I continue to find it hard to identify real value opportunities. Particularly ones that better my current holdings.
One slighty unusual trade this month was RRE, which I both bought and sold in the month for a small loss.
I often use the Schloss approach of buying into a company in a small way where on first review there looks to be some value. The idea is then that I will follow that business more closely and do more research into the share over time as I become more familiar with the share I will add to my holding.
I very seldom take an initial position in anything that I have not invested in before at a full 1% of my portfolio. But I do have a follow up rule of reviewing closely anything under 1% every six months with the intention to either add or sell.
However if these initial positions are in a company that I do not believe I know well then I do put a notional stop loss on. In the case of RRE I took an initial position, but then hit my stop and sold it.
I do not have firm stops on most of my shares, as they are value positions, though I do have an indicative value, that if it falls below I will consider my thesis.
Significant Gainers
Apple. Apple had quarterly results and beat on pretty much everything. It continued to sell the Service story, whilst selling Iphones like they were hotcakes. Also the in ear headphones were a huge hit over Christmas and the App store did over $1billion on Christmas Day.
Billington. Following on from last month’s RNS saying they expected to beat profit expectations, the shares have risen strongly through the month. There have also been a number of supportive articles on various websites.
ELTA. Last month’s positive news on the winding up of the business seems to continue to impact the shares. Whilst the overall value of the holding did not increase materially this was after a 30p a share dividend, which given my holding was material.
$GOOGL Decent quarterly results with perhaps a lessening of fears over regulatory action combined with the fact that GOOGL is sitting on a pile of cash. All I think helped the shares trade up.
Markel Despite falling back at the end of the month. Presumably another part of the Coronavirus related sell down, the company has but out some positive news on some of its operations and the shares have been retracing towards its highs.
MPAC. With another trading update in January to raise profit expectations (this follows one in September) MPAC has been a standout performer. In December the shares were available at 165p, they finished January at 278p. This is a small company so a little stock buying goes a long way, but the company has for the last couple of years been building an operation that should deliver a virtuous circle of improvement. The fact that there has been these two raises does suggest that this is the case rather than the alternative which would be a one off improvement. If this proves to be so, and the results should be out late Feb/early March there could be a lot more to be had from these. I am slightly reluctant to get too excited as to where the price should be, as in the past some of the results, both positive and negative have been one off actions. That said there are certainly suggestions that this could be a £4-£5 share.
My holding has now gone beyond 10% of my portfolio so I am considering whether to hold for the results or top slice a little. I cannot add to a position above 10%.
PPHE PPHE released a solid but not spectacular year end trading update. With seemingly no significant new issues the group continues to drive its developments in Londan and New York and is adding capacity in Zagreb, which may help make the Croatian business less seasonal. Most analysts have a target price 10-20% above the current level.
Vistry Following the takeover of the GFRD housebuilding business the shares have been gently rising overall, but there are both positive and negative days as the market will need to wait and assess the new business once it starts delivering consolidated results.
Significant fallers in the month;
Bed, Bath and Beyond. The shares were trending slightly up for most of the month but have fallen heavily on Coronavirus and Chinese supply fears. At least I think that is what it is. This big fall seems to be a feature of a number of US retailers in the last few days of the month.
Disney. Both Disney Shaghai and Disney Hong Kong are shut due to the Coronavirus. As This is clearly not a positive for an amusement park and in reality many of these sales will be lost. That said if we all spend more time avoiding crowds the Disney+ offering may get a higher pick up.
Significant Sales
RRE. Bought under Value/Momentum the indicator had turned to sale.
M&S. I sold out of M&S. I bought into the company a couple of years ago as management had raised 5-6 key areas that needed improvement to bring them in line with competitors.
Whilst I felt achieving all of these would be hard, achieving some seemed very possible.
However over the years that I have followed M&S I have seen little or no real action on many of the issues. In fact instead of demonstrating real change some of the presentations have seemed to massively overcomplicate the actions that needed to be taken.
Following the recent poor trading update I wrote a blog post earlier on why I had lost faith in management and why as a result I decided to sell. To be fair management have made such a hash of the share issue that there is probably value in the company. But one of my few strict rules is sell when you completely cannot trust the management.
Shell. I sold some Shell. It has a dividend of over 9% and this looks secure but the quarterly report was not great and I see the move into renewables as necessary for the company but less good for shareholders. Renewables have the problem that they often don’t work, (solar panels on a rainy day). And that they are getting cheaper all the time. The problem with this is you make a big investment now and next year your competitor gets something twice as efficient for half the price and is therefore able to undercut your tarrif.
TET. Treatt reached my fair value limit so I sold about 10% of my holding. I am running the rest but until the next set of results are out and there is clarity on the US and UK relocations I do not see great additional value here.
Significant buys
Avation; I have held Avation in the past. It is a small aircraft leasing business that was once undervalued but not anymore.
It is faced with the dilemma of being a small fish in a large pond where growth comes with costs and the costs come well before the growth. As such growth reduces profits today for possibly a better future tomorrow.
It is also in a pond with some of the water being removed. The introduction of IFRS 16 removed certain opportunities for off balance sheet finance. Whilst that certainly is not the sole reason for a plane lease it was a factor for some. As these customers leave the market their current suppliers are going to be looking for other customers.
I sold a few years ago when management decided not to sell to an offer they had at the time. However I have bought back in as the business is now for sale.
It is very easy to strip costs out on an aircraft lease business acquisition. Staff costs and probably a better funding rate from the acquirer. As such an acquisition valuation ought to be well in excess of the current market cap.
There is a risk that no deal occurs, but my downside is mitigated by the fact that this is an OK business. So a good chance of +30-40% as against a smaller chance of -10%.
RRE. This appeared in a couple of value screens and seems well supported by cash in the short term.
Sylvania Platinum This business has a number of potential issues, but the board seems to be working to address these and in the interim the company is delivering good results. I think it is undervalued in most of the potential scenarios. That being said I doubt that I will make it a very large position but I am looking for 50% from current prices if the worst case does not occur.