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.

November 2019 portfolio update

Markets were up last month, I was a bit surprised there wasn't more of a sideways drift as we await any trade deals being agreed between the US and China, and domestically we get to "enjoy" the run in to the December election. An election I think was well summarised by Ian Shepherdson, chief economist at Pantheon Macroeconomics on CNBC “It is a terrible choice. Two dreadful, inadequate, dissembling, incompetent politicians and one of them is definitely going to be prime minister.”

I remain hopeful that a post-election Sterling rally will lower the price of few of the FTSE100, and also make overseas investments more palatable. There are a few blue chips I would like to add to the portfolio, and would also like to top up some of my current holdings, but am comfortable remaining patient.

I decided to add another renewable energy Investment Trust this month. I've arbitrarily decided that a premium of less than 10% puts them into buying territory. It's not ideal, but I've been on the sidelines for a while and there is clearly a long term trend towards renewables. These should also add a little diversification to the portfolio as their performance is less correlated to other equities.

Portfolio performance
The portfolio was up +2.7% in November, slightly ahead of my chosen benchmark the Vanguard FTSE All Share Accumulation which was up +2.2% over the same period.

Best performers this month:
Abcam +15%
Telecom Plus +11%
Computacenter +10%

Worst performers this month:
888 Holdings -9%
Compass -8%
Fulcrum Utilities -3%

November share purchase: NESF
NextEnergy Solar Fund (NESF) was the latest addition to the portfolio and joins Foresight Solar into which I invested in October. As I posted here I've been keeping an eye on renewable energy investment trusts for a while, but the high premiums have discouraged me. NESF drifted a little lower during the end of the month so I decided to invest.

NESF have 89 solar installations, mostly in the UK, with 8 in Italy. They have just finished their first subsidy free installation, and are due to complete a second, much larger, subsidy free plant in the next 6 months. They are a little smaller than Foresight but also a member of the FTSE 250. They listed in 2014, and have generated around 10% total return since IPO. I suspect this will be a little lower in the next year or two if the returns move closer to historical averages, but NESF pays a dividend in excess of 5% which I'll be happy to take.

Given the nature of the business I would expect it to be relatively Brexit proof, and may even benefit from a Labour Government, depending on how they want to fund investment into renewables (won't be holding my breath though). Nice to also see that during the first half of the year, NESF produced enough electricity to power 134,000 homes.

October 2019 portfolio update

Another month of markets bouncing around in response to the ongoing brexit yawnfest. Sterling movements seem to be driving a lot of prices, I'm staying patient as although the big international blue chips have come down in price, I suspect they have another leg down if chances of a hard brexit recede. As sterling appreciates it will also start to bring into play a number of businesses listed outside the UK that I'm interested in, but we're not quite there yet.

Portfolio
The portfolio had a slight fall during October, but was ahead of the wider markets which were pulled down further by some big names posting disappointing updates. The portfolio was down -0.2% compared to my chosen benchmark the Vanguard FTSE All Share Accumulation fund which was down -1.4% over the same period.

Top 3 holdings:
888 Holdings +17%
Dignity +9%
Fulcrum Utilities +7%

Bottom 3 holdings:
Craneware -6%
SAGA -7%
Tate & Lyle -9%


October share purchase: FSFL
Foresight Solar (FSFL) was added to the portfolio in October. As I posted here I've been keeping an eye on renewable energy investment trusts for a while, but have been reluctant to commit due to the premium on most of these. A share issue brought the premium on FSFL this down a little so I decided it was time to invest.

FSFL have 54 solar installations, 50 in the UK and 4 in Australia. They are the largest of the three solar energy investment trusts listed on the FTSE. They listed in 2013, and have generated around 8% total return since IPO, most of which is via dividends which are in excess of 5%.

UK solar subsidies dried up a couple of years ago, since when UK based installations have slowed, so solar funds have looked overseas for attractive investments. Capital growth is likely to be fairly pedestrian, but I'm comfortable with this, and will be happy taking the chunky dividend. The share issue was used to reduce borrowing which will enable further expansion where the opportunities present themselves.

Probably also worth noting that during the first half of the year, FSFL produced enough electricity to power 130,000 homes.

