Abcam, Pay and Voting

As a long-standing shareholder in Abcam (ABC), I have just received the Annual Report and I am not happy.

Abcam rather surprised the market when they issued their preliminary results which showed a massive investment in a new Oracle IT system was in difficulties. Clearly the project is over-budget and over-schedule. Costs are ramping up in other areas also and the result was a lowered broker forecast and an instant collapse in the share price – down over 30% at one point on the day. It’s been recovering since but it certainly looked like a case of mismanagement of the IT function. As a former IT manager of a large public company, I have seen this kind of thing before so I am none too impressed. Massive commitments to a big-bang approach to a new IT system which is sold on the basis that it will solve all your problems, but rarely does. So that will be one thing to raise at the AGM which I plan to attend.

But remuneration will be another issue to be questioned. The CEO, Alan Hirzell, seems to be doing a good job but his pay last year was £1.8 million. The company is now proposing a new Remuneration Policy which will increase the maximum potential LTIP award from 150% to 400%. In my view this is outrageously generous – I normally vote against any bonus scheme that awards more than 100% of salary as it promotes risky behaviour of the worst kind as we saw in the financial crisis with banker’s bonuses. The CFO will also get an LTIP with a maximum 200% bonus. Although there will be performance targets the justification given is that it will “promote the underlying philosophy of share ownership among our Executive Directors and reward the sustainable delivery of long-term profitable growth”. Hogwash is my comment.

So I will be voting against Louise Patten who is Chair of the Remuneration Committee as I did last year, and against her two colleagues, Mara Aspinall and Sue Harris who also have too many “roles” at other organisations in my view – contrary to ShareSoc guidelines. Also I will be voting against the new Chairman, Peter Allen, who should know better than to allow this kind of pay package to go forward. Plus I will be voting against the Remuneration Report and Remuneration Policy recommendations. In addition, there is a resolution to approve a change to the 2015 Share Option Plan for staff which permits nil-cost awards which seems unjustified so a vote against that also.

Note that they are also introducing a new all-employee share purchase plan which is not even being put to shareholders – not required under AIM rules they say.

Incidentally Louise Patten has an interesting career history. To quote from Wikipedia “In 2006 she started as a non-executive director of Marks & Spencer plc. As chairman of the Remuneration Committee, she was responsible for approving a bonus scheme which was criticised for making it easier for executive directors to change the associated growth targets”. She was also a non-executive director of Bradford & Bingley when the company failed and was nationalised in 2008. There may be more interesting information that I could not see because in Google a search for “Louise Patten” retrieves only a few entries with the statement “Some results may have been removed under data protection law in Europe”.

I suggest other shareholders vote against the aforementioned resolutions likewise.

But it is easy to vote if you are on the register of the company and have been sent a proxy voting form. Equiniti, the company’s registrar, do provide an easy on-line voting system unlike other registrars, although for some peculiar reason they do not advertise the fact this year. All you need is the three numbers on the voting card and you can vote here: https://www.shareview.co.uk/views2/asp/VoteLogin.asp . No need to register or remember your log-in and password – just vote. As I said to a Link Asset Services representative at another AGM last week, why don’t they provide a simple system like that? They just wish to collect email addresses in my view by having people register and there is no security issue as they claim as it’s very unlikely that anyone would intercept the proxy voting card.

Registrars do need regulating by the FCA in my view, as I have said before, to put a stop to this kind of nonsense.

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

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Whitewash at Gordon Dadds AGM, and Insolvency Warnings

I attended the Annual General Meeting of law firm Gordon Dadds Group (GOR) this morning. The company was tipped as a buy in Investors Chronicle on the 3rd August so I bought a few shares. It’s always good to go to the AGMs of new investments to get an impression of the management and ask a few questions. This is one of only three listed legal firms (the others being Gateley and Keystone which I do not hold).

This AGM was very unusual in that both on the “show of hands” vote and the proxy vote counts, there were no votes against at all, i.e. exactly zero on all resolutions. That is exceedingly unusual for a public company. As I said to the Chairman, he managed to achieve that by not having a share buy-back resolution on the agenda as I normally vote against such resolutions. Likewise no resolution to change to 14 days notice of general meetings. I congratulated him on that and a well run AGM where questions were taken first before the formal business.

