Magic hat portfolio: MCGN in, XCH out
My Magic Hat fantasy fund, which is mostly mechanical, is on Stockopedia: http://www.stockopedia.com/fantasy-funds/magic-hat-463/ Its goal is too achieve above capital returns greater than the FTSE350 and Magic Formula screen using a portfolio of about 12 shares selected from Stockopedia’s Greenblatt Screen.
The Greenblatt screen is beating my human-intervening portfolio on a 2-year basis, but not on a 1-year basis. That doesn’t necessarily prove anything, as relative performance can often be sensitive to the period chosen. The portfolio is beating the FTSE 350 by 6.3% over 1 year. It’s the kind of outperformance that I would expect most competent investors to achieve over the long term. Investors with real skill should do a lot better. Although we do hear of people regularly whipping the indices, I do think that that kind level of skill is rare. Over a 3-year period, the Magic Hat portfolio has outperformed the FTSE 350 by about 2.2% pa. Yawn!
XCH (Xchanging) was kicked out of the portfolio on a rotational basis. It lost about 26% of its value during the holding period.
In its place is MCGN, which, according to Stockopedia:
is engaged in developing, implementing and supporting business-critical software. The Company is organized into two divisions, Microgen Aptitude Systems Division (MASD) and Microgen Financial Systems Division (FSD). MASD’s flagship products are Microgen Aptitude, a high-performance application platform used by medium and enterprises to automate complex business processes, and Microgen Accounting Hub (MAH), which provides a single point of control for financial and accounting data. Microgen’s Financial Systems Division delivers a portfolio of back office processing software to the banking, wealth management and energy sectors. For trust administrators through to fund and asset management organizations, the Company provides solutions for front and back office administration, performance measurement/analytics and fund and product design.
I chose it because it had a StockRank in the 90’s (its score is actually 90), and a nice dividend yield, 3.71%. Its PE ratio is a modest 11.1, with a PEG of 0.6. Its P/FCF is 8.58, and EV/EBITDA is 5.5. That looks a pretty good deal to me. I don’t have any insights into the industry or the company. The Fund as this is primarily mechanical.
May you all be well.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
2 comments
Mark
Looks good until you read the updates that Stockopedia does not seem to have caught up with yet.
Following the completion of the £20 million B/C Share Scheme in April 2015, Microgen has now returned £70 million to shareholders since October 2008. In line with the Group's seasonal cash flow cycle, the Group had cash at 30 April 2015 of £18.6 million (31 December 2014: £40.9 million) and net funds of £3.1 million (31 December 2014: £24.6 million).
Not saying that the return of cash makes it a bad investment, far from it, but you might at least need to look again at the EV/EBITDA numbers.
I like Microgen (LON:MCGN) and have picked up a few recently.
You are right that the stockopedia figures don't reflect the cash return. This was also accompanied by a 7 for 9 consolidation which is why the SP doesn't reflect the ex-payment. So current market cap is around £53m. They typically generate £5-8m FCF/year and use this for small bolt on acquisitions and return it to shareholders. It seems to me that they will continue to do so for the foreseeable future.