Tristel is a highly profitable AIM listed company with a market cap of just over £200 million. It is a classic big fish in a small pond. It is based on an industrial estate a few miles outside New market - essentially the middle of nowhere. However, it operates on a global basis, with recent encouraging traction for its key products in the US, where it has so far secured two FDA approvals. It has multiple other growth opportunities.
It sells chlorine dioxide disinfectant products which are used to disinfect medical instruments such as ultrasound probes (its main existing market) and to disinfect surfaces of critical care areas in hospitals (e.g. HDU).
For a variety of reasons, there are very high barriers to entry and it is the only company in the world so far as I am aware that sells these products in the health sector. In specific fields such as decontaminating ultrasound probes, it has competitors such as Nanosonics (Australian) and Germitic, which are machine based rather than manual.
It currently trades on a PE of around 22x, which is far lower than Nanosonics. It is debt free and highly cash generative. My view is that the company is only just getting started in its global roll-out programme. My only financial interest is as a shareholder, where I have held and increased my holding for just over 10 years.
As it happens, I had pretty much word for word the same debate with the TSTL board one week ago (at the AGM) as to the pros and cons of ploughing profits back into fuelling growth, rather than paying dividends. I also favour the former approach. One of the considerations/challenges is that some of the institutional holders require a dividend payment as a condition of continuing to invest.
Thanks again for what I thought was a terrific discussion about Judges Scientific.
Institutional investors don't invest in micro cap £200m companies.
Consider a small institutional fund with only £2bn AUM. They will invariably have a rigid set of investment rules. First will be diversification. They may be required to hold at least 20 different my investments. That implies £100m average per investment. Second rule will be not to take a stake above 10% because it gives rise to regulatory obligations that the fund will wish to avoid.
Now combine those two rules. If £100m is less than 10% of the market cap, that implies not investing in any company worth less than £1bn.
Institutional investors don't fish for minnows.
So Tristel are talking nonsense.
In any event, you don't make capital allocation decisions to appease any group of shareholders. You act in the best interest of the company and you attract the shareholders that you deserve.
Sounds like the c-suite at Tristel are lacking in competence.
I've seen this so many times with UK companies. It's why I don't invest in many UK companies.
The UK is a minnow compared to the US and I can understand why you don't typically bother with UK stocks. However, there are a number of institutions that do invest in UK small caps and micro-caps, despite the hurdles that you correctly list.
Until last October, Aviva PLC was a significant holder, but it is now completely out. I think that the main holder is now Liontrust Asset Management - latest reported holding 9.93%, probably through its UK micro-cap fund. Unicorn Asset Management has also declared a 5.25% holding, I believe through its Unicorn AIM fund, but maybe through other funds as well. There are other institutions (e.g. Downing, Diverse Income and the Buffetology Fund) that also fish in these waters. They tend to look for best in class companies that trade worldwide. Games Workshop (no longer a small cap, but essentially a small company) would be another example. Ditto Bioventix, which is absolutely tiny, but has institutional holders.
Small caps have had a tough few years in the UK, so we will see what 2026 brings. Thanks again for your informative posts.
Until recently, AIM stocks qualified for tax benefits (a way to encourage investors to support small risky names). An example was zero IHT. So asset management firms offered AIM portfolios simply because there was demand for tax shields. It was a way to attract AUM on which they earn their fees. That was super specialist investing and when the new Labour government crushed the tax benefits there was an exodus of money from AIM. So one needs to question the motivation of these specialist funds - were there investments driven by the quality of the companies in which they were investing? Or was this activity driven by a desire to generate fees on assets under management by offering tax shields to meet the demand of the public, regardless of the merits of the investments?
Either way, it doesn't justify Tristel's excuse for paying dividends. That's just a sign of management that doesn't understand the nuances of capital allocation. A 100%+ average payout ratio over the last few years explains why the share price is largely unchanged since the beginning of 2020 (the share price has moved sideways). It's become an income stock (a quasi fixed income product), rather than a growth equity. That will attract a certain type of investor, but if that's what they want, given the awful dividend yield, investors would be best advised to stick their money in government bonds instead.
Bioventix also has a >100% payout ratio and the share price today is where it was in 2017.
This is why I don't generally invest in UK companies. Management quality is generally low. There are a few exceptions, but they are few and far between.
