Happy 2025! I hope your shares prospered last year and you continue to find my blog useful.
A summary of my portfolio’s 2024:
Total return of +22.4%*;
Individual returns ranged from up 120% for System1 to down 28% for Mincon;
Three shares were topped-up: City of London Investment, Mountview Estates and S & U;
No shares were top-sliced or sold entirely, and;
No new shares were purchased.
(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees, paid dividends and cash interest)
I publish a portfolio review after every quarter (Q1, Q2 and Q3), and this post recaps my October/November/December activity as well as my 2024 performance.
I trust you enjoyed the festive break and are now ready to battle the market for another twelve months!
This post provides a ‘year in review’ of my current holdings. I recap how each business performed during 2024 as well as provide a few remarks about their attractions, drawbacks and valuations.
These reviews are very useful to write, not least because they help ensure I am still invested for the right reasons. I also hope the reviews help me avoid disappointing returns during the year ahead! I undertook the same review process at the start of 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023 and 2024.
My portfolio gained 22.4% during 2024 and this other post explains that performance in more detail.
A record FY, showcasing revenue up 16%, profit up 32% and the dividend up 29%, with impressive 32% UK growth based upon 9% greater volumes and 23% higher pricing through a new NHS agreement.
The retirement of the previous chief executive now makes sense after “purchasing bureaucracy” suddenly beset North American progress, which left TSTL alarmingly “a year behind” schedule after US partner Parker Laboratories proved ineffective with sales.
The new chief executive has still to publish his financial targets, although the board has already re-committed to 5%-plus annual dividend growth while a new ‘boilerplate’ LTIP depressingly seeks only a 5.5% adjusted EPS CAGR to vest.
The high-margin, cash-rich, low-tax accounts generally remain in good shape, but are let down by regular restatements alongside stagnant employee productivity that may be due to a 25% margin target limiting additional investment.
The trailing 25x PE is the lowest since 2018 and could be justified by further meaningful growth within established markets, the prospect one day of lucrative US royalties, the ongoing ability to raise prices and the possibility of bumper surface-disinfection sales. I continue to hold.
***ShareScope New Subscriber Special Offer*** Readers of my blog can claim one month of free data. Click here for details.
14 December 2024 By Maynard Paton
Today I have revisited a ShareScope screen that applies two ratios favoured by ‘quality’ investors — operating margin and return on equity (ROE).
The exact criteria I re-used were:
An operating margin (latest and 10-year average) of 20% or more, and;
An ROE (latest and 10-year average) of 20% or more.
Any business with a margin and ROE of at least 20% is probably quite special.
To narrow the field down further, I also sought companies that carried net cash (i.e. net borrowings excluding IFRS 16 finance leases of less than zero):
The positive transition to data services continues, with a new “performance culture” delivering FY platform revenue up 43%, the highest reported FY profit for seven years and a reinstated annual dividend.
SYS1’s “unique selling proposition of predictiveness” keeps winning ad-testing clients, plaudits and attention, but remains frustratingly under-exploited for innovation testing that offers a 5x addressable market.
The bumper 87% gross margin, record £208k revenue per employee and near-£10m cash position were counterbalanced by one-off profit gains, mediocre bank interest and hefty bonuses obscuring margin progress.
The board’s true growth ambitions will be revealed through a revised LTIP, and I would trust the award-winning directors to retain the scheme’s £45m-£88m revenue range and reinstate a profit ‘underpin’.
A tantalising illustrative projection of revenue doubling to £60m should be very achievable given SYS1’s “3 Reasons to Believe“, and would support an adjusted Ebitda of £18m — and possible £16 share price — if the group’s margin target is met.
***ShareScope New Subscriber Special Offer*** Readers of my blog can claim one month of free data. Click here for details.
08 November 2024 By Maynard Paton
I am back again looking for ‘value bargains’ and revisiting a screen that identifies companies trading at less than book value.
Importantly, this screen attempts to avoid ‘value traps’ by demanding the shares offer net cash, dividend payments and a history of trading above book value.
