International Greetings issued a trading update in relation to the 12 months ended 31 March 2016. The Trading Update Reads: Financial performance is ahead of expectations, resulting in a further year of double digit earnings per share growth Operational cashflow and debt reduction continues to reduce leverage significantly ahead of expectations. Property held available for sale at Aberbargoed in Wales was sold with proceeds of £1.45m received on 31 March 2016 The strength of our performance and resultant cash generation underpins the payment of a final dividend for FY16 ahead of market expectations. The Company intends to pay a final dividend of 1.75p, resulting in an overall full year dividend of 2.5p (FY15: 1.0p) The Group is delighted to confirm that all regions have delivered year on year growth and an overall outcome ahead of market expectations. In the UK and China, record sales combined with an excellent manufacturing performance has delivered profitability ahead of forecast. In Continental Europe, sales growth and effective management of mix have successfully mitigated anticipated foreign exchange transaction headwinds. Trading in the second half of the year in Australia has resulted in significantly enhanced overall total profitability. In the USA, the commercial, operational and financial performance of our business has been extremely encouraging. This has included the successful implementation of phase 2 of our programme of fast payback investment in manufacturing. This investment will accelerate and enhance our capability to profitably grow our share in the world's single largest market. Commenting on the year's performance, Paul Fineman, Group CEO, said: "It is especially pleasing that we can report profits growth throughout all regions of the Group. This is a particularly exciting stage of our development in which we remain well positioned for organic growth and continue to seek compelling acquisition opportunities. Our culture of continuous improvement and our focus on creating commercially successful designs and products delivers a winning combination for our customers and trading partners. We are delighted to be meeting our core objectives of growth in underlying EPS and dividends whilst reducing average leverage all ahead of schedule." My View It’s always nice to see such a very positive trading update especially one which shows all areas of the business progressing well. I also like the large proposed increase in the dividend moving to 2.5p from 1.0p last year: whilst not a massive dividend, the increase does show confidence. I would expect some revision upwards of broker’s estimates and hopefully a further life to the share price. Although I don’t tend to select shares solely by either the Stock Rank of Stockopedia or Market rank equivalent of Sharelockholmes, I do tend to look to see what they score for my holdings. IGR reassuringly has a Stockopedia Rank of 93 and a Market Rank of 4 (equivalent to 96 when compared to the Stockopedia rating). Happy to hold!
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Sprue Aegis provide a trading update today, 18th April 2016, that did come as a bit of a surprise and to be honest, it just left me feeling very uncomfortable about the company. My Thoughts Firstly the battery defect whilst probably not life threatening in terms of the functioning of an alarm, to my mind it could seriously dent confidence in the products from SPRP. If SPRP deal very professionally with the rectifying the problem, then given time, reputation should recover. There is a certain amount of forgiveness in the market once a company identifies an issue and then applies first class customer care: we will have to see. I am not overly impressed with the “third party supplier” handle as the batteries in SPRP product; it’s down to them to make sure the components used are fit for purpose. The trading statement then goes on to say: Challenging trading conditions in France, principally due to overstocking, and weaker sales in Germany, due to product certification delays, are likely to significantly adversely impact the Group's expected results for this year. Consequently, the Board has revised its guidance for the full year 2016. Subject to no major changes in exchange rates, the Board now expects a first half operating loss* of approximately £1.9m (which includes a restructuring charge of £0.2m as a result of reducing certain fixed overheads), and an operating profit* in the second half of approximately £3.8m with sales and operating profit* in the full year of approximately £55.0m and £1.9m respectively. The estimated saving in 2017 from the fixed cost reduction is approximately £0.8m. Graham Whitworth, Executive Chairman of Sprue, said: "Unfortunately, overstocking in France and weaker sales into Germany, have resulted in us issuing revised guidance for this year. We expect to rebuild trading momentum in the second half of 2016 with certified new products and enter 2017 with normal levels of trading. In my view, that does raise a question regarding management really having their finger on the pulse in terms of both their suppliers and their customers. So putting all of that together shortly after the RNS came out, I decided to sell the relatively small holding I have/had, about 1.5% of the portfolio. It’s fairly standard for me to sell on a profits warning and I managed to get a sell away with iWEB on an at best deal first thing this morning. Also swiftly looking at projections, and my criteria for investing, the case for continued ownership based on my investment principals’ was destroyed. After this morning fall, we now have a business with a market cap of around £65m, a projected operating profit, from the RNS, of £1.9m. At the time of writing the SP had fallen to about 155p; just my opinion but I feel it could have further to fall on what I see as overall confidence issues and revised valuation. I don’t normally like dealing blind like that and fully expected to see a sale price in the order of 130-140p; I was very happy to see that I actually got 185p. This sort of thing can happen with relatively small companies especially ones on AIM; it comes with the territory, so no moaning from me. So it's onto the wood-burner for SPRP, although hopefully without too much smoke as I can just hear a low battery bleeping! It’s time I gave an update on portfolio activity in the last few days. There have been three new additions to the portfolio and one top up of a current winner. The new additions include two purchases identified my cash is king screen/free cash flow screen (CashKi.FC, not a third division Polish football club but a screen I regularly use to identify companies with good free cash flow and good returns on capital). The new additions are Next Fifteen Communications (NFC) and XP Power (XPP). One purchase of a fairly boring buy steady consultancy, Waterman Group (WTM) and finally a top-up of a current holding in Portmeirion Group (PMP). NOTE: I am moving to use a financial dash board as per SharePad on my blog notes when discussing share purchases and sales. For those who do not use SharePad, I can only suggest that you give it a try: a totally superb tool in my opinion. Next Fifteen Communications: Market Cap. £189m NFC previously held and allowed myself to get bumped out by the “noise of experts”; quite silly really, you listen to the noise, ignore the numbers and the genuine news and before you know it you have hit the sell button. When I sold NFC I had made a 90% total return in 12 months but the fear of losing some profits combined with that dreaded noise resulted in the sell button being pressed. Had I done the sensible thing and just let the trailing stop loss do its work, I would have made a gain of around 220% for just holding for another 18 months. A strange part of investor psychology is that it can be very difficult for an investor to convince themselves to go back and buy a share that they have previously sold at a lower price having taken a profit; just the way we are wired I guess! Anyway, my CashKi.FC screen kept showing NFC and in addition, I was impressed with the finals for NFC delivered on the 12th April; summary below. Final Results of 12th April 2016 Highlights:
Current trading and Outlook Looking ahead, the Group has made a good start to the new financial year with trading patterns continuing as in the second half of our last fiscal year. The Group has made two further acquisitions in the UK of Publitek, a specialist content agency, and Twogether, a technology-focused digital agency. My View So there we are, a purchase that as with most of my purchases will not be looking to generate a fast buck. I will use an initial 20% stop loss on ShareScope but manually execute if applicable. Price target? Well, I will set a target of 20% TR and review if we get to that level. Oh, for good measure a fairly decent Stock Rank of 78 on Stockopedia and a value of 18, equivalent to 82, on Sharelockholmes: with Stockopedia 100 is best and it’s reversed on Sharelockholmes with the lower figure being the best. The financial summary looks attractive, the returns on capital CROCI/ROCE are attractive and the dividend is well covered by FCFfps. XP Power: Market Cap. £310m Another share that came through my CashKi.FC screen is XP Power. It’s not a share I have owned before but it’s attractive enough for me to make a purchase. They produced their most recent finals on 22nd February and whilst not stunning, they were solid.
