Q1 2016: 1 New Buy, 2 Top-Ups And 2 Top-Slices

31 March 2016
By Maynard Paton

Happy Thursday! I hope you continue to find my Blog useful… and that your portfolio has started 2016 better than mine!

After enjoying a decent gain for 2015, I suppose it was inevitable I’d soon endure a rough time. And sure enough, some of my larger winners of last year succumbed to the market’s sharp falls during January and February.

That said, my portfolio has not been a total disaster — I’m down 5% so far this year. It’s not a great performance, but I am generally happy with the shares I own and I look forward to some sort of recovery! 

The biggest setback for me in recent months was the not market’s sudden downturn, but the goings-on at Tristel. This medical-disinfectant business was my largest investment heading into 2016, but I cut back my holding significantly during the first quarter following what I believe to be disingenuous management behaviour (see below).

My portfolio has witnessed other activity, too. Alongside Tristel, I have top-sliced another position, as well as topped-up on two existing investments. I’ve also started buying a brand-new holding.

How my portfolio has changed since the start of the year

I publish quarterly updates to round-up what’s been happening within my portfolio and this Blog post is a recap of my January/February/March activity (you can read my previous updates here) .

The table below shows three columns:

Holding	Weighting 01 Jan 2016 (%)	Restated weighting 01 Jan 2016 (%)	Weighting 31 Mar 2016 (%)
Andrews Sykes	2.6	2.7	2.3
Castings	7.9	8.2	9.0
City of London Inv	6.6	6.8	6.6
Electronic Data Proc	2.7	2.8	3.0
French Connection	4.8	5.0	6.6
Getech	3.2	3.3	3.4
Mincon	2.7	2.8	3.0
Mountview Estates	10.1	10.4	10.9
Record	4.3	4.5	4.5
Tasty	12.7	13.1	11.5
FW Thorpe	9.6	9.9	7.0
Tristel	18.2	18.7	6.8
M Winkworth	0.7	0.7	0.8
World Careers Network	1.9	2.0	4.0
TBA (1)	1.7	1.7	5.0
TBA (2)	-	-	0.9
Cash	10.3	7.4	14.7
TOTAL	100.0	100.0	100.0

The left-hand column is how I reported my portfolio at the end of 2015, while the middle column is a restatement of the left-hand column adjusted for two overlooked dividends and a New Year withdrawal of cash. The right-hand column is how my portfolio stood at today’s close.

Another confidential buy… for now

Look through the table above, and you will see two entries of TBA — To Be Announced.

During Q4 of 2015, I acquired a new company for my portfolio, to which I added more during Q1. During the last three months I’ve also picked up a few shares in another new company.

I’d like to think these two investments offer owner-friendly managers, asset-rich accounts, respectable profit histories and modest share-price valuations — though I could be proved wrong on the latter.

For now at least, I am keeping these investments under wraps because I still wish to buy more of the shares. However, one day I will publish write-ups that explain what I’ve bought and why. Please do not become too eager about these write-ups — the shares are not that exciting!

Here are the other top-ups and top-slices

As well as dabbling with those TBAs, I have top-sliced two positions and added to another.

The first top-slice concerned Tristel, in which I cut my holding by 58% during Q1. I started selling in January on valuation grounds, and sold further shares in February after being let down by the company’s interim results.

I won’t recap the whole sorry saga, but it seems — at least to me — that the directors misguided shareholders through their wording of an AGM statement and an announcement concerning the grant of certain options.

I remain a Tristel investor because the firm’s medical wipes and other disinfectants are high-margin products that are used day in, day out in the vast majority of UK hospitals — so the business retains many operating and financial attractions.

However, I now feel the only bright spot about the executives is the fact some of their options will come good only if the business is acquired. Suffice to say, if the execs play these ‘takeover’ options as sharp as they played some of their other options, shareholders may well enjoy a very welcome bid.

My other top-slice so far this year involved FW Thorpe.

There have been no problems with the execs or results here — it is just a case of what I think is a richly valued share price having grown to represent a decent chunk of my portfolio. I simply thought it prudent to bank some profit and slice my holding by 25%.

The second of my top-ups concerned World Careers Network.

I averaged down to increase my holding by 65% after assuming the software developer could recover to its 2014 earnings by 2020. The firm has previously rebounded very strongly from earlier profit setbacks, and I hope the same can happen once again.

Among my other holdings, I have not bought or sold a single share.

16 holdings is very diversified for me 

As usual I have kept tabs on all of my existing holdings — trying to seek out bargain buys just in case. Here is a summary of what has happened:

* Acceptable progress at FW Thorpe, City of London Investment, Mincon, Tasty and M Winkworth.

* Mixed developments at French Connection;

* Disappointing news from Record and Tristel, and;

* Nothing from Andrews Sykes, Castings, Electronic Data Processing, Getech, Mountview Estates and World Careers Network.

Looking though that earlier table, you’ll now see I have 16 holdings — which historically is very diversified for me.

I really could do with tightening up my portfolio, but the best opportunities I’ve discovered of late have involved new holdings. Meanwhile, all of my existing, smaller positions just haven’t traded at prices that have justified further cash.

Still, I’d like to think my portfolio could become a little more concentrated in time. For a start, I am not looking to invest any more cash in my two ‘deep value’ investments — French Connection and Electronic Data Processing — and I am now not sure whether I would ever top-up on Tristel. The eventual proceeds from these holdings could be recycled into a few of my existing positions.

I vowed I would never get involved again 

One holding I have been pondering during Q1 has been M Winkworth. The shares of this London estate-agency franchisor do not look bad value, but the future of its sector is somewhat uncertain with the advent of Purplebricks and other cheap, online rivals.

Years ago I had a bad experience investing in the newspaper sector… and I vowed then that I would never again get involved in an industry that is being upended by substantial structural changes.

I am not sure whether traditional estate agents will go entirely the same way as newspapers, but I can’t help but feel any fat commissions in the sector will eventually be eaten away by low-cost online operators. I plan to attend Winkworth’s forthcoming AGM to help form some sort of judgement.

Activity on the watch list

You may have noticed I became a lot more active with my watch list in January. Well, the market was falling heavily… and I thought I’d better prepare myself for potential buying opportunities!

I looked at Renishaw, AB Dynamics, Aveva and Rotork.

Sadly I could not spot obvious value in any of those shares, though that has not stopped all four from moving higher since!

I must admit, I had hoped January’s sell-off could have produced some top-quality bargains. But from what I can tell at the moment, you generally still have to pay up for attractive businesses — even if their current earnings are stagnant or worse.

Nonetheless, market ‘corrections’ always occur without warning and I dare say decent buying opportunities will arise at some point. My level of cash is relatively high for me at 15%, which leaves me ready to pounce in Q2 and beyond. I just to need to exercise further patience and discipline!

Until next time, I wish you happy and profitable investing!

Maynard Paton

Disclosure: Maynard owns shares in Andrews Sykes, Castings, City of London Investment, Electronic Data Processing, French Connection, Getech, Mincon, Mountview Estates, Record, Tasty, FW Thorpe, Tristel, M Winkworth and World Careers Network.