Market Commentary - September 2020

20 October 2020

Posted by Anna Macdonald on 20 Oct 2020

September is always a busy, back-to-school month, full of results, presentations and calls with management. 2020 was of course different – the academic year did begin, but with students confined to halls amid Covid outbreaks. Management discussions were via Zoom and results were generally discussed in terms of ‘pre-lockdown’ and ‘post-lockdown’.

One of the teams I spoke to described the economic recovery as K- shaped, with some sectors continuing to suffer badly, and a sharp recovery in others. The stockmarket reflects this. Coronavirus, stay at home ‘winners’ such as selected healthcare and technology stocks and ecommerce, continue to trade well, whereas leisure, retail and travel stocks underperform. Companies that used to talk about like-for-like stores sales and falls, now talk about, say, trading at 70% of last year’s levels, perhaps feeling it sounds better than a 30% drop. The investor focus turns to breakeven points and the strength of the balance sheet for these stretched companies. As further restrictions seem inevitable, there seems little to make these trends reverse, and therefore the extent to which this is reflected in valuations, either high or low, is not altogether clear. The tipping point seems yet further away.


TB Amati UK Smaller Companies Fund

September was a challenging month for the Smaller Companies Fund, which fell 3.2% against the Numis Smaller Companies Index which fell just 1.1%.

Some of our stocks with lower market capitalisations suffered particularly poorly in a volatile and thin market and a newsflow vacuum. These included Synairgen, Morses Club, Eqtec, Simec Atlantis and Equals. Others responded poorly to results, such as Pebble Group. The company, new to market in December 2019, withdrew guidance when the pandemic hit and the single analyst covering the stock was left somewhat rudderless. Numbers in September slightly missed Berenberg’s guesstimates. However, having spoken to management we still believe the company is well positioned, and that in particular, its FacilisGroup division has strong growth potential, as more suppliers of promotional goods join the platform, enabling them to develop additional income streams as well as reduce headcount and other costs.

SDL rose strongly in August as a result of an all-share merger announced by rival RWS. Both shares have struggled during the month, despite court approval of the deal.

Sumo Group announced good numbers and a compelling acquisition which has helped drive the stock higher over the month. Other video gaming stocks also continue to perform well and Frontier Developments also delivered excellent sales growth and was a strong contributor to performance over September. The ‘stay at home’ beneficiaries such as Focusrite and Gear4Music also did well as further lockdown restrictions were announced across Europe. We continued to add to our positions in ‘newer economy’ stocks, adding to our holdings in Codemasters, Draper Esprit and CMC markets.



The VCT rose by 0.8% against the benchmark gain of 0.2%. This brings year to date performance to 13.8% against the benchmark of -0.5%. The strong performance reflects its weightings to both recent healthcare additions to the portfolio and the strong performance of Frontier Developments, which rose nearly 20% over the month.

Polarean is now one of the VCT’s largest holdings after returning nearly 16% in September, and has risen nearly threefold since their raise on 12th March. Fusion Antibodies rose 94% over the month, after announcing they had isolated Covid antibodies.

Learning Technologies Group was the largest detractor from performance, being a significant holding in the VCT and falling nearly 14% over September. Its numbers were in line, however, some investors are cautious on the outlook for corporate spend in 2021. We think that there are likely to be further accretive acquisitions made by management, who built a ‘war chest’ in the summer in order to fund M&A.

Diaceutics dropped 38% because revenues from their testing platform fell as labs concentrated on Covid testing.

We participated in another round of fundraising by Falanx Group. COVID was a significant set back on the professional services side, as most companies opted to postpone security testing, instead needing to adjust to home working. Falanx have built a platform called Triarii, which allows them to offer an outsourced Security Operating Center service which can be sold by channel partners. In recent weeks the professional services side has picked up a bit, but more importantly Falanx have been signing up new SOC sales via some significant resellers.