Outlook We are encouraged by the stronger order intake experienced in the fourth quarter of 2015 following the weakness we saw in the North American order intake in the third quarter and by the progress of the integration of EMCO. Despite the mixed global economic picture, we have positive momentum and therefore expect further growth in revenues in 2016. We now have a high voltage product offering, which we believe we can grow using our direct sales channel and approved supplier status with our existing customer base. We also have a strong balance sheet and a business model that provides excellent cash generation to fund our existing needs and targeted acquisitions to further broaden our product offering and engineering capabilities. Trading Update 11th April 2016 Trading in the first quarter has been strong. Group revenues in the three months to 31 March 2016 were 28.2 million (2015: 25.6 million) up 10% from those achieved in the same period a year ago. In constant currency, revenues were up 6%. My View I am attracted by the financials, excellent free cash flow and the prospects for steady growth in profits. For good measure, Stockopedia have a Stock Rank of 94 whilst on Sharelockholmes they have a value of 3 which is 97 in Stockopedia terms (with Stockopedia 100 is best and it’s reversed on Sharelockholmes with the lower figure being the best). The financial summary looks attractive, the returns on capital CROCI/ROCE are attractive and the dividend is well covered by FCFfps. Waterman Group: Market Cap. £27m This one is a fairly boring consultancy group. The Company, through its subsidiaries, is engaged in the provision of design services and advice in the fields of civil, structural, mechanical and electrical engineering together with environmental and health and safety consultancy. All fairly unexciting stuff but somebody has to do it and also make money at the same time. In truth, they are a touch on the small side for me with a market cap of around £28m. They don’t have any debt and after a fairly lean 2010 to 2012, their operating profits have been climbing nicely resulting in net profit in 2015, decent projections in both the current FY and next FY. The business is cyclical by nature and not very high margin. Heavens, I am almost convincing myself to sell it as I read the text I am typing! No, seriously I do feel there is scope for some SP appreciation and they also carry a fairly decent yield at over 4%. However, the most interesting part sits in the outlook statement below with target increases in PBT, ROCE, and operating margin. Highlights Interim results of 29th February 2016 6 months to 31 December 2015
Outlook Waterman is on target to exceed its previously declared financial objectives to triple adjusted annual profits before tax to £3.3m over the three year period to 30 June 2016, with a return on capital employed (ROCE) of 20%. In October 2015, the Board announced a new aspiration to increase the Group adjusted operating profit margin to 6.0% by June 2019. As noted above, the Group's progress against this objective is positive with adjusted operating margins increasing from 3.3% to 4.1% over the last twelve months. The Board expects further progress to be made during the second half of the current financial year and beyond. The results have benefitted from the Board's strategy of focusing primarily on the UK, where 90% of Waterman's revenue is now generated and this focus is anticipated to continue for the foreseeable future. Waterman's long-standing relationships with blue chip companies continue to generate repeat business year on year and the Board expects this to continue whilst the UK economy is strong. The Board looks to the future with confidence. My View I quite like the business and whilst not wanting too many of it’s type in my portfolio, I feel comfortable enough to have bought a reasonable but not large holding in terms of % of my portfolio. For good measure, Stockopedia have a Stock Rank of 99 whilst on Sharelockholmes, they have a value of 4 which is 96 in Stockopedia terms (with Stockopedia 100 is best and it’s reversed on Sharelockholmes with the lower figure being the best). Portmeirion: A Top-Up: Market Cap. £130m Simply another top up of a current holding that has already given me an increase of 80% since my original purchase two years ago. A nice boring, unexciting company with steadily rising revenue and associated profits and offering a yield of just under 3%. Happy investing!