There were about a dozen shareholders present, some of whom might have been staff. I questioned the increase in overheads in the last year – they are working to bring that down but it was increased as they “set up to expand” – and the high debtors. Although they bill work in progress monthly, it seems their corporate clients are slow payers. Another shareholder asked how work in progress was valued, and it’s at cost apparently. Otherwise I did not pick up any concerns although the legal market does seem fragmented and it is not clear to me how they are differentiated from others although they do have some specialisations. One might see it as a market ripe for consolidation with too many small firms and Gordon Dadds seem to have acquisition ambitions.

The company only listed on AIM a year ago so it’s early days as yet.

Interesting that the national media failed to pick up on the changes to the insolvency regime announced by the Government last Sunday. Perhaps not surprising on a Bank Holiday weekend although I covered it here: https://roliscon.blog/2018/08/26/insolvency-regime-changes-a-step-forward/

Perhaps private investors were not concerned because they think they can bail-out before such events unlike institutional shareholders who frequently have such large holdings that they can’t place them on the market at any price. But you cannot always do so. I have been caught twice in over twenty years of investing by unexpected administrations of retailing companies who often appear to have lots of revenues and positive cash flows. But a retail market turn-down can catch them unawares when they have high fixed costs (staff and property rentals). The result is often a cash flow problem when quarterly rent payments are due, or an unexpected tax bill appears, or suppliers’ insurers simply get nervous and withdraw cover.

A simple ratio to look at to pick up businesses at risk of insolvency is the Current Ratio which I like to see above 1.4. Remember business only go bust when they run out of cash. However, retailers often pay their suppliers after they have sold the goods to their customers so the Current Ratio is not a reliable measure for retailers. Likewise it tends to be unreliable when looking at software companies where they might have deferred support revenue in their current liabilities which should really be ignored as it will never be paid.

The Current Ratio is easy to calculate (it’s Current Assets divided by Current Liabilities). A better measure but a more complex one is the Altman Z-Score. This was very well covered in this week’s Investors Chronicle where it was argued that it was also a good measure of the overall performance of companies. It’s not foolproof in terms of predicting insolvency but it’s certainly a good warning indicator – the big problem is that accounting figures on which it is calculated are often out of date.

The Z-Score can be obtained from a number of sources as it’s a bit tedious to calculate it yourself – for example Stockopedia display it on their company reports.

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

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Brexit and Other News

It’s been a busy few days even if stock market news is thinning out now we are into summer. The white paper outlining how Theresa May’s cabinet (at least those who are left) would like to do a deal with the EU has been published. I advised my followers via Twitter to read it rather than simply read the media commentary on it which tends to be slanted based on the writer’s emotions to “leave” or “remain”. You can find the white paper here: https://www.gov.uk/government/publications/the-future-relationship-between-the-united-kingdom-and-the-european-union

Needless to say I have taken my own advice, and read it all. As a supporter of Brexit primarily because I think it is necessary to regain democratic control of our laws, I think it gives me most of what I was looking for.

On goods and agri-products it does mean that we will be adhering to EU standards but is that a major problem? It will ease trade if we do so, just as we adhere to internationally agreed standards in some areas. I do not see that it will necessarily thwart any free-trade agreements with the USA or any other country, regardless of what Trump says. A free trade agreement is primarily about having no tariff barriers but there are bound to be issues about technical standards. For example, does Mr Trump expect the UK to accept US cars built to US technical standards for us to get a free trade deal with the USA? If he does then we would risk becoming a poodle of the USA rather than the EU. That makes no sense when we are much closer to the EU, already conform to their standards in many areas, and do more trade with them. Some Brexiteers argue that we should not be a poodle of either of course, but for us to start setting our own standards and enforcing them would be a massive task in the short term. Likewise continuing to adhere to EU standards on employment rights and competition law, at least for some time, does not seem totally unreasonable even if the European Court of Justice might give rulings on issues that relate to them.

Whether the EU will accept Mrs May’s proposals is far from certain. The proposed customs arrangements where we collect EU tariffs on goods coming into the UK that are destined for EU countries seems particularly problematic. Is that workable in practice and at reasonable cost? And the refund arrangements for goods that do not get forwarded might be a recipe for large scale fraud I suspect.

