June 2018 Portfolio Update

After the market volatility of Spring, closely matched by uncertain weather, this month felt like a welcome relief as the sun shone on my portfolio - at least for most of the month! Very little trading took place but there were plenty of announcements to consider - including a humdinger of a profit warning from Photo-Me International right when I was enjoying a half-term break. So much for getting away from investing.


3i Group Bought 975p - June 18

The results from 3i, last month, were very good I thought. However I was reluctant to chase the price up as the reported performance appeared to catch the eye of investors. Then the other day I noticed that the price had come right back down and was sitting just above the range that has contained the 3i share price for about a year. Given that we have up-to-date information on how the portfolio investments are doing, and a clear sign that there is investor demand for the stock, I figured that there was no harm scaling up to a full position. Usefully the shares go ex-dividend next week as well and that'll be another fillip to the portfolio performance.

Impax Asset Management Bought 187p - June 18

With the release of decent HY results, and the announcement of a special dividend, I decided that now was the moment to make this a full holding. Right now investor appetite in the environmental sector is very strong and I think that the increased scale of Impax will allow them to capitalise on this interest. In addition, they have some new business lines to pursue through Pax World and I see this diversification as very positive. While this isn't exactly a family business I feel comfortable than Ian Simm will continue to grow the business carefully since it is his baby and both he, and other staff members, have a material stake in the firm. Happy to be along for the ride.

Ramsdens Holdings Bought 201p - June 18

I've kept half an eye on Ramsdens for a year or so now. They appear to be growing strongly and yet sit on a P/E of ~10 despite profit forecasts having a tendency to be hiked during the year. In addition margins and ROCE are both decent and rising while cash generation allows for a well-covered 4% yield. So when the recent FY results showed earnings up by 60%, on sales growth of 16%, with a decent start to the current year I figured that it was time to take a starter position. With this in place I'll have good reason to plough through the listing prospectus and see if there are any unusual risks to the business.


Photo-Me International Sold at 113p - June 18 - 27.8% loss

As reported last month Photo-Me really blotted their copy-book by springing a profit warning onto unsuspecting investors with this update covering not one but two years! After some reflection I realised that I couldn't justify remaining invested here even though the shares look superficially cheap; the scale of the profit shortfall makes me feel that things will get worse before they get better. Looking back though I can't see many signs that were telling me to get out prior to this warning. One sign was the price dropping by 20% from the ATH in January but this only happened on 23 May and the price bounced back. More significant perhaps was the departure of Gabriel Pirona, the FD, but there was no suggestion of him leaving abruptly or under a cloud. Before that came the interim results in December and, broadly speaking, the business seemed to be trucking along six months ago. So I don't think that I was making a mistake to remain invested here but certainly I'm going to look at FD departures a lot more cynically from now on!

XL Media Sold at 119p - June 18 - 0.2% loss

Well this is another kick in the teeth following the failure of Photo-Me to perform. Previous announcements suggested that trading was in-line but the last update dropped a real bombshell with issues on multiple fronts. Oddly enough the CEO bought on many occasions, prior to the warning, and purchased more shares on the day of the update. I'm sure I was influenced by this "confidence" since I failed to follow my 20% stop-loss rule and sell out when the share price fell to 176p (20% below the recent high of 220p). Looking back I believe that I reasoned that with no news I shouldn't be forced into a decision but that's not really the point of setting a stop-loss; its purpose is to contain losses (or hang on to some gains). So I let a 40-50% gain get away from me here purely because I thought that I knew better than the market. Clearly I didn't and I've been lucky to exit at break-even.

Plus 500 Sold at 1656p - June 18 - 57.6% gain

I've been feeling a bit nervous about Plus 500 since their trading update last week despite it materially raising expectations for the year. The problem is that their response to the ESMA regulations, which take effect on 1 Aug, seems somewhat blinkered in that they will only assess the impact after that date. With Plus 500 being more than 5% of my portfolio I asked myself how I would feel if the share dropped by 30%, which seems about par for the course with a profit warning, and the answer is that I'd feel pretty sick. On the other hand the company is performing well so I decided to sell half of my holding and retain a much more sensible 2.6% weighting. This way I've released some cash but still retain an interest in this astoundingly profitable outfit. I probably should have taken the same approach with Fever-Tree but I'm clearly still on the learning curve!


Plus 500: Hot on the heels of the last update we have another one with expectations being materially increased. It seems that many of the new investors signed up in Q1 are continuing to trade in Q2 even though the crypto-currency market has cooled down. A slight note of caution is struck with regard to the new ESMA measures which will take effect on 1 August 2018. The problem is that investors will need to be reclassified as elective professionals if they wish to trade as freely as they do now and Plus 500 don't seem to have much visibility around this transition. A slight concern given that these experienced trades represent a significant proportion of the firm's revenue. Worth keeping an eye on. (Update)

Impax Asset Management: As an asset manager AUM is pretty important for Impax and these HY results don't disappoint with assets up by 51% to £11bn. Of course £2.9bn of this came via the acquisition of Pax World but net inflows were very healthy at over £1bn as investors focused on the environmental sector. In addition their second renewable energy infrastructure fund has realised over 95% of its value allowing Impax to pay out a decent 2.6p special dividend. The third fund of this type has now closed and is already investing on the continent. It all looks pretty good to me and the board are optimistic that they'll continue to deliver good returns in the coming years. (Results)

