August 2018 Portfolio Update

As expected August was a very quiet month on the investing front. Very few of my holdings reported any news and the market felt becalmed. Still that might just have been my perception since I spent most of the month in India and a very long way from any form of internet access. Actually, without wanting to get too worthy, witnessing widespread poverty on the streets of India made any concerns I might have had about my portfolio seem pretty petty. It's annoying when investment decisions don't go my way but it's hardly life or death and for that I'm very thankful.


Volvere Bought 886p - August 18

I've been keeping an eye on Volvere for a while now since it was flagged up as a special situation in the SCVR and elsewhere. It's a very simple operation in that the Lander brothers, Jonathan and Nicholas, are specialists in acquiring and turning round struggling companies. Right now the company has majority ownership of three firms (Impetus Automotive, Shire Foods and Sira Defence) with Impetus being the one making the most progress. In addition there's £18.4m of cash on the books providing downside protection, funds for new acquisitions and a pot for share buybacks. The latter will further reduce the already low free-float but with the brothers currently owning almost 40% of Volvere anyway private investors are very much along for the ride. So why invest now? Well the price has slowly drifted lower over the year, by around 15%, and interim results will be out in a few weeks with up to date information. Hence I've taken an initial position while liquidity was high enough to make the purchase.




Next: This Q2 statement was poorly received by the market and I can see why; after storming growth of 6.0% in Q1 this has slipped to 2.8% in Q2 (and some of those sales might have been pinched from Q3 as well). Still FY growth was previously guided to be just 1% (with this expectation being maintained) and so the first half-year has come in with better than expected trading. On a more positive note cash flow remains strong and Next should generate around £300m in surplus cash this year. A nice problem to have and the board expect to spend all of this money buying back shares. Given that the total share count has halved since they first started doing this I feel that this is a rare company that knows when to do a buyback. No change here then for me. (Update)

Keywords Studios: This is certainly one of my more interesting holdings with a historical P/E > 100 and a long sequence of acquisitions required to boost earnings by 220% this year (as forecast). Still with the 11 purchases made in 2017, and 7 so far in 2018, all performing in-line things are looking promising. That said there have been some headwinds in H1 from a weaker dollar and the recent, large acquisition of VMC pulling down margins a little. As a result PBT is only up by 66% on a 72% increase in sales. Still the CEO, Andrew Day, is positive for H2 with a full contribution from all acquisitions, a strengthening dollar and further activity all working to push up profits to the expected level. (Update)

Plus 500: As previously flagged these are some outstanding results with sales up by 147%, profits up by 189% and cash up by 132%. If only all of my shares could do so well. Of course the crypto-currency bubble, which seems so long ago now, was the main driver of this performance but the second quarter was also strong for this CFD broker. As a result the interim dividend has been hiked by 500% (really!) and it's fair to say that the board aren't stingy about returning profits to shareholders. The fly in the ointment is that trading has returned to normal levels (a lot less than H1) and most European customers are holding off on becoming Elective Professionals (I read their 'broadly in-line' statement here as meaning that they're slightly behind expectations). As a result the price has fallen by 25% from the ATH a few weeks ago and my decision to cut my holding in half in June looks a lot more sensible now. That said the business is still charging along, it's very cheap on a P/E of ~7 and the yield is north of 10%. Astonishing really and I don't intend to sell any more shares in the near future. (Results)

H&T Group: Steady as she goes set of results with all parts of the business (pawnbroking, personal loans, FX and jewellery) growing. There's a clear focus on personal loans with lending here increasing by 78%. What's pleasing is that lower APR products are growing to the extent that over half of lending is outside of the high-cost category (where some sort of legislation seems likely). There still remains some sensitivity to fluctuations in the gold price, with the margin on pawnbroking scrap falling from 20% to 13%, but the gross profit here only amounted to £1m which is not too material. With analyst expectations pointing towards a 24% rise in earnings for 2018, and the company actively diversifying to minimise concentration risk, I think that H&T are being priced conservatively by the market. I doubt that the price will move much before the next trading update in November but I'm happy to retain my holding here given that trading so far is in-line with expectations. (Results)

