Invinity Open Offer, Ideagen, and AJ Bell Results

I have recently taken a strong interest in those shares that are involved in electrification of the world. It’s not just the UK Prime Minister who wants to save the world from global warming and air pollution with Joe Biden likely to be much more environmentally conscious than Donald Trump. Those companies or trusts that are involved in alternative energy sources such as wind and solar, and systems to manage the fluctuations they impose on the grid, are of particular interest.

One such company is Invinity Energy Systems (IES) who announced a placing and open offer this morning. This was a company that was mentioned at a recent investor discussion group I attended and I did some research into it and bought a very few shares.

It produces vanadium flow batteries which are typically large batteries used in large energy storage projects. They are alternatives to lithium-ion batteries which have limitations and lithium is a relatively rare element that we might run out of or it might become very expensive. Vanadium is the 20th most abundant element in the earth’s crust and is mainly used in steel making at present. Vanadium flow batteries have advantages in that they can be cycled many times, have a 25-year lifetime, with no risk of thermal runaway and are cost competitive. They have been around for many years but not in high volume production mainly because they are bulky and hence only suitable for certain applications – Invinity plan to change that. It’s still a relatively early stage business but it seemed worthy of a punt as their sales prospects, of which details are provided, look promising.

Their placing is at a discount of 8% to the pre-placing market price and dilution is only 16% so I consider that acceptable and the other good aspect is that they are including an “open offer” so existing private shareholders can participate.

For those interested in the environmental sector the following shares may be of interest (Note: I hold some of these): Gore Street Energy Storage Fund (GSF), Greencoat UK Wind (UKW, Gresham House Energy Storage Fund (GRID), Impax Environmental Markets, (IEM), Octopus Renewables Infrastructure Trust (ORIT) and The Renewables Infrastructure Group (TRIG). Some of these are effectively private equity trusts that invest in storage systems, windfarms and solar power installations. Much of their revenue comes from guaranteed prices for power supply and their assets are valued on a discounted cash flow basis. This enables them to pay high dividends with some capital growth but they are currently typically trading at a high premium to net asset value as they have grown in popularity as good reliable dividend payers have disappeared from the market. Whether the assets are fairly valued is anyone’s guess and clearly it depends on what discount rate is used – never an easy thing to determine in DCF calculations.

There is a lot of enthusiasm for these companies in the market at present so readers need to decide whether it is a bandwagon that will fade or grow stronger.

Last night I attended a webinar on Ideagen (IDEA) run by ShareSoc. I have held this company since 2012 and it has been highly profitable but one aspect I am unhappy with is that they regularly do placings, typically to fund acquisitions, but never include open offers, so I have been diluted. As Chairman David Hornsby said last night, they do at least only do placings at near the market price, but I am not convinced that is a good excuse. Market cap of Ideagen is £500 million while that of Invinity is £138 million so if Invinity can include an open offer why cannot Ideagen?

From David’s other comments it seems they are planning a placing to enable them to do more acquisitions to meet their growth plans. That might be why the share price has been drifting down of late as expectations of this have become known.

AJ Bell (AJB) announced their final results this morning (they run the YouInvest platform). Revenue was up 21% and pre-tax profit was up 29% but on a forecast p/e of 48 according to Stockopedia for next year the price is clearly discounting more growth but there must be limits on how much market share they can grab.

One interesting item mentioned in the AJ Bell announcement was that the FCA has delayed implementation of the “Making Transfers Simpler” rules due to the Covid-19 epidemic. The new rules were designed to make transfers between platforms easier so as to encourage a more price-competitive platform market. Let us hope these changes are not abandoned although AJ Bell mention they feel the new rules could be improved and have made alternative suggestions.

As anyone who has moved an ISA or SIPP between platform operators knows, it takes way too long and is too expensive. The FCA’s new rules may have helped in some regards but are not a total solution.

At least AJ Bell have substantially reduced their exit charges in their new price list effective from January. They have made a number of other changes to their prices which overall do not seem unreasonable and they will remain competitive.

