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Research Tree provides access to ongoing research coverage, media content and regulatory news on River & Mercantile UK Micro Cp Iv Co. We currently have 6 research reports from 1 professional analysts.
River & Mercantile UK Micro Cap (RMMC) aims to achieve long-term capital growth from investment in a diversified portfolio of UK micro-cap companies, typically comprising those with a market cap of less than £100 million at the time of purchase. The company launched in December 2014, with George Ensor having taken over as manager from Philip Rodrigs in 2018. George looks to utilise an active, bottom-up strategy looking to add real value in the micro-cap end of the market via in-depth analysis where coverage is sparse. Like all managers at River & Mercantile, George follows the group’s PVT (Potential, Valuation, Timing) investment approach (see portfolio section). As of the end of June 2019 the portfolio is relatively concentrated, with only 43 holdings, but diversified by size and sector. Only financials have a weighting greater than 20%, and even the largest sector overweights, oil & gas and health care are relatively low at +6.5% and +5.4% respectively. Performance has been varied since George took over the portfolio in a difficult period for UK small cap managers. Initially, performance was strong and for much of 2018 the trust outperformed the benchmark and peers alike. However the trust saw its returns hit hard in Q4, ruining what might have otherwise been a strong start for the new manager. Since then, to 28 August 2019, the trust has returned 6.6% marginally underperforming the benchmark (6.9%) and trailing the AIC peer group (9.5%). As with most UK focused trusts, the past few years have seen the discount widen dramatically – although in this case, exacerbated by the change in manager in early 2018. Over the past two years the trust has reached a premium of close to 17%, and a discount of over 20%. Currently the trust is trading at a discount of around 20%, considerably wider than the sector average of 9.2%.
Companies: River & Mercantile UK Micro Cp Iv Co
River and Mercantile UK Micro Cap (RMMC) aims to achieve long-term capital growth from investment in a diversified portfolio of UK micro-cap companies, typically comprising companies with a market cap of less than £100 million at the time of purchase. The company launched in December of 2014, and now has George Ensor at the helm who took over the portfolio from Philip Rodrigs in 2018. The team utilise an active, bottom-up strategy looking to add real value in the micro-cap end of the market via in-depth analysis where coverage is sparse. Like all managers at River & Mercantile, George follows the group’s PVT (Potential, Valuation, Timing) investment approach. As of the end of March 2019 the portfolio is relatively concentrated, with only 43 holdings, but the managers believe it boasts a well-diversified array of companies. Not only is the portfolio evenly split among the small to micro market cap spectrum, the companies are fairly evenly split among the sectors. Only financials has a weighting greater than 20%, and the largest sector overweights come from oil and gas (+8.2%) and health care (+6.2%). At the other end of the spectrum, the portfolio has very little exposure to consumer services and consumer goods (-11.3% and -6.4% relative to the benchmark, respectively). Since launch the trust has delivered NAV returns of 96.2%, compared to 40% for the Numis SC Plus AIM ex Invt Cos Index, 60% for the AIC peer group and 60.4% for the IA peer group. As such, the long-term track record is strong. However, the last quarter of 2018 hit the portfolio particularly hard and saw the company fall 21.7% in NAV terms. As with most UK focused trusts, the past few years have seen the discount widen dramatically – although in this case, exacerbated by the change in manager in early 2018. Over the past two years the trust has reached a premium of close to 17%, and a discount of close to 15%. Currently the trust is trading at a discount of around 14%, considerably wider than the sector average.
Companies: River & Mercantile UK Micro Cp Iv Co
In our February article 'Sweet Treats', we launched our list of discount opportunities - trusts we felt had the potential to see their discounts close significantly and, in turn, supercharge investors' returns. Our list has had a good beginning to its life, with the majority seeing their discounts close slightly in the almost three months since, aided by a good period for the markets. The investment trust universe has seen its average price rise by 3.2% since 13 February, as the below graph shows. We can trace the rally in the market to the meeting of the Federal Reserve’s interest rate setting body, the FOMC, on the 20 March. Shortly after that meeting, global equity markets began their rise, as investors lowered their expectations for future interest rates.
