Results analysis from Kepler Trust Intelligence

RNS Number : 0147K

Miton UK MicroCap Trust plc

16 December 2022

 

Miton UK MicroCap (MINI)

15/12/2022

Results analysis from Kepler Trust Intelligence

Miton UK Microcap (MINI) has released its interim results for the half year ending 31/10/2022. Over the period the trust has seen its NAV total return decline by 29% compared to total returns of -19.5% for the Numis 1000 Index and the average total return of -16.1% for the AIC UK Smaller Companies sector. MINI's share price declined by 31.8% on a total return basis.

Over the six months to 31/10/2022, the trust's discount widened from 5.0% to 8.6%, however in recent weeks it has again narrowed to 6.3%. The redemption mechanism means the trust often trades at a narrower discount than the peer group's simple average which is currently 14.0%.

Chairman Ashe Windham commented "Microcaps… now stand at significantly attractive valuations". Furthermore, "With the constraint on capital that comes with inflation, the relative strength of UK quoted company balance sheets should be a considerable advantage, especially compared to those with substantial debt burdens."

Kepler View

The last six months have been a particularly challenging period for many equity strategies. Inflation has proven to be stickier than perhaps initially expected, with the rapid increases in interest rates seemingly having little effect on the data. This has had a disproportionate impact on smaller and micro-cap strategies compared to their large cap counterparts and is reflected in Miton UK Microcap's (MINI) most recent reporting period as the trust's NAV total returns declined in absolute and relative terms compared to the benchmark and peer group average.

Despite MINI's underperformance the managers, Gervais Williams and Martin Turner, believe it has led to a significant longer-term opportunity. The ongoing caution enveloping the UK has stemmed from the political gridlock associated with the Brexit referendum, the global pandemic and more recently, the unsuccessful mini budget. Combined with global market uncertainties, they note that the aggregate price-to-book valuation of the portfolio, which is a company's share price divided by its asset value per share, reached an unusually low level of 0.8x by the period end - almost half that of the UK market as a whole.  We note since the trust's inception in April 2015, MINI has been able to demonstrate outperformance over the longer term with NAV total returns of 34.3% versus 33.4% from the trust's performance comparator, the Numis 1000 Index, as at 31/10/2022.

We believe the sell-off in share prices seen this year is a significant overshoot. Although market sentiment may not improve immediately, MINI's track record suggests it may generate strong returns when it does so. At the current discount of 6.3%, this may prove an attractive entry opportunity, particularly given the trust's annual redemption facility.

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