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4th October; AdEPT Telecom trading update

Adept

 AdEPT Telecom (AIM All Share, Market capitalisation; £68m, 285p, 4.5% of JIC Portfolio and 9.5% of the JIC Top 10)

Trading update for its first half ended 30th September 2017.

Conclusion: First the dividend; current forecasts are for a full year increase of 3.2% and today it has increased the interim by 13.3%. If that is an indication of the sort of increase for the whole year, which I think it is, that would mean a dividend of something like 8.75p. That leads to an attractive prospective dividend yield of 3.1%. Whilst the rest of the statement reads quite positively I think the last point it makes suggest that there will be no upgrades to full year forecasts, bar the dividend, at this stage. The share price has come back in the last few months and my part sale in March at 350p is looking prescient. At 285p, on a March 2018 prospective PE ratio of 11.1x for 76% earnings growth (according to Stockopedia) and a prospective dividend yield of 3.1%, I think the shares look attractive again. It is moving towards the level I would consider buying back the stock but as I’ve got 4.5% in the stock already, I can afford to be greedy. I will wait and see. Happy Holder!

It says that “it has made considerable progress in transforming itself from our original Telecoms background into Unified Communications and then into IT, a journey we embarked on in 2015”.

Although interim results are due on 14th November it feels confident enough to announce an interim dividend of 4.25p, which is an increase of 13.3% over last year’s interim of 3.75p.

It also says that Comms Group, which it acquired in May 2016, met its performance targets in the 12-month period ending 31st may and has therefore hit the maximum earn out of £3.5m, which was paid in July.

Lastly it points out that as its most recent acquisition, Atomwide, was completed part way through the current year, “it will therefore be sometime before the positive impact of this acquisition on our run-rate revenues and EBITDA will show in our reported numbers.”

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8th September; RedstoneConnect half year trading update

REDS

RedstoneConnect (REDS.L, Mkt cap. £26m, 1.25p and 1.3% of the JIC Portfolio and 0.0% of JIC Top 10)

Trading statement for its first half to 31st July. Results will be issued on 10th October.

Conclusion: I admit being a little disappointed at the progress in signing new contracts. I, and judging by the share price’s recent performance, think the market was expecting more progress on this front. Now, although the statement reads positively, we are faced with the dreaded “we anticipate our performance to be more second half weighted”. Often, this proves to be misplaced management optimism! In this case, I am prepared to give it the second half to prove me wrong. I like the management, I like its product, I think the valuation, (12.4x earnings forecasts for the current year ending 31st January 2018), reflects little expectation of success and at this stage it is only 1.3% of my capital. Impatient holder! 

It says, “the Company is pleased with the progress made across the business in the first half, with trading in line with management expectations.” It goes on, “the Redstone business is seeing strong levels of customer engagement with a good pipeline of new projects. Given the project-based nature of the work for Redstone, the contribution of revenue from this division will be more second half weighted than last year.”

Mark Braund, CEO of RedstoneConnect, commented: “We are pleased with the progress made across our business in the first half especially in the development and deployment of our software solutions services, with trading in line with management expectations.

Whilst we anticipate our performance to be largely second half weighted this year, given our pipeline of work, new business momentum and strong order book, coupled with the additional services that we have added to our offering through the acquisition of A+K, we remain confident for the full year.”

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Weekend Roundup

Saturday 8th July 2017

Weekend Roundup

Returns of selected markets over one week, three months, a year and since 1st January, ranked by the last week. 

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The main story last week was the continued sell off in government bonds. In the US, 10-year treasury yields rose to 2.37% but only back to the level it was at in March. The move in German 10 years has caused more excitement with yields rising from 0.24% to 0.56% in the last week or so, the highest level for 18 months. Remember, only a year ago some people thought it sensible to buy German bonds on a negative yield! In equity markets India was the best performer on my table, up 1.4%. After that it was all a little dull with China up 0.6%, Germany up 0.5%, the S&P 500 +0.1% and the Nikkei 225, down 0.5%. The FTSE All Share (TR) Index gained 0.5%.

Sterling was weak following poor UK manufacturing figures and a jump in the trade deficit, falling 0.8% against the Euro to 113.1 and 1.1% against the US$ to 1.289.

Gold was weak again, off 2.4% to $1211 per oz., its lowest level since mid-March.  Oil also dropped, with Brent crude off 4.3% to $46.9 per barrel.

The JIC Portfolio had a lacklustre week, losing 0.1%. Since the start of the year it is now up 13.7% against +6.0% for the FTSE All Share and since inception in January 2102 has gained 141.7% v +71.6% for the Index.

More than 5.0% movers last week were Satellite Solutions Worldwide, +9.0%, (sensibly but unfortunately my second smallest holding) and XLMedia, + 6.3%, following a “ahead of expectations” trading update. None of my holdings fell more than 5.0% with Statpro, -3.8%, the worst.

Three trades last week. I added a new holding, xxxxxx and topped up two existing holdings, xxxxxx and xxxxxxx.

Next week sees Final results from Accrol on Monday and AdEPT Telecom on Thursday.

2nd May 2017

Revolution Bars; position sold, profits booked

Revolution Bars (RBG.l, FTSE Fledgeling Index, Market Cap. £111m, 217p, 0% of JIC Portfolio and 0.0% of JIC Top 10):

I have just sold my holding. A profit, including dividends of 37.8% since purchase in October.

On 28th February, on its interim results I concluded:

Conclusion: No surprises in these results given the previous trading statement. Maybe a little disappointment at the slowdown in like-for-like growth to 1.7% this year but it is a quiet period. I am turning a little lukewarm on this stock. I like roll-out stories but I am concerned that the scope for rapid roll out of its two formats is limited. Two openings in the second half is not exactly pushing the envelope. I am also slightly worried that its format could be a bit of a fad; at some stage one could find that its clientele has moved on to something new. That is not something that concerns me with for example, Patisserie Valerie. It looks okay value on consensus forecasts; it is valued at 12.4x June 2017 falling to 10.9x June 2018, (13% earnings growth). The prospective dividend yield is forecast at 2.7% rising to 3.0%. I am up 26% so far and have a 1.7% holding. Given my previous comments, I am not tempted to add to the holding, (I wouldn’t buy it now if I didn’t already hold it). With hindsight, the 230p it reached in early January looked like a good price to sell and move on. Happy holder for now!

I said I had turned lukewarm on the stock and outlined some of my concerns. I was slightly surprised at how well it performed after those results, rallying 10% or so.

When I bought back in November, it was very cheap, (9.7x June 2017 with a prospective yield of 3.4%). Having rallied some 35% since then, I think it is fairish value, (13.3x and 2.4% yield to June 2017). I have sold because I do not feel confident that there is enough momentum in the business and that with an average spend in the high £30’s it could be susceptible to a slowdown in consumer spending. Customers may trade down to save money on their night out. There is also the risk that the current fashion for cocktails could be a fad.

I may be a little to gloomy but in short, I am happy to book my profit, reduce my exposure to the UK consumer and reduce the number of stocks in the Portfolio back to 30.

10th October 2016

New Holding: Revolution Bars

Revolution

 

I have added a new holding today. I’m sorry for the bombardment of trades in the last week but the poor performance has got to stop. I need a few fresh ideas to replace some of those which are not performing and where I have concerns that performance may not resume in the near term.

Revolution Bars (RBG.l, FTSE Fledgeling Index, Market Cap. £80m, 160p, 1.5% of JIC Portfolio and 0.0% of JIC Top 10): 

Paul Scott brought this stock to my attention in his small cap value report on Stockopedia. I think he is on to something.

Revolution operates 62 bar/restaurants which provide a premium drinks and food experience. It trades under the Revolution format (53 outlets) and Revolution de Cuba , (9 outlet).

It reckons that there is scope for over 100 Revolution bars and more than 40 of the revolution de Cuba. Around 60% of the clientele is female and the average spend around £30 per head.

On 4th October it posted its latest results for the year ended 30th June 2016, which showed like-for-like sales growth of 2.3%, gross margins up 0.4% and adjusted eps up 14% to 14.6p. It opened 5 new sites during the year. It plans the same number for the current year with three opening before Christmas. Trading in the current year has got off to a good start with like-for-likes up 1.8% and earnings forecast were upgraded slightly from 16.4p to 16.6p.

