Downing Strategic Micro-Cap Performance Hurt By Three Troubled Stocks

LONDON (Alliance News) - Downing Strategic Micro-Cap Investment Trust PLC on Friday said its net asset value per share dropped sharply in its most recent financial year after a decline in the value of three key investments.

However, the company has proposed a dividend for the year of 1.25p per share. The company benefited from loan interest and, as regulation requires 85% of distributable income to be distributed, a "modest dividend" is planned. No dividend was declared the year before.

Downing Strategic Micro-Cap, which invests in UK companies with a market capital of less than GBP150 million, said its net asset value per share stood at 74.59 pence at the end of its financial year on February 28. This was 20% below its 93.60p figure the year before.

This significant net asset value decline was attributed to the company's holdings in Gama Aviation PLC, FireAngel Safety Technology PLC, and Redhall Group PLC.

FireAngel, which makes and distributes fire safety products, was embroiled in "an aggressive legal challenge" over a distribution agreement termination during the year. FireAngel suffered lost sales and manufacturing issues and issued a profit warning.

The value of aviation services firm Gama Aviation dropped in the year as a result of "operational challenges and delays around deploying capital", which led to a reduction in expectations. Gama also experienced delays in the appointment of a new chair.

Manufacturing business Redhall also detracted from Downing Strategic Micro-Cap's performance, as contract delays mean its annual results "will be materially below expectations".

Judith MacKenzie, the lead fund manager of Downing Strategic Micro-Cap, said: "Market value of investments has declined significantly on account of a handful of positions (Gama, Redhall, FireAngel) reflecting their need for change. Our other nine positions have performed rather well and, overall, we believe the difference between our calculation of the intrinsic value of the portfolio and how the market is valuing them, is greater than at any point since the company was launched. We have been active across the portfolio, helping our investee companies adopt appropriate governance and tackle strategic challenges - so that they are positioned to deliver, and this provides us with a high level of confidence for the funds performance."

Shares in Downing Strategic Micro-Cap were up 2.7% at 74.98p on Friday at noon.