Tag: Alliance Trust

Alliance Trust, Segro and NatWest AGMs

Yesterday I attended the Annual General Meeting of Alliance Trust (ATST) online. This at least enabled me to avoid travelling to Dundee and I am still avoiding physical meetings because of the Covid risk. From the experience of one tradesperson who visited us yesterday this is still very sensible I think – he caught it in London but had been very unwisely avoiding vaccination – as a result he spent several days in hospital with pneumonia despite being a young and fit person beforehand.

The Alliance Trust AGM was held as a “hybrid” meeting using the Lumi platform which enables on-line voting and was a very well managed event.

Alliance Trust is of course a generalist global trust and after a difficult few years in the past have now reverted to being one of those trusts suitable for widows and orphans, or anyone who desires a “simple, high-quality way to invest in global equities at a competitive cost” to quote from their Annual Report. They use WTW to select and manage a portfolio of independent fund managers.

The Chairman, Gregor Stewart, made the following comments. They outperformed their benchmark in the first half of the year but underperformed in the second half. This was due to the market being focussed on a few large US technology stocks in which they are underweight. But the dividend was increased last year with a total increase of 32.5%. NAV Total return was 18.6%. The discount to NAV has widened but that is true of most investment trusts as people lost confidence in the stock market and its prospects.

When it came to the Q&A session, one shareholder questioned the increase in the dividend which was done by paying out capital profits. The Chairman’s response was that there were differing views on this issue and they had consulted shareholders who generally thought the yield needed to come up a bit. Longer term their expectation is that dividends will be covered by income. Comment: Capital growth retained within the trust is tax free while if it is paid out as income you get taxed on the dividends. So I would personally prefer they not do this. But I can understand why some people would prefer increased dividends and companies in which they are invested are tending to pay lower dividends (the very high dividend payers are often mature businesses in sectors to be avoided). There is also the problem that Alliance may look less attractive to investors if they pay a headline lower yield than other similar trusts. In summary this is not a straightforward issue and will certainly not affect my decision to hold this trust.

Segro AGM

This was only held as a physical event yesterday although there was a recording made which I watched this morning (it’s available from their web site). There were only a few shareholders in physical attendance. Why could they not hold a hybrid meeting? They could surely afford to set one up using Lumi or other platforms.

The meeting was chaired by Gerald Corbett who is retiring this year. CEO David Sleath gave a presentation and I note here some of what he said: Adjusted eps was up 14.6%, adjusted NAV was up 39.7% and dividends were up 10%. The board believes there is a lot more growth to come due to favourable market dynamics. There is a record demand for space resulting in an unheard of vacancy rate of 3.5%.

They even reacquired some offices in Slough sold in 2016 to redevelop into industrial units. The board is confident in the outlook for the business and there is the potential to double rental income.

The Q&A was relatively brief and hampered by not everyone using a microphone so that was another organisational failure.

I commented previously on the voting for this event in March and in particular the remuneration Report and Policy (see  https://roliscon.blog/2022/03/20/its-the-agm-season-but-voting-not-easy/ ). But the actual voting as reported showed only 2.4% of shareholders voting against the Remuneration Report and 1.1% against the Remuneration Policy. This is exasperating. Irrespective of the fact that the company is doing very well and I have no complaints about the directors, the performance is due to market conditions and the remuneration is excessive.

NatWest Group AGM

The NatWest AGM is being held on the 28th April as a physical meeting in Edinburgh although there was a virtual event to enable shareholders (of which I am not one) to ask questions yesterday. Why cannot they hold a proper hybrid meeting?

Remuneration is an issue at this company also. ShareSoc have published some voting recommendations and other comments written by Cliff Weight – see here: https://www.sharesoc.org/vci/nwg-natwest-group-information-and-vote-guidance-2022/ although I understand you need to be a member to read them.

One thing Cliff said was this: “I question what was the need and rationale for the CEO to be given a 19% pay rise only 1 year into a new job – has she over delivered to such a degree that the Board think they were underpaying her?”. It’s clearly another case of excessive and unjustified remuneration which is all too common in the banking sector. NatWest is still recovering from its near collapse and effective nationalisation by the Government in the financial crisis of 2008 which it is no doubt trying to forget by changing its name from the Royal Bank of Scotland.