It has an excellent shareholder list although some of the current weakness seems to be from Polar Capital reducing its holding. On October 4th there was some director buying at 155p. Sometimes it can be a bit of a turn-off when directors all buy on the same day as it looks a little orchestrated. In this case however, one can’t help be impressed that the CEO bought £176,000 worth.

It came to the market in March 2015 and a quick glance of the chart below shows you can now buy it 20% lower. Given that it is ungeared and is generating sufficient cash flow to fund its rollout plans, I think a PE ratio, on consensus forecasts, of just 9.7x the current year ending June 2017 looks too cheap, given 21% earnings growth. It is also on a prospective dividend yield of 3.4%. For the following year the PE ratio drops to 8.6x and the dividend yield is forecast at 3.8%.

I like self-funded roll out stories and this joins my other stock in this class, Patisserie Holdings, operators of Patisserie Valerie.

I have funded the purchase from cash and by reducing Sprue Aegis to 1.0%. Sprue has recovered well from the initial sell off back in April but seems to be faltering a little. I think it prudent to sell some of the stock I bought at lower levels. I wouldn’t want to be holding 2.0% if there was any setback to its recovery. I will watch how it goes from here.

This takes me up to my maximum number of holdings of 30 so any new positions will have to be funded by a complete sale.

See JIC Portfolio tab above for transaction details and Portfolio

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Weekend Roundup and the Unfortunate Guide to Future Pensions

Sunday 24th April 2016

 

Yesterday, I went to the Master Investor Show and as always, enjoyed Jim Mellon’s speech. It was entertaining as well as thought provoking. It’s always interesting to hear his thoughts on some of the big trends affecting markets. Tomorrow, I will write more on this and his top tips for the year ahead, but I thought I would share one slide, the “Unfortunate Guide to Future Pensions”. There is a message for all but especially the younger; don’t rely on the state to look after you and as you probably do not have the security of a final salary pension scheme, understand the power of compounding and start saving as much as you can, in the most tax efficient way, now!

(If you click anywhere on the slide it should get bigger!)

IMG_0275 (1)

 Last week

In general, major equity markets had a good week: the Nikkei 225 bounced back 4.3% after a poor run, the German Dax was up 3.2% and the S&P 500 gained a further 0.5%. In the UK, the FTSE All Share (TR) Index gave up 0.4%. China was the worst performing market, with the FTSE China A All Share down 4.4%. In commodity markets, oil showed further strength with Brent Crude gaining 5.6% to $45.49 per barrel and Gold continues to consolidate, falling just 0.2% to $1233 per oz.

The 0.4% fall in the FTSE All Share (TR) Index means that it is now up 2.0% in April, 1.6% year to date and +40.9% since inception of the JIC portfolio in January 2012; over the respective periods the JIC Portfolio has returned-1.5%, +1.9%, -3.1% and +114.9%.

A week ago in my weekend Roundup I finished by saying, “I cannot see any scheduled results for stocks in the JIC Portfolio next week but I’ll be ready at my desk each morning at 7:00 ready for any surprises.’ Well, on Monday I received a rather nasty surprise in the form of a profit warning from Sprue Aegis, which saw the share price drop 55% on the week; it has final results for 2015 this coming week and it will be interesting to see whether they can reassure the market that last week’s profit warning puts a line under it recent problems; is this a good company with a leading market share in a growing market, which has hit an air pocket leading to a huge buying opportunity in the shares or is there something more amiss? I will be interested to see what they do with the dividend, given its strong balance sheet. It was the first profit warning I have been hit with for sometime; these things happen and are a hazard of equity investing. So Sprue caused most of the damage with just Next, -5.3% and Baillie Gifford Shin Nippon, -5.4% falling more than 5.0%. The positives were On The Beach, +10.4%, Interserve, +6.3% and BlackRock World Mining, +5.4%; BRWM is now up 54% since January’s low point.

Last week I made two changes to the Portfolio as result of Firm stop-losses being triggered. I booked some nice profits in ********, when my Firm trailing stop loss on 25% of the holding, was triggered. I like ****** very much indeed but at over 10% of the Portfolio I was starting to feel a little uncomfortable; after the sale it is still the Portfolio’s largest holding at 8.1%. It is worth noting that it is up over 60% since last August’s low point. I am also relaxed about the halving of the position in Next; I have clearly got this wrong over the last six months; I understand the changes that are going on in the industry but feel that the market may be underestimating the ability of its management to adapt to new trends; whatever, I need to make a decision on what to do with the other half of the holding. I also increased my holding in ********** on the fall, to 0.9% of the Portfolio; I know this looks like catching a falling knife but I think the share’s look extremely cheap, (enterprise value/to forecast sales of about 0.55) and on a year’s view will be a lot higher. Ideally I would add more but will wait until my views are confirmed by the market!

Next week sees interim results from Character Group on Wednesday and final results from Sprue Aegis, also on Wednesday, I believe.

Have a good week andHappy Investing!

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 a few weeks of solid gains, most markets paused for breath in this short pre-Easter week. The German Dax was down 0.4%, the Nikkei 225, -0.3% and the S&P 500, -0.2%. Both China and India made gains, +2.9% and +2.7% respectively. Oil lost 2.4% with Brent crude closing the week just above $40 per barrel. It was a bad week for Gold bulls with it giving up 3.4% to $1216 per oz. In the UK the FTSE All Share (TR) Index fell 1.3%.

The JIC Portfolio fell 1.3% on the week so is down 5.4 since 1st January and up 109.8% since January 2012; over the respective time periods the total return of the FTSE All Share was -1.3%, -1.6% and +36.4%.

The star performers last week were Vislink, +15.1%, which published results at the very top end of expectations and maintained the dividend and Biotech Growth Trust, +5.5%. The main fallers were Next, -14.6% in what looks to me like a massive over reaction to comments from the CEO Lord Wolfson saying that 2016 could be the toughest year since 2008. He has done an excellent job in lowering expectations for the year ahead, so much so that at the bottom of his range of forecasts, the shares are now valued, on my calculations, at around 13.0x January 2017 likely earnings per share. It is also on a prospective dividend yield of 6.2%, although with the share price weak, much of that, (more than half), is likely to be returned via share buybacks, which of course enhances earnings per share and shareholder value. It could of course get cheaper but this looks a reasonable entry point to me so I added to the position. Bioventix gave up 10.1% despite a strong set of half year results and a 50% increase in the dividend. I see one big shareholder has taken some profits. Markets may be reacting to a comment in the results that in 18 months it will lose around 15% of revenue due to the expiry of one of its license agreements. Beyond that, its new high sensitivity Troponin assay should take up the running. Fairpoint also saw a 7.3% fall in its share price.

Last week, I cut the position in *********thus realising a loss. A poor investment but I did not have the appetite to add to the holding and felt the cash could be used better elsewhere; I added to ********** and as mentioned earlier, Next.  On Thursday BlackRock World Mining Trust went ex-dividend 14p per share, or 6.1% of Wednesday night’s closing share price.

Another short week ahead sees final results from XLMedia on Wednesday and on Thursday Interserve goes ex dividend 16.4p per share.

Happy Investing! John

gold

alls

brent

 

 

 

 

Sunday 22nd November

A good week for equity markets; the German Dax was up 3.8%, the FTSE All Share (TR) Index, +3.4%, the S&P 500, +3.2% and the Nikkei 225, +1.4%. The S&P 500 chart is looking pretty good and if it can gain another 2% or so and break May’s all-time highs we could be in for a good end to the year.

The JIC Portfolio gained 2.2% on the week and is now up 2.0% in November, 12.6% since January 1st and 114.7% since inception nearly four years ago. Over the respective time periods the FTSE All Share (Total Return) Index is up 0.0%, +1.7% and +39.6%.

The star performers over the week were Crawshaw, +11.8%, St.Ives, +10.4%, Melrose Industries, +6.0% and AdEPT Telecom +5.6%. Matchtech gave up 7.7% and easyJet -5.9%.

I have had to be patient with St.Ives which having performed well during 2012/13 has tracked sideways over the last year but now looks to have resumed its upward trend.

