Daily Stock Market Report (Fri 28 Feb 2025) - Portfolio, MEGP, MGAM, RMV, FKE, OBD, SAG/RCDO

Happy Friday everyone, I hope your portfolio has done well in this results-heavy week. 

Before getting into today's news, I thought it would be fun to show you my personal portfolio. This isn't meant to be a model portfolio and of course it's not a recommendation. It's simply what I've ended up with after a long chain of decisions. It also reflects my bias towards inertia when it comes to investing.

• Volvere (LON:VLE) (33%)
• Berkshire Hathaway (NYQ:BRK.B) (27%)
• IG group (LON:IGG) (13%)
• Next (LON:NXT) (9%)
• Rightmove (LON:RMV) (5%)
• Burberry (LON:BRBY) (5%)
• British American Tobacco (LON:BATS) (4%)
• Evoke (LON:EVOK) (2%)
• International Personal Finance (LON:IPF) (2%)
• Impax Asset Management (LON:IPX) (1%)

In truth, I found this portfolio somewhat frustrating for a while, as my largest holding made no progress in share price terms for four years (roughly from 2020 to 2024).

That investment has also been a source of enormous sadness, as the co-founder and CEO, whom I had spoken to on a number of occasions, tragically died young.

Looking forward, I know that this portfolio needs to be improved and I do intend get more new ideas into it over time, especially from my watchlist and companies I've been GREEN on in these reports. But that also depends on dividend income and on disposals/takeovers from the existing portfolio.

Thankfully, my three largest holdings have carried their weight in recent times. The first is up by over 80% in the past year. The second is only up by 20%+ over the past year, but it is up by 140%+ over five years. Even IGG, which treaded water for such a long time, has done well recently. It's up by 35% over the last year, while also paying a dividend. Patience has been rewarded, and it leaves me with a question to answer about what to do with these unrealised capital gains. A nice problem to have.

With that out of the way, let's get into today's news!

Graham

The report is finished now.

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Companies Reporting

Name (Mkt Cap)	RNS	Summary	Our view (Author)
International Consolidated Airlines SA (LON:IAG) (£16.3bn)	Final Results	Beats expectations.
Pearson (LON:PSON) (£8.9bn)	Final Results	Positive outlook in line with expectations.
Weir (LON:WEIR) (£5.9bn)	Final Results	202 op margins, cash conversion significantly ahead of exps. 2025: confident to be in line.
IMI (LON:IMI) (£4.8bn)	Final Results	2025: expect another year of strong progress, mid-single digit organic growth, EPS 129-136p.
Rightmove (LON:RMV) (£5.2bn)	Final Results	2025: expect rev growth 8-10%, 1% membership growth, revenue per account to grow £95-105.	AMBER/GREEN (Graham) Spending big to keep its technological lead against rivals. Market share is under a little pressure but it remains around the extraordinary 80% mark. Valuation is always expensive but whenever it drops below 20x I view that as a bargain. Currently c. 23x.
Spectris (LON:SXS) (£2.8bn)	Final Results	2025: expect to trade in line, with strong growth in adjusted operating profit.
Primary Health Properties (LON:PHP) (£1.2bn)	Final Results	NTA (net tangible assets) down 2.8% to 105p (SP 91.4p). Values have started to stabilise.
ME International (LON:MEGP) (£829m)	Secondary placing	SP -9%. Investment company sells 7% of MEGP at 200p; MEGP shares fall to around this level.	AMBER/GREEN (Graham) It's not good news that a private equity firm is selling, but I don't think it warrants a change of stance.
Morgan Advanced Materials (LON:MGAM) (£720m)	Final Results	SP -17%. Weak outlook statement. Uncertain end-market demand. Slower growth in BEVs.	BLACK (AMBER) (Graham) Retreating from my mildly positive stance after another profit warning. I do still see some value but given a highly uncertain outlook for 2025, I can't fight against the downtrend.
Benchmark Holdings (LON:BMK) (£200m)	Q1 Results	SP -5%. Q1 revenue down 30%. Adj. EBITDA loss. Cash £14m, net debt £62m.
Ricardo (LON:RCDO) (£146m)	Strategic Investment	Science Group now owns 8.46% of voting rights in RCDO.	AMBER/RED (RCDO) GREEN (SAG) (Graham) [no section below] SAG and RCDO have similar market caps but SAG (which had net funds of £27m as of Dec 2024) has spent £12m+ buying RCDO shares. SAG’s directors are keen to point out that their own shares have made strong compound gains over the long-term, while RCDO shares have hit 15-year lows. They describe this as a “strategic investment” but the strategy is not described in today’s RNS and is not clear to me. I leave our colours on each company unchanged for now. If SAG keeps buying RCDO shares, I may need to think about putting them on similar colours.
Oxford Biodynamics (LON:OBD) (£11m)	Final Results	Revenue £0.6m, op loss £12.9m. Raised funds in Jan; has “limited” cash. Going concern warning.	RED (Graham) [no section below] Raised £7m in Jan. Further cost reduction actions may be taken following a review. According to the company’s baseline forecast, more funding will be needed in the final quarter of 2025. If the baseline forecast is not met, funding might be needed sooner than that. This is an automatic RED from me due to the risk of dilution. Dilution might be considered the best-case scenario in this case.
Fiske (LON:FKE) (£8m)	Interim Results	Rev £3.9m. Op profit £0.3m. Outlook: headwinds and uncertainty, but has solid platform.	AMBER/GREEN (Graham) [no section below] Nearly £900m in AUM and assets under administration but it struggles to earn material profits. The core business needs to scale up to prove its worth. Balance sheet has cash of nearly £6m and an investment in Euroclear which looks to be worth £5m+. Net assets of £10.5m are almost entirely tangible. On the whole, this appears to be undervalued and to offer deep value but more detailed research is needed. How might the value be unlocked?

