Pension funds trapped in Small Cap exposure

Chief among the equities doing the damage were Hill & Smith, - an infrastructure company - and Spice .

Hill & Smith has recovered losses made on Friday when its shares fell to 154.5p. However it’s shares have been rallying since it posted its final results on Tuesday 10 March when its shares were 140p. Over the last year the company has lost 55.73 per cent of its value.

On 10 March, on the day it released its results, Arbuthnot analysts retained a “Neutral” recommendation and said: “H&S’s figures beat our high-end estimates for 2008 and the dividend was as expected. The group expects to benefit from infrastructure spending (in the US and elsewhere) but the lag before this gets going could impact in a small way in H1 2009. We do not expect to make any significant changes to our estimates.”

Others were more positive. Also on 10 March, Arden Partners retained a “Buy” recommendation saying: “The infrastructure bias of the group (70% of sales) provides exposure to stable government spend and future fiscal stimulus packages. This, combined with cost reductions is
expected to enable the group to generate a resilient
earnings stream through the current global uncertainties.

The most recent note available on Hill & Smith is from 13 March from analysts at Fairfax. It said: “Pre-tax Profits are forecast to rise 7% to £43.7m and earnings per share by a similar amount to 36.9p in 2010. The dividend is forecast to be lifted from 10p in 2008 to
10.3p in 2009 and then to 10.8p in 2010 since earnings and free cashflow are forecast to rise over the period.”

The note also gave a number of reasons why a prospective P/E of 4.3x, and yield of 7.0% “does not do justice to Hill & Smith’s earnings resilience in this recession and to the growth profile in the medium term in infrastructure products.”

The funds holding Hill & Smith in their top 10 holdings are FP UK Smaller Companies pn which has the company as its eighth largest holding with 2 per cent of its AUM invested in the stock.

Invesco Act UK Small Cos Eq Pn also has Hill & Smith as its eighth largest holding with 1.9 per cent AUM invested.

JPMLAL UK Small Cap Equity 1 Pn has Hill & Smith as its largest holding with 2.2 per cent of its assets invested.

Stan Life Pooled UK Equity UK Smaller Companies S5 Pn has Hill & Smith as its 10th largest holding with 2.2 per cent of AUM invested.

It is the largest holding of the JPM UK Smaller Companies fund which has 2.7 per cent of its AUM invested in the company.

It is the eighth largest holding of F&C UK Smaller Companies fund which has 2.02 per cent of its AUM invested Hill & Smith. It has the same weighting in the CF Techinvest Special Situations
F&C Institutional UK Smaller Companies fund

JP Morgan Smaller Cos IT Plc has Hill & Smith as its fifth largest holding with 2.1 per cent of its AUM invested in the company.

Rights & Issues Investment Trust has Hill & Smith as its second largest holding but no weighting is given by the Financial Express data.

Spice
At one stage this morning Spice PLC was amongst the main fallers on the index. It’s shares are now down 3.04 per cent, a fall of 1.75p to 55.75p.

Spice, a provider of outsourced infrastructure support services, was founded in 1996 and has grown from a single contract worth £3 million per annum to a £300 million turnover.  It was admitted to the official list of the London Stock Exchange in July 2008, after being quoted on AIM in August 2004.

On 26 March analysts at WH Ireland moved from “Market Perform” to “Outperform” with a 75p target price. The note said: “We believe that overall group performance remains on track to meet expectations for the current financial year as a result of the continued strong performances in the billing, energy and electricity divisions.”

This was despite concerns about further weakening of the facilities market as cash settlements for insurance claims gained ground, also increased competition and tighter margins affecting more of the business in the North, while accounting changes are expected to result in a £1m ebita impact.

The note said: “We anticipate next hearing from the company in the year-end pre-close update at the beginning of May, which we expect will provide further reassurance on the core business streams.”

Spice PLC:
AIM Distribution Trust VCT has a 7.1 per cent weighting in Spice, making it its third largest holding.

Pennine Downing AIM VCT 2 has 4.8 per cent invested in Spice.

CF Techinvest Special Situations has 2.58 per cent of its AUM invested in Spice.

F&C UK Smaller Companies has Spice as its fourth largest holding with 2.3 per cent invested while F&C Institutional UK Smaller Companies has it as its fifth largest holding with 2.34 per cent invested

CIS Sustainable Leaders Trust has Spice as its third largest holding with 5.58 per cent of AUM invested in the stock.

FP UK Smaller Companies pn has 2.3 per cent of AUM invested in Spice, making it its third largest holding.