During the week I locked in some profits on easyJet reducing the holding to 3.0% of the Portfolio and also sold 20% of my holding in AdEPT Telecom, reducing it to 6.4%; it is still the 3rd largest holding in the JIC Portfolio! Most of the proceeds of the two sales were used to add a new holding; *********.

Next week sees final results from Renew Holdings on Tuesday, (will they be good enough to push the share price to new highs?), and on Thursday St.Ives goes ex-dividend 5.55p per share.

siv

rnwh

July 2015 Review

Background 

The main themes dominating markets during July were Greece, China and commodities. Continental European markets, relieved that some sort of agreement was reached with the Greek government in the 29th minute of overtime, managed quite decent returns; the French CAC was up 6.1%, the Italian MIB, +4.8%, The Spanish IBEX, +3.8% and the German DAX, +3.3%. Across the Atlantic the main topic of conversation continued to be about the strength of the economy and the timing of the FED’s first interest rate hike; the S&P 500 was up 2.0% and the NASDAQ, 2.8%. Japan continued its upward trend, with the NIKKEI 225 rising 1.7% and will hopefully gain the 1.5% it needs to break though the 18 year high achieved in June.

China, having gone up like a rocket in the first five months of the year continued to drop like a stick; the FTSE China A All Share was off 15.7% but is some 11.7% above the 9th July low. It will be interesting to see whether that proves support if it is tested again in the coming months. China’s economic and stock market weakness had a dramatic effect on commodities; oil (West Texas Intermediate) dropped 19%, copper, 9% and gold, 7% which in turn hit the shares of mining stocks. Russia, was off 7.7% due to its dependence on oil.

In the UK the FTSE All Share (Total return) Index was up 2.4% with the FTSE 100, up 2.7%, leading the way; the FTSE 250 Mid-Cap Index was up just 1.0%, the FTSE Small Cap, +0.7% and the AIM All Share, with its heavy exposure to resource stocks, was down 0.6%.

JIC Performance

Another good month for the JIC Portfolio rising 3.3%, which given it is principally exposed to mid and smaller companies is all the more pleasing. Since January 1st it is up 15.2 compared to +5.5% for the FTSE All Share (TR) Index and since inception 43 months ago is up 119.4% v +44.8% for the Index. As at 31st July the annualised return for the JIC Portfolio was +24.5%.

Monthly Returns for the JIC Portfolio and the FTSE All Share (Total Return) Index since January 2012:

julyperf

Some big winners and losers over the month but luckily the winners were amongst the largest holdings in the Portfolio and vice versa for the losers.  ADEPT Telecom had another stellar month rising 17.5%, requiring me to review my target price; in this case I felt justified increasing it. SafeStyle, another stock where I increased the target price, was up 14.1% and Melrose industries, the “buy, improve, sell” specialist, which I reintroduced to the Portfolio during June, was up 11.8% in what I felt was a rather mean initial reaction to its sale of Elster to Honeywell for £3.3bn. Bioventix continues its nice upward trend, +11.7% and Renew Holdings was up a further 11.6%. The portfolio’s largest holding, Baillie Gifford Shin Nippon, through which I gain my exposure to Japanese smaller companies, was up 10.8%. So enough of the winners; Utilitywise gave up much of the gains of the previous month, falling 15.4% and my two resource holdings were very disappointing; BlackRock World Mining Trust was down 14.4%, unable to shrug off the weakness in its underlying holdings caused by the weakness in commodity prices. Gem Diamonds was off 11.9% on the back of a sluggish diamond market. These two holdings together will have knocked nearly 1.0% off my performance last month and I have to ask if was I being stubborn in not just cutting the positions; the answer is probably yes but what to do now? I am going to hang on to both for the time being; BlackRock World Mining has its interim results later in August where I look forward to seeing what it does with the dividend. On last year’s payment of 21p the shares are currently on a dividend yield of 8.5%. The shares also stand at a 9% discount to NAV. As for Gem Diamonds, it looks very cheap on price to cash flow and the business has been pretty resilient given its exposure to high value diamonds from its Lesotho mine. I can’t help feeling one whiff of firming of diamond prices and the shares will quickly recover.

Activity 

Not much to report. I added to three existing holdings; St.Ives on 1st July at 183p, Matchtech on 13th July at 554p and European Assets Trust on the same day at 1117.7p. St.Ives, the marketing and printing business which has undergone significant restructuring in recent years, looks super value to me on a prospective PE ratio of just 9.4x and a prospective yield of 4.3%; I will find out soon whether that was a sensible decision or not as it should publish a year end trading statement in the next week or so. Matchtech also looks cheap to me on a forecast PE ratio of 13.3x and prospective yield of 3.7%; it also should issue a trading statement in the next week or so. Increasing my exposure to Continental Europe to 7.0% of the Portfolio was predicated on my belief that with the European Central Bank carrying out Quantitative Easing and with some sort of resolution to the Greek debt crisis being agreed, markets were set fair. I added one new holding to the Portfolio towards the end of the month; Zegona Communications at 155p on 29th July. Zegona is a newly listed company that has been set up to acquire companies in the European, telecom, media and technology sectors with a “buy, fix and sell” strategy. The CEO is Eamonn O’Hare, the former CFO of Virgin Media from 2009-2013 who oversaw an improvement in operating and financial results before its eventual sale to Liberty Global for $24bn. It has made its first acquisition, Telecable De Asturias in North West Spain for €640m and I think this is a management team to back.

As we enter August I am hoping the market can make steady progress in what can be a quiet month in terms of stock market turnover. Greece is slowly slipping out of the headlines and I have little doubt a deal will be finalised in the next few weeks; a repeat of last August’s 2.2% return from the FTSE All Share will do very nicely thank you.

japan

 

china

 Weekend Roundup; 26th July 2015

Weekend Roundup

After the gains of last week equity markets performed an about turn; Russia dropped 5.9%, (the fall in the oil price won’t have helped), the German DAX, -2.8%, the FTSE All Share (TR), -2.5%, the Spanish IBEX, -1.5%, the French CAC, -1.3% and the Italian MIB -1.1%. In the US the S&P 500 gave up 2.2% and in Japan, the Nikkei 225 just 0.3%. The Chinese market was up again with the FTSE China A All Share gaining 3.9% but I don’t remember reading any headlines about X billions being wiped onto Chinese stock values!

The JIC Portfolio fell just 0.2% so that in July it is now up 2.9% compared to the All Share return of +0.8%. Since the start of the year the JIC Portfolio is up 14.8% and since inception in January 2012 has gained 118.6% which compares to returns of +3.8% and +42.5% for the FTSE All Share (Total Return) Index respectively.

Last week’s winner was the largest holding in the Portfolio, Baillie Gifford Shin Nippon Investment Trust, which gained 4.7%. Renew Holdings was up 4.2% and Safestyle continued its run, up 3.4%. On the downside BlackRock World Mining Trust (BRWM) fell 6.2%, in response to weakness in commodity prices and mining stocks. Interestingly Anglo American maintained its dividend in its interim results yesterday against predictions by some commentators. BRWM has exposure to a number of large miners such as Rio Tinto, Glencore, BHP Billiton all of which issue results during August; it will be interesting to see what they do with their dividends. The chart does not look good but I can’t help feeling that bailing out now could be a mistake. I hope I have not got my head stuck firmly in the sand on this one! Polar Capital gave up 4.4% and Avation, 4.1%.

No changes to the Portfolio last week; I am looking for new ideas but have not come up with anything that I feel is compelling enough to replace an existing holding. The search goes on!

Next week sees a trading statement from Next on Tuesday (let’s hope there has been enough sunshine in between the rain to have persuaded people to buy a new summer wardrobe).

Happy Investing! John

china

 

Vislink: letter to non-exec re new incentive scheme. 3rd July 2015

gopro

Vislink (VLK.L, AIM All Share, market capitalisation; £67.9m, 55.25p and 4.0% of JIC Portfolio):

I have this morning sent a letter to one of the independent non-executive directors.  The letter is copied below but first some background.

