ShareSoc Chairman's Blog

Sunday, Sep 02 2012 by

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No warranty is given by ShareSoc as to the reliability, accuracy or completeness of the information contained within this publication. Any information provided is accurate and up to date so far as ShareSoc is aware, but any errors herein should be referred to ShareSoc for correction. The information contained herein is intended for general information only and should not be construed as advice under the UK’s Financial Services Acts or other applicable laws. ShareSoc is not authorised to give investment advice, and is not regulated by any Regulatory Authority, and nor does it seek to give such advice. Any actions you may take as a result of any
information or advice contained within this publication or otherwise supplied to you by ShareSoc should be verified with third parties such as legal or other professional advisors and is used solely at your own risk. You are reminded that investment in the stock market carries substantial risks and share prices can go down as well as up. Past performance is not necessarily an indication of future performance. The Editor of this publication and other contributors may hold one or more stocks mentioned herein.


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ShareSoc 6th Dec '12 212 of 431

Posted by ShareSoc at 00:00, November 30 2012.

Self Regulation – it never works (and not on AIM either)

You are probably already bored stiff with the media reporting of the Leveson inquiry, unless you happen to work in the media – but just a few comments on an analogous situation. Previously the press has been “self regulated” by the Press Complaints Commission. One conclusion of the Leveson Inquiry is that self regulation has not worked. Abuses have continued despite attempts to improve its operation, with those who suffered as a result finding it difficult to get their complaints considered or to obtain recompense without resorting to expensive and often ineffective legal processes. Those who are likely to be subject to a tougher regime in future are already fighting back saying the freedom of the press is sacrosanct, that self regulation can be improved to make it effective, etc, etc (I won’t bore you with more of it because you will be hearing all their excuses over the next few months).

Of course the same situation used to apply to the UK stock market before the FSA took over where it was a “gentleman’s club” approach and where folks were presumed innocent until malfeasance was so blindingly obvious that they had to resign (other penalties were usually minimal). In reality self regulation of the market was not effective in curbing abuses because if the judges are composed of people from the same background (or “club”) as those being accused, the result is always to give them the benefit of the doubt. I also have personal experience of another "self-regulated" body which likewise is very ineffective for the same reason. I regret to say that self regulation ultimately never works.

But in the AIM market we still have self regulation of course. It is regulated solely by the LSE, the market operator, and “hands-on” responsibility for enforcement of good behaviour by companies and directors is delegated to “Nomads”. These are often the same people who are the company’s brokers, so you can imagine the horrible conflicts of interest inherent in that arrangement.

In reality regulation of AIM is atrocious. Even if penalties are imposed for misdemeanours, they are not normally disclosed so there is little incentive for companies or their Nomads to improve. There is no enforcement of reasonable corporate governance standards as there is for main market companies and effectively AIM company directors can do what they want and pay themselves as much as they want within the loose constraints of company law, with no effective control from shareholders (for reasons I won’t go into here).

Of course we don’t want politicians or Government officials interfering with the press on a day to day basis, or imposing needless censorship, but there is surely a half-way house which could improve matters, as Leveson has proposed. But I do wish we could have some examination of the AIM market regulation at the same time.


Postscript: An article in the latest PIRC newsletter also pointed out that voluntary self-regulation has not been effective in the listed company sector as regards improving “stewardship”. For example under the “Institutional Shareholders Committee (ISC)” – subsequently reformed under the name of the “Institutional Investor Council (IIC)” – there was an obligation to disclose voting by institutional fund managers but the response was very patchy. The article now suggests this organisation is effectively dead as the Investment Management Association is forming a new body with similar functions and the article ends with this comment: “When it comes to illusory self-regulation to stave off reform, the asset management lobby needs no lessons from the press”.


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ShareSoc 6th Dec '12 213 of 431

Posted by ShareSoc at 10:52, December 2 2012.

AIM company pay – Inland, Conygar and Solo Oil

Remuneration of the directors of AIM companies is a perennial subject for complaint. Three examples where events happened last week were Inland Homes (LON:INL) , Conygar Investment Co (LON:CIC) and Solo Oil (LON:SOLO) .

Inland held an AGM which a number of unhappy shareholders attended. Many shareholders simply think the remuneration of the directors is excessive. In summary, revenue and profits at Inland Homes have been variable to say the least since it listed in 2007, with net profits last year of only £0.76m, but the directors paid themselves over £1.3m for the year. Market cap is only £33m. But the directors did not agree. Many shareholders apparently do not wish to sell their holdings because they perceive there is value in the assets of the company not reflected in the share price. My advice: shareholders need to get organised so as to bring more concerted pressure to bear. ShareSoc is willing to help to form Shareholder Action Groups and support them, but one or more shareholders do need to take the initiative on this.

