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*A unit class launched 10 March 2003

Past performance is not necessarily a guide to the future. The value of your investment can go down as well as up; you could receive back less than you have invested.

Market Commentary

The markets rallied powerfully during the half year as vaccinations brought the Covid-19 pandemic under
control. This exuberance overlay the normal seasonal strength during this part of the year. Markets typically do
most of the heavy lifting between October and April. Investors and share prices usually like to take the summer
off. Of course inflation remains a concern as central banks are determined to keep conditions looser for longer.
A gentle pressure on the brakes would reduce the risk of painful emergency measures later. We shall have to
live with that risk. In the meantime we are not relaxing our investment criteria.

Portfolio Review 

Twelve stocks contributed at least +0.70% and only two detracted by more than -0.10%. The overall return of
+29% was exactly matched by the average share price gain after weighting each holding equally. So it can be
seen this was not a case of a few star shares hiding blushes elsewhere.

Once again, the biggest contributor was Future, which rose +68% and contributed +4.48%. The company was a
big Covid-19 beneficiary as retail moved online. March 2021 half year results showed adjusted earnings
doubling and sales rising 89%. The 2019 purchase of United Kingdom (UK) magazine publisher TI Media fitted
well within Future’s model of generating online advertising and e-commerce commission from content and
brands originating in print. Last year’s acquisition of GoCo, the price comparison site, reversed this approach,
starting with an existing e-commerce stream and looking to build content around it. We have confidence in
Future’s management but this is clearly a different approach. Meantime the shares remain in high demand as
United States (US) investors start to take notice.

Gamesys rose +68% and contributed +1.71% following its cash and share-alternative bid from Bally’s, the US
casino group. The share alternative is currently at a heavy discount to the cash offer. Unusually, it is Gamesys’s
leadership which will run the enlarged group, reflecting the potential of digital versus bricks and mortar.

Next Fifteen Communications contributed +1.64% and it gained +67%. The shares had a rollercoaster 2020.
By the start of November 2020 they had steadied back to their pre-Covid level, after more than halving during
the March 2020 panic. The company has delivered a steady flow of profits upgrades, surprising itself with the
buoyancy of demand across the board. Visibility for media agencies is always limited because projects come
and go at short notice. On the other hand, the trend in earnings per share (EPS) growth has been relentless with
forecasts expecting it to more than double earnings between 2017 and 2024, a compound growth rate of 14%.

Jubilee Metals has astonished investors with its explosive rise in the last two years. During the half year it rose
another +57% and contributed +1.49%. Profits have been entirely dependent on its South African operations
which refine chrome ore for a modest margin but also keep the platinum group metals extracted from the circuit.
The rhodium price rose 400% between June 2020 and March 2021. By the end of May 2021 it had given back
about 20% and the downtrend seems to be continuing. The trigger for the price surge has been attributed to
tougher emissions standards for trucks in China. This year the picture changes as the company ramps up
production of copper and other metals in its Zambian operations. Here it owns the tailings from old mines and it
believes its cost per tonne will be $4,200. It is targeting output of 25,000 tonnes per year within four years. If
rhodium is an emissions play, then copper reflects surging demand from electric motors and electronics in
general. The company reported £19.3 million profit after tax in the half year to December 2020. Impressive but
modest compared to the potential from the copper tailings.

Management consultancy Elixirr International soared +122% and contributed +1.48%. The initial public
offering in July 2020 was attractively priced and we took full advantage. By 31 May 2021 the shares had risen
132%. The company reported December 2020 year end profit before tax (PBT) of £5.8 million, up from £1.7
million, on sales up 24% to £30.3 million. The company is still small enough for lower-PE acquisitions to
contribute heavily to earnings growth.

Kape Technologies climbed +76% and contributed +1.31%. The highlight of the half year was the $149 million
purchase of Webselenese, an Israeli business which rates providers of virtual private networks. Kape will
maintain its editorial independence but aims to use its marketing skills. The acquisition was also priced very
attractively, allowing for a slowdown in demand as lockdowns end. The shares closed the half year on forward
price to earnings multiple of 16 times, which seems undemanding.

Marlowe, the voracious acquirer of compliance and testing businesses, rose +37% and contributed +0.81%. We
supported its £100 million placing in March 2021 which should fully fund it in its plan to reach £500 million
sales and £100 million earnings before interest, tax, depreciation and amortisation (EBITDA) by the end of
March 2024. Broker forecasts underplay its prospects heavily because analysts cannot include profits from
businesses which have not yet been acquired even though the funding is already in place.

Ergomed climbed +44% and contributed +0.78%. In March 2021 it reported that profits in 2020 rose 55% at
the adjusted EBITDA level, with sales up 26%. The pharmacovigilance division increased its gross profit by
57%, boosted by an acquisition. Overheads here are fairly fixed so incremental sales feed more directly into
profits growth. The CRO business marked time, with gross profits falling 3% to £11 million. Covid-19 has
stopped many clinical trials even getting underway, so this was a respectable performance.