On Tuesday morning Vislink announced a new Awards to three executive directors under the “2015 Value Creation Plan”. It says “the Group’s Remuneration Committee (the “Committee”) has decided that there is a need for the implementation of a new long term incentive policy. The Committee has liaised with external advisers to create a management incentive scheme designed to reward the creation of value for shareholders through the successful implementation of the Company’s long term strategy. The key principle of the new policy is to link any reward only to the performance of the Company’s share price (adjusted as applicable) over the long term.”

The main elements of the plan are as follows:

  • Executive Chairman, John Hawkins has been awarded 4,000 growth shares, Ian Davies, Group Financial Director, 3000 shares and Simon Derry, CEO of Vislink Communication Systems, 3000 shares.
  • The performance period will run over the three financial periods FY15, FY16 and FY17.
  • For any of the growth shares to convert to Vislink shares, the value of the Group (together with any value delivered to shareholders during that three year period outside the normal dividends) at the end of the period must exceed a “Hurdle”.
  • This Hurdle is set at £85 million, representing a premium to the closing market capitalisation of the Group on 30 June 2015 of over 20%.
  • The value to be received by the Participants at the end of the three year performance period will represent 15.38% of the market capitalisation of the Group above the Hurdle.

Dear Oliver,

I have enjoyed my profitable investment in Vislink since first acquiring shares in April 2013 but as a shareholder, I have to voice my concerns over the recent grant of Executive Directors’ Awards under the 2015 Value Creation Plan.

Whilst not being against rewards for exceptional performance, in this case I have some serious reservations:

  • The reward is too easy to achieve; if the share price goes up by just 7% per annum then they are in the money
  • It pays out too much; if the share price went up 20% per annum they would share roughly £5m between them
  • Where is the downside? I could just about stomach this type of reward if the participants put in some capital at the start which could be lost if the share price was to fall over the period, which would at least align them more with their shareholders, and finally
  • I think the benchmark/hurdle is flawed; the AIM All Share could go up 25% per annum for the next three years, the Vislink share price could under-perform, going up only 12% per annum for instance and yet the scheme would pay out handsomely. I would prefer a hurdle that is linked to real value creation; perhaps a combination of total shareholder return, (share price and dividends), improvement in ROCE and cash flow per share. I am keen that the temptation to make decisions that might boost the share price in the short term, perhaps to the longer term detriment of the company, are minimised.

I think this is the type of plan that gives the City a bad name, making the participants look excessively greedy. I would very much appreciate it if you would voice my concerns, which I know are shared by many others, to fellow directors and I urge the board to reconsider the terms of this incentive plan. The Exec Chairman should be offered a new and better structured incentive scheme that rewards exceptional performance from the business over the longer term.

Yours sincerely

John

Conclusion: Many shareholders are upset about this award and I know some have sold their shares. I am not sure that is the correct approach; it is better to try and force some change through communication. Also, I suspect the shares are cheap and that the new award has been timed to make sure the participants get on board before the share price resumes its next leg upwards. Hopefully, interim results due in early September will show further progress from Pebble Beach and its link up with GoPro. “Disappointed with the Board” Holder!

 

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New Holding: Matchtech; 18th February 2015

mtec

 

Matchtech Group (MTEC.L, Aim All Share, Market Capitalisation: £127m. 507p and 2.0% of the JIC Portfolio): I have bought a new holding in Matchtech this morning. From its small beginnings in 1984 Matchtech has grown to become a leading provider of specialist recruitment in the Engineering & Professional Services sectors and is now the 12th largest recruiter in the UK. In the “About Us” section of its website, www.matchtechgroupplc.com there is an excellent description of its Purpose, Vision, Strategy and Business Model which I think explains why it has achieved consistent growth in recent years and why it should, barring a recession, continue to do so.

The shares have come back nearly 20% since last April’s highs and in my opinion look good value at these levels. I am attracted by the PE Ratio, on consensus forecasts, of 12.4x the year ending July 2015 for 16% earnings growth, falling to 11.2x July 2016 for a further 11% earnings growth. A dividend of 21.3p is forecast for the current year, giving a prospective yield of 4.2%, and is forecast to grow by 8.2% to 23.1p, giving a yield of 4.6% in the year ending July 2016. It has achieved a return on capital employed of over 30% in the last three years and the business is highly cash generative. Net debt has dropped from £16m in 2011 to just £3.7m last July. It is valued at only 10.6x free cash flow according to Stockopedia.

The last news from the Company was a trading statement on January 28th covering its first half, finishing 31st January. It said that since its last update on 14 November 2014 it had continued to see strong demand in the UK and worldwide for skilled engineers. It went on to say “the Board believes that the Group is well placed to continue to benefit from this demand due to its market leading position, balanced business model of Contract and Permanent recruitment and our niche focus within the engineering and technology sectors” and most importantly, “The Board expects the results for the full year to be in line with its expectations.”

On the same day it announced the proposed acquisition of Networkers International through a cash and share offer valuing it at approximately £58m. On completion Networkers International shareholders will hold approximately 17.9% of the total Matchtech Group shares in issue. The rationale for the acquisition: “the Matchtech Board believes the Acquisition will accelerate its vision to become the market leading specialist recruiter in engineering and technology, in the UK and internationally”. It says that it expects the deal to be earnings enhancing in the first full year. Initially debt will rise given the cash element of the Networkers’ deal is £28.6m, but given the strong balance sheet and cash flow at the business this should fall back quite quickly. At the time of the announcement, agreement had already been secured from holders of 72.9% of Networkers shares so it is pretty much a done deal; completion is expected in early April.

Over the last year earnings forecasts have drifted up from 40p to 41p for the current year ending 31st July.

On Stockopedia it has a stock ranking of 93 comprising 84 for both Quality and Value but unsurprisingly given the last year’s share price performance, only 63 for momentum. On my friend and former colleague, Jamie Streeter’s excellent Compound Income scorecard, ( www.compoundincome.org ) it has a high CI score of 82 and on another of his measure’s, EVER, which looks at the price/value paid for expected return (expected return is based on dividend yield and dividend growth), it scores well.

 

Conclusion; this ticks the box on a number of factors; its fits my growth at the right price criteria, it scores well from a value based dividend approach and looks good on Stockopedia rankings. The acquisition of Networkers International looks a sensible deal for which it looks like it has not overpaid. The next news from the Company will be interim results on April 9th when we will get more detail around the recent trading statement but I suspect of more interest will be an update on current trading and prospects and the Networkers acquisition. I have bought a 2.0% holding initially. (See transactions)

 

December and 2014 Review

Background

Despite a decent “Santa rally” which got underway mid-month it was not enough to erase the earlier losses. Russia, -19.9%, was again the worst performing major market with the collapse in the oil price taking its toll. Continental European markets were generally weak as worries about sagging growth and deflation grew and the spectre of Greece leaving the € raised its ugly ahead again with a general election set for January 25th; Italian MIB -5.0%, Spanish IBEX-4.6%, French CAC -2.7% and German DAX -1.8%. China was the best performing market, +7.1% and the US S&P 500, despite closing at another all-time high on 29th December closed the month down 0.42%. In the UK the FTSE All Share (Total Return) Index fell 1.6% during the month but did manage, just, a positive return for the year as a whole of +1.2%. The Japanese Nikkei and the US S&P 500 both recorded positive returns for the year, +7.1% and +11.4% respectively but someway short of the +19.5% return from China and +29.4% from India.

JIC Performance

The JIC Portfolio finished the year in good form rising 1.1% in December and recording a return of 11.1% for the year as a whole. Since inception three years ago the JIC Portfolio has achieved a total return of +90.5%, nicely ahead of the +37.3% return of the FTSE All Share.

Monthly Returns for the JIC Portfolio and the FTSE All Share (Total Return) Index since January 2012:

monthbymonth

The top performer during December was Crawshaw, +17.8%, benefiting from the announcement of the appointment of a new chief executive to oversee the national rollout of the business. AdEPT Telecom was up 11.7% following November’s strong results and the commencement of a share buyback by the company. DixonsCarphone, +9.2%, published a maiden set of interim results following its merger earlier in the year, which showed strong growth across the business and lead to earnings upgrades for the full year. Polar Capital, -12.9%, was the main drag on performance with some disappointment at slightly higher than anticipated costs in the first half.

