Horizon Discovery AGM and Chrysalis VCT

Yesterday I attended the Annual General Meeting of Horizon Discovery Group (HZD) in Cambridge. This is a new holding for me, and I don’t often buy shares in companies that are not reporting profits, but I thought it was worth going along to learn some more about the business. The company’s primary focus is on cell manipulation tools (gene editing, gene modulation) which they sell to drug development companies et al. I am not sure I have great understanding of the science but they recently had an offer for the business from Abcam who should understand it, particularly as they shared a non-exec director, Jonathan Milner, until recently. The offer from Abcam was rejected on the basis it was not good enough. The board of Horizon thought it was worth twice as much on a revenue multiple basis looking at comparable companies so the offer was withdrawn. Analysts forecasts are for near breakeven on an adjusted basis this year so it is making progress, but it’s still valued at more than seven times revenue.

However, I shouldn’t need to tell you that this area of medical science is a rapidly developing one with great prospects for innovatory cures of genetic defects and more focused drugs to match a person’s DNA profile.

With minimal shareholders present, it was a short meeting and only I asked any questions, so it will be a short report. One question I asked is why the company loses money on services but makes a profit on product sales. See segmental breakdown on page 66 of the Annual Report. As I said at the time, normally it’s easier to lose money on product sales because with services if they are not profitable you can simply stop providing them. In other words, this was an unusual profile. The Chairman, Ian Gilham, initially denied they lost money on services (it’s over £10 million excluding even “leveraged R&D”), but the CFO then explained that the services are often development projects for customers where they retain the IP, i.e. the customers are paying to some extent to develop the products. That is always a good business model.

I asked why the former CEO had recently left and the only answer I got was that he probably wanted to work for a smaller company while Horizon is now quite large after the recent acquisition of Dharmacon. That will transform the financial numbers. The new CEO is Terry Pizzie who has worked for the company since February 2017.

I was favorably impressed on the whole but I did comment that even if it is an AIM company they could do with having a Remuneration resolution on the agenda. Their pay scheme is actually quite a simple one, and bonuses last year were quite limited, so I would have voted in favour of it anyway.

A long-awaited announcement yesterday on what they plan to do to tackle some strategic issues was from Chrysalis VCT (CYS). This venture capital trust has been somewhat unusual in being self-managed and having no discount control mechanism, i.e. no active buy-back policy. As a result of the latter combined with decent fund performance the trust was offering a very high dividend yield to those investors brave enough to buy shares in the market (like me). Some of the directors took advantage of that situation in the past, although not recently. However the company is facing some possible problems in that the size of the trust is tending to run down due to the high dividends paid out, and the changes to the VCT rules might make it difficult to follow their past investment strategy.

So yesterday they announced that they were implementing an “active buy-back” policy with a target discount to NAV of 15%. The share price rose on the day as a result. Even after that the yield is 7.6% (tax free) according to the AIC. The buy-back policy might help if they wished to raise more investment funds, but they also say they are likely to make “further distributions of capital” so it looks like the fund will run down further in size instead.

The half year results given in the same announcement were somewhat pedestrian (NAV up 1.6%) like many VCTs I hold of late. But anyone considering the shares needs to look at the large holding of Coolabi in the portfolio.

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

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Tungsten, RedstoneConnect, Proactis, LoopUp, Mello and productivity

ITesterday there was an announcement by Tungsten Corporation (TUNG) that there was press speculation about a possible requisition of a general meeting to remove some of the directors, including the Chairman and CEO, and appoint others. This is likely to come from Odey Asset Management supported by other large investors the company understands. Their combined holdings could give them a good chance of winning any vote, or at least it would be a hard-fought proxy battle.

It would seem that the former CEO Edi Truell is involved in this initiative. It would be most unfortunate in my view if he returns to this business (and I did purchase a very few shares in the company after he departed which I still hold). Richard Hurwitz has done a good job in my view of turning this company from a financial basket case with very substantial annual losses into a sounder one. Revenue has been rising and costs have been cut although profits have been longer to appear than hoped. However the company does report that EBITDA was at breakeven for the first four months of the calendar year. It’s at least heading in the right direction now so I am unlikely to be voting for any such requisition.

