Tag: Equals

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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Equals Trading, Bango Results, Finablr Suspension, Baronsmead VCT and Closing the Stock Market

As share prices of almost every share on the market collapses, should all trading be suspended? The argument for this is that as the impact of the coronavirus on the economy is not certain, although it looks more dire every day, shares cannot be valued with any certainty. Indeed there seems to be no hiding place as there never is in a bear market – almost all share prices have fallen. The editor of the FT thinks the market should not be closed and I agree with her. Closing the market is very prejudicial to private shareholders, particularly those who absolutely need to move into cash even if it means some sell into an unrealistic market – but that is their choice. If the market closes you have no choice. If there was to be a closure, it should only be for a few days as at the start of World War II.

I have been trend following in the market as I have mentioned before but it has proved difficult to keep up in the last few days. At least brokers’ systems seem to be robust this time around.

The major sectors affected by the virus, or soon will be, are hospitality businesses, hotels, pubs, entertainment venues and airlines. One symptom is that I just cancelled our holiday in June as I am supposed to be hibernating for 12 weeks according to the Prime Minister and I doubt the epidemic will have passed by June. But you can see that there will be many staff lay-offs in such businesses and airlines are already asking to be bailed out by the Government because if airplanes don’t fly they cannot cover their aircraft lease costs.

Meanwhile the virus is causing businesses to get their staff to work from home, including one of my brokers. Payment company Equals Group (EQLS) issued a statement this morning giving their response to the virus and a trading update. They say they have 50% of their staff working remotely in shifts and can move to 100% when required. As regards trading, group revenues to the end of February were up 33% but there has been a marked slowdown in travel cash and retail card revenues in the last week due to the adverse impact on travel. But corporate revenues are still robust so far and account for the majority of revenues. Clearly the business will be impacted to some extent so they are cutting costs to conserve cash. The share price had anticipated this and had already fallen a long way in previous days and weeks – it fell again today.

Another company in the payments sector is Finablr (FIN) which announced yesterday that the shares were suspended. The company suggests that problems with liquidity are making it difficult to manage the business. They have also discovered some cheques dating back to before their IPO which have been used as security for the benefit of third parties – a small matter of $100 million is involved! The CEO has resigned and the board is looking for a new one. This company was founded by B.R.Shetty who also founded NMC Health and whose accounting and financing arrangements are also under scrutiny. It looks like Finablr is yet another financial disaster I have managed to avoid to look on the bright side. I would not bet on shareholders recovering anything. Temporary suspensions very frequently turn into permanent ones.

Another company that operates in the mobile commerce and payment sector is Bango (BGO) who issued their final results today. Group revenue was up 41% and they say “Adjusted EBITDA” for the year was a positive £0.45 million. However cash declined because of the large expenditure on intangible assets and there was still an overall financial loss. They expect the “payments business to continue to grow exponentially” and they forecast the coronavirus to have a positive impact on End User Spend as from experience they see consumer spending rise during “stay-at-home” periods such as Ramadan and Christmas. The share price rose slightly today by the time of writing this note, but investors are still unsure about the future of the company it seems. Investors are either taking their money off the table altogether or moving out of businesses likely to be impacted by self-isolation and quarantining and this is having a very wide impact.

My portfolio is now over 25% in cash which is very unusual but I am picking up the odd few shares in companies where the panic seems overdone – in none of the sectors likely to be affected that are mentioned above though.

One of the few companies I hold whose share price rose in the last 2 days has been Ocado (OCDO) as the popularity of on-line ordering and delivery rises. Getting delivery slots with them is now difficult for customers and other supermarkets are having similar problems and when you do get a delivery a lot of items are missing. There is clearly some panic buying going on for certain items which may subside if logistics turns out not to be a major problem after all. But surely all the workers who pack and delivery from supermarkets are going to be affected if the virus becomes rampant, even if they are in the younger and healthier group.

I mentioned some issues at the Baronsmead Venture Trust (BVT) AGM in a previous blog post (see https://roliscon.blog/2020/02/27/venture-capital-trusts-the-baronsmead-vct-agm-and-political-turmoil/). I wrote to the Chairman of the company, Peter Lawrence, after the meeting and have received a response. He confirms that the chart of returns in the last ten years in the Annual Report on page 3 was wrong. It showed a decline in NAV Total Return in 2018 when there was in fact an increase and the 2019 point was also wrong– a corrected graphic is below.

Baronsmead Venture Trust Corrected Chart 2020--03-17

It always surprises me that there are so many errors in Annual Reports that shareholders find easy to spot when the directors have not. This seems to be a particular problem in VCTs – perhaps too many jobs and not enough time allocated to each role with some VCT board directors considering their directorship a sinecure that requires little thought or effort. I suspect those are the problems. Perhaps they need reminding to read the Annual Report in detail before approving it!