There is obviously still a generic problem of excessive pay for executive directors in public companies which changes to corporate governance and regulations in the last few years have failed to tackle. With votes on remuneration dominated by institutional investors who have no interest in controlling pay as they swim in the same pond, and private shareholders typically disenfranchised by obstructive platforms more substantial reforms to tackle this issue are clearly required.

In the case of NatWest, even the Government must have been consulted upon and voted to support the remuneration as they still hold 48% of the shares!

Mello Event

One physical event that investors may be interested in is the return of the three-day Mello meeting in Chiswick on the 24th to 26thof May run by David Stredder. See https://melloevents.com/ .

There is nothing like meeting companies and fellow investors in person to gain real understanding of what is going on. But regretfully David I won’t be joining you. Have just been advised to have a fifth covid vaccination!

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

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Alliance Trust Resets Dividend

An announcement this morning from Alliance Trust (ATST) says that the board has concluded that an increased dividend “will benefit existing shareholders and enhance the attractiveness of the Company’s shares”. They expect the overall annual dividend to increase by 32.5% over the 2020 dividend. The proposed increase will be well covered by distributable reserves and income it is suggested although no doubt some of the extra dividend cost will come from capital.

ATST had a reported yield of 1.43% last year according to the AIC which is the figure a lot of private investors look at when identifying good investments, when they should be looking at total return and overall performance. So far as the tax position of most private investors are concerned, turning capital growth into dividend income is a mistake as they will end up paying more tax. If they need more cash income they could simply sell some shares.

As with City of London Investment Trust I recently commented upon, and as very evident at their AGM, the emphasis on dividends paid by the trust, and growth in them, is apparently aimed at pleasing investors when investors are being fooled by the cash they see coming in when total return including capital growth is what they should really be paying attention to.

There are some interesting comments on Alliance Trust by Mark Northway in the latest ShareSoc Informer newsletter published today. He points out that the change to a “best ideas” portfolio approach managed by Willis Towers Watson since 2017 has not returned significantly above average performance after costs as anticipated. A huge amount of effort has been put in with little benefit he suggests. But perhaps that just shows how difficult it is to beat index benchmarks consistently particularly when the trust’s portfolio is so diversified. At least the trust’s performance is no worse than its benchmark as used to be the case before the revolution and appointment of a new manager.

As part of my “barbell” portfolio I am happy with the performance of Alliance Trust but I would have preferred them not to increase the dividend. I barely need to the cash as household expenditure is sharply down in the last year due to self-isolation from Covid. I’ll end up reinvesting the dividend cash after paying tax on it, when Alliance could do that for me tax free!   

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

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Soporific Webinars, Property Market, Portfolio Performance, and It Helps to be Older.

I attended three on-line company meetings yesterday – AGMs and results presentations. I have to admit that I fell asleep watching one of them which shows how soporific many of these events are. It does not help when the presenters read from a script that they have rehearsed beforehand which causes them to drone on. There is much less spontaneity than in a physical meeting.

The other common failure is that they show presentation slides at the same time that are not easily readable. That would be OK if the slides just contained bullet points in large type or graphics that reinforced the points the speaker was making but they frequently contain masses of small font text that are barely readable on a small laptop screen.  If hybrid meetings are going to be the norm in future, then more attention needs to be paid to how to do them well.

One of the presentations was by Equals CEO Ian Strafford-Taylor who had gone to his office in the City on the day. Surprisingly he said he had not managed to get a seat on the tube and there were queues at sandwich shops. So it seems life might actually be returning to City offices.

Perhaps it was coincidence but the share price of Schroder REIT (SREI) rose by 2.6% on the day and has been rising steadily since it bottomed out last July. The trust holds a mixed portfolio of commercial property. This morning the trust gave an update on rent collection which said “The Company has collected 88% of rents due on the 25 March 2021 for the quarter ending June 2021, after allowing for agreed rent deferrals.  This is ahead of the equivalent date in the previous quarter.  The breakdown of collection rates between sectors is 98% for industrial, 96% for office, 83% relating to ancillary uses and 51% relating for retail and leisure.  The Company remains in active dialogue with tenants for all rents due to be paid and expects to recover a significant portion of the outstanding amount”.

