Woodford Closure, Renishaw Trading, DotDigital Results, Accesso Technology Bids Disappearing and Probate Fees

The big news today was that the Woodford Equity Income Fund is to be wound-up after a decision by Link Fund Solutions, the fund administrator. Neil Woodford has made known his opposition to the move but it is something I have advocated for some time. Decisive action was required because a fund that nobody wants to buy into and with a name on it that puts investors off is going nowhere. Blackrock and PJT Partners will take over the fund immediately and wind it down although it seems likely to be some months before investors receive any cash return. That’s just from the liquid listed investments. Some of the illiquid or small cap holdings could take much longer and valuations are questionable. Neil Woodford surely needs to retire.

What’s the moral of this story? That investors should keep a close eye on their fund holdings and not put up with poor performance for more than a short period of time. They should not have absolute faith in star fund managers however good their past records, and they should be more sceptical about recommendations from their share platforms.

The other issues to be looked at are the EU regulations on liquidity and how Woodford ignored the rules by listing stocks in the Channel Islands. The Financial Conduct Authority does also need to tackle the problem of open-funded funds holding unlisted stocks or property.

Another favourite holding of private investors has been Renishaw (RSW) whose stock price has been falling of late. This morning a trading statement indicated a sharp fall in revenue for the first quarter. The share price is down by 11% at the time of writing. The company’s statement is full of negative phrases – “reduced demand for our products”, “challenging global macroeconomic environment” and “trading conditions are expected to remain challenging”. I am glad I sold my holding some time back. Has the market for the company’s products changed, particularly in the APAC region? I don’t know but shareholders need to ask some tough questions and perhaps it is time for a change of leadership.

Other bad news was from Accesso Technology (ACSO)  in which I still hold a few shares. This company had entered a formal sale process but it seems none of the offers received were considered good enough. The sale process is still on-going but the share price has fallen 15%.

But there was good news from DotDigital (DOTD) one of my “ten-baggers” which was first bought ten years ago. Sales and profits were ahead of expectations for the full year in a Final Results Statement. Revenues were up 19% and recurring revenues are now 86% of the total – the latter rose even higher in the first quarter of this year which “has started well” they say.

Investors Chronicle ran an article in last Friday’s edition on how to identify multibagger stocks. It focused particularly on pharmaceutical and resource stocks but these are very tricky sectors in reality. You might strike lucky with a blockbuster drug or exploration company but you can also lose a lot on failed projects. The better approach is simply to aim for companies that consistently grow revenues and profits like DotDigital. That company also meets the profile of the companies I like as documented in my recent book “Business Perspective Investing”.

DotDigital has strong IP, high customer loyalty, small transactions, diverse customers and high recurring revenue. What more do you want?

More good news from wealthy investors came as the Government announced it was to rethink the proposed change on probate fees – effectively scrap the major hike for large estates that was due to be imposed in April next year. The previous proposals generated a lot of criticism as it was seen as a new way to generate tax to go into Government coffers instead of an equitable fee to cover the cost of the work involved on larger estates.

I watched the Queen’s Speech yesterday for the first time live. The Queen has never been a great speech maker but she managed to turn what should be exciting announcements about future Government policies and programmes into a dull recital. Perhaps a change of management is required there also?

You can read her full text here: https://www.gov.uk/government/speeches/queens-speech-2019 , although there is little that might affect investors directly.

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

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Goals Soccer Centres, Renishaw, Economic Forecasts, Politics and Portfolio Transfers

It’s Friday in August, the markets and the pound are falling, the Conservative Party have lost a bye-election meaning their majority in Parliament is vanishing, and the Governor of the Bank of England has forecast a shrinking economy as a result of Brexit. It’s gloom all around which explains the falling UK stock market today. But Mark Carney is only forecasting a 33% chance of a contraction in the UK economy in the first quarter of 2020, which means that there is a 67% chance it won’t and even then for only a short period of time. That’s assuming you have any confidence in Bank of England forecasts which are notoriously unreliable. The media are not exactly reporting matters in an unbiased way. Those who support Brexit are unlikely to be worried by such forecasts and they would probably accept a temporary disruption to the economy. Remaining or leaving the EU was never a primarily economic decision so far as Brexiteers were concerned – it’s about democracy and who makes our laws.

But there is certainly bad news for investors in Goals Soccer Centres (GOAL) who have reported that the defects in their accounting go back to at least 2010. The 2018 audit has had to be suspended, there is no time frame for producing the accounts and therefore the company is going to be delisted from AIM. This looks to be another example of defective audits – the past auditors were KPMG and BDO.

I have complained about the length of time it takes to switch portfolios between investment platforms in the past. The good news today is that I finally completed one. This latest one I have done has taken from the 23rd May to the 31st July, i.e. 70 days. And that’s one where it was a transfer of holdings in a personal crest account with Charles Stanley, after they raised their charges on such accounts, to another personal crest account with another provider which was already in existance. That should have been very simple as there were no fund holdings in the account – just all direct holdings on the register.

