Voyager RNS Log Weeks Commencing 06/10/2018
As ever, although I may get keen about a stock, what I put into print here is purely me sharing my rambling thought process and NOT INVESTMENT ADVICE to either buy or sell a particular stock.
The key to the colouring of text within these notes:
Text in normal black: just my thoughts.
Text in blue italics: direct lifts or copy & paste from the RNS issues by the business.
Text in green: loosely, the investment principles that I feel comfortable with.
Red is a disclaimer in that what I write is NOT investment advice.
Well, Mr Market has certainly got the jitters these last couple of weeks and can any investor genuinely be surprised as we head towards Brexit with so many uncertainties and remember Mr Market does not care too much for uncertainty. Since it’s high point in mid-May 2018, the FTSE100, FTSE250 and FTSE All Share are all off by around -11% with a similar story on the AIM100 down by -14% in just a few days with the FTSE AIM All-Share down by -12% since the start of October. Now I note that a fair number of investors on social media are posting how dreadful the market has been this October with losses of x%. What I always say is that your performance over 1 day, 1 week, 1 month is of little relevance and will almost be forgotten in a year or so from now. Performance needs to be measured over to my mind, a minimum of 3 years and I suspect that many private investors feeling a little pain at the moment will have done very well indeed over the last 3 or 5 years: it’s a long game, not a sprint. I would suggest that investors don’t thrash themselves over performance so far this October; it’s investing and these things happen!
Any regular readers of the Voyager will know that from early summer I have been derisking my portfolio and moving more and more into cash at least until this Brexit debacle reaches a conclusion with some visibility on the way ahead; currently I am about two thirds in cash, that’s the highest cash position since the dark days of the 2008 financial crisis. Now, I am not saying that we are about to hit another massive drop as in 2000 or 2008 but rather saying that having invested through those tough periods, that I appreciate the security of cash until the storm has passed. Incidentally, I have been writing about the gathering storm clouds since early summer and I have been banking some very decent profits rather than take unnecessary risk. The storm that has arrived whilst it‘s having an adverse impact on the smaller number of stocks that I hold but this is greatly buffered by the cash pile. For what it’s worth, I see this current drop as more of a combined wobble coupled in the UK with Brexit worries some of which will pass when we have an agreement with Brussels regarding the terms of our departure.
Uncertainty is never a good thing for the markets and we are currently being hit by Brexit worries. I am not about to do a Tim Martin style rant or defend the views of either camp but rather comment on my sadness in that our politicians have strived to cock things up right from the fake-news of the Brexit campaigning to the plans for departure. To ask the public to vote on such a complex issue back in 2016 was to my mind simply political abdication for short-term party gain. If the voting public makes a regrettable mistake in a normal election, then we only live with the consequences for a few years. With this vote, we live with the uncertain consequences for generations to come. Just my view but any referendum much more complex than “red sauce or brown sauce on your sausage sandwich” is a just too complex for folk to anywhere near handle. Yet here we are and as investors are confronted with such uncertainty, I would suggest it wise to have a plan other than bury your head in the sand: a plan that may review the situation and maybe take no action is a plan but to simply not have a plan is not that wise.
My approach, when faced with this type of uncertainty, is to derisk, head for cash and then try to take advantage of a future market upturn. Profits have been very good in the last few years and indeed 2018 whilst not been stunning, has been fair. So, my approach is as ever to take some profits, reduce exposure in uncertain times and protect your capital. Currently, the Voyager carries only a relatively small valuation of stocks and certainly the lowest percentage for quite a number of years. Myself, I just don’t buy into this outdated argument of avoiding dealing costs by simply holding. That argument may have been true 25 years ago when dealing charges were so high but these days that are almost insignificant. A simple truth of investing is to ride the wave when it's in your favour but simply don’t stick around and be greedy when the wave changes direction. So at the moment I will sit on the cash pile as it were, and wait for the shakeout to play out before I go bargain buying.
