BT Problems, Hotel Chocolat and Multibaggers Report

BT has managed to disable my business “landline” number of 020-8295-0378. Major network problem apparently which won’t be fixed until at least 24/11/2023. Even though this is the line used for my broadband service that is still working so anyone wanting to contact me should use this contact form to get in touch:

Will I be buying shares in BT? Absolutely not when the service is so poor.

Despite my previous recent blog post on the dangers of the attractions of luxury food products (see ) it has not deterred Mars from bidding for Hotel Chocolat (HOTC). They have offered to pay 160% of the previous market price which is a prospective p/e of over 190. This seems a wildly optimistic valuation for a retailer with no consistent record of profits.  

Stockopedia ran a webinar on “multibaggers” which I missed as the timing clashed with my usual dinner time. But they have produced a report on their research of UK stocks which you can obtain from their web site.

I hold two of the top ten winners over the last ten years which have certainly contributed to my portfolio performance and it is well worth reading their report.

We seem to be back in a political mess after Suella Braverman got fired and the Supreme Court rejected the Rwanda plan for migrants. That was always going to be legally and politically difficult without a very firm hand on the tiller which Rishi Sunak seems unable to provide. Moving illegal immigrants to a foreign country was never going to be easy. But Rwanda is surely not the best choice of location. How about St. Helena or Ascension or one of the remote Scottish islands instead?

As regards the bust-up in the Conservative Party as a result, as someone who has some experience of such events in membership organisations my advice to Suella is to act quickly. Removing Sunak would not be easy so best to form a new platform for like-minded right wingers.   

Roger Lawson (Twitter  )

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Lessons from Ed Croft from the NAPS Portfolio

Last week I watched a webinar from Ed Croft of Stockopedia on the results of the NAPS portfolio he has been running for the last 8 years, and the lessons to be learned from it.

The NAPS portfolio is so named because it is based on a “no admin portfolio system” using a ranking system to select stocks based on the three main factors of quality, value and momentum. I am a Stockopedia subscriber but I do not follow the NAPS system religiously.

How did Ed’s portfolio perform last year? In summary a return of -15% although it produced +28% in the prior year. The system does tend to focus on growth stocks like my own portfolio whereas the market preferred lumbering value stocks last year. The average over the last 8 years puts it well ahead of the FTSE AllShare though.

There is much you can learn from Ed if you watch the webinar here:

He does an interesting analysis of the benefits of diversification. He says “holding 20+ stocks in a 90+ranked portfolio reduces the risk of outlier downside performance and increases the probability of holding big winners”. I always knew that a large portfolio was beneficial!

Roger Lawson (Twitter: )

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Stockopedia Stockslam Report

I think I am attending too many investment webinars. Last week I fell asleep in one after ten minutes and missed most of the presentation. That can be a particular problem with evening events. But last night’s Stockslam event was lively enough to keep me awake.

These events are run by investment web site Stockopedia and consist of a number of presenters covering their favourite stocks in 3 minutes followed by a few questions. This was the first on-line version and it worked well. I’ll cover the companies presented briefly and add a few comments:

  • Caledonian Mining. A gold miner based in Zimbabwe. All gold miners are very dependent on the price of gold and the other big factor to consider is the political stability of the country in which it operates, which was not mentioned. Looks cheap but needs to be.
  • Unite. Provider of student accommodation. Has been hit by the Covid epidemic, particularly for foreign students. Will students want to return to use such accommodation as most of their education is now done on-line rather than working from home? I think I agree with the presenter that they will as I have a grandson who has just gone to university and is living in such accommodation in Oxford. Might be worthy of further research.
  • RWS. Patent translation and other IP services. I used to hold these shares but I sold after they acquired SDL which I had also held in the past but never seemed to generate real profits. An expensive acquisition perhaps but the Chairman has a good track record.
  • Braemar Shipping. This is a smaller shipping company apparently focused on tanker supply but the financial track record looks very unimpressive – declining or static revenue and profits for some years. Shipping companies are very susceptible to global shipping rates which they have no control over. Looks cheap on fundamentals but needs to be.
  • Renold. Industrial chain supplier. Presenter argued that the management are reviving the business which otherwise looks very mature. I cannot see where growth is coming from although profits are forecast to rise short-term. Big pension deficit was mentioned. It looks like an “old technology” business to me.
  • SDI. Acquirer of small technology businesses. Has been growing profits rapidly and share price has been rising by leaps and bounds as a result, driven by active CEO. As one of the two presenters said “You wouldn’t exactly say it is cheap!” As I hold the shares, I will say no more.
  • Cake Box. A purveyor of personalised “celebration” cakes via a franchise network. An interesting company that is growing rapidly and has a good financial profile. May be worth a closer look if you are not put off any cake retailers by the failure of Patisserie.
  • Gear4Music. On-line music equipment retailer. Looking at the recent share price trend, the epidemic seems to have helped them.
  • Halfords. Car accessories/servicing and bike retailer. Have held this company in the past. Sold at 380p in 2016 – share price now 265p, which tells you a lot. Might have a relatively good year this year from the demand for leisure cycling in the lock-downs but surely otherwise operating in very mature markets. Return on capital has been low in recent years.
  • Atalaya Mining. Copper mining in Spain. Demand for copper is rising due to electric cars etc. Low historic return on capital and lack of dividend mentioned. They are operating in a sector with some very large players, and like any miner are dependent on commodity prices over which they have no influence. Forecasts for next year does make it look cheap.

All the presenters and the host (Damian Cannon) spoke clearly although I think some presenters could have been clearer on the “USP” of their selected companies. For example why buy Atalaya Mining rather than one of the big copper miners?

But an interesting event overall which was oversubscribed and I shall try to attend the next one.

Roger Lawson (Twitter:  )

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Bad News for the Housing Market and On-Line Retailers

The news in the housing sector is all bad. Banks have stopped providing mortgages and builders have stopped building houses (Redrow announced it was closing all its sites this morning). Estate agents are also giving up as nobody wants to have strangers wandering around their house and there are few new buyers. Who would look to buy a house given the economic uncertainty and with everyone’s jobs under threat? Rightmove previously announced it was discounting all its bills to agents but they have now announced that the proposed final share dividend is being cancelled.

Did you think on-line retailers might be able to continue operating? Think again. Next has announced it is temporarily closing its on-line operations including warehousing and distribution. Apparently “colleagues” feel they need to be at home. This mirrors what I have seen from a couple of smaller on-line clothing suppliers I use. They both announced closure in the last few days. Will Boohoo, ASOS and Amazon be able to continue to operate? Only supermarkets seem reasonably sure to be able to stay in business over the next few weeks.

This gloom over the country’s business status was echoed in the comments of Paul Scott on Stockopedia. He said this morning: “Hundreds of £billions in economic activity is being killed off, with ruinously expensive compensation schemes being dreamed up. For what benefit? We’re likely to end up with millions of unemployed, many thousands of destroyed businesses, all of which might have slowed down the spread of the virus a little”. He has lost confidence in the recent stock market bounce and thinks losses will be ruinously high in many companies. I agree with his comments. Certainly in many sectors it’s a question of which companies will survive the year, not whether they will make any profits or pay any dividends.

The only positive glimmer is that Anthony Bolton, who ran Fidelity’s Special Situations fund until 2007 very successfully, is apparently moving back into the market to purchase selected stocks according to an article in the Financial Times. He says “at these prices there are really interesting opportunities”. Certainly the key is to be very selective even if you believe the crisis will be over by the end of the year.

Meanwhile I am sat in the bomb shelter otherwise known as isolating at home. These are such momentous times that I decided to start writing a diary just as my father did during the second world war. It may interest my offspring in due course as reading my father’s diary did after it came to light 37 years after he died. My diary may be a much shorter one though if I catch the virus.

Roger Lawson (Twitter: )

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Exchange Market Size in Stockopedia and BHP plus RIO

I noticed that the share prices of BHP Group (BHP) and Rio Tinto (RIO) jumped this morning – at least for these behemoths of the FTSE-100 they moved substantially at 2.8% and 3.4% respectively. I only noticed because I recently purchased some of the shares in each company.