Platform operators have generally been edging up their prices as the interest they receive on client cash has disappeared as interest rates have shrunk while regulatory costs have increased. This has also undermined the few “free dealing” platforms that wanted to conquer the UK market like Robinhood have done in the USA with commission free trading. Operators such as Freetrade were potentially a threat to AJ Bell but with the former offering only a limited service that threat seems to be receding.

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

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Wey Education and Silence Therapeutics Webinars

I attended a couple of webinars yesterday – one for a company I already hold shares in (Wey Education) and one I do not (Silence Therapeutics). Both good examples of the genre.

Wey Education (WEY) published some preliminary results for the year on Tuesday. Revenue was up 38% and adjusted profits more than doubled. These figures and what the company said in the announcement impressed me, but the share price dropped almost 20% on the day. Perhaps investors expected more because as a provider of “on-line education” they surely should have benefited from the epidemic, or perhaps the prospect of a good vaccine made them appear less attractive. But with people more used than ever to doing things on-line, this has surely accelerated the demand for on-line education.

Regardless it was a good presentation from CEO Jacque Daniell and Chairman Barrie Whipp. They explained what the company does well and what their USP is. They had an ambition to become the largest UK secondary school and they ticked that box in the first half. They are also developing internationally as they see that as the market opportunity, and have appointed a new Director of Education, a Director of Marketing and a CTO. They are aiming for a world class user experience and are now geared for expansion. They have achieved a CAGR in revenue of 41% since 2016. Comment: they just need to keep that up! 

The concluding outlook statement in the announcement said this: “Wey is going forward into the 2020/21 academic year with mastery, autonomy and a great sense of purpose”. They have an interest in AI and that sounds like a statement written by a robot.

The second company was Silence Therapeutics (SLN). I missed both the start and end of this webinar so this is only a brief report. This company, as its name suggests, is focusing on silencing defective genes. To put it more fully, I quote from their web site: “Silence Therapeutics is developing a new generation of medicines by harnessing the body’s natural mechanism of RNA interference, or RNAi, to inhibit the expression of specific target genes thought to play a role in the pathology of diseases with significant unmet medical need”.

But it’s still an early stage business with minimal revenue but a large market cap (about £370 million). Clearly it’s a typical biotech stock where a lot of the share price depends on hopes for the future.

This is a sector in which many companies are active including some big players who are making profits, with lots of minnows showing losses. Whether this company will be successful in achieving its objectives and developing products that can be practically used and profitable remains to be seen. But the management certainly made a good impression, as they often do in such businesses (they need to be good at doing that to raise the funds they need).

One to wait and see I suggest, as my past forays into this market segment have not been a great success.

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

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Market Musings

The stock market seems to be positively benign at present, if not almost somnambulant. While certain sections of the economy have gone to hell in a handcart, the enthusiasm for technology stocks has not abated. My very diversified portfolio is up today at the time of writing by 0.4% helped by good news from Dotdigital (DOTD) today and a sudden enthusiasm for GB Group (GBG). Optimism about a more general recovery in the economy seems to be still prevalent.

It’s probably a good time to consider overall market trends with a view to adjusting portfolios for the future. It is very clear for example that the UK at least, if not the world, is heading for a “net zero” world, i.e. a world where we are not emitting any carbon which implies a very high reliance on electricity generated from wind, solar and hydroelectric sources.

Whether that can be achieved in reality, and in my lifetime, remains to be seen. Whether it is even rational, or economically justified, is also questionable. But now that the religion of zero carbon has caught on, I do not think it is wise for any individual investor to buck the trend. As with any investment fashion it’s best to jump on the bandwagon and as early as possible. So I hold no oil companies and few interests in coal miners, except where they are part of diversified mining companies who are also mining copper (essential for the new electrification) and steel (not easily replaced). But I have recently invested in “renewable infrastructure” investment companies of which there are several, and in funds that provide battery support and load smoothing systems. Wind farms and solar panels tend to generate intermittent electricity so there is a big demand for emergency sources of power.

