Showing posts with label Investing. Show all posts
Showing posts with label Investing. Show all posts

Tuesday 1 June 2021

May 2021 portfolio update

Lots of confusing newsflow in the markets during May, continued talk of central bank support for economies risking them running too hot and then having to play catch up with inflation. The rotation from growth to value seemed to relax as the month progressed and markets were choppy throughout. 

Bitcoin followed through on it's threat to collapse and took most of the crypto markets with it. I had a small holding in crypto for a while, purchased following the 2017 bull run, that ended up growing to a much larger holding recently. I grew nervous about the crypto markets and had been selling out of my positions leading up to Bitcoin rolling over. I'm happy to watch the current volatility from the sidelines.

Taking on extra responsibilities at work have led to an exchange of time for money. This is welcome in some regards, but I'll need to make a few adjustments to investing and researching. That being said I've looked over a few interesting companies in recent weeks, it's only potential over-excitement in the markets that's kept from putting a few shiny pounds into them. As a result of a few nerves over a bit of complacency in the markets, the only addition to the portfolio was a top up of the pleasantly defensive and high yielding Impact Healthcare.

Two holdings left the portfolio this month, Dignity had a trailing stop triggered during the market selling in the middle of May. It was a purchase made several years ago when I was keen on buying after profit warnings (believe it or not, it did work... for a while...), following my purchase it went on to get hammered through various calamities. There had been an upward trend, and I was comfortable staying put on the way up, but the market decided to kick me out. Keystone Positive Change also left - it was heavily invested in many US stocks that have been sold off aggressively as risk appetites change. Capital preservation dictated that I cut it loose before the loss got any bigger, particularly as markets look wobbly after a strong run last year.

Portfolio performance
The portfolio was down -0.6% in May, behind my chosen benchmark (Vanguard FTSE All Share Accumulation) which was up +0.6% over the same period.

Best performers this month:
Blackbird +12%
Nichols +8%
QinetiQ +7%

Worst performers this month:
Craneware -15%
Lancashire Holdings -11%
Telecom Plus -9%

May sale 1: DTY
Dignity disappeared in May, this was a daft legacy purchase from some years ago that's been hanging around waiting to be sold. A May trading update read like a car crash, but the share price had seen a bit of a lift from the largest shareholder replacing the chair with their own man. However, I lost interest in this some time ago, so put in a trailing stop loss, which was triggered when the markets got twitchy earlier in the month. Dignity sold for a loss of -35%

May sale 2: KPC
KPC was a relatively new addition to the portfolio, so to have it leave after a matter of months is not my usual form. However, in keeping with my first aim of not losing money, I've taken to insisting on a limit to losses with new positions - KPC hit that threshold so it was sold. It is stuffed full of the stocks being sold off vigorously in the US, so bad timing on my part. Keystone Positive Change sold for a loss of -16%


May purchase: IHR
Not a lot of buying action this most, just a top up of Impact Healthcare. A solid update including an indication of a decent pipeline of potential acquisitions convinced me to add a little more. Should inflation make a reappearance, property might benefit, so in addition to a nice defensive dividend payer, there's also a potential hedge there too.

Updates from the portfolio (in order of appearance):
Tritax Big Box (BBOX)
Trading update from BBOX showed decent rent collection, with one customer agreeing a rent deferral being the only outstanding payments. 37% of the BBOX portfolio is due for a rent review this year, and progress on sites under development. Pretty unexciting - just how I like it.

Anglo Pacific Group (APF)
Q1 trading from APF saw earnings down 39%, most of which was due to a reduction in holdings in a key investment from which dividend payments were then reduced. The maiden output from their new cobalt Canadian cobalt acquisition was available in Q1, so should be sold in Q2. Net result is the reduction in income looks like a timing issue, the share price in the days following the update was positive, so the market seemed to have a similar view. Other key news was to have all assets back in operation following COVID disruptions. Always a relief to see a new buy get off to a good start.

Somero Enterprises (SOM)
Pleased to see "...expects to exceed previous guidance..." in an unscheduled update. Revenues now expected to be around 12% -13% higher than anticipated, with improvements to profits and cash. The US providing a lot of momentum, and increased uptake in new products. Thumbs up.

Compass (CPG)
Half year results from Compass revealed yet again how corporate and events catering have been decimated through various lockdowns. Customer retention is around 95% and they've been picking up new business. I doubt corporate catering will return to pre-covid levels as office workers have demonstrated the ability to work remotely. But they will likely pick up market share if smaller operators struggle, but how much will the market have shrunk? With the share price back to 2019 levels, is there a little too much optimism already built in?

