My Portfolio: Year In Review 2014

01 January 2015
By Maynard Paton

Happy New Year!

I trust you enjoyed the festive break and are now raring to do battle with the market for another twelve months!

This first Blog post of 2015 provides a short ‘year-in-review’ for each of my current portfolio holdings.

I find writing such reviews extremely useful, not least because it encourages me to double-check my investment logic to ensure I am still invested for all the right reasons.

I did something similar on the Motley Fool discussion boards during 2013 and plan to repeat this exercise at the start of every year.

Indeed, something I always remember during early January is that the greatest portfolio upsets we’ll all experience during the next twelve months are more likely to be caused by the shares we already own rather than by the new shares we will purchase.

That’s something to bear in mind when we study all the New Year newspaper tips!

During 2014, my overall portfolio gained 16%. My next Blog post will outline that performance in more detail, as well as clarify how my portfolio starts 2015.

I have summarised each holding below in order of size within my portfolio. Text copied from that previous Motley Fool update has been indented and italicised and my latest thoughts are shown underneath. I have put in my average buy price for reference.

Of course my sums, logic and theories could be all wrong so please do your own research!

1) City of London Investment (CLIG), 325.25p, £88m

CLIG is an emerging-market/natural resources fund manager with an attractive management culture — the founder/boss has a low-expense mindset and has even pre-announced personal share disposals to the market. 

The business has lost a few clients during the last year or so, and the investment performance has not been great either, which has hit profits and made my 281p average buy price look a little embarrassing of late. But the firm has maintained the dividend at 24p, therefore providing a healthy near-10% yield for present buyers, and there are signs things maybe picking up with the clients and the stock-picking. Certainly rising markets ought to help the business.

CLIG helpfully provides an earnings model in its annual report, and if you plug in the last reported client fund level and today’s £1:$1.6 exchange rate, it suggests earnings may be running at 17p/share, so not enough to cover that 24p dividend.

But cash in the bank is £14m or 54p/share and CLIG currently pays commission to a third party (almost £3m this year), the agreement for which has been terminated and is in run off. CLIG has projected £11m could be paid to this third party between now and 2021, the NPV of which I guess may be £9m. Assuming CLIG could pay off this third party with its cash pile, current earnings without the commission could be 25p per share and cover the dividend and put the shares on a P/E of about 10. 

I am pleased with progress here. CLIG’s assets under management increased from about $3.5bn to $4bn during the year as the group’s stock-picking improved and funds were re-opened for new money.

Emphasising the shareholder-friendly nature of the boss, results last year started to showcase ‘forward guidance’ — an outline of the company’s best guess as to its near-term profitability. Such openness towards investors remains very welcome.

The helpful earnings model in the latest annual report indicates EPS could now be running at 24p with £1:$1.56. That projection suggests the 24p per share dividend will once again be paid and support the 7%-plus dividend income. Adjust for the £10m/38p per share cash position and the P/E is almost 12 at 325p.

My calculations for the third-party marketing agreement that’s now in run-off are EPS without commission payments of 30p, a commission payment NPV of £6.5m and an underlying P/E of 10.

I last wrote about CLIG here. I did not buy or sell any CLIG shares last year. My average buy price therefore remains 281p.

2) Tristel (TSTL), 80p, £32m

TSTL develops and manufactures wipes and sprays used to clean medical instruments and hospital floors. It was my only major share idea for 2014 — I had made a small investment at the end of 2013 and then increased my position 8-fold by April. My average buy price is 46p.

I claimed in March that the shares could double within three years and I can’t complain about how the business has since performed and how the share price has responded. But did I cut my holding by 19% during October at 78p to lock in some profits.

The directors here continue to believe annual sales can grow at 17%-plus annually during the next few years, which combined with their margin targets could I feel help the share price to surpass 100p in the not-so-distant future.

There are not that many companies around that sell repeat, low-cost, every-day, patent-protected products and so I’m hopeful those features could propel TSTL to one day become a top-rated, top-quality GARP share.

3) Mountview Estates (MTVW), £104, £405m

MTVW buys properties subjected to regulated tenancies, sits on them until the tenant dies or leaves, then sells. Regulated or sitting tenants have a right to live in certain properties at knock-down rents, so MTVW can buy at well below market value and sell at market value when the property becomes vacant. Firm has an illustrious long-term history, with long-time family management steering NAV and the dividend higher over the decades and sailing through the banking crash.

