Woodford and Hargreaves Lansdown, Rosslyn Data AGM and Brexit

To follow up on my previous blog post over the collapse of Woodford Investment Management and how to avoid dud managers, the focus has now turned in the national media upon Hargreaves Lansdown (HL.). Investors who have lost a lot of money, and now won’t be able to get their cash out for some time, are looking for who to blame. Neil Woodford is one of course, but what about investment platforms such HL?

The Woodford Equity Income Fund was on the HL “best buy” list for a long time – indeed long after its poor performance was evident. They claimed at a Treasury Committee that Woodford had displayed similar underperformance in the past and had bounced back. But that was when he had a very different investment strategy so far as one can deduce.

The big issue though that the Financial Conduct Authority (FCA) should be looking at is the issue of platforms favouring funds that give financial incentives – in this case via providing a discount to investors and hence possibly generating more revenue when better performing funds such as Fundsmith refused to do so. HL have not recommended Fundsmith in the past, despite it being one of the top performing funds.

It is surely not sensible for fund platforms to be recommending funds unless they have no financial interest in the matter whatsoever. Indeed I would suggest the simple solution is for platforms to be banned from recommending any funds or trusts, thus forcing the investor to both get educated and make up their own minds. Such a rule might spawn a new group of independent retail investor advisors which would be surely to the good.

Today I attended the Annual General Meeting of Rosslyn  Data Technologies (RDT). This is an IT company that I bought a few shares in a couple of years ago as an EIS investment. It was loss-making then, and still is but is getting near break-even.

There were only about half a dozen shareholders present, but they had lots of questions. I only cover the important ones here. New Chairman James Appleby chaired the meeting reasonably well, but left most of the question answering to others.

Why did company founder Charles Clark step down (as announced today)? Reason given was that he had set up another company where there was  a potential conflict of interest.

I asked about the Landon acquisition that was announced in September. How much revenue would this add?  They are not sure but maybe £0.5 million. Bearing in mind they only paid £48,750 for the assets and client list from the administrator, that seems to be me a remarkably good deal. But it later transpired that they have outstanding contracts (pre-paid) which they have to finish so that might be another £250,000 of costs. However, that’s still cheap and by rationalising some of the costs they should quickly turn Langdon profitable. It was suggested that Langdon had been mismanaged with over-expansion and too many staff which is why it went bust – only a few of the staff have been taken on. Note that the impact of this acquisition is not yet in broker’s forecasts.

It was noted that RDT is currently broadly on track for analysts forecasts but it has been a slow start to the year. Deals are slipping into the second half. Decision timescales in major corporates seem to be stretching out at present.

One shareholder, who said “I am talking too much – a daft old man”, which it is difficult to disagree with as he asked numerous questions, some not very intelligent, asked whether they were charging enough for their services. There was a long debate on that issue, but it was explained that competitors were charging less.

There were also concerns about the slow rate of revenue growth (only 8.3% last year). Comment: this company is clearly not operating in a hot, high-growth sector of the market. But it does seem to be competently managed and if they can do acquisitions like Langdon that are complementary then profits should grow.

Altogether a useful AGM.

Brexit has of course made many UK companies nervous about new projects. At the time of writing the latest position appears to be that the EU and Boris have agreed a deal. Most Conservatives like it, but the DUP does not and Labour, LibDems and SNP will all seem likey to vote against it in Parliament. The last group all seem to be playing politics to get what they individually want, but not a general election which on current opinion polls might result in a big Conservative majority. Most people are very frustrated that this group are blocking support of Brexit so we can close down the issue and move on when there seems to be no overall public support for another referendum or cancelling Brexit altogether.

But even given this messy situation, I am hopeful that it will be resolved in one way or the other soon. But then I am the perpetual optimist. I am investing accordingly.

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

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Interesting AGMs, or not – Rosslyn and Dunelm

This morning I attended the AGM of Rosslyn Data Technologies (RDT) for the first time. I picked up some shares in a deeply discounted placing that qualified for EIS relief a few months back. One has limited time to research a company on offer when a placing comes up. It looked sound enough at the time although the historic financials did not impress. Prospects looked better after an acquisition although this company has been around a long time without becoming a shooting star. Bearing in mind the software sector it operates in – a somewhat niche area – I doubt it will show rapid growth either although the analyst forecasts I looked at before the meeting (from a single broker I gather) suggests a substantial rise in revenue and breakeven in the current financial year – partly from the merger no doubt.

Incidentally in case anyone from HMRC is reading this bearing in mind the current review of VCT/EIS tax reliefs, I would just like to say that I would certainly not have invested in the placing without the attraction of EIS tax relief. I considered the valuation at the placing price only “fair” and with the risks apparent, it would not have been attractive without the tax relief.

But at AGMs of small companies like this one, it is possible to learn a great deal. I will just mention a few things – there may be a more extensive report on ShareSoc’s web site later.

The Chairman was absent in the USA (not usually a good sign), so another of the directors, Barney Quinn chaired the meeting, and well. He read out a prepared statement (not issued in an RNS oddly), saying there had been good progress and they had been focussed on integration of the businesses since the start of the year. He mentioned the securing of a major partnership with D&B (see Annual Report).

I queried the very high debtors (accounts receiveable) which were about 6 months of revenue. Apparently this is due to work in progress on projects being recognised as revenue but not yet billed to clients (which tends to be on completion). To my mind, it’s still excessive though.

It seems to be taking some time to develop the market for the products/services and it seems their broker is currently reconsidering their forecasts and I suspect the existing ones are optimistic from what was said in the meeting – but we may soon see no doubt.

Anyway I learned quite a bit about the business and the management seemed to be competent on a brief acquaintence but a couple of long-standing shareholders turned up late for the meeting and said some negative things about the progress and valuation of the business. The company could really do with some more media coverage if they were to attract more investors and another shareholder suggested ways they could do so.

So it’s always good to attend AGMs, but one I will not be going to is that of Dunelm. This year it is Stoke at 9.30 am on the 21st November. Last year it was at a similar inconvenient and early time in Leicestershire.

A couple of year’s ago I attended their AGM in London (again at an early time), and complained about the remuneration arrangements. Have the more recent AGMs been deliberately arranged to avoid private shareholders like me from attending? I would not be surprised if that was the case. So I have voted against the Chairman, against the Remuneration resolutions, and against other directors also for that reason. It really is not acceptable for the directors of companies to pick inconvenient dates, times or locations for General Meetings.

I don’t object to going to Stoke but I do object to having to get up at 5 o’clock in the morning to be sure of getting there on time. But if anyone lives closer, and would like a proxy appointment from me to attend the AGM, let me know.

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

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