The exact filter criteria I redeployed were:
A price to net tangible assets of no more than 1;
A dividend being paid during the most recent year;
A 10-year average price to net tangible assets of at least 1;
Net borrowings less total leases of no more than 0 (i.e. a net cash position excluding IFRS 16 lease obligations), and;
I selected Wynnstay because the shares were priced at a steep discount versus their ten-year average valuation. I also liked the reassuring 20-year run of dividend payments.
Sure enough, Wynnstay’s 318p shares trade nearly 40% below the group’s 503p per share net tangible asset value:
My filter results indicate the shares have traded at an average 1.2x book value during the last ten years. The rating reached 2.3x during 2013, sank to 0.5x during the pandemic and languishes now at a lowly 0.6x.
Wynnstay’s net tangible assets have advanced over time, and so has the dividend. The payout has in fact been lifted every year since the group joined AIM during 2004 at 190p:
Given the illustrious dividend, Wynnstay does not seem the type of business that should be valued well below asset value. Yet the shares have effectively moved sideways for years; the recent 318p price was first achieved during 2011 and today supports a £73m market cap.
FY 2024 results summary for Mountview Estates(MTVW):
A reasonable FY performance, which showed revenue up 8%, profit up 22% and the final dividend up 10% after buyers looking for “improvement potential” paid “good prices” for a more normal “profile” of properties.
Sales by larger landlords allowed MTVW to spend a substantial £48m on new properties, but the advance to net asset value (NAV) was just 2% after MTVW took on greater debt, paid 6%-plus interest, incurred higher tax and sold properties for £59m.
The absence of another formal estate valuation remains frustrating, especially given properties purchased after a 2014 valuation continue to realise subpar ‘reversionary’ gains and the overall property-sales gross margin was less than 60% for the third consecutive year.
The board continues to be well paid, attract 30%-plus protest votes and enjoy entrenched support through a family concert party… although not every family member seems a die-hard shareholder and recent AGM remarks even hinted MTVW could one day undertake a trade sale.
The £90 shares offer a 5.8% income, trade 12% below NAV — the steepest discount for at least ten years — and may be worth £182 if the group’s properties were all sold today at their vacant possession value. I continue to hold.
A record H1, showing revenue up 13%, profit up 15% and the dividend up 10% as greater sales to China helped offset a “temporary” slowing of troponin growth.
Positive long-term progress continues to rest upon Alzheimer’s R&D, in which a study involving pTau212 suggests BVXP may enjoy a research edge beyond an increasingly crowded pTau217 field.
BVXP’s Alzheimer’s work on ‘brain-derived tau’ has attracted “significant attention” for helping identify significant, near-term “cognitive decline”, and is now available through Quanterix for wider research purposes.
The economics of successful antibodies remain superb, with this H1 displaying a terrific 77% operating margin, net cash equivalent to a hefty 40% of revenue and capex of just £5k.
The £37 shares yield a trailing 4.3%, trade at a possible 22x P/E and might — using some very basic assumptions — value the R&D pipeline at £23m. I continue to hold.
According to Forbes, Mr Leonard is now worth $5 billion after he established Constellation Software during 1995 and listed the group on the Toronto Stock Exchange during 2006. He then watched his shares soar more than 200-fold:
You may not have heard of Mr Leonard because he deliberately maintains an extremely low profile. He appears to have conducted only one public interview while pictures of him online are essentially variations of this particular image:
However, Constellation’s super stock price — currently supporting a £50 billion market cap — has gradually increased the number of investors who have heard of Mr Leonard…
…and the number of investors who have tried to replicate Constellation’s success. By 2018 Mr Leonard had seen enough copycats and decided to give up writing his annual Constellation letter. He lamented:
“For competitive reasons we are limiting the information that we disclose about our acquisition activity. We believe that sharing our tactics and best practices with a host of Constellation emulators is not in our best interest.”
Such has been the enthusiasm for how Mr Leonard created his immense wealth, a Constellation ’emulator’ has even emerged within the lower reaches of AIM.
Software Circle sports an £85 million market cap and is attempting its very own Constellation-like mega-bagger journey.
Happy Thursday! I trust your shares have been keeping up with this year’s rising FTSE.