These are of course very large mining companies so they are dependent on the price of metals and metal ore, particularly iron ore. The last time I looked at these companies was two or three years ago when they were laden down with debt and had poor returns on capital. But they have certainly had a change of heart since then and seem to be more focused on generating real profits and cash flow rather than building ever bigger holes in the ground. Debt has been cut substantially in both companies.

With the profits mainly coming from overseas, they are a good hedge against any form of Brexit, and yields are high for those who like dividends. I am not a great fan of commodity-based businesses where predicting future prices of the products is not easy and they typically go through boom and bust cycles as such companies all invest in new production capacity at the same time as prices go up. Soon after when all the new capacity comes on stream there is a bust of course. But I made a small exception in this case.

But why the share price jump this morning? Are investors moving from growth to value as other commentators have suggested? Have value shares such as BHP and RIO suddenly started to look attractive, as they did to me? Or has Nigel Farage’s impossible demands for a deal with the Conservatives to ensure Brexit over the weekend suddenly encouraged investors to look for Brexit hedges?

Stockopedia have released an updated version of their “New” software. It now includes the Exchange Market Size (EMS) which is a useful parameter to look at when trading in company shares, particularly smaller ones. Note that Exchange Market Size was previously called Normal Market Size.  It is the maximum size in terms of share trade volume at which a market maker is obligated to adhere to their quoted share prices. It is a very good indicator of the liquidity in the shares and how easy they will be to trade. When trading electronically on most retail platforms, this is a useful number to know as it will affect whether you can trade automatically, have to set a limit order or get a dealer to trade for you. In addition, any trade bigger than the EMS might be done at prices higher or lower than you expect.

This number can be very small for some AIM stocks. For example on Bango (BGO) which I hold it is currently only 3,000 shares (less than £4,000 in value) when the EMS for BHP and RIO is more equivalent to £20,000 in value.

The new Stockopedia software version has other improvements although I still seem to be having problems with the Stock Alerts feature that I use every day. Perhaps there are still some issues that have yet to be fixed but you can still revert to the old version.

Roger Lawson (Twitter: )

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Company Refs Acquired

Slater Investments and Stockopedia have issued a press release saying they have acquired the Company Refs financial analysis service. Company Refs was devised by Jim Slater, the father of the current Slater Investments Chairman and was originally published in paper form as a summary of all the key financial information on public companies on one page. It was later digitised but active marketing of the service has not taken place in recent years. But it was a truly innovative solution to help both professional and private investors when first devised.

Stockopedia provides a very similar service and the press release suggests that current REFS subscribers will be integrated into the Stockopedia service while Slater will use the financial database and intellectual property for internal research purposes.

Roger Lawson (Twitter: )

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New Stockopedia Version and Abcam Trading Update

Like many private investors, I use the Stockopedia software to provide me with a summary of key financial information on a company. I also use it to provide “alerts” on price changes and for occasional stock screening. It’s one of the key elements in my share portfolio management. It has always been quick and easy to use, without too much complexity. They have just released a new version of the software that now supports mobile devices much better – that was certainly an issue with trying to use it previously on my mobile phone.

I have spent a few minutes trying the new version and reported quite a number of issues with it to Stockopedia support. Here’s a few of the key ones:

  • Portfolio holdings and alerts only show 40 stocks when my portfolio has many more than that, so cannot easily scroll up and down the whole portfolio.
  • Not supported on Internet Explorer which is still my default web browser.
  • Printing a stock page uses more pages – for example printing a report on Abcam now uses 5 sides in Chrome, i.e. 3 pages on a duplex printer instead of one page on Explorer with the old version. Print format screwed up also at top left. As with many new software versions, testing of print functions seems to have been limited.
  • Cost of holdings sometimes shows nil.

In general the testing of the new version seems to have been too little, even if I am very experienced at picking up bugs in software. As a result I won’t be switching to the new version just yet until they sort out some of these problems. However it is very easy to switch back and forwards between the versions. Let us hope they do not abandon the old version until all the problems are resolved.

On the subject of Abcam (ABC) yesterday the company issued a trading update for the year ending June. It looked fairly innocuous to me but the share price promptly fell sharply and finished the day down 13.3%. The only possible issue mentioned was the announcement that CFO Gavin Wood was stepping down “over the next year in order to continue his career closer to his family home”. He has been with the company for 3 years.

