As I said I would last month once the volatility over results had ebbed, I added to my SCS holding. (Average buy price is 208p). Since which SCS has demonstrated what Chartists would call a bit of a car crash. I still (even with Lockdown 2, “the return of no real plan”) think this is a solid business that eventually should come out strongly and rerate.
Opened with a fairly big (by my standards) starter position in RELX. This a well run company that I have been a bit aware of for a while. 4 divisions (1) Scientific, Technical and Medical, (2) Risk, (3) Legal, (4) Exhibitions. The first three have held up well, but the exhibitions part has fallen off the cliff with Coronavirus and has further to fall, imho. Listened to the analysts on the interims and they all were all over the exhibition side of the business. I think this is wrong thinking. Relx cannot help this division. Only a move to living with C19 or a vaccine will. But in wrong thinking there is opportunity. As analysts focus on the problems they lose sight of the opportunities elsewhere and to be fair I do not see the business as overvalued now with what the business is delivering. So I am, (I think), buying a good, well run business making significant progress in the digital arena with quite a bit of potential upside over the next two years that analysts are not sufficiently considering as they focus on the already identified problems.
Small buys in RENX (470p), POLX (46.85p), AMYT (210p). I have been looking to build a small position in healthcare, much like I have a position in the end of cash (V. MA. PYPL, AAPL). These 3 are smaller companies with some interesting technology or drugs. The idea is to have a diversified portfolio in the healthcare space and then take larger positions in the winners. So these 3 go with ABT and IHCU in creating this. Some of you may know that I have usually operated on the rule of 6 in volatile areas (It is an old VC check as 3 fail, 2 limp along and 1 makes the money), but as IHCU is itself diversified I feel that it is OK to have 5 in the pot. As it is the starter positions in both ABT and IHCU are bigger than the other 3 as there is less risk.
As the month progressed I read various reports on Coronavirus that covered the issue that for many patients who do not die there are ongoing lung and other effects. POLX is ideally placed to capitalise from this presumably large population and their ongoing care requirements. So even though the shares have risen I added to my position. Moving my buy in average to 58p.
Once again FXPO touched my lower trigger number. There was news on the day but it did not seem particularly important (I may not have understood it), and there were production figures. But as production goes into stock and needs to be sold to be worthwhile and no figures were given for either sales or stock movement I have not changed my view on the business. As such when it hit the trigger I bought a little more. My average in is now 171.6p.
Polar Capital released a very positive note on increasing AUM by 34%. As everything in a fund house runs off the AUM, (it is what the charge almost all their fees from). I liked the number and added to my holding. (Average 520.19p). The big downside for a fund house is that routinely all the fees from the AUM goes into salaries for senior staff and these were not mentioned so whilst I increased my holding it was not a fill your boots moment. Following this Shore Capital released a note putting a 750p a share valuation on Polar. As of today (14/10/20) the current share price is 534p.
I am not a major investor in commodities. I have gold but only a small, though growing, position. I am however aware of the steady drumbeat over Lithium and after doing some research have concluded that I want a small position, in companies with opportunities in generally rule of law non-controversial countries. I am no expert so decided to buy a small basket of 4 companies. There are $ALB ($99.65) , £BCN (32.67p), $LAC (C$19.29) , $LTHM ($11.92). Over time I will try to learn a bit more about both the market and these companies and may increase or decrease the position in all of these. This was not a well timed operation as within a couple of weeks LAC had already hit my lower tier action level mainly due to an analyst lowering his valuation. As I had found nothing to recommend adding to the position I followed my rules and sold for a 27% loss.
TET put out a broadly positive trading update. In particular PBT before exceptionals is expected to be £14m, which is in line with pre-Coronavirus expectations. Given certain parts of the business have been directly affected by the pandemic this means that other parts have performed above expectations. Alongside this the expanded US facility is now running to plan and the new UK build is on track. Given the above and an expectation that we will see (a) a resumption in the Coronavirus hit parts of the business over time (b) some growth from the new facilities in both the UK and US I do not think, on the back of the envelope, that it is unreasonable to put a normalised PBT of £16m into the mix. Market capitalisation is currently £385m which would need a PE of 20 to validate. Edison ascribes one of circa 30 for TET, (though on a lower PBT), with its peer group averaging 33. Though within that is a very broad range 12 to 43. I think overall given TET seems well set on a margin growth if not revenue growth plan a 20pe is not overly stated. But the shares are now until further indications for me reasonably fully valued at this time. When I do an EPV calculation I have to get the equity rate lower than I am confident with to deliver a value close to the current level. As such whilst I remain a holder I have sold 10% of my holding for a circa 380% gain. Just for the record I found TET in an article in the FT written by Lord John Lee. It was one of about 10 he listed and I bought 2. The other one I sold within a year for a loss.