Crawshaw and DixonsCarphone were strong contributors over the year as whole, up 203% and 70.6% respectively; in fact DixonsCarphone was the best performing stock in the FTSE 100. Other notable stocks held throughout the year were French Connection +66.1%, Biotech Growth Trust +44.9% and Worldwide Healthcare Trust +38.3%. Polar Capital, which is down 10.8% on my purchase price was the worst performing of my current holdings and I did realise a substantial loss on cutting my holding in Coms plc.

Cutting losing positions

Much of the success of the JIC Portfolio in 2014 came from the avoidance of disasters; the FTSE Aim All Share was down 17.5% but apart from Coms I managed to sidestep many of the offenders in this part of the market. My willingness to cut losing positions also paid off; I cut BlackRock World Mining Trust in early October, realising a 10% loss as the share price looked to be in free fall with the chart showing no obvious support. The share price fell a further 30% before I bought back in on December 16th. I sold out of Thorntons in early October after it warned on Q1 trading as I feared that further disappointment might be in the offing if it did not achieve its hoped for pickup in orders to UK supermarkets in the run up to Christmas; on December 24th it delivered a nasty Christmas present to its shareholders in the form of a profit warning and the price duly dropped 25%. Lastly, on the 28th November I cut AMEC Foster Wheeler, worried about the impact the weak oil price might have on its business; as I write the share price is some 10% lower.  Cutting positions can cause a lot of angst as one fears the share price will promptly recover making you look stupid and in many instances one can be tempted to add to the position; my view and one that I try and keep to, is that if things have changed or you have a better use for the money, just cut and move on. Don’t worry about what happens afterwards as after all the only stocks that can hurt you are the ones you hold.

Activity

During December I bought back into ********having sold in September and **********.  I sold out of MicroFocus International booking a healthy profit as I felt the valuation was well up with events. I added to the positions in *********and **********and had an opportunistic trade in Renew Holdings where I added to my position on a pull back to sell the next day some 13% higher.

2015

So to 2015; the only thing I can say with certainty is that there will be a general election in the UK on May 7th. I think uncertainty in the run up may weigh on the UK market and Sterling, and whilst not predicting a collapse in the UK equity market I am working on the premise that it may struggle for the first four months. I will be looking to increase my overseas exposure, principally through investment trusts and reducing my exposure to stocks which could be overly affected by political uncertainty. I calculate that about 40% of the JIC Portfolio is currently in non UK dependent assets such as Baillie Gifford Shin Nippon, Fidelity Asian Values and Biotech Growth Trust.

Good luck and Happy Investing!

brent

Presentation on “My Approach to Investing and 2014 so far!”

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Crawshaw; Presentation by Chairman, Richard Rose on management

and Crawshaw; 10th November 2014

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Crawshaw Group (Aim All Share, Market capitalisation: £45.1m, 57.25p and 4.6% of JIC Portfolio); Richard Rose, Chairman gave a fascinating presentation at Mello 2014 on Thursday. Before talking about Crawshaw he described his approach to management.

On Management:

He said the typical management approach in the West was one of a command and control structure in which employees are told what to do and are given incremental targets each year resulting in work forces that are unfulfilled and often suffering from low morale. Rose believes in empowering and listening to the workforce and sets about utterly changing any business with which he gets involved. He has worked for a number of businesses where he has overseen a step change.  He believes the success of a business can be measured as FxE=R where F is the controls and structure that are in situ, E the emotion in the business and R the results achieved. Of course a business needs controls but on their own success is unlikely. The workforce needs to be empowered so that they are all pointing in the same direction and given challenging but exciting targets such as “we are going to triple the business over the next three years”. (If you say to them “last year you made 10 but this year you are going to make 11” you just demoralise whereas if you say “in the next three years we are going to make 50 you energise them”). E is the passion within the business and comes from the leadership; when you ask an employee what their job is they should answer “to smash the competition” not “answer customer queries”.

Examples:

The first business Rose was brought into to sort out was an underperforming electrical wholesaler where the balance was F=9 and E=1 leading to R=9. He changed the balance by ramping up the “emotion” in the company and reducing some of the controls that were stifling the business, shifting the balance to F=7 and E=9. The result was a turnaround in the business such that the share price went up 8 times in a few years and was taken over at 24x earnings!

At Whittards the balance was 1 and 9 when he arrived. He hired an excellent FD and put in some standard retail controls and shifted the balance to 9 and 7; the result was a 10 fold jump in the share price before being taken over by private equity.

He is also Chairman of Booker where the share price has risen from 5p to 142p under his guidance and is also Chairman of recently floated online appliance retailer AO World.

On Crawshaw:

He bought into Crawshaw in 2007 having identified it as a business which had the potential to undergo a step change in its fortunes; it was scalable. It currently has 21 stores has a high F and E score and is ready to starts it national rollout with his target of 200 stores. He added, “if it has 200 stores in the UK it can have 500”! To do this he needs a new Chief Executive where the recruitment process is apparently going well with an announcement to the market expected soon.

Conclusion; fascinating to hear is approach to management and leadership where he certainly has the success stories to back up the rhetoric.  Looking at the numbers the Crawshaw share price is clearly up with events on a projected PE of around 45x its brokers forecast for January 2015, although the earnings forecast looks far too low to me. Having said that I am not in the slightest bit tempted to reduce my holding from its current 4.2% of the JIC Portfolio as I am focussed on the long term prize; I think if anyone can grow the business to 10 times or more its current size than Richard Rose can. In the short term based on last year’s announcements I think we can expect a trading update and of course news on a new Chief Executive. Very Happy Holder!

EasyJet year-end trading statement; 3rd October 2014

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easyJet (EZJ.L)(Market capitalisation £5.4bn, 1371p and 4.2% of JIC Portfolio): has issued its September passenger stats and a year-end trading update. It finished its year on a strong note, carrying 6.144m passengers, 7.5% up on September 2013, with a load factor of 92.2% compared to 89.7% a year ago. For the year as a whole the load factor came in at 90.6% compared to 89.3%.

Its year end trading statement sees its estimate for full year results being raised to between ££575m and £580m. Back in July it caused some downgrades to earnings with the following guidance “With 77% of second half seats now booked, easyJet expects to grow profit before tax from £478 million for the year to 30 September 2013 to a range of £545 million to £570 million for the year to 30 September 2014 assuming no further significant disruption.  This range includes the impact from the situations in Israel, Egypt and Moscow.” The main areas of improvement were revenue per seat which rose by 2.0% v forecast of +1.0% and fuel costs were expected to have an adverse effect of up to £5m but turned out to be £2m favourable. It also acknowledges that it benefited from increased traffic due to the Air France pilots’ strike.

As far as the new year is concerned it points out that as things stand it is likely to benefit from a £20m cut in its fuel bill and a £10m boost from exchange rate movements in the first half of the current year and for the year as a whole a £50m benefit from fuel and £20m adverse impact from exchange rates. It has sold over a25% of its available seats in the quieter first half, “slightly ahead” of a year ago.

Conclusion: Today’s update is indeed good news and as we are reminded this will lead to a higher dividend given its new policy of paying out 40% of after tax profits. Full year results will be published on November 18th. I guess we may have to wait until then for analysts to firm up figures for September 2015 but my guess is they will be revised upwards. On current forecast the shares are valued at 10.8x September 2015 for 12.5% growth and 9.8x September 2016 for a further 10% growth. The prospective dividend yield is 3.7% for 2015 followed by 4.1%. In my view the shares look far too cheap. I could perhaps have traded a little better during the April to August sell off but I am glad I stuck with it and expect the recent recovery to continue. Happy Holder!

The JIC Top 10 Portfolio; 30th August 2014

One year ago, on 28th August 2013 I set up a fantasy portfolio on Stockopedia called the “JIC Top 10”. It was an exercise to see if, by investing in only 10 stocks, all held in the JIC Portfolio, I could produce a higher return. The JIC Top 10 met all the Stockopedia rules of always being more than 60% invested and never having more than 25% of the portfolio in one stock; in fact, the maximum was about 17% after Crawshaw had a very strong run. All trades in Stockopedia fantasy portfolios are carried out by Stockopedia so there is no scope for manipulation by the “manager”!