So on the whole, I am supportive of the white paper’s proposals if in any negotiation with the EU no more is conceded. I hope Donald Trump gives Mrs May some advice on hard bargaining while he is here.

But as I said before, read the white paper and make up your own mind. Your comments are welcomed.

How Not to Run an AGM

On Wednesday I attended an AGM of an EIS company named British Smaller Country Inns 2 Plc (one of four similar companies). The directors have managed to turn my investment of £2,400 into £670 over 12 years (based on the latest estimate of net assets). I think the directors are fools for not trying to exit the pubs market years ago and this AGM gave other examples of their incompetence. Firstly the Chairman, Martin Sherwood, does not know how to run the voting at an AGM according to the Companies Act. He announced a “show of hands” vote but then proceeded to add the submitted proxy votes to the count of raised hands before declaring the result. In essence you can only take into account the proxy votes if a poll is involved in which case the show of hands vote is ignored. Mr Sherwood did not understand this point when I raised it.

I also raised the fact that the company had sent out from it’s email address an “invite” that was clearly “phishing” of some kind. When I raised this at the time he said the company had been “hacked”. Bearing in mind the email had been sent to a number of shareholders, and probably everyone in their email contact list when that could be thousands of people, I asked whether they had reported it to the Information Commissioners Office (ICO)? Who are they, never heard of them, was the response at the AGM. Well for Mr Sherwood’s information and everyone else, if there is a significant leakage of personal information, then it should be reported to the ICO (see https://ico.org.uk/for-organisations/report-a-breach/ ). This is a legal requirement since the 25th May. It simply astonishes me that a director of a Plc is not familiar with the ICO and their responsibilities under the GDPR regulations.

As there is only one pub remaining to be sold in British Country Inns 2, after which the company is likely to be wound up, I may get an exit within a year or so and will then be able to claim “loss relief”. Shareholders in the other linked companies are not so fortunate as they may take longer to reach wind-up. Originally I did not invest directly in this EIS company but via a fund. I am now very wary about EIS fund offerings. How many really show a profit rather than just provide a vehicle for tax refunds?

Proven Growth & Income VCT

After the above AGM I moved on to the Proven Growth & Income VCT (PGOO), another tax relief focused vehicle but with a much better track record. In this case I am at least showing a profit even ignoring the generous tax reliefs. Total return last year was 4.35% according to my calculations, but only 2.7% according to the company. I queried the difference and it’s probably accounted for the fact they are calculating it on the mid-year average asset value when I do it on the year start figure. Total return (change in net asset value per share plus dividends paid out) is the only measure to focus on for VCTs and other investment trusts.

Not much to note at this AGM with only 4 ordinary shareholders present. I queried the length of service of the directors, with 2 having served more than 9 years. They are not apparently in any hurry to refresh the board however.

The manager said it was difficult to find new deals – a “wall of money” going onto companies that would qualify for VCT investment. But they are doing more marketing to raise awareness of their company.

Oxford Technology VCTs

Yesterday I attended the AGMs of the Oxford Technology VCTs in Oxford (all four of them) who are a very different beast altogether with a very disappointing track record since formation. Figures for total return (after tax relief) were given as 107.4, 52.9 122.2 and 82.9 respectively since foundation. As manager Lucius Cary said in his presentation, “not a great result – not brilliant but not a disaster either”. They have had some disappointments and a lack of really big hits which one needs when investing in early stage technology companies. But clearly many investors attending were unhappy with several suggestions for winding-up the companies. That was particularly vociferous for OT4 where there is no problem with investors having claimed capital gains roll-over relief.

The directors, who were all changed not so long ago, suggested wind-up would be difficult. They also think there is value to be realised that would be lost in any “fire sale”. They recognize these VCTs are too small and with no major new investments being made and no fund raising likely, they are aware of the strategic issues. But they are apparently looking at possibly doing a similar deal to that done by the Hygea VCT who appointed a new, experienced manager to raise a “C” share fund. That company has been renamed the Seneca VCT accordingly.

We had presentations from three of their investee companies: Ixaris (electronic payments business), Scancell (a listed pharma company) and Select (printer management software). The last one was somewhat interesting as I am familiar with the sector from my past career. But Select used to be a company that had its own products and IP but seemed to have turned into a distributor of other people’s products. Distributors are not valued highly and in the presentation the typical problems of being a distributor became apparent – they lost money last year due to a change in the relationship with their major supplier to their disadvantage.