There was a very good article by Bearbull in last weeks Investors Chronicle headlined “The Net Zero Perversion” on this subject. He commences by saying “It is surely the new paradigm – that economic recovery from the damage caused by the response to Covid-19 can only be achieved by a fundamental shift towards a zero-emissions future. This is stated as fact – that reducing greenhouse gas emissions to ‘net zero’ by 2035 will be the powerhouse of economic growth – when, of course, it’s just a contention; much like the complementary one that investing in companies that are wonderfully compliant in meeting their economic, social and governance (ESG) commitments will bring excess investment returns”.

He goes on to say, after some other comments that must have enraged the uneducated environmental enthusiasts: “Yet there is plenty of evidence that the pursuit of net zero is brimming with unintended consequences, which is what you might expect from a movement driven by a weird mixture of idealism and greed”. He points out that rewiring our homes and expanding the grid to cope with the new electricity demand might cost £450 billion, i.e. £17,000 per household. Similarly the banning of the sale of new internal combustion powered vehicles from 2035 just causes the pollution generated from the manufacture of electric vehicle power systems and associated mining activities to happen elsewhere in the world. But overall emissions might not fall.

This fog of irrationality and attacks on personal mobility via vehicles using the Covid-19 epidemic as an excuse is now happening in several London boroughs, encouraged by central Government “guidance” and funding. Roads are being closed. In the Borough of Lewisham, adjacent to where I live, road closures have caused increased traffic congestion, more air pollution and gridlock on a regular basis. There is enormous opposition as the elderly and disabled rely on vehicles to a great degree while in the last 75 years we have become totally dependent on vehicles for the provision of services (latterly for our internet deliveries). Councillors in Lewisham think they are saving the world from global warming and air pollution that is dangerous to health when they won’t have any impact on overall CO2 emissions and there is scant evidence of any danger to health – people are living longer and there is no correlation between local borough air pollution and longevity in London. Air pollution from transport has been rapidly falling while other sources (many natural ones) are ignored. Lewisham and other boroughs have partially backed down after a popular revolt but local councillors still believe in their dogma. There is a Parliamentary E-Petition on this subject which is worth signing for those who think that the policy is misguided: https://petition.parliament.uk/petitions/552306

The Bearbull article concludes with this comment which matches my opinion: “All of which means investors should preserve their scepticism. But they should also recall their purpose in investing – to make money, not to go to war with the climate change movement, however ridiculous they may see some of its follies. Sure, as consumers they should see much of the pursuit of net zero for what it is – another charge on their net income. But as investors they should see it as an opportunity to join the momentum and, at the very least, to park some of their capital in a fashionable part of the market”.

When it comes to investment, markets can be irrational for a very long time. That is surely the situation we are currently seeing with stock markets kept buoyant by a flood of cheap money and there being nowhere else to stash it. With traditional industries and businesses in decline, most of the money is going into technology growth stocks or internet shopping driven businesses such as warehousing. That trend surely cannot continue forever. But in the meantime, following market trends is my approach as ever.

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

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British Smaller Companies VCT AGM

I “attended” the British Smaller Companies VCT Annual General Meeting today via Zoom. This was yet another variant on the practice of virtual AGMs. But there were apparently about 30 people connected which is more than they normally get of shareholders at their AGMs.

It was well managed with no significant technical problems, unlike others recently I have attended. Shareholders could vote for or against the resolutions on the day by using a Zoom Vote facility to give an instant poll result (rather like a “show of hands” vote which is technically what I assume it was although that was not made totally clear). The poll votes were given after each resolution was voted upon. The proxy counts were also displayed at the end. All proxy counts were in favour with the highest opposition being 11% against share buy-backs (probably by ill-informed investors as these are quite essential in my view in VCTs).

The poll figures showed only one or two people voting against a few of the resolutions. I voted against the remuneration resolutions and against the re-election of Chairperson Helen Sinclair – partly because she was first appointed in 2008, and for historic reasons.

Shareholders could submit questions previously or at the meeting by typing them in (but no follow-up possibilities). Not as good as a verbal question/answer model.

