Big sell of the month Flowtech Fluidpower (FLO). I closed my position in FLO. I have been with FLO from pretty soon after listing and I like to think I have a good handle on distribution (though not on the specifics of FLO’s particular market).
As stated in my blog of the 24th January I was having increasing concerns over the FLO implementation. I will not bother to cover that article again you can read it for yourself, but I saw in the RNS’s after nothing to suggest things were improving and one additional concern. This was that as a consolidator you need to take costs out, but more and more FLO is taking on separate sites and separate identities and keeping them as such. In distribution this does not help margins. Nice for management to have all the brands and names, but less so for shareholders. In distribution it is about one brand to rule them all and in the darkness bind them.
Alongside this part of the FLO rationalisation for first purchase was a play on a recovery in oil and gas, that has to a significant extent happened and been accompanied with significantly better cost control at the O&G companies thereby lowering the benefit for the ancillary suppliers.
Do I think FLO is a bad company, no. But it was certainly one in my portfolio I felt would be better as cash over the next period which I think could be quite difficult.
I took a small position in Sprue Aegis (SPRP) a company I have followed for a while but never bought into, as every time I began to look management did something stupid. However heaven loves a sinner and I was seeing a business that had a number of exceptional issues that it should now be over ready to go forward. I thought a small bite before the good news started and then perhaps a bit more to follow. I was also aware that fire alarms are one area that legislation is increasingly forcing usage of and a rising tide floats all boats. No sooner than I bought SPRP puts out an RNS on a dispute with an almost ex-supplier where clearly there is an amount of stock still on hand that they run the risk of not getting full value for. Again as a distributor you take some pain but clear the issue. The RNS was unfortunately vague on numbers the MD and FD should have to hand. They only had 11 days till the end of the distribution agreement and should have been looking at the stock at risk on a daily basis. As I said the first dip was a taster position but with the market dropping the share like a stone I looked at the size of the problem (whuch had earlier been identified as circa £3m) and felt that I ought to buy more, so I did. Provided the stock issue doesn’t blow SPRP up it should again be a one off. My real concern is how often can you have a discrete one off event before it isn’t actually a discrete event but a list of events that all go under the heading of incompetence. The fact that SPRP still hasn’t come out with numbers explaining the issue is to my mind an indication that either they lack concern for the shareholders or there is a serious failing at the MD/FD level. I am going to hold my position but SPRP’s “full value” price (the point at which I will sell) is not helped by the lack of clarity from management.
I also too a small position in NAHL on expectations of a reasonable set of results based on a good screen for my key metrics and a positive review of previous RNS and scuttlebutt. I admit to being a little concerned on NAHL as they are the ambulance chasers ambulance chaser, but it wasn’t enough to stop me. Plan was to build a position over time as I understood the business better and it demonstrated ongoing delivery. Anyway the results were poor, the plan for the future struck me as uninspiring and once I reviewed a couple of weak interviews the MD had given following the results the share price was 20% below my cost. This for me is a buy more or go home point and I decided to close the position.
I also halved my holding in H&T (HAT). It is bubbling within 5% of my full value price and whilst I think it can prosper in the short or medium term, it is not in my shares for the next 10 years category, so I will sell if it exceeds my valuation.
Also sold in March was Robinson (RBN). I only bought in in January and actually think there is a lot to like here but the RNS they issued as I read it seemed to say that things were moving a lot slower than they had originally hoped. Business was hard to find and difficult to win. But if they took all the cash pile and bought more equipment then maybe the customers would come or the business would go broke. I did read the RNS more times as it is the first time I have ever seen an RNS go with a double or quits approach, and it may well be that I am mistaken. But after consideration I bailed and closed my position.
The corollary to all the Sells this month was Bilington Holdings (BILN). I had taken what is for me a medium starting position in October last year as it hit a number of screens and what I read about it was genuinely positive. Also I felt it had a decent balance sheet and good NTAV to Mkt Cap. The YE 2017 results were in my opinion good, did not, IMHO, get reflected in the share price and so I added to my holding. BILN is now 1.2% of my portfolio. (Once I have had a taster position in a company for 6 months and a full set of results I do usually feel that I should have a 1% position, doesn’t always happen).
I think I average about 2.8 sales a month so March was a big selling month for me. As was January which is my usual clear out month. Also with this week being tax harvesting week so will April. I am not sure whether this is just an anomaly, a reflection of a few recent poor choices or a greater willingness on my part to admit a mistake and move on. I am not a fan of too active trading so will be looking to move towards a lower churn level going forward.