April 2021 portfolio update

April proved fairly unexciting by comparison to recent months. News flow over the month was steady with vaccine programmes in the US and UK apparently proving successful. Europe remains behind the curve but hopefully picking up steam, elsewhere the virus continues to cause havoc.

Restarting the global economy appears to be encountering one or two kinks, as supply chains work through various disruptions. Basic commodities, shipping containers and semi-conductors all have their problems to be ironed out and it feels like everyday we read about a potential shortage of something on the horizon. On the back of this there is a lot of talk of inflation coming back with a vengeance, and increased interest rates in it's slipstream. We've had over a decade of cheap borrowing, so raising the cost of debt is likely have a few tough outcomes.

Earnings reporting from US tech giants showed incredible results, though their shares gave a mixed response, despite this both US and UK markets chugged higher. Talking heads are concerned about a market sell off, unsurprising given the recovery in markets over the last year.

It's been a busy month outside of investing, with work being hectic and April also provided the chance to catch up with family in person rather than on a screen. Pretty busy in the portfolio too. Lots of positive news again this month, and the portfolio ended up with the second best monthly gain since I started tracking it. The FTSE managed to put in a decent turn as the recovery momentum continues, so outpacing it is pleasing. 

At some point the positive news about vaccines and reopening is going to be fully priced into the markets. Government support is going to disappear before long too, at which point the true economic impact of the pandemic is going to become apparent.

The portfolio pruning continued as Foresight Solar was removed this month, the proceeds from both the solar fund sales over the last couple of months have topped up existing holdings. Smith & Nephew was added to the portfolio this month - it's sales of medical devices and products are dependent on health services getting back to business as normal. There is plenty of evidence of a backlog of non-COVID related activity to be worked through in the UK at least, from which Smith & Nephew should benefit.

Portfolio performance
The portfolio was up +7.7% in April, ahead of my chosen benchmark (Vanguard FTSE All Share Accumulation) which was up +4.3% over the same period.

Best performers this month:
Craneware +30%

Blackbird +25%

Somero Enterprises +18%

Worst performers this month:
Impact Healthcare -1%

PZ Cussons -1%

Reckitt Benckiser -1%

April sale: FSFL

March saw one of my solar funds offloaded, April waved goodbye to the other. I've written before on the reasons for losing my appetite for these investments so won't rehash it here. The short version is that I think these are a bet on the direction of the price of wholesale electricity, a commodity which I believe is becoming available in increasing supply at ever lower prices. FSFL sold at a loss of -11%.

March purchase 1: SN.

Smith & Nephew make various medical devices and products. They are listed in the FTSE100 with a £12bn market cap. Many of their products are used in non-COVID related medical procedures. They've taken a whack from these not happening as healthcare systems were overwhelmed with treating COVID patients. I've looked at SN. in the past, but they never quite made it into the portfolio.

Their business is in 3 segments: Orthopaedics, Sports Medicine & ENT, Wound Management. As it is in healthcare it's products are highly regulated, providing a high bar to entry. I think it's main competitive advantages come from switching costs. Use of it’s implants and technology require familiarity and training – this is particularly the case with orthopaedics as the treatments are far more severe. Sports medicine surgery is less invasive, and there are limited costs to changing wound mgt product providers. However it is also the case that these same "moats" are likely to provide a barrier to SN. taking market share from it's competition too. Around 52% of it's revenues are from the US, and a further 32% from other developed regions, so the successful deployment of vaccines here should enable SN. to start to recover.

In 2020, revenues were down 11%, and free cash flow down 35% due to lower cash and increased capex. There are plenty of questions in the financials that would usually prevent these shares entering the portfolio, however they seemed to be an obvious COVID recovery stock whose share price had lagged other similar businesses. There is a long term tailwind here with aging populations and increased spending on healthcare, and pre-COVID, the shares had a steady upward trend that appealed. At the time of purchase the shares were trading around 30% lower than their pre-COVID peak, and about 20% off their post-COVID highs.

