Author: rogerwlawson

Alliance and Witan Merger – Is It Wise?

Two large generalist global investment trusts – Alliance (ATST) and Witan (WTAN) have announced a proposed merger. Alliance is slightly larger with assets of £3.8 billion versus Witan at £1.8 billion. Both have relatively low charges – for example Alliance has an ongoing charge of 0.62% according to the AIC and one justification for the merger is that charges will reduce further on a larger combined portfolio. The relative portfolios already overlap to some degree.

Alliance Trust has produced better performance over the last 5 years and have done very well since the revolution in management a few years back with a particularly good performance last year – NAV Total Return up 21.6% and ahead of their benchmark.

I can see why the merger might be of benefit to Witan shareholders but as a holder of Alliance Trust shares I can see little benefit. A marginal reduction in charges will be offset by the negative aspect of having a larger portfolio. Stock-picking gets more difficult the larger the portfolio becomes.

I shall probably be voting against the merger on those grounds.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Is U Dafter than X?

The latest news is that UKTV Play is changing its name to “U”. UKTV Play broadcasts several free to view channels such as Yesterday which I watch occasionally. But the change of name is surely as daft as Elon Musk renaming Twitter as “X”. 

A single character name is a very poor trade mark – unregistrable and hence unprotectable in the UK I believe. It’s also unprotectable from rip-off imitations such as “UTEEV” unless “passing-off” was alleged which gets you into more complex trade mark law and big legal bills.

One of the first principles when selecting a trade mark is that it should be both unique and memorable. What is memorable about “U” or “X”, when everyone knew what Twitter was and could locate it easily?

The owners of UKTV Play should surely have employed some branding consultants before deciding to change name.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Failures in IT Services – They Should Not Happen

The big new story yesterday was the closure of Manchester airport due to power failures. All flights were cancelled on Saturday from two of the terminals with passengers left stranded and nowhere to go for many hours.

Now as a former IT manager I can advise this simply should not happen. Even 40 years ago when I ran the IT operations of a major UK retailer the object was to keep our IT systems up and running for 24-hours a day with minimal downtime and that was achieved. We had disaster recovery plans to cope with hardware and power failures. We needed 100% uptime to enable us to process shop orders. We were never out of action for more than a few minutes.

The NHS is plagued with similar problems of lack of provision for IT failures. The latest news is that the service who provide blood testing to Guys Hospital have been subject to a ransomware attack and have exposed my personal information on the web, presumably after they refused to pay. The service was out of action for some days. Did they not have a back-up and recovery plan they could invoke?

The exact reason for their exposure to a ransomware attack has not yet been revealed but it is probably due to hacks of password access or insecure web systems. Intercede (IGP), in which I hold shares, can improve the security of personal log-ins via identity verification which is essential for any large organisation which is vulnerable to attacks. The failure of the NHS to protect its systems and that of its sub-contractors is surely down to incompetent management which is a persistent theme in the NHS.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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It’s Decision Time

As I have a postal vote for the General Election, it was time to decide who to vote for. I covered some points from the main party manifestos in previous blog posts. None of those manifestos excited me and I have now read the Reform Party manifesto (or “Our Contract With You” as they call it – see link below).

There is much in there that I endorse and little that I would disagree with so I have voted for the local Reform candidate. They may not win in my local constituency or win enough seats to have an impact in Parliament in the coming election but I would like to see Reform continue to develop so as to have a major impact on UK politics. They do have a number of good leaders with sensible views – I include Farage, Tice, Habib, Bull, et al.

In conclusion Reform has a better platform than the other major parties and a more practical one. So I have voted for them.

Reform Party manifesto: https://assets.nationbuilder.com/reformuk/pages/253/attachments/original/1718625371/Reform_UK_Our_Contract_with_You.pdf?1718625371

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Taxes, General Election Promises and the UK Stock Market

The Labour party will need to raise taxes if they want to meet their manifesto promises. That particularly applies to Capital Gains Tax which is always a good socialist target for those who think it is “unearned” income that people have not had to work hard to obtain which is blatantly untrue if your wealth comes from developing a business before you sold it. According to Rachel Reeves they have not even ruled out taxing the profit on the sale of your own home which has traditionally been excluded.

