Standard Life UK Smaller Companies Trust — Long-term positive performance track record

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Standard Life UK Smaller Companies Trust — Long-term positive performance track record

Standard Life UK Smaller Companies Trust (SLS) has been managed by Harry Nimmo since 2003. He aims to generate long-term capital growth from a diversified portfolio of smaller-cap UK equites. While a little more cautious on the near-term outlook for small caps given, their strong start to the year and Brexit-related uncertainty, Nimmo remains very positive on the longer-term outlook. He suggests that the portfolio’s companies have potential earnings growth of 10-15% pa, which bodes well for SLS’s dividend growth. The trust has a very strong performance track record; it has outperformed its Numis Smaller Companies ex-Investment Companies Index benchmark over one, three, five and 10 years. Over the last 10 years, SLS’s dividend has compounded at an annual rate of 23.5%; its current yield is 1.5%.

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Investment Companies

Standard Life UK Smaller Companies

Long-term positive performance track record

Investment trusts

7 August 2017

Price

437.0p

Market cap

£298m

AUM

£327m

NAV*

461.2p

Discount to NAV

5.3%

NAV**

466.2p

Discount to NAV

6.3%

*Excluding income. **Including income. As at 3 August 2017.

Yield

1.5%

Ordinary shares in issue

68.3m

Code

SLS

Primary exchange

LSE

AIC sector

UK Smaller Companies

Benchmark

Numis Smaller Cos ex-ICs

Share price/discount performance

Three-year performance vs index

52-week high/low

444.1p

337.5p

477.1p

368.9p

*Including income.

Gearing

Gross*

4.0%

Net*

2.5%

*As at 30 June 2017.

Analysts

Mel Jenner

+44 (0)20 3077 5720

Gavin Wood

+44 (0)20 3681 2503

Standard Life UK Smaller Companies is a research client of Edison Investment Research Limited

Standard Life UK Smaller Companies Trust (SLS) has been managed by Harry Nimmo since 2003. He aims to generate long-term capital growth from a diversified portfolio of smaller-cap UK equites. While a little more cautious on the near-term outlook for small caps given, their strong start to the year and Brexit-related uncertainty, Nimmo remains very positive on the longer-term outlook. He suggests that the portfolio’s companies have potential earnings growth of 10-15% pa, which bodes well for SLS’s dividend growth. The trust has a very strong performance track record; it has outperformed its Numis Smaller Companies ex-Investment Companies Index benchmark over one, three, five and 10 years. Over the last 10 years, SLS’s dividend has compounded at an annual rate of 23.5%; its current yield is 1.5%.

12 months ending

Share price
(%)

NAV
(%)

Numis Smaller Cos ex-ICs (%)

FTSE AIM
(%)

FTSE All-Share (%)

FTSE 250
(%)

31/07/13

39.8

38.1

40.4

8.4

24.3

37.3

31/07/14

(7.6)

1.7

10.2

8.0

5.6

6.9

31/07/15

21.6

22.9

13.3

(1.0)

5.4

17.1

31/07/16

5.8

4.1

(1.3)

2.1

3.8

0.5

31/07/17

29.4

30.6

23.8

32.1

14.9

17.6

Source: Thomson Datastream. Note: All % on a total return basis in pounds sterling.

Investment strategy: Six principles for investing

Nimmo has six principles for successful investing in small-cap equities: look for sustainable growth; go for quality; run your winners; concentrate your efforts; management longevity; and value is not everything. He uses Standard Life Investment’s proprietary stock selection Matrix to screen the investible universe, seeking high-quality companies with the potential to become the larger companies of tomorrow. Potential investee companies then undergo thorough fundamental analysis. As a result of the bottom-up stock selection process, SLS’s sector exposures may vary significantly from the benchmark. Gearing is permitted in a range of 5% cash to 25% debt as a percentage of net assets and is made up of convertible unsecured loan stock (CULS), which will expire in March 2018; at end-June 2017, net gearing was 2.5%.

