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Parts of the UK stock market are out of favour and Liontrust Asset Management knows this better than most. It has suffered outflows from its funds since 2022 and there are few signs of improvement yet. In an update this month, it reported a quarterly net outflow of £1.6bn as assets under management and advice fell by 5 per cent year-on-year to £25bn.
Liontrust mainly holds UK small- and mid-caps, with retail investors, financial advisers and discretionary fund managers its core base. With high interest rates making cash more attractive, and US mega caps hogging the equity limelight, this is a tough space to operate in, and Liontrust’s own performance hasn’t helped.
Analysis by RBC Capital Markets found that just a quarter of its biggest funds have outperformed the benchmark over one and three-year time periods. In absolute terms, these strategies have delivered returns of 0 per cent.
The market has reacted accordingly. Shares in the group are down 27 per cent year-on-year, and have fallen by almost 70 per cent over the past five years.
The company’s management team is making the most of the share price weakness, however. Chief executive John Ions and his wife Paige bought £200,000 worth of shares on January 22. On the same day, chief financial officer Vinay Abrol bought £99,000 of shares.
Liontrust has implemented a variety of self-help measures, including cutting costs. However, analysts at Peel Hunt expect flows to remain negative throughout the coming financial year. Analysts at RBC have also suggested that the dividend could be under pressure, with the dividend yield currently sits at a whopping 17 per cent. They think a cut may be needed if flows do not improve in the next 18 months.
VP chair increases stake
Back in 2022, VP chair and majority shareholder Jeremy Pilkington pushed for the equipment rental company business to be sold. The shares now sit around a third lower than when the potential disposal process, which was abandoned after four months, was announced.
Part of the reason for this is that end markets have been mixed. Revenue was up 1 per cent and pre-tax profit down 2 per cent in the half year to 30 September, as infrastructure and energy market progress was offset by weakness in construction and housebuilding.
VP’s biggest business is the Brandon Hire Station construction unit, which it bought for £41.6mn in 2017. It has been hit by write-downs, and business performance improvements haven’t materialised as quickly as anticipated.
Analysts at Berenberg think there is “clear potential for higher earnings as cyclical markets rebound” at VP. However, they warn that volatile markets “could result in a sharp change in the profit outlook and sentiment”.
As with several companies across the market spectrum, VP has flagged Budget-related pressures to investors. It expects national insurance, and national minimum wage increases to hit its bottom line by £4mn in its 2026 financial year before any mitigation.
On the balance sheet side of things, net debt ticked up 3 per cent to £201mn in September on higher investment in the rental fleet. Guidance is for a leverage ratio of 1.5 times at the end of the current financial year, under the internal target of 2 times.
Pilkington made an expression of confidence in the business in January, when he bought over £1.2mn-worth of shares in three separate transactions.
VP trades on nine times forward consensus earnings. The dividend yield is 7 per cent and a return on capital employed of almost 15 per cent stands out in the sector.
