Babcock Price Fall, Segro Placing, TR Property and EKF Diagnostics Virtual AGM

I said in a previous blog post “that I tend to avoid FTSE-100 companies as their share prices are driven by professional analysts’ comments, by geo-political concerns, by general economic trends and by commodity prices. You can buy a FTSE-100 company and soon find it’s going downhill because one influential analyst has decided its prospects are not as they previously thought”.

Indeed that is exactly what happened after I made a recent purchase of Babcock International (BAB). Soon after Shore Capital Markets published a note that said it would be skipping its final dividend. The share price promptly fell by 7% on that day even though they claimed to “retain a buy stance” on the shares.

The last announcement by the company covering the subject of dividends on the 6th April simply said “The Board will consider the final ordinary dividend for this financial year ahead of our full year results announcement [due on the 11th June] taking into account developments over the next two months”. Do Shore Capital have inside information or are they just guessing? Or did they consult the company first? If they were given any relevant steer on this matter, the company should have issued a statement on it. Regardless it’s somewhat annoying even if some moderation of the dividend might make some sense and everyone else is cutting them. I would not be too concerned about the loss of dividend because I never buy shares for dividends alone, but I don’t like to suffer capital losses.

Yesterday property company Segro (SGRO) announced a placing “to take advantage of additional investment opportunities”. There was no open offer but private shareholders could participate via Primary Bid if you were willing to accept the price agreed with institutional holders. The shares issued represented 7% of the existing capital and the placing price turned out to be 820p, a discount of 4.5% to the previous close. I declined to participate, mainly because I have enough of their shares already. One has to ask why they could not have done a proper rights issue as there seemed no great urgency in the matter.

Last night I watched a presentation by Marcus Phayre-Mudge, fund manager for TR Property Investment Trust (TRY), on the internet. This tended to simply confirm my view that this is a well-managed fund which is withstanding the Covid-19 epidemic well. It has avoided many of the property sectors most damaged by the virus. It has a pan-European focus when internet retailing in the rest of Europe is still well behind that in the UK. He said “retailing is in an accelerating structural shift” but he does not “believe the end of the office is nigh”. A very useful and informative presentation via PI World even if he got cut off at the end due to some unknown technical issue. You can see a recording of it here: https://www.piworld.co.uk/

This morning I attended the virtual AGM of EKF Diagnostics (EKF), a medical products manufacturer mainly for diagnostic applications. There were about 12 attendees via a Zoom conference call and it worked quite well. Attendees were asked to register and submit questions in advance, although there was time to ask impromptu questions in the meeting also which were invited at the end.

Voting was done on a poll so the results of that were displayed first. The meeting was chaired by CEO Julian Baines.

I submitted a question about their investment in Renalytix AI (RENX) and its progress, which had been recently listed. I suggested progress was slow but the response was that progress had not been slow at all. However the Covid-19 situation has delayed tests in hospitals in the USA.  Progress on approvals is significant and revenues are expected shortly.

There was a question on the ramp-up of sales in McKesson and the answer was they had slowed significantly. But the company overall was only about 10% down on core products. They had seen business coming back on line in May and June.

Another question related to the Longhorn product which was claimed to be “the world’s safest sample collection product” (very relevant to virus sample collection of course). They are selling millions of these tubes in the USA. There is only one competitor who is allegedly infringing their patents – they are speaking to them “robustly” at present.

There were several other questions and answers of no great significance, but it was certainly a useful meeting and a good example of how any small/medium company could run a virtual AGM very easily. Why do they not do so?

My thanks to EKF for running such an event, which took less than 30 minutes in duration.

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

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Scottish Mortgage Investment Policy and LSE RNS Announcements

The Scottish Mortgage Investment Trust (SMT) have issued their Annual Report and AGM Notice. Readers who hold this trust will not need reminding that it has shown a remarkable performance over the last few months. That’s when the stock market has been decimated by the Covid-19 epidemic and the share prices of many other similar trusts and of the companies they hold have fallen sharply.

Last year SMT achieved a total share price return of 12.7% to the end of March and in the current year it achieved a share price increase of 23% to the 12th May. How has it achieved this return? Primarily by holding “hot” stocks like Tesla, Amazon.com, Illumina, Tencent and Alibaba to name the top five holdings. Over a third of the current holdings are unlisted ones. They claim the flexibility to invest in such companies “has been an important driver of returns over the last decade”. I do not dispute that but they are now proposing to change the “investment policy” of the company to raise the maximum amount that can be invested in such companies from 25% to 30%, based on the proportions when invested (that is why they have managed to already exceed that figure).

Is this a good idea? Should investors support it? Bearing in mind the travails of Neil Woodford where the funds he managed had large numbers of unlisted holdings, is it wise one has to ask?