Performance

One year on, the results are shown in the screenshot from Stockopedia below

jictop10

It is up 23.3% over the year compared with the 18.5% return on the JIC Portfolio over the same period, so the objective of “supercharging” returns has worked. It has handsomely beaten the FTSE All Share Index return of +6.0% during the year and is in the top 20% of all the fantasy portfolios on Stockopedia, of which there are over 200.

New Portfolio

I have set up a real portfolio, starting yesterday, with £50,000 cash, which I will manage in the same way as I have the fantasy fund over the last year. You will see there is an addition to the menu bar above, “JIC Top 10”. The Portfolio and all transactions are shown. I will blog when I make changes to the JIC Top 10 which will be listed under JIC Top 10 on the blog history column on the right.

Email alerts

Sign up HERE if you would like to be added to a separate email list alerting you to trades in the JIC Top 10  Portfolio

There will be a higher element of trading with holdings being top sliced and topped up, more frequently than in the main JIC Portfolio.

Warning; please read

With only 10 stocks there is less diversification than in the JIC Portfolio and therefore the JIC Top 10 is likely to be more volatile and also more “risky”. Any big moves in individual stocks will have far more impact on the whole Portfolio; that works both ways but in the worst situation, a holding in a company that goes bust, the Portfolio could lose 10% or so of its value. Remember, just because the JIC Top 10 “fantasy” portfolio has done well over the last year it is no guarantee that the “live” portfolio will perform well in the future.

 

Biotech Growth Trust gets boost from bid for Intermune; 25th August 2014

Biotech Growth Trust (BIOG.L, 527p and 4.9% of the JIC Portfolio): It is nice to see Biotech Growth Trust’s fifth largest holding, Intermune, up 36% in US trading today after an $8.3bn, $74 per share agreed bid from Swiss pharmaceutical company, Roche. At 31st July Intermune was 4.1% of the Biotech Growth Trust portfolio.

In my last post on Biotech Growth Trust, published on 16th July, I said “Lastly, M&A Continues to heat up in the Biotech Space with the AbbVie bid for Shire being the latest example of a tax driven deal. As an aside, a friend of mine attended the AGM and said that the portfolio manager seemed absolutely certain that one or both of Incyte and Intermune would be taken over in the next year”.

Conclusion: Biotech Growth Trust has had a good run since the selloff in the spring and is only 4.5% off the all-time closing high hit at the end of February. The shares currently stand at a 6.5% discount to NAV which has led to the company buying back stock in recent weeks in order to try and narrow the discount. The NAV will receive a boost from the Intermune news which should help the share price make further progress, as would the Trust manager’s second prediction, a bid for Incyte, which at 31st July was the 8th largest holding at 3.1%. Happy Holder! 

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Gem Diamonds; new holding, 13th August 2014

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Gem Diamonds (FTSE Small Cap Index, GEMD.L, market capitalisation £276m, 198p) I have today bought a 2.5% holding in Gem Diamonds. Gem’s principal assets are a 70% stake in Letseng Diamond mine in Lesotho and a 100% stake in Ghagoo mine in Botswana which comes into production later this year.

Letseng is an excellent asset, producing high quality white diamonds which sell at premium prices. It recently upgraded its forecast for 2014 production to 95-100 Kcarats. The average price it has achieved historically is a huge $2,700 per carat. Since 2007 the Letseng mine has produced 4 of the largest 20 diamonds ever mined. Only last Thursday it announced the “recovery of a 198 carat, white type IIa diamond from the Letšeng mine at the end of July 2014”. It said “this exceptional white, high quality diamond displays no florescence and is expected to achieve an exceptional price when sold this year”.  Ghagoo is expected to come on line in the second half of this year and should achieve peak production of between 200 and 250 Kcarats per annum.

The reasons I have bought the shares now:

Its two mines have long lives and on 16th July it updated the resource levels at Letseng; “Indicated Resource base has increased in carat terms by 127%, to a total of 3.23 million carats, from a previous total of 1.42 million carats”. Letseng currently has a 22 year expected life.

Industry supply/demand dynamics look attractive with fewer producing mines and demand for diamonds accelerating especially in far eastern markets. According to the Telegraph, in 2000 Asia as a whole made up 8% of world demand. Just China and Hong Kong made up 13% in 2012, which is expected to grow to 18% by 2017. Petra Diamonds estimates that there are now only 30 operational diamond mines in the world.

The Company is coming to the end of an investment phase aimed at improving yields and efficiency at Letseng and in bringing Ghagoo to production,($96m has been spent on Ghagoo). Despite this it has a very strong balance sheet with net cash of $114m at 30th June.

It has declared that it will start paying a dividend this year. Exactly how much we do not know but with strong cash flow and strong balance sheet there are reasons to be hopeful.

The management hold roughly 10% of the equity and after the share price was ravaged during the 2008/2009 credit crunch have taken sensible decisions to grow shareholder value.

The shareholder list is first class with Graff Diamonds owning 15%, much of this acquired when the share price collapsed during 2008/2009. Landsown Partners own 15% and are joined by BlackRock with 11.4%, Fidelity 8.2% and Capital International with 6.3%.

The 26th July trading update for the six months ending 30th June was very positive with strong growth in production and revenue. Full statement can be read here

Analysts have been behind the curve with forecasts as is shown by this neat little chart taken from Stockopedia.

gemde

Conclusion; Gem Diamonds is a well-managed company which has successfully managed its prize asset, Letseng to maximise production of its highly prized white diamonds and has developed the Ghagoo mine in Botswana which will provide another leg to the business. The period of high cap-ex in the business is coming to an end, the balance sheet is strong, as is cash flow, which means that it will start paying dividends this year. On top of this the supply /demand balance looks to be in their favour with pricing of diamonds likely to continue show good growth. According to ShareScope, on consensus forecasts it is valued it at 12.1x 2014 earnings, falling to 11.4x 2015 and 7.7x 2016. I have bought a 2.5% holding. (See transactions).

Next news is interim results a week today, 20th August.

www.gemdiamonds.com

gemd

 

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Plus500; new holding; Monday 21st July 2014

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Plus 500 (PLUS.L, market capitalisation £442m, 385p and 2.0% of JIC Portfolio); I have this morning bought a 2% holding in Plus 500, the AIM quoted operator of an online trading platform for retail customers to trade CFDs internationally over more than 1,900 different underlying global financial instruments comprising equities, ETFs, foreign exchange, indices and commodities. The Group enables retail customers to trade CFDs in more than 50 countries. The trading platform is accessible from multiple operating systems (Windows, smartphones (iOS and Android) and tablets (iOS and Android)) and the internet.

It was listed on AIM last July but I first really looked at it in February but I dithered a little and before I got round to buying any shares they had taken off like a rocket; see chart below.

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Growth has been rapid as it has successfully attracted new “punters” who seem to be attracted by the ease of use of its trading website.

The Company is committed to paying out half of its retained earnings in dividends each year and as such , based on consensus forecasts has a very attractive prospective dividend yield this year with further strong growth in forecast for 2015 and 2016.

The share price, having peaked at 700p in April has nearly halved to 385p and has fallen back to its 200 day moving average which hopefully will act as support.

The Company’s Q2 trading statement on 1st July was good with it saying “Despite relatively subdued market activity both revenue and profit in the quarter are expected to be ahead of market expectations”. Some holders may have been slightly spooked by “these trends have more than offset a slower quarter of customer acquisition which has been particularly noticeable during recent ongoing sporting events”. The trading statement did not arrest the weakness in the share price and so last week it issued the following statement:

“The Company notes the recent weakness in its share price and wishes to confirm to the market that it doesn’t know of any operational or financial reason for such weakness. The Company reconfirms that revenues and profit in the second quarter are ahead of market expectations and that the board looks ahead with confidence for the full year outcome. The Company will release its half year auditor reviewed results on 13 August and re-iterates its commitment to a minimum 50% dividend payout policy.”

On looking at shareholding declarations it is difficult to discern who has been selling in recent months, (perhaps smaller shareholders taking profits), although it looks like it is being mopped up by Odey Asset Management which now owns over 13%.