MTVW’s properties are accounted for at cost (current NAV £63/share), which hides their true value as and when the regulated tenancy ends. Over the years, MTVW has sold properties for an average 160% premium or so, so if the tenants all die and all the properties are all sold tomorrow at a 160% premium, and the tax is paid on the gains and other investments are sold at book and all debts are paid off… I think the NAV could be £100/share. Share price now is about 1.1 times stated NAV, which is around the long-term average. 

One interesting aside is that the founding family’s 53% ‘concert party’ recently altered their agreement about the “terms of conduct” with the company. The RNS mentioned “including the event of an offer being made for the Company”, which raised my eyebrows. The chief exec is I think the last family member in the senior ranks now and I would not be surprised if the wider family are contemplating taking advantage of the current housing buoyancy and want out. I am in at £41.

If only every share was as straightforward as MTVW. It really is one of those ‘Buffett’ type businesses where operational simplicity and proven, family management have combined to deliver superb returns over the years. You can read why I bought at £41 here.

MTVW’s 2014 results showed NAV up 9% and the dividend up 14%, but the real interest was the promise of an updated property valuation within November’s interim figures.

These interims revealed MTVW’s trading stock to be worth £666m versus the £318m historical cost carried in the books. Stated book value was £71 per share, but adjust for the revised valuation and book value comes to £160 per share.

Even then, no account is taken of the possible future value uplift of the properties as and when they lose their regulated tenants and their market values then revert to the norm.

Revisiting my sums, I’ve realised an error in my spreadsheet. Now corrected, and once again assuming “if the tenants all die and all the properties are all sold tomorrow at a 160% premium, and the tax is paid on the gains and other investments are sold at book and all debts are paid off”… I think the NAV could be close to £180 per share (and not £100 as I wrote last time).

Alongside the aforementioned ‘concert party’ development and MTVW’s prolonged search for a successor chief executive (there is no obvious family member to be considered), the trading-stock revaluation is another sign (to me at least) that the major family shareholders want this business sold.

I did not buy or sell any MTVW shares last year and, bid approach aside, that is likely to be the case in 2015.

4) French Connection (FCCN), 58.25p, £56m

FCCN is a fashion retailer that has seen far better days, but I hope could become a multibagger if the business ever gets back onto its feet. Main problem is flagging UK sales from a chain bogged down by pricey long-term shop leases. 

Company is currently loss-making, but expects to breakeven in the year ending January 2015. Cash position of £22m is flattered by favourable working capital but that, and lack of debt, help to support the possible turnaround. 

Last reported NAV of £58m or 60p/share shows superficial value but FCCN has entered obligations to lease stores for a total of £194m, and this ‘off balance sheet’ entry would need to looked at by any asset liquidator.

At least these total lease obligations have been falling over the years, from £306m to £266m to £259m to £217m to £194m since 2009. My spreadsheet for FCCN suggests the average lease based on these obligations has 7.3 years more to run going on the current P&L lease charge. Slowly but surely the expensive shops are being ditched.

Plus, annual sales are still £190m or so, wholesale still makes a profit and there is license income as well, so the business is not a complete basketcase. The founder of 40 years ago still runs the show and has a 41% shareholding, and I do recall reading the FCCN RNS archives and discovering him saving the firm in the early 90s recession by providing an emergency loan when the shares were 1p. 

The FCUK phase took the shares to 500p and surely any reasonable uplift in trading, the slightest prospect of the UK retail chain reducing its losses — or even moving towards a profit — ought to send these shares much higher. Eg, a 5% margin on sales of £190m = £9.5m op profit versus a £38m market cap. I am in at 31p.

The turnaround here appears to be on track and the group’s target of reaching break-even for the current January 2015 financial year seems achievable to me.

Like-for-like sales were running 11% ahead during the Spring, which pushed the shares to 90p, though the latest update admitted the warm Autumn had sent like-for-likes down by almost 6%.

Perhaps more importantly, the general message throughout 2014 has been one of improving gross margins, which suggests a better underlying product. Operating costs continue to be trimmed as well.

I’m hoping overall gross margins can recover to 50% (achieved during 2009, 2010 and 2011), sales can return to £200m (almost achieved during 2013), while current licence income and current operating costs can both be maintained. If all that is achieved, I believe operating profits could top £10m and the share price could then top 100p.

