SIF June review: Redrow + I revisit Alliance Pharma after 80% gain

Monday, Jun 25 2018 by
37
SIF June review Redrow  I revisit Alliance Pharma after 80 gain

It’s the end of June, so it’s time for my regular monthly review of stocks that have been in SIF for nine months or longer. There are only two stocks to consider this month:

  • Alliance Pharma - this specialist pharmaceutical group has delivered a stonking 80% gain since last September. But do the shares still pass all of my screening tests?

  • Redrow - the portfolio’s oldest position at 15 months. My intuition suggests selling housing stocks, but my screening rules may say otherwise.

Alliance Pharma

Original coverage 20/09/2017

Specialist pharmaceutical group Alliance Pharma has delivered the SIF portfolio’s second-best gain to date.

This £480m AIM-listed group specialises in buying up niche medicines with well-established markets. It then sells them through its distribution network, reaping cost savings and other benefits of scale. It doesn’t develop new products, so the speculative risks of investing in most small pharma stocks don’t apply here.

The latest such deal was last week’s acquisition of anti-dandruff shampoo Nizoral for £60m from a subsidiary of Johnson & Johnson. The deal will give Alliance the Asia-Pacific rights to this product which had sales of £60m last year. The firm says that the over-the-counter medicated shampoo market in this region is worth £363m per year, so there’s room for growth.

This acquisition was funded with a £34m placing and £27.9m of new debt. This will take the group’s net debt to EBITDA ratio back up to 2.5. That’s a level that’s higher than I’m comfortable with, but borrowings are expected to fall steadily, as they’ve done after previous deals.

Up 81% in nine months

Since I added Alliance Pharma to the SIF fund, the shares have risen by 81% plus dividends (at the time of writing). But the picture has changed considerably over that period. It’s time to review the stock and see if it still qualifies for my screen.

What’s changed?

In September 2017, Alliance had a StockRank of 61, a Balanced RiskRating and a StockRank Style of Neutral.

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The shares looked very affordable for a for a dividend-growth stock:

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September 2017

Today the picture is rather different. Investors have embraced the group’s cash-generative growth and bid the stock to a far more demanding valuation. This…

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Disclaimer:  

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. 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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Alliance Pharma plc is a United Kingdom-based specialty pharmaceutical company. The Company is engaged in acquisition, marketing and distribution of pharmaceutical products. The Company operates in various business areas, such as Hydromol, secondary care, community and consumer products, established products and international. The Company's therapeutic areas of focus include cardiovascular, central nervous system, child health, consumer health, dermatology, endocrinology, gastroenterology, obstetrics and gynecology, oral health, oncology, stoma care, toxicology and travel health. The Company's product categories include prescription only medicines, over the counter medications, medical devices, cosmetics and nutritional supplements. The Company's products include SkinSafe, Lift Plus, AbsorbaGel, DeoGel, LaVera, ClearWay, Gelclair, ImmuCyst 81mg, Hydromol, MacuShield, Lypsyl, Anbesol Adult Strength Gel, MolluDab and Ashton & Parsons Infants' Powders. more »

LSE Price
95.8p
Change
0.4%
Mkt Cap (£m)
492.6
P/E (fwd)
19.6
Yield (fwd)
1.6

Redrow PLC is engaged in residential housing development. The Company is engaged in constructing homes throughout England and Wales. The Company's operations are focused on housebuilding. Its product range is focused on traditional family housing in its regional businesses and apartment schemes in Greater London. The Company's range of properties include Heritage Collection, Regent Collection, Abode Collection and Bespoke Collection. The Heritage Collection includes homes, which are designed for modern living. The Regent Collection includes homes, which are designed similar to the formal townhouse residences. The Abode Collection includes modern urban homes. The Bespoke Collection offers approximately 50 luxury apartments and penthouses. The Company has approximately 100 live developments throughout much of England and Wales. The Company's subsidiaries include Harrow Estates plc, Redrow Real Estate Limited, Redrow Regeneration plc and HB (HDG) Limited. more »

LSE Price
537.5p
Change
-0.7%
Mkt Cap (£m)
1,988
P/E (fwd)
6.1
Yield (fwd)
5.2



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9 Comments on this Article show/hide all

Nick Ray 25th Jun 1 of 9
1

If Alliance Pharma (LON:APH) is up 80% since purchase and it is still a strong business, with only the valuation metrics being less favourable now, why not top-slice it rather than sell all of it?

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Roland Head 25th Jun 2 of 9
3

In reply to post #377694

Hi Nick,

I agree that Alliance Pharma (LON:APH) is still performing well and seems a good business. Top slicing could work well in a situation like this, but my rules only allow for this approach when a stock has doubled (unlikely in most scenarios).

So I've now sold the whole position, but as always my comments are not advice and only represent my opinions. Please DYOR before making any choices.

Regards,

Roland

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clarea 25th Jun 3 of 9
2

Good article Roland as always keep them coming.

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colinparker 26th Jun 4 of 9
3

Roland,
another insightful analysis.
Question, I see that you are currently not fully invested. Are you finding that a few years into running your fund that your screen naturally identifies when the market is over bought i.e. fewer results?
Have you seen any correlation between screen returning say 30 results against times of only 10?

regards
Colin

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ezlifeme 26th Jun 5 of 9

Great Question Colin,

That's the sort of applied logic I like, gives me something new to look at

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Roland Head 27th Jun 6 of 9
3

In reply to post #377924

Colin,

Thanks for your comment. I have noticed that the screen sometimes returns much higher numbers of qualifying stocks than others. Subjectively, I'd say that this has been loosely correlated with times when I've viewed the market as expensive. But I'm not really able to measure whether there's a correlation between screening results and short-term market performance.

Regarding not being fully invested, there are a couple of reasons for this. The first is that the fund is below its maximum planned size of 20 stocks at the moment. The screen hasn't provided many suitable results for buying in recent weeks, but some stocks have been sold.

The other reason for the relatively high cash balance is that the fund's gains over the last two years mean that my original position size of £50k was no longer enough to utilise all the portfolio's cash. To try and address this I increased the standard position size to £55k in April.

This amount is based on subtracting 20% from the portfolio to simulate a market slump and then dividing by 20 (approximately). I don't want to risk running short of cash if the market goes into reverse.

Hope this makes sense!

Regards,
Roland

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clarea 27th Jun 7 of 9

In reply to post #377744

Hi Roland,

Just wondered if you had time at some point if you would be able to do a walk through on a stock using Stocko of what metrics/stats you use to spot red flags with a stock.

One i find useful is the average shares in issue stat if thats going up like a rocket will normally be enough to end my interest.

Thanks

Andy

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Roland Head 28th Jun 8 of 9
4

In reply to post #378374

Hi Andy,

Thanks for your suggestions, that's a good idea for a future article and I've noted it down.

My goal is to rule out most red flag scenarios with my screening rules, but there are other things I look for too that can be a cause for concern. I'll try to go into negative signals in more detail at some point, perhaps when new opportunities are thin on the ground!

Regards,

Roland

| Link | Share | 1 reply
clarea 28th Jun 9 of 9

In reply to post #378444

Thanks Roland

That would be great if you would spare the time to do an article on it, also do you try and time entry points or just buy in there and then if a stock passes your screen ?

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »

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