Conygar (another property company) is a similar case, with an AGM last January where similar views were expressed, particularly at the bonuses that were paid last year (a full report of that meeting is on the ShareSoc Members Network). There was a commitment to review remuneration policy at that meeting. Last week the preliminary results for the year to end September were published and it included some notes on changes to the remuneration arrangements. There is an increase to the post-tax hurdle rate on the Profit Sharing Plan and in addition a share price condition is added. In future bonuses will not be paid unless the market share price is at least 65% of audited net asset value per shares. However the latter is not very onerous. The current share price is 91p and the net asset value per share is 166p, so the share price only needs to move from 91p to 108p to meet that condition. Conclusion: it’s a gesture in response to shareholder complaints, but not a very satisfying one.

Solo issued an announcement concerning share options on the 23rd November (their AGM is coming up on the 16th December). The announcement covered some new share options granted to the executive directors (totaling 28m shares) , but it also stated that options totaling 125 million shares held by three directors which were due to expire on 21st December 2012 had been extended to December 2020.

Share options are like bets. The recipient is rewarded if they meet the targets set by the deadline, and can then collect a bonus prize. If not they lose the bet. In this case they took the bet and lost, as it timed out. So what did they do? They simply extended the expiry date and effectively reran the bet again! Rewriting share options by extending expiry dates, changing exercise prices or performance conditions is anathema to most investors and undermines any control or discipline over pay. But that clearly did not worry the directors of this company. I hope shareholders will attend the AGM and make their feelings on this matter plain.

Perhaps needless to remind readers that pay (and corporate governance generally) is a common problem in both property companies and natural resource companies. Because the company may be sitting on valuable assets, and the directors are used to taking large bets, they seem to think that pay should not be connected to either profits generated or the effort or expertise they bring to their jobs. They need disillusioning, but only shareholders can do that.


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toddwenning 7th Dec '12 214 of 431

In reply to ShareSoc, post #184

Hi ShareSoc,

I don't own Vodafone (LON:VOD), but have followed the company from time to time. It doesn't appear to be a growth company any longer so it probably lacks a sufficient number of value-enhancing projects worthy of reinvestment; however, VOD does generate a lot of free cash flow that it can use for dividends, buybacks, and acquisitions.

As you know, VOD pays out a substantial dividend, so the board may have felt that income-minded investors were already being served by the regular payouts, leaving buybacks and acquisitions as the remaining options for the extra funds. (Vodafone has a solid investment-grade credit rating, so there isn't an obvious need to reduce debt.)

Given its size, Vodafone would need to make a major acquisition to move the needle and an M&A strategy could open the door to additional risks for long-term shareholders. By process of elimination, then, we're left with buybacks as a means of returning sharheolder cash. As long as VOD is buying back shares at a discount to its fair value, the buybacks should enhance long-term shareholder value. 

Don't get me wrong -- I would have liked to see VOD pay a special dividend, too, but I can also see why the board ended up choosing buybacks given its options.



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ShareSoc 14th Dec '12 215 of 431

Posted by ShareSoc at 09:37, December 6 2012.

AIM companies in ISAs. Is it a good idea?

One of the brighter aspects of the Chancellors Autumn Statement yesterday was the mention that investors may be allowed to put AIM companies into ISAs. The rest was mostly doom and gloom - higher taxes and depressing economic forecasts.

Many people have complained about the fact that there are few AIM companies that one can hold in an ISA. This is not only anomalous in many ways, as I explain below, but also creates problems when companies move from the main market to AIM as investors have to move them out of their ISAs, as is about to happen to Victoria Plc. Stopping AIM companies from being held in ISAs also prevents investors from investing in the small, rapidly-growing companies that are more common on AIM than the main market.

There are some AIM companies that one can hold in ISAs - namely those that are “dual-listed”, i.e. also listed on a recognised foreign exchange. So that is one anomaly. Indeed one of the arguments for restricting stopping AIM companies being held in ISAs is that it prevents unsophisticated investors, who often commence by investing via ISAs, from holding risky stocks. But many of these “dual-listed” stocks are actual small and speculative natural resource companies so that compounds the anomaly.

The other anomaly is that there is no such restriction on SIPPs (Self Invested Personal Pensions). So you can invest your life savings and what you might need to live on in retirement into all manner of flaky AIM companies (and there are quite a few) in a SIPP, along with other risky investments.

The other question to examine is whether it is possible to protect investors from their own folly anyway, whether it is a sound policy to do so, or even whether practically it can be achieved. Although there are many speculative AIM stocks, there are also a lot of speculative main market stocks. A simple division between AIM companies and others does not tackle the company “quality” question in a sensible way. Trying to do so by other means (for example, ruling them in or out based on net assets, profits, duration of operations, or whatever, is fraught with difficulties which you can see if you ponder it for a moment). In any case, those who wish to speculate can always take their money out of an ISA and go down to the local betting shop, or open an on-line spread-betting account.