I attended the Mello event at Hever yesterday and was hoping to get an update from Mark Braund on RedstoneConnect (REDS) where he was due to present. But his presentation was cancelled. Now we know why because an announcement this morning from the company said he was leaving. Perhaps he wants a new challenge. This was another basket case of a company where Mark turned it around in the two years he has been there. So some investors may not be pleased with his departure and the share price predictably dropped on the news. The new CEO will be Frank Beechinor who is currently the Chairman. He is also Chairman of DotDigital and clearly has experience of running IT companies so it’s probably a good choice. A new non-executive Chairman has been appointed (Guy van Zwanenberg).

The Mello event, organised by David Stredder of course, was held near Hever Castle in deepest Kent. I know some of the roads in the area as I live nearby but even so managed to get lost. Not the ideal location. But it was a useful event otherwise. I did an interview for Peter of Conkers Corner and sat on the panel covering the Beaufort case. Videos of both are likely to be available soon, and I will tweet links to them when they appear.

A company that did present at Mello was Proactis (PHD) with CEO Hamp Wall doing the talking. I was unsure of the potential future growth for the company as I thought the market for procurement software might be quite mature (i.e. most likely users had such a product/service). But not so it seems, particularly in the USA and their target vertical segments. Hamp spoke clearly and answered questions well. He is clearly an experienced IT sales/marketing manager. He said he was surprised though that the share price fell over 40% recently when they announced the loss of two of their largest customers. He thought it might fall 15%. I agreed with him that it seemed excessive. But the market does not like surprises.

Today I attended the AGM of LoopUp Group (LOOP) who sell conferencing software. They recently merged with a competitor named MeetingZone and it looks likely to double revenue and more than double profits if things go according to plan. The joint CEOs made positive noises about progress. The company is chaired by heavyweight Chairperson Lady Barbara Judge CBE which is somewhat unusual for this kind of company – at least heavyweight in terms of past appointments if not lightweight in person.

Tim Grattan was the only other ordinary shareholder present and may do a fuller report for ShareSoc. A disappointing turnout for a very informative meeting as both I and Tim asked lots of questions.

Tim advised me after I mentioned the Foresight 4 VCT fund raising that it was odd that no mention was made in the prospectus of the alleged illegal payment of a dividend. Is this not a “risk factor” that should have been declared he asked? That company and its manager seem to be turning a blind eye to that problem.

There was an interesting letter from Peter Ferguson in the Financial Times today. It covered the issue of a declining productivity growth in the UK and other countries aired in a previous article by Martin Wolf. This is certainly of concern to the Government and should be to all investors because only by increasing productivity can we get richer. Mr Ferguson suggested one cause was the negative impact of increasing regulation. He suggested it has three impacts: 1) more unproductive people appointed to monitor and enforce the regulations, 2) more compliance officers, and 3) less productivity as a result in companies due to sub-optimal practices. Perhaps fortuitously I am invested in a company that sells risk and compliance solutions. It’s certainly a growth area and there may be some truth in this argument. Has MIFID II reduced productivity in the financial sector with few benefits to show for it? I think it has.

But Rolls-Royce are going to improve the productivity in their business at a stroke. They just announced they are going to fire 4,600 staff. But are any of them risk and compliance staff?

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

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RBS Sale and Blackrock Smaller Companies AGM

The Government is selling off another tranche of its holding in the Royal Bank of Scotland (RBS). By selling another 8% it will reduce its holding to 62% of the company. The Government (or “taxpayers” as some described them) will face a loss of about £2 billion on what it originally paid for the shares. There were howls of protest from some politicians. John McDonnell, shadow chancellor, said “There is no economic justification for this sell-off of RBS shares. There should be no sale of RBS shares full-stop. But particularly with such a large loss to the taxpayers who bailed out the bank”.

