Montanaro UK Smaller Companies has announced results covering the 12 month period that ended on 31 March 2025. Over the period, the NAV total return for the trust was -6.9%. That compares to -0.4% for the Numis Smaller Companies ex Investment Companies plus AIM Index or 2.3% for the same index but excluding AIM companies.
A narrowing of the discount from 15.1% to 8.4% meant that the return to shareholders was 1.0%. That discount narrowing was helped by substantial share buybacks. During the financial year, the company bought back 24,927,148 shares (14.9% of outstanding shares) which are held in treasury.
The dividend was increased by 17.4% to 5.4p, reflecting the company’s new dividend policy which, in December 2024, was increased from 1% of NAV per quarter to 1.5%. Revenue earnings covered 3.3p of that with the balance coming from distributable capital reserves.
Effective from 31 December 2024, the investment management fee of 0.50% per annum is now calculated based on net assets rather than gross assets. In addition, in light of the adjustments to the investment management fee and reduced NAV of the company, the board has agreed to reduce directors’ remuneration by 10% from 1 April 2025.
Extract from the manager’s report
The largest positive contributors over the period were:
XPS Pensions, a leading provider of pension administration and consulting services, continued its strong run. Demand for expert advice remains high following the LDI crisis caused by Liz Truss’s mini-budget in September 2022. The group has been gaining market share through new client wins and awards. This is the second year in a row that XPS has been among our top performers.
Games Workshop, the fantasy miniatures company behind Warhammer, delivered impressive results once again. A growing global fanbase, successful new product launches, and expanding royalty income from licensing deals – including with Amazon – all contributed to investor enthusiasm. The business remains highly profitable and cash generative with a strong dividend track record.
Raspberry Pi, a Cambridge-based semiconductor company and educational computing pioneer, made a successful debut on the London Stock Exchange. We participated in the IPO (see below). Early trading has been encouraging and in line with market expectations.
Largest detractors
As ever, the year was not without some disappointments. The largest detractors were:
Tracsis, a provider of software and services to the transport industry, saw its shares weaken after failing to secure any large train orders in America that had been anticipated. At the time of writing, the shares are trading on c.11x forward earnings, which suggests to us that the news has been fully discounted by the market. The share price has been quietly rallying since the end of the financial year.
4imprint, the direct marketer of promotional products in the US, gave back some of its previous strong gains. As most of their products are sourced from China, investors became concerned about the impact of trade tariffs and the likelihood of price increases that might result. One of our top performers last year, 4imprint remains a core holding and has one of the best management teams we have the privilege to know.
YouGov, the international market research and data analytics company, issued a profit warning following operational missteps, including delayed project delivery and cost overruns. So soon after a large acquisition, management credibility was sufficiently in doubt that we sold the holding. Subsequently, the chief executive stood down.
[QD comment, James Carthew: Obviously, the extended period of underperformance by Montanaro UK Smaller Companies is frustrating. We welcome the many efforts, including the directors’ fee cut, that the board and manager have made to improve the trust structure. We agree with the manager that UK small caps are undervalued – Charles Montanaro describes average valuations of 10x depressed profits as a ‘generational buying opportunity’. Our sense is that when sentiment turns, the upturn in share prices could be dramatic.]
MTU : Directors’ fees cut at Montanaro UK Smaller