But one differentiator of course is that AIM companies have more relaxed corporate governance rules (not covered by the main market UK Corporate Governance Code to begin with) and the AIM market is “self-regulated” by the LSE and by the Nomad system. The Leveson inquiry spells out exactly what is wrong with self-regulation. This creates quite regular cases of abuse, and problems of company directors paying themselves simply what they want (AIM companies do not have to have Remuneration Resolutions and won’t be covered by the new “binding votes”).

On first sight it does seem to me to be a sensible move to take, as it might encourage investment in AIM companies, improve fund raising for them and provide more diversification of their shareholder base. But only if the rules and regulations concerning AIM companies are brought more into line with main market conditions (without making them as onerous or costly).

ShareSoc will be responding to the consultation on the question of allowing AIM companies within ISAs in due course so if you have any views on this matter, please let us know.


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ShareSoc 14th Dec '12 216 of 431

Posted by ShareSoc at 16:50, December 7 2012.

Tesco – Fresh maybe, but not Easy in the USA

Quite a few public comments were generated about the announcements by Tesco earlier this week of a “strategic review” of its “Fresh & Easy” chain in the USA. As someone who set up a business on the West coast of the USA some years back, and regularly shopped in local supermarkets, I feel capable of contributing to the debate. I am also a Tesco shareholder.

Apparently Tesco has invested £1bn in this business, but I consider it a wasteful diversion of both management time and financial resources. Indeed I said back in April that “in essence it is sub-scale and inherently unprofitable”. Apart from apparently requiring Tesco CEO Philip Clarke to visit the operation 10 times in the last 18 months, when he has enough problems with the UK operations, Tesco seem to have made a number of classic mistakes.

As with many European companies, they underestimated the competitiveness of the US markets and the fact that even though we speak the same English language (at least a form of it), the culture is different. Now there may have been a perceived gap in the supermarket sector, but was it a space perhaps that nobody wanted to occupy or had tried and found it unprofitable? The level of service in US supermarkets was always higher than the UK (lots of low cost immigrants in California) but Tesco pushed self-service check-outs – that’s just one of the several operational mistakes reported in the media.

So who did they appoint to run this business? One of their key UK executives of course (Tim Mason with 30 years service whose departure has also been announced) who had no apparent knowledge of the US market or social scene other than that obtained by company research. A recipe for disaster if there ever was one.

Why Tesco wanted to try and enter a market in the USA which is not exactly growing rapidly when there are lots of more quickly developing countries with bigger market gaps astonishes me. Alternatively they could invest in improved on-line offerings which are surely a growing segment. But the former CEO was keen on the idea and nobody wants to admit defeat or scrap his legacy it seems – at least up to now.

But my view is the sooner reality is faced up to, the better. Tesco: please stop wasting management time on a dead duck. It is counterproductive. Better to accept one’s mistakes in business and move on unless there is clear daylight ahead, and apparently there is not. Even Mr Clarke has conceded that “The business has failed” so let’s bury the corpse before it goes rotten.


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ShareSoc 14th Dec '12 217 of 431

Posted by ShareSoc at 20:34, December 13 2012.

Missed the Queen and the 1 million pound note, but met the British Empire

I missed the Queen today when she signed a million pound note at the Bank of England, even though I was across the road at the AGM of British Empire Securities and General Trust (founded originally in 1889 and what a great name to attract those traditional investment trust fans).

One investor was particularly concerned about what such notes portended for inflation, and probably quite rightly as it looked laser printed on plain paper on the TV news.

Lots of good questions were put to the board at this Annual General Meeting, although shareholder John Hunter spoke against share buy-backs as he usually does in my experience, and at some length, which ends up boring some audiences – I have suffered from this at other company AGMs where we both hold shares. He said he wanted the company to hang on to the cash so as to reinvest. By inflating the share prices this actually means his heirs might end up paying more tax. The initial response he got was that the company had not bought back any shares from 2002 (until last year) but there were significant discounts at some points (when Caledonian sold their holding) – the board does review this but it does not promote the company much and hence the discounts can arise. There was about a further 5 minutes debate on this subject with Mr Hunter saying he liked to pick up shares cheaply when the discount rose, but ultimately the Chairman said the board thought it was a good investment decision, and so do I. Although I usually vote against share buy-backs in trading companies, I make an exception for investment trusts as I consider having a discount control policy of some importance. Other shareholders agreed as they normally do, and voted in favour of the resolution (and all others in fact) by more than 97% - a pretty overwhelming outcome. But a bit of healthy debate on this issue cannot do any harm.

There is a full report of this meeting on the ShareSoc Members’ Network where many AGM reports are posted.