Financial Year End
At the end of each financial year, I carry out a number of administrative tasks on my investment portfolio. They include all the usual bits and pieces such as a final check on the CGT position to ensure the maximum allowance has been gained for the financial year. In truth, this FY the CGT was sorted a couple of months back. Another task I carry out is having a look at the performance of my overall portfolio over the FY, not so much to gloat or kick myself but just to see how things are progressing. What have I learned during the year, what could I with ease have done better etc. Firstly performance: I measure my performance against the traditional FTSE All Share Total Return FTSE ASX.TR and then throw in two or three more challenging benchmarks in the form of two funds, Fundsmith & Marlborough Special Situations along with the well respected Henderson Small companies trust. My desire is to beat as many of my benchmarks as I can; If I can’t then there is a reasonable argument that I may as well just hand over my money to one of the above mentioned and spend a bit more time doing other things. A fine argument possibly but in truth, I do enjoy investing. So how do the figures stack up for the financial year 2015/16: Stock Whittler portfolio: +11.9% FTSE All Share TR: -6.1% Fundsmith Equity T Ac +18.9% Marlborough Spc Sit: +13.5% Henderson Sm Co’s IT -0.5% So overall not too bad although yet again a massive congratulatory applause to Terry Smith for the excellent performance of his Fundsmith T Acc which had a superb performance during the second half of the FY at a time when many investors portfolios, including my own, stuttered as worries over angry bears and a Chinese slowdown gripped the market. The major work for the portfolio was done by the likes of Dart, Cambria Auto, Dixon Carphone, Berkeley, Tristel, Topps Tiles and Bioventix. Of course, some investments which on paper looked decent at the time of purchase did not do so well but happily I remained unemotional forming no attachment with the shares and stop losses were actioned. Moving Forward Into 2016/17 Well, I will not be greedy in the sense that I will not chase jam tomorrow shares: I will continue to work within my universe of stocks that generate lots of cash, have either no debt or at least acceptable levels of debt and make a good return on capital employed. What will I try to do better in 2016/17? Well that’s fairly easy to answer in that I must really add to winners more than I have done in the past. I do top up on the better ones but there is always some reluctance or mental hurdle that I have to overcome in paying substantially more for a stock that a purchased a few months before for much less: strange but that’s my little battle. Conversely, I will continue to dispose of any stock that hits my stop-loss trigger. I do suspect that the first three months of 2016/17 will be somewhat difficult and I feel the markets will be twitchy ahead of the Brexit referendum on June the 23rd but I rather suspect that whatever the result of the referendum, we may see a rally for a little while at the end of June and hopefully continuing over the summer. Changes in taxation, of course come into effect during 2016/17. These changes include the taxation on interest on bank/building society accounts which will enable me to receive £500 tax-free but get clobbered with 40% tax on the remainder. Also, we have the introduction of the £5,000 per year allowance for tax-free dividends on shares held outside of a tax-fee wrapper. This appears nice but does have the sting in the tails of 32.5% taxation on all dividends above this amount. To help marginally mitigate these tax concerns I have already today used my 2016/17 ISA allowance with my broker and I look forward to next year when the ISA contribution increases to £20,000. In terms of success this year, I would be happy with any appreciation over 5% but we will have to wait and see as the FTSE has been on a slow grind downwards since April 2015 but has at least stabilised a touch in March and April 2016 As ever, happy investing. Tristel had been on my watch list for some time and I eventually bought in at 69p in late March 2015. They met many of my usual buy criteria including decent cash flow, decent ROCE, increasing sales, increasing profits, cps greater than eps, no debt and decent news.
The share has been an outstanding performer and I must say I have commented a couple of time that I felt the stock was possibly becoming a tad overheated. During my December/January risk mitigation when I converted a lot of positions into cash, I did consider selling my position in Tristel but decided it could just about hold it’s place in the portfolio as the noises from the company had remained quite positive. As on every day before I head off to the pool for a quick mile, well, to be honest, the miles stays the same but the time marginally increases as the years pass, I went through the various RNS of the day just after 7am. Tristel put out an encouraging headline but a quick flash through the numbers left me feeling that I needed to have a much more detailed look after getting back home. On item that initially caught the eye was the £1m share-based payments item. Not ideal, but I was not unduly spooked as the company had made profits