I think he is suffering from the problem of “loss aversion”, i.e. a reluctance to sell a losing investment rather than looking at the current value of the bank and its prospects. The market price is surely the best indicator of the value of the company – it’s what willing buyers will pay, and what sellers consider a fair price. One aspect to consider is that the value of the business may be depressed because nobody likes to buy shares in companies where there is one dominant controlling shareholder and particularly so if that shareholder is a government. The only way the UK Government can solve that problem is to reduce its holding in stages, as they are doing. Forget the prospective loss on the share sale. Better to accept the price offered and reinvest the proceeds in something else. The Government has lots of things where it needs more cash – the NHS, Education, Defence, Brexit plans, you name it.

Mr McDonnell may be particularly unhappy as he hopes to take power at the next General Election and RBS is one of the few remnants of the past Labour government’s major stakes in UK banks. After Gordon Brown nationalised Northern Rock and Bradford & Bingley, they took effective control of RBS, and to a large extent Lloyds. Only Barclays managed to escape by doing a quick deal with middle-east investors which has been the subject of legal action, only recently thrown out by the courts. For any socialist, particularly of the extreme left like Mr McDonnell, the ability to tell banks what to do is an undoubted objective. Banks tend to reduce lending when the economy worsens and their clients start to have difficulties but the claim is often that such reduction in lending compounds the economic woes.

Yesterday I attend the Annual General Meeting of Blackrock Smaller Companies Trust Plc (BRSC). What follows are some brief highlights. This company has a good track record – some 15 consecutive years of outperforming its benchmark by active management. So much for passive index investing. It has been managed by Mike Prentis for many years assisted by Roland Arnold more recently. The share price rose by 25% last year but the discount to NAV has narrowed recently to about 6% so some might say it is no longer a great bargain. The company does not have a fixed discount control mechanism and has traded at much higher discounts in the past.

It’s a stock-pickers portfolio of UK smaller companies, including 43% of AIM companies and 143 holdings in total. Many of the holdings are the same companies I have invested in directly, e.g. GB Group who issued their annual results on the same day with another great set of figures.

Mike Prentis gave his key points for investing in a company as: strong management, a unique business with strong pricing power, profitable track record, throwing off cash, profits convert into cash and a strong balance sheet. They generally go for small holdings initially, even when they invest in IPOs, i.e. they are cautious investors.

When it came to questions, one shareholder questioned the allocation of management fees as against income or capital (25% to 75% in this company). He suggested this was reducing the amount available for reinvestment. But he was advised otherwise. Such allocation is now merely an accounting convention, particularly as dividends can now be paid out of capital. But he could not be convinced otherwise.

Another investor congratulated the board on removing the performance fee. Shareholders were clearly happy, and nobody commented on the fact that the Chairman, Nicholas Fry had been on the board since 2005 and the SID, Robert Robertson, had also been there more than 9 years – both contrary to the UK Corporate Governance Code. The latter did collect 5% of votes against his re-election, but all resolutions were passed on a show of hands.

I was positively impressed on the whole.

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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Learning Technologies AGM and Brexit

I went to the Learning Technologies (LTG) Annual General Meeting yesterday, only to find my son Alex was there also (we both hold the shares). So we did a joint report which can be found on the ShareSoc Members Network. What follows are a few particularly interesting points from it.

LTG was a workplace digital learning solutions provider up to the beginning of last month when it announced it was to buy PeopleFluent – a cloud based talent management platform. Chief executive Jonathan Satchell described the deal as “transformative” for LTG’s US presence and that is surely the case. He also noted that “learning and talent are closely aligned” with cross-selling opportunities adding possibilities for further growth.

