July 2018 Portfolio Update

Tuesday, Jul 31 2018 by

This has been a profitable month and, if Twitter is any guide, I'm not the only one. Quite a few of my larger holdings have benefited from decent updates/results and I added a few starter positions in shares that I've been monitoring for a while. Whether or not it's the wrong time to reduce my cash buffer I don't know (on the basis that the next crash will throw up some bargains) but trying to time the market isn't my strategy. Instead all I ever try to do is identify a few promising companies, take an initial stake and then either reduce or increase my position depending on news-flow. This approach seems to work for me, unlike many other strategies, so I might as well stick with it!


RM Bought 238p - July 18

My primary screens, which filter against quality, momentum and value, have been flagging up RM as a high conviction purchase for six months. There's no doubt that the company has made solid progress over the past 5 years with profits more or less doubling, without any P/E ratio inflation, and ROCE sitting at over 20% as margins have remained stable. Still I dithered about making a purchase on the grounds that selling into the educational market is difficult at the best of times. The tipping point came this week when interim results showed all three divisions to be making good progress and an indication that the board are confident of at least meeting current expectations. Given that the forward P/E is just 10, with a yield above 3%, I think that the group is relatively undervalued with scope for a positive earnings surprise in H2.

Bodycote Bought 975p - July 18

My position with Bodycote was pretty similar to that for RM in that all of my filters suggested a purchase and yet I was reluctant to pull the trigger. In this case variable earnings over the past few years suggested to me that the business wasn't a model of stability and this is always a concern. On the other hand earnings bounced back last year, up by 33%, and forecasts suggest a continuation of this trend over the next two years although at a lower level of growth. So it's reasonable to expect margins and ROCE to stay at a decent level, >15%, with strong cash generation putting the group in a net cash…

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RM plc is engaged in supplying products, services and solutions to the United Kingdom and international education markets. The Company operates in three segments: RM Resources, RM Results and RM Education. The RM Resources segment consists of TTS Group Limited (TTS), which provides resources used in schools mainly through a direct marketing business model with goods supplied from centralized distribution centers. The RM Results segment provides information technology (IT) software and services to exam boards and professional awarding bodies to allow e-assessment through the use of on-screen exam marking (e-marking) and on-screen testing (e-testing). The RM Education segment is a United Kingdom-focused business supplying IT software and services to schools and colleges. The Company's products include RM Integris, the Company's cloud-based school management system, as well as offerings include RM Unify, RM Easimaths and RM Easiteach. more »

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Bodycote plc is a provider of thermal processing services. The Company has six operating segments, split between Aerospace, Defense and Energy (ADE) and Automotive and General Industrial (AGI) business areas: ADE-Western Europe; ADE-North America; ADE-Emerging markets; AGI-Western Europe; AGI-North America, and AGI-Emerging markets. It offers technologies such as Classical Heat Treatment, including nitriding, carburizing, annealing, tempering, and Specialist Technologies, including hot isostatic pressing services, hot isostatic pressing product fabrication, specialty stainless steel processes, surface technology and Corr-l-Dur. The Company has over 26 facilities in geographies covering Eastern Europe, China, Mexico, Singapore and Dubai. It provides support in the manufacturing process for market sectors, including aerospace and defense, automotive, power generation, oil & gas, construction, medical and transportation. more »

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Bloomsbury Publishing Plc is a global publisher. The Company is involved in the publication of books and other related services. The Company operates through four publishing divisions: Adult, Children's & Educational, Academic & Professional, and Information. These divisions derive their revenue from book publishing, sale of publishing and distribution rights, management and other publishing services. It specializes in the humanities and social sciences, and publishes over 1,000 books and digital services each year. The Company's digital products include Berg Fashion Library, Bloomsbury Collections, Bloomsbury Fashion Central, Churchill Archive and Drama Online. The Company's subsidiaries include A & C Black Limited, Bloomsbury Publishing Inc, Bloomsbury Information Limited, Bloomsbury Professional Limited, Bloomsbury Australia PTY Limited, The Continuum International Publishing Group Limited and Osprey Publishing Limited, among others. more »

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  Is LON:RM. fundamentally strong or weak? Find out More »

21 Posts on this Thread show/hide all

andrea34l 1st Aug '18 2 of 21

I found your update very interesting Damian, especially as quite a number of the stocks that you either bought or provided updates on (that you hold) I either hold or am/have considered them.