Scancell and Ixaris are both major proportions of the portfolios so a lot depends on their future results. Scancell result is very dependent on the outcome of clinical trials which won’t be available until 2019. But it was mentioned that one analyst values then at 55p when the current market price is 12p.

The presentation from Ixaris was by David Sear via Skype who was appointed Chairman a year ago. They also changed CEO a week ago. Note: for those who saw a presentation by LoopUp recently at the Amati AIM VCT agm where one member of the audience suggested that everyone should use Skype as it works fine, this latest event was a good demonstration of why Skype is not fit for business use – audio out of synch with video, download delays, etc.

I have to admit to knowing a lot about Ixaris as I was a founder investor 14 years ago and still hold a few shares directly. It has been slow progress, although revenue has been increasing and they are near EBITDA profitability. The new management team does seem to be improving the business but it was suggested that a “possible liquidity event” was 2 years away and it might be via a public flotation. But the bad news was Sear’s mention of a contractual issue with Visa for their Entropay pre-paid card service. Incidentally if you want a pre-paid card for security reasons then the Entropay service is a good one. Ixaris do have a second major division though that seems to be doing well.

Some of the other investee companies were covered in brief, and they do appear to have prospects in some cases. But Plasma Antennas for which there were high hopes at one time has been written off.

When it came to the votes, all the resolutions were passed on a show of hands, including re-election of all the directors, and perhaps even more importantly on the votes to continue with the companies, including even on OT4!

It was an educational AGM and my conclusion is that the directors are actually doing the right things with these problem companies. These VCTs are trading a high discounts to NAV, partly because there are no company share buy-backs unlike in many VCTs. But it would be a brave investor to buy the shares in the market. I only have a small holding in one of them.

K3 Business Technology (KBT), MaxCyte (MXCT), Eservglobal (ESG) and FairFX (FFX)

On Wednesday I attended presentations on the above four companies at the ShareSoc Growth Company Seminar in London. The last of those four I hold some shares in, and at least they made a small profit last year whereas all the others reported losses. With AIM companies, as the private equity world often says, you have to kiss a lot of frogs before you find a prince.

K3 showed the same problems historically as in Select mentioned above. Being a distributor is not an easy life and it’s difficult to make money doing that. But new management is changing the focus which may improve matters. Maxcyte is a typical pharma company and I never understand the technology in these businesses. I think you need a degree in biochemistry to even get to grips with developments in the sector. I have no idea whether it will come good in the end. Eservglobal seem to be moving from a mobile payment offering to focus on “Homesend” – sending money internationally more quickly and at lower cost than traditional banks can do. Earthport is a similar business I believe and that has not yet been reporting profits.

FairFX has a number of electronic money/payment offerings with the latest being a “business” account for SMEs. That might be very attractive to the large numbers of such companies. I have seen this company present before and the message is always clear and the questions answered well whereas the other companies presenting failed to convince me.

An eventful week, compounded by stock market volatility. Summer is the time to pick up bargains and sell the over-hyped stocks when buyers depart for their holidays.

Curtis Banks

One final item; I seem to be having some payment problems with Curtis Banks (an AIM listed company) who manage one of my SIPPs that is in drawdown. They took over a business called Pointon York and since then there have been delays in payments, or in one case two payments made in error. Reviews of the service, including comments from employees on the web seem somewhat poor. If anyone else is having problems with them, please contact me.

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

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Amati AIM VCT AGM and Retailers

Amati AIM VCT is one of those peculiar beasts – a Venture Capital Trust. Yesterday I attended their annual general meeting and here are some general comments on the company and the meeting:

Amati AIM VCT (AMAT) is the result a merger of the two Amati VCTs. They had very similar portfolios so this made a lot of sense, and the result is a large VCT with total assets of £147 million. This figure was also boosted by excellent performance last year – a total return of 45.2% on VCT2 for example. That of course was helped by a surprising good performance from AIM companies in general last year, but the Numis AIM index was only up 29%.