Market outlook: Importance of stock selection

Following strong share price performance over the last 12 months, the valuation of UK equities is looking less attractive. Smaller-cap UK companies have seen a higher rerating than larger companies, which means investors seeking exposure to the asset class may find appeal in choosing a fund with a clearly defined, bottom-up stock selection process.

Valuation: Targeted maximum discount of 8%

SLS’s current 6.3% share price discount to cum-income NAV is only slightly lower than its 12-month average of 6.6%, but has narrowed meaningfully from its five-year high of 11.8% in July 2016. The board has an active discount management policy, aiming to keep the discount at or below 8%. Share repurchases are the preferred method and are supplemented with discretionary six-month tender offers.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Standard Life UK Smaller Companies Trust (SLS) aims to achieve long-term capital growth through investment in a diversified portfolio mainly consisting of UK-quoted smaller companies. SLS started life as Edinburgh Smaller Companies in 1993 and Standard Life Investments assumed management from 2003.

13 April 2017: 0.9m shares issued from treasury following the conversion of £2.1m nominal CULS.

27 February 2017: Interim report for six months ending 31 December 2016. NAV TR +16.7% versus benchmark TR +17.7%. Share price TR +16.5%. Announcement of 1.5p interim dividend.

20 February 2017: Appointment of Tim Scholefield as independent non-executive director.

Forthcoming

Capital structure

Fund details

AGM

October 2017

Ongoing charges

1.16% (as at H117)

Group

Standard Life Investments

Final results

September 2017

Net gearing

2.5%

Manager

Harry Nimmo

Year end

30 June

Annual mgmt fee

0.85% to £250m, then 0.65%

Address

1 George Street,

Edinburgh, EH2 2LL

Dividend paid

Apr and Oct/Nov

Performance fee

None

Launch date

1993

Trust life

Indefinite

Phone

+44 (0)345 6002268

Continuation vote

N/A

Convertible loan stock

£13.3m nominal

Website

www.standardlifeinvestments.com

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

While focused on SLS’s long-term capital growth objective, the manager pays close attention to the potential for dividend growth and SLS’s ordinary dividends have compounded at more than 20% pa over 10 years.

The board is focused on managing the discount such that the share price discount to cum-income NAV is less than 8%. This is managed via share buybacks and periodic tender offers when required. Allotments since March 2014 relate to exercise of CULS.

Shareholder base (as at 26 June 2017)

Portfolio exposure by sector (as at 30 June 2017)

Top 10 holdings (as at 30 June 2017)

Portfolio weight %

Company

Country

30 June 2017

30 June 2016*

NMC Health

Healthcare

4.8

3.9

Fevertree Drinks

Consumer goods

4.2

N/A

First Derivatives

Information technology

3.6

N/A

Sanne

Financials

3.2

N/A

Dechra Pharmaceuticals

Healthcare

3.2

2.9

CVS

Healthcare

3.1

N/A

Cranswick

Consumer goods

3.0

3.0

Abcam

Healthcare

2.9

3.1

Workspace

Financials

2.9

2.9

JD Sports

Consumer goods

2.9

3.3

Top 10

33.8

31.7

Source: Standard Life UK Smaller Companies Trust, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in June 2016 top 10.

Market outlook: Stock selection now more important

Over the last 10 years, the mid- and small-cap Numis Smaller Companies ex-ICs (NSCI XIC) Index has performed significantly better than the FTSE All-Share and FTSE AIM indices (Exhibit 2, left-hand side). Indeed the FTSE AIM Index, despite rallying over the last year, remains below the level at the start of the global financial crisis. The UK stock market, along with other global markets, has rerated upwards in recent months (Exhibit 2 right-hand side). On a forward P/E basis, over the last six months, smaller-cap stocks have had a larger rerating than larger-cap stocks (the NSCI XIC has risen from 13.8x to 16.0x versus the FTSE 100, which has risen from 14.7x to 15.5x). As a result, for investors seeking exposure to UK smaller-cap companies, a fund selecting stocks on a bottom-up basis that also has a positive long-term relative performance track record, may hold appeal.