Clearly the retail sector is still one in difficulties, but the discount to NAV of SREI shares as reported by the AIC is 26% so I think there is value there if one has the patience to wait some time.

I don’t know how readers portfolios are faring of late but mine seems to be zooming up in valuation – up over 60% since the low point of the start of the pandemic in March 2020 (that’s ignoring dividends received and cash movements). There is clearly a lot of enthusiasm among retail investors for stock market investment. Is the market becoming irrational and over-valued? I would not like to say. But as a dedicated trend follower I have had some difficulty in keeping up (I tend to buy more when share prices are rising and vice versa).

It was interesting to see a report from Interactive Investor (II) who published the chart below of the performance of their clients in the first quarter of the year. Clearly there is a benefit in being old when it comes to stock market investing!

They report “all age categories trailed the FTSE World Index, which was up 4.09%, while the FTSE All Share did even better after a poor 2020, up 5.19%”. They also say though that “the average interactive investor customer portfolio – in median terms – is up 32.09% over the year to end March 2021, ahead of the FTSE All Share”.

They explain these results by saying “The outperformance of the 65 plus age group could be in part due to lower cash weightings in a rising market, and their low exposure (in median average terms) to tech stocks like Apple, Tesla or Amazon, which had a shaky Q1. No tech stocks appeared in the top 10 holdings by value (in median average terms), amongst the over 65s”.

In a quarter in which the FCA warned that some younger investors are taking on board too much risk this does not seem to be an overall trend amongst Interactive Investor customers. They have a high weighting in investment trusts but less in individual technology stocks.

But as Alliance Trust (ATST) reported at their AGM yesterday, I have underperformed global stock market indices because I don’t have big holdings in the mega technology stocks such as Tesla or Apple. They are held by some investment trusts I hold but they tend to be under-weight in them like ATST. I am not unhappy to be under-weight in very large tech stocks which certainly look to be in bubble territory to me.

I hold the stocks mentioned above.

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

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Recent Annual Reports and Trust Discounts

After the news over the weekend, it’s clearly going to be another very bad day on stock markets. One rare riser initially was Ten Entertainment Group (TEG) despite the fact that they announced this morning that all their bowling venues had been closed but they made some positive comments about their cash balances and Government support which might have helped.

As per guidance issued by the Financial Conduct Authority (FCA) it has delayed publication of its Preliminary Financial Results for two weeks as many other companies will be doing. This seems unfortunate to me as a company could just give only a limited outlook statement in there and issue separate trading statements as the crisis developments. But there is no reason to delay the historic figures for the last year.

The AIM Regulator (the LSE) has also announced that in response to the epidemic it is making the rules around suspension of listings more flexible. It is also permitting Nomads not to do site visits to new clients. See https://www.londonstockexchange.com/companies-and-advisors/aim/advisers/inside-aim-newsletter/inside-aim-coronavirus.pdf for details.

Clearly all companies affected by the closure of all public entertainment venues such as pubs, bowling alleys and cinemas are going to suffer greatly. Although they might get some financial relief from the Government, a close examination of their balance sheets and debt will be essential. Some might request suspension of their shares until their financial position becomes clearer. Property companies seem to have been badly hit simply because independent valuers are having difficulty valuing commercial properties as the market is frozen. Retailers with physical stores are also closing them, apart from supermarkets who are doing well due to panic buying and the shift from eating out to eating in as restaurants close. But they seem to be having difficulties adapting their supply chains and coping with the new demands for on-line ordering.

With preliminary announcements being delayed, the AGM season might be delayed also. Companies might have difficulty holding physical meetings and venues might become unavailable, particularly in London. We might see companies holding small meetings in their own offices instead as they won’t expect many people to turn up – I certainly won’t be attending as I am one of those people being told to stay at home for 12 weeks. Some larger companies may try and provide a live on-line stream of the meeting such as Alliance Trust (ATST) who just issued their Annual Report which I would certainly encourage them to do, preferably with some way to submit questions.

