SIF Folio: Can Bilby's Impressive Growth Be Sustained?

7th Aug '18 by Roland Head

10 comments 4756 reads

Before I get started on this week’s stock review, I want to give you advanced notice of a special feature I’m planning for next week.

The Stock in Focus (SIF) folio has beaten the market by 25% over the last two years, so progress has been good so far. But I know from reader comments that many of you have questions about how this rules-based strategy works.

In the hope that I can answer as many of these questions as possible, my aim next week will be to explain what I do, how I do it and why I do it. To help make this as useful as possible, I’d be very grateful if you could message me any questions you might have, so I can include them.

If you enjoy reading this article, please spare a few minutes to vote for Stockopedia in the ‘Best Investment Software Programme’ (Category 15) and ‘Best Investor Education’ (Category 17) at the Shares Awards. We would really appreciate your vote!

High returns from support services?

My Stock in Focus screen continues to throw up surprises. This week’s it’s small-cap building services group Bilby. This £50m firm provides gas, electrical and building services to social housing landlords in London and the South East.

It’s a growing market and Stockopedia’s computers appear to rate Bilby’s contribution highly. They’ve awarded it a StockRank of 93.

This company also qualifies for the Tiny Titans guru screen, which I rate highly. This screen is based on the small-cap momentum strategy used by US fund manager James O’Shaughnessy. It’s delivered an annualised return of 23.5% since its inception at the end of 2011. I’ve often found this screen to be a good source of ideas for further research.

What could go wrong? Bilby is a support services firm with a policy of expanding through acquisitions. This combination has a reputation for delivering slim profit margins, and for the destruction of shareholder value.

In fairness, there’s no sign yet that this applies to Bilby. Since its flotation in March 2015, management have kept its balance sheet in good shape and tripled the group’s revenues. Shareholders who picked up stock at 58p in March 2015 have now doubled their money.

Although these gains haven’t been achieved without some drama, Bilby’s performance…

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The Phoenix

7th Aug '18

Would be great if you could do a stock analysis walk through Roland ideally using Stocko to show what metrics you look at for red flags and value.
You mention increasing receivables as something to be wary of is there anyway of checking this on the Stocko balance sheet metrics ?

Keep up the good work.

Andy

Roland Head

Hi Andy,

Thanks for your feedback. I'll try to include a walk through of some different types of stocks in future weeks, when things are quiet.

To see how receivables are changing, the best way is to look at the balance sheet itself. This is on the Accounts/Balance sheet tab.

https://www.stockopedia.com/share-prices/bilby-LON:BILB/balance_sheet/
(Receivables are listed near the top. )

I should point out that this is a standardised version of the balance sheet.You can sometimes get more detail by looking at the original version of the balance sheet from the firm's accounts, which often carry extra footnotes. You can find company results on the News/Announcements page:

https://www.stockopedia.com/share-prices/bilby-LON:BILB/news/announcements/

Hope this helps.

Cheers,

Roland

Henry55

8th Aug '18

Hello Roland,
Thanks for the excellent info and presentation. I am new to Stocko. Can you let me know how I can produce "Momentum Rank Components" and the "Value Rank Components" tables that you show in the article - can't seem to work out how to produce those on the system.
Thanks,
Henry

Merlotman

Roland
Just picking up on your preamble above, I have a few suggestions. I think most important is to have the screen itself as, unless I am mistaken, I don't think we can view the various elements i.e. what min / max values you use. I scrolled through some of your old reports recalling that you may have pasted into a previous blog but could not track it down. It would be then helpful if you would go through why you have chosen the various screen elements e.g. I know for instance that earnings yield is one of your favourite value metrics and maybe why there are some you don't use e.g. CROIC.
Having a background in corporate analysis myself I know how important it is to have an analytical framework which I assume you do, which then throws up the questions that require further analysis It would be helpful to lay this out
Having looked through the SIF fantasy fund it occurs to me that the outperformance of the ASX benchmark really started around March 2017 after tracking the market for about a year. Is this just a coincidence or do you think there was a reason for this?
The other point is that I believe that (as is often the case) the timing of your sales are as important as the stocks picked. You have discussed your minimum hold period in the past but minds maybe need refreshing. The other thing that occurs to me is the number of deals which as yours is a weekly blog often runs at one a week which for me feels too many. What is your view of ideal trading frequency? I note that Ben Hobson hasn't touched his fantasy fund since 2016 (I am not sure whether this is because Ed has kept him so busy or on purpose but the willful negligence seems to have done no harm at all).
Hope this helps

gus 1065

Hi Henry.

Absent a response from Roland, probably the quickest way is to put the stock into one of your portfolios (under Folios on the header sheet above) and then look at the various screens (or if you’re feeling brave customise one to include all of the M, V, Q and G ranks). If you then click on the appropriate value, it will drill down into the component parts. Hope that makes sense.

Gus.

9th Aug '18

Hi Henry, Gus,

Another method that saves putting the stock into a Folio is to go to the sector page for the stock (linked from the top of the StockReport), and then click on the appropriate rank value. You'll then see the component parts.

Regards,

Roland

Merlotman,

Thanks for your comment. I'll try to address most of your points here.

You can see the screen here: https://www.stockopedia.com/screens/stock-in-focus-screen-113218/

I agree that the fund didn't start to outperform the benchmark All-Share Index immediately. I think one reason for this may be that as I added stocks gradually, most of the fund was in cash to start with. So the overall fund value didn't start to change until it was more fully invested.

As regards trading frequency, I agree that there are many ways to skin this proverbial cat. At the moment, I probably average two 'buys' each month. In addition to this, I review stocks for sale once each month.

This may well be too frequent for some investors. Indeed, it feels quite frequent to me -- before I started running SIF, the average holding period in my personal portfolio was much longer than nine months.

The issue I agonise about more than anything else is when to sell. I'm encouraged by the results of extending my minimum holding period to nine months. But I wouldn't claim that it was a perfect solution. I may change this again in the future.

As a side note, I mirror all the SIF trades in my personal portfolio, although I have other investments as well.

I hope this helps to add some context to my weekly ramblings!

Regards,

Roland

Hi Roland

Thanks for the reply re increasing recievables on the balance sheet what yearly percentage increase in this figure would have you starting to get concerned ?

Couple of other questions if I may, do you use stop losses and if so at what percentage 10,20 etc or just below recent support.

Secondly when buying into a new stock do you buy your entire stake in one go or scale in over time if scaling in do you try and do this on pull backs or pyramid up ?

Thanks Andy

10th Aug '18

Thanks for that Roland, Gus, most helpful.
Henry

Hi Andy,

In terms of rising receivables, my view would depend on the context. For a company like this taking on major new contracts, I'd expect a build-up of receivables over 3-9 months. So I'm not too concerned here.

For a business that was in more of a steady state, where growth was low, then rising receivables could be a concern. It's hard to put a percentage figure on it, as some businesses naturally have more lumpy cash flows than others (e.g. fewer larger orders vs. many smaller orders).

I don't use stop losses in SIF or in real life. My personal experience is that they're always in the wrong place and often stop me out unnecessarily. But I know they do work for some people.

Finally, in SIF I buy the whole position in one go. In my longer-term value investments (not covered here) I will sometimes buy several tranches of stock as my confidence improves.

Thanks,

Roland

SIF Folio: Can Bilby's impressive growth be sustained?

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Roland Head

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