I recently bought Gamma Communications (LON:GAMA) as I think they are showing very good progress and the ranks are good. I also bought RM (LON:RM.) this month as the "at least in line" statement sounds very positive and they seem to be on an unfairly low PER.

I have watched Bodycote (LON:BOY) for some time, and of course kicked myself when I could have bought them below £9. But at the moment, I am not persuaded to buy based on the latest results, I found them slightly underwhelming compared to the trading update.

I bought Burford Capital (LON:BUR) and will likely top up when the price settles, at the mo it is drifting, presumably due to people selling up after the meteoric rise as well as perhaps market sentiment.

I hold Ramsdens Holdings (LON:RFX) too, and am rather disappointed with the momentum failure, after what I thought were very rosy results. I hold Ten Entertainment (LON:TEG) rather than Hollywood Bowl (LON:BOWL), and both seem to be drifting a bit. I'm a happy holder of XP Power (LON:XPP) after the results, and very happy with my recent purchase of Impax Asset Management (LON:IPX) which shows staggering momentum.

Contrarily to yourself, I sold my two lots of Bloomsbury Publishing (LON:BMY) after buying at around 180ish average, I found the AGM trading update rather disappointing with very low revenue growth. Perhaps I've missed something, I may well get involved again, but the price has drifted quite a way from its high.

I prefer the look of Pagegroup (LON:PAGE) to Robert Walters (LON:RWA), although the latter admittedly is doing well I feel they are fully valued at present.

I did hold Patisserie Holdings (LON:CAKE), and I suppose regret selling as early as I did, but although their cakes look nice I always pass their venues as I think the prices are a bit steep and my waistline is already oversized without being temped inside.

Although Burford Capital (LON:BUR) are doing well for shareholders, I just don't understand the valuation based on flattish growth in revenue.

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Damian Cannon 1st Aug '18 3 of 21

In reply to post #387264

Thanks for the extensive feedback andrea34l. I really appreciate it; especially when you're seeing something positive/negative that I've over-looked.

Clearly we're tempted by the same quality/momentum/value characteristics and I'd certainly be interested in hearing about any good companies that I've missed - which is always the risk with a screening approach.

Anyway on the ones that we share:

Bodycote (LON:BOY) - my take on this is that they have invested, and are continuing to invest, decent capex in order to meet future demand - so my thinking is that this is a quality company which may do better than expected as facilities come on line

Burford Capital (LON:BUR) - well the forecasts here are even more guesswork than they are for the average company as the board won't, and aren't able to, guide analysts - but given the huge and growing amounts of capital which they're investing I see them as being able to surprise on the upside for some time yet

Bloomsbury Publishing (LON:BMY) - perhaps a more speculative purchase than usual but they score very highly on my investing checklist and I've learnt to trust the process over the last few years - it's this and the fact that management appear to be proactively growing the company which attracts me

Robert Walters (LON:RWA) - I haven't looked at Pagegroup (LON:PAGE) but these guys seem to be doing very well so I haven't much incentive to go searching for another recruiter!

Patisserie Holdings (LON:CAKE) - I don't buy many cakes either but Luke Johnson is a smart operator and these guys seem to be very good at their self-financed roll-out

Ramsdens Holdings (LON:RFX), Hollywood Bowl (LON:BOWL), Henry Boot (LON:BOOT) - if anyone knows why these shares have fallen so sharply I'd love to hear about it!



