May 2019 Portfolio Update

Friday, May 31 2019 by
28

Unlike April I've had a rather busy month on all fronts in May - so much for sell and go away. To a large degree this activity was stimulated the investor events that I attended. The key one of these was Mello London in Chiswick where I spent a happy two days listening to company presentations and learning from keynote speakers. As usual there was more happening than you could possibly take in (which is a big plus) but I enjoyed catching up with a number of interesting companies and posing questions directly to management - these are often more revealing than the presentations. On top of this Mello had some excellent speakers in the main hall with these ones being the highlight for me: Stephen English - Swiss Army Knife Investing, Judith MacKenzie - Importance of Corporate Governance, Richard Bernstein - Activism and Mark Crossman - Understanding Market Makers. Most of these will have been filmed by piworld and I recommend viewing when they're available.All in all Mello is a top-class event that's only getting better as it matures. I heartily recommend it to any private investor who fancies meeting like-minded individuals that won't fall asleep when you mention a P/E ratio.

Also this month I finally managed to attend the Financial Statements Seminar put on by Graham Neary. While I know my way around a balance sheet I decided to sign up because it's always useful to have a refresher and there are definitely gaps in my knowledge from learning this stuff piecemeal. Let me just say upfront that this was a great decision! It's clear that Graham has put an awful lot of work into this course in order to take you from the absolute basics to some quite sophisticated concepts. For me the really useful part was seeing how different sections in the accounts are interdependent and can only change in a balanced manner. Usefully the course contains lots of examples that you have to work through and this is far more useful than watching slide after slide. Suffice to say I think that this is a great investment and it should definitely pay for itself in the long run (and I'm not even being paid by Graham to say these nice things!).

Now Robbie Burns is not someone that I follow closely but it's hard to avoid the Naked…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Palace Capital plc is a property investment company. The Company invests in commercial real estate in the United Kingdom. The Company's property portfolio includes investment properties located throughout England, predominantly regional investments outside London and consists of a diverse portfolio of commercial buildings. The Company's properties include Hudson House, York; FRASER HOUSE, STAINES, and MIDSUMMER BOULEVARD, MILTON KEYNES. The Company invests in a range of sectors, such as leisure, auto, legal, hotels, retail, health, research and development, and car parking. The Company's subsidiaries include Palace Capital (Leeds) Limited, Palace Capital (Northampton) Limited, Palace Capital (Properties) Limited, Palace Capital (Developments) Limited, Palace Capital (Halifax) Limited and Property Investment Holdings Limited. more »

LSE Price
294p
Change
0.3%
Mkt Cap (£m)
136.4
P/E (fwd)
15.1
Yield (fwd)
6.5

3i Group plc is an investment company with approximately three complementary businesses, Private Equity, Infrastructure and Debt Management, specializing in core investment markets in northern Europe and North America. Its Private Equity business includes investment and asset management to generate capital returns, and is focused on consumer, industrial and business services sectors. Its Infrastructure business includes investment and asset management to generate capital returns and cash income and focuses on the United Kingdom and Europe. Its Debt Management business includes fund management and investment to generate recurring cash income, and invests in collateralized loan obligation (CLO) equity and seed capital in senior debt funds. It also offers software solutions to unify fragmented data and delivers actionable insight. Its subsidiaries are 3i Investments plc, 3i BIFM Investments Ltd, 3i Europe plc and 3i Nordic plc. 3i Investments plc is the investment manager of the Company. more »

LSE Price
1025p
Change
-0.2%
Mkt Cap (£m)
9,973
P/E (fwd)
7.7
Yield (fwd)
3.4

Softcat Plc is an information technology (IT) reseller and IT infrastructure solutions provider to the corporate and public sector markets. The Company provides organizations with workplace, datacenter and networking, and security solutions combined with all the services required to design, implement, support and manage them, on premise or in the cloud. Its solutions include asset management, business intelligence (BI) and analytics, cloud and managed services, collaboration, commodity sourcing, datacenter, end-user computing and mobility, networking and security, print, professional services and software licensing. The Company provides corporate and public sector organizations with software licensing, workplace technology, datacenter infrastructure, networking and security. The Company, through its portfolio of IT services, addresses IT sourcing challenges, software licensing needs, IT solutions and adapts the cloud through managed services. more »

LSE Price
941p
Change
-1.1%
Mkt Cap (£m)
1,866
P/E (fwd)
27.5
Yield (fwd)
2.6



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21 Posts on this Thread show/hide all

Gostevie 1st Jun 2 of 21
1

Thank you as always Damian for a fascinating monthly update. There are some great ideas in there.

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Edward John Canham 1st Jun 3 of 21
1

Hi Damian

Many thanks - always find your updates a good read and thought provoking.