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emptyend 14th Dec '12 218 of 431

In reply to ShareSoc, post #215

Good post. It isn't a straightforward issue, because there are a raft of practical factors to be taken into account.

And there is also one that you haven't mentioned which is that I believe quite a few hold AIM stocks because they are outside one's IHT estate (I think - though don't know the details!).

Some comments:

But one differentiator of course is that AIM companies have more relaxed corporate governance rules (not covered by the main market UK Corporate Governance Code to begin with) and the AIM market is “self-regulated” by the LSE and by the Nomad system. The Leveson inquiry spells out exactly what is wrong with self-regulation. This creates quite regular cases of abuse, and problems of company directors paying themselves simply what they want (AIM companies do not have to have Remuneration Resolutions and won’t be covered by the new “binding votes”).

I don't think the Leveson reference is helpful. There is nothing wrong with self-regulation per se, except that in many systems there is the question of Quis custodiet ipsos custodes? I'm not sure that is the case with stock markets, where there are various interest groups putting their 2p in.

Incidentally, it is also the case that many companies that have their primary listing (and legal jurisdiction) outside the UK are not obliged to have to have Remuneration Resolutions.

On first sight it does seem to me to be a sensible move to take, as it might encourage investment in AIM companies, improve fund raising for them and provide more diversification of their shareholder base. But only if the rules and regulations concerning AIM companies are brought more into line with main market conditions (without making them as onerous or costly).

I'd agree with the first point, at least in principle - though I'm not sure that it would make very much difference in practical terms to either the shareholder base or the companies' ability to raise funds. I do think that your last comment, though, is 95% wishful thinking - because AIM would barely exist if there wasn't an element of regulatory relief. In general my view would be very much in favour of governance by dint of active stakeholders (such as shareholders and shareholder groups) rather than by dint of regulation. Excessive regulation is a quick route to putting many companies out of business - and it is purely and simply a burden - and one that never, ever, comes cheaply!

ShareSoc will be responding to the consultation on the question of allowing AIM companies within ISAs in due course so if you have any views on this matter, please let us know.

I suspect that you may find a greater range of views on this one than anything else you have yet consulted on. It will be interesting to see where the balance is struck.




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peterg 14th Dec '12 219 of 431

In reply to emptyend, post #218

And there is also one that you haven't mentioned which is that I believe quite a few hold AIM stocks because they are outside one's IHT estate (I think - though don't know the details!).

I think this is a very important issue. I have no idea of the numbers who do this, but I believe it''s quite a popular use of AIM stocks (I'm only beginning to approach an age where I would consider this in my investments - but perhaps in the not too distant future...!). I would also be surprise if a review of the inclusion of AIM stocks in ISAs did not include a close consideration of continuing the "business asset" treatment. It's always seemed a bit of an anomaly to me. I've seen the argument that some family owned businesses are held by many involved in the company through shares traded on AIM. That may be true in some cases, but these are publicly listed companies and there is no doubt that the vast majority of AIM listed stocks are not held in this way. Which really seems to leave the argument that it is in effect largely a tax perk for those investing in AIM stocks - and must raise the question, should they retain one while gaining another. I would be surprised if the answer to that is yes! And there would be many who would not be happy with that result.

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emptyend 14th Dec '12 220 of 431

In reply to peterg, post #219

I would be surprised if the answer to that is yes! And there would be many who would not be happy with that result.

Though of course it must also be said that ANY fiddling around with taxation leaves "many" unhappy.

I rather hope that the final solution reflects:

a) what is best for the economy overall and

b) what is fairest for shareholders and taxpayers as a whole.

I'm not persuaded that a "loophole" that allows "the rich" to shelter chunks of capital from IHT is a good thing to preserve. If they want to keep funds out of their taxable estate then they should simply give them away early and benefit from the 7 year rule. This is one area where the tax code could be considerably shorter than it is, I think.

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ShareSoc 27th Dec '12 221 of 431

Posted by ShareSoc at 09:37, December 17 2012.

Ideagen Placing at a Premium

Placings in AIM companies often annoy private investors who usually cannot participate in them. A placing dilutes your existing interest in the business and most shareholders would prefer to stump up the money themselves if cash is required rather than have some new carpetbaggers come in and take a major stake. Regrettably AIM companies often have to follow this route on the grounds of cost and speed (the Prospectus Directive makes rights issues very onerous to implement). What really annoys investors though is when the placing is made at a discount to the recently prevailing market price which happens much too frequently. This enables the new investors to pay less for shares than other people have paid recently in the market, and surely the market price is a fair determinant of the value of any company?