You will know that the IHT tax changes kick in this April and that business property relief will then be halved. I suppose that we cannot rule out the current Government coming back for a second bite, although they rowed back last year following representations.
I entirely agree that the these changes were bad news for AIM stocks and further depressed the market, although there was also a degree of relief that some benefit remains. Personally and for a number of reasons, I am not a fan of the funds that focus on AIM stocks mainly because of the tax relief and I avoid them. That includes venture capital trusts that play this game, although I do invest in generalist VCTs (probably not after this year, due to more Government tax revisions which adversely skew the risk reward analysis). That still leaves some funds that specialise in small caps in the UK and Europe.
I don't view TSTL as a dividend stock. I agree that there are much better alternatives for investors who want a decent dividend. As to growth prospects, time will tell, but I am optimistic because there are lots of untapped opportunities..
Here's the thing. Equities are the only asset that enable ongoing compounding. It's what makes them wonderful. Terry Smith waxes lyrical about this. But they can only compound if earnings are reinvested. If the company pays out 100% of earnings each year, it isn't investing in growth.
These companies say that they are trying to appease income investors, but a dividend yield of 1% ? Really? What kind of income investor would be happy with 1% income and zero growth? It just makes no sense.
If the management can't see how illogical their arguments are, do I want them as stewards of my capital?
Much of the time, insiders have gifted themselves stock through badly designed incentive programmes, and they simply want to supplement their salary with income on the stock that they have been gifted. This is often the real reason that they insist on paying dividends. It speaks to the quality of the management. If they are putting themselves before the interests of the company and its external shareholders, they aren't being trusted with my capital.
This is an excellent analysis of the company. The only thing not touched upon is the importance of the CFO (Brad Ormsby), who I think is first-rate. JDG may have had a tough time over the last 18 months or so, but it still popular with small cap investors. I attended the AGM back in May and I was struck by the number of investors who attended and the quality of the questions raised. I wonder if you have looked at Tristel (TSTL)? It has a lot of the characteristics which you seem to look for.
A comprehensive discussion on judges…great guest and very easy flowing conversation that was easy to follow and listen to. Every question I was thinking about was eventually asked and answered.
James,
Tristel is a highly profitable AIM listed company with a market cap of just over £200 million. It is a classic big fish in a small pond. It is based on an industrial estate a few miles outside New market - essentially the middle of nowhere. However, it operates on a global basis, with recent encouraging traction for its key products in the US, where it has so far secured two FDA approvals. It has multiple other growth opportunities.
It sells chlorine dioxide disinfectant products which are used to disinfect medical instruments such as ultrasound probes (its main existing market) and to disinfect surfaces of critical care areas in hospitals (e.g. HDU).
For a variety of reasons, there are very high barriers to entry and it is the only company in the world so far as I am aware that sells these products in the health sector. In specific fields such as decontaminating ultrasound probes, it has competitors such as Nanosonics (Australian) and Germitic, which are machine based rather than manual.
It currently trades on a PE of around 22x, which is far lower than Nanosonics. It is debt free and highly cash generative. My view is that the company is only just getting started in its global roll-out programme. My only financial interest is as a shareholder, where I have held and increased my holding for just over 10 years.
As it happens, I had pretty much word for word the same debate with the TSTL board one week ago (at the AGM) as to the pros and cons of ploughing profits back into fuelling growth, rather than paying dividends. I also favour the former approach. One of the considerations/challenges is that some of the institutional holders require a dividend payment as a condition of continuing to invest.
Thanks again for what I thought was a terrific discussion about Judges Scientific.
Andrew
Andrew, what Tristel is telling you is BS.
Institutional investors don't invest in micro cap £200m companies.
Consider a small institutional fund with only £2bn AUM. They will invariably have a rigid set of investment rules. First will be diversification. They may be required to hold at least 20 different my investments. That implies £100m average per investment. Second rule will be not to take a stake above 10% because it gives rise to regulatory obligations that the fund will wish to avoid.
Now combine those two rules. If £100m is less than 10% of the market cap, that implies not investing in any company worth less than £1bn.
Institutional investors don't fish for minnows.
So Tristel are talking nonsense.
In any event, you don't make capital allocation decisions to appease any group of shareholders. You act in the best interest of the company and you attract the shareholders that you deserve.
Sounds like the c-suite at Tristel are lacking in competence.
I've seen this so many times with UK companies. It's why I don't invest in many UK companies.
Hope this helps.