Diageo (DGE)
A decent recovery in the booze markets saw Diageo give a nice positive update. The US has continued it's strong sales from earlier in the year, and other markets contributed well too. All of which gave the board the confidence to resume it's capital returns programme and start buying back shares. Given they are back to pre-covid highs, I would rather they performed these purchases when the price was a little lower, or return via a dividend. Nevertheless, a welcome update.

Hargreaves Lansdown (HL.)
Nice update from HL - year to date AUM up 28% and revenue up 19%. Plenty of new clients and new business. Enthusiasm for US stocks has been a major driver behind the performance, and they flagged that re-openings are coinciding with a drop off in share dealing. No comment on possible Woodford litigation. Apparently clear beneficiaries of our boredom during various lockdowns.

Impact Healthcare REIT (IHR)
NAV up 2% during the quarter and an increased dividend. Management are cracking on with rent reviews and purchased a couple of additional properties. The pipeline of investment opportunities is "strong and growing" apparently. Boxes ticked.

Sage (SGE)
Half year update - and one theme dominating this, the move away from legacy licensing to cloud. Revenues were down -4% and operating profit down -30%, but the business is focussed on shifting their customers onto a subscription model. They appear to be making progress, with recurring revenues up 4%, and the guidance being towards the top end of expectations. I wonder whether this is more a case of managing down expectations to such an extent that any progress is welcome. This is one of my investments that I think scores highly on various markers of quality, but I question where the growth comes from going forward. I'll hold for the time being.

Jersey Electricity (JEL)
Interims from JEL, were pleasantly uneventful. Revenues up 5%, profits flat due to increased costs, net cash up by a little with cash up to £35m, set against £30m debt, and the dividend up 5%. Nothing to see here, tucked away again.

National Grid (NG.)
National Grid are a bit of ballast in the portfolio - I'm accepting a lack of capital gain for a lower level of volatility and a steady stream of dividends. It's doing pretty much what I'm after. The full year results showed an increase in statutory numbers, with adjusted numbers slightly down, and an increase in dividends by 1.2%. Back in the bottom drawer.

QinetiQ (QQ.)
Preliminary results from QinetiQ followed an upgrade a few weeks ago. The results all look rather positive, revenue up 19%, underlying profits up 14% and a chunky looking order book going forward. Cashflow was up, and have almost doubled the cash in the bank from £85m to £164m. Acquisitions appear to be contributing, and given the swollen piggy bank, I would expect more on the way. The outlook was typically cautious, giving themselves plenty of opportunity to beat expectations. Pat on the back QQ..

Tate & Lyle (TATE)
Whilst there was a lot to like in the full year results from TATE, they also managed to sneak in what looked like a pre-emptive profits warning for next year. It was a bit confusing and Mr Market wasn't impressed. Revenues were up 1%, PBT up 6%, cash flow increased and debt fell, all of which contributed to a nice 4% bump in the dividend. Then a line in the outlook soured things, stating that commodities profits and a change in tax rates would lead to lower profits next year. The intention to sell their Primary Products (or at least a controlling stake) was clarified - I think I'll hold to see what comes of this.

Wednesday 17 March 2021

Tweaks

I've continued my consideration of why I own certain investments. But I've also been thinking through my approach to investing. I've given some thought to each of my investments, making sure I'm clear on why I own each investment, putting them into rough categories of steady compounders, income and growth. Some additional thoughts:

I need to keep things simple. I have a job and a family, and limited time to research investments - despite finding it really enjoyable, I need to find a way to focus my attention on a smaller number of key investments. 

Once invested, I also have limited time to keep track of the portfolio. Some of them are well behaved and can be watched from a distance - others need careful attention.

I also need a lower limit on returns, below which an investment should be jettisoned from the portfolio.

I enjoy dividends, it has been pointed out that I have some runway before I need income from the portfolio, and that I'm probably inhibiting my total returns by focussing on them. Seeing those dividends come in gives me some comfort. They also help to dampen downward volatility as the cash ticks in. And of course they provide funds to redeploy. So whilst total return should be more of a factor than income, there are emotional and psychological reasons for me including decent dividend payers in the portfolio.

Ultimately absolute returns are what matter but performance against a benchmark is interesting. It can also provide a useful yardstick against which to measure risk vs. returns. If I can get the same returns from an index fund as I get for holding a handful of individual companies, then I'm getting a diversified investment, and lower risk for the same return. My benchmark is a comparison with the 600 companies listed on the UK All Shares index - the shorthand version of this is using the Vanguard FTSE UK All Share tracker

There's no reason for me to limit my horizon for investing to the UK, I can pick up cheap globally diversified ETFs from Vanguard or Blackrock. These would certainly simplify the portfolio - one fund to rule them all...But...should an investment have the potential to outperform the global tracker, then it should be in the portfolio.