FCCN’s cash pile continues to support progress while lease obligations have decreased further, although judging by my attendance at the AGM, small shareholders do not appear on the radar of the founder/boss.

I trimmed my holding by 28% during March 2014 at 62p, though looking back I should have waited a few months to bank profits at 90p. My average buy price remains 31p.

5) Tasty (TAST), 112p, £59m

TAST is a small restaurant chain that originally started out as a dim-t chain but changed tack the other year and now mostly serves pizza.

Underlying investment attraction here is the Kaye family involvement — family have served up ASK Central and Prezzo to investors — both multibaggers — and I am hoping TAST is the hat-trick. TAST’s sales, profits and outlet count is now about where PRZ was in mid-2004, so my theory is TAST’s £56m market cap could turn into PRZ’s £291m market cap (ie five-bag) in about ten years.

TAST does have to expand its estate at a quicker rate though. Expansion has usually been funded by share placings, and I am hopeful TAST can see its way to a large £5-10m placing next year and kick start the ‘next Prezzo’ theory. A recent £2.5m placing by TAST increased the share count by 5% but should help the outlet count increased by 15-20%, from 27 to c32. I want more of that and hope TAST can open 10-20 outlets a year to get on the PRZ trajectory, and not remain on the single-digit opening pace.

I am in at 50p.

I am still hoping TAST can become ‘the next Prezzo’. Prezzo in fact was sold to private equity last year, thereby: i) cementing a possible future valuation for TAST ii) confirming the Kaye family’s strategy of selling their chains, and; iii) allowing the Kaye family —perhaps!— to focus more on TAST from here and develop the group faster.

Prezzo was bought-out for £300m and TAST has a market cap of £59m at 112p. I wrote earlier in the year about the potential for a four-fold return.  Informal director chat at the TAST AGM suggested an acceleration of restaurant openings and perhaps no great need for a large share placing to boost the expansion.

I topped up my holding by 123% during 2014 at an average price of 98p and my overall average buy price is now 80p.

6) SeaEnergy (SEA), 24p, £14m

The first of two major share-price disasters for me during 2014. I perhaps should have realised trouble was looming after starting this Blog post by admitting “there could be danger ahead here!

The main attraction at SEA remains its high-growth, high-margin R2S software subsidiary — which sells a souped-up Google StreetView-type system for oil rigs.

However, interim results last year showed first-half R2S sales and profits up just 11% — which was a little disappointing. Still, an update during November claimed R2S had enjoyed a record Q3 and boasted a strong order book for Q4 and H1 2015.

Whether that order book will be scuppered by the oil-price slump is hard to say. Management doesn’t think so, as the R2S product should help oil-rig owners save money over time.

But SEA’s Consultancy and Marine divisions may be affected by the industry downturn, and therefore hinder profits at the wider group level.

The stock market is not optimistic, and the shares have dropped to 24p.

I topped up my holding by 12% in February at 28p and my average buy price is now 31p.

With SEA’s 20% stake in Lansdowne Oil & Gas valued at £3m, the current £14m market cap leaves R2S valued at the original 2012 purchase price of £11m — assuming you believe annual Consultancy profits plus annual Marine profits less annual central costs of £2m can one day add up to zero.

7) FW Thorpe (TFW), 130p, £150m

TFW is a venerable lighting firm that boasts long-time conservative family management, an illustrious dividend record and cash and various investments that represent 34p/share or 27% of the market cap. There are also freeholds of 8p/share, which are in at cost I think and I sense may be undervalued by a wide margin. 

Last annual results showed sales flat and profits down 9%, with the main Thorlux division experiencing a dip in orders earlier in the period. While the RNS for the final results said the division had “resumed a healthy upward trend” in the 2013 financial year (July 2013 onwards), the subsequent annual report confirms in the small print that the division’s order book is at a “record high”. I hope this month’s AGM statement may be a little more bullish than some people expect.

25% of sales are now LEDs and a new Tunnel and Road lighting division has been established, which I reckon has decent potential. I have been told by the managers that TFW is a leader in road and tunnel lighting — and Thorlux’s high margins emphasise this — while the annual report infers a large opportunity to replace old street lights. I calculate the trailing P/E is 13 adjusted for the cash. I am in at 79p.

Lovely business this. Just gets on with the job of selling lighting with minimal fuss for long-time shareholders. Annual results showed sales up 13%, profits up about 7% and a 1.5p special dividend, albeit the latter barely made a difference to the massive £41m cash/investment/property carried on the balance sheet.