from which the payments were taken. Alright, not an ideal item to be seeing but if growth continues then we can live with that in my opinion. However, what did start to concern me was the apparent slow down of sales in the UK, it’s current largest market and the overall 8% increase sales which for a company closing the previous night on a PE of 23.5 did not make me feel totally comfortable. Note, I am not saying a disaster by any measure but it just added to my view that maybe the valuation had become overstretched and that at current valuation the risk is a touch higher than I am happy carrying. The market seemed a little spooked and after a touch more thought decided to sell as the shares had fallen some 14% on the day. Selling with any small company can often be a pain due to NMS but that’s part of the territory with small cap shares. I sold all of my holding for an average price of 124p which gave me something on the order of a total return of 88%; happy days! So the cash pile grows ever larger as the uncertain market progresses and I must admit that currently I am happy to wait for conditions to become a little more certain before making further investment; I am still of the opinion that there will be many attractive bargains in the coming months. In my blog My Way of Dealing With The Bear, I mentioned that provided the time horizon when you want to use your capital is not terribly near, then provided you hold quality stocks and jettison the dross, you can take a fairly laid-back approach to a bear market. Just to explain, let’s go back in time to 12/12/2007 a date when the FTSE100 reached one of its three peaks of 2007. You could take another date or indeed another index but for the demonstration of concept, I will use 12/12/2007: after this date the FTSE100 slid steadily downhill at an increasing pace. The index reached a final low some 15 months later on 9/3/2009 having fallen some 46%: a nasty bear market. What I am doing is looking at what the outcome may have been for two groups of stocks if I were to do nothing from just before the start of the banking crisis and held on to them for the following eight years. Now let’s say we cleaned our portfolio and only had stocks that were of good quality. Now to measure quality we could have used all sorts of ratios but for simplicity I have taken a look at a basket of quality stocks as having the following criteria in 2007: a Piotroski F-score of at least 6, an Altman-Z score of at least 1.8 and a free cash flow margin of at least 5%. The data I have used is from the excellent SharePad. I then back-tested to see how those shares have performed after holding them for eight years to 12/12/2015. I then run the same filter over the same period but for shares of lower quality and certainly ones I would not wish to hold during a bear market: Criteria Piotroski F-score of 5 or less, an Altman-Z of less than 1.8 and a free cash flow margin of less than less than 2%. Once again, I back-tested the performance of this group of shares to see how they have performed after continuously holding from for the following eight years. 1. FTSE All Share FTSE All Share Index over this period: zero % change i.e. been through the falls and over 8 years has crept back. Note this as indeed the examples I quote excluded dividends either taken or reinvested. FTSE All Share quality stocks as given by the above criteria: 49 stocks met the quality criteria and gave a “basket” appreciation of 165%. FTSE All Share low-quality stocks as given by the above criteria: 17 stocks met the low-quality criteria and gave a “basket” depreciation of -26% change i.e. been through the falls and over 8 years and has failed to reach the heights of the pre-banking crisis level. 2. AIM All Share Aim All Share Index over this period: -30 % change i.e. been through the falls and over 8 years and has failed to reach the heights of the pre-banking crisis level. AIM All Share: quality stocks as given by the above criteria: 24 stocks met the quality criteria and gave a “basket” appreciation of 115%. This included 6 of the 24 stocks appreciating by over 300%. AIM All Share: low-quality stocks as given by the above criteria: 82 stocks met the low-quality criteria and gave a “basket” depreciation of -73%. Of this group of 82 poor quality stocks only 4 gave an appreciation over the eight-year period: something to think about in my view! What can this data infer? Note as I scientist I don’t like the term prove because it’s just a sample of data over one bear market. However, it does suggest that if you hold a portfolio of good quality stocks and you are not in a rush, then you may well find that within a few years time, in this case, eight years, you may well have done rather well simply sitting on your hands. Note the above figures don’t include reinvested dividends and I am very keen on reinvested dividends. This simple back-test also suggests that much more danger lurks for the unwary investor on the junior AIM market but this is surely not news to anybody apart from the idiots and fools that populate bulletin boards. Happy investing! Summary:
When it looks like a bear market is arriving: rule number one: don’t bury your head in the sand Make a plan which may include some form of mitigation, selling highly rated stocks and action that plan.
