Yesterday I attended the Annual General Meeting of Elecosoft (ELCO) as a shareholder. Elecosoft produce software products for the building/construction industry. It’s a fairly new purchase of mine so I thought I would go along and get an impression of the company and its management.
The meeting was held in the City of London at the convenient time of 12.00 noon and there were about 20 shareholders present. That’s more than I expected given the size of the business (market cap only £56 million). The share price has been rising recently after the company now seems to be growing rapidly after a period of relative stagnation. But like many software companies they capitalize a lot of software development which will not please some investors. They do have substantial recurring revenue from maintenance contracts which is an aspect of software businesses I always like. The company issued a positive trading update on the morning of the AGM.
The Executive Chairman, John Ketteley, is a former merchant banker apparently. He commenced by welcoming attendees to the 78th Annual General Meeting of the company (did I hear that right?), and that he found that easy to remember as he was also 78 years old. Yes this is a somewhat unusual leader for a software business.
The Chairman then launched straight into the formal business of the meeting without inviting questions – not a good sign – so I had to interrupt him. Questions should be taken first.
I asked why the company was requiring shareholders to “opt-in” specifically to receive a cash dividend rather than a scrip dividend. I have never seen this before in any company. The answer given was because those in nominee accounts had difficulty in taking up scrip dividends instead of receiving cash. But I had to tell him that as some of my holding was in a SIPP I had queried how they were going to handle this option and was advised that they took up the cash option for all investors in such cases, which rather defeats what the Chairman was trying to achieve. Some shareholders, like me, tend to prefer cash dividends as otherwise it can get complicated keeping track of one’s holdings. Only those with large direct holdings (not in tax free ISAs or SIPPs) are likely to want to take a scrip dividend.
There were a few questions from other shareholders. Might the company consider moving to the main market from AIM (or moving back as it turned out)? The Chairman saw no benefit in doing so and two shareholders say they would be definitely opposed. There are good tax and other benefits for shareholders from being on AIM. Another question was on moving to SAAS platforms – it seems some of their software is still PC based, but new development is moving to the web.
I would not say the Chairman handled the meeting particularly well despite his experience. Perhaps his age is showing. I did speak to him directly after the meeting and asked about the high number of management changes in the last year and whether he was considering retiring. He indicated that he needed to rebuild the team and that he was now very confident he had a good team in place. But succession planning does not seem to be a priority.
But it was a useful and interesting AGM, as many are. They often turn out to be more interesting than expected. There was also a goody bag of useful kit – a baseball cap (something us baldies can always use as I said to the Chairman), a UBS Memory Stick and a Notebook.
Let’s now consider two companies at the other extreme in terms of size. Firstly British Land (BLND) – a property company with a market cap of about £7 billion. This company has a large portfolio of City offices and retail stores. I first invested in this company in December 2015 when I bought a few shares at 795p on the basis that the falling prices of property companies due to fears over Brexit were overdone. The share price is now 695p so not exactly a great initial purchase!
But the share price has been recovering and in fact taking into account dividends received I am now at breakeven after some more purchases when it became even cheaper. But it has certainly been a poor investment in comparison with other property companies I hold (e.g. big warehouse providers). Any company with an interest in the retail sector has suffered and British Land has been selling such properties. That has reduced their income and impacted profits.
But I do like to have some more defensive large cap stocks in my portfolio to offset the more speculative small cap stocks such as Elecosoft (I run a “barbell” portfolio in essence). When I first purchased British Land it offered a yield of 3.6% and was at a discount to net asset value of 10%. The prospective yield is now 4.4% and the discount is over 25% even after recent share price rises, which is unusual for a property company.
British Land seemed to adopt a defensive stance although City centre office values have not been declining as expected. The company has been reducing debt with LTV (loan to value) now down at 28% based on the full year results published yesterday. Perhaps the lesson here was not to buy shares that start to look cheap unless they become really, really cheap. But non-executive director Preben Prebensen just spent £140,000 on buying shares so perhaps the future is looking brighter.
Apple Inc (AAPL) is the largest company in the world with a market cap of $919 billion. That’s still ahead of Amazon. I don’t hold Apple directly although some indirectly in the investment trusts I hold. Some people have questioned whether Apple can continue to grow and maintain its profit margins when a lot of the revenue comes from iPhone sales. Surely the mobile phone market is now quite mature with everyone having one (indeed some of us have two) and new models not providing much in terms of new features?
I can possibly provide some light on this having just upgraded from an iPhone 6 to an iPhone 8. They look and weigh the same. I only changed because of contract expiry and a concern that the battery was wearing out, but in fact I think the poor battery life was down to using a smartwatch which connects via bluetooth. The new phone has very similar battery life. Perhaps the camera is a wee bit better, but then I don’t use it a great deal. So in essence, I think I have wasted my money in upgrading. This surely brings into question how long Apple can continue to grow unless some of their other products take off. Their smartwatch has not been as successful as might have been expected – smartwatches still seem to be a minority interest.
Finally let me say some more on the issue of the abuses in social media which I covered in a previous blog post. Just to clarify one point, when I suggested a Government inquiry into social media, I was not necessarily advocating more legislation. I think laws can be very ineffective in mandating or enforcing social norms. For example, one existing problem is that libel laws are pretty useless to most people – only the wealthy can afford to pursue libel cases and even if they do, enormous costs end up being paid to lawyers while the resulting remedy may be ineffective. Making them criminal offences would be no more likely to be effective partly because the police have no resources to enforce most existing laws.
I think there needs to be an inquiry into the causes of the breakdown in social norms about what is and what is not acceptable behaviour. The fact that folks can post garbage anonymously is one issue to look into. Is education a solution perhaps? Or perhaps another solution might be to enable “trusted” reviews to be invoked – for example Wikipedia seems to be good at ensuring reasonably accurate and responsible public information and commentary even though in essence there is complete freedom for anyone to post there. Moderation of posted material is obviously advantageous which some platforms do not do, or do in a very limited way. Simply the publication of a “standard” or set of norms for public forums (as Wikipedia also has of course) might assist. A combination of approaches might be the solution, and perhaps more research into the causes is required. Those are the issues that a public inquiry might look into and provide some recommendations upon.
At present there is a focus on making the national press more responsible (the Leveson inquiry and its recommendations) while ignoring the new world of social media, blogging sites and other forums. They need to be embraced also as there is no longer a firm dividing line between media. Perhaps a social media regulator is required to take responsibility for and provide guidance in this area, as the Information Commissioner does for Data Protection? But with a lighter touch than we are getting with the GDPR rules which seem to be another example of excessive regulation from the EU which is unexpectedly imposing major costs on even the smallest organisations. I am not convinced the new rules will stop the spam that we all receive.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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