It is interesting to look at the discounts to NAV of the share price of that trust and other similar large trusts. According to the AIC, their discount was 17.5% at the weekend, and others were Brunner on 17.5%, F&C on 19.3%, Monks on 12.6% and Witan on 15.6%. These are much higher discounts than such trusts have traded on of late. When private investors have lost faith in the stock market, the discounts tend to rise, although some of the discount can be accounted for by the delay in reporting.  There may be some bargains in investment trusts in due course as private investor sentiment tends to lag financial news.

One company that just distributed their Annual Report and which I hold is property company Segro (SGRO). They had a good year last year although the share price is down 28% from its peak in February due to the general malaise in the property sector as open-end funds close to redemptions and run out of cash. I won’t  be attending their AGM but I will certainly be submitting a proxy vote which all shareholders should do anyway. I will be voting against their remuneration report simply because the total pay of executive directors is too high. The remuneration report consists of 27 pages of justification and explanation, which is way too long and is a good example of how both pay and pay reporting has got out of hand of late.

With bonuses, LTIPs and pension benefits, the total pay of the 4 executive directors (“single figure” report) was £20.4 million. They also wish to change the Articles of the company to raise the limit on the total pay of non-executive directors to £1 million so I will be voting against that also. I would encourage shareholders to do the same.

Lastly for a bit of light relief as it looks like we might have a major recession this year, I mentioned the book “Caught Short!” by comedian Eddie Cantor on the 1929 Wall Street crash in a previous blog post. Now Private Eye have repeated one of his comments in October 1929 after John D. Rockefeller (probably the richest person in the world at the time) said “during the past week, my son and I have for some days been purchasing sound common stocks”. This was seen as an attempt to calm the market in a world where a few very wealthy investors could influence financial markets. Eddie Cantor’s response was “Sure, who else has any money left”. I hope readers do not feel the same.

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

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Brexit Investment Strategies

Investors may have noticed that the pound is in free fall and heading towards US$1.20. That’s near the low after the initial Brexit vote. Pundits, not that they can be relied on for forex forecasts, suggest it could go lower now that we seem to be heading for a “no-deal” Brexit.

With the pound falling, and potential damage to the UK economy from a hard Brexit, investors should surely have been avoiding companies reliant on UK sales, or UK consumers, or those such as engineers and manufacturers that rely on just-in-time deliveries from Europe. The key has been to invest in those UK listed companies that make most of their sales overseas in areas other than the EU.

One such company that announced interim results today is 4Imprint (FOUR), a supplier of promotional merchandise. Most of its sales are in the USA and its accounts are in dollars. Revenue in dollar terms was up 16% at the half year and pre-tax profit up 22%. The share price rose 6.5% yesterday and more this morning but the former suggests the good news leaked out surely. With the added boost from currency movements, this is the kind of company in which to invest but there are many other companies with similar profiles. For example, many software companies have a very international spread of business, or specialist manufacturers such as Judges Scientific (JDG). Those are the kind of companies that have done well and are likely to continue to do so in my view if the US economy remains buoyant and the dollar exchange rate remains favourable.

The other alternative to investing in specific UK listed companies with large export revenues and profits is of course to invest directly in companies listed in the USA or other markets. But that can be tricky so the other option is to invest in funds such as investment trusts that have a global spread of investments with a big emphasis on the USA. Companies such as Alliance Trust (ATST), Scottish Mortgage (SMT) or Polar Capital Technology Trust (PCT) come to mind. Alliance Trust has a one-year share price total return of 11% according to the AIC and the share price discount is still about 5%. I received the Annual Report of PCT yesterday and it makes for interesting reading. Net asset total return up 24.7% last year and it again beat its benchmark index. The investment team there has been led by Ben Rogoff for many years and what he has to say about the technology sector is always worth reading. Apparently the new technology to watch is “software containerisation” which is compared to the containerisation of cargo shipments in its revolutionary impact.

Another interesting comment is from the Chairman complimenting Ben on having the skill of buying shares and holding those which go on to outperform, but also knowing when to sell at the right time which the Chairman suggests is not common in fund managers.