LED lights now represent 50%-plus of sales, though some customers still demand the old-tech lights and as such additional costs are being borne to cater for a doubled-up product range. As more customers switch to LED, I hope margins will improve and profits catch up with sales.

I did not buy or sell this share during 2014 and so my average buy price remains 79p. I make the trailing P/E adjusted for the cash position to be about 12 at 130p.

8) Getech (GTC), 39p, £12m

GTC supplies geo data and studies to oil and gas companies. I was in at 63p following a look at this year’s interims and belief that strong growth, high margins, solid cash flow, sizeable cash deposits and appealing chairman nomenology make this quite an attractive operator… and one that could really catch the imagination of the wider market if the business momentum continued.

Results this week were impressive, though anybody could have foreseen the reported operating profit jump had they added the H2 results from last year to the subsequent H1 results. My sums at 90p suggest a P/E of 14 adjusted for about £3m of cash that itself is adjusted for cash paid upfront by clients. Added bonus — this young tech business claims to have £2.5m/9p a share of freehold property on the books. 

The second of my share-price disasters from last year. GTC kicked off 2014 with a first-half profit warning, where the preceding figures had already suggested trouble may have been on the horizon. Subsequent developments have not been helped by the oil-price slump — this business supplies geographical data and studies for oil and gas exploration.

Although GTC enjoys some recurring contract income, business can be ‘lumpy’ and past profits have been minimal when work has dried up. Various contracts have been announced since the summer, including a $5m deal with the Angolan state oil company, but the clear worry now is that profits in the foreseeable future won’t be as high as those seen in the past.

During August 2014 — and before the oil-price trouble really emerged — I’d increased my holding by 80% at 54p to make my average buy price 59p.

This top-up was prompted by GTC revealing new tax calculations following retrospective R&D tax-credit refunds. Essentially past and current earnings would be enhanced by significant R&D tax relief, and at the time I’d worked out the P/E adjusted for the then cash hoard was about 10.

For what it is worth, my sums now show a P/E of less than 7 at 39p based on the same trailing assumptions. Plus, the trailing dividend yield surpasses 5%. GTC’s cash hoard should ensure it survives the oil trouble, and the current price may indeed be a bargain if profits can continue at the average levels seen during the last few years.

9) Pennant International (PEN), 82p, £22m 

PEN develops software, equipment and materials to help train military personnel — products include a virtual reality parachute trainer. Company came to my attention earlier this year after announcing a bumper £16m contract over five years and the next day reporting annual results and a “step change” in performance — with sales and profits up significantly and ‘breaking out’ of the range seen since at least 2005.

I see PEN as a growth-at-a-reasonable-price investment. Firm says “the (order) pipeline is strong, with good prospects for the short, medium and long term”. Doubling up the latest H1 figures gives me EPS of 6.6p and a P/E of less than 11 at my 74p buy price. PEN also offers veteran directors with significant shareholdings and net cash, although sales are concentrated among just a few customers.

Not much to report here, which I like. Results met my expectations, and I calculate PEN’s trailing EPS is indeed 6.6p — leaving the shares at 82p to trade on an 11-12 multiple. Recent outlook statements haven’t been as optimistic as before, but they still remain positive and there’s apparently a lot of potential in the ‘pipeline’.

Perhaps the most interesting development during 2014 was the grant of some incentive-related B shares to the chief executive. This bonus essentially comes good if the ordinary share price trades above 100p.

I have not bought or sold this share during 2014 and my average buy price therefore remains 74p.

10) Record (REC), 32.5p, £72m

REC is a currency manager that saw its trading strategies thumped by the credit crunch. Profits crumbled as clients fled and the company even attracted the ire of this discussion board following ‘payments for failure’ to directors. 

(Read this post: http://boards.fool.co.uk/hello-carmensfella-rewards-for-fail…. After what happened to the prices of REC and Inland and even Conygar, I now reckon outrage at board pay on this discussion board is a contrarian buy signal :-) )

Plus points remain founder management with high shareholdings, a large cash pile, very high margins and super cash flow. Recent statements have shown the client exodus reversing slightly and client money under management rising 20% since their low of last year (REC’s services include hedging equity portfolios, and fees grow in line with the portfolios, which tend to grow with the markets.)