David Hall gave a short presentation on the results before questions. They achieved a total IRR of 5.4% last year, depressed by the Covid epidemic as their year end is March. The epidemic had a varied impact on their portfolio holdings, but there has been a bounce back since the year end.

There was a question on dividend policy and the answer was that the current policy will remain in the short term.

The meeting was relatively short with most of it taken up by the voting procedure. But it was certainly better than not allowing any shareholder attendance as other companies have been doing.

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

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EMIS Interims, AstraZeneca and Brexit

Healthcare technology company EMIS Group (EMIS) issued some interim results this morning. This is one of my longest standing holdings first purchased in 2011 although it has not been one of my greatest investments – overall total return over the years of only 9% per annum. But I did buy some more in March as I considered it would be a defensive share during the epidemic and might actually benefit from the medical crisis. That has turned out to be generally true.

Revenue was down by 2% however and adjusted profits likewise and it appears that business-to-business activity has been constrained but the share price has risen by 5% today (at the time of writing). Some effort has clearly been put into meeting new requirements from the epidemic but a new EMIS-X module was announced (EMIS-X is a new modular platform they are developing). However, it does seem that EMIS-X is slow in arriving in comparison with my expectations.

The health system is becoming more digitised so EMIS is in a good place and unlike other companies who are chopping their dividends, EMIS announced a 3% increase in the interim dividend.

For those who are not big consumers of health services like me it is truly revolutionary how the world has changed of late. Email discussions with GPs and video conversations are now enabled and the whole health system is more responsive. But it is getting more difficult to actually see a doctor in person which is sometimes still required.

Edison have published a video interview with the CEO of EMIS which you can watch here: https://www.edisongroup.com/edison-tv/emis-group-executive-interview/

As regards the epidemic AstraZeneca have indicated they have put their clinical trial of a vaccine on hold due to a possible adverse reaction in one patient. It may purely be a random effect. But with lots of competitors for a vaccine and a low probability of any one making money, this is not necessarily significant news.

Brexit

I was very amused to see Government Minister Brandon Lewis admitting in Parliament that it will break international law over the Brexit withdrawal treaty, in an attempt to “rewrite” it or “clarify” it depending on who you care to listen to. I would not rate Mr Lewis very highly in terms of his knowledge of the law having met him when he was a Government Minister in a different role. We discussed the use of police waivers of prosecutions for speeding offences which I consider an abuse and a perversion of justice. He simply suggested it was a form of “plea bargain”. Not that they are part of the UK judicial system of course so it was a very odd response.

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

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Boris Johnson Not Backing Down and the Technology Stocks Bubble

Today I received an email from the Conservative Party signed by Boris Johnson and entitled “I will not back down”. The first few sentences said:

“We are now entering the final phase of our negotiations with the EU. The EU have been very clear about the timetable. I am too. There needs to be an agreement with our European friends by the time of the European Council on 15 October. If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on. We’ll then have a trading arrangement with the EU like Australia’s. I want to be absolutely clear that, as we have said right from the start, that would be a good outcome for the UK”.

But he says the Government is still working on an agreement to conclude a trade agreement in September. However the Financial Times reported that there are problems appearing because the “UK government’s internal market bill — set to be published on Wednesday — will eliminate the legal force of parts of the politically sensitive protocol on Northern Ireland that was thrashed out by Mr Johnson and the EU in the closing stages of last year’s Brexit talks”. It is suggested that the EU is worried that the Withdrawal Agreement is being undermined. But reporting by the FT tends to be anti-Brexit so perhaps they cannot be relied upon to give a balanced commentary on the issues at present.  

Of course this could all just be grandstanding and posturing by both the UK Government and the EU to try and conclude a deal in their favour at the last minute. But we will have to wait and see what transpires.

Well at least it looks like Brexit news will dominate the media soon rather than the depressing epidemic stories.