Shoe Zone (LON:SHOE)

Also had a lucky escape - was going to buy pre-interims but price shot up. Found the half-year accounts disappointing as was expecting a bit of a sales increase given their roll-out of Big Box stores. Surprised they have not fallen more as they seem to be on a premium rating for a flat sales retailer.

XP Power (LON:XPP)

Was on the cusp of buying this several times but never quite got there, mainly due to cash-flow. Have taken a starter position in Volex (LON:VLX) which seems better value to me. Then again, better value doesn't always work! So still keeping an eye on XP Power (LON:XPP) .

Phil

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andrea34l 1st Jun 4 of 21
2

It's interesting to read your monthly updates, even if my actions in at least some stocks are opposed... though perhaps I should convince myself that my actions are not necessarily inferior.

I sold Portmeirion (LON:PMP) at around 1019 after their abismal and, I would suggest unexpectedly negative, update. 

I have, I'm sure incorrectly, sold IG Design (LON:IGR) - this was one of my larger holdings and I was disappointed in the lack of recent momentum. The fairly recent director sale also spooked me. 

I also sold Softcat (LON:SCT) as, although I think they are a smashing company, their share price is too often swayed by the wider market rather than their excellent updates and so with current market conditions I am hoping to buy back in somewhere in the 800s

I've also sold my too-large holding in Newriver Reit (LON:NRR) as I was rather disconcerted by the large nav drop and don't have a thick enough skin to continue holding them - I think they are a value trap at this stage, I notice that for the first time in a while the quarterly dividend has not been increased and I wouldn't be surprised to see it eventually lowered. 

I can't get excited about a manufacturer of kettle components, especially with the low growth of the last results. I sold Bloomsbury Publishing (LON:BMY) some time ago as I think the rating is ludicrous and, if one reads between the lines, trading is VERY mixed. 

Like you I have also, finally, bought Craneware (LON:CRW) based on the chart. 

I don't have the nerve to hold Beeks Financial Cloud (LON:BKS) and would need solid evidence of progress. 


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paraic84 1st Jun 5 of 21

Agree Palace Capital (LON:PCA) is looking very cheap relative to NAV per share.

On Strix (LON:KETL) one of the key issues for me is when their patents expire - I've never been able to get to the bottom of this but feel it's fairly key to making an investment decision.

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Damian Cannon 1st Jun 6 of 21

In reply to post #479861

Hi Phil,

Shoe Zone (LON:SHOE) is an interesting one in that one of the presenters at Mello was very positive about its merits (I forget who) and the metrics really are very good (it passes my 3 key QV screens). However the liquidity is abysmal (very few trades) and the growth isn't there yet.

With XP Power (LON:XPP) I know that others have commented on the cash-flow and I'll have to look at this more closely if I feel like buying back in. Volex (LON:VLX) does look cheaper but the trading historically has been very lumpy and there must be some story around a 77% forecast drop in EPS this year? Recent transformation perhaps?

Damian

Blog: Ambling Randomly
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Gromley 1st Jun 7 of 21
2

In reply to post #479861

Interestingly (perhaps) I took the opposite view on the Shoe Zone (LON:SHOE) interims - having not been invested prior to the event.

Perversely, it is probably my continued bearishness on discretionary retail that caused me to see these results positively and take a small stake on the back of the initial fall on results (although as I am currently down about 5% so far, perhaps I should have paid more attention to the tendency for results day falls to persist).

To me "in line" is a good result at the moment in retail and to be hoping for an ahead of expectations announcement at this time is perhaps a little unrealistic.

Perhaps I have fallen into my old weakness of jumping too soon (even beyond failing to expect the short term continued fall), but it strikes me there is a lot to like here.

The quality metrics are very strong (despite having some growing concerns about how Stocko derive some of the Q numbers.) with very impressive return on Captial, Assets etc.

I was also impressed with the underlying Cashflow (although as I mentioned on the SCVR I was a little less impressed with their "over explaining" the contributory factors).

I would accept that expectations of this years earnings being below last year is not a great bull argument, but again taken in the context of retail as a whole I am comfortable with this and I do note that the forecasts were raised in Jan/Feb on the back of a positive outlook in the FY results (reinforcing my view that it may be unrealistic to expect outperformance 3-4 months later).

It is a personal and qualitative view, but I like the clarity with which they describe their strategy, for example on demographics :

In addition to the Big Box formats we are also trialling a 'Hybrid' concept in more affluent demographic areas which encapsulates the look and feel of a Big Box store in a High Street or Shopping Centre environment.

(Readers are implicitly invited to add their own thoughts on Gross margin IMHO)

And on "vertical integration" :

We have continued to increase our direct sourcing and as a result, footwear orders placed directly with overseas factories increased to 87.6% (2018 FY: 87.1%) of total footwear orders. Working closely with manufacturers has helped grow gross product margins as well as improving communication and control across the supply chain.