This is not such a daft idea as it might seem at first sight. People in the UK rely way too much on housing wealth to provide for their retirement instead of investing in a business. That is one reason why housing is so expensive – people buy houses as investments rather than simply as somewhere to live. So capital gains tax on houses would help to change the excessive devotion to housing wealth in the UK. It might also free up some underused space in big houses. But it would create enormous problems if the gain was not index-linked. With capital gains tax at 40% it would make it impossible to move house in pursuit of a new job if you had owned a house for a few years. Reducing labour mobility is never good for the economy.

There is a very good article by Michael Fahy on why London-listed small caps have dropped by a third over the past 20 years in the Investors Chronicle. This is indeed a major problem. Pension funds and institutional investors have been selling equities, particularly in recent years. There is a quote at the end which reads: “You can’t have deep and effective capital markets unless you have deep effective pools of long-term capital. We have big pools of long-term capital in the UK – the second largest in the world. They’re just invested in the wrong place”.

This is indeed the major issue which needs tackling and it arises from the regulatory structure of pension funds which has made the managers so risk averse that they shun equities.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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A Quick Review of the Main Party Manifestos

It’s not yet time to make a final decision on who I will be voting for in the General Election but most of the party manifestos are now available. So I thought I would do a quick review.

The Conservative Manifesto is here: https://public.conservatives.com/static/documents/GE2024/Conservative-Manifesto-GE2024.pdf . At 80 pages long not many people will be reading it. Instead they will rely on sound bites in national media such as television channels and the views of their friends. That’s except those who always vote the same way as they have done historically.

The big problem with the Conservative Manifesto is that it makes promises to fix a lot of things which the Torys have had 14 years to improve but have failed abysmally to do so. Massive levels of immigration have damaged housing provision and the NHS is a shambles despite more expenditure on it. There simply aren’t enough doctors, nurses or beds to cope with a growing and more elderly population. There is no revolution in the management of the NHS which is what is really required.

Even when they mention a positive policy of “Backing drivers” they have their facts wrong. They say “While 20mph zones can help improve road safety in residential areas or outside schools, misuse undermines public trust and risks congestion and pollution”. There is no evidence they improve road safety, but there is certainly a lot of misuse of such schemes. The Tories fail to make a clear commitment on how they would stop local councils from abusing such schemes as LTNs with the object of tax raising.

There are some good policies in there, such as “introducing a legal cap on migration to guarantee that numbers will fall every year….”, but it is very unclear how they would make that stick. Likewise they say they “would end frivolous challenges that frustrate infrastructure delivery by amending the law so judicial reviews that don’t have merit do not waste court time”. Easier said than done and who is to say which have merit and which do not? Lawyers would be good at arguing on that.

There are many good things in the Tory manifesto but do we trust them to deliver? I don’t on their past track record and Rishi Sunak is more of a “consensus” politician than a forceful leader who can push through tough policies and get them implemented. In reality the Civil Service seems to be out of control and not implementing Government decisions.

The Reform Party has now become a serious challenger based on the latest YouGov opinion poll which puts them ahead of the Conservatives. You can see some of their manifesto commitments here: https://www.reformparty.uk/policies although it is apparently still a work in progress.

The key issues they identify in the NHS are: Record waiting list crisis; Staffing crisis; Ambulance and A&E crisis; Excess deaths crisis no one wants to talk about; Amongst the Worst outcomes in the developed world. Among their solutions are: NHS acquire extra operational and appointment capacity from not-for-profit providers and the private sector; tax relief on all independent healthcare and insurance – if you can pay more, let’s encourage you to do so. I would support those proposals to ease pressure on the NHS – faster better care for all they claim.

They provide some useful data on doctors, nurses and NHS beds to support their arguments and clearly want to scrap Net Zero commitments without spelling it out. In total the declared policies to cover defence, transport and many other areas are not there yet. Will we see them before the election or will Reform simply expect us to vote for change while avoiding the Labour Party and others?

