River & Mercantile UK Micro Cap’s NAV return for the six months ended 31 March 2016 was 8.3%, well ahead of the benchmark’s return of +0.9%.
The manager’s report analyses the largest contributions to the fund’s performance over the period. The largest positive contributions came from KBC Advanced Technologies, IS Solutions, Trakm8, Blue Prism and Sigma Capital. the largest negative contributions came from Epistem Holdings, Bonmarche Holdings and Amino Technologies.
There were two takeover offers for constituents of the portfolio. Alongside ISG, KBC Advanced Technologies attracted not one but two suitors. This confirmed the original investment proposition that, despite providing software to the beleaguered oil and gas industry, it is the focus on the refining segment which defines the Company. The rival bids resulted in a 79% rise in the share price in the period and therefore a contribution to the overall portfolio of over 2%. One of the earliest purchases by the Company, the 156% uplift in value of this high conviction investment has added 4% to the Company’s return by itself.
The largest sector overweight – Technology – delivered considerable positive returns. IS Solutions was one of the first purchases from the fund raise proceeds and has subsequently delivered a 60% return. Due to change its name to D4T4 Solutions, the firm has been transformed into a Data Analytics specialist via the acquisition of Cerberus. Specialising in analysing the minutiae of customer interaction with websites, the patented and potentially world leading capability is already demonstrating that clients from many different industries are willing to procure the firm’s solutions which has led to a series of positive surprises on trading. IS Solutions is an example of world leading technology available in the UK Micro Cap, and Blue Prism Group is even more so. This was an extremely popular IPO with an immediate 52% return due to the fact that Blue Prism has by far the leadership position in ‘Software Robots’. In an ideal world all IT systems would be integrated seamlessly, but the daunting technical challenge means that disparate systems need vast armies of staff to perform basic tasks. Advanced artificial intelligence allows a software program to emulate human actions, reducing errors and releasing staff to perform more productive tasks. Whilst early stage, Blue Prism could be at the forefront of a seismic shift in productivity. Already delivering productivity for fleet customers, telematics designer and service provider Trakm8 Holdings ended the period 25% higher. The 63% return since purchase is thoroughly justified by the leading technology that permits the smallest device footprint, for the lowest cost and providing value added services such as fuel saving and insurance-related data.
Seven other stocks contributed over 0.5% to the portfolio. Sigma Capital Group is at the forefront of delivering homes for affordable rent in areas with social housing shortages with a unique partnership model. dotDigital specialises in marketing tools to help firms of all sizes engage with their consumers better. Wrongly seen as outdated, automated personalised emails are proving extremely attractive to marketers and recipients alike, driving strong growth globally. Curtis Banks is a leading provider of SIPPs, gaining market share as regulations support its high standards approach. WYG is a planning consultant in the buoyant UK construction market.
They point out that, within a diversified portfolio, not all goes to plan. Amino Technologies plunged 28% and was immediately sold after a shock profit warning. Management were honest to confess to being distracted by their acquisition of Entone, but a now-apparent technology shift may prolong the distraction. Older demographic clothing retailer Bonmarche has been early in confirming to the market that unfavourable weather was hurting trade, which has been later corroborated by peers. It was also a shame to learn that the CEO is to leave, but the 38% fall is harsh as the fundamentals of the firm are unaffected by transitory weather effects. Epistem remains the most frustrating holding of the portfolio. Significant technical achievements, management enhancements and commercial progress, such as the news of Indian regulatory approval have not been reflected in an enhanced valuation attributed to the shares. The firm notes that commercialisation will need extra growth funds, but they think it is harsh that such a low valuation is attributed at this point to the ground-breaking tablet-sized Genedrive diagnostics device which works and can be used to save lives. With dozens of potential applications, this low cost gene detector has enormous commercial potential from detecting bio-hazards through to personalised medicine and life-saving diagnostics in tuberculosis, HIV, Hepatitis C and more.
RMMC : River & Mercantile UK Micro Cap boosted by takeovers