19 July 2022
2022 ANNUAL RESULTS AND DIVIDEND ANNOUNCEMENT and
NOTICE OF ANNUAL GENERAL MEETING
Miton UK Microcap Trust plc announces its annual results for the year ended 30 April 2022 and the publication of its annual report and accounts for the same period, which includes the notice of its 2022 Annual General Meeting.
HIGHLIGHTS
Results for the Year to 30 April 2022
- Over the year, the Ordinary share NAV fell from 104.83p on 30 April 2021 to 91.05p on 30 April 2022, a negative total return including dividends reinvested of 13.1%.
- The Ordinary share price fell from 104.50p at 30 April 2021 to 86.50p at 30 April 2022, a negative return of 17.2%. As at close of business on 15 July 2022, the closest date to this Report, the Ordinary share NAV was 72.09p and the share price was 67.20p.
- The net Revenue return was a positive return of £159,000 this year, or 0.15p per share. This compares to a loss of £169,000 last year, or (0.14)p per share.
- The Company offers all investors the opportunity to redeem their shareholding each year, which has the advantage of clearing any overhanging sellers and is designed to ensure that the market price of the Company does not deviate too far from the underlying NAV. Redemption requests in relation to 14,614,199 ordinary shares, or 13.3771% of the Company's share capital, at 30 April 2022, were received for the 30 June 2022 Redemption Point and are not reflected in the summary below. The redemption mechanism is explained further within the full Annual Report.
- The Company does not have a formal benchmark but, for comparison, it is intended that the return on the Numis 1000 Index and the Morningstar Investment Trust UK Smaller Companies sector will be published on the monthly factsheet and in the Company's annual and interim reports. Returns, however, may diverge from any of these indices for a significant period.
Summary of Results
|
|
Year to 30 April 2022
|
Year to 30 April 2021 |
|
Total net assets attributable to equity shareholders (£'000) |
99,475 |
116,651 |
|
NAV per Ordinary share* |
91.05p |
104.83p |
|
Share price (mid) |
86.50p |
104.50p |
|
Premium/(Discount) to NAV* |
(5.00)% |
(0.31)% |
|
Investment income |
£1.0m |
£0.7m |
|
Revenue return per Ordinary share |
0.15p |
(0.14)p |
|
Total return per Ordinary Share* |
(13.77)p |
49.51p |
|
Ongoing charges#* |
1.41% |
1.60% |
|
Ordinary shares in issue |
109,253,560 |
111,274,758 |
*Alternative Performance Measure (“APM”). Details provided in the Glossary of the Annual Report.
#The ongoing charges are calculated in accordance with AIC guidelines
CHAIRMAN'S STATEMENT
Overview
This report, representing the fully audited results for the Company for the year ending 30 April 2022, is my first as your chairman. Andy Pomfret, my predecessor, stepped down, as planned, on 31 December 2021. As we reported in an RNS at the time, the Board would like to formally thank Andy on behalf of all shareholders for directing the Company with such skill and dedication since its launch on 30 April 2015. The Company's success as a distinctive pioneer in the microcap arena, with an excellent return record, is due in no small part to Andy's inspired leadership. We wish him well.
Performance
The investment objective of Miton UK MicroCap Trust (MINI), as stated in our prospectus, is to provide Shareholders with capital growth over the long term. MINI has no formal benchmark. Your Company first traded on the London Stock Exchange at the issue price of 50p on 30 April 2015. Over the seven years to 30 April 2022 the NAV Total Return that MINI has produced is 89.05%. This compares with the Numis All Share Index (including Investment Companies) with a return of 42.81% and the Numis Small Cap 1000 Index (excluding Investment Companies) which was up 63.17%. Other comparators for this period include the Numis Small Cap Plus AIM Index (excluding Investment Companies) which produced a 57.34% return whilst the NAV Total Return produced by our peer group was 53.26%. Overall, therefore, we are pleased with MINI's strong longer term performance.
Total Returns since launch in April 2015
|
|
% |
|
Numis All Share |
42.8 |
|
Numis 1000 Index |
63.2 |
|
Numis Smaller Companies ex ICs + AIM |
57.3 |
|
MINI NAV |
89.1 |
Source: Premier Miton, Numis
Over the past 12 months to 30 April 2022 we have lagged our comparators producing a NAV Total Return of a negative 13.14%, whilst the Numis Small Cap 1000 Index (excluding Investment Companies) fell 9.06%, our peer group1 was down 6.95%, the Numis Small Cap 1000 Index (excluding Investment Companies) registered a negative 5.78%. Over the year to April 2022, the strong dollar and buoyant commodity prices have favoured the largest stocks, thus the Numis All Share Index (excluding Investment Companies) rose 5.26%.