Technology Stocks Bubble

Investors seem to have been spooked last week by the falls in the share prices of large technology stocks such as Apple and Tesla (the FAANGs as the group are called). This resulted in overall market falls as the contagion spread to many parts of the market, particularly as such stocks now represent a major part of the overall indices. I am glad to see my portfolio perked up this morning after substantial falls in my holdings of Polar Capital Technology Trust (PCT) and Scottish Mortgage Investment Trust (SMT) both of whom have big holdings in technology growth stocks although they are not index trackers.

I’ll give you my view on the outlook for the sector. Technology focused companies should be better bets in the long-term than traditional businesses such as oil companies, miners and manufacturing ones. There are strong market trends that support that as Ben Rogoff well explained in his AGM presentation for PCT which I mentioned in a previous blog post.

But in the short term, some of the valuations seem somewhat irrational. For example I consider Tesla to be overvalued because although it has some great technology it is still in essence a car manufacturer and others are catching up fast. Buying Tesla shares is basically a bet on whether it can conquer the world and I don’t like to take those kinds of bets because the answer is unpredictable with any certainty. I would neither buy the shares nor short them for that reason at this time. But Tesla is not the whole technology sector.

Some technology share valuations may be irrational at present, but shares and markets can stay irrational for a very long time as different investors take different views and have different risk acceptance. In summary I would simply wait to see if there is any certain trend before deciding to buy or sell such shares or the shares of investment trusts or funds focused on the sector.

Investment trusts are particularly tricky when markets are volatile as they often have relatively low liquidity and if stocks go out of favour, discounts can abruptly widen. Trading in and out of those kinds of shares can be very expensive and should be avoided in my view.

I don’t think we are in a technology stocks bubble like in the dot.com era and which I survived when anyone could sell any half-baked technology business for oodles of money to unsophisticated investors. But it is worth keeping an eye on the trends and the valuations of such businesses. Very high prospective/adjusted p/e ratios or very high price/sales ratios are still to be avoided. And companies that are not making any profits or not generating any free cash flow are ones of which to be particularly wary (Ocado is an example – a food delivery company aiming to revolutionize the market using technology). Even if the valuations are high, if a company is achieving high revenue growth, as Ocado is, then it might be able to grow into the valuation in due course but sometimes it just takes too long for them to do so. They risk being overtaken by even newer technologies or financially stronger competitors with better marketing.

Investors, particularly institutional ones, often feel they have to invest in the big growth companies because they cannot risk standing back from the action and need to hold those firms in the sector that are the big players. Index hugging also contributes to this dynamic as “herding” psychology prevails. But private investors can of course be more choosy.

This is where backing investment trust or fund managers who have demonstrable long-term record of backing the winners rather than you buying individual stocks can be wise. Keeping track of the factors that might affect the profits of Apple or Tesla for an individual investor can be very difficult. Industry insiders will know a lot more and professional analysts can spend a lot more time on researching them than can private investors. It is probably better for private investors to look at smaller companies if they want to buy individual stocks, i.e. ones that are less researched and are somewhat simpler businesses.

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

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Victoria and Downing One VCT Annual Reports, and Rio Tinto Mea Culpa

With it being all quiet on the financial front, with a lot of people on holiday, I had the time to read a couple of Annual Reports over the weekend. First came Victoria (VCP), a producer of flooring products (carpets and tiles) in which I have a relatively small holding. Chairman Geoff Wilding always has some interesting things to say and their Annual Report is an exemplary model of shareholder enlightenment.

He commences with this statement: “There is an old Yiddish adage which, loosely translated, says “If you want to make God laugh, tell him your plans”. It is safe to say that when Victoria developed its business plan for 2020/21 at the start of this year, we did not factor in the complete economic shutdown in most of the various countries in which we operate”. He does briefly cover the latest business position but the Annual Report covers the year to the end of March so it is mainly historic data.