I do suspect that many relatively new private investors, let's say those from 2010 onwards are feeling a touch wobbled at the moment having experienced a run of fairly fruitful years until 2018 but this is the normal world on investing. We can't expect outperformance every year; this is simply business as usual.
Well, that’s enough joy, let's take a look at what's been going on with the Voyager and its such a shrunken Voyager in terms of positions held that I may well also look at some previous holdings that were jettisoned over the past year.
Monday 08/10/2018: Bioventix: BVXP: Market Cap £155m: Final Results
My View: the results in terms of how the company has performed looked absolutely fine; so all good or indeed very good for the year ended. However, I did in early September have this nagging doubt in my mind due to the company not issuing a trading update with possibly a teasing paragraph or two on the troponin project with Siemens. The comment in the results on this project was a little reserved and as I always bang on about risk, I halved my position in BVXP @ £31 which means that my residual holding, rather like that in KWS, is now riding for free. I really do like BVXP but just feel that that degree of uncertainty will be a handbrake on the share price in the coming weeks and as I have written before, we have enough uncertainty around anyway. If promising news follows regarding troponin then I can always buy further shares and enjoy a less risky ride.
Monday 08/10/2018: XP Power: XPP: Mkt Cap £550m: Trading Update:
A couple of lines from the TU
Order intake for the nine months ended 30 September 2018 was robust at £153.3
million (2017: £137.5 million) which was 11% higher than the prior year on a
reported basis. In constant currency this was an increase of 18%. On a “like
for like” basis, removing currency effects and the impact of the Comdel and
Glassman acquisitions, order intake increased by 8%.
Order intake remains healthy, although the rate of growth has moderated
slightly during the period. Production volumes in China and Vietnam remain
robust and we are encouraged by our design win pipeline and overall momentum
across the business. The Board anticipates the Group’s performance for the
full year will be in line with its current expectations as outlined at the
time of the Group’s interim results on 30 July 2018.
My View: XPP simply continues as a quality business with a decent enough in-line trading statement. Yet the market has the jitters and the price has continued to drift. It all seems solid enough to me and is simply out of favour in this nervous market. I will continue to hold.
Wednesday 10/10/2018: Telford Homes: TEF: Mkt Cap £290m: Trading Update:
It was a cautious update painting both some positives and some uncertainties and if anyone was shocked by what was said then goodness knows where they have been for the last few months. The positives were that Telfords houses in London are of the more affordable end of the market and should continue to sell. The more difficult end of the market, the higher priced houses are proving more difficult to sell.
My View: Well, over recent months I have taken very good profits on housebuilders and TEF was my one remaining housebuilder stock but the TU although written very honestly, just leaves too much doubt for the immediate future. Regrettably, as Lord Sugar would say, Telford has been fired, I really like the business as I have written or bored readers within the past but that sentiment will not stop me from making the unemotional decision to sell and escaping with a small profit. Maybe I will return another day! On the day of this RNS I felt it a little odd that other housebuilders had held up fairly well on the day and was tempted to short a few. The other builders duly fell the following day.
Thursday 11/10/2018: Norcros: NXR: Mkt Cap £162m: Trading Update
My View: to me this looks a sound enough update from NXR and as their strategy projects, the real growth comes from acquisitions with group LFL sales excluding the Merlyn acquisition down by a small amount -0.3%. If we do a quick “fag packet” estimation of this H1/H2 stretch we see the ratio as 2.05 which compares well to the same 2.05 ratio averaged over the last three years for H1/H2. The stock is on a very undemanding PE of 6.2 with a yield of 4.3%. Although I sold half of my NXR holding in the application of my derisking strategy in recent months, I am happy enough to hold the residual 50% in the Voyager; it’s been a boringly yet steadily profitable stock over the years.
A few thoughts on stocks I once held that have issued RNS this week: Note I no longer have positions in these stocks but have covered them in some detail in the Voyager Log together with my reasoning for selling them at the time.