Ideagen (LON:IDEA) , a company selling compliance application software which we have covered in our past newsletters, announced a placing this morning. But in this case it was at a slight premium to the last mid-market closing price. In addition, the placing is being made primarily to pay for an acquisition which looks to be both complementary to their existing businesses and not expensive (at about 5 x EBITDA and 1 times revenue). However it will result in the newly placed shares taking 33% of the issued share capital after the placing, i.e. 33% dilution.

Private shareholders may wish to consider whether they wish to maintain their interest in the business by buying more shares in the market as even though the acquisition may generate more earnings for the new combined group, there is often a temporary weight of possible sellers as those acquiring shares in the placing may choose to sell some if the share price moves rapidly up or down. One never knows whether they are long term holders or not.

ShareSoc would of course prefer to see the whole process simplified so that all shareholders can participate – why should existing shareholders who have simply bought shares in the market with possibly limited information available to them, require more information to an exhaustive degree when being issued with new shares? It surely does not make sense.


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ShareSoc 27th Dec '12 222 of 431

Posted by ShareSoc at 15:32, December 17 2012.

Orchid Developments Group wind-up petition generates opposition

Orchid Developments (LON:OCH)  is a Bulgarian focussed property company, listed in the UK on AIM, but registered in the Cayman Islands. The company was running out of cash and in September the shares were suspended because they had failed to file interim accounts, the explanation being that a fundraising was pending. Subsequently they did make an open offer to shareholders to refinance the business by raising £2.1m and capitalising £0.67m of fees payable to Bellport – a management services company to which fees for the services of the two principle executive directors, Guy Meyohas and Ofer Miretzky, are paid. Those two directors and Bellport are seen as a “concert party” and because of the terms of the open offer and their proposed take-up of shares, that group would have ended up owning 64% of the shares, effectively giving them control.

As with Inland Homes, and Conygar, two other small property companies we have commented on in the past, the amounts payable to the executive directors seem questionable given the historic trends and financial position of the company.

On the 14th December shareholders voted down the proposed placing at an Extraordinary General Meeting – only 16% of votes were voted in favour of Resolution 1 which was the waiver on the requirement under the Articles for such a group of shareholders to make an offer for the company. As a result Shore Capital (the company’s Nomad and Broker) resigned with immediate effect and it was advised that Bellport would be filing a winding-up order immediately. Incidentally Shore Capital seems to come to our attention quite regularly as the Nomad/Broker of companies where shareholders are unhappy (Lees Foods, Lighthouse Group, Solo Oil recently for example).

Of course the Bellport connection also suggests that the two principal directors are a party to pursuing this winding-up, but they have not apparently yet resigned as directors, despite there being an obvious conflict of interest.

On the last published financial figures (at mid-2012), the company had a substantial surplus of assets over liabilities with shareholders’ funds (net assets) of €71m but with a loss of €3m for the half year (profitable in the previous year). This company is far from worthless if you believe the accounts, but the market cap when last traded was only £3.5 million. But any administration or wind-up is usually very prejudicial to the interests of shareholders, and often results in someone acquiring the assets quite cheaply. So although shareholders might not oppose an orderly disposal of the assets, surely it would be wiser if the company (and the shareholders) looked for a buyer of the assets of the business and opposed the wind-up.

Shareholders who wish to be put in touch with a “shareholder action group” that is being formed by concerned shareholders should contact ShareSoc. Likewise anyone who might have an interest in acquiring property assets in Bulgaria.


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ShareSoc 27th Dec '12 223 of 431

Posted by ShareSoc at 15:40, December 18 2012.

Reinvigorating AGMs, because they surely need it.

Not many people personally attend AGMs, and institutions very rarely do so. In addition the English are often too shy to pose questions or to tackle the board on contentious matters. As a result, many people consider them a moribund institution even though there is an enormous amount one can learn from them. Also of course, the directors can gain a lot from talking to their shareholders if enough turn up.

But today was a good example of the problem. For the second year running, I appeared to be the only ordinary shareholder present at the AGM of dotDigital (LON:DOTD) (a full report is present on the ShareSoc Members Network as we consider it a service to members to report on such meetings).

The Corporations and Markets Advisory Committee (CAMAC) of the Australian Government have recently produced a Discussion Paper on “The AGM and Shareholder Engagement”. The Australian market arrangements and company law are very similar to the UK. See the Publications section of this web site: for a copy. Section 6 entitled the “Future of the AGM” is particularly interesting.

For example, they discuss whether votes should be delayed after an AGM so that discussion and debate at it could be known to shareholders not attending, before they vote. An interesting thought, although it might discourage actual attendance and not improve appropriate voting unless some reporting of the meeting takes place.

They also discuss options for change such as web-casting AGMs, and allowing on-line voting while they take place. At the extreme, this might support scrapping a physical meeting and having a solely virtual meeting, or a hybrid of the two. The key surely would be to maintain the spontaneity and debate that happens at good General Meetings (such as at Victoria recently where there were contentious issues), while improving those that are rather boring at present.

