November 2019 Portfolio Update

It's been a busy month, for me, with quite a few buys and sells. In the main these purchases have been driven by companies on my watch-list showing technical/fundamental strength with my aim being to buy into this before holding for the medium term. With sales this largely comes down to thirty or so shares being the most that I can comfortably cover. As a result I've chopped a few positions that for one reason or another aren't quite right for my portfolio as it stands. Fortunately this has all taken place against a positive market backdrop which tends to make any activity look good.

Suffice to say some punchy gains by FDM and KWS have reversed losses from October while GAW remains ever popular with investors. As a result the table-top gaming company has grown to around a sixth of my whole portfolio. From a risk management perspective I should perhaps be reducing my exposure. I'm not going to though because I believe in running my winners and I see Games Workshop as capable of generating much higher sales, and licensing income, in the years to come. On the downside the biggest faller was H&T after the FCA decided to review its high-rate loans business despite this being but a small part of the group offering. It's a bit annoying but HAT will come through this process just fine I'm sure.

Anyway the scores on the doors were:

FDM 34%, GAW 28%, KWS 27%, SCT 20%, SDI 13%, K3C 12%, HYNS 12%, AFX 11%, QTX 10%, BOOT 10%, CRW 6%, KETL 6%, GAMA 5%, IGR 5%, PPH 2%, MBH 1%, BOWL 1%

PCA -2%, SBIZ -3%, NRR -3%, SPSY -4%, RWA -4%, III -5%, RFX -6%, ADT -6%, BUR -6%, HAT -14%

All of these positive numbers led to an excellent rise of 6.2%, pushing the YTD nicely up to 16.8%, which I'm very happy about. My cash level is just below 8%, which is a little higher than last month, although in general I like to be around 10% uninvested in order to ensure that I have some opportunistic funds available. Set against a pre-election backdrop I'm a little surprised at how positive the market has been in November but could it be that people are gearing up for Christmas? If so I'd like them to continue.


Greggs Bought at 1891p - November 19

You'd have to be living as a recluse to be unaware of the astonishing transformation that Greggs has undergone over the last 5 years. No longer a humble baker Greggs has become a food on-the-go retailer with a reputation for decent quality at a bargain price. Vertical integration has driven margins and profitability up with like-for-like sales growth seemingly unstoppable as the estate climbs towards the 2000 shop level. All of this comes at a price and a P/E well north of 25 kept me out of these shares up until now. Fortunately the HY results in July proved hard to digest as cost pressures, supply chain uncertainty and tough like-for-like comparatives soured the management outlook. A decent but unexceptional update in October put further pressure on the share price and it fell all the way to 1750p (from over 2400p). From this point on I had Greggs on my radar with the intention of taking a position should good news emerge. This morning the board duly obliged by revealing strong like-for-like growth of 8.3% with FY profits to be higher than previous expectations. Just what I was hoping for.

Franchise Brands Bought at 103p - November 19

This somewhat below-the-radar stock ticks quite a few boxes. In no particular order the recent break-out above 100p is a good sign in that it's taken out the previous high attained in 2017 not long after listing. Also, as a recent IPO, it's been through an early profit warning when new acquisition MetroRod proved tough to digest. As a result management knuckled down to the task and held off further expansion until they'd fixed the problems. This is great discipline and a big tick for the board. During this period the executives repeatedly purchased large tranches of shares, to such an extent that they now own ~60% of the company, and haven't sold any to date. This gives me confidence that they're aligned with other shareholders and totally believe in the business. Then there are the forecasts for 30%+ growth in 2019 and 2020, set against a current P/E of ~27, which suggests that the group is back on track without being over-valued. Finally the Stockopedia StockRank has been rising for 2 years now, from an uninvestable low of 16 up to a very attractive 82 right now (courtesy of high quality and momentum scores). Obviously it's too small to bet the farm but there's an awful lot to like about Franchise Brands.

Volex Bought at 105p and 130p - November 19

This is a very recent purchase following their recent Yellowstone presentation and some weekend consideration on my part. Without repeating the notes from my presentation report it's clear that Volex have put their house in order after many years of under-performance. In doing this they've enjoyed a tailwind from clients looking to move away from Chinese suppliers, support from certain key customers and a need for high-quality cabling in the medical and data-centre sectors. You do make your own luck though and the refreshed board have been working on this regeneration for quite a few years with the benefits only recently becoming apparent. This explains why you can still buy the shares on a sub-10 price-earnings ratio despite recent results confirming that they're on-track to meet expectations of a 72% jump in EPS this financial year. As a mark of confidence the board have just re-established the payment of a dividend (after more than a 5-year gap) and while it's a token amount for now there's scope for it to grow meaningfully. Finally Nathaniel Rothschild remains a consistent, ongoing buyer of shares despite already owning 24% of the company. Seems like a positive sign given how close he is to the action.