The Labour Party Manifesto is here: https://labour.org.uk/change/ . They make lots of good suggestions about how they would improve the NHS without necessarily taking into account the practicalities of doing so – such as funding and staffing needs.

They say “Britain needs a new approach: mission-driven government”. Sounds good but what does it mean in practical terms?

They argue that “The National Health Service needs to move to a Neighbourhood Health Service, with more care delivered in local communities to spot problems earlier. To achieve this, we must over time shift resources to primary care and community services”. But big specialist hospitals are known to provide better services and kill fewer people. Diluting the specialist expertise will not help. This is a populist policy similar to having more neighbourhood police on the streets which is also in their manifesto, without much consideration of the practicalities and effectiveness of a new structure.

But the Labour Party certainly seem to have given more thought to what is in their manifesto so the document is more polished than the ones mentioned above.

As the policies of the major parties are so ill-defined it really comes down to who you will trust to do the right thing when they are in power!

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Politics and Media Coverage

It’s the start of a new week covering the run up to the General Election and there are a few things to comment on. Europe seems to be moving to the right – particularly in Germany and France but also in the UK with Reform getting more votes based on opinion polls. But the national media, particularly the BBC, is wallowing in nostalgia for the good old days when we won World War II. Is it not time when we spent less time on this now very historic event and looked more to the future?

Personally I could not care less if Rishi Sunak chose to miss part of the D-Day celebrations. He needed to ration his time and spend it on more important matters.

The main UK political parties are talking about policies that they feel will be attractive to the public – more police, more prisons, an attack on anti-social behaviour, National Service to instil responsibility in teenagers; but until the full party manifestos are published (hopefully this week), it may be premature to comment.

The key issues that need tackling are surely uncontrolled immigration, housing provision and the capacity of the NHS – the last two of those made much more difficult by the first. That is why some political parties are doing better than others.

But the Labour party has not changed – they are now promising to save more jobs at Port Talbot by keeping one blast furnace in operation when Tata is losing £1 million per day at present on its UK operations. Keeping unprofitable steel making businesses afloat with Government hand-outs is as mad as keeping coal mines open in the 1980s. Mrs Thatcher put a stop to that nonsense and we need someone with courage to do the same now for steel making in the UK plus another Dr Beeching to rationalise the UK rail network which consumes billions of pounds in subsidies every year.

But the national media instead like to spend time on trivia – such as the unfortunate death of Dr. Mike Mosley – a minor TV personality who was unwise enough to go for an arduous hike in 40 degree temperatures and with no phone.

I will defer a final decision on who I will be voting for until I have read the manifestos and seen how all the hand-outs are to be paid for when the real priority is to cut taxes not increase them.

The Tories have promised to reduce the burden on motorists by outlawing the London ULEZ expansion among other things. But as others have pointed out, they could have done that two years ago but didn’t. The same applies to their promises to reduce immigration. That is one reason why Reform are doing so well.

When you have the power to change things, you have to use it!

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Mike Lynch Acquitted

Dr Mike Lynch has been acquitted of fraud in a California Court over the alleged misleading accounts of Autonomy. This has been a long running legal case after the acquisition of Autonomy by HP who alleged Mr Lynch and his co-defendants illegally inflating revenues by backdating some of Autonomy’s contracts, using “round trip” deals to compensate customers for making purchases, and hiding the fact that some of its high-margin software revenue was really coming from unprofitable hardware sales (software revenue is typically valued higher than hardware revenue).

I have made negative comments on Autonomy’s accounts in the past but it would not be appropriate to discuss why the jury reached the latest verdict. Without studying all the evidence presented in court it is very easy to jump to the wrong conclusions based on media reports.

But after 13 years that this saga has been running, it will certainly be the case that directors of software companies operating in the USA will be a lot more careful about their revenue recognition practices which is surely a good thing.