Companies: ASCI HOT ASCI HOT RMMC OCI MHN TFG BEE
One of the attractions of investment trusts is the potential to pick up discounted bargains, which can supercharge NAV returns if correctly anticipated. As we have remarked before, closed-ended funds have historically delivered superior NAV returns. But buying shares on a substantial discount can significantly enhance those NAV returns should the discount narrow on a sustained basis. The reasons for investment companies long run NAV outperformance of equivalent open-ended funds, lies with their structural advantages, as we discussed in detail last year. Firstly, they have the ability to make the best use of less liquid assets and managers can manage those assets without having to worry about inflows and outflows. Secondly, they can employ gearing, which should be accretive to returns over the long run even if timing isn’t attempted, assuming equity markets continue to rise over the course of each cycle. While we tend to focus on the trusts with long-term potential, here we are considering those trusts currently sitting on discounts that have caught our eye. These trusts are trading on unusually wide discounts (at least 10% in absolute terms), but most importantly, have the potential to produce attractive NAV returns (in relative or absolute terms) as well.
Companies: BEE AAS RMMC MHN OCI TFG
The star fund manager culture and its effect on open-ended fund industry has been the subject of debate for many years, frequently making headlines when a high profile manager leaves for pastures new. To try and address the problems associated with key man risk, many fund management groups have pushed the ‘team-based’ approach more in recent years in an effort to soften the blow if a lead manager does change fund management houses The idea being if a manager does depart, investors won’t feel the need to sell out of a fund because they know the team taking over will run it in a similar way. Given their structure of being closed-ended, investment trusts have traditionally been shielded by the effects of key-man risk. However a recent example of a high profile departure at River & Mercantile shows they are not immune. Rather than being swamped with outflows, the River & Mercantile UK Micro Cap Trust saw is share price fall 14.6% and its discount to net asset value (NAV) move from 16.2% premium to a 0.6% as investors hit the panic button after the announcement its lead manager, Philip Rodrigs, had left the group. For Nick Greenwood, manager of the Miton Global Opportunities trust, the large drops the trust has faced since Rodrigs’ departure, represent the risks that investment trusts with key managers can face when those managers leave. “If you have a key manager following, the price that the trusts trades at can be very different to its peers, meaning that if the manager leaves, the price can quickly fall either back into line or below the peer group,” he says. In its 2018 rebalancing of its model portfolio, Winterflood replaced the R&M UK Micro Cap Trust with the JP Morgan-managed Mercantile Investment Trust in the UK equities section of its portfolio for its mid and small cap exposure. Trading at a 9% discount at the time, it felt the Mercantile Investment Trust, which is managed by Guy Anderson, represented a better value opportunity (versus the premium the R&M UK Micro Cap was trading at the time). However after the events that unfolded since Rodrig’s departure, Simon Elliott, a research analyst at Winterflood Investment Trust, says the micro cap fund does offer value versus its nearest peers. He also believes there is a large opportunity in the micro cap segment of the UK market for a genuinely active manager to add considerable value through stock picking. “The fund’s assets of £102m are nearly only 10% below where the board has deemed it appropriate in the past to return capital at NAV,” he says. “It is feasible that the portfolio could generate sufficient growth within the next 12 months to warrant a third return of capital and we would expect this to act as a catalyst in narrowing the discount.” At the same time, while many in the past may have invested in the fund because of the previous manager, its new manager, George Ensor, knows the trust having been involved with its running since launch in December 2014. “As a key member of River and Mercantile’s equity team, Ensor has gained the respect of the team’s leadership and we were impressed with his knowledge of the stocks in the portfolio at a recent meeting,” says Elliott. “Whether this will translate into strong returns, both absolute and relative, will only be proven in time. “However he has a head start given his current knowledge of the portfolio and this is an important, high profile mandate for River and Mercantile, not least as its only listed collective to date.” Meanwhile Greenwood, who never held the fund, says things can work in the opposite way. Namely a badly performing trust can see its discount narrow if it gets taken over by new management. A most recent example of this would be the Aurora Investment Trust. Having been a serial underperformer in the IT UK All Companies sector, since Phoenix Asset Management took over the trust in January 2016 it has undergone a complete transformation under new manager Gary Channon. As such it has moved from a 17% discount in April to 2015 to currently trading at parity, with the trust ranked second article over one and three years. So the movements in discounts can work for and against investment trusts when a high profile manager departs. However what they are not subject to is large outflows thanks to their closed-ended structure meaning any incoming manager does not have to deal with a firesale of assets on day one. In the case of the R&M UK Micro Cap Trust, it would seem after all the negative headlines, many are realising the strength of the team that lay behind the key man and at its current 11.9% discount to NAV could be sensing a buying opportunity.
