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Market Commentary - April 2019

Posted by David Stevenson on 16/May/2019

Stock markets continued their recovery in April. The UK has lagged the US and Europe thus far in 2019, but a combination of global momentum plus some better than anticipated domestic economic data, has provided a useful tailwind. All segments of the UK market saw gains, but the strongest came from AIM, and in particular from the largest 100 stocks which rose 6.9%. Despite this, the performance of AIM is still well behind the UK main market over the last six months as a consequence of the severity of the sell-off in late 2018. Whilst it has been suggested that investors have been caught out by the market rally, with un-invested cash still available, there could be near term danger of a pullback, particularly as the UK market re-rating has been driven largely by price momentum rather than earnings upgrades. Increased volatility in May could be a harbinger of this.

TB Amati UK Smaller Companies Fund

The fund gained 5.7% during the month, against a benchmark rise of 4.1%. Major contributions came from a number of AIM stocks. As suggested previously, share price recovery following the AIM sell-off in late 2018 is dependent on individual companies continuing to trade strongly, and in April AB Dynamics, Keywords Studios and Scapa all provided positive updates. AB Dynamics announced another set of strong results, as it continues to benefit from the automotive industry’s ongoing focus on the development of electric and autonomous vehicles. Keywords similarly reported strong growth from expanding its range of services to the video games market, and highlighted the future opportunity presented by the arrival of games subscription and streaming services from new entrants like Apple and Google. Adhesive products specialist, Scapa, reassured on its integration of Systagenix, a healthcare acquisition in advanced wound care. Challenger bank, OneSavings, continued to rerate positively following its proposed combination with market peer Charter Court. The biggest detractor from performance was building maintenance provider, Premier Technical Services, which was impacted by disclosures of related party transactions involving group properties personally owned by certain directors. Amati has been in dialogue with the company concerning this. During the month, new positions were taken in Electrocomponents, a global distributor of industrial and electronics products; GlobalData, a business data and analytics platform provider; and Yourgene, a diagnostics specialist in the field of pre-natal disability screening . A position in Duke Royalty was sold.

Amati AIM VCT

Against a benchmark gain of 6.0%, the VCT returned 12.2%. This outperformance was driven by some significant individual stock performances. Block Energy, the Georgian based oil producer rose 275% as it announced a well result at the top end of expectations. Flow test rates for its West Rustavi 16Z well demonstrated production of 1100 barrels per day, more than three times a previously announced target, although the company plans to bring this well into production at 700 barrels per day. As suggested previously, share price recovery following the AIM selloff in late 2018 is dependent on individual companies continuing to trade strongly, and in April AB Dynamics, Keywords Studios and GB Group all provided positive updates. AB Dynamics continues to benefit from the automotive industry’s ongoing focus on the development of electric and autonomous vehicles. Keywords is expanding its range of services to the video games market, and highlighted the future opportunity presented by the arrival of games subscription and streaming services from new entrants like Apple and Google. Identity data intelligence specialist, GB Group, announced current year trading ahead of market expectations. The main detractors from performance were building maintenance provider, Premier Technical Services, which was impacted by disclosures of related party transactions involving group properties personally owned by certain directors (Amati has been in dialogue with the company concerning this); and gaming platform specialist Quixant, which continued its weakness following recent downgrades.

A small new qualifying investment was made in Evgen Pharma. Evgen’s technology is based on the active compound which is made in the body when we eat broccoli (or other brassica plants) called sulforaphane, which has been the subject of extensive research and which has an excellent safety profile. The company is currently in Phase II trials for treating metastatic breast cancer and subarachnoid haemorrhage. Both applications offer significant value inflection points for the company, and there is a pipeline of other applications being developed which are at earlier stages.