September 2019 portfolio update

Another volatile month, with crazy oil price movements, Trumpy being naughty, Bojo and Parliament butting heads over the tediousness that is Brexit. Some price reductions in some of the big defensive blue chips piqued the interest, but they aren't quite into buying territory. My guess is that some of the selling was due to Sterling showing signs of life, but also people moving out of the big international defensive stocks and into more UK facing businesses. I expect the portfolio exposure to big internationals will result in some share price decreases over the short term, I'm comfortable with that as I believe it is outweighed by long term benefits.

Portfolio
The portfolio was pretty much flat during September, just about getting into the positive, but behind the wider markets which were considerably more frisky. The portfolio was up 0.3% compared to my chosen benchmark the Vanguard FTSE All Share Accumulation fund which was up 3% over the same period.

Leaping like a salmon this month was Craneware (CRW) +40%. There didn't seem to be an obvious reason, maybe an institutional investor got interested, short covering...who knows.

Somero Enterprises (SOM) flopped -34% during the month after another soggy trading update that left investors less than impressed.

September share purchase: TEP
Telecom Plus (TEP) was a new entry to the portfolio this month. It got a brief mention when I took a look at some telecoms companies here, but not in any detail as (despite being listed by the LSE as a telecommunications firm) telecoms is only a part of it’s business. If you have a rummage on the internet you’ll find it calling itself Utility Warehouse – which is a relatively apt name for it. It makes money by providing a range of utility and "utility like" services, such as phone lines, mobile network, internet etc. However, it doesn’t build and manage the infrastructure - the pipes and wires - as such, but connects customers to the service providers, then manages the customer facing aspects such as support and billing. In this way it manages to offer some utility like defensive qualities, but also manages to avoid the huge capital costs that utilities and/or telecoms providers get saddled with. It has also managed to keep marketing and sales costs low by offering existing customers a chance of earning cash by getting them to sign up new customers.

ROCE has been in double digits over recent years, net profit has not been as high as I would like, but I’m prepared to ignore that given the defensive qualities of the business. They also have a reasonable dividend – clocking in above 4%, with regular annual increases, and low levels of debt. They seem to make a habit of getting awards for keeping customers happy, and have seen their customer numbers growing which is encouraging. I don’t see this as a fast growing business, but if they can keep slowly adding customers, keeping them happy, and increasing the dividend I’ll be content.

As with any utility company in the UK, it might well find itself in the cross hairs of a Labour government, should they get themselves into power. As an interface to utility providers, they probably wouldn’t fall into the bracket of “things Labour want to nationalise”, but any risk of labour treating this sort of business as a political football is unlikely to be reflect well in the share price. Since some of their profits are being paid to me, I might as well contribute to them by switching a few of my bills across to them too.

August 2019 portfolio update

Plenty of things pushing the markets around over the last month, Trumpy tariffs, Bojo's Brexit plans, Iran, Hong Kong...as a consequence we've seen plenty of volatility. Some of this is going to start hitting business performance, so it's no surprise to see investors getting nervous. Since I'm looking to buy, this is not a wholly bad state of affairs from my point of view. If Mr Market has a few tantrums over the next few months that will hopefully provide a few discounts, and the chance to lock in some higher dividend yields.

However, I'm remaining cautious particularly since Brexit feels somewhat binary: a softer version is likely to cause Sterling to spike, and drop the prices of the big international firms; whereas a harder Brexit is likely to cause a bit of a sell off of UK facing businesses. I'm not too concerned about the long term, but would be nice to be able to capitalise on cheaper prices and bigger dividends. I have plenty of interesting businesses and trusts to research, anything looking relatively Brexit-proof may well make it onto the shopping list.

Portfolio
The portfolio was beaten up a bit during August, like the wider markets, but just sneaked in ahead of my benchmark. The portfolio was down -3.2% compared to my chosen benchmark the Vanguard FTSE All Share Accumulation fund which was down -3.9% over the same period.

Sprinting ahead this month was old timer Unilever (ULVR), +5%. It's not often ULVR gets up above walking pace, but managed it this month. I suspect it's a result of people diving into defensive stocks to escape the volatility.

AG Barr (BAG) wasn't so steady on it's feet and took a tumble this month, -13%. Not too concerning just bouncing around after the big price drop last month from what I can tell. Nice to see the firm capitalising on the price and indulging in buy back activity, tick in the box for BAG.

August share purchase:
Network International (NETW) are a digital payment provider operating across the Middle East and Africa. They listed on the FTSE earlier this year - their IPO was in April. This is an unusual one for me, as I would rather a company had been operating as a listed business for a while to make sure any skeletons in the cupboard from their private days had been appropriately dealt with. So, as with any purchase that I think is a little racy, to mitigate some of that risk I've taken a smaller position.