So what would an investment need to do to outperform a global tracker?

A simple set of comparisons taken from Vanguard and Blackrock follows, I want to strip out noise of too many considerations. I've taken pre-pandemic data, which might seem arbitrary, but I'm going to assume that in a year or two, COVID-19 will be just another bug that we live with. And that as a result, life gets back to what we were used to before it turned up. Some things will be different - the change brought about by the virus and our response to it, but most of our lives will revert to something close to before the pandemic. So most businesses will also return to a similar pattern of pre-pandemic behaviours. I've looked at historical data, with the cut off point being January 2020.

2 global trackers show pretty much the same results:

Vanguard: VWRL

Blackrock: IWRD

Vanguard have data for VWRL since 2012, and up until Jan 2020 grew at an annualised rate of around 12%. When I add in dividends it is around 14% (if dividends had been reinvested straight away the magic of compounding would have pushed the numbers up a little more - but it was getting complicated enough...)

IWRD over the same period gave an almost identical result. I guess it should - although it does have higher fees...

IWRD has data back to 2010. If this is used as the starting point then for the 10 year period until 2020 it grew at around 8% growth, and with dividends, around 9% 

The reason for the lower returns is a period when the market went sideways between 2010 and 2012:

IWRD performance

So how does this fit in to my investing. Well dividends remain important, there will be a group of investments focussed on income. There will also be a group of investments that are steady compounders. Both of these I intend to keep under minimal supervision, so they need to be well behaved.

If the compounders are going to hold their own against a global ETF, it looks like they need to be generating at least as much return. And this is where the lower bound fits in. I'm going to aim for something in the middle of the two timeframes I looked at above for the two global funds, a convenient 10% as a lower limit. In other words if an investment doesn't look like generating at least a 10% return over the period that it is in the portfolio - it will be asked politely to leave.

That leaves me with compounders and income, as needing minimal time, which means I can concentrate on keeping an eye on the investments that are likely to be more volatile - the smaller companies with more room to grow. But also potentially a larger fall if they upset the market.

I will also be putting some money into a global ETF to provide a completely hands off investment. And this should enable me to have 75% of my investments either passive, or requiring minimal time.

I'm not about to throw out everything in the portfolio. It will be a matter of gradual pruning, rather than lopping off chunks, there are a few businesses in the portfolio that have been clobbered by the pandemic and should be given more time to resurrect themselves. Others have great looking operating numbers, but I question their ability to grow.

New long term investments will need to be both high quality, as distinguished by considerable competitive advantages - so only the moatiest will end up as long terms holds.

Other purchases may become shorter lived holdings...

Sunday 21 February 2021

Pause for thought

As we are coming out of such a crazy year I wanted to ask myself a few questions about my investments. My goals remain the same, and the strategy to achieve them is fine I think. I have a few holdings I’m not convinced about so I’ve it’s worth asking a few questions about each:

  • Why are you invested in that business?
  • If you weren’t already invested would you buy it today?
  • Given that you are invested, would you buy more today?
  • If it’s underperforming, why not sell it? You can always buy back when the business is back on track…

So I’ve been through each holding in my portfolio, the initial exploration being to examine each holding in some detail to be sure that I want it in the portfolio.

I’ve put each holding into one of 3 buckets: slow and steady, income, growth. And a 4th bucket for those with a question over them. It is these that I am reviewing in detail first.

 

Slow and steady

Income

Growth

Naughty step 

AG Barr

Compass

Diageo

Hargreaves Lansdown

Nichols

PZ Cussons

Qinetiq

Reckitt Benckiser

Relx

RWS Holdings

Sage Group

Unilever

GlaxoSmithKline

Henderson Far East Income

Impact Healthcare

Jersey Electricity

National Grid

Tate & Lyle

Telecom Plus

Tritax Big Box

888 Holdings

AB Dynamics

Abcam

Craneware

Eleco

Keystone IT

Somero Enterprises

Computacenter

Dignity

Foresight Solar

Fulcrum Utilities

Lancashire Holdings

Next Energy Solar

Saga

Most of those in the “Slow and steady” box are businesses that I expect to hold for a long time, that are generally well run businesses that I’m happy to own a slice of. I’m expecting these to be slow steady compounders, and whilst they all pay a dividend (or did until the pandemic) they are not there primarily for the income. Despite these being a pretty defensive bunch of holdings, some have been hammered by the pandemic. Beverages for example you would expect to be a fairly dependable business, except when all bars, pubs, restaurants get closed for long periods. Catering, equally – shouldn’t be exciting, but has been slammed this year. I’m happy to hold these for now to see how they come out of the pandemic.