Haynes Publishing Bought at 399p - November 19

Since my initial purchase in September this has been a quite extraordinary investment with the price almost doubling over that period. If I'd been more attentive I probably would have added to my position during this rise but it never seemed like quite the right moment. Still with the FY results being well received, and then the announcement that the company is up for sale, it's clear that investors still see value here. I have some sympathy with this viewpoint as the 2020 P/E ratio is only 16.5 for 24% growth and that's ignoring further gains from the successful self-help strategy. Moving onto the valuation that might be achieved by a sale there are a couple of useful posts here from Simon Hedger and River Otter Investments. I have no idea where we're going to end up in terms of exit multiple but it seemed to me that with the price drifting back 7% for no reason (reversing all of the recent excitement) this was as good a moment as any to double my position.

Things I thought about buying (but didn't)



Learning Technologies Sold at 108p - November 19 - 7.4% gain

So my initial purchase of LTG, after an expectation beating update, began rather inauspiciously with the price slumping 20%. Fortunately some decent FY results and a strong trading update in July helped revive interest in the share. As a result the price hit 130p in September and looked set to rise further. Sadly mixed HY results rather took the shine off my enthusiasm with sales in some key areas falling short. Since then we've had no further news and the share price has consolidated. That said analyst expectations have gradually risen over the year and if they're met (which requires EPS almost doubling) then the shares look like reasonable value at the current level. With luck they'll make their numbers but uncertainty here isn't why I've sold. The fact is that I've found three new companies that I'd like to invest in and I'd rather not let my portfolio have too many holdings - so I've subjectively chosen the weakest share for the chop and that happens to be LTG.

Watkin Jones Sold at 223p - November 19 - 70.3% gain

Having held this successful developer of student property for around three years I've been very happy with its progress and predictable earnings profile. So when the Watkin Jones family placed 25m shares (10% of the company) at 210p the other day I wasn't unduly alarmed (even as the price dipped). However it's clear that the founders of the group wish to diversify their investments and this prompted me to take another look at my holding - which stood at ~5.5% of my portfolio and my third largest position. Too much exposure when you consider that directors have been net sellers since flotation and the share price has gone nowhere for over two years (representing a decent opportunity cost). Add on the fact that earnings are forecast to rise just 2% this year, improving to 11% in 2020, and it's clear that my funds can work harder elsewhere.

AB Dynamics Sold at 2451p - November 19 - 7.2% gain

This is a highly rated, quality company which I've had my eye on for a while. So when a strong trading update emerged in October, after a period of some weakness, I was quick to open a position. In the couple of months since then the price has been volatile but strengthened notably on the run into the recent FY results announcement. On the whole I was pretty impressed by the numbers even if it required a few adjustments to come in just ahead of the forecasts. However on the day the share price dropped hard and stayed low until the market close. I thought that there might have been some sort of bounce but clearly market sentiment has turned and that's not a good place to be when you're on a high multiple. Today the sellers were out again and I've cut my position on the basis that this was a trade based on technical and fundamental signals and now one of these, at least, has turned against me. I could have sold higher of course but 7.2% isn't bad over 8 weeks.

Things I thought about selling (but didn't)



Ramsdens Holdings

A reassuring, in-line update here for the first 6 months of the year. A particular point to note is that while the consumer environment remains challenging they put down their good performance to having a number of different income streams. I can well believe this as demand for foreign currency, small loans and what-have-you is bound to fluctuate. Another positive is that they scrapped an amount of slow-moving jewellery stock to take advantage of the strong gold price. As a result rather than taking a write-down on the stock they've created a one-off £600K boost to gross profits. Nice. Finally the newly acquired Money Shop stores are bedding in and they're open to further acquisitions. All pretty good then. (Update)

dotdigital Group

This has been something of a challenging year for dotdigital with the continuing integration of Comapi (acquired in Nov 2017) and sales hit by a number of retail clients falling into administration. On the Comapi front it was announced in May that main platform integration was complete and that the non-core parts, Dynmark and Donky, would be wound down. This makes strategic sense but it did have the knock-on effect of reducing forecasts as these are based on continuing operations. Hence it's not too surprising that the share price has been weak since the summer. Anyway these results are pretty much in-line with expectations with sales of £42.5m, EBITDA of £14.7m and post-tax profit of £10.9m. A side-effect of excluding discontinued operations, which generated a £2.5m loss, is that earnings have come in above expectations with an EPS of 3.9p (3.4p expected) while it's just in-line at 3.36p when everything is included. Looking forward the board have good earnings visibility, with 86% of sales recurring, average revenue per user continues to climb and foreign markets are all growing strongly. So I think it's very likely that the 2020 forecasts for just 3.8p in earnings will be upgraded to perhaps 4.3p (just 10% growth) putting the company on a P/E of ~23. Not cheap but not over-expensive. Still it's fair to point out that dotdigital pay almost no tax, courtesy of hefty and ongoing R&D credits, and that £4.4m of development costs were capitalised in FY19 (rather than putting these through the P&L). So there are legitimate factors at work here which act to improve profits and yet may not be around forever. Nevertheless dotdigital is serving a clear customer need in a growing market and has real scalability given that they are all about software and services - so I can understand why the board are confident for FY20. (Results)

