Montanaro UK Smaller Companies Investment Trust PLC · LSE:MTU

Montanaro UK Smaller Companies Investment Trust — UK Smaller Companies Investment Trust PLC (MUSCIT) — Shareholder Meeting (July 2022)

27 slides from Montanaro UK Smaller Companies Investment Trust's shareholder meeting presentation, Jul 27, 2022

  1. Slide 1: UK Smaller Companies Investment Trust PLC (MUSCIT) Presentation to Investors

    This is a marketing communication UK Smaller Companies Investment Trust PLC (“MUSCIT”) Presentation to Investors AGM scheduled on 27 July 2022 “No one knows Smaller Companies like we do” Montanaro Asset Management Ltd 53 Threadneedle Street, London EC2R 8AR www.montanaro.co.uk enquiries@montanaro.co

  2. Slide 2: We focus exclusively on Small & MidCap

    30 June 2022 unless stated otherwise We focus exclusively on Small & MidCap • Established by Charles Montanaro in 1991 • AUM of £4 billion • MUSCIT has a track record of over 25 years (launched March 1995) • Largest team in the UK dedicated to SMIDCap (37 people) • “Best Small & MidCap Sustainable I

  3. Slide 3: We are different

    30 June 2022 unless stated otherwise We are different 1. It is our business 2. One big family - no big egos 3. Conservative (no loss-makers, no unquoteds, no derivatives, no stock lending) 4. We invest in our own funds 5. Long-term investors 6. We avoid brokers 7. We are a certified B Corporation 8.

  4. Slide 4: SmallCap is under-researched - you need active management

    30 June 2022 unless stated otherwise SmallCap is under-researched - you need active management UK - Average # of Sell-side Analysts by Market Cap Range (£) MicroCap SmallCap MidCap LargeCap 35 too illiquid under-researched less researched over-researched 30 28 26 25 Montanaro's Focus 22 22 20 19 17

  5. Slide 5: A Team of 37 – we have the resources for in-house research

    30 June 2022 unless stated otherwise A Team of 37 – we have the resources for in-house research Bear Bear 40 Market Market • 62% here for over 5 years and 41% for over 10 years 37 36 • 10 different nationalities 35 • 16 Analysts & PMs - average experience 17 years 33 (average age of team 42 years) 3

  6. Slide 6: What is a “Montanaro” company?

    30 June 2022 unless stated otherwise What is a “Montanaro” company? 1. Simple business we can understand 2. Profitable 3. Niche business in a Growth market 4. Market leader 5. Business with High Operating Margins and High Return on Capital 6. Good Management we trust 7. One we can hold for the Long-

  7. Slide 7: Our Investment Process is all about identifying Quality

    30 June 2022 unless stated otherwise Our Investment Process is all about identifying Quality NEW IDEAS QUALITY Analysis – Is it a good BUSINESS? VALUATION – Is it a good INVESTMENT? SITE VISIT APPROVED LIST BUY & HOLD Source: Internal. 6

  8. Slide 8: MUSCIT

    30 June 2022 unless stated otherwise MUSCIT To achieve capital growth in excess of the benchmark, the Numis Smaller 1 Objective: Companies (ex-IC) index 2 Strategy: Quoted UK SmallCap (AIM: maximum 40%) 3 Fund Manager: Charles Montanaro / Guido Dacie-Lombardo (Back-up) Tobacco; Alcohol; Weapons; Adu

  9. Slide 9: MUSCIT has a strong ESG profile

    30 June 2022 unless stated otherwise MUSCIT has a strong ESG profile Source: Internal, MSCI. 8

  10. Slide 10: Top 20 holdings

    30 June 2022 unless stated otherwise Top 20 holdings Company Country % Company Country % Big Yellow UK 4.0% Games Workshop Group UK 3.0% Clarkson UK 3.8% Ergomed UK 2.9% Biffa UK 3.8% Watches of Switzerland UK 2.9% Tracsis UK 3.8% XP Power UK 2.9% Kainos UK 3.5% Treatt UK 2.9% 4Imprint UK 3.5% Diplo

