Montanaro UK Smaller Companies Investment Trust PLC · LSE:MTU

Montanaro UK Smaller Companies Investment Trust — Shareholder Meeting (July 2019)

27 slides from Montanaro UK Smaller Companies Investment Trust's shareholder meeting presentation, Jul 25, 2019

  1. Slide 1: UK Smaller Companies Investment Trust (MUSCIT) AGM Presentation

    UK Smaller Companies Investment Trust (“MUSCIT”) AGM Presentation 25 July 2019 Montanaro Asset Management Ltd 53 Threadneedle Street, London EC2R 8AR www.montanaro.co.uk enquiries@montanaro.co.uk Tel: +44 (0)20 7448 8600 Follow us on Twitter: @MontanaroAM Blog: http://www.montanaro.co.uk/blog

  2. Slide 2: We are different

    30 June 2019 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. Small & MidCap are all that we do S

  3. Slide 3: What is a "Montanaro" company?

    30 June 2019 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 a high return on capital 6. Good management we trust “Quality Growth” investment ap

  4. Slide 4: Our Top 20 holdings

    30 June 2019 unless stated otherwise Our Top 20 holdings Company Country % Company Country % Marshalls UK 4.0% Brewin Dolphin Holdings UK 2.7% Entertainment One UK 3.9% Restore UK 2.6% 4Imprint Group UK 3.8% Porvair UK 2.5% Big Yellow Group UK 3.7% GB Group UK 2.4% First Derivatives UK 3.5% XP Power

  5. Slide 5: Current Portfolio

    30 June 2019 unless stated otherwise Current Portfolio • 47 holdings (14 AIM = 27% by value) • 23% have net cash • Further growth forecast (2019e): Sales +6%; EPS +3%; Dividends +4% • Price / Earnings ratio 18.9x Source: Internal, Factset. 4

  6. Slide 6: MUSCIT started paying quarterly dividends in 2018

    30 June 2019 unless stated otherwise MUSCIT started paying quarterly dividends in 2018 MUSCIT - Dividend Per Share (GBp) 4.50 Past dividends are adjusted for the 5-for-1 share split in July 2018 27 July 2018: 3.89 4.00 Revised Dividend Policy (Target 4% of NAV p.a.) 3.50 3rd Quarter 3.00 DPS = 1.17p

  7. Slide 7: MUSCIT now offers the highest yield within its peer group

    30 June 2019 unless stated otherwise MUSCIT now offers the highest yield within its peer group 12m Historic Yield 5.0% 4.6% 4.5% 4.1% 4.0% 3.4% 3.5% 3.2% 3.0% 2.5% 2.5% 2.4% 2.5% 2.1% 2.0% 1.7% 1.7% 1.4% 1.5% 1.0% 0.5% 0.0% Standard FTSE AIM BlackRock BlackRock JPMorgan Henderson Aberforth NSCI ex-I

  8. Slide 8: Absolute returns (by Financial Year) - 2019 YTD +15%

    30 June 2019 unless stated otherwise Absolute returns (by Financial Year) - 2019 YTD +15% 58% 53% 50% 47% 40% 39% 28% 24% 25% 25% 20% 22% 12% 11% 11% 7% 4% 2% 1% 0% -1% -6% -5% -4% -11% -17% -25% -37% -40% -50% 95/96 97/98 99/00 01/02 03/04 05/06** 07/08 09/10 11/12 13/14 15/16 17/18 YTD 96/97 98/99

  9. Slide 9: Relative returns – back to the "old" MUSCIT

    30 June 2019 unless stated otherwise Relative returns – back to the “old” MUSCIT CM Manager Other Manager CM Manager 27% 19% 20% 16% 13% 14% 11% 10% 10% 8% 7% 7% 5% 5% 4% 2% 0% 1% 0% 0% -1% -1% -3% -5% -4% -5% -10% "Dash for Trash" -12% -15% -20% 95/96 97/98 99/00 01/02 03/04 05/06** 07/08 09/10 11/

