Montanaro UK Smaller Companies fends off Saba with big buyback

The UK smaller companies trust’s first buyback in 17 years is understood to have sparked an exit for Saba Capital.

Montanaro UK Smaller Companies (MTU ) has bought back 20m shares in a bid to fend off US activist investor Saba Capital.

The buyback equates to around 12% of the share capital, which matches Saba’s last disclosed stake in the £145m UK smaller companies trust. Analysts at Deutsche Numis suspect the buyback has enabled Saba’s exit.

Montanaro UK Smaller Companies introduced a buyback policy in late February to maintain a single-digit discount. It marked the first time the board had bought back shares since 2008.

The shares were purchased yesterday at a price of 100.25p, which represents an estimated discount of around 8.5% to net asset value (NAV), according to Deutsche Numis. This is the narrowest the discount has been for two years.

Other sources suggested the discount on the share repurchase was in fact 7%.

‘It is interesting to see a pragmatic approach from Saba, taking an exit at a discount level which appears to be narrower than the level it built its stake, whilst not requiring a public battle or formal requisition,’ said analyst Ewan Lovett-Turner. 

‘This is clearly not an exit at NAV, which might also be an interesting marker for other boards, although Saba has a smaller stake than in some cases.’

Deutsche Numis urged the board to continue with the buyback programme to allow other investors the opportunity to trade at a similar level.

Montanaro UK Smaller Companies, managed by Guido Dacie-Lombardo and Charles Montanaro, now trades at a 7.8% discount. Over the past year, its shares are up 11.7%, including dividends, which compares to a 2.3% gain by the average trust in the AIC’s UK smaller companies sector.

However, over three years the shares have disappointed. They are down 2.7% compared to a 0.2% loss by the sector average and a 17.3% gain for the Deutsche Numis Smaller Companies ex-Investment Companies index. The trust yields 5.4%.

The apparent exit from MTU marks another step in the second phase of Saba’s activism in the investment trust sector, after initially failing to oust the boards of seven trusts in January and February. 

Saba declined to comment on whether it has exited its stake in MTU.