Liontrust UK Smaller Companies Fund

• While large-cap stocks outperformed, smaller capitalisation indices struggled in January.
• Microlise surged on strong growth and international expansion, while Everplay gained on better-than-expected earnings and a rebrand.
• Eagle Eye fell on weaker revenue guidance, while RWS (-19%) dropped after profit-taking on AI-driven growth.

The Liontrust UK Smaller Companies Fund returned -2.0%* in January. The FTSE Small Cap (excluding investment trusts) Index comparator benchmark returned -1.3% and 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 everplay group (formerly Team17) rose (+22%) following a full-year trading update indicating that both revenue and adjusted EBITDA are expected to slightly exceed market expectations. The video game specialist, which also announced its rebrand, noted that strong performance in the second half of the year was driven by robust sales from new releases and a solid back catalogue, with momentum continuing into January after a strong Christmas trading period.

The company's results were bolstered by the success of its new titles and the sustained popularity of its existing games. The latest update suggests that revenue and adjusted EBITDA will surpass consensus estimates, which had projected revenue at £161.3 million and adjusted EBITDA at £41.4 million.

Fevertree Drinks' (+19%) shares surged after Molson Coors, one of the world's largest beverage companies, acquired an 8.5% stake in an $88 million deal. The agreement grants Molson Coors exclusive rights to market Fevertree’s cocktail mixers and tonic water in the US.

With the US accounting for over a third of its revenue, Fevertree expects low-single-digit growth in 2025 as the partnership rolls out, followed by double-digit growth in 2026 and sustained revenue increases in the medium term.

Mortgage Advice Bureau (+17%) reported "positive momentum" following a strong financial year marked by increased revenues and profits. In a trading update for the year ending 31 December 2024, the company announced an 11% rise in revenues, reaching approximately £266 million, surpassing the projected 4% growth from £240 million. Additionally, MAB anticipates a 31% increase in adjusted pre-tax profits, climbing from £23.2 million to £30.5 million.

Moving on to the detractors, 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.

Intellectual property support services provider RWS Holdings (-19%) gave back most of the strong performance in December as the release of its full-year results triggered some profit-taking. Following a tough 2024, RWS has been confident in its ability to integrate AI into its portfolio of services, and full-year results show these products contributing to a return to growth in the second half of the year. Organic constant currency (OCC) revenue growth in the second six months was 2%, resulting in a flat performance for the year as a whole. Within this, around 25% of revenue came from AI-related services such as TrainAI and Language Weaver, a category which grew at 7% in OCC terms over the year.

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.

In its latest trading update, asset manager Brooks Macdonald (-12%) reported its strongest quarter for gross inflows in the past 18 months, despite net inflows falling slightly short of analysts’ expectations. During the three months ending 31 December, the company recorded £579 million in gross inflows, while gross outflows reached £730 million, resulting in net outflows of £151 million. However, investment performance contributed an additional £200 million, bringing total funds under management to £17.9 billion by the end of the period.

Additionally, Brooks Macdonald announced plans to transition from AIM to the London Stock Exchange’s Main Market in a bid to elevate its corporate profile and drive growth. The company stated that the move would enhance its corporate profile and allow it to access a larger pool of potential investors. The company is the latest of several Fund holdings to complete or commit to a move to the Main Market of the London Stock Exchange; the Fund will happily continue to own them.

Big Technologies' (-14%) trading statement disclosed that the company's revenue for the year ending 31 December 2024 is expected to be £50.3 million, a decline from £55.2 million in 2023. This decrease was primarily due to the loss of revenue from a former customer in Colombia, which affected performance in the second half of 2024. While the company remained in line with the board’s expectations, revenue growth fell short of projections. Nevertheless, Big Technologies conveyed confidence in its future prospects, pointing to positive business development outcomes in the US market and a strong outlook for 2025.

Positive contributors included:

Microlise (+35%), Raspberry Pi (+23%), everplay (formerly Team17, 22%), Fevertee Drinks (+19%), Mortgage Advice Bureau (+17%)

Negative contributors included:

Eagle Eye Solutions' (-25%) Focusrite (-25%), RWS Holdings (-19%), Big Technologies' (-14%) and Brooks Macdonald (-12%)

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, primary 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. 

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