Clinigen rose +31% and contributed +0.77%. This performance was partly due to the management’s complete
certainty that the company would achieve its full year numbers. In the event they embarrassed themselves and
investors by warning in June 2021 that they would not meet their year end forecasts. Although this warning took
place after the end of the period it deserves comment now. The heart of the problem was Proleukin, the 30 year
old cancer drug which Clinigen bought for $200 million from Novartis. Proleukin’s sales had been falling for
many years and were reported to be $60 million in 2018. Clinigen thought it could slow or reverse the decline
while it awaited a surge in sales from the use of Proleukin as a co-therapy by new cancer drugs. The first of
these belonged to US company Iovance Biotherapeutics. Whilst clinical data has been strong, Iovance has failed
to agree terms for dose size with the Food and Drug Administration. In May 2021 its Chief Executive Officer
resigned after further delays and wide acceptance that the drug application will not be filed until next year
(2022). Iovance has not issued the expected orders for Proleukin and meantime doctors in the US have also
sharply reduced use of the drug in intensive care. This decline may reverse but forecasts, and the share price,
now assume the fall is permanent. We believe there is a great deal of value in Clinigen’s component parts and
we expect this will be unlocked by one means or another. 

dotDigital contributed +0.74% and the share gained +61%. Organic sales growth was 22% in the first half to
December 2020 and adjusted EBITDA rose 13%. The company is spending heavily on both product
development and marketing in the style of its American peers and competitors. This makes sense because
customers pay by subscription and tend to stay once they join. So the priority is to build the base and look to
enjoy the harvest later.

Alliance Pharma rose +32% and contributed +0.72%. Underlying profits barely rose last year, after
prescription drugs sales fell 14%, impacted by Covid-19. The company redeemed itself with the $110 million
purchase of Biogix, the maker of Amberen, a treatment for menopause symptoms. This spurred upgrades in
forecasts. Biogix looks a more immediately attractive deal than Nizoral, where a staged commercial handover
from Johnson & Johnson has made it hard to reap early commercial benefits. Brokers now expect EPS to rise
10% in 2021 and 14% in 2022.

Hollywood Bowl scarcely operated its bowling alleys during the half year but its shares partied all the same,
rising +36% and contributing +0.70%. The company’s move into indoor crazy golf looks promising but we have
no data yet to support that optimism.

HutchMed (China) fell -11% on AIM and -4% on Nasdaq, detracting by -0.21% overall. The weaker dollar
made the fall worse. The company is floating in Hong Kong and in the process should raise enough to fund itself
easily into profitability in 2024.

Randall & Quilter (R&Q) detracted by -0.37% after falling -14%. The company has undergone an almost
complete change of management and is now run from the US. The previous policy of paying all of reported
profits in dividends has been scrapped. The payout fell from 9.9p in 2019 to 4p in 2020. The future ratio will be
a more normal 30%-40% in order to allow faster growth of the business. R&Q also intends to move towards
being more capital light – more an asset manager and broker than an asset owner. We find this new approach
very attractive but the new dividend policy may drive a change in the shareholder base, which could hold back
the shares for a time. PBT fell 21% last year but, typically of R&Q, this conveys no sense of the progress being
made. This is because its profits until now have come from buying run-off assets of captive insurers and
declaring the price paid to be at an undervalue, reporting this discount as an immediate profit. Earnings have
therefore been lumpy and impossible to forecast, leaving investors with only the dividend as a basis for
valuation. Program Management, the other arm of the business, is a form of broking where R&Q acts as a
conduit between local managing agents and the broader reinsurance market. It aims to charge 5% of the
premiums passing through its channel. The reinsurers require it to keep a small part of the risk it is passing on,
so there is a need to retain profits to fund this growth in the balance sheet. In the first quarter of 2021 premiums
rose 52% to $185 million and fee income by 91% to $9.7 million. Policies passing through the channel run for
several years so this income stream should grow steadily as new policies are added. Meanwhile overheads will
rise much less quickly. Brokers see EPS of 13.6p in 2021, 18p in 2022 and 21p in 2023.

Purchases and Sales

During the six months we bought: Anglo Pacific, Begbies Traynor, Best of the Best, Brewin Dolphin,
Clipper Logistics, Foresight Group, Jubilee Metals, Rathbone Brothers, SSE, Supreme, tinyBuild, TT
Electronics, UP Global Sourcing Holdings and Volex.

We added to: Alliance Pharma, Avation, Breedon, CentralNic, Clinigen, Fintel (formerly SimplyBiz
Group), Franchise Brands, Future, Gamesys, Hollywood Bowl, Inspired Energy, Instem, iomart, JTC,
Kape Technologies, Kin and Carta, Liontrust Asset Management, Marlowe, NCC, Next Fifteen
Communications, Prudential, Randall & Quilter, Redcentric, Restore, SigmaRoc, STV, Ten
Entertainment, Tesco and Venture Life. Shares in STV were also received via corporate action.

We trimmed the following positions: Calnex Solutions, Ergomed, IG Design and Mears. Codemasters was
also trimmed before its eventual takeover.

We sold our positions in Jet2 and Lok’n Store. Applgreen, Codemasters, GoCo and Scapa were all the
subject of successful takeovers.

Outlook

The major markets have recovered but valuation metrics have stayed within normal ranges, except for one: the
United States. By any traditional measure the US is expensive and therefore risks a reversion to the mean. Will
this affect other markets? Perhaps, but history suggests bubbles in one market can have remarkably little impact
elsewhere when they deflate. The Japanese bubble peaked at the end of 1989 and the Tokyo index then entered
an 80% bear market over the next two decades. Tokyo’s market value expressed as a share of the four markets
(itself, London, Paris and New York) peaked at 39%. Now it is only 11%. Despite the slump in Tokyo the
combined markets still more than doubled during those 20 years. Capital did not vanish, it moved. The US now
represents 73% of the combined valuation of all four markets. This is even higher than its share in 1973 before
the 1970s bear market. By December 1988, amidst the Tokyo bubble, New York had fallen to 21%.