Another hedge against a hard Brexit is to invest in companies that own warehouses because a lot more stockpiling is already taking place as a protection around the Brexit date by importers, but also more will be required to hold buffer stocks for manufacturers in the future. Companies such as Segro (SGRO), Tritax Big Box (BBOX), and Urban Logistics (SHED) have been doing well for that reason. They have also been helped by the trend to internet shopping which requires more warehousing space and less retail space. These trends are likely to continue in my view and the retail sector is likely to remain difficult for those retailers reliant on physical shops. You can see that from the results from Next (NXT) this morning. Shop sales down while internet sales up with the overall outcome better than expected as on-line sales grew rapidly. Anyone who expects the high street or shopping malls to revive is surely to going to be disappointed in my view.

There are bound to be some problems for particular sectors if we have a hard Brexit. The plight of Welsh sheep farmers was well covered by the BBC as Boris Johnson visited Wales yesterday. Most of their production currently goes to Europe but they may face 40% tariffs in future. The Prime Minister has promised assistance to help them but they have been heavily reliant on subsidies in the past in any case. There will need to be some difficult decisions made about the viability of farming on marginal land in future.

The falling pound has other implications of course. It will help exporters but importers will face higher prices with the result that inflation may rise. However, there are few products from Europe that cannot be substituted by home grown or produced equivalents, or by lower cost products from the rest of the world. With import tariffs lowered on many imports the net effect may be very low in the long term. But it will take time for producers and consumers to adjust. Tim Martin of JD Wetherspoon is well advanced in that process so you can see just how easy it will be to adapt.

In summary, investors should be looking at their current portfolios and how they might be impacted by Brexit now, if they have not already done so. There will clearly be winners and losers from the break with Europe and investors should not rely on any last-minute deal with the EU even if Boris is expecting one. Any solution may only be a temporary fix and the policies suggested above of international diversification are surely wise regardless of the political outcome.

Note: the author holds some of the stocks mentioned.

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

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Alliance Trust Results and Directors’ Pay Cuts

Very long-established investment trust Alliance Trust (ATST) issued its annual results for 2018 on the 1st of March. Total return for the year was minus 5.4% with its equity portfolio slightly behind its benchmark index. It put this down to not holding a “narrow group of very large companies”. That performance is similar to my own personal investment portfolio and better than a number of active managers so I hope investors will be satisfied with it after the past revolution at the company.

It is of course disposing of Alliance Trust Savings which finally managed to show an operating profit after many years of losses, and it is also getting shot of some private equity investments and mineral rights in North America. It’s basically returning to its roots as a simple global investment trust which will please many investors.

Citywire have highlighted that many of the directors are taking a pay cut, with Chairman Lord Smith seeing his annual pay reduced from £120,000 to £80,000, Deputy Chairman Gregor Stewart losing £55,000 as he will no longer be a paid director of Alliance Trust Savings. Other directors’ fees are also reduced. Do not be too concerned about Lord Smith’s descent into poverty though – he still has a couple of other well paid jobs.

The pay changes are a rational move because although it was necessary to pay highly to new directors for the effort required to sort out the mess that was the company before Elliott launched their bid for changes, and for the reputational risk if they failed, it is hopefully now more stable and more similar to other investment trusts who do not pay enormous amounts to their non-executive directors. The pay changes will undoubtedly please the many Scottish holders of shares in the trust.

I do hold a few shares in Alliance Trust. I consider it can now be one of those core holdings that any investor who does not wish to track every gyration of the market can hold.

The current share price discount to NAV is 4.4% which is acceptable but the company says it is considering how they can stimulate additional demand for the shares. Investment trusts often have the problem of spending very little on marketing which can be a shame when they provide a low cost route for stock market exposure by investors and have a number of advantages over open-ended funds and ETFs.

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

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Alliance Trust Savings Sold

Alliance Trust (ATST) has sold its Alliance Trust Savings (ATS) subsidiary to privately-owned company Interactive Investor. The ATS investment platform was always a peculiar business for a traditional investment trust to be holding. It was also consistently loss-making and reported an operating loss of £19.3 million in 2017 after a big write down of intangible assets. The directors valued the ATS business at £38.3 million in the 2017 accounts and Interactive Investor are paying £40 million for it but it looks like they are getting the Dundee offices of ATS valued at £4.9 million in addition.