April purchase 2: APF

I topped up Anglo Pacific Group after my initial buy last month. The cash from selling the first of my solar investment trust getting redeployed here. APF presented their annual results, which were heavily impacted by COVID, as expected, mainly through impacts to coal demand and supply chains throughout the pandemic. Their move towards commodities likely to be in demand over the coming years is appealing. Coal remains 23% of their portfolio, but this has a scheduled decline baked into their current investments, these are based on land purchases from which the producer is moving regardless. 

If we see a global economic improvement over the next few years, APF should benefit through a general increased demand for commodities, and their pivot towards minerals used in battery technologies, at least in the medium term should also leave them well placed. I was convinced enough to recycle some cash into more shares.

April purchase 3: HFEL

Another top up. The cash from selling Foresight Solar was used to buy more shares in Henderson Far East Income Investment Trust. Their half year update was solid enough and it provides a decent dividend. It has a good track record of dividend increases, and didn't falter during the widespread pandemic dividend slashing that was seen elsewhere. The update also indicated that they had been able to add to revenue reserves which provides more security on the dividend. 

Updates from the portfolio (in order of appearance):

Saga (SAGA)

Have to admit to being a little disinterested in Saga's preliminary results. They were predictably disastrous, revenue down 58%, travel booking bearing the brunt of cruise ships being parked up for a year. Some bright lights from their insurance business which was up 3%. Cash burn was £6m-8m, and £75m in the bank to play with means they can probably keep going until vaccine programmes enable their boats onto the water again. Since the price jumped 11% on the day, I guess Mr Market was/is in an optimistic mood. I'm only still holding in the hope that the reopening enthusiasm drives the price up a little to recoup some of the loss from this one.

QinetiQ (QQ.)

Nice update from QinetiQ:  "...expect our results for the full year to 31 March 2021 to be above our previous guidance and above market consensus expectations." There were a few moving parts described in the updates, with various elements of the business over and under performing, still driven by COVID impacts. Net cash was over £150m compared to £112m reported in their interims in November and long-term guidance maintained. Thumbs up.

Anglo Pacific Group (APF)

Results for APF were presented for the period prior to their Canadian cobalt stream acquisition. Royalty income was down 39%. Despite COVID causing limited operational impacts at production sites, it closed ports, shut down demand in coal, which was against the backdrop of a record year in 2019. It was clearly the sort of message that the market was expecting as the share price responded positively to the results.

RELX (REL)

As expected from RELX, the 3 segments focussed on publishing, data and analytics are generating cash in line with expectations. The exhibitions business is pretty much shut down. The outlook statement is for more of the same - steady growth in the open segments, not much happening for exhibitions. Happy with that.

RWS Holdings (RWS)

An update on trading and integration between RWS and SDL. Revenue and profits in line with expectations, although given the high proportion of revenues in USD, there is some FX headwind. SDL progressing well apparently, and with additional cost savings/ synergies (whatever they are) identified that are roughly double what was anticipated. If correct that should drop straight into profits. Pleasing update since I bought after the merger announcement, as it looked like the combined group would have a dominant market position, so good to hear integration is progressing to plan.

Henderson Far East Income (HFEL)

Half year update from this income focussed Investment Trust. Total NAV up 7.4% to the end of February, with dividends increased by 1.8%, and additional funds added to the revenue reserves. Many of their holdings are in finance, industrials and materials so if we get a chunk of economic growth in Asia HFEL may benefit. The total return is lower that some of the Asia indices, but the reason for investing in this one was income first, with a bit of growth on the side. So the update is pretty much what I was after. 

PZ Cussons (PZC)

Trading update for the 3rd Quarter was reassuring, stating "...encouraging growth was broad-based, with all Regions delivering top and bottom-line growth".  This was a struggling business needing to be turned around - just happened to be in the right place at the right time, with marketing spend up 30% that momentum will hopefully continue. Overall revenues and profits up, and net debt down, and a steady outlook statement.

AB Dynamics (ABDP)

Half year numbers from AB Dyamics gave the impression of the business getting back on it's feet, and performance expectations unchanged. Most numbers were pretty flat compared to the previous 6 months, although cashflow had more than doubled. Customers and orders slowly returning. A steady sort of update, however, the shares are expensive and priced for fast growth rather than "steady". The sell off following the update was no surprise.