Exhibit 2: Market performance and valuation metrics

NSCI XIC index performance vs FTSE AIM and FTSE ALL-Share indices

Index valuation metrics (as at 3 August 2017)

 

NSCI XIC

FTSE AIM

FTSE 250

FTSE 100

P/E forward (x)

16.0

48.9

16.0

15.5

Price to book (x)

2.3

2.1

2.2

1.9

EV/sales (x)

1.7

2.2

1.7

1.5

EV/EBITDA (x)

13.2

N/A

14.1

10.1

Dividend yield (%)

2.8

1.6

3.1

4.1

Return on equity (%)

15.3

Negative

11.3

7.6

Source: Thomson Datastream, Edison Investment Research, Bloomberg

Fund profile: Disciplined small-cap investment

SLS was launched in 1993 as Edinburgh Smaller Companies Trust, originally managed by Edinburgh Fund Managers. After a period of sustained weak performance, Standard Life Investments was appointed as manager on 1 September 2003. Since then, the lead manager has been Harry Nimmo, who employs Standard Life Investment’s proprietary stock-selection Matrix system and undertakes thorough fundamental analysis to construct a diversified portfolio of c 60 high-quality stocks, aiming to generate long-term capital growth. Performance is measured against the Numis Smaller Companies ex-Investment Companies Index, although SLS has broad exposure to UK smaller companies (Exhibit 3, page 4). Income growth has also been a key feature of the trust; the 10-year compound annual growth in dividends is 23.5%. Gearing is permitted in a range of 5% cash to 25% of net assets; at end-June 2017, net gearing was 2.5%.

The fund manager: Harry Nimmo

The manager’s view: A little more cautious over the near term

Nimmo comments that earnings reports in Q117 were broadly supportive for small caps across a wide range of sectors and that the trading environment was pretty decent, evidenced by positive outlook statements. However, more recently he notes a more difficult environment for some of the consumer-facing companies. Concerns started before the snap UK general election and relate to the uncertain outlook arising from Brexit negotiations. The manager says that UK small caps have had a particularly buoyant start to the year; the benchmark was up 12% to end-May 2017 and SLS’s NAV was up 21%. On a seasonal basis, he suggests that UK small-cap investors tend to be well served by observing ‘sell in May and go away’. Hence Nimmo has reduced SLS’s gearing by raising cash; the current percentage of net gearing has roughly halved compared to six months ago. While he is positive on the outlook for small caps for the balance of the year as a whole, given their year-to-date performance, current valuations and the somewhat uncertain current macro environment, the manager is a little more cautious in the shorter term. However, his longer-term outlook remains extremely positive. He believes that smaller-cap companies can generate higher returns over the long term compared to larger, more mature companies.

Asset allocation

Investment process: Adherence to six principles

The manager has six principles for successful small-cap investing: look for sustainable growth; go for quality; run your winners; concentrate your efforts (use of the Matrix, see below); management longevity; and value is not everything.

Nimmo seeks to buy the larger companies of tomorrow by investing in quality growth companies with strong management teams. He uses Standard Life Investment’s proprietary stock selection Matrix system to screen the investible universe of c 650 companies, with market caps up to £1.5bn. Factors include earnings growth and estimate revisions, share price momentum, valuation, the level of director dealing, and the Altman Z-score (bankruptcy test). Companies have a Matrix score between -35 and +35; those with a score of -10 to -35 are considered a sell, while those with a score of +10 to +35 are considered a potential buy and undergo rigorous fundamental analysis. The resulting portfolio typically comprises c 60 names and, as a result of bottom-up stock selection, sector weightings can deviate materially from the benchmark. Existing holdings are continually assessed to ensure that their Matrix scores remain attractive. Stocks are sold or reduced if their investment thesis is brought into question, the position size is larger than 5% of the portfolio or if there is a deterioration in the Matrix score. As noted in one of the manager’s six principles, valuation is a secondary consideration; he tends to avoid deep value and ‘blue sky’ investments, which are limited to 5% of the portfolio in aggregate.