I'm sure some other retailers are considering similar things, but for me personally, the clarity of those statements give me a heightened sense of competence in their decision making.

And the fact that they have an average lease length down to 2 years and an average 18.5% reduction on the latest renewals suggests to me that they are securing the flexibility to make those decisions count.

Time will tell, but for me the initial fall I took to be a buying opportunity with a medium term view and  much as it is "off-strategy" for these days I am wondering if any further weakness might tempt me further.

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Damian Cannon 1st Jun 8 of 21
1

In reply to post #479866

Great comments andrea34l and believe me there's no shame in taking the opposite side of a trade from me! In fact with Softcat (LON:SCT) I'll be right alongside you buying if they hit 800p. I do think that this is entirely possible given normal volatility but the trick is in the waiting. As for Beeks Financial Cloud (LON:BKS) yes this is definitely on the more speculative end of things....

Damian

Blog: Ambling Randomly
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Damian Cannon 1st Jun 9 of 21

In reply to post #479871

Well yes paraic84 it's true that patents are key for Strix (LON:KETL) and they defend them vigorously - which often helps them pick up new customers. So expiry is a concern but I get the feeling that they've been doing this long enough to know how to manage this aspect of their business. I suppose that I'm deferring to management competence on this front.

As for Palace Capital (LON:PCA) this is a definite slow burner with their huge York project on the go. I have no doubt that they will do well, barring a major recession, but it's going to take a while for the value to be realised.

Blog: Ambling Randomly
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simoan 3rd Jun 10 of 21
2

So in future I won't be selling early doors but will try and wait until the afternoon when the price should have settled down.

Hi Damian,

Interesting update, as always, however I don't agree with waiting to sell like this. Once you've read something in an RNS you don't like, just sell. It's no time to haggle over the price and try and time the market. Once the switch flips, get rid. 

Latest example of this was Fulcrum Utility Services (LON:FCRM) this morning. I made a mistake buying earlier this year thinking it looked cheap and the market was being overly negative. However, first the FD went a few weeks ago and now today they have delayed FY results. I should've sold as soon as the FD went but I was able to sell out at > 28p first thing and will not be looking back. I made a mistake and I got out with my fingers intact. At time of writing the bid is 21.5p.

From personal experience, I'd say it's 50:50 that the share price rebounds later in the day, however my records show that the price is almost always lower than my sell price 1-2 months later.

All the best, Si 

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Damian Cannon 3rd Jun 11 of 21
1

In reply to post #480081

Thanks for your thoughts Si. In general I agree with you in that if you're going to sell then you might as well do it and not worry about a few pence either way. However it was very illuminating to hear from an ex-market maker at Mello and this has changed my view in a few situations:

1) When a profit warning comes out a MM will take an initial guess on how much to mark a stock down. However if sells keep coming in, which they will when the market opens, then they'll keep moving the price down until someone starts buying. This creates some sort of level from where the price will start to reflect the balance of buys/sells.

In other words the first hour or so of trading on the day of a profit warning will be chaotic. Up till now I've just tended to deal as quickly as I was able but going forwards I'll wait out at least the initial panic to see where the price winds up later in the day. I don't know if I'll save much money doing this but it feels more like a strategy then getting stressed by trying to sell as quickly as possible.

2) The other situation is where I've got holdings which are at least a few times over the NMS and the stock is somewhat illiquid. Quite a few times I've been unable to get an online quote (because the MM is not obliged to do so) and so have generally phoned a dealer just to get the trade done. However I'm more inclined to try a limit order in these cases since market makers will be looking to balance their book at EOD (or end of week) and may take a sell at near the offer price to do so. This is only for sales that aren't time-sensitive though!

Cheers,

Damian

Blog: Ambling Randomly
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simoan 3rd Jun 12 of 21

In reply to post #480101

In other words the first hour or so of trading on the day of a profit warning will be chaotic. Up till now I've just tended to deal as quickly as I was able but going forwards I'll wait out at least the initial panic to see where the price winds up later in the day.

This may work in some situations but longer term if you are right to sell it won't matter much in the grand scheme of things whether you sell early or not. That was the main point I was trying to make. My own records show that selling early doors, does not cost me money in the long run, which is all that matters. However, if I was a market maker I might want you to wait until after lunch, by which time I had my book straight :-) But that's probably just cynical me, sorry but I'm not taking advice from a market maker!

The news from Fulcrum Utility Services (LON:FCRM) this morning was not a profit warning and so was likely missed by market makers, particularly being a small cap off their radar. I log all my trades and at least once a month review my spreadsheet to look at my mistakes. I concentrate only on my mistakes i.e. selling too early or bad buys. I never try to time the market or second guess the future, which is unknowable. By delaying selling you are essentially trying to time the market.