Games Workshop

Top notch trading update here with not a wasted word. Essentially both sales and profits are above expectations at not less than £140m and £55m respectively. My assumption is that the business is trading its socks off and that new products are flying off of the shelves. In addition royalty income is significantly ahead as new licences have been signed. I expect this pure profit income stream to become increasingly significant in future years as the company monetises its intellectual property. Just a great company really. (Update)


This year has been a bit of a roller-coaster for investors in Craneware after its profit warning in June with the share price almost halving. At the time the problem seemed to be one of timing, as customers dealt with the roll-out of a brand-new system, rather than an actual loss of sales. Four months into the new financial year it seems that these delayed contracts are being signed and that the sales pipeline continues to expand. This is very reassuring to hear. As such profits are currently tracking in-line with management expectations and we should get another update in December or January (going by announcements over the last few years). One to keep hold of I think given their standing in the US healthcare market. (Update)

AdEPT Technology

On the face of it these seem to be pretty good HY results with sales up 26% to 30.8m and managed services now accounting for 82% of total sales (from 74%). However bottom-line profits only grew 4% with the bulk of the difference down to a near £1m increase in amortisation of intangible assets. This effect, along with dilution from an expanding share count, is one of the downsides of an acquisitive business never mind the added risk of debt taken on to fund such purchases. For this reason it's not surprising that the share price has stagnated for over a year despite looking optically cheap (on an adjusted P/E of ~12). That said the group is successfully transitioning away from fixed-line services, where the gross margin is a good 10% lower, and lifting its exposure to public sector and healthcare customers. Their track record in these sectors appears strong and I don't see demand for connectivity and network infrastructure diminishing any time soon. But, and there's always a but, it's a competitive market and margins are clearly under a bit of pressure from both the economic backdrop and a larger component of hardware/software sales in these results. Still it's not as if the board are doing anything wrong per se and the recent addition of Richard Bligh, formerly COO of Gamma Communications, materially strengthens the board. So I think that I just need to sit on my hands here and forget about AdEPT for another six months. (Results)

3i Group

The reason I'm invested in 3i is that it provides useful Private Equity and Infrastructure diversification, far removed from the small-cap space, along with a useful yield of over 3.5%. Over the years management have performed well with the NAV more than doubling over the last four years (with the share price mirroring this improvement). Happily these HY results continue the trend with NAVps up 7% despite a somewhat cautious attitude around making new investments. A key driver of this performance, as in earlier periods, was strong growth in Action with like-for-like sales growth of 5.6% and an increase of ~10% in total store count. This discount retailer has been a major success story and it's no surprise that 3i want to retain a substantial investment. What is a surprise in these results is that 3i are buying the share of Action held by EuroFund V (which is liquidating) which both takes their stake to around 50% and sets an exit enterprise value of €10.25bn. This seems pretty good but apparently other investors were disappointed by the valuation and sold out as a response. Personally I think that this is short-sighted given the aim of 3i to actively manage their investments and generate organic value in the medium term. In other words Action is still growing strongly throughout Europe and I'm happy with the way in which the investment managers are proceeding. Worth holding for the long term. (Results)


This very recent purchase happily reports some excellent HY numbers here with profit up ~70% on a much lower 7% increase in sales. This ties in with the board's desire to move away from low-margin, commodity manufacture in order to concentrate on higher-margin, value-added partnerships. A number of acquisitions are driving this transformation with Servatron, in North America, and Silcotec, in Europe, both moving the group up the value curve and offering factory operations closer to end customers. In consequence higher-margin Complex Assemblies business now provides the majority of sales and gross margins overall are up from 18.7% to 23.1%. Improvement in margin really is the key to success for Volex, through reducing costs and supplying more valuable products, and it's good to see improvement at the operating profit level also with the margin rising from 5.4% to 8.1%. A marker of this focus is that Volex no longer compete on price, to gain market share, and instead aim to supply high quality cables at an appropriate price point. Given the ruthless Chinese competition this is a rational commercial decision. In summary it's all looking good for Volex and I feel that their self-help actions are really starting to bear fruit. (Results)

Haynes Publishing

Well this is all a bit of a surprise. I was expecting to enjoy the turnaround of this increasingly digital business for some time but now the company is up for sale! I would suggest that the beneficiaries of founder John Haynes, who died this year, want to monetise their holdings and the board sees this as the most effective option. It'll certainly be interesting to see who comes forward and whether we'll be treated to a bidding war. Given the unique intellectual property in Haynes, and its status as a comprehensive data provider, I imagine that there will be keen interest from some larger companies in similar sectors. (Update)