You may wonder why it is that we use the Numis indices in all our communications. The answer is a simple one: we are trying to save our shareholders money as the FTSE indices charge a significant amount if we use their data. The Numis indices were launched at the start of 1987. They have been published continuously for 34 years, whilst they also have a 32-year back-history to 1955. Since their launch, the Numis indices have provided the definitive benchmark for monitoring the performance of smaller UK companies and we are delighted to be using them for comparison purposes. Your directors are pleased with MINI's long term performance as it is handsomely matching its objective.
Despite small caps being buoyant in early 2021, there was excess of issuance in the second half of 2021 and small cap share prices drifted with small cap stock market indigestion, made worse by the invasion of Ukraine by Russia on 24 February 2022. In the absence of small cap momentum, MINI traded at an average discount of 6.2% over the year to April 2022, and at a 4.0% discount since IPO given the Brexit uncertainties and then the Covid-19 pandemic.
Generally, when small caps are out of favour, MINI trades closer to NAV than most other small cap investment trusts. Since the autumn small cap stocks in the UK have been on a relentless downward trend. Small cap stocks tend to get caught in the early stages of a bear market as selling is liable to be indiscriminate and the liquidity in these stocks can be thin. We believe that MINI is well positioned as its portfolio of investments is largely composed of companies which not only generate profits, but also have robust balance sheets. At the end of April 2022 MINI had investments in 137 quoted companies, with a weighted average market cap of £101mm, and minimal debt overall. The weighted average Price/Book ratio of the portfolio was 1.4x, considerably less expensive than the 1.8x for the UK market as a whole and with a dividend yield of 0.94%.
Earnings and Dividends
Earnings for the year were 0.15p per share (2021: 0.14p per share) on the revenue account. Earnings on the capital account consisted of a loss of 13.91p per share (2021: a gain of 49.65p per share). Earnings on the revenue account remain depressed as micro-cap companies would rather invest in their businesses than reward shareholders at such an early stage in their corporate lives. Revenue this past year, however, was boosted by a special dividend of 50p from CML Microsystems, which added £74,000 to the account. As far as setting the dividend is concerned, the Directors aim to give the Investment Manager maximum flexibility to follow whichever course will lead to the best results for our shareholders. Your Directors regard the dividend as a useful by-product of the investment process but not a target.
Our ambition is to continue to pay a small dividend but rest assured that we will not plunder the capital account in order to maintain it. This year, your Board is recommending a final dividend of 0.15p per Ordinary share. Subject to approval by shareholders at the AGM, this will be paid on 30 September 2022 to all shareholders on the register on 2 September 2022.
Board Succession Planning
We were delighted to welcome Davina Walter as a Director of MINI on 10 August 2021. We have engaged a firm of head hunters to track down a replacement for Jan Etherden, who has decided to retire from the Board by the end of 2022. Our intention is to keep the Board at four members, but there may be short periods when the number of directors rises to five to ensure an efficient handover of responsibilities.
We are aware of the recent changes in that the FCA has published a Policy Statement on Diversity and inclusion on company boards and executive management (PS22/3). These change the Listing Rules and the Disclosure Guidance and Transparency Rules. The new rules include requirements for companies subject to Chapter 15 of the Listing Rules to include a statement in their annual reports and accounts as to whether the company has met the following targets on board diversity as at a chosen reference date within its accounting period:
- At least 40% of individuals on the board are women;
- At least one of the senior positions on the board is held by a woman, and
- At least one individual on the board is from a minority ethnic background
As an externally managed investment trust, the Company does not have a CEO or CFO and therefore the two relevant senior positions are Chair and Senior Independent Director
We have met the first point and we hope, within the next few years, to transition to a position where the last two points are also complied with. The Board is conscious of the directive which limits the term of directors, aside from the chairman, to nine years. As the company has been in existence for seven years, succession planning has been an important topic and we are trying to ensure a staggered departure of directors so that our successors are not faced with everyone's term coming up at once.
Directors' remuneration
The directors are entitled to an increase in their fees by the percentage uplift in CPI each spring. The figure which applies to fees from 1st May 2022 is 9%. Recognising the need to show restraint, the directors have unanimously agreed to apply a 4.5% uplift to their fees this year.
Responsible Investing
It is ironic that those managers who followed environmental, social and governance (ESG) principles to the letter, without any regard to a more subtle approach, will have performed poorly over the last few months since oil stocks, mining stocks, tobacco stocks and defence stocks have all performed well thanks to Putin's ill judged invasion of Ukraine. Happily, the Investment Manager has taken a nuanced stance to ESG investing, and has not shied away from all these sectors. Within the oil sector, for instance, MINI has investments in 10 carbon based energy holdings, including Independent Oil and Gas, which has a zero carbon production footprint, thanks to using previously redundant gas pipelines, and unmanned mini-rigs on the gas fields operated from the shore via electric cables. MINI's Investment Manager has increasingly focused on integrating ESG factors alongside financial factors in the investment process including decisions, as genuinely active investors, to hold individual underlying investments in the portfolio. The Investment Manager believes this is important enabling them to deliver strong and durable performance and meet their broader investment responsibility.