Companies: RMMC MIGO MRC ARR
Investment trusts are often the structure of choice during booming markets. The ability to gear, plus the investment freedom of a closed-ended structure allow skilled managers to capitalise on rising share prices. However, the same has not necessarily been true on the way down, as leverage exaggerates losses and discounts widen. This has often been a time to buy, with market volatility providing a chance to buy into good trusts at knockdown rates. Cherry Reynard asks, has the market rout since the start of the year produced any opportunities for value-hunters? There are 28 trusts that have seen their discounts widen by more than 5%* since the start of the year. This appears a mild reaction to the market sell-off. The FTSE 100 was down 7.5% over the same period. Peter Walls, manager of the Unicorn Mastertrust (a fund of investment trusts), said this first bout of volatility, triggered by expectations of higher interest rates in the US, passed much of the sector by unnoticed: “There was some intra-day volatility in some of the more highly geared, specialist funds. Some of the trusts that had enjoyed strong demand from self-directed investors also proved volatile – Fidelity China, Scottish Mortgage and F&C Global Smaller Companies. However, those hoping to pick up cheap opportunities were disappointed.” There were a number of reasons why investment trusts didn’t exhibit panic selling. Notably, companies proved active in buying back shares. Scottish Mortgage, for example, bought back 3,000,000 ordinary shares at a price of 449.34p at the start of March. Walls added: “The boards are aware that discount volatility is not great for shareholders and did their best to manage discounts through this time.” However, while the rout itself did not throw up any conspicuous bargains, it did exaggerate some existing trends among some familiar investment trusts. The first is the weakness of the infrastructure trusts. There were seven infrastructure trusts among those trusts that saw the greatest discount widening over the period. In some cases, the moves were extreme - GCP Infrastructure saw a 9.4% move, while HICL saw an 8.0% move. 3i Infrastructure and John Laing Infrastructure moved from a long-standing premium to a small discount. Infrastructure trusts have long been seen as a ‘bond proxy’ investment and as such, might be expected to suffer on the prospect of rising rates. However, as Walls points out, there were also other factors at work. Concerns over the collapse of Carillion and an increasingly aggressive stance from the Labour Party on PFI have weighed heavily on investors. This has unquestionably led to better value, with discounts at multi-year highs. The question for investors is whether the rising interest rate environment is reflected in current prices, or whether any further inflation shocks could send prices lower still. Simon Moore, senior investment manager at Seven Investment Management (7IM) believes a more fertile ground may be the UK Equity income sector, where sentiment has been dented by Brexit concerns. He says: “There are three investment trusts which stick out where their price has fallen significantly over the last three months. All of these have Neil Woodford/ Mark Barnett connections (make of that what you will): Edinburgh Investment Trust, Perpetual Income & Growth and Woodford Patient Capital. “These have a few UK small caps that have been in trouble, arguably nothing to do with the market sell-off, but each manager have been vocal supporters of UK listed companies despite obvious global pessimism on UK equities post-Brexit referendum. If they are right - and their judgement calls have often been right in the past - then these funds could be rerated.” Moore points out that both managers have styles that will go in and out of favour. Certainly, all three trusts have moved down a long way. Patient Capital has seen its share price total return dip 10.7% and its discount widen 5.4%. Edinburgh Investment Trust hasn’t seen a significant change in its discount, which is hovering around 9%, but its shares are down 8.6%. It is a similar situation with Perpetual Income & Growth, where the shares are down 7.7%, but the discount remains at around 9.5%. Moore says: “It is worth remembering that Patient Capital is a very different fund to either Edinburgh Investment Trust or Perpetual Income and Growth and is not for the faint hearted. Given the nature of some of the companies it invests in, there may well be more ups and downs to come. But the clue is in the name - investors who can afford to be patient may well be rewarded over the long-term." Walls sounds a note of caution, saying that some of the classic equity income type stocks favoured by these two managers are still seeing a difficult time. Some of the outsourcing groups, for example, remain out of favour with investors. Much will depend on whether investors come to believe in the ‘value’ trade, where this type of stock will revert to more normal valuations. The other sector to see some change in ratings among the recent volatility has been the technology and media sector. Of course, this comes after