GlaxoSmithKline (GSK)

An in line update from GSK, stating revenues down -15% and operating profit down -8% (constant currency). Of more interest is the progress towards splitting the pharma (which I'm less keen on) and consumer businesses (which I'm more keen on), which is going to plan apparently. All of this is a bit of a sideshow now that Elliott have lumbered into the room...

Nichols (NICL)

I like Vimto, and it cropped up 5 times in the latest Nichols trading update. Year on year comparisons seem rather meaningless to a business that had much of its sales wiped out for most of 2020 - but they did it anyway: revenue down 5.9%. More interesting was Vimto apparently growing market share. Plenty of cash and a reopening of their out of home business should see Nichols through the pandemic in surprisingly good shape.

Reckitt Benckiser (RKT)

First quarter trading for Reckitt showed revenues up 4.1%. Under the bonnet of the revenue numbers this increase was driven by their Hygiene segment +28.5%, which sells cleaning products amongst other things - clearly a beneficiary of the current urge to disinfect everything. Their other two segments were both down, Health -13%, and Nutrition -7.4%. Outlook statement is for flattish revenue growth, and a hit to margins from increased investment. Key for me is growth of market share and the push into new territories. Clearly the purchase of Mead Johnson by the previous management team was not money well spent, hence the search for a buyer.

Telecom Plus (TEP)

An in line trading update from TEP, no number for revenue but PBT down from £61m to 56m. Lower energy prices and COVID related costs (no numbers provided) to blame. Customer growth reduced, which is attributed to lockdowns inhibiting their partners' ability to get out and recruit. Dividend safe, expected to be the same as last year, which I guess reflects a business treading water during 2020.

888 Holdings (888)

Lots of positive numbers in the first quarter, but this is almost expected from 888 now I think. Of more interest was a notably cautious outlook statement, that for the remainder of the year comparisons with 2020 would be tough as last year posted some big numbers, increased regulatory changes and the fact that people would have something to do other than stay indoors and gamble. This contrasted with a CEO "...excited about the US, where we plan to roll out sports into further states in the next few months, and launch our upgraded poker platform into further states in partnership with Caesars and their leading and hugely popular WSOP brand.". Combined I think the outlook + CEO = cautious optimism.

Unilever (ULVR)

Unilever's first quarter trading showed revenue down slightly but increased growth in sales, volumes and prices. Emerging markets led the way with China and India out in front. The tea business is still in limbo, and some beauty lines are getting carved out going forward. A share buyback programme to the tune of €3bn, is to start in May. I'm generally sceptical of scheduled buybacks as they usually seem rather indiscriminate, the board here clearly have a crystal ball when enables them to predict the shares being undervalued in May. All a bit silly. Good steady update nonetheless.

Lancashire Holdings (LRE)

A positive update from LRE - gross premiums increased by 46.1% . Storm Uri claims were between $35 million and $45 million. A bullish outlook from the CEO 'We have increased revenue across many of our core lines as well as achieving faster than expected momentum in some of our newer business lines". All sounds good. I don't really understand insurance well enough, so this will get the chop at some point, but happy to hold through the positive momentum.

Computacenter (CCC)

First quarter trading update from Computacenter - profit growth has the board "extremely pleased", and there has been "strong demand" for various services, particularly in the UK (I wonder if this correlates to the UK's successful vaccination programme? Europe to follow?). US business is ahead of expectations, but any profits get consumed by FX. Slightly strange outlook statement, the usual cautious optimism, but inline (I think).

Eleco (ELCO)

Very welcome update from ELCO. 1st quarter trading at ELCO indicated that revenues (and recurring revenues) were up 9% and PBT up 21%, and increased cash is sitting in the bank - net cash up from December's £6.2m to £7.9m. Nice operational update too including some big names using their software. Some of the larger shareholders seem to want a board shakeup with a General Meeting requested seeming to target the Chair and one of the non-execs. Hopefully it won't distract from the current positive momentum.