For more information on the background to this legal case see:  https://www.ft.com/content/62b6af38-ff48-43a9-9403-2a18a1ddca3d?

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Raspberry Pi Listing and Nigel Farage

Raspberry Pi who sell very cheap single board computers are proposing to list on the main UK stock market. They have issued a “Pathfinder Prospectus” which is available from several brokers, although a lot of the detailed information needed to evaluate the business is not there.

However I thought I would give it a quick read although I hardly ever invest in new issues. I did buy one of their computers for my oldest grandson some years back and had a play with it. At the time it was clearly aimed at the educational/hobbyist market but has also been used to embed in other commercial IOT systems. You can use a Raspberry Pi product to learn programming although as a past programmer in my early career I am always sceptical about teaching kids to learn programming – it may put them off software development for life. Learning BASIC just seems very tedious and prone to simple grammatic errors but it teaches you that complex programs are built up from simple constructs.

The last time I wrote anything in BASIC was for my MBA course over 40 years ago but unlike most people on the course who had no IT background I managed to impress the course tutor with my perfectly crafted mortgage calculation program.

Raspberry Pi have come a long way in the last few years. They appear to be profitable with revenue of $265 million last year. The market value is likely to be over $500 million. The company which owns the IP was founded as an educational charity back in 2008 and it has partnerships with ARM and Sony so the legal structure is complex and it’s worth reading the “Risk Factors” carefully. The charity is still the ultimate parent company. It does not manufacture the hardware it sells.  I suspect it could be a popular listing as there are few high-tech companies that have built a market niche in the world like Raspberry. But the company has many competitors and no obvious barriers to entry in the markets it serves.

Investing in new IPOs is a recipe for underperformance as the listing price is based on optimism and opportunistic timing. But it’s certainly worth reading the Prospectus.

Political news. The big political news in the UK is that Nigel Farage is taking over leadership of the Reform Party and is standing for Parliament on the 4th of July. In a recent public opinion poll the Reform Party was only 2% behind the Conservatives so do stand a chance of winning some seats. And of course damaging the Tory vote.

I have met Nigel Farage a few times and he does make good speeches so I wish him the best of luck. Whether he can get elected is difficult to judge as he is divisive personality in some ways. Some people don’t like charismatic persons.

The policies of the Reform Party are sound and Richard Tice has been doing a good job leading the Party so I hope he will stick around.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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IHT Business Property Relief on AIM Shares and Computerised Brain Implants

There were a couple of interesting articles in the FT today. The first was on the issue of Business Property Relief on AIM shares. You only have to hold them for 2 years to get 100% IHT tax relief. Some people consider that too generous and based on FOI Act requests it has been discovered that 68 estates obtained £1.8bn in relief in 2020-2021. In other words, relatively few people who might be classified as very wealthy obtained the relief.

This relief was intended to help family led businesses to remain in the control of the family the same as it is available for unlisted companies. There are a number of possible problems with removing this relief. Firstly it would discourage family controlled businesses from listing on AIM and hence limit their ability to raise equity for expansion. Removing the relief would undermine the careful long-term tax planning of wealthy individuals and there might be a rush to sell AIM holdings thus damaging the AIM market which already has a few problems with poor historic performance.

As a potential beneficiary of this relief I would be very opposed to any change in this area and a desire to raise more tax is hardly a justification for restricting the relief. It would make investing in AIM shares very unattractive as they are already very risky and generally have given poor returns.

The other interesting FT article was on Computerised Brain Implants and explained how they might help disabled people to walk again – for example those with damaged spinal cords. Even Elon Musk has an interest in this new technology field as it is seen as a possible way to enhance people’s intelligence and memory.

I might have found it useful myself a few years ago when I suffered from Intensive Care Neuropathy and had to learn to walk again. Whenever I watch the film Reach for the Sky, which I did again last week, I am reminded of this. This is the story of Douglas Bader who lost both legs in a flying accident but learned to walk and fly again using artificial legs. He rejoined the RAF and fought in the Battle of Britain. A truly great film from 1956 and the story of a very brave man.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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