The ATS business will continue to operate from Dundee as will Alliance Trust itself. But there will presumably be some rationalisation of IT systems in due course so clients of ATS may need to learn new software eventually. Charges might also presumably be harmonised also. Interactive Investor charge a fixed quarterly fee of £22.50 which covers some trading fees. Otherwise trading charges are £10 per trade, or less for frequent traders. This structure means that charges do not rise as your portfolio grows and is particularly well liked by those with larger portfolios.

The disposal of ATS was always on the cards after the revolution and board changes a couple of years ago at Alliance Trust. This looks a good deal for both Alliance Trust and users of the ATS platform. It completes the dismantling of the empire built by former CEO Katherine Garrett-Cox.

It is also another step in the consolidation of the “investment platforms” market which is certainly a trend as a lot of them aren’t making much in the way of profits at present (other than Hargreaves Lansdown covered in the previous blog post).

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

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GB Group, Social Media, Rightmove and Alliance Trust

Yesterday I attended the Annual General Meeting of GB Group (GBG) in Chester. An absolutely horrendous road journey both there and back mainly due to road works as far as I can tell. But my satnav took me on the M25, M11, A14, M6, M54 and numerous minor roads on the way there from south-east London, and the M6, A50, M1, A14, M11, M25 and other minor roads on the way back. A typical example of how the UK road network is not fit for purpose while we spend £56 billion on HS2 (that’s the Government’s estimate – it could be a lot more) to transport a few wealthy business people and politicians from London to Birmingham.

It’s also a good reason for introducing on-line AGMs, hybrid ones preferably, as someone just posted on the ShareSoc blog. Total journey time to get to/from Chester: 10 hours, meeting duration: one hour.

GB Group is an AIM-listed supplier of identity verification solutions. There has been a rapidly growing demand for quick, on-line ID verification by all kinds of financial institutions as well as by investigatory bodies such as the police. GB have exploited this demand well by both organic growth and acquisitions. Revenue up 37% last year, and adjusted profits up 55%.

There were half a dozen ordinary shareholders at the meeting and I’ll just cover some of the questions and points of note. The announcement by the company in the morning did not cover current trading but just some positive items of news. It mentioned a change in “branding strategy” to talk about “solutions” rather than “products” with a new single, focused brand of “Loqate” for their location intelligence businesses. I asked the Chairman, David Rasche, whether this means they will rename the company also (I never have liked the “GB Group” name because it is very unmemorable and not therefore a good brand)? But he said not in the short term. Same answer as given the last time I asked this question two or three years back. Regret I do not like poor names for companies as investors can easily forget who they are. But it does not necessarily seem to have an impact on share performance.

Another shareholder asked whether new Data Protection regulations would help or hinder the company. The answer was in principle it helps. The CEO said it was neutral in the short term but positive longer term.

I also asked where the future growth of the business would come from. The answer was from geographic expansion with Asia being a strong opportunity for the Loqate sector, and from acquisitions. With cash on the balance sheet rising they clearly could afford some acquisitions. They have very good penetration in some sectors (e.g. over 50% of id verification in the UK gaming sector) but lower in many others so there is room for organic growth.

When it came to the votes on resolutions (by a show of hands) I voted against the Remuneration Report and a new “Performance Share Plan”. The latter enables grants of options over 100% of employees’ salary each year, subject to performance conditions which are primarily eps based. It transpired that only 84% of shareholders voted FOR the Remuneration Report and even less for the Share Plan. Why was that I asked? It transpired that this was because ISS recommended opposition mainly because more than 10% of the company’s share capital is now under option to staff which breaches guidelines. I told the Chairman later that I voted against simply because I considered the pay scheme too complex and too generous. He justified it on the basis of the growth in the company and the need to match market levels. Difficult for shareholders to complain too much given the performance of the company over recent years (it’s one of my “ten baggers”).