Games Workshop: A year-end update this one merely reiterates how the year has ended very well; successfully enough to share a £5m bonus with staff. I think that this is an excellent idea given how well the company has executed this year. Shareholders aren't ignored either since yet another 30p dividend is announced for rapid payment. It also seems that sales and profit growth have continued to be strong since the last update and it really feels as though this is a company on a roll. (Update)

Palace Capital: The share price of Palace had been notably weak for nearly a year when these results came out and I opened them with a small amount of trepidation. Fortunately the board have been very busy preparing for the future by raising £70m of capital, buying the RT Warren portfolio and moving their listing to the main market. The benefits of this activity won't be realised for many years but it does represent a step-change in scale for the group. One downside of issuing shares at 340p in October was an immediate dilution in NAV down to 389p; however since then the NAV has risen by 7% to 415p and the current share price of 346p is at a significant 16.6% discount to this value. Given this, conservative gearing (net loan to value is just 30%) and a decent yield of 5.5% and I think that Palace is likely to make a good medium-term investment as they refurbish and recycle their properties. (Results)

Somero Enterprises: Just prior to the AGM this update signals that trading for 2018 is in-line with expectations - which are for a 14% rise in profits. All regions and products are performing well with development efforts being focused on the structural high-rise market. This tone is very consistent with previous statements in that it's confident but cautious with selected areas bought forward for R&D. Usefully the update contains a long section on succession planning for Jack Cooney, President and CEO. He's a very safe and experienced pair of hands but he's also 71 and I've always been a little concerned about the inevitable transition. Either way this change is going to occur gradually over the next three years which is great and very much the Somero way. (Update)

XL Media: A highly disappointing update saw the shares of this performance marketing company marked down by a hefty 30%. Ouch. Quite a few people seem to see this as a buying opportunity but I'm not sure given the pressures on several fronts. Firstly some lower margin media buying activities have been terminated. Secondly certain unnamed regulatory changes have impacted both the Australian and European markets. Thirdly there has been a reduction in SEO performance in some territories. It seems a bit of a coincidence that all of these areas should have fallen back at the same time; my suspicion is that the company hoped to trade their way out of these difficulties and have now been caught short and forced to come clean. The result is revenues falling by 10% and EBITDA down by an unspecified amount. It may be that the company will bounce back, and the statement contains lots of hot air about future opportunities, but I think that I'm not the only investor caught off-guard by this dramatic turn in fortunes. (Update)

Boohoo: Following up on a successful year-end this Q1 update sees total group revenue increasing by over 50% with Europe and USA really pulling their weight by growing >75%. That said the core boohoo brand only grew by 12% with the gross margin still under pressure at 52% (down from 53.9%). It's clear that the group is really focusing on PrettyLittleThing with sales here up by an astonishing 158% - enough to bring in £79m which is not far off the £97m from boohoo main brand. Clearly PLT is trading fantastically so it's just a shame that the group don't own 100% of the business! Overall though this is an in-line update with guidance being reiterated for the full year. I'd like to see the group trading above expectations, and I don't believe that I'm alone in this given the high P/E, which might explain why the share price has fallen today. (Update)

Taptica International: Well this feels like a lucky break. With the share price down by 45% over the last 6 months, despite best efforts by the board, I was all set to receive another spanking from the market. Instead the group are trading moderately ahead of expectations. Given that the group are dirt cheap, on a P/E of ~11, this update deserved a reaction and investors piled in to something of a relief rally. Usefully both revenue streams, marketing and advertising, are growing well and additional operational efficiencies are feeding into an improved gross margin. So while this is a stock which will always trade at a discount I think that investors can feel reassured that Facebook and GDPR issues aren't bringing the business to its knees. (Update)

End of month summary

Mid-month it looked as though this was going to another scorching month, both indoors and out, but late uncertainty in the market put paid to this idea. Still I was sure that I'd be ending the month down, given general comments by friends, so it was a pleasant surprise to find myself at break-even.

Without me noticing PPHE Hotels revalued themselves, TAP recovered nicely on the back of a good update and recent top-up Impax continued its push upwards. On the downside Photo-Me disappointed massively while Treatt retreated a whole 11% for no obvious reason while poor sentiment around Boohoo reversed the gains of last month.

Winning positions for the month: PPH 16%, TAP 13%, IPX 11%, CCC 10%, BVXP 8% PLUS 6%, RWA 6%, KWS 5%, NXT 4%, DOTD 4%, XPP 3%, CAKE 3%, GAW 1%

Losing positions for the month: TUNE -3%, BOI -3%, ACSO -3%, LLPD -3%, FDM -4%, NRR -5%, BUR -6%, SOM -6%, WJG -6%, DTG -6%, III -7%, BOO -9%, TET -11%

The overall result, despite some impressive volatility and 11% cash, was a break-even 0.3% for the month with the YTD return the same as last month. This is just fine as I want my portfolio to be able to take the rough with the smooth.

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

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