When the formal business was considered the first resolution was to accept the annual accounts and directors report. This had a surprise vote of 56 million proxies against (12%). I asked why the large vote against a resolution that normally gets a high percentage “yes” vote. Chief exec Jonathan Satchell replied that ISS (a proxy advisory firm) had recommended shareholders vote against the resolution on the grounds that there was insufficient disclosure in the Directors remuneration report, and shareholders had not been given a chance to vote on directors’ remuneration. Jon felt the complaint by ISS was overblown, but that LTG had discussed the issue with ISS and will look to improve disclosure next year. Jon noted it was not necessary to hold a vote on remuneration although I pointed out it was preferable to do so and many AIM companies did have remuneration votes. ISS had also noted that the Chairman Andrew Brode was on the remuneration committee, which they didn’t like. Jon did say that Andrew would be more than willing to give this role up and so in the coming year Jon said to expect a change on this committee.

A shareholder asked if the £13.3m Civil Service contract was a one off. Jon replied that there is scope for a one year extension to the contract but at the moment the accounts are based on the contract ending with no extension.

I asked about the PeopleFluent acquisition and questioned the use of a “cash box” transaction as this ignores shareholder votes in prior resolutions. A cash box placing allows a company to issue new shares by bypassing pre-emption requirements – meaning without shareholder approval. It works by a company forming a new subsidiary into which it puts cash via a placing and then buys that shell, paying with shares priced at whatever level it deems suitable. In effect it sidesteps the legal requirements of Company Law, and the resolutions previously passed by shareholders re share issuance.

Jon replied that LTG was up against US private equity and it was felt this was the best way to get the right amount of funds needed in a timely fashion to give the highest quality offer LTG could make. Comment: with the Chairman and CEO holding over 45% of the shares any vote would have surely gone through so it may not be so prejudicial to shareholders interests. But it sets a bad legal precedent as I think such transactions should be made illegal. Apparently Numis, their Nomad/Broker, suggested they do this. Otherwise it was a placing with no open offer which prejudices private shareholders although the discount to the previous share price was minor.]

Jon talked about the recent Pluralsight IPO, a similar US business. The company lost $90m on $160m revenue. Valuation $2Billion. Comment: this is obviously a “hot” sector for investors.

Summary: The enthusiasm of the CEO for the future prospects of the business were very evident and this seems to have been communicated to shareholders in recent weeks. The share price has been motoring upwards so it’s now on a prospective p/e of 44 according to Stockopedia. Certainly the high recurring revenue feature of the PeopleFluent business is positive as I always like companies with high recurring revenues and I said that in the meeting. However there are significant risks in such a major acquisition of a US business where there may be cultural and management style differences. The business also seems to have some difficulties and they have already be making some management changes.

In addition to that the large civil service contract in the UK will probably not be extended – or at most by a year – so historic revenue may not be representative of future revenue, and in addition the change to adopt IFRS 15 (see page 12 of the Annual Report) will impact 2018 financial figures. The corporate governance and the way the placing was done are also negatives. In summary there are a number of negative aspects in this business and potential high risks from the acquisitions that have been made (not just the latest one). The enthusiasm of investors for this business might be ignoring the substantial risks now associated with it so investors should keep a close eye on the progress of the acquisitions and their associated restructuring.

But as always, I learned a lot about this business and the individuals involved from attending the AGM. There were less than a dozen ordinary shareholders at the meeting which is disappointing given the opportunity it provides to quiz the management.

Brexit: I have not said much on the hot topic of Brexit of late although it’s no secret that I am generally in favour of it. The regulations that have come out of Europe such as MIFID II, the Shareholder Rights Directive and GDPR might have had good intentions behind them but in practice the detail regulations that result have been horribly complex and bureaucratic. The result has been very high costs imposed on many businesses and often with ineffective results. The key problem has been bureaucrats in Brussels with little knowledge of the real world and the business environment in the UK designing regulations without adequate consultation (or ignoring feedback submitted) and producing gobbledygook which few people understand. GDPR had positive objectives but the law of unintended consequences has resulted in people receiving hundreds of pointless emails.

The latest example of ridiculous claims of the cost of Brexit was the statement by Jon Thompson the head of HMRC that the “maximum facilitation” (Max Fac) option could cost UK businesses as much as £20 billion per year. This is apparently based on the cost of filling out customs declarations (200 million per annum at a cost of £32.50 each, plus other form filling according to the FT). This seems to assume that forms are filled out manually when in reality that can be done by computer software surely. Business might also look to reduce the costs by bulking up orders, or simply choosing not to export or import, i.e. to do business in different ways or with different people.