The income stocks pay a decent dividend, I don’t expect a lot of capital growth here, but this should be compensated by steadily increasing dividends. I may move some of this bucket into investment trusts over time as these have proven to be a safer income bet, and came up trumps during a rather testing period this year. Glaxo is an interesting one as they recently announced that as part of the split of the consumer health and pharma businesses they would reduce the dividend…one to think about.

Growth stocks I expect to generate capital returns, with any dividends being a bonus. I would expect these to be smaller businesses with better potential runway for growth. They have done just that. With the exception of AB Dynamics they have each come out of 2020 with a creditable performance, a couple were in the right place at the right time, just like a few others in the portfolio were in the wrong place. ABDP are uniquely placed and have a nice wide moat. They still need to deliver however, so I’ll be casting an equally critical eye over them too.

When I look at the distribution of my investments I have invested 44% in the slow and steady group, 28% in income, and 17% in growth. The growth bunch have put in an overall 45% return, compared to 14% from income and 3% from the steady mob. I’m not sure what the correct distribution should be, but I might try to make these more equal over time.

 Under review elevator pitch summary:

Dignity

Messy turnaround, regulatory scrutiny and management changes.

Foresight Solar

I’ve become sceptical about future power pricing which will impact NAV and potentially dividends.

Fulcrum Utilities

Activist investor wanting to delist the business, behind the scenes political shenanigans, board changes who appear reluctant to buy their own shares.

Lancashire Holdings

Don’t understand the business well enough.

Next Energy Solar

I’ve become sceptical about future power pricing which will impact NAV and potentially dividends.

Saga

Unconvincing business model – however likely beneficiary from vaccine rollout so may hang around in the portfolio a while if the price momentum is upwards.


Tuesday 12 January 2021

Annual portfolio review 2020

So 2020 was bonkers. No need to rehash the madness, and with a new year to look forward to it’s time to appraise my investment decisions and performance for 2020

Investment goals:

  • Don’t lose money
  • Increase capital by more than the rate of inflation
  • Build a conservative dividend paying portfolio

Through doing the above, I will hopefully also outperform the FTSE All Share Index. I have chosen the FTSE All Share as a benchmark as it most closely matches the pool of companies from which I’m investing. It is also the most likely vehicle into which I would invest if I decide to stop stock picking and passively invest in a tracker fund.

Portfolio performance

Based on unit value, during 2020 the portfolio  increased in by 0.3% (including all costs, and dividend payments). This compares to an decrease of -9.9% in my benchmark (also including costs – as an accumulation fund dividends are reinvested automatically).

Total return:

 

FTSE All Share Tracker

Portfolio

2018

-9.6%

1.6%

2019

19%

23.6%

2020

-9.9%

0.3%


Compound annual growth rate:

 

FTSE All Share Tracker

Portfolio

2018

-9.6%

1.6%

2019

3.7%

12.1%

2020

-1.1%

8%

The above shows the portfolio unit value, the internal rate of return (XIRR) comes out as 10.7%

The difference between the two metrics is that the unit value excludes cash flows in and out of the portfolio, whereas the XIRR incorporates these – the truth relating to performance is probably somewhere in between…

The portfolio beta - a measure of it's volatility relative to the benchmark was 0.67. Although I'm slightly dubious about the construction of the statistic, it indicates that the portfolio exhibited lower volatility that the benchmark.

Dividend yield

At the end of the year the dividend yields of both benchmark and portfolio were the following:

Benchmark = 3.03%

Portfolio = 2.5%


The historical dividend yield on the amount invested since 2018 is 4.8%.

 A look back at the 2020 shows how the benchmark outperformance worked out:

Benchmark vs portfolio 2020

The index was slammed at the outset of the virus, and took time to start to recover. Over the last couple of months as the outlook has become more positive, the recovery in the wider market has picked up pace. The portfolio is behaving rather as designed, in that it will tend to lag the overall markets and be less volatile. The defensive nature of the portfolio should lead to shallower drops, at the expense of slower gains.


