In the last twelve months the UK’s prospects have improved significantly thanks to December’s trade deal with the EU and strong progress with the Covid-19 vaccinations programme. In our view there is around 15% GDP growth available over the next two years. The revival in sentiment towards the UK has been particularly good news for the small- and mid-cap areas that form the lion’s share of our portfolio.
The UK overall still looks cheap in absolute and relative terms, with markets enjoying a text-book recovery as the safer large-cap companies rise. Laggards tend to be the small-cap firms, which are less well researched.
Our TM CRUX UK Special Situations Fund seeks out companies of all sizes where ongoing changes can result in improving share prices. Such changes could include product launches, new management, business strategy, or a company moving its stockmarket listing to another city.
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Aviva gets its act together
Insurance conglomerate Aviva (LSE: AV.)was best avoided for many years, as the corporate narrative of selling divisions to improve the shareholder’s lot had not been matched by actions. But that changed last September with the arrival of new CEO Amanda Blanc and the promise to focus on the UK, Canada and Irish subsidiaries being fulfilled. Already divisions in Singapore, France, Italy, Turkey and Poland have been sold, raising £8bn. The shares have had a good run and now yield only a little over 5%. Further upside comes from our belief in the potential for management to deliver up to 80p per share from disposal proceeds back to shareholders, which takes the effective yield closer to 7%.
Ready for a state spending spree
A medium-sized firm we like is Hill & Smith (LSE: HILS). The company makes worthy but essential items for infrastructure markets such as highways and utilities; products range from road message boards to cooling towers. Hill & Smith is well positioned for increased infrastructure spending on roads, railways and energy distribution by both the UK and US governments. We are particularly encouraged by the arrival of Paul Simmons from Halma as Group CEO.
At Halma Simmons was part of a strong shareholder-friendly culture undertaking multiple acquisitions, culminating with the shares becoming some of the most highly valued on the UK market. Initial signs are promising. If Simmons can transfer some of the “Halma magic” to Hill & Smith, and with the shares at a significantly lower valuation, it will provide scope for strong share-price performance over the next few years.
Scooping up software
Finally, small-cap AdvancedAdvT (LSE: ADVT) is a very new company, formed by established software entrepreneur Vin Murria OBE with an investment strategy of seeking mid-cap acquisition opportunities in the software sector. Murria has had three previous successes in the UK stockmarket where software businesses were acquired and improved, leading to healthy increases for shareholders in each case.
We expect AdvancedAdvT to acquire a profitable software business with subsequent improvements made to the operational performance. Murria has invested £17.5m in the company and we share her confidence that Advanced ADvT will be another success.
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