Whether Max Fac is a sensible option it’s difficult to say without a lot more evidence but staying in the Customs Union simply to avoid a hard border in Ireland does not seem to make sense because it means our trading policies and practices will be dictated by the EU. That’s not what people voted for in Brexit. People voted for political and governmental independence. Many people accept there may be some extra cost involved as a result but scare stories about the costs are not helpful.

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

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Two AGMs (Accesso and Foresight VCT) in one day

Yesterday I attended the Annual General Meeting of Accesso (ACSO) in Twyford at the somewhat early time of 10.00 am with the result that I got bogged down in the usual rush hour traffic on the M25. What a horrendous road system we have in London! A symptom of long term under-investment in UK road infrastructure.

Accesso provides “innovative queuing, ticketing and POS solutions” to the entertainment sector (e.g. theme parks) although they have been spreading into other application areas. The business has been growing rapidly under the leadership of Tom Burnet who moved from being CEO to Executive Chairman a while back.

Tom opened the meeting by introducing the board, including new CEO Paul Noland who is based in the USA where they now have 5 offices apparently. He also covered that morning’s trading statement which was positive and mentioned deals with Henry Ford Health System and an extension to an existing agreement with Cedar Fair Entertainment. Expectations for the year remain unchanged. Questions were then invited – I have just covered a few below.

I raised a concern about the low return on capital in the company (now less than 5% irrespective of how one cares to measure it). I suggested the reasons were large increase in administrative expenses (up 43% last year) and the cost of acquisitions. Did the board have any concerns about this? Apparently not. The reason is partly the acquisitions and the costs might come down as they rationalise operations but they are in no rush to do so.

The Ford deal was mentioned and Tom said this is one deal where the acquisition of TE2 has provided the technology to assist closure. This is what the company said about TE2 when they bought it: The Directors of accesso believe that TE2’s cloud-based solution offers market-leading personalisation capabilities and data orchestration technologies which capture, model and anticipate guest behaviour and preferences not only pre- and post-visit online, but in the physical in-venue environment.  Personalisation is achieved via many heuristics, including machine-learning-based recommendations, in order both to enhance guest experiences and to provide actionable analytics and insights to the operations, retail and marketing organisations.”. I am sure all readers understand that. Hospital systems are clearly one target for this technology.

The vote was taken on a show of hands so far as I could tell, although the announcement the next day of the votes suggested it was done on a poll which is surely wrong. But there were significant numbers of votes (over 2 million) against several directors and against share allotment resolutions. I asked why and was told it was because of a proxy advisory service recommending voting against, allegedly because of some misunderstanding. The answer to my question seemed somewhat evasive though.

In summary, shareholders are clearly happy with the progress of the company but with a prospective p/e of 41 (and no dividends), a lot of future growth is clearly in the share price. Corporate governance seems rather hit and miss.

I then drove into London to the offices of Foresight in the Shard, again journey time a lot more than it should have been due to road closures, lane removal for cycle lanes, etc, etc. Interesting to note a large hoarding on the elevated section of the A4 inviting anyone who had a complaint against RBS and the GRG operation to contact them.

Also interesting to note when I stopped for fuel at a service station on the M4 that at the desk they were serving Greggs food and coffee as well as taking payment for fuel. I know that Greggs have kiosks in some motorway service areas but this is perhaps a new initiative to expand their market. It’s rather like the small Costa coffee outlets that are in all kinds of places. I am a shareholder in Greggs but this was news to me. Obviously I need to get out more to see what is happening in the real world.

The visit to Foresight was to attend the AGM of Foresight VCT (FTV) one of my oldest holdings. Effectively I have been locked in after originally claiming capital gains roll-over relief. It’s also one of the worst of my historic Venture Capital Trust holdings in terms of overall performance over the years.

