Liontrust UK Micro Cap Fund

• While large-cap stocks outperformed, smaller capitalisation indices struggled in January.
• Microlise surged on strong international growth and recurring revenue, while Quartix and Nexteq rose on better-than-expected earnings and strategic expansions.
• IG Design plunged on a profit warning due to weak US retail demand, while Focusrite and Eagle Eye fell on earnings concerns.

The Liontrust UK Micro Cap Fund returned -3.7%* in January. The FTSE Small Cap (excluding investment trusts) Index and the FTSE AIM All-Share Index comparator benchmarks returned -1.2% and -0.1% respectively. The average return of funds in the IA UK Smaller Companies sector, also a comparator benchmark, was -0.8%.

January was a month of strong stock market gains as the FTSE 100 surged to record highs, recording a 6.2% gain in the month. The rise was fuelled by strong corporate earnings, with the energy, industrials and financials sectors among the top contributors. Elsewhere, the mid-cap FTSE 250 returned +1.8%, and the FTSE All-Share returned +5.5%.

However, the gains were not evenly distributed across all segments of the market. While large-cap stocks outperformed, smaller capitalisation indices struggled, with the FTSE AIM All-Share Index dipping slightly by -0.1%, and the FTSE Small Cap (ex-investment companies) Index falling by -1.2%.

Turning to stock-specifics, Microlise (+35%), the provider of transport management technology solutions, delivered strong international growth and solid recurring revenue in FY24, overcoming challenges from a cybersecurity incident. The company reported a 12.9% revenue increase to £81.0 million and an adjusted EBITDA of £11.3 million, exceeding market expectations. Its global expansion efforts led to the addition of 375 new customers while maintaining low churn rates. The acquisitions of K-Safe and Enterprise Software Systems further enhanced its product portfolio. Looking ahead to FY25, the company maintains a positive outlook, supported by a strong sales pipeline and continued market momentum.

Shares in Quartix Technologies (+14%) surged after the vehicle tracking specialist reported stronger-than-expected revenue and profit for 2024. The company ended the year on a high note, leading it to revise its 2025 profit outlook slightly upward. Estimated 2024 figures include revenue of £32.4 million (up from £29.9 million in 2023), pre-tax profit of £6 million (£5.1 million previously), and free cash flow of £2.5 million (£1.3 million), with a net cash balance of £3.1 million at year-end.

Nexteq (+13%), a leading technology solutions provider for select industrial markets, reported an encouraging outlook in its latest trading update for the financial year ended 31 December 2024. For 2025, the company expects revenue to remain stable compared to 2024, though margins may be slightly lower due to short-term pricing pressures and strategic investments in the Gaming sector.

A Q4 2024 business restructuring reduced operating costs by $1.6 million, redirecting resources toward new product development and business growth. With substantial secured contracts for 2025, Nexteq anticipates continued order book expansion throughout 2025 and into 2026.

Cybersecurity specialist Intercede (+8.2%) raised its full-year forecast after securing over £4 million in contract orders and renewals in December from customers in Asia, the Middle East, and the US. These deals, along with anticipated pipeline conversions in its fourth financial quarter, position the company to exceed market expectations for FY25 while strengthening confidence in FY26 and FY27. Intercede now projects revenue of £16.1 million and adjusted EBITDA of £3.3 million for the year ending 31 March.

Moving on to the fallers, IG Design Group's (-59%) shares plummeted after issuing a profit warning, citing tough retail conditions, particularly in the US, where several key customers faced financial distress, including bankruptcies. As a result, the manufacturer and supplier of private label greeting products expects a 10% year-on-year revenue decline for the fiscal year ending 31 March 2025, with adjusted profit hovering around break-even − far below the previous year's $25.9 million. Consequently, IG Design acknowledged it would fall short of

Focusrite’s (-25%) fall was primarily driven by the company's announcement that its full-year performance would be more weighted toward the second half of the year due to ongoing channel de-stocking in the first half. Additionally, its financial results for the year ending August 31, 2024, revealed a sharp decline in operating profit, falling from £24.3 million in 2023 to £5.7 million.

Eagle Eye Solutions' (-25%) shares dropped sharply after the software-as-a-service (SaaS) provider warned that revenue for the current year and 2026 would fall short of market expectations. The decline was driven by weaker professional services revenue and extended sales cycles amid tough economic conditions.

For the six months ending 31 December, overall revenue remained flat at £24.2 million, with a 10.4% rise in recurring SaaS revenue offset by a 16.4% drop in professional services and a 77.5% decline in SMS revenue.

Despite this setback, the company announced a new five-year global partnership with a major enterprise software vendor, which it expects to fuel significant growth from 2027 onwards.

Vianet (-21%),the international provider of actionable data, business insights, and payment solutions, fell after its trading update released towards the end of the warned of short-term challenges. The company expects revenue for the 2025 financial year to be around £15.7 million, and EBITA to be around £3.6 million. 

Positive contributors included:

Microlise (+35%), Essensys Group (+16%), Quartix Technologies (+14%), Nexteq (+13%) and Intercede Group (+8.2%)

Negative contributors included:

IG Design (-59%), Zoo Digital (-26%), Focusrite (-25%), Eagle Eye Solutions (-25%) and Vianet (-21%)

Discrete years' performance (%) to previous quarter-end**:

*Source: Financial Express, as at 31.01.25, total return (net of fees and income reinvested), bid-to-bid, institutional class. **Source: Financial Express, as at 31.12.24, total return (net of fees and income reinvested), bid-to-bid, institutional class.

KEY RISKS

Past performance does not predict future returns. You may get back less than you originally invested.

We recommend this fund is held long term (minimum period of 5 years). We recommend that you hold this fund as part of a diversified portfolio of investments.

• The Fund may invest in companies listed on the Alternative Investment Market (AIM) which is primarily for emerging or smaller companies. The rules are less demanding than those of the official List of the London Stock Exchange and therefore companies listed on AIM may carry a greater risk than a company with a full listing.
• As the Fund is primarily exposed to smaller companies there may be liquidity constraints from time to time, i.e. in certain circumstances, the fund may not be able to sell a position for full value or at all in the short term. This may affect performance and could cause the fund to defer or suspend redemptions of its shares. In addition the spread between the price you buy and sell units will reflect the less liquid nature of the underlying holdings.
• Outside of normal conditions, the Fund may hold higher levels of cash which may be deposited with several credit counterparties (e.g. international banks). A credit risk arises should one or more of these counterparties be unable to return the deposited cash.
• Counterparty Risk: any derivative contract, including FX hedging, may be at risk if the counterparty fails. 

The issue of units/shares in Liontrust Funds may be subject to an initial charge, which will have an impact on the realisable value of the investment, particularly in the short term. Investments should always be considered as long term.

DISCLAIMER

This material is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.

It should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Examples of stocks are provided for general information only to demonstrate our investment philosophy. The investment being promoted is for units in a fund, not directly in the underlying assets.

This information and analysis is believed to be accurate at the time of publication, but is subject to change without notice. Whilst care has been taken in compiling the content, no representation or warranty is given, whether express or implied, by Liontrust as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.

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