My way of dealing with the bear: well firstly we have a very good 2-minute blog from WheelieDealer discussing bear markets: that’s well worth a read. I will not really add to that other than to offer my experiences following very significant bears I have invested through over the last 20 years. What I have learnt is that for my mindset the preferred action is to take some degree of risk mitigation as it becomes more and more obvious that the bear is taking a grip on the market. Remember in the early stages of what develops into a bear market, you just don’t know the bear is really there for sure. It usually starts with an overall index decline that may occur in steps downwards with little climbs back upwards but the overall trend as displayed by the likes of the decreasing 200day MA will suggest that the bear is about to go walk about. For the FTSE all share (ASX) the 200day MA started to suggest a downward trend was starting from around mid-September 2015 but like all indicators, it’s very easy looking backwards. Differing definitions of when a bear market starts and how long it runs for exist but for ease of understanding I tend to measure duration form the nearest obvious sustained high of an index. If we look at the FSTE all share (ASX) you could argue that we have been in decline since July/August 2015. Whatever the starting point, what is obvious is that we are now living with the bear and he is having a good old stomp around. So, a few rambling thoughts on the bears that I have lived with: Back in 1998 after a three-year climb of 100% in the FTSE100 everything happened so fast there was hardly time to react. The bear must have been on a bonus as he got his job done in 50 trading days taking the index down some 25%: yet in truth, little harm was done as the markets recovered rather quickly. Good companies remained good companies and at the same time many “no-hopers” were born. Within nine months of the start of the 1998 bear market, the FTSE 100 was at a higher value than when Mr Bear first started his stomp. 1998: What did I do? Well nothing really, a lot of my stocks were very Jim Slater inspired and I continued to seek opportunities from those massive Company REFS manuals. Surprisingly I sailed through but did sit down some months afterwards and ask the question would I be so lucky next time. However, 2001 was a different matter. The markets had become over optimistic and everything carrying a .com becoming grossly overvalued. We then went into a long period of decline lasting two years until we benefited from the Baghdad bounce in 2003. 2001: What did I do? Well, fortunately, I had a plan in place and when it became clear that the 200day MA was in a sustained decline, I sold down lots of stocks and although on reduced profits, stayed in pretty good shape to fight another day. In my view, the important thing I did was to realise after a fairly significant fall that things could get a whole lot worse. I should say that leading up to 2001 I had made some very decent profits yet never really got involved with the .com stuff as I just could not readily see where the profits would come from for those masses of companies. Just as before after the 1998 bear, we had a very sustained period of a bull market; it was a really good time to be investing. As usual, I never got in at the bottom or out at the top of anything but a compromise is just fine with me. Things were going along nicely and my portfolio was stuffed full of apparently quality companies that paid very good dividends. PYAD had suddenly become the flavour of the time with banks and life insurance offering excellent dividends. We then started to see things going adrift somewhat with the new phrase “toxic debt” being talked about all over the news. I swear that the news agencies or banks just did not have an utter clue what toxic debt really was! 2007/8: What did I do? Well as previously the 200day MA was suggesting that all was not well. I started to get more cautious and sold down some stocks yet I just could not believe the like of Northern Rock & Lloyds could be in trouble and I actually did some topping up in September 2007 but very rapidly sold within a few days realising my mistake. As the decline set in I moved very heavily into cash, around the 80% mark. I had done a couple of sillies yet thankfully admitted when I was wrong and escaped with a fair percentage of accumulated profits; reduced profits but I felt happy to only have a 20% exposure to the ongoing carnage. When the bear finally ran out of whatever it is bears feast on, the markets turned up but I had temporarily become a hesitant and possibly over-cautious investor. I was getting back into quality stocks, good returns on capital and good FCF but I still held probably too high a percentage of my folio in cash until I was absolutely sure that pesky bear had gone away. So after all of this, what are our options in a bear market? Well, firstly I would say don’t bury you head in the sand and just pretend nothing is happening. The options as I see them are:
2015/15: What have I done? Well I have applied the lessons learned over the previous bear markets and heavily deployed my preferred strategy of risk mitigation. I started selling down some stocks in December with 200day MA of the fTSE100 looking to be in a continuous down-trend and the worries over, oil, China etc. That sell off gathered pace in the first half of January and I now am now around 70% cash. It may well prove to be the wrong decision but it’s one I feel comfortable with. When the markets do recover and some degree of confidence returns, it may well be we are granted the freedom of the chocolate factory all over again! What The Company Does: Trakm8 is a major provider of Telematics Solutions to a variety of customers that operate within three discrete business sectors to cater for all telematics requirements. By providing innovative solutions to suit different customer needs, Trakm8 are at the cutting edge of telematics design. Telematics hardware for Distributors, Integrators and ASP’s Trakm8 have market leading hardware devices that can be integrated into 3rd party telematics or Internet of Things (loT) solutions. These devices can be split into four product lines:
Trakm8 are market leaders in safety black box camera recording systems utilising the smallest and most rugged 1080p cameras on the market today. Cameras are being increasingly used in a wide range of applications, including a significant demand for forward facing vehicle cameras to record driving incidents and to mitigate the risk from ‘crash for cash’ accidents. Video data is increasingly used to monitor behaviour and to replay outcomes. The increase in the richness of the data generated by our telematics solutions will continue to provide the very best solutions within the telematics industry, making Trakm8 the number one choice. Engineering Services Trakm8 undertakes a wide range of customer specific development projects to assist the integration of telematics and all derived data into a customer’s management system. No job is considered too large or too small, and Trakm8 have a multi-disciplinary engineering team which is equipped to address most challenges Recent News: Outlook half Year Report 23/11/2015 The Group believes that we will continue to successfully execute our outlined strategy and as a consequence deliver growth in shareholder value. The second halves of our financial years have consistently shown increasing revenues including service revenues over the first half. This year we expect that this will be true again. This, along with a full period effect of DCS, means that we expect second half of the year revenues will be considerably ahead of the first six months. At the time of our Final Results in July we indicated that we expected to modestly exceed the market's then current expectations. The Board is now confident that the results for the year ending 31st March 2016 will again modestly exceed the market's current expectations. Proposed acquisition of Route Monkey Holdings Limited and £6 million placing 21/12/15 Adds fleet routing optimisation capability The Acquisition will be funded through a combination of a drawdown of new Trakm8 debt facilities, a placing of 1,801,802 new ordinary shares of one pence each in the Company ("Ordinary Shares") ("Placing Shares") at a price of 333 pence per Placing Share (the "Issue Price") to raise £6 million (the "Placing") and 184,441 new Ordinary Shares being issued as part of the consideration to the senior management shareholders of Route Monkey ("Consideration Shares"). The Placing with new and existing institutional investors, conducted by finnCap, was oversubscribed. The Placing adds new blue-chip institutions to the share register. The Acquisition is expected to complete ("Completion") on admission of the Placing Shares to trading on AIM ("Admission"). The Acquisition is in line with Trakm8's strategy of augmenting its organic growth with selective acquisitions that expand its telematics offering to both insurance and fleet customers. The Acquisition is expected to be immediately earnings enhancing. Est date of next trading update or results announcement: Probably April 2016 if same as 2015 Broker View @ Time Of Purchase Why I Like The Business: The business first seriously came to my attention following the half-year results in November 2015 and then after the oversubscribed placing for the Route Monkey acquisition in December 2015. The placing was at 333p and at the time I was caught in two minds i.e. expensive but excellent growth prospects V full take up at 333p by institutions. Luckily the share price fall caused by the so called bear-raid and the general market fall made me decide to put on hold any investment. The “grey areas” of concern have to my mind been very well laid to rest by the excellent interview with John Watkins, Exec Chairman by Paul Scott in the last couple of days. I should add that I was very fortunate, or should I say may have been very fortunate, to buy at close to a low today. Of course I may have bought early but I will have to wait and see. Turnover & Profit trend are very impressive and hence the mid-December highly rating of the shares. Whittling About the Numbers PE(f): this stood at about 24 in mid-December but has now fallen a PE(f) of 14 as the share price has drifted back on the recent accounting concerns ROCE: 18% Margin: 10-11% cps/eps; I am comfortable with cps being higher than eps; something I look for when making a purchase. Yield: no dividends are paid as yet as the company reinvests funds to grow the business at this stage. FCF cover of dividend: although no dividend is paid and funds are reinvested, the FCF over recent years suggests that when the growth phase slows down there should be cash available to pay dividends; maybe something for the future. Debt: does not appear to be an issue. Pension Deficit: none Current ratio: 1.5 Piotroski: 6 Stockopedia and 5 on SharePad Risks: as ever some competition risk plus possibly some selling by institutions who may want to offload shares bought at the placing price of 333p as the SP increases. Initial price target/Review: I have set this at 260p Stop Loss: I will set this at 170p due to risk around current market sentiment; a bit