Company Announcements

Miton UK MicroCap (MINI)

14/12/2023

Results analysis from Kepler Trust Intelligence

Miton UK MicroCap (MINI) has released its interim financial results for the half year ending 31/10/2023. Over the period, the trust saw its NAV decrease by 15.5% versus its closest comparator, the Numis Smaller Companies 1000 ex Investment Companies Index, which fell by 9.1% in the same period. The AIC UK Smaller Companies peer group average fell by 6.1%.

Performance has been affected by negative sentiment, particularly at companies at the lower end of the market cap spectrum. This has led to a particularly challenging period, though the managers argue that the outlook is strong as micro-caps typically outperform over the long term.

MINI offers a voluntary annual redemption facility, which is designed to ensure that the share price does not deviate too far from the underlying NAV. At the most recent redemption point, holders of 17.7m ordinary shares or 18.7% of the issued share capital requested to redeem their holdings.

The discount widened to 12.2% over the period. This takes the discount to approximately in line with the peer group average though significantly wider than the trust average since inception.

The trust holds a FTSE 100 put option to mid-December providing cover in the event of a sharp market fall. An additional put covering the period to June 2024 has recently been added.

Chairman Ashe Windham acknowledged the headwinds in the smaller companies space saying, "UK equities have been deeply out of favour with both domestic and international buyers… [but] … When the mood music changes, the gains in the better companies will be explosive."

Kepler View

Miton UK MicroCap (MINI) aims to provide investors with exposure to the exponential growth opportunity available in the smallest listed UK equities. It has been managed by Gervais Williams and Martin Turner since the trust's inception. The trust has been facing headwinds for the past couple of years as negative sentiment has increased.

However, the managers have described the outlook as unusually strong. They highlight that while micro caps typically outperform over the long-term. They believe the portfolio can bounce back, just as it did in the Covid recovery period. They believe that micro caps are uniquely placed due to their option-like upside meaning that when they do recover, they do so quickly and sharply. We note that the market conditions that have caused the most recent pullback are arguably easing and as such, we believe there is scope for significant upside potential in the portfolio.

The managers continue to hold cash in order to take advantage of opportunities. The level as at 31/10/2023 was 11.9% which we believe offers the managers considerable flexibility to take advantage of mispricing.

The discount widened to 12.2% in the period. This is notably wider than MINI's five-year average and in line with the sector average. The trust has a redemption facility in place with the aim of minimising the discount, which has historically led to the trust trading closer to NAV than its peers. We believe the wider discount is especially attractive given the redemption mechanism, which reduces the risk of the discount widening further especially so when combined with the potential for a sharp bounce in the portfolio, should the managers' belief of considerable upside optionality prove accurate.

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