The board and manager of Downing Strategic Micro-Cap Investment Trust PLC (LSE:DSM) are planning an orderly wind-up of the company with an initial distribution of at least 20% of capital planned in "early 2024".
Judith MacKenzie, lead manager of the trust, said the decision had been made by Downing and the board in light of the continuing negative sentiment towards UK smaller companies and yet the simultaneous M&A interest in buying these companies by private equity and corporate buyers.
At the 31 August half-year point for the trust, the net asset value stood at £33.9 million, down 11.5% since the start of the period, while NAV per share had fallen 8.2% to 71.57p and the share price by 8.3% to 60.25p.
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“The overhang of 2022 has seen the negative markets sentiment towards UK smaller companies continue," said MacKenzie, who is also head of Downing Fund Managers and partner of Downing LLP.
"This is despite DSM highlighting its portfolio of well-run, niche businesses that have largely weathered a challenging economic backdrop. Meanwhile, the catalysts in the portfolio are being recognised and realised, with over 20% of net assets now 'in play' with agreed bids or strategic reviews that should lead to exits and a return of capital."
Within DSM’s portfolio, one holding OnTheMarket PLC (AIM:OTMP) has agreed to be taken over at a price of almost 100% above its average share price over the previous three months and 46% above the cost at which it was added by the trust.
There was also an agreed bid for FireAngel Safety Technology at a 46% uplift on the last funding round.
"Most of DSM’s portfolio is performing well and more is ripe for M&A or treating," said chairman Hugh Aldous.
With that corporate activity in mind, and the continuing negative sentiment towards smaller companies and small investment trusts, MacKenzie said the board and Downing have decided that it is "timely to begin a managed wind-down of the company, with the intention to make the first return to shareholders of at least 20% of capital in early 2024".
She said this will be followed by further returns of capital as liquidity/trade exits permit.
Shares in the trust were little moved on the day at 58.5p, also little changed from where they were a year ago.