The Liontrust UK Growth Fund returned -3.2%* in November. The FTSE All-Share Index comparator benchmark returned -2.2% and the average return in the IA UK All Companies sector, also a comparator benchmark, was -2.5%.
The FTSE All-Share was trading fairly flat for November and not far from 2020’s highs heading into the last few days of the month, but the identification of the Omicron variant of Covid-19 triggered a sharp drop. Until that point, the market narrative had largely remained centred on the inflationary forces generated by economic recovery from the last two years’ lockdown measures. However, the prospect of a fresh surge in the pandemic sent shares lower, particularly those exposed to any potential public health measures that restrict social contact and travel. Travel & Leisure (-18%) was, unsurprisingly, the weakest sector in the FTSE All-Share Index.
While high street and transport hub retailer WH Smith (-15%) was a large portfolio detractor, the Fund has relatively low exposure to the businesses that are most affected by such restrictions. The Fund’s worst performing holdings in November predominantly reflected stock-specific setbacks. For example, TP ICAP (-18%) fell after the performance of its new Liquidnet unit disappointed investors. Q3 growth of 16% in its Energy & Commodities division was the highlight for the interdealer broker as it indicated a 3% year-on-year decline in revenues. Including revenues from the acquired Liquidnet business boosted total growth to 15%. Although TP ICAP says Liquidnet’s integration is going well, with cost synergies being realised ahead of expectations, revenues are now expected to be at the lower end of the £160m - £180m range previously given. Lower equity market volumes in October were blamed.
TI Fluid Systems (-17%) dropped on news of an institutional investor selling a large stake. Bain Capital sold 40 million shares in a placing at 250p, a 9% discount, taking its stake in the company down from 44% to 37%. Shares in TI Fluid Systems had proven resilient to a Q3 update earlier in the month that showed revenues fell heavily – down 15% − but not by as much as the 20% drop in global light vehicle production volumes. TI Fluid Systems makes highly engineered automotive fluid systems. The car industry has been hit by microchip shortages and supply chain problems; TI Fluid Systems is cutting costs in light of the market disruption.
Among the portfolio risers, the highlight was Sage Group (+8.6%), which pushed ahead after full-year results showed promising trends. While reported revenue fell 3% to £1.85bn and operating profit dropped 8% to £373m, there were signs that the company’s strategic investments are paying off through higher recurring and cloud revenues. Annualised recurring revenue rose 8% to £1.68bn as its Sage Business Cloud product grew 19% to £997m. Subscriptions now account for 70% of revenues, up from 65% last year, while the customer renewal rate remains steady at 99%. The company has invested in accelerating the roll-out of Sage Business Cloud, pushing operating margins down 1.1 percentage points to 20.2%, but Sage expects this to recover in 2022.
A trading update from quality assurance provider Intertek Group (+9.1%) revealed robust sales growth and progression in margins. Between July and October, it grew revenues 6.7% year-on-year, while cost control and operational leverage have benefitted its profit margin. The company suggests that supply chain disruption and the growth of sustainable considerations are both trends which are likely to drive demand for its quality, safety and sustainability assurance services.
Smiths Group (+6.4%) also performed well on evidence of solid trading. Revenues in the three months to 31 October 2021 were up 1% on an underlying basis as the majority of its divisions benefitted from a pickup in client demand. The one laggard was Smiths Detection, a unit providing screening and safety services at airports, ports and other locations. Smiths Group expects underlying growth this year to return to pre-Covid levels of around 3%.
Shares in Paypoint (-13%) fell sharply ahead of the outcome of an Ofgem investigation and the release of its interim results. Ofgem announced that it would accept Paypoint’s proposal to remove exclusivity clauses from current and future contracts and make a £12.5m donation. The convenience store payments and e-commerce specialist grew interim revenues by 21% to £56m in the six months to 30 September, while adjusted pre-tax profit grew 30% to £22m.
WH Smith (-15%) issued full-year results during November, but they weren’t responsible for its share weakness. In the three months to 31 August – its Q4 − revenues hit 71% of 2019’s pre-Covid levels; in the first nine weeks of its new financial year, this metric has crept up to 82%, giving the company confidence of returning to profit in 2022. However, the emergence of Omicron sent the shares lower.
Positive contributors included:
Intertek (+9.1%), Sage Group (+8.6%), Rightmove (+8.0%), Bunzl (+6.8%) and Smiths Group (+6.4%)
Negative contributors included:
TP ICAP (-18%), TI Fluid Systems (-17%), WH Smith (-15%), Hargreaves Lansdown (-13%) and Paypoint (-13%).
Discrete years' performance** (%), to previous quarter-end:
Sep-21 |
Sep-20 |
Sep-19 |
Sep-18 |
Sep-17 |
|
Liontrust UK Growth I Inc |
26.1% |
-11.0% |
3.0% |
9.4% |
11.5% |
FTSE All Share |
27.9% |
-16.6% |
2.7% |
5.9% |
11.9% |
IA UK All Companies |
32.4% |
-12.8% |
0.0% |
5.5% |
13.6% |
Quartile |
3 |
2 |
2 |
1 |
3 |
*
*Source: Financial Express, as at 31.11.21, total return (net of fees and income reinvested), bid-to-bid, institutional class.
**Source: Financial Express, as at 30.09.21, total return (net of fees and income reinvested), bid-to-bid, primary class.
Key Risks