Portfolio analysis
2020 performance by holding:

The best performer in the portfolio was 888 Holdings, with a 77% increase, 4 other holdings increased by 20%+. Overall 21 out of 33 holdings finished the year in positive territory. Some of the portfolio were only purchased over the last few months, so I don’t expect any particularly exciting gain or loss.

I sold Network International in September, for a 40%+ loss, since when a paper by Shadowfall Research has raised a few questions over acquisitions and links to failed payments provider Wirecard. I’ve no idea what the outcome will be, I’m glad I’m no longer holding it.

Two of the best performers, 888 and Computacenter are beneficiaries of the enforced social distancing we’ve been subject to since COVID-19 made itself known. 888 provides various online gambling services, and there is aggressive M&A happening in the sector as the US relaxes it’s gambling regulations. Computacenter has been helping businesses cope with remote working, and for the second year running has been one of the top performers in the portfolio.

Saga and Compass were on the opposite side of the virus impact. My finger was hovering over the “sell” button for Saga at the start of the year, but as the virus hit, I dithered and the share price was hammered. It now has lost most of it’s value, and makes little difference whether it is in the portfolio or not. It has recovered somewhat since it’s lows, but even if it were to double from here, it would not move the needle on the portfolio. However, it stands a chance of a high % increase as the virus is brought under control in 2021.

Compass had a good chunk of it’s business shut down for most of the year, as many corporate clients had little need for catering with no-one working from their offices, and sports events were either closed or operating with minimal crowds. Under most circumstances I would suggest it is a very defensive business, but the virus blindsided this one. I suspect Compass will benefit in the longer term as smaller and weaker competition fade away, but may take a little longer to stabilise. I don’t imagine 2021 will see it get back to “normal”.

The contribution of each holding to the final position of the portfolio at year end is below:

Holding contribution to 2020 performance


Thankfully my approach of reducing the size of the investments of riskier holdings (looking at you NETW…) has helped contain the impact of the poor performers.

The performance of each holding since the start of the portfolio:

Holding total return since purchase

The contribution of each holding to the total portfolio returns is above, with a split of both capital and dividends. Over time the dividend contribution should increase even if capital moves around.

Poor performers and lessons learnt.

Poor performers were really those impacted by the pandemic – Saga & Compass. Network International looks to have a few issues, or at least some public relations work to do…Saga was on my sell list but the virus hit before I got around to it.

Those holdings most likely to be sold include Saga, Dignity, and the two Solar investment trusts. I think there may be longer term issues relating to power pricing that will impact renewable investments as noted here. Dignity is a wonderfully defensive company, what could be more reliable than people dying, particularly at the moment. But they appear to have been overtaken by other more agile businesses, and are trying to respond to this, and changing regulatory scrutiny. They may be able to turn around the business but it's looking messy.

I’ve been comfortable with most of the holdings this year, in what has been a rather odd 12 months. I couldn’t help staring with wonder at the markets melting down earlier in the year, and should have been more active to capitalise on it. I do tend to want to see trends play out rather than jump in, which means I miss some lower prices. I guess market timing isn’t my thing. However, I didn't feel any panic urge to sell, more a desire to try to understand what was going on.

Buying and selling

2020 saw the following purchases:

  • January: Nichols
  • February: Nothing
  • March: Nothing
  • April: PZ Cussons & Sage
  • May: QinetiQ
  • June: Henderson Far East Income & Eleco
  • July: Henderson Far East Income
  • August: RELX
  • September: Glaxosmithkline
  • October: RWS Holdings & Impact Healthcare REIT
  • November: Tate & Lyle
  • December: Keystone Investment Trust & Hargreaves Lansdown
Most of these were new additions, I bought more shares in existing holdings in Sage, GSK and Tate & Lyle during the year.

Only 1 stock was sold - Network International was sold in September.

Conclusion

I’m pleased with investments this year, although the return wasn't stellar, it just about crept into the positive. It was a mad year, one I'm sure most of us are glad to see the back of. 2021 should see some more interesting events in the markets as economies try to recover, and we start to get a grip on the virus. Trump's gone, a Brexit deal is signed, what's next?...

Monday 21 December 2020

Price is what you pay

 

It's traditional towards the end of a year, to look back at what has happened over the past 12 months. So I thought I would take a look at some of the portfolio and how they had faired against similar businesses during what has been a chaotic 2020. In particular I wondered whether some of my larger holdings had become or more less expensive over the year.

But then I figured 2020 has been such an exceptional year, that whatever has happened, it's likely to remain an outlier. Unless we are about to see economies shut down, in whole or in part, over the next few years, 2020 is going to remain an oddity. So I did a complete reversal and started picking over a few stats that specifically excluded 2020.