It was interesting to read this section: “A core element of our UK growth strategy, made possible due to the scale of our business, is our logistics operation, Alliance Flooring Distribution. 18 months ago, we made the decision to invest heavily in logistics, accepting the consequential temporary loss of some margin, in the belief that our customers – flooring retailers – would highly value reliable on-time delivery of carpet, cut precisely to size for a specific consumer order. This has meant that they can hold less inventory, freeing up cash from their working capital, and devote more space in their stores to point of sale rather than using it to warehouse product, and reduce waste, improving their margins. (Carpet is produced in rolls 25m long. However, houses rarely need exactly a full roll and retailers would invariably be left with a typical leftover 2-3m “short end”, which would be thrown away. In contrast, given our high volume of orders and sophisticated cutting planning software, our wastage is much lower). And this is exactly how it has turned out”.

Going back into history, in 1980 I developed a similar system for Harris Carpets to establish a computer system to optimise their central carpet cutting operations and minimise “remnants” or “short-ends”. This proved to be one of their key competitive advantages. Similar systems have been used by other big carpet retailers and distributors since, but the carpet market is still dominated by smallish local operations so you can see the advantages that Victoria might gain.

The second annual report I read was that of Downing One VCT (DDV1). Apart from a very poor financial performance for the second year running, the report fails to cover several important items.

Firstly there is no information on the length of service of the directors, nor their ages. It is now convention not to report the ages of directors which I consider unfortunate but they should at least state when they joined the board so we can see their length of service. Ages can of course be easily looked up at Companies House – they are 60, 71 and 75 years for the three directors.  Are ages and length of service important? I think they are simply from my experience of boards and their performance.

But the really big omission is that the substantial loss reported of £23.8 million partly included a “Provision for doubtful income” under Other Expenses of £2.1 million in Note 5 to the Accounts. What is that? I cannot spot any explanation in the report. I have sent a request for more information to the company.

Rio Tinto (RIO) published an abject apology this morning for their destruction of a cultural heritage site in Juukan Gorge in Australia. They say “The board review concluded that while Rio Tinto had obtained legal authority to impact the Juukan rockshelters, it fell short of the Standards and internal guidance that Rio Tinto sets for itself, over and above its legal obligations. The review found no single root cause or error that directly resulted in the destruction of the rockshelters. It was the result of a series of decisions, actions and omissions over an extended period of time, underpinned by flaws in systems, data sharing, engagement within the company and with the PKKP, and poor decision-making”. They propose a number of improvements to avoid the problems in future. In the meantime they are knocking off £2.7 million from the possible bonuses under the STIP and LTIP schemes available to CEO J-S Jacques and large amounts from two other senior executives. That should hurt enough I think. 

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

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Big Miners, Moneysupermarket and Winning Against the Odds

Looks like we are back to a normal English summer – rain every other day and cool. But there are a few things to talk about.

Yesterday BHP Group (BHP) published their results to the end of June yesterday. Revenue and earnings were slightly below forecasts and the dividend was reduced by 10% as profits were down. But hey, when so many companies are cutting out their dividends altogether this is surely not going to worry many people. They still managed to achieve a return on capital of 17% and underlying eps was up. The shares fell only slightly as a result.

Today Rio Tinto (RIO) reported that production of refined copper in 2020 is now forecast to be lower by about 30% due to delays in restarting a smelter after planned maintenance. The share price is actually up today slightly at the time of writing, perhaps because copper is a relatively small part of their portfolio.

Both companies are very reliant on consumption of commodities such as iron ore in China, and China is still forecast to have economic growth this year despite the Covid-19 epidemic, unlike many other countries. Both companies are working hard to improve their ESG credentials after some recent mis-steps. Ignoring that, these companies still look good value to me (I hold both).

I used to be a holder of Moneysupermarket (MONY) shares but sold most of them in March when I was cutting my exposure to the stock market and weeding out the underperformers in the epidemic rout. Recently my house insurance came up for renewal and the broker I had used for many years gave a renewal quotation that was up 12% on last year. So I thought I would look for a cheaper quote on Moneysupermarket. They produced three quotations only one of which was cheaper and they insisted we replaced our newly installed alarm system for reasons I could not understand. So I then looked at other alternatives and got a quote from LV (Liverpool Victoria as was) that was less than 50% of all the other quotations. The moral is that it can be cheaper to go to direct providers. Is this why Moneysupermarket has not been growing earnings of late? Perhaps they are not producing competitive quotations?

