Category: Companies

IHT Changes, Farmers’ Fury, Shell Legal Win and Freedom of Speech.

The proposed change announced in the budget to impose IHT on unspent pension funds has received a lot of media coverage. I covered it in my previous blog post, and I encourage all people affected to respond to the public consultation – see https://roliscon.blog/2024/11/12/iht-on-pensions-its-iniquitous/ .

One particular group who are incensed by the proposed change is farmers who will no longer be able to pass on a farm to their offspring free of IHT, unless it is a very small (and hence probably financially unviable). As many people have pointed out, farming is a multi-generational business as it takes many years to improve the quality of land or to rear improved livestock. I am not personally a farmer and this proposal seems to be a typically socialist prejudice against the landed gentry – or what they imagine farmers to be which is far from the truth in most cases. They may own valuable land but the profits of farming businesses are usually a poor return on capital.

To suggest people buy farms to avoid Inheritance Tax may be true in a few cases but the risks in doing so are high so I suggest there are other motivations.

The good news for Shell shareholders is that the company has won an appeal in the Hague against an order to slash its greenhouse gas emissions. This was a case brought by Friends of the Earth and others which may have severely damaged Shell and set a very bad precedent for other oil companies. Trying to stop the use of oil and gas is simply irrational. We will need those products for many years into the future as there is no viable alternative for some applications.

The world is becoming less and less rational. Recent legal cases in the UK where people are being accused of “Non Crime Hate Incidents” and hence get a criminal record – see the Alison Pearson case for example – are truly irrational. Free speech is being lost to a world where the prejudice of the thought police is becoming paramount.

I agree with Elon Musk. The UK is losing free speech and you could end up with legal prejudice because you dare to express an opinion on Twitter (“X”) or Facebook on any matter under the sun. We need a new “Bill of Rights” to stop all of this nonsense.

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

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Thames Ventures VCT Mergers – A Number of Concerns

 Thames Ventures VCT 1 and 2, currently managed by Foresight, are proposing to merge and rename the merged company as Foresight Ventures VCT. I currently hold TV1 as a result of past holdings in Pennine AIM VCT, Pennine Downing AIM VCT, Downing One VCT, et al. These companies are a typical example of unsuccessful VCTs merging, renaming, and resetting performance fees when they failed to meet targets. It’s no different in this case.

Merging of small VCTs is usually justifiable so I won’t be voting against that. But I have voted against the proposed performance incentive agreement. Performance fees are rarely justifiable in any investment trust and certainly not in this case. The management fees are already too high and with a base fee of 2.0% of NAV per annum if the investments are made successfully then the manager gets a return from the increase in the base fee. I do of course object to resetting of the existing performance fees just because they are under-water.

There is very little evidence that performance fees actually improve the performance of trust management.

Another negative aspect of the proposals is that the Investment Services Agreement with Foresight is being changed to remove the ability of the board to interfere in investment decisions. In successful VCTs the management decisions on new investments are carefully reviewed by the board of directors and have the final say on them. Unfortunately we have not been given a vote on that issue.

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

Tesla Announces Robo Taxis – a Revolution is Coming

Elon Musk has promoted a new Tesla “Cybercab” model – basically an electric car with no pedals, steering wheel or other controls which he hopes to sell for $30,000. He also unveiled a prototype for a 20-person autonomous vehicle called a Robovan. They have yet to be approved by regulators and currently rely mainly on vision systems to avoid collisions unlike some of the self-driving competitors. He also demonstrated an Optimus humanoid robot for jobs around the house.

Production of the Cybercab is not scheduled until 2026 so this is more a statement of ambition than short-term reality but it does show that Tesla are committed to revolutionising personal transport. See https://www.telegraph.co.uk/us/news/2024/10/11/elon-musk-unveils-new-tesla-robotaxi-cybercab/

Meanwhile Tesla is facing stronger competition for electric cars from low-cost Chinese manufacturers. One can easily envisage that the world will be a very different place as regards automobiles in a few years’ time. Electric cars are achieving longer ranges and are getting relatively cheaper so are becoming more practical for most people who only do daily short journey commutes.

My next personal vehicle may well be an electric one, and being able to give up driving altogether would also be a distinct advantage as I get older.

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

You can obtain notifications of new posts in future by following me on Twitter (now “X”) – see https://x.com/RogerWLawson where new blog posts are usually mentioned.

Vaccines and Human Challenge Trials – hVIVO

Yesterday I had yet another Covid 19 booster vaccination. This must be my sixth or seventh. This was using the Moderna vaccine and no side effects noticed. I have yet to catch Covid which is somewhat surprising as I have a compromised immune system.

I have a flu vaccination lined up for next week, and one for RSV next month. The NHS now has a programme of vaccinating older people against RSV. I also have Denosumab injections every six months to prevent osteoporosis. It’s a good job I have no fear of needles.

These are all high-tech medical solutions which one hopes have been adequately tested. The company hVIVO (HVO) specialises in “human challenge trials” where they get volunteers who are happy to be infected and are treated with the chosen drugs as a prophylactic.

They have revenue of over £60 million and are profitable. They have a good return on capital and even pay a small dividend. The company does have some competitors but they do seem to be building a profitable niche.

I have purchased a very few shares so I can keep an eye on the progress of the business. But with new viruses constantly appearing it does seem likely that demand for such testing services will grow.

There is also on-going demand for effective influenza vaccines – a disease which still kills many people – particularly the young and old.

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

BHP Annual Report and Climate Transition Action Plan

As a shareholder in BHP, the major Australian mining company, I have received their Annual Report today. It includes their Climate Transition Action Plan (CTAP) which we are asked to vote on.

