21st Jan 2020 10:21
(Alliance News) - River & Mercantile UK Micro Cap Investment Co Ltd on Tuesday reported a significant underperformance against its benchmark in financial 2019.
At September 30, the investment company's NAV per share stood at GBP1.8908, 17% lower than the GBP2.2913 recorded at the same point a year earlier.
River & Mercantile UK Micro's net assets also dropped 17% over the 12-month period, slipping to GBP87.8 million from GBP106.4 million.
River & Mercantile UK Micro does not distribute dividends.
The micro cap investor said it benchmark - the Numis Smaller Company plus Alternative Investment Market excluding Investment Companies Index - lost 7.3% over the same period.
Chair Andrew Chapman said: "The last twelve months have been a challenging. I am very conscious that it has been a frustrating period both for our portfolio manager and for our shareholders. Although I would welcome the opportunity to report on positive performance, there will always be periods where the factors that our manager follows and that sector of the market to which we are, as investors, exposed, are not rewarded and this last year is precisely that."
The company's portfolio manager, George Ensor, added: "The extent of the declines in some of the holdings over the twelve month period, whilst disappointing, does convey the risk and illiquidity aversion that has been apparent over the period.
"For example, MaxCyte fell 49% despite delivering good growth and announcing several commercial licenses. In our opinion, the progress that has been made by this company in the last two years is far from being reflected in the share price. Boku is another good example; the core business has delivered good growth and is delivering ahead of IPO expectations but the shares lost 42% over the period as the market was concerned over the potential of the acquired Identity business.
"SDX Energy, did disappoint on progress with the two key growth assets. The potential from these two opportunities not only remains attractive but risk-adjusted returns also remain unchanged from previous expectations, just later. The other oil E&P business, Lekoil, also performed poorly, losing 73% as its purchase of an additional stake in one of its prospects from Afren was challenged with the court ruling that it required consent from the Nigerian government which was not forthcoming.
"RA International, the remote locations support services business, was, unfortunately, guilty of setting overly ambitious IPO expectations which were missed, leaving the shares trading at a 30% discount to their June 2018 IPO price."
Ensor said it has been a "frustrating" year but believes the company's portfolio showed strong underlying progress, with some stocks not being recognised and any disappointment being punished.
"It is our opinion, supported by long term trends, that this is cyclical not structural, and the UK micro caps remains a fantastic source of idiosyncratic risk," he added.
Shares in River & Mercantile UK Micro were down 0.5% in London on Tuesday mid-morning at 168.17 pence each.
By Paul McGowan; [email protected]
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