Why I will be selling Walker Greenbank

Friday, Jun 14 2019 by
16

Latest Review : 6-Aug-19 Conclusion - Hold.

Given that I only just bought my Walker Greenbank (LON:WGB) shares today, this may seem a little premature.

However, prompted by Jack Brumby’s piece Why are we so bad at selling   I thought to try out a little thought experiment and spell out publicly under what conditions I would sell.

Why I bought

Very briefly I believe this to be a high quality business  which represents excellent value and as I noted in today’s SCVR I believe momentum could be on the turn (or perhaps has already turned).

When to Sell?

This isn’t intended as a quick trade, but neither do I intend (necessarily) to hold forever, so I’ll lay out here my conditions for selling.

In fact I am not about to become an automated trader, so these are not hard and fast rules, but rather triggers to review my holding with a presumption that I would sell. (Effectively taking the view that if I wouldn’t be a buyer at that time I should be a seller.) In the case of the more positive reasons for selling, I may instead try to “run my winners” and set a fairly tight trailing stop loss, to see if there are any further momentum gains that I can pick up.

So here are my sell conditions :

On a profits warning.

I should (and may) make this a hard and fast rule for pretty much all of my positions; it is all too easy as holder  to make excuses and justifications for the factors behind a profits warning, that is seldom a smart thing to do.

In this particular case though I would say that this is a particularly important rule, sentiment towards “discretionary retail” is fragile and my view is that any mishaps are liable to dent confidence for some time.

If the two year forward PE rises above 13.

This number is somewhat arbitrary, but I justify it on two (flimsy?) grounds.

  • It represents a c. 50% improvement on the current position and this investment fits a rough rule of thumb that I used to use for ‘value’ situations of targeting a 50% return within 3 years (Although more and earlier is always nice!)
  • It’s a PE ratio that I can see being achievable…

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Walker Greenbank PLC is an international luxury interior furnishing company. The principal activities of the Company are design, manufacture, marketing and distribution of wall coverings, furnishing fabrics and associated products for the consumer market. It operates through two segments: Brands and Manufacturing. The Brands segment is engaged in the design, marketing, sales and distribution, and licensing activities of Sanderson, Morris & Co, Harlequin, Zoffany, Anthology and Scion brands operated from the United Kingdom and its foreign subsidiaries in the United States and France. The Manufacturing segment is engaged in the wall covering and printed fabric manufacturing businesses operated by Anstey and Standfast. It sells in approximately 80 international markets. It operates through its subsidiaries in the United States and France, and its own sales operations in Holland and Dubai. The Company has showrooms in London, New York, Paris and Dubai. more »

LSE Price
84p
Change
 
Mkt Cap (£m)
59.6
P/E (fwd)
9.7
Yield (fwd)
3.4



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8 Posts on this Thread show/hide all

dangersimpson 15th Jun 1 of 8
3

A really useful exercise. 10% would seem to be quite a tight stop loss on such an illiquid share though? the spread alone could be 5% and 10-20% daily noise on small caps.

Book: Excellent Investing: How to Build a Winning Portfolio
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wilkonz 16th Jun 2 of 8

In reply to post #484113

Agree. The spread is currently 81-79 pence so 2.5% which isn't too bad for a micro-cap, although that might easily increase if everyone wants to sell at the same time.

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Gromley 16th Jun 3 of 8
1

In reply to post #484113

I suspect you are probably right ds, although I should clarify that as this is a trigger for a decision rather that I will be basing on daily closing prices the spread doesn't come in to it here.

To be honest the number I first had in mind was 20%, but the benefit of setting the initial level tighter is that it will force me to think about potentially selling at a much earlier stage.

As I mentioned I am quite sceptical about the value of stop losses in cases like this, so a highly likely scenario is that the -10% level is triggered and then having looked at the situation I will conclude it is a "wiggle" rather than the start of a downtrend. By forcing myself to consider this (when I might not otherwise do so in such detail) and recording my thinking publicly, I'm hoping I might learn a thing or two about how well I can personally judge such things.

It also occurs to me on that score, that even if I do decide to sell I should continue the thought experiment for longer to review what would have happened had I made a different choice. There's a tendency to ignore a position once sold, for fear of suffering "sellers regret"  but I'm very keen here to try to dispassionately learn here.

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Gromley 15th Jul 4 of 8
2

Time for the one month review of my holding against the “sell criteria” set. There is nothing too interesting to report at this stage to be honest.

Sell Criteria.

On a Profits warning.

No profits warning, The closest to a trading update thus far was the announcement of change of distributor in the US, the market viewed this neutrally and I know no better.

The mood music for discretionary retail in the UK has remained poor, although the main story in the past month has been poor early spring weather impacting fashion retailers, little read across there to wallpaper.

If the two year PE rises above 13.

9.66x vs an initial 8.99x. This simply reflects the rising share price, still a long way off a sell trigger

10% trailing stop-loss.