I did not need to tell them again how dire the performance of the company had been over the last 20 years because another shareholder did exactly that. But I did query whether the claimed total return last year of 6.5% given by fund manager Russell Healey in his presentation was accurate. It was claimed to be so. Perhaps performance is improving but I am not sure I want to stick around to see the outcome.

One particularly issue in this company is the performance fee payable to the manager which I wrote about in my AGM report and on the Sharesoc blog last year. You can see why the manager has such plush offices as they have surely done very nicely out of this and their other VCTs over the years while shareholders have not, and will continue to do so.

Several shareholders raised questions about the reappointment of KPMG bearing in mind that in Foresight 4 VCT the accounts were possibly defective and a dividend might have been paid illegally. But the board seemed to know nothing about this matter. KMPG got about 6 hands voting against their reappointment and the board is going to look into the matter.

The above is just a brief report on the meeting as I understand Tim Grattan may produce a longer one for ShareSoc.

To conclude, both AGMs were worth attending as I learned a few things I did not already know. For example it seems my holding in Ixaris, an unlisted fintech company where Foresight have a holding, may be worth more than I thought. But I still think their valuation is a bit optimistic.

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

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Elecosoft AGM, British Land, Apple, Social Media and GDPR

Yesterday I attended the Annual General Meeting of Elecosoft (ELCO) as a shareholder. Elecosoft produce software products for the building/construction industry. It’s a fairly new purchase of mine so I thought I would go along and get an impression of the company and its management.

The meeting was held in the City of London at the convenient time of 12.00 noon and there were about 20 shareholders present. That’s more than I expected given the size of the business (market cap only £56 million). The share price has been rising recently after the company now seems to be growing rapidly after a period of relative stagnation. But like many software companies they capitalize a lot of software development which will not please some investors. They do have substantial recurring revenue from maintenance contracts which is an aspect of software businesses I always like. The company issued a positive trading update on the morning of the AGM.

The Executive Chairman, John Ketteley, is a former merchant banker apparently. He commenced by welcoming attendees to the 78th Annual General Meeting of the company (did I hear that right?), and that he found that easy to remember as he was also 78 years old. Yes this is a somewhat unusual leader for a software business.

The Chairman then launched straight into the formal business of the meeting without inviting questions – not a good sign – so I had to interrupt him. Questions should be taken first.

I asked why the company was requiring shareholders to “opt-in” specifically to receive a cash dividend rather than a scrip dividend. I have never seen this before in any company. The answer given was because those in nominee accounts had difficulty in taking up scrip dividends instead of receiving cash. But I had to tell him that as some of my holding was in a SIPP I had queried how they were going to handle this option and was advised that they took up the cash option for all investors in such cases, which rather defeats what the Chairman was trying to achieve. Some shareholders, like me, tend to prefer cash dividends as otherwise it can get complicated keeping track of one’s holdings. Only those with large direct holdings (not in tax free ISAs or SIPPs) are likely to want to take a scrip dividend.

There were a few questions from other shareholders. Might the company consider moving to the main market from AIM (or moving back as it turned out)? The Chairman saw no benefit in doing so and two shareholders say they would be definitely opposed. There are good tax and other benefits for shareholders from being on AIM. Another question was on moving to SAAS platforms – it seems some of their software is still PC based, but new development is moving to the web.

I would not say the Chairman handled the meeting particularly well despite his experience. Perhaps his age is showing. I did speak to him directly after the meeting and asked about the high number of management changes in the last year and whether he was considering retiring. He indicated that he needed to rebuild the team and that he was now very confident he had a good team in place. But succession planning does not seem to be a priority.

But it was a useful and interesting AGM, as many are. They often turn out to be more interesting than expected. There was also a goody bag of useful kit – a baseball cap (something us baldies can always use as I said to the Chairman), a UBS Memory Stick and a Notebook.

Let’s now consider two companies at the other extreme in terms of size. Firstly British Land (BLND) – a property company with a market cap of about £7 billion. This company has a large portfolio of City offices and retail stores. I first invested in this company in December 2015 when I bought a few shares at 795p on the basis that the falling prices of property companies due to fears over Brexit were overdone. The share price is now 695p so not exactly a great initial purchase!