A summary of my portfolio’s progress:
Q3 return: +7.9%*
Q3 trades: None.
YTD return: +29.4%*
YTD winners/losers: 3 winners vs. 7 losers.
(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees, paid dividends and cash interest)
Famous last words, but my portfolio seems on course for its best annual performance since I commenced this blog at the beginning of 2015.
As I predicted within my 2023 review, System1 has dominated my returns and what was a very large weighting has become even larger. July’s positive results from the ad-testing specialist helped push my portfolio to a record high and the question now is how far do I run this winner?
Away from System1, my portfolio’s Q3 newsflow was not perfect and some profit setbacks have started to influence my dividends.
In particular, Mincon published a terrible H1 that could not even confess its payout had been paused. As I noted in my last write-up, I can only hope the group’s family directors quickly take decisive action to revive the drill manufacturer now their €2.5m annual dividend income has ceased.
Elsewhere, S & U has admitted to further bad loans following new FCA ‘forbearance’ rules. I suspect the lender’s 17% final-dividend cut earlier this year will be followed by a similar reduction within its forthcoming H1.
Other shares not improving my income during 2024 are Andrews Sykes and City of London Investment, both of which held their latest payouts following unchanged earnings. I have also enjoyed 5%-or-less dividend increases from Mountview Estates, FW Thorpe and M Winkworth.
Only Bioventix (+10%), Tristel (+100%) and System1 (payout reintroduced) have supplied very positive dividend news during the first nine months of the year. My end-of-year returns could therefore reveal a disappointing total income.
A record H1, displaying revenue up 20%, profit up 28% and the dividend up 100% underpinned by remarkable 30% UK growth and notable price increases accepted by the NHS.
North America is now deemed a “$100m per annum opportunity” for TSTL’s initial FDA-approved foam, although competition now involves an FDA-approved UV-light machine that may strengthen the wider argument for automated disinfections.
The new chief exec ticks a lot of boxes for marketing healthcare products in the US, but his stint at LiDCO was unspectacular and shareholders keenly await his strategic ambitions, financial targets and details of his LTIP package.
Although employee productivity has flat-lined, the financials remain in good shape with a bumper 84% gross margin and net cash approaching £12m that could lead to another special dividend.
A near-term 32x P/E is not an obvious bargain, but a premium rating could be justified by further meaningful growth within established markets, the prospect of lucrative US royalties, the ongoing ability to raise prices and the possibility of successful R&D. I continue to hold.
***ShareScope New Subscriber Special Offer*** Readers of my blog can claim one month of free data. Click here for details.
19 September 2024 By Maynard Paton
I always love a traditional ‘value bargain’. Hence this revisit to an old screen that pinpoints companies trading at less than book value.
Importantly, this screen attempts to avoid ‘value traps’ by demanding the shares carry net cash, pay a dividend and offer a history of trading above book value.
The exact filter criteria I redeployed were:
A price to net tangible assets of no more than 1;
A dividend being paid during the most recent year;
A 10-year average price to net tangible assets of at least 1;
Net borrowings less total leases of no more than 0 (i.e. a net cash position excluding IFRS 16 lease obligations), and;
A share price denominated in pounds sterling.
SharePad returned 10 companies, and I selected Castings because I used to own the shares and was surprised to discover the company was on the list:
My filter results indicated the shares have traded at an average of 1.3x book value during the last ten years, while the SharePad chart above shows the rating stretching to 2x during 2014.
But there has been the odd occasion (such as now!) when the share price has fallen below book value.
Castings’ book value has advanced over time, and so has the dividend. The payout has in fact not been cut for at least 30 years:
Special payments were also declared for 2016, 2019, 2022, 2023 and 2024.
Given the illustrious dividend history, Castings does not seem the type of business that should be selling just below book value. Yet the shares have moved sideways for years; the 303p price was first achieved in 2007 and today supports a £132m market cap.
A very disappointing FY, with H2 profit slumping 41% and the final dividend cut by 17% as enhanced FCA “forbearance” regulations prompted the “temporary” modification of motor-finance collections and led to impairments surging 74%.