This is based purely on closing prices and the largest pull-back thus far has been 2.4% (from the 26-Jun close of 82p to the 27-Jun 80p)

It was noted at the outset that 10% seemed quite tight for a smallish cap prone to volatility, Stocko rates WGB as “adventurous”.

In fact though looking at the chart over a year or so , I am not convinced that the share price is particularly volatile in the sense that is important here. There have been some significant zigs and zags, but these were in response to news and trend changes – exactly what this stop trigger should be looking for. In the absence of news  is not especially wobbly. For the time being therefore I will persist with this 10% threshold.

In true Murphy’s law fashion, I wrote that earlier today before finding that the share-price was up 2.9% today on the back of a modest maiden share purchase by the Chairman – I don’t believe the purchase itself was sufficient to drive the price up, so I suspect it was the reaction to it. That together with the 2.4% rise on Friday might be creating a “mini-spike” that could come to test my resolve on the stop loss issue.

52 Week share price change.

This will not come into play until one year of ownership.

StockRank changes.

These do not represent a “trigger” for me (I would expect the other factors above to trigger before any SR change). I am though keeping track in case there is anything to be learned.

5d2cd2d8f33cb20190715-WGB-review.JPG


A slight fall in the Value Rank, reflects the share price change.

A significant improvement in the Momentum Rank (and therefore a change in “style”) came a little earlier than I expected.

The main change has been in earnings momentum – the three month change in current year forecasts is now positive having been negative one month ago. The fact that earnings downgrades may have bottomed out was part of the buy case.

All being equal, the share price element of MR will improve by next months review (it has ticked up slightly already). The share price fell by 22% on the 23-Jul-18 so once the 22-Jul price drops out of the 52 week number next week, the share price will be trading substantially closer to its 52 week high. It is rather banal that the investment case should be apparently stronger just by the passage of one day; however proximity to 52week high is a well published measure, said to have some power, anyone using this measure for screening will automatically see WGB in a better light at the end of next week.

Conclusions and next review

Overall therefore (unsurprisingly) I continue to hold here. I am due to be on vacation at the time of the next monthly review, however I will probably instead take an update at the next trading statement in “early August”.

 

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Patxi 16th Jul 5 of 8
1

Some interesting points you make Gromley. In your edit you record the SR after you purchased. I make a habit of recording all the SR details along with my reasons for purchase and initial source of info that switched me on the the stock in question in the notes of the purchase record when adding it to my portfolio. Where applicable I also add a target price to sell, either upside or down. I find this information really useful when reflecting back on a purchase at a later date. This is the type of info which I hope will make me a better investor in the long run.

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Gromley 16th Jul 6 of 8

That is a valid point Paxti - In fact did look at the SR before I bought, but by the time it occurred to me to record it here Stocko had updated (checking back though to the position at 1st June there was actually no material change).

Even though so far this experiment has been quite boring, I am invigorated by the added disciple of recording everything and I was musing this morning that if I had applied the same disipline to my holding in A.G.Barr (LON:BAG) I might have sold before today's 30% fall.

Every day is a school day and all the students are teachers, as they say.

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Jack Brumby 17th Jul 7 of 8

Really interested to see how this goes Gromley!

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Gromley 6th Aug 8 of 8
1

Update 6-Aug-19 : Trading Statement (scheduled)

Today WGB issued their Half Year Trading Update  prompting the next review of my sell criteria.

Not a lot to report here, so I will make this brief.

1. On  profits warning.

At the time of writing the share price is down nearly 3% on the day. Whilst this indicates the market is not delighted with the update, it is certainly not a profits warning. The update includes the go to phrases  “performance in the half year was in line with the Board's expectations ”and  “The Board's expectations for the full year remain unchanged”

There is a caveat that “visibility is limited by Brexit and continuing wider macro-economic uncertainties” Can anyone tell me what religion the Pope practises?

I will not delve any further into the update here.

2. If the two year PE rises above 13.

Up slightly at  9.83x on the StockReport (8.99x initially 9.66 last month ), reflecting the steady rise in the share price.

3. 10% trailing “stop-loss.” (closing prices)

The share price closed at a high of 89p on 30th / 31st July*, setting the “stop loss” level at 80.1p, the current price of 85p still provides a reasonable clearance (6% above).

(* The share price is now ex-dividend for the 2.55p final dividend, so the 89.5p close on 17th July is in effect not the high point)

4. 52 week price change

This does not come into play during the first year of ownership.

 Other Factors

Not part of my sell criteria, but as noted above I am tracking the StockRank movements.

5d4968f8e035220190806-WGB-SR.JPG

Another significant rise in the MomentumRank brings the SR up to a super 99 and the superstock label is retained.

Last month the earnings element of the MR improved, this month the share-price element has shot up. This was entirely as predicted as the sharp fall in the SP in July 2018 now drops out of the 52-week comparatives.

I have nothing really to say on other macro considerations at this time.

Conclusions and next review

It is still obviously a hold.

I will do the next monthly check in early/mid September and then we expect the half year results in mid October, which might provide the first material challenge to my rules.

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