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Graham's Section

ME International (LON:MEGP)

Down 9% to 199.4p (£749m) - Result of Secondary Placing in ME Group - Graham - AMBER/GREEN

Last night as the market closed, an RNS was released with information about this proposed secondary placing.

(Secondary placing means that it’s the sale of existing shares by shareholders, not by the company itself.)

The seller is Montefiore Investment which until now was a 12% shareholder in MEGP.

The RNS last night said that they intended to sell c. 5% of the company.

This morning we learned that they have in fact sold 7%.

To do so however they accepted a discount of about 20p or 9%. The stock closed last night at 220p, but the sale has gone through at 200p.

And what next for the remaining shares held by Montefiore? They have agreed to a 45-day lock-up but we might reasonably expect that these shares will hit the market sooner or later.

About the seller: Montefiore a Paris-based investment manager with €5bn of AUM. They have a representative on the Board of MEGP but perhaps not for too much longer? They look like a reputable outfit.

Graham’s view: there is no information regarding the identity of the buyers of the shares so we’ll need to keep an eye out for that.

In general, it’s never positive to see a major shareholder selling their stake. Especially when that shareholder is highly knowledgeable and professional. I note in passing that MEGP’s CEO is French and that most of MEGP’s photobooth revenue derives from France. Paris-based Montefiore do not make many investments. They will have an extremely strong understanding of the company.

At the same time, I don’t believe that we should allow our view on MEGP to be altered too much by this news.

For every share sold, a share has been bought. There are buyers who see value at 200p.

And we can’t know for sure why Montefiore is selling. There are possible reasons for their decision which have little to do with MEGP itself.

I am therefore going to leave my AMBER/GREEN stance unchanged on MEGP, which is the position I took on Monday this week when it announced full-year results.

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Morgan Advanced Materials (LON:MGAM)

Down 22% to 200p (£565m) - Preliminary Results - Graham - BLACK (AMBER)

We don’t cover this one very often. The first time was last November when I was too optimistic on it, taking an AMBER/GREEN stance at 245p. It issued a mild profit warning that day but was happy to continue buying back its own shares.

Roland had also looked at it in October, noting a vague outlook statement.

The company is “a global manufacturer of advanced carbon and ceramic materials for complex and technologically demanding applications”.

Its businesses are broken into three categories: thermal products (which offer heat resistance, fire protection and insulation), performance carbon components (rail, aerospace, etc.) and technical ceramics.

Unfortunately there is more bad news today with a very weak outlook statement.

Firstly, here are some headlines from the full-year results for 2024.

The growth rates used are adjusted to be organic and assume constant exchange rates.

• Revenue +3.7% to £1.1bn

• Adj. op profit +16.5% to £128m.

• Return on invested capital 18.5% (LY: 17.6%)

• Net debt £226m (up from £185m)

This all looks quite promising. The statutory results aren’t bad either, e.g. there is unadjusted PBT of £85m (LY: £78m). The main weak point in the statutory results is that unadjusted revenue fell by 1%.

The CEO comment shows no signs of panic:

We have delivered robust organic constant currency* revenue growth against a backdrop of increasingly challenging end-markets, with good progress made in our business simplification and efficiency initiatives, continuing our track record of self-help. We remain focused on delivering against our strategic initiatives and expect a return to a 12.5% adjusted operating profit* margin during 2025."

The outlook statement is where we need to focus. Revenue expectations have deteriorated:

Demand in a number of our end-markets is uncertain. Our current outlook for revenue in 2025 is for a mid single-digit organic decline and assumes no recovery in H2. Our simplification programme has been accelerated given the weaker demand…

Demand for semiconductor capacity has been impacted by the slower growth in BEVs leading to high customer inventory levels in the short term. We have scaled back investment accordingly and now expect to invest c.£60 million in semiconductor capacity (prior estimate £100 million) to deliver incremental revenues of £40 million and adjusted operating profit* of £12 million in 2027 (prior estimate £80 million revenue, £25 million adjusted operating profit*).

