August 2020 portfolio update

August proved to be a fairly uneventful month in the markets, UK markets going sideways and most others chugging North. US tech continues to eat the world and now a small handful of these companies are worth more than all European listed companies. I wonder what will happen when the tech giants' share prices fall over?

At least the drip feed of hopeful news on COVID-19 treatments continues, as does the search for a vaccine. Hopefully the mask will be to COVID-19 what the condom was to HIV, my ventures into public spaces recently have been filled with a mask wearing public. I even saw a TV advert for the fashion conscious mask wearer the other day.

I've been having a ponder about the portfolio, and there are a couple of changes I think I'd like to make over the next few months. Following some more research, and release of info from a couple of holdings, I'm less keen on keeping hold of them, so potentially a couple of sales required. On the buying front, I'm curious to see what will sell off during the next drop - will the shares already hurt go much lower, or will it be those that have held up well that are in the firing line? 

Portfolio performance
The portfolio was up +1.2% in August, behind my chosen benchmark (Vanguard FTSE All Share Accumulation) which was up +2.4% over the same period.

Best performers this month:
Dignity +65%

Compass +16%

Elco +13%

Worst performers this month:
Somero Enterprises -12%

Saga -10%

Network International -7%

August share purchase: REL

RELX (REL) was added to the portfolio in August. I'm rather pleased about this as it's a company I've been following for a while, but the price never seemed to fall too far when the market wobbled. So I thought I should take the opportunity when the price dropped earlier in the month.

RELX has it's roots in publishing, in particular, scientific, technical and medical material, and legal textbooks. It was formed from a merger of two publishers, one British: Reed International, and one Dutch: Elsevier. It has been listed on the London Stock Exchange in some form since 1948, and over the past few decades has grown to a market cap of around £33bn.

RELX now make relatively little from paper publishing, only around 9% of revenue is from print. Today the company, in their own words: "...is a global provider of information-based analytics and decision tools for professional and business customers". They have 4 segments in the business: Scientific/Technical/Medical, Risk/Business Analytics, Legal, Exhibitions. The first 3 segments provide data and analytics technologies to a range of industries, from life sciences, fraud detection, and case law. The 4th segment - Exhibitions - is a bit of an awkward fit with the rest of the business, and the reason that I think the price tumbled. More on this below.

The interim results announced at the end of July told of the 3 data and analytics segments of the business holding up well under the pressures of COVID-19, and even growing. However the Exhibitions have been whacked by the virus - getting large groups of people together to try to sell each other stuff isn't a great idea at present. This part of the business generated around 16% of revenues last year, which was roughly the discount on the price from the start of the year at which I managed to pick up the shares. Face to face business clearly isn't going to happen for a while, so this part of the business is likely to continue to struggle, but so long as the other segments hold up RELX shouldn't be in an too much bother.

According to their annual report RELX are in the top 1 or 2 position in the various markets in which they operate. Their "moat" has been built over many years, RELX has developed sophisticated databases and decision-making tools that many industries and professions now heavily rely on to carry out their daily activities. The majority of their revenues are subscriptions, which is preferable in my view - they tend to be sticky and give visibility of future earnings. Their Return on Capital has averaged over 15% and net margins over 17% over the past 10 years, which combined with relatively light capital requirements have led to healthy cash flows. These have covered the dividend more than 2x over the past few years. 

It's not all silver linings of course, on the cloud front, they have more debt than I would like. Should the data that RELX provides become more accessible in the public domain, or author/reader payment models change, this could give them a headache.