Conclusion; the recent weakness in the share price has given me an opportunity to acquire shares in this fast growing company at what looks like a very cheap valuation. On consensus forecast for 2014 the shares are valued at 7.9x and with its dividend policy it yields a prospective 7.5%. Looking to 2015 forecasts it is on 6.7x for 17% growth and a dividend yield of 8.9% and for 2016, 5.7x and a yield of 10.4%. Of course these forecast are predicated on the Company continuing to grow the business successfully but on these valuations it looks to me a punt worth taking. (See transactions)

Lamprell; Trading Statement and Rights Issue 16th May 2014

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Lamprell (LAM.L) (Market capitalisation; £380m, 146p and 2.9% of JIC Portfolio); it has issued an upbeat trading statement this morning highlighting the progress made cleaning up the company over the last 18 months, the new contracts it has won, including the major contracts announced on 2nd May, and the healthy bid pipeline. It says “with the Group’s continued focus on its core markets and key strengths, the performance of the Company for 2014 remains in line with the Board’s expectations”.

The statement is accompanied by the announcement of a rights issue to raise $120.3m (£71.6). $60m will be used for a yard investment programme with an expected payback of three to four years. $10.6m will be used to repay in full the expensive “term loan facility B” and the balance will be used to strengthen the Group’s balance sheet.

It has negotiated and signed “a commitment letter and detailed heads of terms in respect of, a new secured, fully-underwritten $350m banking facility with three of our core lending banks”. It says that “in addition, the lending banks have agreed to use best efforts to arrange a further US$250 million bonding facility, part of which is committed, which may be used by the Group for project bonding requirements under new contract awards”.

The terms of the rights issue are 5 new shares for 16 at 88p.

Conclusion; it’s nice to see an old fashioned rights issue although I do balk at the fees of $8.1m on $120.3m being raised; that’s 6.7%! Clearly the rights issue was a condition of the banks agreeing to the new lending facility but never the less it does put Lamprell on a much sounder footing and from that angle should be welcomed. It is in a capital intensive industry and needs a strong balance sheet to compete for new contracts and to complete them. The investment in its production facility, (with the 3-4 year payback) and the repayment of the expensive loan makes sense. I think the markets initial reaction might be one of disappointment, it normally is with rights issues, but I think it does make Lamprell a sounder investment going forward, so happy holder! 

Vislink; report of presentation from management; 6th May 2014

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Vislink (VLK.L) (market capitalisation; £54.4m, 49p and 5.5% of JIC Portfolio) Last week I attended a presentation by the management of Vislink and the recently acquired Pebble Beach Systems. I came away with a much better appreciation of the quality of Vislink and its management, having previously only met the Executive Chairman, John Hawkins.  The main points that I took away were:-

  • The first part of the strategy unveiled in 2011 is nearly complete with recent acquisitions of Pebble Beach and Amplifier Technology helping move it towards its £80m annualised revenue target by December 2014, accompanied by an operating margin of 10%.
  • Going forward, John Hawkins highlighted how Vislink’s available market has grown. Back in 2011 it really only had exposure to the £220m broadcast market where it was already market leader. The addition of Surveillance gave it a further £200m market to aim for and then the Cellular Broadcast market added an estimated £50m available market. Finally Pebble Beach systems brings it exposure to the “play-out Automation” market, estimated at a further £200m. So, plenty to go for in the foreseeable future.
  • The estimated £50m Cellular Broadcast is where the video is sent over the mobile network to the studio; whilst lower quality than microwave, with a few second delay, it is nevertheless proving popular with News stations where “first at scene” is important when breaking news. With cellular you can be up and running in less than a minute rather than the 15 minutes or so it takes to set up the microwave broadcast equipment once the outside broadcast van has actually arrived. Vislink aims to be leader in this market.  Time is money!
  • Its core on-board broadcast market seems to be performing well with it winning new contracts; it recently won camel racing for Dubai TV! It is also providing the on board transmission system for Formula E, the FIA championship for fully-electric cars which launches in September in Beijing with 9 other races to follow, including London, over the following 12 months. This should be a showcase event for Vislink given the complexities of delivering on board video in a built-up environment.
  • The Group is still focused on pushing surveillance to 25% of the overall business; here it is all about the technology with high definition video being seen as critical. The police are no longer happy with an overview of events but want to be able to pick out the perpetrators with facial recognition. Its MSAT special forces communications system can be deployed all over the world and is in currently in use with MOD. Amplifier Technology builds sophisticated jammers, primarily used to stop IED’s being set off. The surveillance market tends to involve longer term contracts at better margins.
  • The Pebble Beach acquisition was an important element of the strategy, bringing a software capability to the Group and although, while currently only contributing approximately 10% of Group turnover, it considerably enhances the overall quality of earnings; it has higher margins and a large part of its sales are recurring.
  • Pebble Beach was founded in Weybridge in 2000. It builds software enabling broadcasters to manage content, control devices used to play out a broadcast schedule in real time and provides integrated channel technology, such as video encoding/decoding/graphics and subtitling. This was not some deal dreamt up in a corporate finance office but came about as the two managements have known each other for some years; it gives me some reassurance that there will not be any clash of cultures and that the acquisition can bring benefits to both parties. For Vislink it is the completion of its “scene to screen strategy”, for Pebble Beach it should accelerate its growth; it brings increased exposure and introductions to many new broadcasters where Vislink has ongoing commercial relationships.

Conclusion; Vislink has come a long way over the last few years but it looks like there are considerable growth opportunities ahead. Operating management seemed of high quality and motivated to drive the business on. On consensus forecasts the shares are currently valued at 12.5x 2014 earnings (30% growth), followed by 10.9x 2015 (15% growth). To me that looks pretty good value but I am counting on it achieving its annualised turnover target of £80m by the end of this year, which should give scope for upgrades to 2015 earnings forecasts. It is, at 5.5%, my second largest holding; it would be nice to see it break out above the 52p level it hit last November. For now I remain a Happy Holder!

vlk

 

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 easyJet Trading Statement; 25th March 2014

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easyJet (EZJ.L)(Market capitalisation £6.475 bn, 1632p and 4.1% of JIC Portfolio). It has published a trading statement ahead of its 31st March half year. The key sentence is the first; “easyJet expects to deliver a first half performance ahead of the guidance given in the 23 January 2014 Interim Management Statement!” Capacity growth is expected to be up 3.5%, in line with its January statement, but revenue per seat is now expected to grow by 1.5% (previous guidance “very slightly up”), and costs per seat ex-fuel is expected to be up only 0.5% against January’s guidance of +1.5%. So revenue better and costs lower than expected: this all boils down to a first half loss now expected to be between £55m and £65m, considerably better than January’s guidance of a loss of £70 to £90m. Last year’s loss in the first half was £61m; given that the busy and profitable Easter period fell in the first half last year but the second half this year, today’s announcement is even more laudable.

Conclusion; easyJet has done it again; it is taking full advantage of its prime position in the European short haul market, wiping the floor with the incumbent legacy operators and the weaker low-cost competition. It is benefiting from scale efficiencies but also from superb execution by its management. I can only see its competitive position getting stronger given its solid balance sheet and cash flow, enabling it to invest in new, more efficient, aircraft and new routes. On current consensus forecasts the shares are valued at 14.8x September 2014 earnings (19% growth), 12.8x Sept ’15 (16% growth) and 10.9x Sept’ 16 for a further 16% growth. I suspect though that there will be upgrades to these forecasts. On current dividend forecasts the prospective yield is 2.2% for September 2014, 2.44% Sept ’15 and 2.65% Sept ’16. I think though that there will, be further special dividends to follow the 35.08p in Feb 2012 and 44.1p last month. I continue to be an extremely happy holder!

French Connection: Year-end Trading Statement; 5th February 2014

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French Connection (42p and 1.8% of JIC Portfolio) the company has just issued a year-end trading statement which is encouraging. The key part is “In the December to January period, UK/Europe Retail sales and margin were both better than expected and the UK wholesale forward order book is strong and shipments have been ahead of last year”. It goes on to say “the Group now expects the loss before tax and exceptional items to be an improvement against previous expectations and will be in the region of £4.7M for the full year (2013: £7.2M loss).” Net cash at 31st January was £27m.