After the AGM we had a demonstration of some of their software and how it can confirm postal and email addresses, phone number and other information on individuals and who they are connected to. I had seen this before but this time they even showed how they can map a person’s location by the social media tweets they post, e.g. on Facebook, Twitter and lots of others. That’s a good reminder if you have not already reviewed and tightened up your security settings in Facebook et al that you should do that pronto. GB Group obviously have limitations on who they supply information to, and they help to ensure that you are not going to be subject to “impersonation” fraud, but social media seem to have no limits on personal information and privacy.

Hence of course the recent scandal about Facebook’s activity which helped to wipe off $120 billion in its market cap yesterday as sales growth slowed. Most peculiar is the number of advertisements that Facebook has been running in the national press pointing out their failings and how they are going to reform. It included one that spelled out the enormous number of fake accounts it was removing – 583 million in the 1st quarter apparently. More to the point perhaps why did they allow such fake accounts to start with? Why don’t they use a service like GB Group provides to stop people from even registering such accounts?

I have long advocated that people should only use their genuine name on internet posts and have adhered to that principle for some years (apart from where I am posting on behalf of an organisation). I do not see why anyone should be allowed to send anonymous communications or create accounts in fictitious names. If you are not willing to be attributed as the author of something, you should not be allowed to use a false name.

A possible cause of the problems at Facebook is the dominance of CEO Mark Zuckerberg who is both Chairman and Chief Executive which is never a good idea. In addition he has majority voting power in the shares because of the dual class share structure. This is surely bad corporate governance and might have contributed to their lax approach to privacy as it’s likely to be difficult to argue policy with him.

On the subject of privacy, interesting to note that Huawei, a Chinese supplier of IT infrastructure, has been classified as a national security risk in a recent report (reference the National Cyber Security Centre). As I use a Huawei smartwatch does that mean there is a risk of people reading my personal emails, tweets and text message and breaching my privacy? Perhaps one can get too paranoid about security.

Rightmove Plc (RMV) is another company in which I hold shares. They announced interim results this morning which were unsurprising, and also a 10 for one share split. The share price is currently about 4900p (i.e. £49). They are calling a general meeting to approve that. I will vote against as I never see any point in rebasing a share price. It only fools the ignorant but at some cost to the company, and confusion among investors.

Alliance Trust (ATST) also announced interim results yesterday (I still hold a few shares after the bust-up there a couple of years ago). One interesting point in the announcement was the mention of “expressions of interest” in Alliance Trust Savings – their investment platform. The strategic advantage of having an investment trust own a savings platform was never really clear now that the platform market is so diverse so disposal was always likely to be considered. They claim an “improvement in operational performance” for the division but whether they will be able to recoup the current book value of the division seems questionable. Might have to “bite the bullet” on this one, surely better sooner than later.

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

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Alliance Trust, Katherine Garrett-Cox and Perverse LTIPs

I have previously commented positively on the outcome of the “revolution” that took place at Alliance Trust (ATST) as reflected in their latest accounts which were recently published. That revolution resulted in the departure of former CEO Katherine Garrett-Cox who resigned in February 2016.

The latest Annual Report shows that she is still being paid large amounts though. For example, total “single figure” remuneration for the 2016 calendar year is given as £1,305,000 and was £832,000 for 2017.

She is likely to be paid still more in future as she is still entitled to LTIP and performance share awards that will vest in 2020. The pay-outs will depend on the positive performance of the company which has been achieved since her departure, which she obviously will have had little influence over. Certainly not by 2020.

Now she may be contractually entitled to these payments under her contract or as might have been agreed to ensure her timely departure, but is it fair and reasonable for her to claim such amounts? Some shareholders think not and are writing to her to suggest that she might like to consider waiving her entitlement or donating the value to charity.

This is of course yet another example of how LTIPs and other performance schemes in public companies lead to perverse outcomes.

P.S. Would anyone like a proxy appointment to enable them to go to the Persimmon AGM on the 25th April in York – and harass them about the wonders of their LTIPs? I can supply if you telephone 020-8295-0378.

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

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The Dangers of Share Tipping, Alliance Trust and AIM Regulation

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

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

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

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

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

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

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

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

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

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

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

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

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