Mr Lawrence rejected my complaint about the lack of time allocated to public questions at the AGM Meeting (only 15 minutes) and also rejected my complaint about the length of time he has been on the board which is contrary to the UK Corporate Governance Code. I will send him a stiff reply. To my mind this looks like one of those VCTs where a revolution is long overdue. It needs a fresh board and a good examination of the investment policy, the fund manager and the fees paid to the manager.

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

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City of London IT, Equals Interims, Paypoint CEO, Downing One VCT and Parliamentary Pandemonium

Having been away on holiday in the North of England last week, this is a catch up on news that impacted my portfolio.

I received the Annual Report for City of London Investment Trust (CTY) which is one of my most boring holdings. This is large cap equity growth/income trust managed for many years by Job Curtis and I have held since 2011 – it seems longer. Total return last year was 2.7% which beat most of the comparable indices. But a look at the overall return (including dividends) on my holdings in Sharescope shows an annual return of 15.0% which is very pleasing. It has reduced its management overheads to a cost of 0.39% (the “on-going” charge).

It is particularly worthy of note that the Chairman, Philip Remnant, says this in the Annual Report: “In February 2019 the AIC published an updated Code of Governance which largely mirrors the provisions of the UK Corporate Governance Code issued by the FRC save that the strict nine year cap on the Chairman’s tenure contained in the FRC’s code has been disapplied by the AIC. I see no reason why the rules which apply to the length of time which the chairman of an investment company can server should be more relaxed than those that apply to other listed companies, and so I will be stepping down as Chairman during 2020”.

I completely agree with Mr Remnant and have raised this point at AGMs of a number of trusts where directors are permitted to hang on for much too long. The AIC should not pretend that investment trusts are exempt from the UK Corporate Governance Code.

Equals (EQLS), formerly called FairFX, issued their interim results on the 26th September. Revenue was up by 21.4% and Adjusted EBITDA up by 78% but EPS was down. The share price fell, although the Chairman bought some shares soon afterwards.

However as reported on at the AGM (see https://tinyurl.com/y5j58dd6 ) there is a large amount of software development work being capitalised at this company and as expected, it went up in the half year. Another £4.8 million to be exact. That is a very large amount of development work and suggests either a very large team or an expensive one. It does raise doubts in my mind, and possibly others, about the accounts.

Paypoint (PAY) reported a “temporary leadership change” on the 26th September. CEO Patrick Headon is taking a leave of absence to receive treatment for a medical condition and he is expected to be absent for 3 months. The share price barely moved during the week but these kinds of reports which give no details can often conceal worse news. I recall the recent events at Wey Education where Executive Chairman David Massie received some open-heart surgery and subsequently died. Shareholders were not informed of this problem until he resigned and this was a significant problem for the company. I suggest there should be some clear rules developed on when medical incapacity needs to be reported to shareholders, and what level of detail is provided so that investors can judge the risks and possible impacts.

Downing One VCT (DDV1) issued a circular concerning the raising of up to £40 million in additional equity. This is justified so as to increase the size of the company to better cover the fixed running costs and to enable the company to make new investments and diversify its portfolio.

It always surprises me how Venture Capital Trusts can often raise more money even when they have a very patchy performance record. According to the AIC, this VCT achieved a NAV total return of 9.4% over the last 5 years. I won’t be increasing my holding in this company therefore by subscribing for it. However, how should I vote on the fund raising? Should I support it on the basis of pulling in more suckers to support the overhead costs? Or oppose it on the basis that giving more cash to the manager will hardly improve performance in the short term and simply give more fees to a poorly performing fund manager?

They are also proposing to introduce a Performance Incentive Fee – 20% of gains subject to a hurdle rate. But performance fees do not improve performance so I always oppose them. I hope other shareholders will do the same.

It was of course difficult to get away from events in Parliament and Brexit issues while on holiday. But I did manage to read a book in the hotel library – The History of the Decline and Fall of the Roman Empire by Edward Gibbon – just a part of it of course as it’s a multi-volume book. Gibbon was a Member of Parliament in the 1770s but disliked the place which he called “Pandemonium”. Nothing changes it seems.

As regards the decision of the Supreme Court over Prorogation, having read the full Judgement of the Court, I do not find it particularly surprising. People do tend to jump to conclusions about court judgements, often declaring they are biased, when a full reading often shows that the judges are not so perverse as imagined. I fear the advice of the Attorney General on prorogation was defective in that it cannot be purely at the whim of the prime minister to suspend Parliament for a long period of time and without good reason.

It was also unnecessary as Boris Johnson has other options to ensure that Brexit takes place on the 31st October as he wishes. Most investors are surely now of the same view of many of the public that we need to get this matter settled. Delaying resolution by a further extension of the Brexit date or by another referendum would simply cause more uncertainty and difficulty for businesses and for investors. Businesses cannot plan adequately and the value of the pound is dropping while investors are nervous. None of these things are helpful to investment returns.

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

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