It is really quite unreasonable that account transfers should take so long and require so much effort, including numerous emails and letters to get it completed. It’s anti-competitive to allow such delays to continue.

Well at least that’s one simplification of my portfolios. I also sold out from Renishaw (RSW) yesterday after disappointing final results – revenue down 7% and below forecasts mainly as a result of alleged economic conditions in the Asia Pacific region. The share price is down another 5% this morning at the time of writing. This may be a fundamentally sound business with good products in essence but clearly investors like me are losing confidence that the company can justify its high p/e rating when growth is going into reverse.

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

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IPOs, Platforms, Growth Stocks and Shareholder Rights

I agreed with FT writer Neil Collins in a previous article when discussing the prospective IPO of Aston Martin (AML) – “never buy a share in an initial public offering” he suggested because those who are selling know more about the stock than you do. We were certainly right about that company because the share price is now 24% below the IPO price.

Smithson Investment Trust (SSON) did rather better on its first day of trading on Friday, moving to a 2% premium. That’s barely enough to have made it worth stagging the issue though. But I think it will be unlikely to outperform its benchmark in the first year simply because as the largest ever investment trust launch it might have great difficulty investing all the cash quickly enough. On the other hand, if the market continues to decline, holding mainly cash might be an advantage.

One company that is lining up for a prospective IPO is AJ Bell who operate the Youinvest investment platform. They reported positive numbers for the year ending September recently but I suspect the IPO may be delayed given recent stock market conditions. One symptom of this is perhaps their rather surprising recent missive to their clients that discouraged some people from investing in the stock market. This is what it said: “In this year’s annual survey we had a small number of customers who identified themselves as ‘security seekers’, which means, ‘I am an inexperienced investor and I do not like the idea of risking my money and would prefer to invest in cash deposits’. If this description sounds like you, please consider whether an AJ Bell Youinvest account is right for you. If in doubt, you should consult a suitably qualified financial adviser”. It rather suggests that a number of people have moved into stock market investment after a long bull run and have not considered the risks of short-term declines in the market.

An interesting article was published on another platform operator, Hargreaves Lansdown (HL.), in this week’s Investors Chronicle. Phil Oakley took apart the business and showed where it was generating most of its profits – and it is undoubtedly highly profitable. Apart from the competitive advantage of scale and good IT systems it enjoys, it also benefits from promoting investment in funds, and running its own funds in addition. The charging structure of funds that it offers means it makes large amounts of money from clients who invest mainly in funds – for example £3,000 per annum on a £1 million SIPP portfolio. Other platforms have similar charging structures, but on Youinvest Mr Oakley suggested the charges on such a portfolio might be half.

His very revealing comment was this: “It is not difficult to see how this is not a particularly good deal for customers. It’s the main reason why I don’t own funds at all”. That goes for me also in terms of investing in open-ended funds via platforms.

Hargreaves Lansdown has been one of those typical growth stocks that do well in bull markets. But with the recent market malaise it has fallen 20% in the past month. Even so it is still on a prospective p/e of over 30. I have never invested in the stock because I was not convinced that it had real barriers to competition and always seemed rather expensive. Stockbroking platforms don’t seem greatly differentiated to me and most give a competent and reliable service from my experience. Price competition should be a lot fiercer in this market than it currently appears to be.

Almost all growth stocks in my portfolio have suffered in the last few weeks as investors have moved into cash, or more defensive stocks such as property. One favourite of private investors has been Renishaw (RSW) but that has fallen 35% since July with another jerk down last week. The company issued a trading statement last week that reported revenue growth of 8% but a decline in profits for the first quarter due to heavy short-term investment in “people and infrastructure”. According to a report in the FT Stifel downgraded the company to a “sell” based on signs that demand from Asian electronics and robotics makers has weakened. But has the growth story at this company really changed? On a prospective p/e now of about 20, it’s not looking nearly as expensive as it has done of late. The same applies to many other growth companies I hold and I still think investing in companies with growing revenues and profits in growing markets makes a lot more sense than investing in old economy businesses.

Shareholder rights have been a long-standing interest of mine. It is good to see that the Daily Mail has launched a campaign on that subject – see https://www.dailymail.co.uk/money/markets/article-6295877/We-launch-campaign-savers-shares-online-fair-say-company-votes.html .

They are concentrating on the issue of giving shareholders in nominee accounts a vote after the recent furore over the vote at Unilever. But nominee account users lose other rights as well because they are not “members” of the company and on the share register. In reality “shareholders” in nominee accounts are not legally shareholders and that is a very dubious position to be in – for example if your stockbroker goes out of business. In addition it means other shareholders cannot communicate with you to express their concerns about the activities of the company which you own. The only proper solution is to reform the whole system of share registration so all shareholders are on the share register of the company. Nominee accounts only became widespread when it was necessary to support on-line broking platforms. But there are many better ways to do that. We just need a modern, electronic (i.e. dematerialised) share registration system.

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

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