Regarding tariffs, they say “with such a wide range of potential tariffs being considered, and with the details of those unknown, it is not possible to estimate the impact at this stage”.

As a result, their guidance for 2025 assumes no direct impact on their financial performance arising from tariffs.

That's understandable if they are unable to come up with any sensible forecast, but at the same time isn’t it likely to be too optimistic?

Estimates: checking prior estimates, I see that MGAM was supposed to enjoy revenue growth of about 2% in 2025. That has now swung to a mid single-digit decline.

Additionally, the loss of £13m of forecast operating profit from semiconductors is alone sufficient to cause a c. 10% trim to operating profit forecasts.

Buyback continuation

In a move that will antagonise the opponents of buybacks, the company has also announced the continuation of its share buyback programme. Its existing programme must be underwater now, as MGAM shares are trading around the bottom of their 5-year range.

Nevertheless, the company will continue with another £10m tranche. This is the second tranche coming from its £40m plan.

They aren’t worried about leverage:

In the context of the strong balance sheet position, the Board continues to consider a share buyback to be an attractive use of capital to drive shareholder value alongside the significant ongoing organic investment. The Company continues to target through the cycle leverage range of 1.0x to 1.5x net debt to adjusted EBITDA excluding M&A and expects to remain within this range during 2025.

Graham’s view

I should retreat from my mildly positive view on this as we have a string of profit warnings to contend with, and it’s difficult to argue that the company offers deep value when it has a material net debt position and the outlook is so uncertain.

That said, I would still expect it to generate a reasonable ROCE/ROIC and profit margin even if it lost 10% or more of profits. It’s starting from a position of strength, e.g. see these quality metrics.

So I guess I do still see some value here, but I don’t want to fight against the trend by keeping that stance after another profit warning. Hopefully I can go positive on it again before too long.

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Rightmove (LON:RMV)

Up 3% to 662.4p (£5.2bn) - Final Results - Graham - AMBER/GREEN

At the time of publication, Graham has a long position in RMV.

I thought I could give this one a brief look.

Market share is currently 80% in terms of the time spent by UK consumers on property portals.

The trend here is negative and is something I need to worry about. Although market share isn’t falling fast, it probably is falling. For example, this metric was reported at 84% in 2021 (since then, Boomin has been replaced by PrimeLocation in the list of peers, so it’s not an exact comparison).

However, the overall market is growing in terms of time spent and RMV has logged 16.4 billion minutes in 2024, up from 15.4 billion minutes in 2023.

The only UK-based online platforms that are busier are the BBC, Reach (LON:RCH) and the government (gov.uk). 80% of traffic is “direct and organic”, i.e. virtually free.

The financial highlights are uneventful.

Profits aren’t growing as quickly as revenues, as the company fights to maintain its technological lead:

The company has a small cash balance of £41m after returning £182m to shareholders in 2024 in dividends (£74m) and buybacks (£107m).

ARPA (average revenue per advertiser): up £93 to £1,524 per month with both estate agents and developers paying more. Total membership grows 1%

Property end-market trends in early 2025 are “supportive” with lower BoE base rates beginning to feed through to mortgage rates.

Outlook:

In 2025, we will continue to build a larger, more diversified, digital Rightmove ecosystem in line with our strategy. We expect revenue growth of 8-10%, building on our progress in 2024 and benefiting from: the full-year impact of Optimiser Edge uptake; further product-led growth across our core business; and continued progress within our Strategic Growth Areas of Commercial Property, Mortgages and Rental Services. We expect c1% growth in membership and ARPA growth of £95 - £105 across estate agency and new homes developers.

The underlying operating margin is expected to be unchanged at 70%. The actual, unadjusted operating margin in 2024 was only a few percentage points lower at 66%.

Graham’s view

It’s a little expensive as always, and growth is undramatic.

But for this price, it offers a company of the utmost quality (in my view).

The company is hated by some estate agents, for reasons that we can understand.

From a shareholder perspective, I sleep soundly with this in my portfolio.

In the event that US-backed competition from OnTheMarket meets with success, I suspect that this will come primarily at the expense of Zoopla, not Rightmove.

There was takeover interest in RMV last year, which we covered in this report. Rupert Murdoch’s REA Group eventually walked away after offering 781p of value. I had previously said I wanted at least 800p before I’d even consider selling up. That remains my view today.

I was AMBER on this at 672p last September. RMV’s P/E ratio has since moderated slightly, falling from >25x then to <23x today.

Perhaps this is a little optimistic, but I’m happy to nudge my stance on this up to AMBER/GREEN today.