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River & Mercantile edges ahead in first reporting period

River & Mercantile Micro Cap has issued its first interim results, covering the period from incorporation, through its launch on 2 December 2014 through to the end of March 2015. Over that period its net asset value total return was 5.3%, just ahead of the 5% return posted by its benchmark. The return to shareholders was 5.5%.

Philip Rodrig’s manager’s report provides clear and informative performance attribution. The top contributor to this performance in Q1 was Nationwide Accident Repair Services. A 36% return was achieved after purchasing a 5.8% stake in this car repair firm at 65p. Post quarter end, they accepted a 100p cash offer for the business, cementing a 54% return within one month. Meanwhile the strongest riser in Q1, and second largest contributor to performance, was Blur Group with a 39% advance and profits taken at even higher levels during the quarter. Blur is an Exeter-based global leading internet exchange for business services which is already transacting globally. He says Blur remains a young business with both triple digit growth and associated growing pains with strongly defendable prospects given the amount of time it would take to replicate the network.

Other strong gainers in Q1 reflect the theme of a buoyant UK economy leading to improved consumer confidence and spending. Cambria Automobiles accelerated 15% as this Jaguar Land Rover focused car dealer is enjoying strong growth in demand. Finsbury Food rose 16% as investments to improve its cake offerings were well received. Entu cemented a 28% rise with results that confirmed that this home improvements provider was trading at a very low valuation. And finally ScS Group was strongly supported after its IPO this quarter, rising 17%. Philip says, it is notable that this sofa retailer with strong growth prospects was offered at half the valuation achieved by larger peer DFS, yet boasting a significantly stronger balance sheet and much higher dividend yield, emphasising the attractive valuation discount available for this Micro Cap firm.

The sharpest faller and largest detractor was Epistem which fell 19%. Epistem’s ‘Genedrive’ device is a major diagnosis step forward in the battle against Tuberculosis in India, having already confirmed the device had successfully passed its trial when the shares were purchased. However shares fell as final approval to release the product was still pending by the end of the quarter. Management remained confident with approval the first small step to addressing an enormous potential for this device. Lastly, ISG plc slipped 11% below purchase price as the market digests the recent developments at the global leading interior fit-out firm. ISG offers significant recovery potential following our support of a rescue equity funding to repair the firm’s balance sheet after significant losses in its wholly segregated construction unit. In a buoyant fit-out market, this unit is growing robustly and more than justifies the market value of the business at the end of 2014. Therefore he believes significant upside opportunity exists even if the construction business ends up being worth zero, although efforts to return the unit to profitability suggest an attractive recovery here too.

RMMC : River & Mercantile edges ahead in first reporting period

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