Firstly Amino, AMO, who issued a profits warning on Monday 08/10/18. The reason I sold and reported my concern in the Voyager was the rather large H1/H2 stretch required to make their numbers for the year. To do this, simply take a look at historic H1/H2 ratios, then take into account any mitigating circumstances and ask yourself if the H2 gap can with reasonable confidence be closed. With AMO, which is a decent business, in my opinion, I decided that it was a stretch too far and sold.
Secondly Patisserie Valerie, CAKE, where I had an almost surreal experience that day in Lincoln with queues at some other coffee shops yet hardly anybody in Patisserie Valerie: odd I thought, maybe just an anomaly as their reports suggest good customer numbers? After my acceptable but slightly expensive breakfast at Patisserie Valerie, I then moved on and had a couple of pre-match beers with a group of friends and their partners where we got onto the subject of Patisserie Valerie and surprise surprise, their experiences at outlets in other locations were similar to my own. I decided that all may not be as well as I would have hoped, I just did not feel comfortable and if I don’t feel comfortable I get out: a few days later sold all of my entire holding in CAKE for a 20% profit. Now I appreciate that this was not in-depth analysis and to be fair their accounts looked fine but often such observations can give you an indication of how well a business is doing. For example, the almost always empty Carpetright stores or Halfords a couple of years ago contrasting with the crowded “always have to queue” WH Smith travel shops: simple stuff but often of real value. For shareholders expecting a trading update at 7am on 10/10/2018, the black clouds began to form with a 7:30 am RNS which gave nothing at all in terms of current trading but simply said that he shares were to be suspended from AIM until some serious financial irregularities could be sorted. On a newscast the previous night there was a suggestion od a £20m black hole in the accounts. Further bad news was to follow during the day with a second RNS concerning a serious tax issue for one of the group companies. Then in the early afternoon of 11/10/18 another RNS saying “Without an immediate injection of capital, the Directors are of the view that there is no scope for the business to continue trading in its current form”. What happened to one of the attractions of Cake, the self-funding of the rollout of new shops? Also what a real slice of luck for some of the directors in selling over £20m worth of shares earlier in the year! I really do hope this “difficulty” is resolved soon; maybe Luke Johnson can sort something out and rescue the business and leave holders with something? A very sad position that I doubt anybody could have detected from the accounts. My commiserations to all involved, shareholders and staff alike; just glad I popped in for that pre-match breakfast, I simply felt uneasy after my on-site visit and talk with friends who had used PV: I got lucky; no skill involved at all.
A quick look at another stock I sold due to an unusually high H1/H2 stretch being required to meet the market expectations; OTB. This stock and my reasoning was also covered in an earlier Voyager article back in May this year. When I looked at the H1 figures it told me that there was simply too much risk involved to remain as a holder as the H2 stretch was just too much. I sold at some distance above 560p. The market was slow to react but eventually did; hot UK summer etc and the shares fell to below 420p, a slow but steady decline of over 30%. Yet OTB were rather skilfull in managing market expectations slowly down from a turnover of £102.7m to £95.4 and sweetening the associated profits decline with a cut back in costs. Hence to my mind, derisking their likelihood of issuing a profits warning; that’s clever in my book! Then we have an RNS on 16/08/18 telling us that the profits will be broadly in line, a phrase which means slightly below, expectations. This was sweetened again with another snippet of news in the form of a tasty acquisition and the shares rose. Now I am not saying that OTB is a bad business, far from it, all I am saying is look closely at the newsflow from the business and do a fag packet calculation for yourself. If you do, you may find yourself way ahead of some of the analysts. Incidentally, I still reckon there may be a slight sting in the tail to come with OTB but I could be wrong.
Well, that’s all for now. Have a good weekend and as ever, happy investing whilst remembering that it’s a long game and not a sprint.