a lengthy expansion in the technology sector, with companies such as Facebook, Amazon and Netflix leading markets higher for much of 2017. Walls says: “A couple of the technology trusts, such as Polar Technology Trust and the Allianz Technology Trust have moved to a small discount. I wouldn’t say they look like bargains.” Walls suggests that some sectors where there should have been bargains – such as UK smaller companies – have not seen any real movement in aggregate and are certainly ‘not exciting for value-minded investors’. That said, some are certainly cheaper than they were: Chelverton Growth trust has taken a hit, for example. The other weak trust has been the River & Mercantile UK Micro Cap, though this dropped following the departure of manager Philip Rodrigs over a ‘conduct issue’. Overall, most trusts have held up well since the start of the year. This reflects well on the sector, which appears to have grown better at managing market downturns. There are opportunities, but these have arisen from issues idiosyncratic to each sector rather than market volatility as a whole
Companies: SMT EDIN PLI SUPP PCT ATT RMMC
Research Tree provides access to ongoing research coverage, media content and regulatory news on River & Mercantile UK Micro Cp Iv Co. We currently have 6 research reports from 1 professional analysts.
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Alpha has released an update today, which highlights the impacts of the recent global lockdown and extreme FX volatility on the trading and working capital of their clients. We have reduced this year’s revenue forecast by 14% and EPS by 24%. We show the Company has sufficient capital to hit these revised forecasts and importantly has a business model, capital structure, technology platform and client proposition to continue to take share and return to high-growth when economies normalise.
Companies: Alpha Fx Group
1pm has provided a trading update outlining its response to the current Covid-19 outbreak. Operations continue as usual (remotely) and the group continues to write new business, however, it has received multiple requests for repayment deferrals. The group is offering this flexibility where merited to assist credit worthy UK SMEs and has the balance sheet to absorb these lower cash collections. 1pm's own funders remain supportive to the business. Given the uncertainty over the duration of the outbreak and the impact the UK's shutdown is having on 1pm's trading, we withdraw forecasts and put our recommendation under review.
We believe that NSF’s response to the current pandemic is in the interests of all its stakeholders. The operational shift towards remote working helps protect its staff whilst enabling its clients to continue to access the services they need. Similarly, its decision to reduce lending and focus on its existing clients and those most in need, is the prudent thing to do. These actions, combined with the high risk-adjusted margins on its existing loan book should enable the group to generate positive cash flow, even allowing for an increase in impairment during the current period of economic uncertainty. This should leave the group in a stronger position to serve its clients and win share when the current government restrictions are lifted. As a result, of this medium-term outlook we reiterate our BUY rating.
Companies: Non-Standard Finance
Belvoir’s FY 2019 results were strong, with adj. EPS up 13% (13.6p vs our forecast 13.0p) and strong cash generation. COVID-19 will affect property sales in FY 2020 but lettings (61% of 2019 gross profit) will be more resilient, helped by the Government’s measures to support employment and incomes. Management has reacted quickly, reducing costs and putting plans in place to support franchisees. We now forecast a ‘lost year’ in FY 2020, assuming five months of no sales activity, a significant reduction in financial services and a reduction in lettings fees, partly offset by a £1.5m cost reduction. The capital light franchise model, inherent high levels of cash generation and no final dividend for 2019 mean we forecast gross cash of £2.0m at December 2020, down from £3.6m. Belvoir is in good financial shape to weather the storm and support its franchisees before returning to normal activity. The success of the strategy was again evidenced by a strong start to 2020 prior to COVID-19.
Companies: Belvoir Lettings
Premier Miton has been the worst performing asset manager YTD, despite evidence that the benefits of its merger are coming through, and its funds are outperforming. Our mark-to-market suggests that if markets remain at current levels until financial year-end in Sep’20, the shares would only be trading on 7.1x FY21 P/E, an extreme valuation for a company with significant self-help opportunities, and an extremely strong balance sheet. Our analysis also suggests PMI will enjoy increasing net cash balances over two years, reaching c.£37m in FY20 or 34% of the current market cap. As a result, we see the current share price as an extremely attractive entry point. Our updated TP of 152p is driven by a DCF assuming flat AUM for 3 years and implies 125% upside.