more generous on the low side than usual. It’s not a massive position but one I may add to if the overall market conditions don’t deteriorate overly in the coming months and of course if RNS announcements remain positive. Chart: Forward Note: The following monologue concerns the investing of a notional £100k in a portfolio of stocks that pass through one of my free-cash flow/return on capital screens: three approaches to the management of the portfolio are detailed. An obvious question is “would I be investing a further £100k in the markets as they stand in January 2016”? The answer is a definite no, not at the moment and in fact I have been taking profit in many of my positions in the last month to manage risk in the uncertain market of January 2016. At the time of writing I stand at 65% cash in my portfolio. Therefore please consider the following notes as an exercise in managing a portfolio rather than “this is what I am going to do today to invest and make a return”. For a while now I have been fascinated by the discussion of the merits or lack of merits associated with continually trading within a portfolio. Some respected and famous investors feel that once quality companies have been identified the preferred approach is to sit on ones hands and let the quality business simply grow with time; in effect leaving things alone trading wise. This, of course, goes somewhat against our nature as investors as we always seem to be looking to tinker and “make things better”. Personally, I am not one for over tinkering and usually hold my stock purchases for around one to three years, reinvest the dividends and add to profitable positions. However, I thought it would be informative to apply my typical whittling methodology to a group of ten stocks and from these ten stocks form three portfolios that will be initially the same at day 1 but change over the period of monitoring which will be three years. The three portfolios will be firstly a buy and hold for three years, ploughing on regardless through economic conditions, profit warning and any other news either good or bad. I will call this the three year life portfolio (3YL). The only time a change to the portfolio will be permitted is if a business is de-listed for any reason: the funds liberated would then be discretionally invested between the remaining stocks in the portfolio. The second portfolio will start out with exactly the same holdings as the 3YL but each January the same cash flow screens/returns on assets screen will be run and a revised set of ten stocks nominated. This revised set of stocks will have the proceeds of the sale of the previous years stocks equally divided between them i.e after one year we have £110k of funds then a purchase of £11k will be made for each of the ten stocks. I will call this the annual sit on your hands portfolio (ASH). The third portfolio will again start the same as the 3YL & ASH portfolios but I will alter the percentage invested in each position within the portfolio in reaction to RNS announcements from the companies, economic conditions or any other reason that seem valid for altering, reducing or increasing a position. I will call this portfolio the managed annual tinker portfolio or simply the TINKER. All 10 stocks will remain within the portfolio throughout the year although the investment in each stock may vary. For example one stock, let’s say Hattersville Dream Co. may issue a particularly bullish RNS “results will be appreciably ahead of market expectations”. The Tinker may sell down one or more of the other holdings to invest more in Hattersville but still retain a position, although not equal positions, in the same 10 stocks that we started within January each year. In January 2017, 2018 & 2019 this portfolio would be treated in the exact same way as the ASH and funds equally balanced across the each of the ten stocks starting that year. The common rules for all three portfolios:
The ten stocks I have selected and invested a notional £10k into each one at the start of business on Monday 25th January 2016 are: Adept Telecom: Mkt Cap £54m Amino Tech: Mkt Cap £81m Bodycote: Mkt Cap £1032m Character Group: Mkt Cap £107m Dignity: Mkt Cap £1115m Elementis: Mkt Cap £974m Hikma Pharma: Mkt Cap £3979m Next Fifteen Communications: Mkt Cap £160m Persimmon: Mkt Cap £5972m Somero Enterprises: Mkt Cap £77m The stocks are shown in the above ShareScope portfolio invested: invested at market open on Monday 25th January 2016; the prices above are end of day prices. The stocks give a reasonable diversification across sectors. I have deliberately made a decision to exclude any stocks below £50m market cap and also deliberately selected half of the stocks to either FTSE 100 for FTSE 250 companies. I will keep the blog up to date with variations in the Tinker portfolio as allocation changes are made and the specific reasons for that change in allocation. I will also issue quarterly progress notes for all of the portfolios. At the time of writing I hold positions in two of the ten companies: Character & Somero. After three years I wonder which portfolio will come out on top? A bear market: Whittler’s definition: a bear market is where good news gets you a slap, no news gets you a kick and bad news gets you carted off to A&E.
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Welcome to my Blog Page - I hope you find my whittling on to be of some interest. I am a private investor who is happy to share thoughts on the market and individual stocks. Please remember that I am definitely not offering tips or investment advice. Archives
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