I keep track of the purchase price of any shares bought, and also a range of financial measures, so that I have a rough idea if in future I might be picking up the shares at a bargain price. Of course cheap vs. expensive is quite a complicated notion when it comes to the stock market, as there are any number of ways to describe this. 

I thought I'd use a few metrics that were relatively easy to understand and see how a range of companies had performed over the 5 years prior to COVID-19, December 2014 - December 2019, and included of a few of the portfolio - Unilever, Glaxosmithkline and Computacenter.

The metrics were:

  • Share price
  • Dividend growth
  • Net profit
  • Basic earnings per share
  • Free cash flow

And a couple of ratios through which to view price:

  • Price / Earnings (PE)
  • Price / Free Cash Flow (PFCF)

 There's a googlesheet here and a summary table below:








It's a pretty high level and incomplete set of information, but looking at the growth of a range of those measures for the 5 years leading up to COVID-19's arrival is interesting. I think I might build this into my usual review of businesses going forward as it has provoked a few neat questions. Anyway, some thoughts below

Unilever

Share price outpacing profits and led to the PE increasingly rapidly. But, free cash flow has been advancing faster that the share price. So investors are being asked to pay more for Unilever's profits, but less for their cash...

The PE is rising at the same rate as dividends – I wonder if Unilever is cementing it's place as a Bond proxy in a world of low interest rates?

Unilever isn't obviously more expensive that it was a few years ago - profits and cash are not rising at the same rate, so depending what you prefer paying for it can be viewed as more expensive...or cheaper.

Diageo

Share price and profits rising at a fairly consistent pace. Dividends a little slower, but still faster than inflation. But the FCF is the really noticeable thing here, moving at a fair clip.

As a result of the consistent growth, the PE, whilst expanding, has increased slowly (at just above the target of many central bank's rate of inflation).  But the PFCF has declined considerably thanks to the rate at which free cash flow has advanced.

Diageo is been a company I've prevaricated over for a while, it's a big, steady consumer  goods business, which I like. But I've wondered whether people are going to simply be more health conscious and booze less going forward. Maybe it needs a closer look.

Glaxosmithkline

The share price has been rising slowly, just above inflation, dividends flat, but profits and FCF have been rising much more quickly. As a result the above price ratios have both been decreasing at similar rates.

Despite the profit and cash measures looking more attractive, there have been more sellers than buyers. So presumably the above doesn't tell enough of the story. Given the pharmaceutical side of Glaxo, maybe the business is selling old products about to fall off a patent cliff. In other words, investors don't see the business creating a pipeline for growth and hence it is less attractive.

So expensive or cheap? Here the trade of between price and value seems very interesting and would need a deeper look into the reasons why investors were not impressed.

 Astrazeneca

Another Big Pharma business, who's numbers above are almost doing the opposite of Glaxo. The share price has been rising fast, but dividends, and profits were flat. We can also see that FCF was falling fast.

We can see that with the numerators growing and denominators shrinking the PE has expanded, and PFCF has exploded. 

Investors are willing to pay more now that a few years ago to own Astrazeneca. Does it have great growth prospects? Maybe it's been pushing all that profit and cash back into the business and is about to rocket. Maybe it has a pipeline of amazing products that are going to push those profits and that cash skywards? I haven't looked, but even without rummaging under the bonnet it's starting to look pricey to me... 

Computacenter

Here the share price, dividends, profits and FCF are all marvellously consistent. And pointing upwards.

So despite the share price bouncing up, the PE and PFCF have hardly moved. Everything is moving in unison.

I invested in Computacenter because they were a long standing supplier for my employer, and always did a good job. Nothing flash, just got the job done. Much like these numbers. My guess is that the market views them as fairly priced, which is why the share price has moved in tandem with the underlying performance of the business.

 EMIS

The share price for EMIS is growing just above it's growth of FCF, but profits are flat.

For the dividend hunters, things might look tempting as this is increasing at 10%+ per year. It could  potentially continue for a while if it continues to generate cash. But the rate of increase of the dividend is double the growth of their cash, so sooner or later it's going to catch up.

Given the flat profits, and increasing price it is now more expensive that it was. Maybe it's those dividend hunters who are willing to pay up to own a consistent dividend? It's difficult to get excited though when a business can't grow it's profits, perhaps given that EMIS is a supplier to the NHS it simply has limited pricing power.