Companies: Premier Miton Group
Given the substantial share price decline for Ramsdens in the last month, following clear risks to near term earnings, we revisit the group’s valuation and suggest a potential impact to earnings from the COVID-19 related lockdown. The analysis shows that Ramsdens has a solid balance sheet with a number of clear valuation supports and will be able to withstand the extreme conditions that are likely to occur over the coming months. We use an 8x multiple on FY20 earnings as a reflection of a normalised earnings base which reduces our target price to 180p from 258p. At this target price Ramsdens would trade on a FY21 P/B of 1.6x and yield 4.5%. This target price offers 114% upside and we retain BUY.
Mercia’s business update highlighted the breadth of its portfolio (c 400 companies) and the strength of its cash position – £30.4m of unrestricted balance sheet cash and £190m of investment capital in its managed funds, giving c £220m of uninvested cash. However, with lower revenues now expected in FY21, Mercia also recognises that the valuations of both the NVM VCT portfolios, whose fund management contracts were acquired in December (22% fall in average NAV), and its own portfolio have been affected by market conditions. With group results not due until July, based on a read-across from the 22% fall in the NVM portfolios, we calculate a hard NAV for Mercia of 25.0p. Added to our assumption of the value of the third-party fee-earning funds business (2–3% of a reduced FUM), this would imply an indicative value for Mercia of 30.6–33.4p. Mercia trades at a c 50% discount to our indicative value today.
Companies: Mercia Technologies
VinaCapital Vietnam Opportunity Fund - Strong pipeline of private equity investmentsSupermarket Income REIT - Rent reviews result in 1.3% uplift to annualised rental incomeCOVID-19 Updates - Assessing the impactInsider Buying - Management seeing buying opportunities
Companies: VINACAPITAL VIETNAM OPPORTUN
Today's news & views, plus announcements from AAL, SSE, CCH, NXT, FLTR, MGGT, PHP, RMG, BBY, RDW, DOM,WJG, GATC,
Companies: Primary Health Properties
Best idea of the week - CLS and the Real Estate Sector
For fighter pilots, it is a minimum requirement. But having 20/20 ‘visual acuity’ (correct term) does not necessarily mean you have perfect vision (as convention assumes); instead, it indicates sharpness and clarity of vision at a distance. It is measured by a Snellen Chart, which displays letters of progressively smaller size and whereby 20/20 means that the test subject sees the same line of letters at 20 feet that a person with normal vision sees at 20 feet (or 6 metres; but 6/6 simply didn’t catch on).
Companies: ABBY BDEV BWY BKG VTY CRN CSP CRST GLE GLV INL MCS PSN RDW SPR TW/ WJG
Aviva announced an operating profit of £3,184m (up 6% yoy) and an IFRS profit after tax at £2,663m, better than expected. The main source of operating earnings improvement was the reduction in net expenses in the UK digital business by £165m regarding 2018. The cash remittance reached £2,597m, and the insurer is on the right track to deliver one of the key 2022 targets: remitting £8.5-9bn over 2019-22. We keep our positive opinion on the stock.
Companies: Aviva Plc
Following the UK Government announcement on Friday, NewRiver has closed its Community pub business with immediate effect. This had been anticipated.
Companies: Newriver Reit
Secure Trust Bank (STB) is delaying the release of its FY19 results, due on 26 March, as requested by the FCA on account of COVID-19. It was aiming for double-digit earnings growth in 2020 and stated that its first two months of trading was strong and ahead of management expectations. COVID-19 uncertainty has nevertheless prompted STB to cancel its forward guidance and final 2019 dividend payment. We are maintaining our FY19 forecasts as the pre-close statement indicated that results would be in line with expectations. However, we are suspending our 2020â21 forecasts until there is more clarity on the impact of COVID-19. Our DDM fair value of 2,428p per share is equivalent to a P/NAV of 1.8x in 2019. This valuation reflected assumptions that STB would deliver returns considerably above its 10% cost of equity (COE) in the medium and long term.
Companies: Secure Trust Bank