How was the performance achieved? By selective stock picking primarily, and by holding on to the winners. So the top ten holdings are now: Accesso Technology, Frontier Developments, Keywords Studios, Quixant, Learning Technologies, Ideagen, AB Dynamics, GB Group, Tristel and the TB Amati UK Smaller Companies Fund. The fact that I hold 5 of those companies directly tells me I should keep an eye on what the VCT is investing in.

Note that I learned to take a jaundiced view of AIM VCTs who traditionally did worse than private equity (i.e. generalist) VCTs due to being suckered into investing in dubious IPOs in what was historically a poor-performing AIM market. But there are always exceptions and perhaps this shows that AIM is improving and AIM fund managers are learning to be more discriminating.

There were presentations from fund managers Anna Wilson (new to the company) and founder Dr Paul Jourdan. The latter gave a somewhat “spaced out” presentation as if he had not spent much time preparing it. It included coverage of a chess match between two software programmes, indicating how clever they had become. Perhaps Paul is worried about being replaced by a computer. But I think the main message we were meant to receive was that the world is rapidly changing with disruptive new technology such as AI.

Anna Wilson covered the worst and best portfolio performers and some of the new investments. The latter include i-Nexus Global (INX: software to help companies to implement strategies), Water Intelligence (WATR: leak detection and remediation), AppScatter (APPS: app management platform) and Fusion Antibodies (FAB: antibody based therapeutics for cancer treatment).

There were also presentations from investee companies Loop-Up (LOOP) and FairFX (FFX) both of which I hold directly. In the latter case, and as the CEO said in his presentation, they should probably change the name as it does not just do foreign exchange provision which is now a crowded market. That was particularly so after the announcement in the morning about a new service to provide business banking to SMEs. By using their new e-money issuing licence they can act like a bank in almost all regards except that they cannot lend client funds out to others. But that just makes them safer.

As I hold both Loop-Up and FairFX directly I did not learn a great deal more but they were interesting nonetheless. It’s always good to be reminded why one bought a stock in the first place.

As Paul Jourdan indicated there are rapid changes in some markets and retailing is certainly one of them. There has been wide media coverage of the fact that even John Lewis, that favorite destination for middle-class shoppers along with its Waitrose stores, is now not making a profit. Here’s a good quotation from Sir Charlie Mayfield, John Lewis Chairman: “It is widely acknowledged that the retail sector is going through a period of generational change and every retailer’s response will be different. For the partnership, the focus is on differentiation – not scale”.

This is undoubtedly true. Competing with other supermarkets with a general “stack them high, sell them cheap” approach certainly makes no sense. It seems John Lewis is having some success with clothes by using “personal style advisors” (rebranded shop assistants).

Clearly the future is internet shopping for many products, perhaps with some “destination” warehouses for viewing and collecting goods. There are some categories of products where viewing the merchandise, particularly on big ticket items or where one cannot simply return them, may still be essential. Those where advice is required might also require a personal touch but some of that can be done remotely. Where the damage will be mainly done is to high street outlets and shopping malls for which I can see no good purpose. Perhaps if they can turn themselves into entertainment and drinking/eating venues they can survive but it’s clearly going to be a lot tougher for such venues and the smaller retail chains that rely on them. Department stores will likely suffer as they already have so investing in companies such as Debenhams is surely questionable unless they become much more internet focused with the shops changing in function.

The high streets are already changing. Banks going, clothes shops closing and more restaurants, cafes, fast food outlets and charity shops if my local high street is anything to go by. Do I regret the changes? Perhaps but I also know it’s not wise to piss against the economic and technological winds. For investors the message is that with such rapidly changing markets, one has to keep an eye on evolving trends and how company management is responding, or not, ever more closely.

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

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RedstoneConnect Disposals and Royal Weddings

Interesting announcements this morning were issued by RedstoneConnect (REDS). Along with their annual results they are proposing to sell two major divisions that provide systems integration and managed services for £21.6 million in cash. That was actually more than the market cap of the company before the announcement.

That will leave them with a division that provides software for managing office occupancy (for example, hot-desking, car parking, access control, meeting room management, way-finding and other systems). The division had sales of £5.3 million last year. The company has some debt which may be repaid out of the proceeds of the sales but it is likely to have cash of at least £15 million.

The share price jumped on this news and is now about 114p at the time of writing, which values the business at nearly £24 million. It seems investors like the deal but don’t place a great value on the remaining software business.