REC is due to start work on a new $8bn mandate very soon, and factoring that into my sums, I am looking at earnings of £5-6m or 2.5p/share to pay a dividend of 1.5p/share. Net cash is £25m or 11p/share, so I make the underlying P/E about 9 and yield about 4%. I am in at an average of 15p.

I trimmed this holding by 13% at 44p at the start of last year following a price spike caused by a share tip. I should have sold more in retrospect, but never mind.

At least this business stabilised during 2014, with client numbers inching higher and portfolios under management edging from $51bn to $52bn. A notable upturn in client mandates, however, remains as elusive as ever.

The accounting plus-points remain, though I see the company’s founder and major shareholder became non-executive chairman during the year (he was previously executive chairman). I can’t recall this changeover ever being announced and only the small print in the latest annual report gives the details.

It’s left me wondering whether this business will start to alter (for the worse?) now the founder is no longer in charge day-to-day. Anyway, he still remains a substantial shareholder and other executives have material stakes, too.

There has been no real change to my latest valuation sums, with EPS of about 2.4p giving a P/E of 9 at 32.5p adjusted for the 11p per share cash pile. The yield is 4.6%. I remain in at an average of 15p.

11) Burford Capital (BUR), 119p, £243m

BUR is a litigation financing group — it supplies cash to parties involved in US court cases and collects a slice of the damages if they win. Seems to be a growing sector with little correlation to markets and economies, although the practice is not liked by all and is not legal in all US states, which is something to consider. 

I preferred BUR to Juridica, the other player in this area, as BUR was the larger of the two, had less cavalier accounting, retained more cash for reinvestment and growth, and now has managers much more aligned to shareholders (they swapped performance fees for a substantial shareholding last year and have agreed to work for BUR only).

BUR does have a decent investment record to date. As at June, it had completed 25 cases and made a $40m profit from a total $88m invested. However, the first half of 2013 did see 7 cases complete for a $5m profit on a total $30m investment, which was a bit disappointing. Indications suggest the second half of 2013 should have improved returns. I have written some further comment on BUR on a thread in another place.

This is possibly the most complicated share I own and I must admit to not entirely understanding the group’s UK legal operations, which is different to the legal financing in the States. Anyway, tangible book value of c£1/share matches my average buy price so I am happy for now but I may be open to trim my holding if anything else pops up.

I must admit this remains a complicated business and I have not yet researched recent developments fully. (I’m hoping to remedy my lack of understanding early on this year!)

Thankfully nothing untoward appears to have happened at BUR during 2014, and I welcome the improved disclosure of the group’s legal investments within the latest annual report and other statements. Another encouraging development is the quoted IRR since the group started out in 2009 — given as 26%.

A $150m bond issue (at 6.5%) suggests there are no shortage of litigation investment opportunities ahead for BUR and I do get the impression the litigation financing industry is not correlated to the wider economy or markets. That said, I understand the sector is not universally liked in the States and I do wonder if it could one day be hit by adverse regulatory changes.

For now, the group’s latest tangible book value of 109p per share keeps me in at 119p. However, I did indeed cut my holding in 2014 — by 39% at 119p — to invest elsewhere. My average buy price is 101p.

12) Electronic Data Processing (EDP), 65p, £8m

My NFSC selection for 2013. Read this for background: http://boards.fool.co.uk/nfsc-2013-edp-electronic-data-proce…

I do wonder if EDP could experience some ‘late tail’ benefit from recent housing activity — it sells software for builders’ merchants. Latest results showed minor positive progress.

Anyway, my revised sums are pointing to earnings of about 5p/share, my version of net cash less pensions and deferred income but including surplus property is showing 26p/share, and it all gives a possible underlying P/E of 9. Underlying yield is 3.7%. 

EDP paid a 5p/share special dividend this year following a property sale and another property sale is in the pipeline and could easily herald a 10p/share payout. A small US fund management group claiming to follow the principles of Warren Buffett has bought a 17% stake this year. I am hoping we could see some polite shareholder pressure here to realise some extra value. I am in at 55p.

Not the best of years for EDP. Full-year results issued in December showed sales and profits down, alongside confirmation of a major customer loss and acknowledgement of tough trading ahead for 2015. A protracted property sale has also hit the buffers. The main bright spot was a 3p special dividend.