Another issue that CAMAC raises is why not support direct voting? An oddity at present is that if you are unable to physically attend a meeting, you have to appoint a proxy to vote for you. Why not permit direct postal or electronic voting? The proxy system is surely an anachronism which is a hangover from the days when there were relatively few shareholders in public companies, most shareholders attended AGMs, and it was expected your proxy would also attend. This is of course an example of how company law simply no longer reflects the reality of the real world, and even less so with nominee systems obstructing direct representation.

I hope to write some more on this topic for the next ShareSoc newsletter because it is surely an important subject for debate among investors and it would be good to get this on the political and government agendas in the UK. If you have any views on the matter, please let me know.


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ShareSoc 27th Dec '12 224 of 431

Posted by ShareSoc at 13:27, December 21 2012.

Insolvency law – is it fit for purpose?

There has been quite a lot of public comment on the events at Comet, the retail electrical chain, and the Government has announced an inquiry into events at the company. Comet went into administration after a rather odd sequence of events. OpCapita, a private equity firm, bought the Comet business from Kesa for a nominal £2 and a dowry of £50m after the company had been consistently loss-making. A vehicle used to make the purchase is called Hailey Acquisitions Ltd who then proceeded to charge the business significant amounts for arrangement fees, monitoring fees and interest. In addition as they are secured creditors, they may receive a substantial proportion of the assets remaining after liquidation (the business has been closed down), whereas other creditors such as property landlords and HMRC (for unpaid taxes) are unsecured creditors. There are suggestions that the business never looked like it was being revived by the new owners, although whether anyone could have made a go of a primarily shop-based retail operation when most people are buying electrical items on the internet these days is not clear.

There have of course been past examples where the “rescue” of a well known business in difficulties by a group of “white knight” investors using complex arrangements turned out to be more in their apparent interests than that of the business, and while it ultimately failed, they came out ahead. Rover was such a case where it took years to unravel what had happened. We will have to wait and see what actually happened at Comet, but it may be a long time, if we ever do.

In response to a question on the subject of Comet in the House of Commons, Vince Cable suggested we have one of the best insolvency regimes internationally but admitted “there may well be better ways of handling insolvency”. He suggested the American Chapter 11 system may be worth looking at.

Unfortunately the Government has steered clear of reforming insolvency law in the past even though such processes as “pre-pack administrations” have been the subject of numerous complaints (see previous ShareSoc blog posts on that topic). One surely has to ask if insolvency law, which is exceedingly complex, is designed more in the interests of insolvency practitioners, banks and smart investors rather than the employees and ordinary trade creditors (many of them smaller businesses or individuals) of businesses in difficulty.

Certainly the Chapter 11 system seems to have many advantages in maintaining viable businesses and hence protecting jobs without the abusive practices inherent in the pre-pack system which is claimed to do the same.

It would surely be wise to consider this whole area again.


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ShareSoc 27th Dec '12 225 of 431

Posted by ShareSoc at 13:45, December 22 2012.

BAE Systems – A business still facing strategic challenges

On Wednesday BAE Systems (LON:BA.) issued an announcement stating that pricing on the contract to supply 72 Typhoon aircraft to the Kingdom of Saudi Arabia had still not been agreed. This was interpreted by some newspapers as a profit warning. Indeed the announcement said that if no agreement is reached before the Group’s full year results announcement (which was in mid February last year) then it might reduce earnings per share by about 3p. Previous analysts’ forecasts were for slightly over 40p in 2012.

Oddly enough they have already delivered 24 aircraft so it would seem that analysts were relying on revenue being booked in the current year based on pricing which has not yet been agreed. It surely reinforces the point that BAE is still a business with some problems in the current tight market for defence expenditure. The outcome of the US “fiscal cliff” discussions, which are still unresolved, could have a major impact on future US orders for BAE.

Indeed an article in the Financial Times this morning suggests that BAE is “heading towards a cliff” based on the comments of one senior defence company executive who suggested that its large platforms will have difficulty finding new markets and the order book is not growing.

However on Friday there was the more positive news of a contract for the supply of Typhoon and Hawk aircraft to Oman worth approximately £2.55bn although delivery is scheduled for 2017 onwards.

ShareSoc is running a Shareholder Action Group on BAE Systems that has called for the resignation of Chairman Dick Olver following the failed attempt to merge with EADS. See for more information and on how to join so as to support the Group.


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ShareSoc 27th Dec '12 226 of 431

Posted by ShareSoc at 09:37, December 23 2012.

Monitise – A nice Christmas present for senior executives

Late on Friday afternoon, Monitise (LON:MONI) announced the grant of large numbers of options to three directors – Alastair Lukies, Lee Cameron and Michael Keyworth. Mr Lukies, the CEO, almost doubled his options and now has options over 1.8% of the issued share capital.