Conclusion

No real conclusion, but an interesting diversion, which provoked a couple of questions of my larger holdings. And gave me some comfort that they remain worth hanging on to. I've looked into Diageo before, and will again. EMIS had some favourable characteristics that drew me to it, but I'm not convinced. Astrazeneca - now this one does look pricey. It may have decent growth prospects, it needs to...I'm priced out of that one. For now, happy investing.

Friday 4 December 2020

November 2020 portfolio update

To the moon...ahem...markets predictably shot up in November as, not one, but three vaccines came charging over the horizon. Although the Astrazeneca version had a few doubts over it's data. And Pfizer's needs to be kept at super-duper (#science) cold temperatures. Still there was a palpable relief that there is some light at the end of the tunnel.

Lockdown2 is proving as tedious as expected. God knows what the rules are...however, Blighty appears to be fairing better than the US. The Trump experiment to ignore the virus until it goes away seems to have backfired somewhat as the numbers of infections and deaths coming out of the US are awful. I expect the xmas relaxation in the UK will be followed by lockdown3 in a couple of months...

Speaking of the orange buffoon, he lost. Hurrah. They can now wheel in Biden and try to fix some of the damage done by Trumpy. The predictions of market chaos were exaggerated as usual, the markets didn't seem to care as virus news, and the potential vaccines to protect us from it grabbed the headlines.

And Brexit, apparently it's still going on...

The portfolio had a good month, as the stocks most beaten up over this year had a sharp bounce the markets jumped. I've avoided many of these, whilst I missed out on some of the big falls earlier in the year, I also missed out on some of this month's recovery. Higher valuations and fast moving markets held me back a little this month, so the only change was a top up to an old timer.

Portfolio performance
The portfolio was up 4.5% in November, behind my chosen benchmark (Vanguard FTSE All Share Accumulation) which was up 12.2% over the same period.

Best performers this month:
SAGA +78%
Craneware +40%
Dignity +39%

Worst performers this month:
AB Dynamics -14%
National Grid -8%
Reckitt Benckiser -5%

November share purchase: TATE
Tate & Lyle (TATE) are probably best known for their sugar and syrup that you'll see when you stroll through the baking aisle at the supermarket. Which is ironic since they no longer have a sugar refining business. Their genesis was indeed the merger of two sugar refiners owned by a Mr Tate and a Mr Lyle, but the sugar business was sold along with the rights to use the brand over 10 years ago. Today they are an ingredients business - for food, drinks and for a range of industrial products.

They've been in the portfolio for a while, never shooting the lights out, but have been a steady dividend payer. I was impressed that during the height of the pandemic they were able and willing to continue to issue guidance and maintained their dividend, and according to their half year report have managed to reduce their nebt debt since March. Recent announcements include the purchase of a majority stake in a starch business based in Thailand, and buying the remaining stake of a sweetner business it had a small part of, which had facilities in China. Clearly the intention is to try to increase their footprint in Asia, which sounds rather sensible.

It isn't a business that I think has a particular competitive advantage since it essentially offers commoditised, bulk products that could be purchased elsewhere, although established relationships with food and beverage producers would be difficult to disrupt. And shifting to alternative ingredients is something a large food/ drink producer is unlikely to do at a whim. They are however a pretty defensive business, and unlikely to see much change in demand from economic cycles, and they seem to be well run. So I'm happy to pick up a few more of their shares.

Friday 27 November 2020

IPOs vs the virus

Some internet wandering led me to stumble on the following chart from PWC that left me a little dumbfounded, and prompted a stroll through some IPO facts and figures.


Who in their right minds would try to get their business listed on a stock exchange in the middle of a pandemic, and potentially in the teeth of a terrible recession? It turns out that 477 businesses did just that in Q3 this year, raising $116bn in the process.

According to EY “Q3 2020 was the most active third quarter in last 20 years by proceeds and the second highest third quarter by deal numbers”.

So where is this extravaganza of new listings? 23 of them turned up in London (details here at the LSE). The fun was mostly being had in the US. They were flying off the shelves at such a rate that the numbers are increasing by the day it seems. As of 24th November, 2020, according to stockanalysis.com: "There have been 401 IPOs on the US stock market this year, as of November 24, 2020. That is +81.4% more than the same time in 2019, which had 221 IPOs by this date."

Is there a spooky correlation between the number of people dying from respiratory illness and the volume of IPOs during the year? One for Tyler Vigen maybe...