Still, there is hope. This software firm enjoys recurring revenues, upfront customer payments and a cash-/property-rich balance sheet. What’s more, various cost-cutting measures are in place that I calculate could help EPS recover to 4.7p during the next 24 months. That should almost cover near-term dividends, which have been been set at a generous 5p to supply an 8%-plus yield at 65p.

I now count three different North American funds in this share, with 25% aggregate control. I can’t believe they each hit upon this obscure, £8m UK share independently — so I wonder if there is an informal, behind-the-scenes ‘shareholder action group’ forming here. Setting that generous dividend and some very recent board changes suggest to me my aforementioned ‘polite shareholder pressure’ is already under way.

If my cost-saving sums are accurate, I make the underlying P/E to be less than 6 at 65p adjusted for all the surplus cash and property. I would not be surprised if those American funds eventually pushed EDP to sell itself.

I did not buy or sell any EDP shares during 2014 and so my average buy price remains at 55p.

13) Andrews Sykes (ASY), 300p, £127m

ASY sells and hires out air conditioners, pumps and heaters. Net cash, super margins and a lowly rating attracted me in at 233p. Only wish I’d bought more rather than waited for a pull back that never came. 

Track record is a bit haphazard, as the main (90%) shareholder (and chairman) has in the past extracted sizeable dividends when he fancies rather than when business conditions dictate. A large dividend just before the credit crash was not his best decision, which prompted no payout for the following year. 

But the dividend has been reinstated and this year we have seen a 7.1p/share and an 8.9p/ declaration, which look reasonable as earnings are at 26p/share and net cash at about 49p/share. My P/E is about 10-11, with the yield perhaps approaching 5% if the chairman becomes more regular with his divvies. Performance this year may not be as great as 2012 due to no Olympic work, but underlying progress seems alright and I do like the fact extreme weather either way does play into ASY’s hands. 

ASY issued just four RNSs during 2014 — two sets of results, one boardroom share-dealing notification and an announcement this week about the sudden death of the group’s financial controller.

Annual results revealed a bumper 28p per share dividend for the year, but I was disappointed the subsequent interims revealed lower sales and profits. The management outlook was not exactly thrilling either.

Look back over the years and this business has suffered its profit ups and downs, but high margins, the cash-flush balance sheet and some generous cash flow suggest setbacks should be seen as potential buying opportunities. If you take the average EPS since 2004 (of 26p), the P/E is 10 at 300p adjusted for the 36p per share cash hoard.

I did not buy or sell this share during 2014 and so my average buy price remains at 233p.

14) M Winkworth (WINK), 123p, £13m

WINK is an estate agent franchising business, primarily serving London but with offices in smart towns in the provinces. Company does not employ agents itself, rather it takes a cut of revenue from its branches in exchange for IT, marketing and office support etc. Margins are very high, cash rests on the balance sheet, dividends are paid quarterly and there is family ownership. I am in at 90p.

Must admit this is my weakest hold at present. Business has promised growth in recent years, but nothing really has ignited profits at least up to now. H1 profits for 2013 were the same as H1 2011 and H1 2010. Cash generation has not been the very best I’ve seen and the current P/E is the highest I have at 18 if trailing op profits can be sustained at £1.5m. 

But you cannot ignore this housing market and WINK was even advertising in the Evening Standard earlier this week by saying it had sold 25% more houses in the last four months than it did in the same time last year. The national average is 16% more, at least according to WINK. So there is scope for a profit ‘breakout’ next year. I have trimmed this holding to buy other shares this year and could trim further.

This remains my smallest holding. The upbeat London property market helped support some strong headline results from WINK during 2014, but cash flow is still not the best I’ve seen and the firm’s latest update has set the scene for a standstill performance during 2015.

I did indeed cut this holding further, selling 39% at 164p during February. But with the price now at 123p, and 18p per share of cash in the bank, I make the underlying trailing P/E to be 9. The unusual quarterly dividends could be on for a total 6p payout and support a near-5% income.

I waved goodbye to three shares last year

Eagle-eyed readers will have noticed three shares in that original Fool write-up did not appear in the 2014 review above. Well, one of the three shares was acquired and I decided to sell the other two. Here are the details.

SOLD) Abbey Protection (ABB)

ABB is a niche insurer, supplying policies that payout in event of a HMRC investigation. No need to go into great detail here as the business has agreed to an 115p per share cash offer and the substantial executive holdings and the reliable bidder make this a done deal… or does it? 