Current portfolio positioning

As shown in Exhibit 3, over the last 12 months the manager has increased exposure to relatively smaller-cap companies, although their percentage weighting has also increased due to outperformance. (In recent weeks, the permitted limit in AIM stocks has been increased from 40% to 50%.) Nimmo notes that portfolio turnover over the last year of c 16% is lower than more normal annual levels of 20-22%.

Exhibit 3: Portfolio exposure by market cap (ex-cash and gearing, % unless stated)

Portfolio end-June 2017

Portfolio end-June 2016

Change (pp)

FTSE 250*

11.6

23.0

(11.4)

Numis Smaller Companies

45.1

39.4

5.7

AIM

41.8

33.6

8.2

Non-index

1.5

4.0

(2.5)

100.0

100.0

Source: Standard Life UK Smaller Companies Trust, Edison Investment Research. Note: *FTSE 250 is mid-cap holdings that are above the threshold for Numis Smaller Companies index.

In terms of sector weightings, over the last 12 months the largest changes are higher exposure in industrials (+7.0pp) and lower exposure in consumer services (-6.0pp). There is still no exposure to the basic materials, oil & gas or the utility sectors. All changes are a result of stock-specific considerations; the manager does not make investment decisions based on macro events. He notes that, for the first time in many years, he is overweight support services. This is a broad sector and the manager tends to focus on the more stable growth, rather than cyclical companies; holdings include Sanne (fund administration), Midwich (a distributor of audio-visual displays) and Diploma (an industrial and healthcare distributor).

Exhibit 4: Portfolio sector exposure (ex-cash and gearing, % unless stated)

Portfolio end-June 2017

Portfolio end-June 2016

Change (pp)

Industrials

23.1

16.1

7.0

Consumer services

21.3

27.3

(6.0)

Consumer goods

16.9

12.6

4.3

Healthcare

13.5

9.9

3.6

Information technology

12.7

16.4

(3.7)

Financials

7.3

11.5

(4.1)

Telecommunications

5.2

5.2

(0.1)

Basic materials

0.0

1.0

(1.0)

100.0

100.0

Source: Standard Life UK Smaller Companies Trust, Edison Investment Research

Recent purchases include Eco Animal Health, Gear4music and RWS. Eco Animal Health is an AIM-listed growth stock and one of SLS’s riskier positions, as c 70% of sales are generated from a single product, Aivlosin, which is an antibiotic used in pigs and chickens; growth is being partly driven by increased legislation in the US, which is already in place in Europe and the UK. The product has a very short half-life, breaking down in just one day, which is an important differentiating feature; farmers using traditional antibiotics cannot slaughter an animal if an antibiotic has been used in the past month. Recent sales of Aivlosin beat analysts’ estimates by a large margin. The manager considers that Gear4music, which is the UK’s largest dedicated online retailer of musical instruments and equipment, is very profitable and successful. It sells to customers across a wide age spectrum, has an information-rich website and is making headway in growing its European operations. The manager believes that Amazon would struggle to compete with Gear4music. RWS provides patent translations, intellectual property support services, technical and commercial translations and linguistic validation services. The manager says that due to the high levels of expertise involved, the business would not be easy to replicate. RWS has recently acquired US company LUZ, which strengthens its competitive position in the US; LUZ is one of the largest pure-play life sciences language service providers. RWS is benefiting from an increasing number of patents being registered and from China taking more account of intellectual property rights. Nimmo says RWS has rising earnings estimates and a strong Matrix score.

Over the last six months, SLS has occasionally participated in IPOs, including Alpha Financial Software, which provides software to facilitate trade settlements to asset managers and banks, and Medica, which is a provider of radiologists and radiological services to both the NHS and the private sector. Medica is currently a small, but rapidly growing business driven by the increased use of magnetic resonance imaging (MRI) scans.