NETW are based out of Dubai, and following the IPO have a valuation over £2.8bn, so they are not exactly a minnow, comfortably nestled in the FTSE 250 amongst household names such as Cineworld. However, compared to the $43bn paid by FIS for Worldpay recently they have some much bigger firms to compete with. It is this sector consolidation and the defensive nature of the payments industry that drove the purchase. I was also encouraged to see Mastercard take a 10% stake at the IPO. I'm not keen on buying at IPOs simply because it's never clear if the price is going to shoot upwards or crash. NETW has been moving upwards and following a recent positive trading update I was convinced to put in a little money. If it continues it's good news I will put in a bit more.

July 2019 portfolio update

Lots of companies giving updates during July, so some quite big price moves both up and down, but the markets were maintaining their overall upwards trend. A few of the price moves put some things on the shopping list into buying territory which was helpful. Many of the big cap stocks that I'd prefer to be buying are still looking expensive, helped in part by the devaluation of Sterling. But I shall keep an eye on them as one or two have wobbled over the last few weeks.

Portfolio
The portfolio followed the markets upwards during July, just about getting it's nose in front. The portfolio was up 3% compared to my chosen benchmark the Vanguard FTSE All Share Accumulation fund which was up 2.3% over the same period.

Keen bean this month was Fulcrum Utilities (FCRM), +16%. I suspect this is partly due to over-enthusiastic selling last month when preliminary results were delayed, but an update stating that they were trading in line with expectations was welcomed.

Dignity (DTY) was showing a distinct lack of enthusiasm this month, -17% due mainly to a poor trading update and withdrawing their interim dividend. Not enough people dying apparently.

July share purchase 1: CRW
Craneware (CRW) develop software to help US hospitals and healthcare providers to understand their costs, maintain regulatory compliance, avoid pricing errors and streamline their administration. They were founded in 1999 and listed on the AIM in 2007, and have been a bit of an investor darling ever since, now with a market cap around £530m.

Despite deriving it's revenues from the US, the business is based in Edinburgh and have some great
 operating numbers, including ROCE and net margins averaging over 20% across the last 10 years, and zero debt. Customers typically enter 5 year contracts and provide nice predictable revenues. As a consequence of Craneware providing such an attractive investment proposition, the price has been chased ever higher. So when the company announced it's sales were off course at the end of June, the price took a nosedive of over 35%.

The price basically reversed out it's gains over the last year in a matter of hours on publication of the trading announcement. I'd be quite happy to see a slow recovery, if the price gains 10% in each of the next 5 years it will have got back to where it started before announcing the slow sales. Craneware has a sticky customer base and operates at the intersection of technology and healthcare which are sectors in which I'm comfortable investing, however the price is still high in my view (at least in PE terms, less so if you're looking at price to cash flow). Given the high price, I've kept the investment small, recycling a chunk of dividend payments into this one.

July share purchase 2: BAG
AG Barr sell soft drinks - and have since 1875 built their business of adding sugar and flavourings to water, and in some cases some carbon dioxide for a little fizz. They have a number of brands, the most famous of which is Irn Bru, but they have also branched out into juices, waters, cocktail mixers, and partnerships with other soft drinks sellers including (my favourite) Bundaberg ginger beer.

The Barr family ran the business for over 100 years, and still have family members in senior management. Robin Barr serves as a non-executive director and owns around 5% of the business. It is also a favourite of a number of funds, including Lindsell Train who own around 14% of the business.

It's not difficult to see why it has proven an attractive investment, it is a simple business, which has been successfully and conservatively run for quite some time. Over the last decade it has averaged double digit ROCE and net margins, and has no debt. It also has a proud track record of dividend increases, which again over the last decade have averaged 5% increase per year.

Food and drink businesses are typically seen as defensive investments, steady earners that can rely on many small repeat transactions. AG Barr's share price has indeed been increasing steadily, and from October 2016 until June 2019, more or less doubled. Much like Craneware above, with the valuation getting into nosebleed territory (at least for BAG), there was little room for error. So when AG Barr released a profit warning in the middle of the month, the sell off sliced 30% from the share price, to a level it was selling for in 2014. The reasons given included a couple of poor performers in their portfolio, the sugar tax, and a subsequent change in strategy to focus on volumes. And the weather. I'm not impressed by any business that relies on the UK weather for it's sales. However, having a couple of underperforming products is forgivable, and driving volumes and increasing marketing spend at the expense of margins is understandable given the altered recipes to accommodate the sugar tax.