Did that justify the investor panic? Surely not. The FT commented that the company’s expansion plans had unsettled investors, but the announcement really only suggested a continuation of the growth strategy and formulation of plans to achieve that. Perhaps it was simply that investors had realised that a prospective p/e of 40 for the current year after a strong recent share price run was a bit too high. Or perhaps it’s that summer season problem where liquidity is low and hence share prices tend to be volatile. Anyway the share price is recovering today at the time of writing and my portfolio loss on Abcam yesterday was mostly offset by the rise in Learning Tecnologies (LTG) which issued a very positive trading update. It’s share price rose about 20% on the day.

Abcam is of course a producer and distributor of antibodies. On a personal note, last week I was injected with monoclonal antibody named Prolia from Amgen to control osteopenia. If I had looked at the side effects and user reports on the internet beforehand I might have chosen not to have it, but no concerns so far. Only costs about £1,000 per shot apparently for six months. No wonder the NHS needs more money.

Roger Lawson (Twitter: )

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A Cautionary Tale from Paul Scott

City AM published an educational story last week which is worth repeating. It covered the investment record of Paul Scott who is very well known in the small cap investment world. He writes very perceptive, and quick, analyses of announcements by smaller companies for Stockopedia with a strong emphasis on the financial accounts. He trained as an accountant and worked for a retailing company as finance director for some years. He then became a professional investor – one might say living off his wits – and reportedly turned £50,000 into more than £5m in a few years. Then the financial crisis hit in 2008/9.

This is what he said in the City AM interview: ““I lost the lot and had to start all over again in the financial crisis. It was horrendous, it ruined my life at the time. I had to sell my house, I lost all my savings, I ended up £2m in debt. It was a catastrophe.”

The article suggests Scott made two mistakes: “One was investing in stocks with low liquidity. The other was gearing up on them through spread-betting. When the crisis hit, he couldn’t get out.”

Now with speculative small-cap stocks again riding high, with valuations not based on current fundamentals such as profits and cash flow, but on their future prospects and for their ability to dominate their markets, it is surely again a time to be wary.

Markets are driven by emotions and once a panic sets in then small cap stocks in particular could become very illiquid. Having a major proportion of your portfolio in such stocks may have done wonders for your investment performance in the last couple of years but it is high risk. That is particularly so if you also gear up, and have an undiversified group of holdings – a portfolio of less than a dozen holdings of such companies is positively dangerous.

So the moral is surely never to hold a company on the premise that you can get out if the market turns sour for shares in that company, or in general. Unless you are sure you want to hold a company for the long term, and can afford to do so (i.e. you have not borrowed money to buy it), you should not buy it in the first place.

In addition never let a few holdings dominate your portfolio. And in particular be very wary of companies where there is little trading (i.e. low liquidity). If your own holding is a multiple of the daily trading volume, you’ll never be able to get out at a fair price if there is a crash.

This is what Paul had to say recently in an interview for Stockopedia: “I’ve learnt all my investing decisions the hard way. 2008 taught me that you need to keep an eye on the exit and you need to consider what will happen to liquidity if there is some sort of awful event. Not necessarily a minor event, but if the financial system starts to cave in again – which it might well do. So for that reason, this time my risk management is much better. I’m keeping the gearing lower than it was and I have a general rule that I want to be able to exit every position I hold within a maximum of two days in a bear market. So I position size accordingly. If something is very small and illiquid, I wouldn’t have more than £30,000 – 40,000 worth of it. If it’s nice and liquid then I’ll have £500,000 of it. I think liquidity is so important.”

I would only comment that when everyone wants to exit, shifting even a relatively small amount of stock in small caps can be damn difficult. Having solely small cap stocks in your portfolio can be a risky strategy when mid to large cap stocks will be much more liquid and less volatile. For example, private investors could easily sell their holdings in HBOS, RBS, Northern Rock and Bradford & Bingley even when they were in dire difficulties.

Diversity in individual holdings, and in company size, are both prudent.

Roger Lawson (Twitter: )

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