H&T Group

What an unexpected and unpleasant update after a long period of positive performance. Contrary to prior expectations it turns out that the FCA isn't happy with aspects of their high-cost short term credit unsecured loans business. I'd thought that this had been settled but apparently not. As a result H&T have ceased all unsecured lending, possibly temporarily, while the FCA goes over the book and decides what penalty (if any) to levy. The upside, if there is one, is that revenues from this segment are less than 4% of the total and the business should be able to fund any redress from existing resources. In addition the business elsewhere is trading well and in-line with the last announcement in September. So an unwelcome distraction but far from terminal. (Update)

Palace Capital

It's a recurring theme with REITs at the moment but, on the whole, Palace Capital has performed reasonably given the economic environment. In numerical terms this means that the NAV has only fallen 3.9%, to 391p, and that gearing is still reasonable at 34% loan-to-value. This is all a bit of a side-show though as the board have gone all-in on their development in York, called Hudson Quarter, and this won't complete until January 2021. In the meantime they placed 20 apartments on the market and demand is such that they've sold 21 with another 7 under offer. This is good news and there's no doubt that on paper this looks like an excellent investment opportunity for the company. In some ways this characterises the style of active management which Palace Capital employ; they tend to take a medium-term view on the value of redeveloping or refurbishing assets in order to create value. In addition they are very choosy about acquisitions and often buy corporate entities in order to avoid stamp duty and accrue capital allowances. I admire this capital discipline and right now the property market isn't giving them much to work with - hence the lack of news. I know that there's an opportunity cost to holding these shares but I rate the management here and have no desire to sell at a 25% discount to NAV. (Results)

NewRiver REIT

Just like Palace Capital there's a stiff headwind facing NewRiver as well with this revealing that the 11% yield stems from an uncovered dividend. At some point this outrageous yield will diminish in one of two ways: either the board will be forced to cut the dividend or the share price will greatly appreciate. In the short-term the latter isn't going to happen while the EPRA NAV remains on a downward trajectory. In the six months from March a portfolio valuation decline of 3.3% has taken the EPRA NAV down by 6.5% to 244p. This puts the REIT on a NAV discount of 20% and that feels about right. So to avoid an unwelcome cut the board are pulling a few levers to increase cash-flow. One of these involves selling off assets with a relatively low yield, from rents, of ~5% and replacing them with higher yielding assets at the ~9% level. Does this mean that the best assets are being sold and replaced by low-quality ones which no one wants? Possibly although the managers have a track-record of taking unloved retail parks, and pubs, and then coming up with creative ways to improve their income and capital potential. So I believe (hope?) that the board are being prudent. In addition NewRiver have a growing third-party asset management business that looks after other people's retail assets - such as taking on Kirkby Town Centre for Knowsley Council. This suggests that the company has a specialised skill-set which is valued by more general-purpose organisations. Finally the pub portfolio is performing strongly with occupancy high at 96.7% and like-for-like EBITDA growth of 5.5% per pub. This is a useful diversifier. Obviously it's not great to be invested here right now but NewRiver isn't about to go bust and I'm being paid well to wait for an eventual recovery. So in the portfolio it stays. (Results)

IG Design Group

Confident HY results here with sales and operating profit both up 21% along with a 14% reduction in net debt to £86m. Apparently this debt position represents an annual maximum as the company always gears up manufacturing and stock levels to meet customer needs for Christmas trading. By the end of the full year IG Design should be back in a net cash position as receivables are collected. Much of the debt, and profit improvement, stems from the purchase of Impact of last year and rarely has an acquisition been so well named! It really has been transformational for the group. However the timing of the purchase has had the curious result of ensuring that the reported EPS is only up 2% year-on-year. The reason for this is that all of the sales/profits from Impact were included last year but only the effect of one month's increased share count on the denominator. That also explains why forecasts imply just a 3.5% increase in earnings despite growth in the business. I don't see this as an issue. Much more important for me is that the sales pipeline is ahead of last year and that the group is making various production line investments around the world in order to meet higher demand and reduce costs. These are the actions of a quality business that manages the demands of customers, despite unexpected tariffs and political uncertainty, so that they get the product quality which they're looking for at the right price point. (Results)


This is an early update, just covering the first quarter, but so far there is growth across all technology areas and customer segments. Given that analyst forecasts are for just 6% earnings growth in 2020, which is far below the double-digit numbers achieved in each of the last 5 years, I suspect that these forecasts will rise over the coming year. Even with the recent price strength putting the business on a P/E of ~31 I can no reason for reducing my position here. (Update)

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

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