I don't think the price drop put it into bargain territory, but shifted it from overvalued to reasonably priced, which is good enough for me.

January share purchase no.2: BBOX

My second purchase of January was Tritax Big Box (BBOX). This is a wonderfully dull business - they specialise in the provision of "...very large logistics facilities in the UK".  Having visited a couple of these facilities, I can attest to them being very large indeed. The BBOX IPO was in 2013 and they have seen impressive and pretty consistent growth since, at the time of writing their market cap is over £2bn. Their tenants make up a nice cross section of both UK and international businesses, including Screwfix, M&S, through to Amazon and Unilever.

The ecommerce goldrush is already is full swing (take your pick of stats here), but there's still gold in them hills, and as everyone knows the best way to make money in a goldrush is to sell shovels. Logistics being one type of shovel for the current day.

BBOX is a Real Estate Investment Trust, these are financial vehicles that came into being in the UK in 2006/7. In exchange for following certain rules around their design, these businesses avoid corporation tax and capital gains tax on their property portfolio, and are required to payout 90% of their income to investors. However, since they are paying out most of their cash, when it comes to investing in their business, and going after more properties, they will typically have to raise money through issuing more shares, or borrowing, neither of which is perfect. It's a convenient way of investing in property without all of the usual hassle that typically comes with actually buying property.

Based on their Q3 factsheet, issued in September 2018, the average lease had around 14 years to run, all assets were occupied. Their customers look, like a relative sound set of businesses, but with a couple of exceptions, most notably New Look, which appears to be struggling. Marks & Spencer and Dixons Carphone have also had their difficulties recently. However, apart from those 3, the remainder look like very solid businesses.

I've had my eye on this for while, but the price had moved steadily upwards, not offering a dip to buy into until the summer just past when the price started sliding. It kept sliding all the way to offering a discount of nearly 8% vs. NAV, which considering it had hardly offered any discount in it's history looked pretty tempting. Then just after the January trading update BBOX announced the acquisition of db Symmetry to add to the BBOX asset portfolio. Since the acquisition was viewed as dilutive, the share price took a dip from what I could gather the overall impact of the additional assets would outweigh this.

Now unfortunately I'm no expert on REITS, and I didn't feel as if my screeners, and excel number crunching tools could be applied, but I'm quite comfortable with this. I see it as a fairly defensive investment, that should pay a steady dividend and it adds some diversification to the portfolio too.

January share purchase no.1 : MANX

The Alternative Investment Market is home to many weird and wonderful businesses, some of which are household names, and based on market capitalisation would comfortably sit in the FTSE 250, and even make a run at the FTSE 100 – just check out Burford Capital (BUR), Fevertree (FEVR) or ASOS (ASC). It has a lighter regulatory framework to the main market and therefore has greater regulatory wriggle room which could be exploited by badly run businesses, a quick Google search will reveal plenty of examples.

Manx Telecom (MANX) is a telecoms company operating on the Isle of Man (the clue is in the name 😊). They provide fixed line, broadband and mobile telecoms, run a couple of datacentres and are launching a new product to help mobile users with hearing difficulties. They were admitted to the AIM in February 2014.

So the first purchase of the year is a bit leftfield, falling into the speculative part of the portfolio, and therefore was a smaller purchase…

As a speculative investment, I’m not expecting them to meet my standard investment criteria. However, they are appealing for a couple of key points. As the leading comms provider on the Isle of Man there is clearly a “moat” around their business and their core revenues from the residents of the Isle are “sticky” – at least there is going to be a degree of cost involved in switching to an alternative supplier. And their new products, should they prove successful should act as a decent tailwind for the stock. They are a capital intensive business, with more debt than I would like, which is not ideal, but it is defensive in nature.

The share price has been in decline over the past few months and at the time of purchase it looked as if it was finding a bottom (hopefully I’ll not be posting something here in a few months about catching falling knives). Partly as a result of the share price fall, at the time of purchase the dividend yield was around 7%. Anything above 5% gets a big thumbs up, but given the new products, and potential investment required, I wouldn’t be surprised to see the dividend reduced. For 2017 the full dividend per share was 11.4p, adjusted earnings per share was 13.28p and cash flow per share around 10p per share (depending how you calculate it).