Don’t you just hate it on the daily routine of looking at RNS’s for companies in which you have a holding issue the dreaded words that appear in colour on your chosen highlighter. Well this morning a company I have held stock in for a fair while and added to just a few months back, issued the following:
Total revenue for 2016 is expected to be ahead of 2015, notably because of the recent acquisition of the Wax Lyrical business. However, pre-tax profits are expected to be materially below the record level of £8.6 million reported for 2015. At the Annual General Meeting, we reported an unexpected decrease in demand from Asian markets. In particular, sales to South Korea still show no signs of recovery and the performance of our distributor in India has continued to be extremely disappointing. In addition, we have seen negative effects on demand in the UK before and following the leave vote at the EU referendum. The potential benefits of a weaker pound have yet to translate into firm overseas orders. However, the United States continues to perform well.
That phrase materially below, never sits well with me but such is life particularly with smaller companies; simply a part of the inherent risk/reward we have to live with when investing in the small market capitalisation stocks.
Now my normal practice on a profits warning is to ask myself the question every 10 seconds for 30 seconds and just about always come up with the same rapid answer of SELL. It has served me well in the past and certainly limited losses indeed since commencing writing about my buys and sells in this blog, swift action got me out of Sprue Regis at 185p; they subsequently fell to 120p and have as of today, partly recovered to 145p. I appreciate this approach is not for everybody but experience over the years has taught me to bail out as soon as I can on a profits warning thus hopefully limiting my losses. If I get it wrong and the company subsequently start to recover and the fundamentals still appeal, then I can always buy back in again.
Returning to today’s announcement from Portmeirion, I went back through recent trading updates and their final results issued on 19th March 2016. What I wanted to do was to take a good look at the geographic spread of their sales:
So we have the USA which is doing ok, the UK was doing ok but already seeing signs of a pre & post-Brexit slowdown, South Korea not recovering as previously planned and India, last year’s star, now listed as “distributor continued to be extremely disappointing”. Wax Lyrical, the recent acquisition, is also mentioned and credited for the reason for 2016 revenue being ahead that of 2015. Now Wax Lyrical was to my mind a decent bolt on acquisition but the thought that it really struggled through the last downturn did not quite light that candle for me.
All in all, I took the decision to sell. My initial purchase was at £6.50 but the top up at £11.40 so overall a minor kick on the portfolio but even though I am heavily in cash at the moment, I expect that these minor kicks to become fairly frequent over the next two or three years of political turmoil as the “baby boomers lead us to salvation in a chorus of land of hope and glory”. Yes, I am very bearish at the moment. I actually think in three years time we will be absolutely fine, maybe even stronger than had we remained within the EU, but for the moment I am a bear looking at a potentially painful and unsure path to the future.
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