My view is that strategically this move makes a lot of sense because the businesses being disposed of were low margin ones operating in competitive sectors. The software business is like all such businesses capable of being built around proprietary IP with barriers to entry and high recurring revenues streams. As a holder of RedstoneConnect shares I am therefore likely to vote in favour of this deal.

It is of course possible that the management of the company will blow the cash on poor acquisitions or other diversions but they do seem to have managed to turn around this company which has had a disappointing history, and head it in a positive direction. Adjusted profits almost doubled last year for example. It is claimed this reflects “the successful implementation of the strategy to focus on higher quality, higher margin business”.

The wedding of Prince Harry and Meghan Markle was certainly a well-managed affair, but I was astonished to learn that it might have cost over £32 million even if Mum and Dad did pay a large share of it. Some estimates were even higher. I trust the heart attack of Meghan’s father was not caused by his being asked to contribute. But it’s the “opportunity cost” that really concerns me. For £32 million the parents could have purchased a sound business such as RedstoneConnect for £20 million and still had £10 million to spare for partying.

A number of commentators in the popular press vied with stories of how their weddings were so cheap in comparison. But can you beat mine of 1971 for “cheap”? I and my wife got married at Marylebone Registry Office (if it’s good enough for Paul McCartney it’s good enough for anyone). We then went back to our flat in Maida Vale where we had cohabited for some time for a reception with a few friends and relatives. I don’t recall our parents having to contribute and the cost in total must have been a few hundred pounds at best.

As regards the latest royal wedding, one omission was perhaps the lack of a writer of the skill of Victorian war correspondent William Russell to commemorate the event. This is a sentence from his report of the wedding of the Prince of Wales (later Edward VII) to Princess Alexandra: “With trumpet-flourish and roll of drum, in cadence measured and timed, tossing plume and lustrous train, gold and jewel, cloth of gold, satin and ermine, ribands and stars condense and form a pyramid of colours which tapers in at the door of the chapel and lights up that space which can be seen through the archway, as peer and peeress, Knights of the Garter, and ministers gather in their places”.

That is from a compendium of his reports for the Times recently purchased in a second-hand bookshop. They cover the Crimean war, the coronation of the Czar in Russia, the Indian Mutiny, the laying of the first Atlantic telegraph cable, the start of the American Civil War and much more that I have yet to read. But oh to be able to write like William Russell is one of my few remaining desires.

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

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LoopUp, Audioboom, Social Media Abuse and a VCT AGM

LoopUp (LOOP), a small AIM listed company that provides audio conferencing and in which I have a small holding, have announced a proposed acquisition of a company in the same business – MeetingZone Group. This will more than double the size of LoopUp so it constitutes a reverse takeover. As they are paying cash for MeetingZone it will be financed by a term loan and a large placing. The placing will be at 400p per share, when the share price last night was 435p so it’s only a small discount. The share price normally falls to the placing price in such circumstances but it actually rose today which suggests investors like the deal.

MeetingZone is profitable and is being acquired at 12 times EBITDA. The plan is to deliver a “timely transition of the MeetingZone Groups audio conferencing business to the LoopUp platform” as the announcement says. This is clearly potentially a significant step up in the size and profitability of the merged entity, but my slight concern is the risks involved in this transition as it means the customers will need to learn a new system. Such transitions are never easy.

Another small AIM company is Audioboom Group (BOOM) whose shares have been suspended for some time after they announced a proposed acquisition, with a fund raising to finance it. Yesterday they announced it had been impossible to complete the placing to fund the deal and the company now needs to raise some money just to cover its working capital needs. Audioboom is primarily a podcast hosting platform and revenue has been increasing but for the year to November 2017 it was still less than £5 million and the loss was expected to be a similar figure! Accounts have yet to be published though. Needless to say perhaps, I have never held shares in this company because I considered it to have an unproven business model. Such early stage companies are surely best financed via private equity who can accept the risks rather than public market investors. I wish them the best of luck in raising more funds.

But I did have some contact with the company after a certain person posted a podcast which contained abusive comments about me. So my lawyer asked politely that it be removed which the company did simply because it did not comply with their policies. The result was a torrent of abuse about Audioboom by the same aforementioned person which was totally uncalled for. But now the same person has been on the receiving end of an attack from someone else where he has even had to call in the police for assistance.

