Bruising year for River and Mercantile micro-cap strategy

Net assets drop nearly 50% as chairman emphasises need for patience when investing in smaller companies

River - rapids
Photo by Brydon McCluskey on Unsplash


The River and Mercantile UK Micro Cap Investment Company has suffered a gruelling financial year to 30 September, as performance was blighted by poor sentiment towards smaller companies.

The micro-cap investment company saw net asset value (NAV) underperform an already flagging benchmark by 21 percentage points in the 12 months to 30 September, delivering an NAV return of -48%.

Its benchmark, the Numis Smaller Companies + Aim (ex ICs) Index, returned -27% in the same time frame.

George Esnor, who has been portfolio manager since February 2018, admitted his disappointment at the year just gone, one that witnessed its share price fall from £2.80 to £1.36 over the year to 30 September 2022.

In addition, NAV per share nearly halved to £1.71, leaving the investment company trading at a widened discount of 20.3%.

Net assets began the year at £111.3m, but this had fallen to £58.4m by the end of September 2022, and the company made a loss after tax of £53.4m. The company attracted £847,000 during the year, but this was dwarfed by the £54m of losses that it sustained on its investments.

The largest detractors from the portfolio were Science in Sport and Joules Group, and while the report was able to list a total of 22 holdings that had a negative contribution to relative performance greater than -0.5%, there was no section of the report dedicated to holdings that contributed positively to the portfolio.

Across the year, the company added holdings in IOG, industrial chain manufacturer Reynold, data governance software 1Spatial, and auto supplier Strip Tinning, and exited positions in Ince Group and RA International.

Chairman Andrew Chapman began his statement with the adage “the night is often darkest before the dawn”, arguing that the extremely testing year, and the wide discount, has provided the investment company with a “striking” opportunity to rebound into its financial 2023.

He added: “The board continues to believe that UK smaller companies offer underlying value, but we recognise that patience is required for this to be realised. We are particularly conscious that relatively small lot share purchases can have a significant impact on the share price of the company, thereby increasing volatility. Longer term, it remains true that our niche sector continues to deliver some real opportunities in what is still a very under researched part of the stock market.”

Since the end of September, the company has indeed seen an improvement in its performance. As of 30 November, net assets had grown to £62.4m, while NAV and its share price grew 5% and 13.1%, respectively during the month. The benchmark was up 6% for the period.

See Also: River & Mercantile name prevails as Assetco unites its brands

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