There is one simple performance target that has to be achieved for the options to crystallise – namely that the share price is over 55p for two months around December 2015. With the current share price being 33.75p, that’s growth of 22% per year, or 66% in total. In the last three years it grew by 95% so that’s not necessarily a particularly difficult target.

What is the justification for this award? Simply to “align directors’ incentives with future growth expectations”. Now at the AGM in October (of which there is a full report on the ShareSoc Members Network), I complained about the large number of share options that had been awarded to Mr Lukies and Mr Cameron only recently. The justification given was that these awards were necessary to retain staff, and needed to be put in place because previous options had been exercised (i.e. Mr Lukies had already exercised and cashed in some of his previous options).

As I said at the time (in a previous blog entry before the AGM), “Whether shareholders will ever make any money from this company remains to be seen, but it would seem that the executive directors are certainly likely to do so”.

Perhaps the directors will argue that the recent share placing has diluted their interest and hence they need more share options to compensate, but why should they be favoured in this way when other shareholders have suffered from the dilution?


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ShareSoc 31st Dec '12 227 of 431

Posted by ShareSoc at 14:21, December 31 2012.

RBS news and stronger bank ring-fencing urged

Stephen Hester, CEO of Royal Bank of Scotland (LON:RBS) , had an interview published in the New Year edition of the Hargreaves Lansdown client newsletter. What he said was not particularly positive. To quote: “That allows us to project, barring accidents, that by 2014 we will be looking like a ‘normal’ bank again as far as our risk profile is concerned”, and “…..I think our shares will take time to reach the price levels to which the Government aspires”. One presumes by the latter he means a level at which the Government can at least get out without a loss and save some face.

He also said “there are further items on the regulatory agenda which are likely to be both expensive and wrenching”. Whether he was referring to the penalties for manipulating LIBOR which have yet to be announced for this bank, further capital strengthening or the ring-fencing of retail and investment banking, is not clear.

On the latter subject, it has been reported that Mr Osborne is being pressured by a group of MPs (a commission led by Andrew Tyrie) to strengthen the proposed rules on ring-fencing. They consider the proposals from the Government not nearly tough enough. Perhaps it’s worth pointing out that in one of the first public consultation responses ShareSoc submitted, we questioned the ring-fencing proposals produced by the ICB. This is what we said at one point: “We do not in essence support the retail ring-fence proposal. The Commission gives strong arguments in its report for the benefits of a total separation of retail and investment banking, and then chooses to propose a watered down version, presumably so as to overcome the objections of some of the major banks. However, we do not believe that such a separation by ring-fencing would be practical or be capable of enforcement”.


Other news concerning RBS recently was that more institutions have joined the prospective legal action against the directors and the company in respect of the rights prospectus. However this has apparently further delayed filing the suit in court. There may be good reasons for these delays, but it hardly inspires confidence when the filing gets repeatedly delayed.


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ShareSoc 4th Jan '13 228 of 431

Posted by ShareSoc at 14:54, January 4 2013.

EuropeanIssuers take stance on Securities Law


You may not have heard of the organisation called EuropeanIssuers, but they are a body that collectively represents publicly listed companies in Europe (see  for background). Before Christmas they issued some interesting comments on the discussions taking place in the EU on securities law legislation in a “position” paper (available from their web site). 

They strongly oppose “omnibus” accounts (otherwise known as “pooled nominees” where multiple clients beneficial claims on assets are intermingled), and the following is what they say:

 As a matter of principle, EuropeanIssuers has a strong preference for segregated accounts, i.e. securities accounts opened in the books of the Central Securities Depository or the issuer either 

(i) in the name of the investor or (ii) in the name of an intermediary segregating per investor. The reason for this preference is related to the clear benefits in terms of on-going integrity of the issuance and facilitation of shareholder identification. 

It is EuropeanIssuers’ view that the future Securities Law Legislation should create a system where the securities of an investor should be segregated per investor, unless that duly informed investor authorises its securities to be held in omnibus accounts.

This is subject to:

• Provision of complete and accurate information to the investor on the risks inherent to omnibus accounts;

• Possibility of shareholder identification that is not different whether the investor’s securities are credited to a segregated account or to an omnibus account;

• In no case may clients securities be commingled with an intermediary’s proprietary securities;

• Segregation in segregated accounts and non-commingling of proprietary securities in omnibus accounts must benefit from the appropriate rules as to what accounts must be segregated (CSD level) and protection in case of an intermediary’s default.


Those principles are indeed similar to what ShareSoc would like to see. The point they make that investors should be warned about the risks inherent in omnibus accounts are particularly well made. At present, most retail investors get put into nominee accounts as a matter of course by stockbrokers without them being informed of the risks associated with such accounts, or the alternatives that are available.