Another good book for summer holiday reading is “Winning Against the Odds”, the recently published autobiography of Stuart Wheeler. He died in July and had a very interesting career.  He was a big gambler and founded IG Index which developed into a major spread-betting company from which he made many millions of pounds eventually.

One section of the book talks about his visits to Las Vegas where he made money by using a card counting technique on Blackjack. But he clearly liked to bet on almost anything.

I visited Las Vegas several times for computer software conferences. But I avoided the gaming tables and slot machines.  I did have some interest when a teenager in betting but not after the age of 18. To win at card games, betting on horses or sports results requires a great deal of hard work to be successful. I think there are easier ways to make money such as betting on stock market shares.

One of Stuart Wheeler’s friends was the late Jim Slater, financier and author of books on stock market investment. One of his sons is Mark Slater who runs a fund called the Slater Growth Fund, and others. I don’t hold them because I prefer investment trusts to open-ended funds but he is certainly a good “active” manager. They sent me the latest update on the Growth Fund today and it’s good to see that their fund asset chart over the last few months appears to match my portfolio. At least I am keeping up with the professionals.

The latter part of Wheeler’s book covers his involvement with politics although he seemed to have no great adherence to any political stance, apart from his belief in capitalism and his desire to depart from the EU. He did donate £5 million to the Conservative Party which was the biggest donation at the time to them. But they later expelled him from the party after he started to support UKIP.

Politically the last few years have been some of the most exciting in my lifetime. Politics used to be a very boring subject but now it has captured the imagination of the public with everyone forming opinions on the parties, their leaders and their policies. Rational analysis often gets lost in the fierce debates. Brexit alone was and is a very divisive subject. 

The leaders have been a very mixed bunch indeed and Wheeler sticks the knife into both Jeremy Corbyn and Theresa May. But he was careful not to say a lot about Boris Johnson. I think he might have preferred Michael Gove as Conservative Party leader but I do not see him as being very electable.

In summary, it’s an interesting book and an easy read.

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

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Coronavirus News, AstraZeneca Vaccine, Bowling Alleys and Boeing 747s Retired

The UK death count from the Covid-19 virus is now 45,233. At least that’s the latest figure available because daily reports of deaths have now been suspended because the statistic is now known to be unreliable. Anyone who was identified as a Covid-19 infected person but later died from any cause is identified as a Covid-19 death. The result is that someone who was at death’s door from cancer before infection is counted as a Covid-19 death. Even someone who is run over by a bus is likewise included. This is truly bizarre and the Government has ordered an investigation.

The good news is that a second vaccine candidate looks like it might be effective. This is the one produced by Oxford University and which AstraZeneca (AZN) is gearing up to manufacture and distribute in volume. The share price of the company perked up on Friday as a result based on press reports and rumours although the trial results are not due to be published in the Lancet until Monday. Whether they will really make any money from this product remains to be seen. I only hold a few shares in the company and will wait to see a clearer view before buying more.

The other good news is that bowling alleys and other similar entertainment venues such as casinos will be able to reopen on the 1st August. But there will be restrictions on bowling alleys with only alternate lanes open, players limited to groups of 6 and they will be offered gloves to wear. Also bowling shoes are out.

I always thought the provision of shoes was a bit odd now that everyone is wearing trainers or other rubber/plastic soled shoes as I thought the original purpose was to protect the wooden runway. It seems that bowling shoes also enable the players to slide along the surface but only professionals actually do that. Bowling shoes may now die out.

CFO of Hollywood Bowl Lawrence Keen was quoted by the BBC as saying: “At 50% capacity, the company will still be profitable, albeit just”. I own a few shares in both Hollywood Bowl (BOWL) and Ten Entertainment (TEG) but again I think it is best to wait and see whether the players return before buying more shares.

Other news was the announcement by BA that they are “retiring” their entire fleet of Boeing 747s. With 31 planes they are the largest operator of the planes in the world.