I added to my position in APF. The CEO gave a very upbeat interview with Proactive. Very much focussed on good news coming a bit in Q3 and a lot in Q4. Perhaps a little vague but the share buy backs continue and whilst too small to make a difference at the moment they will if continued hit the 5% that generally seems to be the academic point where they have an effect. I also liked the fact that some of the discussion was about what will be happening some years from now and I think that is great for a compounding business. Avg price now 109p.
BPM came out with a more positive interim update than I had expected. Their declared NAV is now 396.2p, up from 360.9p this time last year and 380.1p on the first of January. At the same time BPM after a strong rise on the day of the results 8-9%, trades at 256p. Clearly there is a big margin of safety, if you believe the valuation.
BPM however has 5 significant issues;
1-Historically it has routinely exited positions, and in the process both validated its NAV and provided the company with funds for investments. There has been no real exits for some time so the NAV cannot be validated and funds are not becoming available for reprocessing.
2-Without funds for investment BPM can only grow at the rate of its investments and will not be able to fund their growth. BPM is low on cash. There is a risk that there will be a rights issue or more shares issued to a new or existing party. The second biggest shareholder is an Australian business with circa 19.8% of the shares.
3-BPM cannot do a significant share buy back to narrow the discount as the largest shareholder Mr Marsh would then cross thresholds under the Takeover Code.
4-The company’s second most valuable investment, 17.5% of its NAV, is in LEBC. LEBC had to withdraw from pension advice as part of an agreement to avoid issues with the authorities over pension misselling. Whilst this is portrayed as being the end of the issue, having not seen the documents between LEBC and the authorities there are those that suggest a prosecution in some form may still arise. I think this is unlikely but who really knows. That said even were LEBC to close the stated NAV of BPM is above the current share price.
5-BPM does pay dividends. The yield is about 1%. But these require cash. (See point 2).
6-BPM was set up by Mr Marsh who remains the Chairman. He is 79. His ex secretary is now the CEO. There is to my mind a very competent FD and Chief Investment Officer but we are all seemingly waiting for a crystallisation event. I do think the FD and CIO are aware of this but am not sure what they can do in the short term.
BPM is to my mind remains a decent longer term investment. But clearly a 25% return in one year, is much more valuable than a 25% return over four years. I hold, but am not adding on current news.
Sold 1/6 of my holding in GOOGL. for a 50% profit. I think that the business as a whole in undervalued. However it is under attack legal by both the Republican and Democratic parties. Now if this was simply to be something of a split ie You Tube, Waymo have to be spun off, then I think shareholders could end up owning a number of decent businesses and the price will spike. This could also be a way that Facebook and Instagram could be dealt with. However Alphabet has been adept at resisting this pressure in Europe and I think the chances are that its just going to be a long season of legal cases that Google “wins” but ends up making a pay out or concession on. Much as it has done with the EU over the last 8 years. So whilst I hold most of my Alphabet position I think it is potentially on a long track broadly sideways for the next few years.
Alphabet put out excellent results on the 29th October and the sharp move upward in a falling market reflected this.
I would record that AEO put out its results for the year ended 30th June 2020. These were as expected.
$ABT came out with solid rather than stunning results. A bit of 3 steps forward, 1 step back with its legacy pharma unit falling back and its Coronavirus products going great guns. Though this is I am assuming only temporary. Overall I see grounds for future optimism and the company full year guidance was increased. This is a sub 1% holding in my portfolio and I took the decision to add. My average in price is now $98.05
I added to my position in APP. The shares hit my low point trigger and came out with a trading update. Market cap of £50m with £29m of free cash. I do like piles of cash. It allows management time and mistakes. Though this needs to be considered as they do talk about arranging a bank facility of £15m. Why is this so worth mentioning if they have all the spare cash? But simply put a business net of free cash worth £21m. They used to make £11m. Made £7m in the run up and into Coronavirus. Doing some reorganising but surely have to be able to make £4m going forward? So a PE of circa 5 with a strong cash balance. Not a lot of patience here, if management do not sort themselves and the business out I will sell. But the downside seems currently well protected. So I can lose 40% against a possible upside of 300- 400%. That being said I again watched their results presentation and it remains big on chat, short on fact. I like management that tells you what it is going to do and then does it. Currently the jury is very much out on APP.