But the share price has been recovering and in fact taking into account dividends received I am now at breakeven after some more purchases when it became even cheaper. But it has certainly been a poor investment in comparison with other property companies I hold (e.g. big warehouse providers). Any company with an interest in the retail sector has suffered and British Land has been selling such properties. That has reduced their income and impacted profits.

But I do like to have some more defensive large cap stocks in my portfolio to offset the more speculative small cap stocks such as Elecosoft (I run a “barbell” portfolio in essence). When I first purchased British Land it offered a yield of 3.6% and was at a discount to net asset value of 10%. The prospective yield is now 4.4% and the discount is over 25% even after recent share price rises, which is unusual for a property company.

British Land seemed to adopt a defensive stance although City centre office values have not been declining as expected. The company has been reducing debt with LTV (loan to value) now down at 28% based on the full year results published yesterday. Perhaps the lesson here was not to buy shares that start to look cheap unless they become really, really cheap. But non-executive director Preben Prebensen just spent £140,000 on buying shares so perhaps the future is looking brighter.

Apple Inc (AAPL) is the largest company in the world with a market cap of $919 billion. That’s still ahead of Amazon. I don’t hold Apple directly although some indirectly in the investment trusts I hold. Some people have questioned whether Apple can continue to grow and maintain its profit margins when a lot of the revenue comes from iPhone sales. Surely the mobile phone market is now quite mature with everyone having one (indeed some of us have two) and new models not providing much in terms of new features?

I can possibly provide some light on this having just upgraded from an iPhone 6 to an iPhone 8. They look and weigh the same. I only changed because of contract expiry and a concern that the battery was wearing out, but in fact I think the poor battery life was down to using a smartwatch which connects via bluetooth. The new phone has very similar battery life. Perhaps the camera is a wee bit better, but then I don’t use it a great deal. So in essence, I think I have wasted my money in upgrading. This surely brings into question how long Apple can continue to grow unless some of their other products take off. Their smartwatch has not been as successful as might have been expected – smartwatches still seem to be a minority interest.

Finally let me say some more on the issue of the abuses in social media which I covered in a previous blog post. Just to clarify one point, when I suggested a Government inquiry into social media, I was not necessarily advocating more legislation. I think laws can be very ineffective in mandating or enforcing social norms. For example, one existing problem is that libel laws are pretty useless to most people – only the wealthy can afford to pursue libel cases and even if they do, enormous costs end up being paid to lawyers while the resulting remedy may be ineffective. Making them criminal offences would be no more likely to be effective partly because the police have no resources to enforce most existing laws.

I think there needs to be an inquiry into the causes of the breakdown in social norms about what is and what is not acceptable behaviour. The fact that folks can post garbage anonymously is one issue to look into. Is education a solution perhaps? Or perhaps another solution might be to enable “trusted” reviews to be invoked – for example Wikipedia seems to be good at ensuring reasonably accurate and responsible public information and commentary even though in essence there is complete freedom for anyone to post there. Moderation of posted material is obviously advantageous which some platforms do not do, or do in a very limited way. Simply the publication of a “standard” or set of norms for public forums (as Wikipedia also has of course) might assist. A combination of approaches might be the solution, and perhaps more research into the causes is required. Those are the issues that a public inquiry might look into and provide some recommendations upon.

At present there is a focus on making the national press more responsible (the Leveson inquiry and its recommendations) while ignoring the new world of social media, blogging sites and other forums. They need to be embraced also as there is no longer a firm dividing line between media. Perhaps a social media regulator is required to take responsibility for and provide guidance in this area, as the Information Commissioner does for Data Protection? But with a lighter touch than we are getting with the GDPR rules which seem to be another example of excessive regulation from the EU which is unexpectedly imposing major costs on even the smallest organisations. I am not convinced the new rules will stop the spam that we all receive.

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

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