Postscript: Let me make it clear that I do not condone racist or other illegal communications of any kind. They can never be justified. I have only recently been informed of the content and likely reasons for it which has resulted in the aforementioned communication being referred to the police.

This is a typical example of the problems of social media and blogging sites which have been getting a lot of media coverage in the last few days. Facebook have reported that 2.5 million posts alone that included “hate speech” were removed in the last 3 months of 2017, and there were many more violent, terrorist or pornographic posts they also removed. However, they cannot easily identify lies, fake news, fraudulent advertisements and common abuse. In other words, the social norms about what should be “published” in a public forum are completely breaking down. Nobody can, nor does, police the internet.

This is now proving to be a major problem for anyone in public life such as politicians. Free speech is a good concept in essence, but when it degenerates to allowing irrational and unconsidered abuse and false allegations to be propagated then surely something needs to be done about it. The laws against “hate speech” and libel law hardly provide effective remedies to stop the kind of behaviour that is now becoming so prevalent. I suggest that the Government needs to undertake a full blown public inquiry into this problem.

It is particularly serious in the financial world where bad behaviour can affect the business of a company and its share price, effectively leading to “market abuse”.

Yesterday I attended the Annual General Meeting of Maven Income and Growth VCT 4 Plc (MAV4). There were only about half a dozen shareholders in attendance in the City of London.

I raised a number of issues and posed questions. Subjects covered were:

  1. The poor performance of the company last year, which I calculated to be a total return of 1.72% (i.e. less than inflation). Total return includes asset growth and dividends of course, and although the company paid out dividends of 12.45p last year representing a yield of 16.5% on the share price at the end of the year (tax free of course), it’s the total return that really matters. Otherwise shareholders are just getting their assets returned to them.
  2. Inadequate explanation for the poor performance in the Annual Report. It does mention that “one of the larger portfolio companies suffered a write down in value which diluted the overall performance in the financial year, but more explanation would have been preferable.
  3. The length of service of the board directors. Apart from director Bill Nixon, who represents the fund manager and which I do not accept should be a director simply for that reason, the other three directors including the Chairman have all served since 2004. So this is one of the few companies where I voted against the reappointment of all of them. I made it clear that the board should look at succession and they indicated they may do so.
  4. The high overhead costs in this VCT – total administration and management expenses I calculated to be 4.0% of net assets at year end, although Bill Nixon disputed this figure.
  5. There was a suggestion made that with high returns of cash to shareholders last year, and a new fund raising, there might have been some “cash drag” in the performance data.
  6. I questioned the impact of the new VCT regulations, and Bill Nixon said the market was getting “frothy” with valuations difficult to sustain. The inability to write debentures on investments limits the amount of control they will have in future. The manager has reshaped the investment team to adjust to the new focus – they now have 4 PHDs. They rarely back start-ups and prefer to back teams with successful track records – they don’t “want them to be learning on our money”.
  7. Advanced approval from HMRC on new investments is getting better (this has been a major concern for many VCTs of late as it delays closing deals). Now closer to 30 to 40 days. There is also a proposal for a “self-certification” scheme where a qualified independent person gives a positive opinion. This might be of assistance but there are still potential problems if a business is subsequently found not to qualify.
  8. The company is looking at using the funds raised to make 10 to 12 investments in the current year, so the new rules about what kinds of businesses can be invested in are apparently not proving to be a major problem. But Bill said the result is they are moving from investing in “old” economy companies to “new” economy runs. This is likely to mean that portfolio volatility will increase so overall returns (and hence dividends) may fluctuate more from year to year.
  9. Bill thought VCTs will raise less money this year so new offerings may be in high demand.

Votes were taken on a show of hands and the proxy counts circulated after the meeting. Only about 10% of shareholders voted which is the typical pathetic turnout these days from private shareholders in such companies. There were substantial votes against one resolution on share buy-backs but apparently this was mainly from one family who may not understand the issues.

In summary this was a useful meeting and worth attending. I am only holding this VCT for historic reasons after Maven took over management of previously problematic VCTs I invested in years ago. Performance has improved as a result but is still not great and high overhead costs would put me off investing more money in it. I am always surprised that such VCTs are able to raise more funds with such apparent ease.