INTC. Sold my taster position for a 9% loss. The Q3 results came out and the more I read the coverage the more I felt that I did not sufficiently understand this company. I still look at the numbers and think the business seems cheap but I no longer feel that it is going to benefit from mean reversion. It could just be a smaller business as what propped up the results seemed to be very much the areas that are historic and what did not deliver is the new.
Sold $MKL. The shares hit my trigger point and with all that is going on in America, and this business is very focussed on America, I did not feel comfortable in buying more so I sold. This is despite a good Q3 set of results where the company beat market expectations. Gain about 68%. I have kept the share on my watchlist and would not be adverse in buying more if America becomes a more stable environment (February?) Or if the shares fall sufficiently that I feel there is a good MoS in the price. This is a good company that is coping well, but I feel that there are an increasing number of headwinds that I would like either a better understanding of or a lower price to compensate.
Added a little to $V. This share also hit my trigger point but I am more confident in this business given its non US operations. Visa’s Q4 and therefore 2020 results were broadly as expected but uninspiring. That being said they were moderately closer to hitting the mark than Mastercard. I think Visa is probably a more stable business and Mastercard a bit more exciting and this has been reflected in their growth since I have owned them. That being said Paypal, which I hold, may be a better bet for the excitement going forward. Avg buy price now $123.79.
Added to $MSFT. I though the quarterly results were good and generally beat expectations. The coverage seemed to be looking for downsides, like Azure growing by 48% rather than 50%. Can you imagine only 48% growth? Microsoft is one company that has multiple ways to grow its profitability and tie customers in to it for the long term. Time and again I see situations where users are getting only half the benefit of the product they are buying, but as vendors improve their knowledge companies can advance significantly at very little cost. And those that do not advance will go out of business. The market and Microsoft had fallen a decent amount in the days before the results so I saw this as a buying opportunity.
I added to my small starter position in $AAXN. The company continues to be only lightly reported despite being a SAAS business supplying non lethal equipment to law enforcement around the globe. Currently very US centric a presence has been built in the UK and is being developed in Latin America. This is one of my few growth rather than value stories so the position will stay small at the moment and the rating is high. But I cannot see a firm (that is public) with a better opportunity to sell its offering into police forces that will put uniformed officers on the street.
$MA reported Q3 results and modestly missed expectations on most lines. This remains a good company for the long term but the longer I spend with both MA and V. the more I think they are both largely the same theme and that switching out of one into Paypal would be a more sensible play. That said cash in my portfolio, particularly after selling Markel remains high so I can build Paypal without selling. The jury remains out.
I took a starter position in GSK after the Q3 results. The earnings presentation possibly wins my award for the most boring and least informative presentation by a large company. It contained a long recitation of the information on the slides. The slides themselves not being terribly informative. The results themselves were rather poor and management over the last two years seem to be scrabbling for a strategy. However this is a business that is well positioned in certain markets and despite senior management has progressed over the last few years. Having fallen 30% since the start of the year with an ongoing dividend yield of 6% I think the quality of management is now priced in and the quality of the business not fully appreciated. I do think there is truth in the Warren Buffet saying that when a business with a poor reputation meets a management with a good one the business will carry on with its reputation intact. I also think that this can be reversed and when a business with a good reputation meets management with a poor one the business will still carry on with its reputation intact. My initial buy price is 1296.074p.
I also bought a large (by my standards) opening position in BGCG. Clearly for all sorts of reasons China is the coming economy. My ability to stock pick directly into China is tiny and so I have tried to find a fund before but invariably it has not gone well. This trust is a takeover by Baillie Gifford from Witan and is a narrowing down from an Asia focus to a China focus. I like BG as a firm. As such I am trying once again to find a China focussed investment and this is it. Buy price 449.9p.
As ever, always DYOR. My investments are purely for my risk profile, my time horizon and my mistakes and do not represent investment advice.