Blog: Ambling Randomly
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andrea34l 1st Aug '18 4 of 21

In reply to post #387284

It would be interesting to know what your "checklist criteria" includes, you don't mention that here although perhaps it is stated elsewhere on a previous post of yours although I don't see it on your blog. I am certainly keen on shares with high momentum and quality scores, though am more flexible on the value side of things. I am also fairly insistent on companies where good growth is in both profit AND revenue, if revenue growth is low but profit growth is good this essentially points to margin improvement... and IMHO their is only so much margin improvement that can be achieved. A PEG below 1 is also ideal.

I think it would be a mistake for people to rely solely on stock ranks though, Griffin Mining (LON:GFM) have I think the best score but the price has had a big wobble on lack of news and is held back to an extent by the Chinese mining license which remains out of reach. SCS (LON:SCS) also has staggeringly good ranks, and I just don't understand why.

A recent investment of mine is Victrex (LON:VCT), their recent trading statement looks good to me (though they do mention strong comparatives against H2 last year), their QM rank is very high, and compared to others in the sector (e.g. Synthomer (LON:SYNT) ) they are showing significantly better trading. Momentum has also been very good since the last announcement.

Forgot to mention, I don't hold 3i (LON:III) but I do hold £3IN which I think looks very promising.

I agree (and hope) that Burford Capital (LON:BUR) will indeed keep surprising, considering the investments recently made then in all probability based on past performance they should do extremely well. The guys in Hargreaves Lansdown like them too. But I'll try and top-up when the price drifting stops, in the mean time I'm happy with the 70ish% profit on my initial holding.


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ricky65 1st Aug '18 5 of 21

"I think that it makes a lot of sense to retain some discretion around activating a stop-loss while still using them ruthlessly when required". I disagree. I had this attitude years ago and it cost me money overall. While not honouring a stop loss may occasionally make money, over the long term it will likely be detrimental. I don't think it's a coincidence that my performance improved dramatically when I made the change to unconditionally honour my stops.

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Damian Cannon 1st Aug '18 6 of 21

In reply to post #387294

I haven't written an article about my checklist yet Andrea but it is on my long-list of things to do. Broadly speaking quality and momentum are driving the selection but I have a Zulu Principle biased value filter to give a nod towards price and earnings growth.

In terms of using the Stock Ranks I am somewhat torn. On one hand if I stick with higher ranked stocks then I'm selecting from a pool which is statistically biased towards success. On the other hand lower ranked shares can perform just as well but the odds of selecting them are lower. If I believe that I'm adding value to the investment process then the rank shouldn't matter but the jury is still out on that point. So I prefer to limit my exposure to the lower ranks.

I have similarly bought Victrex (LON:VCT) recently, for a family account, and like the way that the business is performing. I also have HICL Infrastructure (LON:HICL) in another account which is perhaps analogous to £3IN.

Anyway thanks for adding some interesting stocks to the discussion!


Blog: Ambling Randomly
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Damian Cannon 1st Aug '18 7 of 21

In reply to post #387299

It's a fair point. I do think that having stops is important and I'd certainly have done substantially better over the years had I used them. However:

1) I wouldn't want to use automated stops since intra-day volatility can hit these even though the daily closing prices are nowhere near the stop.

2) With some of my smaller companies I'm aware that their long-term volatility is such that a 20% stop is likely to get hit every so often regardless of how well the company is performing. For this reason I expect to get stop-loss warnings every so often without them being a sell signal.

3) Sometimes prices drift on negative sentiment (e.g. Boohoo (LON:BOO), £DOTD) without there being tangible, disappointing news. I prefer to wait for a company statement before acting but certainly, sometimes, that's the worst possible thing to do (e.g. XLMedia (LON:XLM), £PHTM)

So I have a lot of sympathy with your view that a stop-loss should always be honoured. It would certainly make my life simpler!

Blog: Ambling Randomly
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pgs501 1st Aug '18 8 of 21

In reply to post #387294

A minor point however Griffin Mining (LON:GFM) signed a "legally binding contract" with the Hebei Department of Land and Mineral Resources which they describe as the most important phase in the granting of the license for zone 2. This was on 11 July.