  11. Slide 11: Our companies continue to trade well and are positive

    30 June 2022 unless stated otherwise Our companies continue to trade well and are positive Diploma: ‐ double-digit organic growth, robust margins (supported by pass-through of cost increases) ‐ “H2 has started well … confident in our materially upgraded April guidance” DiscoverIE: ‐ order book +71%

  12. Slide 12: Sectors: overweight Industrials, IT & Health Care; No Energy

    30 June 2022 unless stated otherwise Sectors: overweight Industrials, IT & Health Care; No Energy INDUSTRIALS Breakdown: 40% Construction & Materials: 5% Electronic & Electrical Equipment: 11% Industrial Transportation: 4% 35% Support Services: 10% 30% 30% 27% 25% 19% 20% 19% 17% 15% 15% 11% 10% 8%

  13. Slide 13: Size: a SmallCap portfolio

    30 June 2022 unless stated otherwise Size: a SmallCap portfolio 50% FTSE SmallCap (ex-IC): 9% (5 holdings) FTSE 250: 57% (21 holdings) 45% 45% FTSE 100: 3% (1 holding) AIM: 31% (17 holdings) 40% 35% 33% 33% MUSCIT 30% NSCI Benchmark 26% 26% 25% 19% 20% 15% 10% 8% 5% 5% 2% 3% 0% 0% 0% 0% 0% 0 - 100m

  14. Slide 14: A portfolio of High Growth companies with strong balance sheets

    30 June 2022 unless stated otherwise A portfolio of High Growth companies with strong balance sheets Portfolio Characteristics Numis SmallCap MUSCIT (ex-IC) Index # Stocks 44 324 Weighted Market Cap (£bn) 1.0 0.8 EBIT Margin (22F) 20% 19% RoE (22F) 18.4% 11.6% % Companies with Net Cash (22F) 51% 32%

  15. Slide 15: Our Dividend Policy: 1% of NAV paid out each quarter

    30 June 2022 unless stated otherwise Our Dividend Policy: 1% of NAV paid out each quarter MUSCIT - Dividend Per Share (GBp) Past dividends are adjusted for the 5-for-1 share split in July 2018 7.00 27 July 2018: Revised Dividend Policy 6.44 (Target 4% of NAV p.a.) 6.00 5.52 5.31 5.00 26 July 2018: N

  16. Slide 16: MUSCIT has the highest yield within its peer group

    30 June 2022 unless stated otherwise MUSCIT has the highest yield within its peer group 7.0% 12m Historic Yield (as at 11 July 2022) 6.0% 6.0% 5.2% 5.0% 4.0% 3.0% 2.9% 3.0% 2.7% 2.2% 1.9% 2.0% 1.7% 1.0% 0.0% Montanaro UK Invesco UK Aberforth Smaller Henderson BlackRock JPMorgan UK BlackRock abrdn UK

  17. Slide 17: UK SmallCap had its worst start to the year v. LargeCap since 1998

    30 June 2022 unless stated otherwise UK SmallCap had its worst start to the year v. LargeCap since 1998 UK SmallCap v. LargeCap - Half-Yearly 35% (Numis Smaller Companies xIC v. FTSE 100 index, GBP) 1H09: +29% 30% 1H99: +21% 2H20: +22% 1H93: +20% 25% 20% 15% 10% 5% 0% -5% -10% -15% 2H08: -11% -20% 2

  18. Slide 18: Biggest underperformance of SmallCap Growth v. Value in a decade

    30 June 2022 unless stated otherwise Biggest underperformance of SmallCap Growth v. Value in a decade UK Sma llCap - GROWTH minus VALUE (GBP) 18% (MSCI UK Sma l lCap Growth & Va lue indices) 13% 8% 34% underperformance 25% underperformance over 2 years since 2H20 3% -2% -7% 2H12: -8% -9% -12% 1H13:

  19. Slide 19: Quality has extended its underperformance by 13% YTD in the UK

    30 June 2022 unless stated otherwise Quality has extended its underperformance by 13% YTD in the UK UK - Quality v. Market (MSCI UK Quality Index v. MSCI UK Index, rebased) 150 140 130 120 Quality has underperformed by 13% YTD and 24% since September 2020 110 100 13 14 15 16 17 18 19 20 21 Source: I

  20. Slide 20: MUSCIT was at a 9% discount at the end of June 2022

    30 June 2022 unless stated otherwise … so MUSCIT was at a 9% discount at the end of June 2022 (a 2Y high) 0% 26 July 2018: New Dividend Policy announced -5% -9% -10% -15% -20% -25% -30% 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: Internal, Bloomberg. 19

  21. Slide 21: UK SmallCap is trading on its lowest P/E since 2009

    30 June 2022 unless stated otherwise UK SmallCap is trading on its lowest P/E since 2009 UK SmallCap (NSCI ex-IC index) - 12m Fwd P/E 18 17 16 15 14 13 12 Average = 13x 11 10 9 Apr 2012: Mar 2020: 8 9.8x 9.6x Jun 2022: 9.2x 7 6 Feb 2009: 5.7x 5 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Sour

  22. Slide 22: Over £700 million has been pulled from UK SmallCap Funds since Nov 21

    30 June 2022 unless stated otherwise Over £700 million has been pulled from UK SmallCap Funds since Nov 21 UK SmallCap Funds - Rolling 6-month Flows (£m) 1,000 800 600 400 200 0 -2 00 -4 00 Total outflow in 2016 = £490mn (highest since the Great -6 00 Financial Crash) -8 00 Nov 14 – Apr 15: Nov 21 –

  23. Slide 23: MUSCIT has mean reverted back to its long-term average P/E

    30 June 2022 unless stated otherwise MUSCIT has mean reverted back to its long-term average P/E MUSCIT- 12m Fwd P/E 30 Aug 2021: 29.9x 25 20 Average = 16.9x 15 Jun 2022: 17x 10 Nov 2008: 7.8x 5 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 Source: Factset, Factset. 22

  24. Slide 24: Over rolling 5 years MUSCIT delivered positive returns 95% of the time

    30 June 2022 unless stated otherwise Over rolling 5 years MUSCIT delivered positive returns 95% of the time MUSCIT - 5-year NAV Rolling Return (annualised, Net Total Returns) 30% 25% 20% 15% 10% 5% 0.7% p.a. 0% -5% -10% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: Int

  25. Slide 25: MUSCIT has performed well since launch over 25 years ago

    30 June 2022 unless stated otherwise MUSCIT has performed well since launch over 25 years ago Cumul ative NAV Total Returns since MUSCIT l aunch(31 Ma r 1995 - 31 Ma r 2022) 1,400 1,300 MUSCIT 1,200 1,100 Benchmark 1,000 Numis LargeCap Index 8.3% 900 p.a. 800 700 6.9% p.a. 600 6.6% 500 p.a. 400 300

  26. Slide 26: Conclusions

    30 June 2022 unless stated otherwise Conclusions 1. SmallCap, Growth and Quality have all underperformed in 1H 2022: – after such extremes the worst may be over 2. UK SmallCap is trading at lowest P/E since 2009 3. Portfolio of high quality companies with strong balance sheets: – Quality typically o

  27. Slide 27: Disclaimer

    30 June 2022 unless stated otherwise Disclaimer IMPORTANT NOTICE This document is issued by Montanaro Asset Management Limited (“MAM”) for distribution only to persons of the kind described in Article 11(3) of the Financial Services and Markets Act 2000 (Investment Advertisements) (Exemptions) Order

UK Smaller Companies Investment Trust PLC (MUSCIT) — Shareholder Meeting (July 2022) on 6ix