All the best, Si

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Damian Cannon 3rd Jun 13 of 21
1

In reply to post #480111

Fair enough. Next thing you know I'll be talking about cups and handles before moving onto southern death crosses and what have you. 

:-)

Blog: Ambling Randomly
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doug2500 3rd Jun 14 of 21

What's going on with K3 Capital today, down nearly 10%?

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Damian Cannon 3rd Jun 15 of 21

In reply to post #480141

No idea doug2500. However there are some pretty chunky trades going through and the volume today is much higher than usual. Could be capitulation. Could be that someone knows something negative. Could just be people reacting to the fall? Since there's no news I'm not planning to do anything.

Blog: Ambling Randomly
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simoan 3rd Jun 16 of 21

Fair enough. Next thing you know I'll be talking about cups and handles before moving onto southern death crosses and what have you. 

Hi Damian,

Yes, that may be a give away but you don't strike me as that way inclined :-)

I'm not trying to change your mind... if you think waiting until later on to sell out works better for you, go for it and monitor the results. My own empirical evidence from years of logged trades shows that once you decide to sell, don't delay.... assuming, of course, you can get out and are not locked in by illiquidity, as you mention. I also find a hard rule like this psychologically easier to enact. Once you've decided to delay it is then much easier to end up hovering over the sell button, or end up not selling at all. I've been there and got the T-shirt :-)

All the best, Si

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Damian Cannon 3rd Jun 17 of 21

In reply to post #480151

Ha ha! No I'm not big on voodoo trading.

I take your point about the psychological element to delaying hitting the sell button. There is always the risk of seeing a share bounce hard from its lows and deciding to stay invested until the next day to see if it continues. Yeah I'm going to have to keep a close eye on that risk.

Cheers,

Damian

Blog: Ambling Randomly
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doug2500 6th Jun 18 of 21
1

With regards to cashflow for XP Power (LON:XPP) is it not the case that operating cashflow is just fine, and any negative cashflow is just from acquiring businesses? If I'm wrong here please somebody shout because it's one of my larger holdings.

I'm not a great seller of shares and am worried about Focusrite (LON:TUNE) It looks fairly valued to me but price action is so strong it must appeal to others. It's not one of my bigger positions and I have concluded that selling on valuation grounds alone has not worked well for me in the past so I am unsure what to do. I'm leaning towards a little top slice but wouldn't know where to put the money, although I'm tempted by SimplyBiz (LON:SBIZ)

In other news....I rode your coat tails into £K3C so thanks for that (thumbs up) I'd read about it in other updates of yours and thought it looked interesting. When it fell to 110p I thought it looked really interesting but I was wary of the results due. The results seemed fine to me (in the context of the previously downgraded expectations) and I got a few but only after they shot up to 129p Up again today I see and some significant directors buys too.

Keep up the good work.

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Damian Cannon 6th Jun 19 of 21
1

In reply to post #480141

Well there's the question what with the reassuring trading update and some related party buying. From the low point £K3C has bounced hard and hopefully this marks the nadir of pessimism. Although given that I doubled my holding on the day of the update there could easily be another profit warning in the offing!

Blog: Ambling Randomly
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Damian Cannon 6th Jun 20 of 21

In reply to post #481626

Well I haven't looked into the XP Power (LON:XPP) cash-flow in detail - I'm just going on other people's comments. My main issue is that sales are going to have to grow strongly (after a weak Q1) if they're to make the forecast 203.7m this year:

5cf970a0d9c67xpp.png

Here I've assumed a reasonable level of growth in Comdel & Glassman and then worked out what sales the core business needs to achieve in order to come up with the necessary quarterly totals. They could definitely make these numbers but if Q2 is soft as well then I'd be concerned.

As mentioned Focusrite (LON:TUNE) looks over-valued to me while SimplyBiz (LON:SBIZ) is definitely on my list to be topped up - I'd just like to see a little retrenchment first. Thanks also on the £K3C front. Fingers crossed on that one.

Damian

Blog: Ambling Randomly
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Gromley 7th Jun 21 of 21
3

In reply to post #479881

Just for the record (not that I think anyone is keeping one) I had a further look at Shoe Zone (LON:SHOE) and sold out for a 7% loss (ouch).

Whatever I think of the fundamentals (still like them), I formed the conclusion that now is not the time.

This is probably the darkest form of voodoo trading, but I have thought for some time that certain shares have repeatable traits - rightly or wrongly have scrubbed the detail, I don't think the current short term adverse sentiment will change here until and unless there is further news, The next scheduled news will be the October trading update and on balance I think there's ample risk for the share-price to continue downwards until then.


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