Recent sales include Dunelm, EMIS Health and Rightmove. Soft furnishing retailer Dunelm had been in SLS’s portfolio for many years; however, the company now has a poor Matrix score. The manager is concerned that the company is ‘running out of steam’ and he is underwhelmed by its online business. Patient record systems and software provider EMIS Health also has a poor Matrix score. Although the manager believes that it remains a high-quality company, he is concerned that it is no longer beating earnings expectations. He suggests that EMIS is an example of a company diversifying into operations that are not as successful as its core business. Rightmove had been a very successful holding; purchased in 2009, the manager made c 9x his original purchase price. However, the company grew too large to warrant its position in SLS’s smaller company portfolio.

Performance: Very strong performance record

Over one year, UK smaller companies have delivered above-average investment returns. SLS has performed well over this period; its share price and NAV total returns of 29.4% and 30.6% are comfortably ahead of the benchmark’s 23.8% total return. The relative weakness over three months is primarily due to JD Sports, which was SLS’s largest holding. Typically, at its AGM, the company announces an upgraded earnings outlook. This did not happen at the June 2017 AGM; JD Sports’ comments regarding gross margin pressure and the timing of Eid led to significant share price weakness, down by more than 20% during the month. The manager has been in contact with the company, and he believes that its fundamentals remain intact. He considers that the share price fall is an overreaction and is partly as a result of a near-term rotation in the stock market from growth and momentum towards more cyclical stocks. The manager notes that there have been some strong contributors to performance over one year, such as Fevertree Drinks, First Derivatives and Gamma Communications, which reported notably strong results, ahead of expectations.

Exhibit 5: Investment trust performance to 31 July 2017

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three, five and 10-year performance figures annualised.

SLS’s relative returns are shown in Exhibit 6; its share price and NAV total returns have outperformed the benchmark in all periods shown of six months or longer. The trust has significantly outperformed the FTSE AIM Index over three, five and 10 years and the FTSE All-Share Index over one, three, five and 10 years.

Exhibit 6: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to Numis Smaller Cos ex-ICs

(3.4)

(1.3)

2.2

4.5

20.2

0.3

69.1

NAV relative to Numis Smaller Cos ex-ICs

(0.3)

(1.1)

3.3

5.5

20.7

9.5

49.5

Price relative to FTSE AIM

(2.5)

(1.0)

2.2

(2.0)

24.6

37.6

337.4

NAV relative to FTSE AIM

0.7

(0.9)

3.3

(1.1)

25.1

50.2

286.6

Price relative to FTSE All-Share

(1.8)

(1.6)

7.0

12.6

32.4

30.4

129.5

NAV relative to FTSE All-Share

1.4

(1.4)

8.2

13.7

32.9

42.3

102.9

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-July 2017. Geometric calculation.

Exhibit 7: NAV total return performance relative to benchmark over 10 years

Source: Thomson Datastream, Edison Investment Research

Discount: Narrowing trend in recent months

After narrowing for several months, SLS’s discount has widened since mid-July; its current 6.3% share price discount to cum-income NAV is only slightly narrower than the 6.6% average of the last 12 months but remains considerably lower than the average of its peers. Over the past year, the discount has ranged from 2.6% to 11.3%, having registered a five-year high of 11.8% shortly after the result of the UK’s EU referendum in a short period characterised by widespread selling of risk assets. The board actively manages the discount, aiming to keep the discount at or below 8% in normal market conditions. Share repurchases are the preferred method and are supplemented with discretionary six-month tender offers.

Exhibit 8: Share price premium/discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

SLS currently has 68.3m ordinary shares outstanding following the issue of 0.9m shares in April 2017 on conversion of loan stock. This leaves £13.3m nominal 3.5% convertible unsecured loan stock outstanding. The last conversion date is 31 March 2018; it is expected that all the remaining stock will be converted, as SLS’s share price is comfortably above the 237.2542p conversion price. The board is exploring both long- and short-term debt options, which will allow the manager to continue using gearing to potentially increase investment returns. He is responsible for deciding the level of gearing within a permitted range of 5% net cash to 25% net debt (at the time of drawdown). At end-June 2017, SLS had a net debt position of 2.5%, which compares to a range over the last 10 years of 4.6% net cash to 8.8% net gearing.

