January 2020 portfolio update

The UK markets were drifting sideways during the start of January, and US markets predictably continuing their upwards march. Then everything went a bit George Romero with the appearance of  Coronavirus. Shares started getting sold off in what appeared to be a rather indiscriminate way, but with Asia exposed equities bearing the brunt.

If the news media are to be believed, we have an impending apocalypse, so share prices are the least of our worries. Perhaps a more likely scenario is a short-term health scare that is resolved over the next few months. If a few bargains present themselves I might as well indulge, after all if we return to normal, I'll have bought some shares at a discount. If the end is nigh, it won't matter anyway, checking my portfolio is likely to drift down the to-do list in favour of barricading the windows and hunkering down over my last tin of beans.

Portfolio performance 
The portfolio was down -0.6% in January, losing less than my chosen benchmark the Vanguard FTSE All Share Accumulation which was down -2.8% over the same period.

Best performers this month:
National Grid +7%
Fulcrum Utilities +7%
AB Dynamics +5%

Worst performers this month:
Craneware -26%
SAGA -21%
888 Holdings -18%

January share purchase: NICL
AIM listed soft drinks company Nichols (NICL) joined the portfolio this month. Nichols have a portfolio of products, the most iconic of which is Vimto. They have sat on the watchlist for a while, and my interest began to perk up when the share price started drifting downwards after bumping against a previous high point. Then just before Christmas the company released an update stating that in one of their markets, the Middle East, Saudi Arabia and UAE were applying a 50% tax to soft drinks. The share price predictably tanked by around 20%. Given that this region generated just under 7% of revenues in 2018/19, it seemed a typical market over-reaction.

Nichols have some great operating numbers: ROCE over 20% in each of the last 10 years, along with double digit net margins, no debt, plus a dividend well covered by free cash flow that has increased by an annualised 13% over the same time. They have been able to generate these sorts of returns by outsourcing the production of their main brand - Vimto - and by doing so greatly reduce the capital requirements of the business. Vimto is also licensed for production in other confectionery products, again with minimal capital.

Revenues and profits have been ticking upwards over recent years, while the share price has remained fairly flat, possibly due to it getting an excessive premium which it needed to justify. The Middle East taxation issue shouldn't put too large a dent in either top or bottom line, even with a bit of additional marketing in the region. 

The business was founded in 1908 and was listed on the AIM market in 2004. John Nichols, the grandson of the founder of the company remains on the board as Chairman, and owns 2m shares which amounts to a 5.5% stake in the company, worth around £27m as at the time of writing. Other members of the family also own shares and are employed by Nichols, so they have an interest in ensuring the ongoing success of the business.