Share Issuance
A total of 650,000 new shares were issued during the course of the year at an average of a 1.02% premium to the prevailing Net Asset Value (NAV) in May 2021, when these shares were issued. Your Directors are keen to grow the size of the Company and look to issue shares when the share price is at a sufficient premium to NAV. This exercise keeps the premium in check, so as to ensure that no one pays too high a price for the underlying assets, whilst it also ensures adequate liquidity to those wanting to acquire shares. Issuing shares at a premium enhances the NAV, benefitting existing shareholders. This also dilutes MINI's fixed costs, thus lowering the Ongoing Charges Ratio (OCR). We will be seeking approval at the AGM in September to renew this useful facility.
Share Redemption
Once each year, traditionally at the end of June, your Directors choose to offer the facility for shareholders to redeem their holdings in part or whole, at or close to the prevailing NAV. The Directors have offered this facility again this year and the timetable is laid out within the Annual Report. In fairness, as the amount of shares tendered reached 13.3771%, the Directors agreed to form a separate Redemption Pool and it may take a number of weeks to liquidate this pool appropriately.
The Board intends that the 2023 Redemption Point will be moved from 30 June 2023 to 31 October 2023 to align with the interim report. The Board considers this to be in the best interests of all shareholders.
Annual General Meeting
The Annual General Meeting (AGM) of the Company will take place at 11am on Tuesday 27 September 2022 at 1 Finsbury Circus, London, EC2M 7SH and your Board looks forward to this annual opportunity to meet shareholders. In addition to the formal business of the AGM, there will be a presentation by the fund managers on your Company's performance and prospects.
The formal notice of AGM can be found within the Annual Report.
Outlook
The investment outlook looks pretty bleak with inflation approaching double digits, rising interest rates (admittedly from multi-century lows), stalling growth, fears of recession and the worst conflict raging in Europe since 1945 with the possibility of further escalation. At the time of writing one might almost be pleasantly surprised at how resilient markets have been. You might well be forgiven for thinking one would be unusual to even contemplate investing in a portfolio of microcaps. However, there are a useful number of factors which might make such a thought compelling.
First, ever since MIFID II was sprung on the market at the start of 2018, there has been a steady withdrawal of investment analysts covering microcaps and small companies generally. Typically, microcaps only have one analyst covering them and that individual is usually from the sponsoring house, whose opinions are often regarded as little more than a marketing ploy. Your Directors remain deeply impressed by the number of companies which the managers of the Trust, Gervais Williams and Martin Turner, manage to meet, physically or remotely, over the course of a year. As dedicated small cap managers, who have been operating in this arena for three decades, their understanding of what makes a successful microcap company is almost unrivalled. There are many 'gems in the rough' and your Investment Manager is well placed to identify them.
Secondly, your Investment Manager currently deploys a FTSE 100 put well out of the money, which will help bring much sought after liquidity to the portfolio if the FTSE falls to 6,200 by December 2022. This, coupled with the long lived and dedicated facility to borrow £5m from a leading UK bank, gives the Investment Manager the ability to get hold of funds when stocks are trading at distressed valuations and thus is able to take advantage of such conditions.
Some may think that microcaps are companies of little consequence but many of them are world leaders in their fields and astute leadership can enhance their already dominant positions with sensible infill acquisitions and canny investment. MTI Wireless, an investment made soon after the Trust's launch, subsequently rising to become one of the largest holdings, is a good example. It is currently being actively engaged by many of the largest 5G equipment manufactures because its 5G aerials have patented commercial advantages over others. It is a fact that well-chosen microcaps can, and often do, rise by multiples of their original price, and this then brings them into the sights of investment managers who, until this point have eschewed the smallest companies, leading to yet further share price appreciation. Over the life of the Trust there have been numerous stocks that have risen many multiples from their entry cost. Within the portfolio at present there are 63 stocks that are standing above entry cost, of which 14 have at least doubled since purchase, seven that have tripled, and five that have quadrupled, one of which has risen even further. 'Elephants don't gallop' is an old Stock Exchange maxim, but microcaps can fly!
Over recent years your Investment Manager has highlighted why their investment strategy has the potential to deliver excellent returns. They have also outlined how returns can be achieved with portfolio risks that are usefully moderated versus others. Fortunately, to date this strategy has delivered, with MINI's NAV having risen nearly 90% since issue in April 2015, well ahead of most indices, and with a Beta that has been below the indices and many other competitor trusts. Whilst the current economic and political news flow may have turned decisively negative, your directors believe that MINI's strategy has the potential to deliver premium returns relative to others. The FTSE100 Index may currently be leading the way, but UK quoted microcaps may also have some good performance ahead and the potential to deliver years of good returns.
Ashe Windham
Chairman