Photo above is of an experimental electric truck from the Report which might assist in reducing their Scope 1 and 2 emissions. As one of the biggest copper producers in the world investing in BHP is somewhat of a bet on electrification to reduce carbon emissions. But it is also dependent on demand in China.

I abstained on the CTAP vote because I do not think I have enough information to judge the merit of that Plan or even whether such a Plan is necessary. I did vote against the Remuneration Report though as I consider the overall pay levels excessive at such large companies.

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

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What Went Wrong at DG19?

There is a good presentation by Paul De Gruchy given at the recent Mello event on what went wrong at Digital 9 Infrastructure (DG19). This is an investment company which had a valuation of £1 billion at one point but is now worth only £152 million. You can see his presentation on YouTube at: https://www.youtube.com/watch?v=nq2EWGfE3rg

This looks simply like a consistent over-valuation of the assets which were reported to the board. The estimates were based on forecasts of future business activities which turned out to be very optimistic. The managers collected 1% as a fund management fee on the optimistic estimates of asset values.

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

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Alliance Trust and Witan Merger

 

Shareholders in Alliance Trust (ATST) and Witan Investment Trust (WTAN) should have received voting instructions for how to vote on the proposed merger of the two companies (I hold one of them). I commented on the relative performance of the two trusts earlier this year – see https://roliscon.blog/2024/03/25/alliance-trust-and-witan-why-is-one-doing-well-but-not-the-other/

Clearly shareholders in Witan might be unhappy and might welcome the merger but I can see little benefit for Alliance Trust shareholders. The combined trust will be larger and hence the ongoing charge for Alliance shareholders might improve slightly but it is already quite low at 62 bps. But the larger an investment trust becomes the worse the performance tends to be. There are only so many “good ideas” that a fund manager can have.

As a holder of only Alliance Trust I have therefore voted against the merger. This is one of the proposals that seems of more benefit to the fund managers than to the shareholders.

BUT DO MAKE SURE YOU VOTE!

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

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Polar Capital Technology Share Split

Polar Capital Technology Trust (PCT) this morning announced a proposed 10 for 1 share split. This is designed to assist regular savers and those who are looking to invest smaller amounts, according to the announcement. It is also suggested that this will also make the “each share more affordable to investors”. This is of course complete nonsense.

Changing the nominal price of a share by increasing the shares in issue  when the underlying assets don’t change has no impact whatsoever in real terms. This is a smoke and mirrors bit of illusion that no sensible company should have anything to do with.

I will be voting against this proposal with my holding in PCT.

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

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IC Articles and Satisfying the Urge for Action

I have been reading the latest edition of the Investors Chronicle magazine. John Rosier’s article was particularly interesting as he discussed several of my current and past holdings.

For example he mentioned the merits of Paypoint (PAY) which was up 15.8% in June. He says “On 13 June, results for the year ended 31 March were in line with expectations. The good news, however, was the boards commitment to building shareholder value. It announced the start of a £20mn share buyback, representing about 4.5 per cent of the current market capitalisation”. Other positive comments followed. John suggests the market is materially undervaluing the company. Valued at around nine times earnings and on a dividend yield of 7 per cent, he suggests there is more to come. As I have held the share for some years, I hope so even if I don’t like share buy-backs.

John also mentions Serica Energy (SQZ) positively. I bought this at 390p in 2022 on the recommendation of one of my stockbrokers but sold at 255p at the end of that year. It’s now 136p so at least I made the right decision to sell. Is it worth revisiting? I don’t think so. It’s usually a mistake to revisit old errors in the hope of some recovery. The moral is perhaps not to follow share tips from brokers.

John also covers Polar Capital Holdings (POLR), a fund manager. Dividend was maintained giving a yield of 7.8 per cent and assets under management are increasing. So that’s another one I like also.

He also says he has invested in a fund called VanEck Crypto and Blockchain Innovators ETF (DAGB) because he wants some exposure to bitcoin. He admits this is a highly speculative position but as he has limited it to 1.5% of the portfolio it can’t do a lot of damage. This looks like an urge for some excitement in the quiet summer period on stock markets. I certainly won’t be following that urge. Such a small holding is not showing much confidence that this bet will work out. But if it satisfies the urge for action it may be pacifying.

If I want more excitement I will buy more Bango (BGO) or Verici Dx (VRCI) who both made positive announcements this morning. Interesting companies if difficult to understand and certainly speculative.

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

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BP and Oil Demand

Yesterday saw a significant drop in the share price of BP (BP.) in which I have a holding. This resulted from a trading statement that forecast lower margins in its refining business and weak oil trading performance. Earnings in the second quarter will be between $500 million and $700 million lower than for the previous three months. There will also be major write-downs on a refinery in Germany.

BP shares have performed very badly this year compared with Shell. Should I dump BP shares and switch into Shell or US competitors as many institutions seem to be doing? This is not a simple question and without a simple answer. Trading shares based on short term events or commodity prices is usually a mistake.

The key question for BP is have they moved too quickly into alternative energy projects and hence are reducing profits on their traditional oil/gas refining and distribution businesses. The market seems to think so.

Will electric cars replace internal combustion engined ones and undermine one of the major markets for oil? Saudi Aramco (the world’s largest oil company) are betting otherwise. There was a good article in the FT yesterday on this subject – see https://www.ft.com/content/a3019ce4-be91-4dc8-83c5-489f18bf56cf . They are backing the development of new combustion engines. Yasser Mufti, the executive vice-president at Saudi Aramco is quoted as saying: “It will be incredibly expensive for the world to completely stamp out, or do without internal combustion engines. If you look at affordability and a lot of other factors, I do think they will be around for a very, very long time.”

The UK and many countries in Europe are trying to move away from oil rapidly when the US and rest of the world are not doing so. They are taking a more pragmatic and realistic view in my opinion.

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

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