Market Commentary - UK Small Cap Team, May 2021

17 June 2021

Posted by Gareth Blades on 17th June 2021

The May Monetary Policy Report from the Bank of England upgraded UK GDP growth to +7.25% for 2021. This is predicated on a rapid return of business investment and a more optimistic view of the role of consumer spending in the economy as a quarter of households shift from holding savings in bank accounts to spending 10% of their reserves, up from 5% at the last survey. Increases to global GDP growth forecasts were announced by the IMF, +6% vs 5.5% in Jan, and the OECD, +5.6% vs +4.2% in Dec. Both institutions commented on the link between fast and effective vaccination roll-out and increases in forecasts, while new variants could lead to “sharp downgrades”. 

Forward earnings multiples were already pricing in a recovery at least out to next year. Thus, the rapid bounce back in consumer and business spending and impact of the vaccine roll-out were arguably already expected by the market. These expectations have nevertheless led to a further outperformance of companies with higher domestic exposure; with small caps outperforming midcaps, which in turn beat large caps. Although, the scale of the outperformance has started to narrow, and AIM has underperformed over the month. 

Amongst the buoyant macroeconomic forecasts and valuations of the mid- and small-cap and AIM index, there is steady stream of IPOs and fund raises. As ever, we continue to deeply analyse these opportunities and quiz management teams, weighing new against current holdings while scrutinising valuations.


TB Amati UK Smaller Companies Fund

The fund returned 0.8% in May, lagging the benchmark by 0.4%. John Laing gained 31% after receiving and recommending an offer from private equity firm KKR. Auction Technology appreciated 24% on the back of very strong half-year results; growing aggregated revenue 48% and swinging to net cash. Detractors included Frontier Developments which traded down on profit taking and some concerns on the slate of new games,  after a strong run in the shares in March and April. 

Amryt Pharma fell after announcing an all-share financially accretive transaction for Chiasma a US listed developer of drugs for orphan and rare diseases. Chiasma has developed a useful platform technology to enable effective reformulation of injectable medicines into oral dosage forms. Chiasma has one on-market drug, Mycapssa, a treatment for acromegaly and can be expanded into the high value neuroendocrine tumour indication. Mycapssa can be incorporated into Amryt’s established sales and marketing infrastructure to maximise sales. The combined entity could achieve peak sales of $1bn. This announcement accompanied record financial results and an increase in revenue expectations for the year. 

New holdings were taken in: Brickability, a leading specialist provider of supply solutions in building materials to house builders and contractors, which raised funds for a major acquisition; Dianomi, an established provider of high-quality financial press digital advertisements, which listed on AIM; and Wickes which demerged from Travis Perkins at the end of April. Additions were made to existing positions including Tyman, NCC Group in a placing to fund a US acquisition, IP Group and Sensyne. 

During the month we sold positions in Simec Atlantis after a series of disappointing updates and Dechra due to valuation concerns.



The NAV fell by 2.7%, which compares to a fall of 2.9% for the Numis Alternative Markets Total Return Index.  Synairgen added 37% in May, after announcing positive pre-clinical in vitro data showing activity against the “variants of concern”. This result was expected because of SNG-001’s known activity as a stimulator of immune responses rather than having some specific activity against a viral structure, such as the spike protein. Angle also continued its strong run from April, gaining 17%. 

The main detractors from performance were Eden Research, down 24% and Frontier Developments, down 20%, which traded down on profit taking and some concerns on the slate of new games, after a strong run in the shares in March and April. 

New investments were made in Trellus Health, an IPO spin out from Mount Sinai facilitated by EKF Diagnostics. Trellus is commercialising 20 years of research by the academic founders who created the GRITT programme to help irritable bowel disorder (IBD) patients increase their resilience to the social-mental and ultimately biological aspects of their disease. Evidence shows that IBD patients with greater resilience are better able to self-manage their symptoms and become a lower burden on the healthcare system. Trellus is developing an AI powered platform to on-board, assess and guide patients through the GRITT programme with the help of a small healthcare team as well as deploy the GRITT methodology into other chronic disease areas. 

We also took part in the IPO of Arecor Therapeutics, a drug development company with an impressive management team that has developed Arestat, a platform which modifies the formulation of drugs to improve their bioavailability, therapeutic properties and reformulate them into a different dosage form. This approach has been validated by attracting large pharma and generic pharma partners and has enabled the creation of a potentially high value internal pipeline of clinical programmes. Additionally, we took shares in the IPO  of Glantus, an accounts payable software automation and recovery services company.