James,
The UK is a minnow compared to the US and I can understand why you don't typically bother with UK stocks. However, there are a number of institutions that do invest in UK small caps and micro-caps, despite the hurdles that you correctly list.
Until last October, Aviva PLC was a significant holder, but it is now completely out. I think that the main holder is now Liontrust Asset Management - latest reported holding 9.93%, probably through its UK micro-cap fund. Unicorn Asset Management has also declared a 5.25% holding, I believe through its Unicorn AIM fund, but maybe through other funds as well. There are other institutions (e.g. Downing, Diverse Income and the Buffetology Fund) that also fish in these waters. They tend to look for best in class companies that trade worldwide. Games Workshop (no longer a small cap, but essentially a small company) would be another example. Ditto Bioventix, which is absolutely tiny, but has institutional holders.
Small caps have had a tough few years in the UK, so we will see what 2026 brings. Thanks again for your informative posts.
Andrew
Until recently, AIM stocks qualified for tax benefits (a way to encourage investors to support small risky names). An example was zero IHT. So asset management firms offered AIM portfolios simply because there was demand for tax shields. It was a way to attract AUM on which they earn their fees. That was super specialist investing and when the new Labour government crushed the tax benefits there was an exodus of money from AIM. So one needs to question the motivation of these specialist funds - were there investments driven by the quality of the companies in which they were investing? Or was this activity driven by a desire to generate fees on assets under management by offering tax shields to meet the demand of the public, regardless of the merits of the investments?
Either way, it doesn't justify Tristel's excuse for paying dividends. That's just a sign of management that doesn't understand the nuances of capital allocation. A 100%+ average payout ratio over the last few years explains why the share price is largely unchanged since the beginning of 2020 (the share price has moved sideways). It's become an income stock (a quasi fixed income product), rather than a growth equity. That will attract a certain type of investor, but if that's what they want, given the awful dividend yield, investors would be best advised to stick their money in government bonds instead.
Bioventix also has a >100% payout ratio and the share price today is where it was in 2017.
This is why I don't generally invest in UK companies. Management quality is generally low. There are a few exceptions, but they are few and far between.
James,
You will know that the IHT tax changes kick in this April and that business property relief will then be halved. I suppose that we cannot rule out the current Government coming back for a second bite, although they rowed back last year following representations.
I entirely agree that the these changes were bad news for AIM stocks and further depressed the market, although there was also a degree of relief that some benefit remains. Personally and for a number of reasons, I am not a fan of the funds that focus on AIM stocks mainly because of the tax relief and I avoid them. That includes venture capital trusts that play this game, although I do invest in generalist VCTs (probably not after this year, due to more Government tax revisions which adversely skew the risk reward analysis). That still leaves some funds that specialise in small caps in the UK and Europe.
I don't view TSTL as a dividend stock. I agree that there are much better alternatives for investors who want a decent dividend. As to growth prospects, time will tell, but I am optimistic because there are lots of untapped opportunities..
Andrew
Here's the thing. Equities are the only asset that enable ongoing compounding. It's what makes them wonderful. Terry Smith waxes lyrical about this. But they can only compound if earnings are reinvested. If the company pays out 100% of earnings each year, it isn't investing in growth.
These companies say that they are trying to appease income investors, but a dividend yield of 1% ? Really? What kind of income investor would be happy with 1% income and zero growth? It just makes no sense.
If the management can't see how illogical their arguments are, do I want them as stewards of my capital?
Much of the time, insiders have gifted themselves stock through badly designed incentive programmes, and they simply want to supplement their salary with income on the stock that they have been gifted. This is often the real reason that they insist on paying dividends. It speaks to the quality of the management. If they are putting themselves before the interests of the company and its external shareholders, they aren't being trusted with my capital.
This is an excellent analysis of the company. The only thing not touched upon is the importance of the CFO (Brad Ormsby), who I think is first-rate. JDG may have had a tough time over the last 18 months or so, but it still popular with small cap investors. I attended the AGM back in May and I was struck by the number of investors who attended and the quality of the questions raised. I wonder if you have looked at Tristel (TSTL)? It has a lot of the characteristics which you seem to look for.
Th6an you
I don't know Tristel. What's the elevator pitch?
A comprehensive discussion on judges…great guest and very easy flowing conversation that was easy to follow and listen to. Every question I was thinking about was eventually asked and answered.