Highlights of H126 (ending 30 September 2025)
NAV and share price total returns were +12.5% and +11.5%, respectively, versus the
UK Small Cap (ex IT) index’s +12.1% and UK AIM All-Share Index’s +14.8% total returns.
RKW joined the UK All-Share and UK Small Companies indices.
There were three new investments. Treatt is an ingredient manufacturer, primarily
for the beverage industry. Its shares have derated considerably in recent years, having
become overvalued during a period of zero interest rates. The company lost its long-term
CEO and his replacement faced operational issues, which were poorly addressed and
so he has also left the business. RKW’s position was initiated below net asset value.
Treatt subsequently received a takeover offer from Natura Group, a private equity-backed
trade buyer. The deal was blocked by another trade competitor, Döhler Group, which
built a 28% stake in Treatt. Staveley considers that it will take five years to turn
the business around; however, he sees significant value in the company, a view that
is validated by the buyout interest from two of Treatt’s industry peers.
Tribal Group is a provider of education software and services, and its stock price
rose rapidly following the initial purchase. Staveley has followed this company for
more than 20 years through a series of disposals, leaving just two businesses, of
which only one is likely to be a core operation. Tribal has been slowly moving its
university and higher-education customers from an on-premise software/hardware administration
services solution to a cloud-based SaaS offering. The investment phase has been long
but should benefit the clients, as well deliver a higher-margin, recurring earnings
stream for Tribal. Its other division offers a range of services including inspection.
Staveley initiated the Tribal position at a deep discount to a prior takeover bid.
At the end of H126, Tribal was trading on 2.2x annual recurring revenues, which are
expected to grow, versus 3–5x multiples for similar businesses. Staveley believes
that Tribal’s shares can re-rate given the company’s industry standing, geographic
expansion opportunities via its existing customer base and completion of the SaaS
conversion project.
RKW’s third new holding was not included in the H126 earnings release, as the position
was still being built at the time. Subsequently, the new name was disclosed as Focusright,
which designs and manufactures audio interfaces, equipment and audio reproduction
kit for the global market. The company has significant margin improvement potential,
large addressable markets and a depressed valuation relative to its history.
Housebuilder Galliford Try exited the portfolio having delivered on the original 2022
thesis of a major business improvement under a new CEO. At the time of purchase, Galliford’s
shares were trading at a discount to its cash in the bank. Since then, operating performance
has improved considerably and the company’s shares have re-rated and are part of the
UK 250 Index. Staveley engaged with Galliford around buybacks and dividend policy,
and realised a 48.2% IRR, 2.4x return on investment and a £3.3m profit, including
dividends on the position. The manager does not envisage another doubling in the share
price, so the position was sold.
The UK investment backdrop
Staveley considers the US is ripe for profit taking, while the UK, especially in small-cap
stocks, is ripe for profit making. The US market is trading at record price-to-book
and weighted price-to-sales valuation multiples. US margin debt has spiked over the
last 18 months and US hedge fund leverage is around twice its historical levels.
Despite UK large caps performing well in 2025, generally, the UK remains out of favour
with global investors. Any inflows are likely to head to open-ended funds, which dominate
the UK market and tend to avoid micro-cap stocks, Since 1997, UK pension fund allocations
to UK equities have fallen from 53% to 4%, so surely cannot fall much lower. UK inflation
is moderating, which makes the prospect for interest rates cuts, from the current
growth-restrictive levels, more likely. This should be positive for small-cap stocks
in particular. Smaller UK companies look relatively attractively valued compared to
larger businesses, while there tends to be a trickle-down effect as investors lock
in large-cap profits and look for opportunities further down the capitalisation spectrum.
Performance: Long-term outperformance versus peers and the UK market
There are currently 21 funds in the AIC UK Smaller Companies sector. In Exhibit 3,
we show RKW along with its five closest peers; one of which has a short-term track
record. RKW’s NAV total returns are considerably ahead of its peers’ over the last
three and five years, ranking first out of five funds in both periods. RKW lags its
peers over the last 12 months, with an NAV total return that is 6.4pp below the sector
average, but well ahead of relevant UK small-cap indices.
At 23 January 2026, RKW was trading at a modest premium, one of the two selected funds
that were trading above NAV. The trust has the second-highest ongoing charge, and,
like most of its peers, a performance fee is payable. In line with its peers, RKW
has no gearing and, due to the focus on capital return, the trust does not pay regular
dividends.
Looking at the complete AIC UK Smaller Companies sector, RKW’s NAV total return is
modestly below average over the last year. However, over the longer term, the trust’s
rankings are much higher, ranking third and first out of 19 over the last three and
five years respectively.