Various motor-finance ratios unsurprisingly deteriorated, including the first-payment proportion plunging to an alarming 94%, collections of due falling to a below-budget 90%, anticipated repayments hitting a fresh 127% low and up-to-date accounts sliding to 74%.
At least the property-loan subsidiary continues to perform well, as minimal bad loans led to a new £5m profit high, an impressive 58% divisional return on equity and a company-blog ambition to double cumulative lending to £1 billion “in the next couple of years“.
Debt advancing to £224m and borrowing rates climbing to 8% caused net finance costs to absorb a significant 13% of revenue; extra post-FY debt could meanwhile take net finance costs from £15m to £19m and exacerbate the profit “headwinds“.
Post-FY references to “vigorous” FCA discussions, political intervention and up-to-date accounts running at a pandemic-like 69% now leave the £18 shares firmly below NAV, a valuation witnessed only very occasionally during the last 30 years. I continue to hold.
A 5% dividend advance was the highlight of this rather subdued H1, as revenue gained 1% and profit fell 2% after customers apparently finished (very) early for Christmas.
Divisional performances were extremely mixed, with Dutch profit up a super 25%, Thorlux’s profit sinking a disappointing 8%, Zemper’s profit still to show its full potential and Ratio’s losses becoming even larger.
The accounts remain in good shape, showing an acceptable 15% group margin, healthy net cash of £29m and a very welcome stock reduction, although Ratio has (probably) required extra funding and the pension scheme may one day follow suit.
The roles of chief executive and finance director have been combined, which alongside a slimmed-down board raises concerns about executive technical expertise, a concentration of leadership power and future M&A that may not be adequately challenged.
A possible 20x P/E seemingly reflects TFW’s distinguished operating history, future “synergy initiatives” and continual demand for energy-saving lighting rather than the group’s modest near-term prospects, doubts about the re-jigged board and the risk of an aggressive acquisition strategy. I continue to hold.
***ShareScope New Subscriber Special Offer*** Readers of my blog can claim one month of free data. Click here for details.
16 August 2024 By Maynard Paton
Could now be the time to back Nick Train?
The buy-and-hold fund manager was for years feted for selecting blue-chip multi-baggers such as Diageo, RELX and London Stock Exchange.
But recent times have witnessed a stark change to market conditions…
…and Mr Train admitting to a “mortifying” underperformance that even necessitated a public apology.
The shares of Lindsell Train Investment Trust, an investment trust managed by Mr Train, have for example lost 60% from their 2019 peak and are now back to a level first achieved eight years ago:
Yet Mr Train’s supporters may now want to consider this £154 million trust as a way of profiting from his potential comeback.
Importantly, this trust owns 24% of Mr Train’s fund-management firm, which last year paid a £39 million dividend split between Mr Train, his colleagues and this trust…
…and yet this 24% stake appears valued by the stock market at less than 2x earnings.
Maynard Paton: “Hi Andrew, Yes, management has always prided itself on the group’s growth history but the significant dividend lift last year…” 28 Dec 2024
Andrew Rolfe: “An excellent in-depth analysis of TSTL, Maynard. TSTL had a very turbulent month up to Christmas, but bounced back strongly…” 28 Dec 2024
Maynard Paton: “System1 (SYS1) AGM attendance and Result of AGM hosted/published 25 September 2023 I attended SYS1’s AGM during September and the…” 24 Dec 2024
Patrick Leach: “System 1 was also mentioned relatively recently on the Rest is Entertainment podcast (the episode featuring Mike Tyson), again with…” 23 Dec 2024
Maynard Paton: “Thanks Charles. Here is the link. Two choice paragraphs in a very informative and well-written article: “System1 asks the same…” 21 Dec 2024
Maynard Paton: “Hi John, well spotted. I think I misread my calculator and multiplied the actual £62k (then 1.13m shares * 5.5p)…” 21 Dec 2024
John Walter: “I saw your good article on Colefax but you made one glaring mistake saying that David Greens dividend is £600,000-it’s…” 21 Dec 2024
Charles East: “Hi Maynard There is a new FT article that mentions System 1. It’s called “The race to make the greatest…” 14 Dec 2024
