Published: 26th July 2023 (1 Min Read)

The second quarter of 2023 was tough with the portfolio falling 8.55% whilst the benchmark fell 5.55%. We had a strong Q1, Q2 was tougher but YTD we are ahead of the benchmark at -3.40% v -8.24%.

In May, we had a profit warning from Restore which provide support services to businesses in the public and private sectors. The bulk of the underperformance came from the group’s Technology division which is dependent on customers investing in their IT hardware. Demand has proved to be more cyclical than previously anticipated with many customers delaying or reducing their spending in light of the current inflationary cost pressures.

Zoo Digital, Learning Technologies and RWS were also weak due to the perceived risk of disruption to their business models from new technologies such as Artificial Intelligence (AI). AI disruption is currently an unknown but it will clearly provide opportunities to streamline processes and increase productivity. RWS’ 2020 acquisition of SDL’s AI-powered technology is evidence that management teams are acutely aware of the need to be on the front foot when it comes to adopting these new technologies.

On a more positive note, Telecom software provider, Cerillion, announced a strong set of interim results in May as they continue their impressive organic growth through larger deals with larger clients. This reflects Cerillion’s increasing profile in the marketplace and strong customer demand for Software-as-a-Service solutions. Elsewhere, a recent addition to the portfolio, Ashtead Technology, continues to gain market share in the offshore energy industry and announced annual results ahead of expectations with a highly promising outlook off the back of demand for cleaner and more secure energy sources.

In terms of changes in the portfolio, we sold Breedon after they announced their intention to move from AIM to the main market and recycled part of the proceeds into a new holding, Volex (VLX). Volex is a global power cables manufacturer with local sites around the world, allowing them to benefit from the ongoing trend of localisation where customers are de-risking their supply chains by sourcing their inputs closer to home.

The current market environment is difficult for smaller UK companies and we are wary in particular of AIM companies that are overly reliant on debt to fuel their growth strategies. However, we are optimistic that investor confidence will improve as the inflation and interest rate pressures ease over the next 12-18 months. In the meantime our focus remains on ensuring that the portfolio companies are sufficiently resilient to get through these difficult times and come out stronger on the other side.



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Risk warning: You should remember that the value of investments, whether pooled or direct equities, and the income derived therefrom may fall as well as rise and you may not get back the amount that you invest. In the event that you require a level of income higher than that generated by your portfolio, you should be aware this will dilute the capital value of your portfolio. Past performance is not a guide to the future. If you are in any doubt of the suitability of an investment for your particular circumstances, you should contact an investment manager for tailored advice.
Article written by
Tinzar Minmin