Companies: AMS    ATCG   

Judith MacKenzie, partner and manager of the forthcoming Acuity Capital Real Active Management (RAM) Fund, is confident that the UK smaller company sector offers attractive investment opportunities.

Set for launch at the end of July, the fund will invest in around 25-30 companies, mostly sub-£50 million market cap concerns, with a focus on those that have either fallen from grace or have turnaround potential.

MacKenzie believes the fund will take advantage of a ‘tipping point’ in a cycle now opening up in favour of smaller companies. She points out, ‘The situations that we were looking at that were good value and cash-generative about 12 months ago were sitting on price/earnings (p/e) ratios of less than ten times – these are now three to four times.

‘We are seeing companies with all the right attributes trading at very low valuations. We think it’s a good tipping point in the cycle to get involved with these companies.’

Having previously been employed as Aberdeen Asset Management’s senior investment manager, MacKenzie has a wealth of small-cap experience, which, she argues, sets this fund apart.

‘Using past experience of private equity means we can look at things in a slightly different way and because we are a petite fund management house, we are more capable of moving quickly,’ she explains. ‘It’s also quite difficult to get exposure to small caps in the way that we’re doing it, through applying this private equity due-diligence process.’

Time to call on AT
MacKenzie has her eye on £21.6 million telecoms company AT Communications. ‘This company has tripped up a couple of times, but has always hit profit forecasts. It was unfortunately caught up in the Torex case a few years back and although it wasn’t directly involved, the share price was affected, but it is more or less back on track now.

‘This is a company we have known for some time and have done some work on. It is sitting on a p/e of about three times, which is pretty cheap for a company of this size. AT also has a consistent track record, which is very important.’

Expanding AMS
MacKenzie also likes Advanced Medical Solutions (AMS), which develops in-house natural and synthetic polymer technology for ‘advanced wound dressings’. ‘This company supplies technology and manufacturing expertise in advanced wound care to the NHS. It has some fairly interesting solutions for the knitting of wounds. AMS’s technology keeps the wound moist, which is the best way to heal it,’ she enthuses.

‘AMS is expanding across Europe and is currently going through the FDA process in the US, but aside from this it has a very stable business in the UK and one that has got excellent earnings growth with a strong management team.’

About to launch when investors are risk-averse, MacKenzie is nevertheless confident the fund will be a success. ‘There are a lot of investors withdrawing from the smaller company market because they are being slightly more cautious, but we are seeing excellent value in the small-cap range under the £50 million mark, so we will be able to pick up some fairly cheap assets on multiples of less than five or six in the form of cash-generative, profitable companies that don’t have any balance sheet issues.’

But MacKenzie argues thatresearch is vital: ‘We aren’t investing on the back of a 45-minute presentation. It’s about seeing the companies two or three times, meeting them on site, and trying to understand their drivers and fundamentals.

‘We will have a small percentage of the fund in situations that have fallen from grace. If we can see that there is good value then we are prepared to get our hands dirty and help the management.’

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