The 115p offer was below the then prevailing 120p price and 6% investor Hargreave Hale is apparently not happy. Market makers have confirmed buy trades going through at 114p of late, presumably by punters gambling on another bidder. Completion is due in January, so I’m in line for a useful wedge of cash for 2014 bargain hunting. I was in at 80p and will miss the divvies.

The useful wedge of cash for 2014 arrived on schedule.

SOLD) Soco International (SIA)

Former tinpot oil company with its main operations in Vietnam. Not my usual type of investment, but low P/E rating and large net cash balance was tempting at 359p. Plus, directors had decent stakes and are near to standard retirement ages I recall, so underpinning protracted bulletin-board talk of a trade sale.

My rough sums indicate annual trailing earnings in the 50p/share region, and 28p/share of cash, so giving P/E of c7. SIA has also paid out a special 40p/share ‘return of value’ and has proposed 50% of annual free cash flow to fund further ‘returns of value’, so perhaps 20-25p per share could be distributed every year. Not bad at 400p. Recent drilling seemed positive and I’d like to think a reserves upgrade could be on the cards soon. 

I sold all my SIA shares during October at 333p after the oil-price slump forced some emergency research. At the time, I reckoned SIA’s ‘return of value’ was in danger of a substantial cut and I also realised any reserves upgrade may not be that material to the valuation case.

Furthermore, my emergency research discovered the Perenco/Conoco deal of 2012 that many SIA retail shareholders had cited could value SIA’s reserves at $20/barrel was in fact executed (according to a broker) at between $14-$19/barrel. Lesson learned here Maynard — do your own research!

Still, I enjoyed a 22p ‘return of value’ during 2014 and a 40p payout the year before. All told SIA delivered a 10% return for me in almost two years, which I suppose is not a disaster for somebody who knows nothing about the group’s industry.

My profit would have been somewhat better had I sold at the 2014 highs above 400p, but it could have been a lot worse — financially and psychologically — had I not ‘panic sold’. For now, I am glad I am out.

SOLD) 3Legs Resources (3LEG)

3Legs is fracking for gas in Poland, but I know nothing about fracking or gas or Poland. What I do know is that the funny company name is due to the group’s HQ on the Isle of Man. I also know that 3LEG has plenty of cash.

Basic story is that 3LEG has not found much in the way of gas and shareholders have become fed up. So much so that the market cap now trades below the last reported £36m cash pile and a few investors (such as me) are becoming involved for a return of cash rather than hoping for a gas find.

There was an EGM in April that asked to remove the existing directors and appoint new directors that would essentially return the cash to shareholders. The dissident investors were defeated, but the company did appease the rebels by saying it would have £26m of cash at the end of June 2014 after its current drilling programme. If that projection proves accurate, the cash pile is shrinking by 1p/share a month and was about 38p/share at the end of October.

Since the EGM, 3LEG has issued results that suggested there may be more drilling next year than was implied in its defence circular for the EGM. That is annoying, but there is always a risk with these plays that the directors just wish to plough on and keep themselves in a job.

At least there are major dissidents to help ordinary investors on the shareholder register, with Damille (which launched the EGM) and Weiss each owning 15%, and Quantum owning 10%. The EGM voting showed 33 million votes for a cash return, with about 42 million needed for victory. So an extra 9 million votes (cost c£2.5m) is required to stop the drilling and get the cash back. I have done my bit at 26p. I hope to see more than 30p/share returned within the next 12-18 months.

I was asking for trouble with 3LEG after I admitted I knew nothing about fracking or gas or Poland. In the end, this discount-to-cash situation proved nothing of the sort as the directors did increase the drill spend while the so-called dissident investors just sat back and did nothing.

I sold two-thirds of my holding during late 2013 and the rest during May 2014, as it became clear the potential cash return was dwindling away. I enjoyed a 22p exit price for my trouble, which was not great when my buy price was 26p. Still, it was better than the 18.5p received by shareholders that held out to the bitter end after 3LEG called it a day. Definitely some lessons to be learnt here.

Wow. Long post this. Just a few more lines then I will be done…

I wrote in that Fool post that “I expect my portfolio members will not change too much in the next twelve months.”.

Of the 15 shares I named originally, only three have since been removed while just two new shares have been added. And to confirm, there were no shares bought and then sold during 2014 that did not make either review.

Aside from occasional portfolio re-balancing, I’m hopeful I can keep my portfolio comings and goings to a minimum during 2015. Let’s see.