Personally, I do not think it is and will be voting against. I am not suggesting that Baillie Gifford, nor the individual fund managers they employ, will make the same mistakes as Woodford. Just that valuing unlisted companies is a different matter to that of listed companies where there is always a market price. In addition unlisted holding are very illiquid in nature. Disposing of them can be very difficult. Private equity investment trusts often trade at a considerable discount to their net asset values for those reasons, while SMT currently trades at a premium of 2%.

Retaining the existing limit would prevent more unlisted investments being made, unless some of the unlisted holdings are disposed of, but that may be no bad thing given the current market enthusiasm for them.

I also note that Prof. John Kay is retiring from the board after serving since 2008. Much as I admire the wisdom of Prof Kay, I welcome this change. I hate to see directors of trusts serving more than 9 years and ignoring the UK Corporate Governance Code, as they so often do.

LSE RNS Announcements. I use the London Stock Exchanges free service to deliver RNS announcements via email. This morning it suddenly changed to a new format without prior notice. The first such notice I received was not in the best format in several ways. Wasted space in a right-hand margin, and no way to print just the announcement text and not the excess.

The second announcement I received just led me into an incomprehensible dialogue. I have sent them a couple of complaints.

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

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Unsatisfactory Avast AGM, and Designated Accounts

I “attended” the Avast (AVST) Annual General Meeting today. This was of course held on-line using Zoom with only one director in physical attendance (Warren Finegold) who chaired the meeting. Zoom seems to be becoming the de facto standard for on-line meetings.

The Chairman of the company, John Schwarz, gave a brief presentation backed up by some slides. To summarise, it was another strong year of growth and profitability. A new CEO is now in place. EBITDA was up 8% with strong cash generation and hence there was a steady reduction in debt. They added 400,000 paying customers making a new total of 12.6 million. There were numerous new product releases and dividends are up 8.1%.

But nobody could raise questions at the meeting. In addition, although shareholders could submit questions in advance, these were not answered at the meeting. Overall this was a totally unsatisfactory way of conducting an on-line AGM.

Votes were taken on a poll to be declared later, but the proxy counts were quickly flashed on the screen. I noticed Belinda Richards managed to get 13.7% of the independent shareholder votes against her. I wonder why.

The whole meeting was over in 15 minutes.

Apparently customers of The Share Centre have been notified that there are new terms and conditions which cover the future use of designated nominee accounts. This will be a major step forward in investor protection and shareholder enfranchisement. Most brokers, like the Share Centre, use only “pooled” nominee accounts where your holdings are jumbled up with those of all their other customers. It relies on the brokers sorting out who owns what, which can sometimes prove to be not at all easy if a broker gets into financial difficulties. Designated accounts contain both the broker and end customer identification on the share register and hence are by far preferable.

It will be interesting to see how they support such accounts, and whether it will be affected by the proposed merger with Interactive Investor. This was approved by a vote on the 8th April but there has been no further news.

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

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Is it Elecosoft or Eleco? And Electronic Meetings.

One company I hold is building software company Elecosoft (ELCO). I have just received the notice of the Annual General Meeting and one oddity is that they have a resolution on there to change the name of the company to Eleco.  But surely the company used to be named that but amended it when they changed to focus on the software side of the business. So why the reversion? No explanation is provided so far as I can  see.

Another confusion in the notice is that there is a proposed change to the Articles to permit electronic general meetings. That will be solely at the discretion of the Chairman but reading the detail it is not at all clear how electronic meetings are supposed to work. For example, they still include provision for a “show of hands” vote but how does one show one’s hand electronically?

As with many other companies, they are not permitting anyone but two people to attend the AGM. You may be able to attend electronically but no questions are possible. But they may be hosting an event later in the year where shareholders will be able to ask questions in person.

It would certainly be helpful to have clarity on the above issues, and as most companies are dispensing with physical meeting, at least temporarily, it would surely be a good idea for the FCA to lay down some regulations on how electronic meetings should operate rather than letting every company to make up their own.

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

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Ocado Trading Update, Coronavius Apps, EMIS AGM, IDOX Pay, Segro Dividends

Ocado (OCDO) issued a trading update today, and it shows their joint retail venture with M&S is benefiting from the coronavirus epidemic. In the second quarter revenue was up 40% on the prior year. They have had to ramp up capacity significantly to meet this demand, and they have suspended delivery of mineral water so as to cope with the needs of additional households. The announcement gives the distinct impression that they need more warehouses (or CFCs as they call them).

On a personal note, my family has been using Sainsburys’ on-line delivery system and as a “vulnerable” person we get priority. The result has meant neighbours asking us to shop for them. But at least I don’t need to accept the offer of food parcels sent to me yesterday by the local council!

There has been good coverage of coronavirus apps in the national media in the last couple of days. This UK Government has chosen one that relies on a centralised system and it looks distinctly insecure and not good enough to protect privacy. Robert Peston pointed out another flaw in it that someone could maliciously chose to report themselves as suffering from symptom thus causing everyone they might have come into contact with in the last two weeks to self-isolate. I am not at all clear why the Government has chosen this approach, which may deter take-up anyway, when Google and Apple are implementing a different system with fewer privacy concerns. That has been adopted by other countries so there will be problems with international travel.