Looking at that busy US IPO activity for 2019, (as at November 2020) 59% of the IPOs are higher than their initial listing price, 40% are lower. The top 10 are below:

IPO Date

Name

IPO Price

Current

Return

Apr 18, 2019

Zoom Video Communications

$36.00

$430.28

1095%

Jun 13, 2019

Fiverr International

$21.00

$200.00

852%

Oct 10, 2019

BioNTech SE

$15.00

$106.50

610%

Nov 21, 2019

SiTime

$13.00

$85.20

555%

Jun 28, 2019

Karuna Therapeutics

$16.00

$100.00

525%

Jun 6, 2019

GSX Techedu

$10.50

$63.90

509%

Mar 7, 2019

ShockWave Medical

$17.00

$98.64

480%

Apr 17, 2019

Turning Point Therapeutics

$18.00

$104.37

480%

May 2, 2019

Beyond Meat

$25.00

$140.96

464%

Dec 5, 2019

LMP Automotive Holdings

$5.00

$27.71

454%


The bottom 10 from 2019:

IPO Date

Name

IPO Price

Current

Return

Nov 8, 2019

ECMOHO Limited

$10.00

$1.43

-86%

Aug 15, 2019

9F Inc.

$9.50

$1.29

-86%

Feb 12, 2019

Anchiano Therapeutics

$11.50

$1.41

-88%

Nov 13, 2019

YayYo

$4.00

$0.4500

-89%

Feb 15, 2019

Stealth BioTherapeutics

$12.00

$1.30

-89%

Jul 31, 2019

Borr Drilling

$9.30

$0.800

-91%

Jan 4, 2019

China SXT Pharmaceuticals

$4.00

$0.290

-93%

Apr 5, 2019

Guardion Health Sciences

$4.00

$0.247

-94%

May 10, 2019

Sonim Technologies

$11.00

$0.585

-95%

Aug 1, 2019

Sundial Growers

$13.00

$0.241

-98%


2020 has been just as exciting. 61% of the new listing from this year are in the green, whilst 36% have lost money.

2020 top 10 IPOs:

IPO Date

Name

IPO Price

Current

Return

Aug 14, 2020

CureVac

$16.00

$85.06

432%

Aug 27, 2020

XPeng

$15.00

$72.17

381%

Apr 8, 2020

Keros Therapeutics

$16.00

$76.21

376%

Jul 17, 2020

ALX Oncology Holdings

$19.00

$82.28

333%

Feb 6, 2020

Schrodinger

$17.00

$67.65

298%

Jul 30, 2020

Li Auto

$11.50

$43.64

279%

Jul 17, 2020

Berkeley Lights

$22.00

$83.36

279%

May 22, 2020

Inari Medical

$19.00

$68.00

258%

Jun 5, 2020

Dada Nexus

$16.00

$52.03

225%

Aug 13, 2020

KE Holdings

$20.00

$62.97

215%


And the bottom 10:

IPO Date

Name

IPO Price

Current

Return

Feb 6, 2020

Casper Sleep

$12.00

$6.04

-50%

Jan 17, 2020

Velocity Financial

$13.00

$6.25

-52%

Sep 30, 2020

Boqii Holding

$10.00

$4.78

-52%

Feb 13, 2020

Muscle Maker

$5.00

$2.30

-54%

Feb 24, 2020

Zhongchao

$4.00

$1.82

-55%

Jan 30, 2020

AnPac Bio-Medical Science

$12.00

$3.49

-71%

Jan 17, 2020

Phoenix Tree Holdings

$13.50

$3.76

-72%

Jun 19, 2020

Progenity

$15.00

$3.64

-76%

Jan 17, 2020

Lizhi Inc.

$11.00

$2.48

-77%

Jun 30, 2020

Aditx Therapeutics

$9.00

$1.91

-79%


Exciting stuff, a bit racy for me.

The requirements for a new listing vary slightly from one exchange to another, as do the regulatory requirements. The LSE have a nice write up here and nicely summarised below. 


It all sounds like a nice wheeze to get some cash, perhaps the founders have the chance to offload some of their own investment tied up in the company. But a more sobering element is the cost. PWC again have a nice tool to allow a view of the potential costs.

As an example, a tech firm with revenues less than $100m wanting to list at a valuation in the range of $100m to $250m would end up having to hand over between $8m to $24m according to PWC. 


Some of these IPOs are SPACs - Special Purpose Acquisition Companies. There is a detailed and comprehensive write up from Harvard if these excite you. SPACs are companies with no commercial operations that are designed and built just to raise capital via an IPO. It then buys an existing business. They are known as "blank cheque" companies and have been around for decades, but the recent boom in IPOs have brought these to the public attention through some high profile listings.

I think IPOs are not for me, although one or two of the US businesses do look interesting. I prefer my investments to be a little less volatile.