I hoped you found this post useful — I certainly did.

I’ll return soon with a more detailed look at my 2014 portfolio performance. Until then, I wish you happy and profitable investing!

Maynard Paton

Disclosure: Maynard owns shares in Andrews Sykes, Burford Capital, City of London Investment, Electronic Data Processing, French Connection, Getech, Mountview Estates, Pennant International, Record, SeaEnergy, Tasty, FW Thorpe, Tristel and M Winkworth.

15 thoughts on “My Portfolio: Year In Review 2014

  1. David (Charvil from CS PRO)

    Hi Mayn,

    I was sorry to hear you were leaving TMF, loss for TMF but wish you all the very best on your own

    What are your plans in this respect, are you looking to build a business serving others?

    Very interesting to read the details of your Portfolio including my favourite Tasty which I picked up from your comments back in 2010

    Best regards

    David

    1. Maynard Paton Post author

      Hello David
      Thanks for the reply and kind words. My plan is simply to work as a full-time investor. I am not looking to make money direct from this Blog and I am not actively promoting it, except for my Twitter links. Instead, I have developed this site so I can continue to write about my investments, which I find helps me make fewer and better investment decisions. Hopefully you will continue to find it interesting :-)
      All the best for 2015
      Mayn

  2. Mohammed Manjang

    Hey Maybard,

    Happy New Year and Congratulations and very best wishes for the New Year. I find your review very interesting and instructive. I have followed you since TMF Champion share days just over 5 years ago. I think thaT service lost its shine when you left. Keep up the good I think you are helping ordinary folks like us secure financial independence. I hope you plan at some point to start a share tip service.

    If you have the time and able to, I will be grateful your thoughts on Blinkx. I think in some ways it’s similar to SEA in that it’s selling at a discount to book value.

    1. Maynard Paton Post author

      Hello Mohammed

      Thanks for the reply and kind words. But let me say here and now that, after five years leading a share-tipping service at TMF, I have no desire to start my own! Too much client, regulatory and business aggro for me. My immediate plan is to look at my own shares in a bit more depth as I have neglected them for some time now. Thereafter I want to focus on quality businesses that excite me as a long-term investor. I am not sure if Blinkx fits the bill there. To be honest, I am not sure if SEA does too.
      All the best for 2015
      Mayn

  3. David (Charvil from CS PRO)

    Mayn

    Now that you have left TMF can you share if Mincon is a company you would consider investing in yourself given it was promoted by yourself in the 2015 company ideas, or at least that’s what TMF seem to imply

    Cheers

    David

  4. Jeremy McKeown

    Hi Maynard
    Very interesting portfolio, I like your investment style.
    I have been looking at Record recently and see contrarian and value parallels to the recent recovery trend in Man Group (EMG LN) (I own shares in Man Group).
    Record made super normal profits from its Forward Rate Bias currency strategies in the early naughties much as Man Group did from its various managed futures strategies in its AHL business over the same period. The post crisis era of managed markets, bailouts and stabilisers from governments and central banks made these strategies difficult or impossible to generate consistent positive returns. However, with QE and its equivalents being tapered and more “normal” markets returning AHL (and other managed futures strategies) are starting to perform again. While it has yet to be proven, I think there is a good chance that Record will be able to generate positive returns and attract more AUM into its managed for return strategies over the next few years. If this is right Record shares on your valuation criteria are very cheap indeed.
    Best of luck for 2015.
    Jeremy

    1. Maynard Paton Post author

      Hello Jeremy
      Thanks for the reply. Yes, Record’s ‘currency for return’ product fell apart during the banking crash and never really recovered. There are glimmers of hope, however, as QE strategies around the world diverge and currency fluctuations perhaps become more pronounced. In my view, the share price does not reflect any substantial AUM uplift and the operational gearing of the business could mean profits move quite higher if indeed AUM increases. In the meantime there is a reasonable dividend and the cash pile lends support.
      Good luck for 2015
      Mayn

  5. Duncan Pierce (from CS Pro)

    Hello Mayn,

    Thanks for a good 2014 write-up and congratulations on your performance during the year!

    I’m still holding Record and Tasty but recently sold CLIG. Many thanks for those suggestions and I wish you the best of luck for 2015.

    Duncan

  6. David (Charvil from CS PRO)

    Mayn,

    Good start to 2015 with Tasty! I guess the year end results will be known to some or at least the Christnas takings.

    David

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