April 2018 Portfolio Update

1st May '18 by Damian Cannon

11 comments 7350 reads

Finally a pretty quiet month, with the stock market recovering from its wobble in March, and so much the better for that in my view. I made very few changes this month but after enjoying Mello 2018, up in Derby, I now have a list of companies worth further investigation. I don't know whether these ideas will convert into investments but having met management I do feel that I understand these businesses in more depth; on the other hand it's best to be a little cynical as directors are often very good at painting a rosy picture. Tricky thing this investing lark.

Purchases

Impax Asset Management Bought 160p - Apr 18

A few weeks ago I saw Ian Simm, founder and CEO of Impax Asset Management, give a presentation on the company. With IPX popping up on my quality screen, as well as being a near miss on my growth screen, I was naturally interested in hearing what he had to say. In a nutshell he started the group twenty years ago in order to invest in the environmental and renewable energy sectors. Since then the group has slowly but successfully increased its fund size and laid down a solid performance history. With the transformational acquisition of Pax World in January the group is now at a healthy scale and possibly a little undervalued given the potential for synergies. With interim results out on 7th June we don't have long to wait for up-to-date figures.

dotDigital Bought 87p - Apr 18

Another company which scores highly on my screens, this time for quality and momentum, is dotDigital. It has an excellent track-record of profit growth, with good cash conversion, and forecasts are pointing at 23% bottom-line growth this year. However with GDPR coming into force this month I feel that positive sentiment towards the company has been somewhat subdued lately. As a result I've done some reading around to see how pro-actively dotDigital is dealing with this challenge and it looks like the company is positioning itself to help clients handle and cleanse their data in order to be compliant. So it's reasonably likely that the group will be a net beneficiary, rather than a victim of GDPR, as the additional regulation pushes clients into their hands. That said I have bent my rules here by not waiting until an out-perform trading statement before increasing my position; hopefully…

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jonesj

1st May '18

I've been holding RWS for about 8 years, during which time it has performed very well.

I trimmed the position last year as the PE ratio was getting too high.
I have added to this position today.

The management have skin in the game & seem to know what they are doing. I may top up again.

Effortless Cool

2nd May '18

Damian,

Thank you for a very interesting portfolio write-up. It is fascinating to get this insight into how another investor assesses their holdings and makes their decisions.

With regard to Focusrite (LON:TUNE), which I also hold, although it is true that there has been no clear seasonality in the past, the latest interims indicate that this may now be becoming a feature:

"Strong Christmas holiday season for the more consumer-priced products"
".... the Group's performance in the first half benefitted from an especially strong Christmas holiday season. Since the half year-end, revenue and cash have continued to grow although, as expected, at a slower rate than in the first half".

Notwithstanding the above, however, consensus earnings indicate 51.4% of revenue generated in the first half versus 55.2% of EPS. This suggests to me that, at the very least, brokers are being conservative on projected margins and. like you, I anticipate upgrades in due course.

Damian Cannon

Thanks EC. I like to think that there is value is describing my thoughts at a fairly granular level as the process is at least as important as the strategy (and books generally dwell on only the latter). At the very least it's forcing me to be more considered in my decisions and I'm finding this to be useful.

I did see the comment for Focusrite (LON:TUNE) and of course it's good that Christmas seemed to go better for them than expected. Still consumer-grade products aren't their key focus and that's a real strength of the business.

Rusty2

Damien, thanks for the monthly update, always interesting to read, looks like you had a good month. Thanks for the table it is helpful. I think a monthly review is a great idea. I don't know anything about RWS Holdings (LON:RWS) apart from the £ has fallen recently so that may help.

Thanks herbie47. I've been doing some further analysis on RWS Holdings (LON:RWS) and as a result I've closed my position here today.

My main concern was that I'd under-estimated the impact of weakness from Moravia. Looking back at the acquisition RNS I realised that Moravia would have provided 47% of group sales and 35% of profits last year. A chunky acquisition then with 1200 new employees coming on-board compared to the 908 FTE positions already in place. I also realised that sales were concentrated, with the top 5 clients delivering ~80% of revenue, while the profits from this business came in at a lower margin than the core RWS Holdings (LON:RWS) income.

Now a key attraction of RWS Holdings (LON:RWS) is its high ROCE but this has been gently falling for a few years and lower group margins will put further pressure on ROCE. Finally forecasts for 2018 show quite a jump in sales/earnings but much of this is just down to the acquisition; strip this out and sales growth comes in at 6% while earnings are forecast to rise by 11%. This is pretty average and will look a lot worse if FX headwinds continue.

Damian

Tristan_Treacy

3rd May '18

Hi Damien,

Thanks for a great write up. Sorry if I have missed it, but have you shared your screens anywhere? I have a fair bit of overlap with the stocks you hold and it would be interesting to see how you got there. I suspect that my approach is rather less structured than your own and I'm sure I would learn a lot from your screening process.

Thank you again.

Tristan

Hi Tristan,

Thanks. I haven't shared my screening approach anywhere yet but that's more about my lack of time rather than protecting some proprietary IP. It revolves around three separate screens, for quality, momentum and value, but obviously the devil in the detail. I hope to write this process up when I get through my backlog of company meetings.

Damian

22nd May '18

Robert Walters (LON:RWA) does anyone know the reason for the 10% share price fall today, can't see any news?

wavey_dave_76

23rd May '18

Likely the release by HMRC of the consultation document around rolling off-payroll rules out to the private sector.

Thanks Dave, I don't know much about that but other recruiters did not seem so effected and I believe most of Robert Walters (LON:RWA) earnings are from abroad.

Interesting. As herbie47 says the majority of their earnings are international and so I can't see why Robert Walters (LON:RWA) would be hit especially. I did ask them if they had any information on the likely impact of IR35 in the private sector but they said that they couldn't comment until the consultation has actually finished (and proposals put forward for implementation).

April 2018 Portfolio Update

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Damian Cannon

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