Conclusion; A funny time of day to put out a statement. My guess is that it was scheduled for tomorrow morning but that the 12% move in the share price today forced an early announcement; had someone had a glance at the figures or was it just coincidence? Whilst the company is still loss making it is encouraging to see an improvement in sales with its new range going down well. As I write, the share price is up 16% and the market capitalisation is £40m. If you subtract its net cash you get an enterprise value of £13m which looks very cheap to me for a company that looks as though it may have turned the corner, has a strong balance sheet and sales of more than £200m. It is at the risky end of the JIC portfolio as if the recovery was to prove a flash in the pan then the shares could fall back quickly. For now though I am encouraged by what I see. Happy Holder!

 Thorntons: Presentation by Chief Executive; 30th January 2014

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Thorntons (139p and 5.4% of JIC Portfolio) I attended presentation by Chief Executive, Jonathan Hart yesterday evening. To summarise: The process of re-balancing the business towards the FMCG (Fast Moving Consumer Goods) Division and away from the Retail Division is working, with strong sales growth being achieved at considerably higher margins. The margins on FMCG, where it sells through the major supermarkets and independents are around 21% compared to about 2.5% through its retail estate. The margins on the Retail Division will improve as it focuses down to an estate of around 180 -200 profitable stores. By the end of this fiscal year, (June 30th 2014), it will have closed around 120 stores and expects to close a further 40-60 over the next 2 -3 years. As it is simply a matter of waiting for the leases to run out, the cost of closing a store is insignificant.

The brand has been revitalised over the last year with clear brand positioning to create a “powerful and coherent range” and it has been innovative with the introduction of “decorative moulded” chocolate such as The Snowman range at Christmas and the attractive looking Easter Eggs which will soon be appearing on the shelves. (The Lindt Easter Bunnies have to be covered in gold foil to make them look attractive; Thorntons may have stolen an edge here.) Although currently only about 2% of sales, they have ambitious growth plans for the International Division.

It manufactures all its chocolate at its Derbyshire factory and having spent 25 years “trying to keep the factory full” it will be investing around £7m to increase capacity in its inlaid chocolate line and on decorative moulded. Due to a deficit of £28m on its pension scheme, it is paying a contribution of £2.75m a year. Given this commitment and its cap-ex plans it will not be recommending a dividend in the near future and not until it feels strong enough to pay one that is well-covered.

In the year ending 30th June 2013 operating margins improved to 3.3% from a low of 1.3% the prior year. Hart is targeting a doubling in margins from last year’s figure. Consensus forecasts for the current year ending June 2014 are for margins of 4.2% rising to 5.1% next year. The company’s Christmas trading update of 16th January showed sales at the FMCG Division up 17.1%, like-for-like in the Retail Division up 3.5%, (the best result since 2006) and overall sales up 6.3%. (The Retail Division saw total sales fall 2.9% reflecting the closure of unprofitable stores during the period). At the time I was slightly surprised there were no upgrades to forecasts but I guess that gives scope for them to beat current consensus figures.

Conclusion; Hart took charge of a demoralised company and has clearly got it back on course; profitably is improving, its brand positioning is clear and there is greater confidence within the business. The target is very clear; to create a strong and confident business and brand, and to improve margins to industry competitive levels. This will be driven by further growth in FMCG and also through building the nascent International Division. Consensus forecasts are for June 2014 earnings per share up 37% at 7.9p valuing the shares at 17.5x. Forecasts of a further 42% growth value the shares at 12.4x June 2015 followed by 36% growth putting the shares on 9.1x June 2016. I came away with a good feeling about my holding; whether 5.4% of the JIC Portfolio, (second largest holding), is a bit racy is debatable but for now I am a Happy Holder and looking forward to the post Easter trading statement.

Crawshaw Group: Presentation by Chairman; 22nd November 2013

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Crawshaw Group (13p and 1.0% of JIC) I attended a presentation on Monday night by Richard Rose the Non-Executive Chairman of an interesting small company called Crawshaw Group.

First a little about Richard Rose. He has had a very successful corporate career and has a tremendous record of creating shareholder value. You only have to look at the two other quoted companies where he is chairman; Booker and Anpario. He also joined Whittards when it was flat on its back and saw the share price go from 20p to the 200p when it was acquired by private equity. He bought a 15% stake in Crawshaws and so has an active interest in seeing it succeed. He may be non-exec but I got the impression that he is pretty hands-on.

So what does Crawshaws do? It owns 20 butchers shops in Yorkshire, Lincolnshire, Nottinghamshire and Derby and in the last year ending January 2013 it had a turnover of £18.8m. Supermarkets have long term contracts with their suppliers. When they do not call off all the meat they need this is where Crawshaws steps in; through an arrangement with these suppliers it will take the meat at a discounted price, (it may only have a few days shelf life), and sells it around 40% cheaper than in the supermarket! So, you are buying supermarket quality meat at a discount. The meat is cut in store and rather than being packed with an inert gas (CAP) it is sold in a cling film wrapped container with a little bit of red blood showing; it looks more attractive and fresher. Rose said supply of meat was not an issue with enormous head room in supply. It makes around 43% gross margins but at the net level he sees scope to increase from last year’s c.2.5% and has a target of achieving 10%; helped by higher margin sales of hot food.

Fresh meat accounts for around half a stores turnover with the other half coming from hot prepared foods. Rose mentioned that in the middle of next year they are going to trial a concept store that would sell just prepared foods. Higher margins and much higher return on capital. The cost of fitting out a store would be somewhat less than its traditional butcher shops, (£30-50k v £500,000) and if successful could be rolled out on a franchise basis. If it succeeds than it would provide a significant boost to profits but the buy case does not depend on it.

Back to the traditional butchers shops. It plans to open around two new shops a year, adding over 10% to floor space. These stores cost around £0.5m to kit out hence the softly-softly approach to new openings; having learnt from experience, Rose prefers to let each opening bed down before moving on to the next. A new shop should achieve sales of around £24,000 per week, so in a full year of trading two stores should add around £2.5m turnover to the current forecasts of £19.5m for the current year.

It was interesting listening to him talk about the ethos of the business. In answer to questions about pricing such as “surely you could get away with putting up prices a little with the commensurate uplift in margin” he was robust in his answer. They are growing a long term business and building customer loyalty was paramount; customers must say “look what I have bought and wow, all for £20”! Word-of-mouth was important.

When asked about an exit for the business he said that he wasn’t looking for an exit. He was motivated by creating a successful business and having happy shareholders who want to invest in his next venture. He mentioned that he wanted to build Crawshaws into a £100m turnover business.

Valuation. At the current share price it has an enterprise value (market capitalisation of £7.37m and net cash of £340,000 at the half year stage) of £7.03m compared to £19.5m forecast turnover. Earnings per share are currently forecast at 0.6p for the year ending January 2014 putting the shares on 21.6x falling to 18.5x January 2015. It is valued at 11.6x free cash flow which is attractive relative to the market. It paid a 0.09p interim dividend and is forecast to pay a 0.3p total dividend in the current year, giving it a prospective yield of 2.3%.

Current trading has been good. In the first half like for like sales were up 5%, in the first 8 weeks of the second half (to 26th September) l-f-l’s had accelerated to 10% and rather annoyingly, a trading statement put out first thing on Tuesday morning showed that in the seven weeks since 26th September sales had accelerated again to 18% l-f-l’s and most importantly at a higher gross margin! The improvement was put down to “management actions to grow sales and margins, continuing to work”!

The shares bounced 20 % almost immediately on Tuesday after that announcement. I have watched and thought about this one over the last few days and have decided to take the plunge. Earnings estimates have been upgraded this year, (see chart from Stockopedia below) but the estimates I quoted above do not seem to take into account Tuesday’s statement.

This is a much smaller market capitalisation, only £7m, than I would normally get involved in but I think it may just be a great investment and the risks are mitigated to some extent by a strong balance sheet, good cash flow and excellent management under the guidance of the impressive Richard Rose.

I have only bought 1% to start with, partly because that is all the cash I have but also because I think a “suck it and see” approach might be sensible! (See transactions)

There is an up to date presentation at www.crawshawgroupplc.com

Example of Portfolio view; February 2014

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