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ShareSoc 8th Jan '13 229 of 431

Posted by ShareSoc at 12:22, January 7 2013.

ShareSoc Investor Day (and Members' Meeting)

A day of interesting talks from leading speakers on the investment scene plus the opportunity to meet with other members and discuss topical issues.


When: Tuesday February 26th 2013 commencing at 11.00

Where: De Morgan House, Russell Square, London

The Speakers: Ed Page-Croft of Stockopedia, Nicholas Bertrand of the LSE, Marcus Phayre-Mudge of Thames River Capital, David Axon & Peter Smith of Consilia, Guy Knight of the Share Centre, Annabel-Brodie-Smith of the AIC and others.




Click on this link for more information and details of how to register:


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ShareSoc 8th Jan '13 230 of 431

Posted by ShareSoc at 12:00, January 8 2013.

Stock screening wins, maybe.

Stockopedia, who specialise in financial analysis of companies and stock screening, yesterday published the results of the first year of running their “Guru” screens, and it certainly makes interesting reading. They actually have 65 different model screens, many of them based on the investment style of well known investors such as Bill Mille, David Dreman, Charles Kirkpatrick, Ben Graham, Ken Fisher, Warren Buffett and Joel Greenblatt.

With the FTSE All-Share up 9% last year, Stockopedia claim 82% of the long screens would have outperformed that index. The best screens last year would have been Bill Miller’s which returned 77%, and David Dreman’s High Dividend Screen which returned 46%.

This is course begs the question: could you forget stock picking and simply follow the formula recommendations? Unfortunately it’s not quite as simple as that (apart from the issue of which screen to use). You need to examine these results a bit more closely. For example, the average performance of all the long screens was 22%, whereas the small cap index was up 26% (although the AIM index was down slightly but probably mainly because of price falls in companies in the mining and oil/gas sectors with assets but no revenue or profits which would have been excluded from most screens anyway). As there are many more small cap and AIM stocks, which Stockopedia includes in its screens, the results may be distorted to some extent.

You might also presume that everyone will be looking at what the Bill Miller screen is currently recommending, which might erode the screen performance. And when you look at the Bill Miller screen, as Stockopedia says, it’s definitely "concentrated". In fact at the current time it only suggests three stocks - Dart, Standard Chartered and Air Partner. Nobody with any sense would run a portfolio of 3 stocks, particularly when 2 of them are very small companies. In addition, the writer has recently reviewed Dart and Air Partner and decided they were not stocks I would personally invest in, and whether you can believe the accounts of any bank is debatable so even the third one is perhaps questionable.

Maybe what we need is a "screen of screens" so we can get more in there rather like a "fund of funds" for all those of us who "sincerely want to be rich" (to quote Bernie Cornfeld). Stockopedia have already thought of that though as they do offer a screen of screens.

It’s likely of course that screens perform differently in different market conditions. So what worked this year may not work next. By repeating this exercise each year, we will hopefully see which screens are reliable and which are not. In summary this is useful data, and of course Stockopedia do offer you the ability to build your own screens so that you won’t be slavishly copying others.

It’s certainly worth looking at what the current highly rated screens are recommending, but some qualitative analysis on top is surely required (that is what made Warren Buffett a better investor than his teachers).

You can see the current performance of different Guru screens here:

Note that Ed Page-Croft of Stockopedia will be speaking at the ShareSoc Investor Day on Feb 26th for those who wish to learn more about screening (see ).


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ShareSoc 28th Jan '13 231 of 431

Posted by ShareSoc at 09:10, January 10 2013.

RPI to remain unchanged

The National Statistician, Jill Matheson, has today announced that she is proposing only a very minor change to the Retail Price Index (RPI). This follows a public consultation on the issue of the increasing disparity between that and the CPI index. Although she concedes that the mathematical formula used to calculate RPI is no longer of the best international standard, she states it is important to maintain continuity of the index. To enable a better index to be available, she proposes an additional index to be known as RPIJ (for “Jevons”) be also published at the same time as RPI.

There is only one minor change to the RPI proposed which is in the measurement of private housing rents. ShareSoc supported this and it will not have a significant impact.

ShareSoc welcomes these conclusions so as to protect the interest of those who hold existing investment products that depend on RPI, and we are glad to see that this response is consistent with our response to the public consultation (

Obviously the Government and private bodies may choose to issue new investment products such as index linked gilts or index linked savings certificates based on RPIJ in future, but investors will have the choice of whether to invest in them or not.


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About ShareSoc


ShareSoc is dedicated to the support of individual investors. Our aim is to make and keep you better informed so as to improve your investment skills, and protect the value of your investment. We won’t shirk from tackling companies, the Government or other institutions if we think you are not being treated fairly. more »

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