Performance Attribution data in particular should betreated as indicative rather than definitive. Past performance is not necessarily a guide to future performance. The value of securities may godown as well as up. Foreign exchange exposure may increase the volatility of returns.

The value of securities may go down as well as up. As the discount or premium to which the investment trust shares trade relative to theNAV per share may vary significantly, the shorter term share price movements of the listed investment trust shares may not reflect theshorter term underlying investment performance in terms of NAV per share. The Board of Directors of the investment trust has authorisedthe Investment Manager to use bank borrowings, allowing increased portfolio investment, and therefore potentially to leverage the overallportfolio. This gearing as well as foreign exchange exposure may increase the volatility of returns.

MAM is authorised and regulated by the Financial Conduct Authority (“FCA”).

uk smaller companies investment trust (“muscit”) agm ...€¦ · 2 30 june 2018 unless stated...

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