Since December 2015, SLS has a tiered management fee structure of 0.85% of gross assets up to £250m and 0.65% above £250m. Its performance fee was removed in 2012. In H117, the ongoing charges were 1.16%, modestly higher than 1.13% in H116.

Dividend policy and record

While aiming for long-term capital growth, SLS pays regular dividends twice a year in April and October or November. Over the last 10 years, the annual dividend has compounded at an average annual rate of 23.5%. Given that the annual dividend has grown from a very low base over this period, the manager suggests that the rate of growth in the annual dividend is likely to slow (the FY16 dividend of 6.6p was 13.8% higher than the prior financial year). He cautions that so far in 2017, the value of special dividends paid by SLS’s portfolio companies is significantly lower than the comparable period in 2016 and he has been reducing exposure to some of the higher-yielding companies in the portfolio. However, it should be noted that the 1.5p interim dividend paid in April 2017 was 7.1% higher year-on-year. At end-H117, SLS had revenue reserves of £6.5m (9.5p per share, 1.4x the FY16 annual dividend); its current dividend yield is 1.6%.

Peer group comparison

SLS is a member of the AIC UK Smaller Companies sector. In Exhibit 9 we show the largest 10 funds, which all have a market cap greater than £150m. SLS’s NAV total return is ahead of the peer group weighted average over three and 10 years, ranking third and first out of 10, respectively, while lagging over one and five years. Its discount is the second narrowest in the group, where some of the peers trade at significantly wider discounts. SLS has one of the higher ongoing charges, although no performance fee is payable. It has a below-average level of gearing and its dividend yield is below average, which would be expected for an investment trust with a primary aim of capital growth.

Exhibit 9: Selected peer group as at 3 August 2017*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (ex-par)

Ongoing charge

Perf.
fee

Net gearing

Dividend yield (%)

Standard Life UK Smaller

294.8

30.5

66.8

127.9

261.3

(5.5)

1.2

No

103

1.5

Aberforth Smaller Companies

1,225.7

33.3

38.1

136.6

129.0

(11.4)

0.8

No

100

2.1

BlackRock Smaller Companies

580.6

40.5

66.6

164.4

247.9

(13.3)

0.7

Yes

109

1.7

BlackRock Throgmorton Trust

320.6

40.3

71.3

158.0

179.0

(15.4)

1.1

Yes

126

1.9

Henderson Smaller Companies

587.3

37.7

63.3

156.1

198.1

(13.7)

0.4

Yes

109

2.0

Invesco Perpetual UK Smaller

160.0

37.4

65.1

146.0

186.4

(5.3)

0.8

Yes

100

3.5

JPMorgan Smaller Companies

164.2

31.6

40.8

121.8

109.6

(20.0)

1.2

No

110

1.9

Montanaro UK Smaller Companies

180.5

24.6

35.6

69.6

124.9

(20.3)

1.2

No

109

2.0

Rights & Issues Investment Trust

185.1

45.6

101.5

223.9

250.4

(10.8)

0.6

No

100

1.4

Strategic Equity Capital

151.0

18.9

48.5

159.2

140.7

(13.4)

1.4

Yes

100

0.4

Weighted average

35.1

55.8

146.6

179.4

(12.5)

0.8

106

1.9

Rank (out of 10 funds)

5

8

3

8

1

2

3

6

8

Source: Morningstar, Edison Investment Research. Note: *Performance data as at 2 August 2017. TR=total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are currently five directors on the board of SLS; all are non-executive and independent of the manager. Chairman David Woods has announced his intention to retire at the October 2017 AGM, at which time he will have served for more than 12 years; he assumed his current role in February 2014. Woods will be replaced as chairman by Allister Langlands, who was appointed in July 2014. Carol Ferguson was appointed in February 2009 and Caroline Ramsay in August 2016. The newest member of the board is Tim Scholefield, who was appointed in February 2017. He has a background in asset management, most recently as head of equities at Baring Asset Management.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Standard Life UK Smaller Companies and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable; however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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