  10. Slide 10: Over almost all 5-year periods MUSCIT produced positive returns

    30 June 2019 unless stated otherwise Over almost all 5-year periods MUSCIT produced positive returns MUSCIT - 5-year rolling NAV return (annualised) 30% 25% 20% 15% 10% 5% 4.1% 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 Source: Montanaro, Bloomberg. 9

  11. Slide 11: A good investment over the past 24 years (TR after fees: +9.5% p.a.)

    30 June 2019 unless stated otherwise A good investment over the past 24 years (TR after fees: +9.5% p.a.) Absolute Capital Returns p.a. since Trust inception (Mar 1995 - Jun 2019, all returns in GBP) 9% 8.1% 8% 7.2% 6.9% 7% 6.1% 6% 5% 4.8% 4.1% 4.1% 4.2% 4% 3% 2% 1.2% 1.1% 1% 0% Topix SmallCap Nikke

  12. Slide 12: Outlook: UK equities yield 360bp more than bonds – highest since 1900

    30 June 2019 unless stated otherwise Outlook: UK equities yield 360bp more than bonds – highest since 1900 UK Equity minus Gilt Yield (1899 - Jun 2019) 1900 Equities yield 4% Equities yield more than more than 3.6% 3% Bonds Bonds 48 Years 2% (1959 – 2007) 1% 0% -1% Equities yield less than -2% Bonds

  13. Slide 13: … and the yield on UK SmallCap is close to a 10-year high

    30 June 2019 unless stated otherwise … and the yield on UK SmallCap is close to a 10-year high Numis Smaller Companies (ex-IC) - 12m Trail. Dividend Yield 6.0% Jan 2009 (5.9%) 5.5% 5.0% 4.5% 4.0% Jun 2019 Jul 2009 (3.2%) 3.5% 3.0% Feb 2014 (2.1%) 2.5% 2.0% Nov 07 Sep 08 Jul 09 May 10 Mar 11 Jan 12 N

  14. Slide 14: Brexit has been a drag on UK SmallCap performance (more domestic)

    30 June 2019 unless stated otherwise Brexit has been a drag on UK SmallCap performance (more domestic) 23 June 2016: UK Sma ll v. La rgeCa p (NSCI ex-IC v. FTSE Al l-Share, TR i n GBP) 6% Brexit 4.7% 4% 2.6% 2.3% 1.8% 2% 0.7% 0.1% 0% -2% -0.6% -0.9% -0.6% -0.7% -1.6% -4% -3.1% -2.9% -6% -8% -10% -9.

  15. Slide 15: … and a drag on EPS growth

    30 June 2019 unless stated otherwise … and a drag on EPS growth UK SmallCap - EPS Growth (NSCI Index) 40% EPS Growth (trail.) NSCI Index (RHS) 8000 23 June 2016: Brexit 30% 7000 6000 20% 5000 10% 4000 0% 3000 -10% -6% -4% 2000 -20% -11% -14% 1000 -32% -30% -30% 0 79 81 83 85 87 89 91 93 95 97 99 01

  16. Slide 16: The "Buy the UK exporters / Sell the UK domestics" trade will end

    30 June 2019 unless stated otherwise The “Buy the UK exporters / Sell the UK domestics” trade will end UK - FTSE Local index v. FTSE All -Share index (rebased) 230 FTSE UK Local June 2016: Brexit 220 FTSE All-Share Index 210 200 190 Domestics U/P 180 by 31% since June 2016 170 160 150 140 130 120 11

  17. Slide 17: … as Sterling nears its 30-year lows (again) v. the USD

    30 June 2019 unless stated otherwise … as Sterling nears its 30-year lows (again) v. the USD (5% downside) GBP v. USD (Spot) 2.8 2.6 2.4 2.2 2.0 1.8 1.6 -25% 1.4 1.27 1.2 Mar 1985:1.06 Jan – Mar 2017:1.21 1.0 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 Source: Montanar