I am also hoping that Burford Capital (LON:BUR) keep surprising analysts. In my view these Analysts are being overly cautious and from my reading of the financial statements there is one hell of a long way to go on this one yet.

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ISAallowance 1st Aug '18 9 of 21

In reply to post #387264

Did you really mean BUR in the last sentence, or should that have been (just guessing!) GAW?

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herbie47 1st Aug '18 10 of 21

In reply to post #387284

Ramsdens Holdings (LON:RFX) fall I think is partly due to the price of gold going down and also the directors sold a load of shares. H & T (LON:HAT) is also down. I hold both.

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andrea34l 1st Aug '18 11 of 21

I would tend to say that stop losses are more important to follow when negative news of any sort is issued. If all stocks either in the general market or sector in particular are drifting, then I'd say the stop losses should be widened. If a company's share price breaks a stop loss but is performing better than the overall sector then I see no reason so sell.

If one followed Warren Buffett's principles in that one buys a share based on fundamentals that the company is sound and has good long term prospects and holds for the long term, then stop losses are unnecessary. But most of us perhaps don't have the time or knowledge to expend as much effort as him or his team.

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gus 1065 1st Aug '18 12 of 21

In reply to post #387314

Hi Pgs501.

I was about to make a similar point on Griffin Mining (LON:GFM) before seeing your post. I think the company is pretty confident the stage 2 contract will come through. I suspect the recent “wobble” is as much down to profit taking after a decent run and maybe a concern among some shareholders that despite having no debt/being cash positive, the company seems reluctant to beef up the dividend (and may be thinking up imaginative ways to spend the ongoing cash inflows on something else).


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Gostevie 1st Aug '18 13 of 21

A superb update Damian. Thank you for sharing. Sadly I don't own shares in any of the companies you mention and my performance is lagging. A good few ideas in there to investigate.

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andrea34l 2nd Aug '18 15 of 21

In reply to post #387584

I'm confused, as this announcement relates to Highland Gold Mining. Are Griffin Mining (LON:GFM) involved in this?

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gus 1065 2nd Aug '18 16 of 21

In reply to post #387594

Sorry andrea34l - my bad. Right press release  ..... but the wrong company. Talk about the brain seeing what is expects/wants to see. This has nothing to do with Griffin Mining (LON:GFM).


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Edward John Canham 2nd Aug '18 17 of 21

Will be interesting to see what happens to Griffin if they don't announce a dividend with their interim results (imminent).

Part of what happened to KAZ today was the removal of a long hoped for dividend - how much I don't know.


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doug2500 8th Aug '18 18 of 21

Hi Damian,

What do you think could be causing the sell off of XP Power (LON:XPP) ?

I've re-read the results and can't see anything too bad, and the sell off started a bit after results anyway.

It's already one of my bigger holdings but I'm still tempted to top up further at today's price. While I don't see much value in the wider market, XPP at just over 3000p looks okay to me.

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Damian Cannon 9th Aug '18 19 of 21

In reply to post #389384

I hadn't noticed the sharp drop until you mentioned it! I can't see any reason for it since the forecasts for the year are very positive and the last results were good. It could be related to the sanctions against China, GBP depreciation (which would help £XPP) or thin trading in the share over the summer. Either way I'm minded to add to my position here too.


Blog: Ambling Randomly
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Johnny2509 9th Aug '18 20 of 21

Well written update.

I'd hazard a guess that Hollywood Bowl (LON:BOWL) have slipped back due to the unseasonably hot weather and the impact it 'may' have on turnover/profits. Ten Entertainment (LON:TEG) have had a similar 10% decline in share price too.

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Richard Vasey 9th Aug '18 21 of 21

Thanks for sharing this with us. Always interesting to get the views and reasoning behind a portfolio which contains a number of my investments.

Of particular note is the fall in XP Power (LON:XPP) recently which has been commented upon. I don't know the reason for the recent fall although a mini slump like this occurred earlier in the year and the share price gradually recovered. I continue to hold as the fundamentals remain strong in my view.

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