As airline passenger numbers are much reduced from the epidemic impact, BA clearly sees little chance of filling the planes in future, and you need to fill a 747 to make them economic operationally. Boeing 747s were first made operational in about 1970 and unbelievably are still being manufactured, albeit with a lot of updates such as improved engines. They are still in demand for cargo flights due to their large capacity. What’s the price of a good second-hand 747-400? About $12 million, although I suspect prices are falling rapidly.

Memories: I recall the original promotional videos for the plane which featured lots of space to walk around in “lounges” with a bar at one end. In reality they soon crammed in as many passengers as possible and were hence not particularly comfortable, particularly in economy class. Some planes were configured to use the “upper deck” which one reached via stairs and I do recall at least one trip in that location. But the large number of passengers always meant it took a long time to unload and load, with long queues at passport control resulting.  Certainly a plane to avoid for passengers in my opinion even if you were flying business or first class. There was a certain comfort in having four engines in case one or two failed, but aircraft engines improved in reliability over the years so the initial doubts about flying more fuel efficient twin-engined planes soon vanished.

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

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Boohoo – Should I Speculate in the Shares?

There has been a lot of media comment on fast fashion retailer Boohoo (BOO) after publicity on the working conditions in the clothing industry in Leicester where at least some of its products are produced. The suggestions are that people are paid less than the legal minimum wage and work long hours in poor conditions, even possibly breaching Covid-19 regulations. The company has launched an immediate review led by a QC into these allegations, although the company has other sources of supply overseas and it seems that those produced in Leicester may simply be repackaged there.

The company also came under attack from shorter Shadowfall who published a damaging dossier in May which you can find on the web. The share price has been as high as 400p this year, but fell to close at 224p last night. However it’s making a sharp recovery today.

I don’t currently hold the shares but I did hold them from 2014 to 2017/18 and made considerable profits as a result. Last night the share price was back to near where I sold. Should I buy back into the shares is a question I face and my answer is probably not. These are my reasons:

The company has obviously been on a roll in the last few years with revenue doubling in the last 3 years. They have exploited the growth in the use of the internet for clothes shopping in the same way as ASOS, thus leaving traditional retail stores in their wake. With low price clothes that appeal to the young to the extent that some of it is disposable after one use, they have established a new business model with associated marketing channels.

Financially they have a very high rating as investor enthusiasm for the growth story means they are now on a historic p/e of 53. But there are a whole range of issues that are of concern, some of which are apparent from the Shadowfall report. I particularly focus below on the non-financial aspects because as I say in my book Business Perspective Investing, accounts cannot be relied upon and it’s best to look at other aspects of a business.

Are there any barriers to entry in this business is one key question? Are they doing something that cannot be copied by competitors? Will their profits and profit margins be eroded by lookalike competitors in the traditionally fierce rag trade?

A few years ago, it might not have been easy to set up an internet retailing operation, but now everyone knows how to do it and it does not cost much either. The traditional clothing retailers and supermarkets may be catching up fast even if Boohoo have built a big customer base. But I suspect their customers are fickle, being young and impulsive and might easily be poached by others with lower priced promotions.

Shadowfall points out that one of the company’s competitors is ISawItFirst.com who even appear to be selling apparently identical products. That company is majority owned by the brother of BOO’s Chairman. Another oddity is that BOO owns 66% of PrettyLittleThing with an option to buy the rest. That company is also a competitor and is run by the son of BOO’s Chairman.

The company also acknowledges in its latest announcement that the current board comprises 4 executive directors and 3 non-executive directors, i.e. there is no majority of non-execs as usually expected for larger companies – and BOO is large with a current market cap of about £3 billion.

In summary, this looks like a company for short term speculation rather than long-term investment to me. Not my ideal investment proposition without even looking at their financials and the questions raised on them.

There is also a big risk there will be more bad news about their operations revealed in due course. Once a company comes under a spotlight, any dirt that was previously swept under the carpet tends to be revealed.

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

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