Polypipe Group: This has been a moderately frustrating holding so far this year with the price going sideways on the back of news which has been neither positive or negative. With these H1 results it's clear that the company has done ok, considering adverse weather conditions earlier in the year and the impact of Carillion collapsing, but with no profit growth. In fact, on an underlying basis, profits are down by 4% although the directors are confident of meeting expectations for the FY (which means 9% growth in EPS). It's plausible that they'll be able to make up the lost ground, with H2 starting well and Carillion-related delays improving, but UK RMI (Repair, Maintenance and Improvement) and Middle East sales are both likely to remain challenging. So I'm feeling underwhelmed by these results. There's nothing fundamentally wrong with the business but they're selling into difficult markets (economically and geographically) with little control over customer orders. I plan to spend some time reviewing my holding here. (Results)

Henry Boot: Another one of my holdings where the share price has been weak, for no apparent reason, I was a little nervous coming into these H1 results. However they're really pretty good with sales up by 15%, profits up by 20% and debt down by a huge 58% to a mere £26m (never mind NAV jumping 18% to 217p with some assistance from a reduced pension deficit). Given that expectations are for FY profits to fall by 13%, after a very strong H2 in 2017, I'm really very happy with these figures. Still the share price is back down to 270p now so maybe there's a poison pill somewhere in the narrative? If there is one it appears to be the general economic uncertainty around Brexit together with the commercial property development arm having a quieter year than in 2017. Still I don't see either of these as critical given how well the rest of the business is trading with the development, promotion and construction arms usefully balancing each other. I could be tempted to top-up here if the share price gets much weaker. (Results)

Computacenter: Sometimes I really don't understand the stock market. The current share price of 1356p is now below the level it reached right before the last update (on July 12) indicating the results would be comfortably ahead of expectations! I suppose the problem is that these H1 results, with profits up by 24%, were expected while H2 will find it tough to beat a very strong second half last year. Still market conditions are buoyant with demand in the areas of network capacity, cyber security and workplace upgrades. Particular areas of growth appear to be to Technology Sourcing customers in Germany and France with Public Sector business driving sales along with high volumes from a specific data centre customer. There is some concentration risk here and it also seems that recruiting new personnel remains challenging and could lead to some curtailment in growth. So it's fair to say that while the group is performing well overall there are several areas where the business is under-performing and the board is focusing its attention. I'm not too worried about this though as the directors seem pretty on-the-ball given the level of detail covered in these interim results. (Results)

End of month summary

Given that my hand was a long way from the tiller this month it's quite interesting to review my holdings and see what I missed. Most impressive is the near 20% drop from Impax Asset Management on no news whatsoever. This could just be a pull-back after the 34% rise last month I suppose. Similar drops for Plus 500 and Computacenter have been covered above but double-digit drops from XP Power and Boohoo remain a mystery to me. On the upside Games Workshop powered ahead by almost 20% while Focusrite and a handful of other holdings put in solid positive performances.

Winning positions for the month: GAW 19%, TUNE 10%, KWS 9%, BUR 9%, GAMA 9%, RFX 7%, BMY 7%, DTG 6%, DOTD 5%, BOOT 3%, TET 3%, BOWL 2%, ACSO 2%, CAKE 2%, TAP 2%, LLPD 1%, SOM 1%

Losing positions for the month: BOI -1%, FDM -1%, PLP -1%, HAT -2%, RWA -2%, NRR -3%, CLG -4%, BOY -5%, III -5%, RM -6%, NXT -7%, PCA -8%, BOO -12%, CCC -13%, XPP -14%, PLUS -17%, IPX -19%

With all of this moving around in my positions it's not a huge surprise that the month came in flat with a marginal 0.3% rise. This edges up the YTD return to just over 12% which is all fine and dandy. I expect that things will start to get serious next week as the city fills up with well-rested traders thinking of their year-end bonuses. Hopefully they'll like the cut of some of my holdings and put in some serious purchases.

Disclaimer: the author holds, or used to hold, all of the shares discussed here

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