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

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The Dangers of Share Tipping, Alliance Trust and AIM Regulation

Share tipping is a mug’s game. Both for the tipsters and their readers. More evidence of this was provided yesterday.

Investors Chronicle issued their “Tips of the Week” via email during the day. It included a “BUY” recommendation on Conviviality (CVR). Unfortunately soon after the company issued a trading statement which said the forecast EBITDA for the current year (ending 30th April) will be 20% below market expectations. Conviviality is a wholesaler, distributor and retailer of alcohol and it seems there was a “material error in the financial forecasts” in one part of the business and that margins have “softened”.

The share price dropped by almost 60% during the day and fell another 10% today at the time of writing. This puts the business based on the new forecasts on a prospective p/e of less than 6 and a dividend yield of over 10% (assuming it is held which may be doubtful). Is this a bargain?

Having had a quick look at the financial profile I am not sure it is. Although net debt of £150 million may not be too high in relation to current revenues or profits, their net profit margin is very small and their current ratio is less than 1, although this is not unusual in retailers who tend to pay for goods after they have sold them.

(Postscript: Paul Scott of Stockopedia made some interesting comments on Conviviality including the suggestion that they might be at risk of breaching their banking covenants and hence might have to do another placing. Certainly worth reading his analysis before plunging into the stock. He also commented negatively on the mid-day timings of the announcements from Conviviality and Fulham Share which I agree with, unless there was some compulsive reason to do them – perhaps they were aware of the Investors Chronicle commentary being issued).

Another tip Investors Chronicle gave yesterday was on Fulham Shore (FUL) which they rated a SELL on the grounds that “growth looks unsustainable”. They got that one right. The company issued a trading statement on the day which also said EBITDA would be below market expectations. Their London restaurants are simply serving fewer customers. The share price dropped 17% on the day. This looks to be symptomatic of the problems of restaurant chains – Prezzo are closing a number of outlets which I was not surprised at because from my visits it seemed rather pedestrian food at high prices. Restaurant Group also reported continuing negative like-for-like figures recently, perhaps partly because of price cutting to attract customers back. Restaurants are being hit by higher costs and disappearing customers. Boring food from tired formulas is no longer good enough to make money.

Another announcement yesterday was results from Alliance Trust (AT.). This is a company that I, ShareSoc, some investors in the trust and hedge fund Elliott Advisors spent a lot of effort on to cause a revolution a couple of years ago so it’s good to see the outcome has been beneficial. Total shareholder return was 19.1% which was well ahead of their benchmark. There was a lot of doubt expressed by many commentators on the new multi-manager investment strategy adopted by the board of directors and the involvement of Elliott, who were subsequently bought out, but it has turned out very well.

The only outstanding issue is the continuing problems at Alliance Trust Savings. They report the integration of the Stocktrade business they acquired from Brewin Dolphin has proved “challenging”. Staff have been moved from Edinburgh to Dundee and the CEO has departed. Customer complaints rose and they no doubt lost a lot of former Stocktrade customers such as me when they decided to stop offering personal crest accounts. So Alliance have written down the value of Alliance Trust Savings by another £13 million as an exceptional charge. No stockbrokers are making much money at present due to very low interest rates of cash held. It has never been clear why Alliance Trust Savings is strategic to the business and it’s very unusual for an investment trust to run its own savings/investment platform. Tough decisions still need to be taken on this matter.

AIM Regulation. The London Stock Exchange has published a revised set of rules for AIM market companies – see here: http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aim-rules-for-companies-march-2018-clean.pdf .

It now includes a requirement for AIM companies to declare adherence to a Corporate Governance Code. At present there is no such obligation, although some companies adhere to the QCA Code, or some foreign code, or simply pick and choose from the main market code. I and ShareSoc did push for such a rule, and you can see our comments on the review of the AIM rules and original proposals here: https://www.sharesoc.org/blog/regulations-and-law/aim-rules-review/ and here is a summary of the changes published by the LSE: http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aim-notice-50.pdf (there is also a marked up version of the rule book that gives details of the other changes which I have to admit I have not had the time to peruse as yet).

In summary these are positive moves and the AIM market is improving in some regards although it still has a long way to go to weed out all the dubious operators and company directors in this market.

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

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