Montanaro European Smaller benefits from narrowing discount

Montanaro European Smaller benefits from narrowing discount – the net asset value of Montanaro European Smaller Companies Trust rose by 10.8% to 901.1p per share over the year to the end of March 2018. The share price did even better – rising by 15.1% to 800.0p, as the discount narrowed from 14.5% to 11.2%. The fund’s performance was just ahead of its benchmark, the MSCI Europe SmallCap (ex UK) Index (in sterling terms), rose by 10.2%. Over the course of the year the euro (representing 58.4% exposure of the NAV at year end) rose 2.6% against sterling but both the Swedish krona and the Swiss franc (combined 31.3% exposure of the NAV) declined against sterling resulting in almost no overall currency effect on the net asset value.  total dividends for the year to 8.50p per share, an increase of 3.0% compared to the previous year.

Comments from the manager

Biotage, which sells products for separation in analytical and organic chemistry applications, and Nemetschek, which provides software solutions to the construction industry, were new additions to the portfolio. They both performed particularly well during the year on the back of rapidly expanding profits.

Another strong performer was LEM Holding, which makes current and voltage transducers: revenue growth accelerated due to stronger industrial end markets and investors began to see the potential for the company’s products in the hybrid and electric vehicle space.  Further contributions were made by longstanding portfolio holdings such as Sartorius Stedim, the developer of equipment used to manufacture biologic drugs, and Rational, the market-leading manufacturer of cooking appliances for commercial kitchens.

The largest detractor was RaySearch Laboratories (last year’s top performer), a developer of software used for treatment planning in radiation therapy.  The company’s sales continued to increase, but foreign exchange movements combined with significant investments for future growth caused operating profits to fall.  They reduced the position significantly ahead of the subsequent share price decline, this limited rather than removed the impact on the portfolio.

Less dramatic falls were seen from the Swiss wealth manager VZ Holding and Italian disc brake specialist Brembo.  Nevertheless, both companies grew their revenues and profits in 2017 while simultaneously investing for future growth. They continue to hold the shares.

MTE : Montanaro European Smaller benefits from narrowing discount

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