EMIS (EMIS) held their AGM today. Nobody allowed to attend and no on-line session which is not good enough for an IT company. EMIS operates in the healthcare sector. Recurring revenues have held up but new business sales have been lower. They still expect to meet full year expectations.

However, they did get 15% of votes AGAINST the remuneration report. That included my votes as a holder as it looked a typical complex scheme with total pay too high in relation to the size of the business.

Another example of a poor pay scheme is that of IDOX (IDOX), an AIM listed company that operates mainly in the provision of software to local authorities. Reviewing the Annual Report, the Chairman acquired 585,000 share options last year (current price about 40p, exercise price 1p) based on a share matching scheme. The CEO acquired 3,512,400 share options under an LTIP with an exercise price of 0p (nil). The CFO also acquired 1,000,000 share options, again with an exercise price of 0p, but with a performance condition of the share price being greater than 45p. In summary I think this is way too generous so I have voted against the remuneration report. The AGM is on 28th May, so other shareholders have plenty of time to submit their votes.

Another item of annoying news I received recently was from Segro (SGRO) the property company. They will no longer be sending out dividend cheques from next year. I still prefer dividend cheques for my direct holdings because it is easy to check that the dividends are received and you know exactly when the money is in the bank because you pay them in yourself.

However looking at a report published by the Daily Telegraph last year, it quotes registrar Equiniti as saying that up to 30% of dividend cheques do not get presented which is a rather surprising statistic and must create a lot of extra work. Kingfisher, Marks & Spencer and Vodafone have already stopped dividend cheque issuance, forcing you to give the registrar your bank details. I may have to accept this as a reasonable change even if I don’t like it.

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

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Porvair and Segro AGMs

I “attended” the Annual General Meeting of Porvair Plc (PRV) this morning. This was of course not a conventional meeting with minimal numbers there in person. But there was a telephone conference call before the legal meeting to enable shareholders to ask questions, although there were less than half a dozen investors who chose to dial-in.

The Chairman, John Nicholas, made some brief comments to begin with. He mainly just summarised the recently issued trading statement. But he did say all plants were open and they expected to be modestly cash generative for the balance of the year except in extreme circumstances. There was no AGM statement, so we then went straight into questions.

One investor asked about the impact of the problems in the aviation sector. Answer: too early to say.

I asked about the impact of the oil price decline, which in case you had not noticed briefly went negative yesterday. There was no clear answer to that but their recent acquisition Royal Dahlman obviously might be affected.

I also asked whether they could do something about the extreme volatility of the share price and the wide spread. All shares are volatile of late but Porvair is one of the worst in my portfolio and the spread this morning was 7%. That is unusual for a company of this size. They will talk to their broker Peel Hunt about this.

Another shareholder suggested they should do more to raise awareness of the company and it was admitted that they do not spend much time on promoting the company to investors. It might certainly help liquidity if they did so.

As the AGM itself was done on a poll with all resolutions passed, the “meeting” was over in 15 minutes. However it was still a useful event.

The other AGM held today which I could have attended in normal circumstances was that of Segro (SGRO). That was at exactly the same time as Porvair, but they also did not provide any way for shareholders to attend electronically. Questions could be submitted in writing via email but that is hardly a good alternative. I hope they publish the questions and answers.

Note that ShareSoc have just published a blog post concerning the letter written by ShareAction to FTSE-100 companies complaining about the lack of provision of virtual AGMs this year by many companies. Their complaints are very justified. The technology is simple to use and a simple conference call would suffice for many companies.

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

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Ten Entertainment Placing and Porvair AGM Arrangements

Ten Entertainment (TEG) did a placing yesterday. It was done at 155p to raise £5 million and represented about 5% dilution. Although I hold some of the shares I was not too unhappy because I only have 50 shares left worth less than £100 having sold most of my holding at 270p and higher. I suspect this is one of many placings we are going to see in the near future to enable companies to strengthen their balance sheets and avoid going bust. TEG runs bowling alleys which are now closed so as I pointed out yesterday, valuing such companies is getting very difficult.

Porvair (PRV) another of my now miniscule holdings have made an announcement about their Annual General Meeting (AGM). It’s now going to be held in their offices in the remote location of Kings Lynn. Although the company points out that under its Articles the company cannot hold virtual meetings, it advises shareholders not to attend in person. Instead they are asking shareholders to vote via proxy and are planning to provide a conference call facility to enable shareholders to ask questions.

This seems to be an eminently wise approach that should be adopted by other companies until the virus epidemic is over. I will certainly not be attending any physical meetings for the foreseeable future being one of those quarantined on the basis I am exceptionally vulnerable. It’s equivalent to being on gardening leave, which I did some of yesterday.

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

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