  18. Slide 18: Two years after Brexit UK SmallCap is heavily under-owned

    30 June 2019 unless stated otherwise Two years after Brexit UK SmallCap is heavily under-owned Net Flows into UK SmallCap Funds (£ million) 1,000 859 Total outflow in 2016 = £490mn 500 (highest since the Great 162 92 Financial Crash) 1 0 (49) (93) (48) (50 0) (241) (242) (178) (490) (1,0 00) (906) (

  19. Slide 19: … which means SmallCap valuations are inexpensive

    30 June 2019 unless stated otherwise … which means SmallCap valuations are inexpensive UK SmallCap - NSCI ex-ITs - 12-month trailing P/E 20 19 18 17 16 15 Median = 13.5x 14 13.8x 13 12 11 10 9 8 7 6 5 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

  20. Slide 20: UK SmallCap offers plenty of upside over the medium-term

    30 June 2019 unless stated otherwise UK SmallCap offers plenty of upside over the medium-term Estimated Total Returns over the next 7 years *: (per annum) Dividends EPS Growth PE Change Total Return HIGHEST Numis SmallCap (ex.IT) 2.9% 5.7% 0.7% +9.5% Expected Returns MSCI Europe SmallCap 2.9% 5.0% -

  21. Slide 21: It would be unusual for SmallCap to underperform 2 years in a row

    30 June 2019 unless stated otherwise It would be unusual for SmallCap to underperform 2 years in a row UK SMALL CAP v. LARGE CAP 30% (NSCI ex-ICs vs FTSE All-Share, Price Returns) SmallCap OUTPERFORMS 24% 25% 19% 20% 15% 15% 13% 12% 10% 10% 8% 7% 8% 7% 5% 2% 3% 0% 0% -5% -2% -2% -5% -4% -5% SmallCap

  22. Slide 22: We are getting ready for the 4th quarter which is typically strong

    30 June 2019 unless stated otherwise We are getting ready for the 4th quarter which is typically strong Numis UK Smaller Companies Q1 Q2 Q3 Q4 ex-IC Index (£) 2000 1.3% (3.4%) 2.4% (2.3%) 2001 (9.0%) 1.8% (22.6%) 17.9% 2002 1.7% (9.0%) (19.8%) (0.1%) 2003 (6.6%) 25.3% 11.6% 6.1% 2004 8.4% 0.6% (1.1%

  23. Slide 23: … so we are keeping some dry powder for the Santa rally

    30 June 2019 unless stated otherwise … so we are keeping some dry powder for the Santa rally MUSCIT Gearing (Annual) 14% 2012 Ave = 4.8% 2013 Ave = 2.3% 2014 Ave = 7.6% 2015 Ave = 6.6% 2016 Ave = 10.1% 2017 Ave = 3.6% 2018 Ave = 3.7% 2019 Ave = 6.9% 12% 10% 8% 6% 4% 4% 2% 0% 11 12 13 14 15 16 17 18

  24. Slide 24: Discount

    30 June 2019 unless stated otherwise Discount MUSCIT - Discount -5% -6% 27 July 2018: Revised Dividend -7% Policy -8% -9% -10% -11% -12% -13% -14% -14% -15% -16% -17% -18% -19% -20% -21% -22% -23% -24% -25% Oct 15 Feb 16 Jun 16 Oct 16 Feb 17 Jun 17 Oct 17 Feb 18 Jun 18 Oct 18 Feb 19 Jun 19 Source: M

  25. Slide 25: MUSCIT has performed well since launch

    30 June 2019 unless stated otherwise MUSCIT has performed well since launch Cumulative Returns since MUSCIT launch (31 Mar 1995 - 30 June 2019) 800 700 MUSCIT 8.1% p.a. Benchmark 600 FTSE All-Share 500 400 300 4.1% p.a. 3.9% p.a. 200 100 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

  26. Slide 26: Summary

    30 June 2019 unless stated otherwise Summary 1. Back in the saddle: – outperformed by c.4% in FY18 – outperformed by c.2% in FY19 2. UK SmallCap could rebound as Brexit chaos nears resolution: – valuations are attractive – under-owned – medium-term upside 3. MUSCIT offers the most attractive yield i

  27. Slide 27: Disclaimer

    30 June 2019 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 Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or of

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