Note: This Blog post has been extracted from my Q2 2017 Portfolio Update and my Q3 2017 Portfolio Update. The studies were performed during 2017 and, although the basis of my analysis has not changed, my verdicts have not been updated for subsequent events.)
14 January 2019 By Maynard Paton
This Blog post outlines how I evaluate company management and uses my share portfolio for examples.
“I want my investments to be led by loyal and capable bosses that have served in the top job for several years. I want to see improvements to profits and the dividend throughout their leadership. Better still is the founder/entrepreneur boss, who set up the firm in the first place, has led it ever since and has therefore shown even more commitment to building the business.”
For the first part of the study I assess management loyalty and commitment (through a sizeable ordinary shareholding). I then look at management capability and track records.
Today I am continuing to evaluate my shares with some thoughts on company pension deficits. As I have stated in How I Invest:
“c. Low/no pension issues: I view final-salary schemes as potential timebombs. Nobody really knows the exact level of future contributions they require and I prefer to back companies without any ‘employee benefit liabilities’ whatsoever.”
Let me start by saying this Blog post is not a definitive analysis of company pensions. Whole books can be written on what is a complex subject, and sadly I am not a company-pension expert.
Nonetheless, judging pension schemes should be important to investors — not least because the schemes can suddenly start absorbing extra cash that might otherwise be paid to shareholders as dividends.
I get the impression many companies trade on lowly ratings because investors worry about the associated pension schemes becoming financial ‘black holes’. You could say these shares are potential ‘value traps’.
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 2019 provides a ‘year in review’ of my current portfolio holdings. I recap how each of the underlying businesses performed during 2018, as well as provide a few remarks about valuation.
Summary: The commercial property group once again delivered record first-half revenue and net asset value (NAV) figures — despite the chairman’s persistent economic and political worries. The 203-word statement gave little else away, which has allowed the share price to continue to drift and the discount to NAV widen to 50%. Such a valuation has typically rewarded patient investors of this low-profile share, and I have recently bought more.
Summary: The property-trading specialist revealed its weakest first-half performance since 2013 after selling eleven fewer houses than this time last year. Furthermore, the 133% investment return achieved from those disposals was below MTVW’s ten-year average. Nonetheless, net asset value (NAV) still managed to creep to a fresh £92 per share high. Meanwhile, dissident shareholders continue to vote against MTVW’s directors and may be growing in number. The £100 shares do not appear expensive on an NAV and yield basis, and I have recently bought more.
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23 November 2018 By Maynard Paton
One of my favourite ways of assessing companies is by calculating their turnover per employee.
The theory is simple: companies that produce high sales from few people are often simpler to manage and grow than businesses that produce low sales from many people.
In fact, if you can find a business that can expand significantly without needing to take on huge numbers of extra staff, then perhaps you have found a business with a product that actually sells itself.
Suffice to say, companies blessed with products that sell themselves are generally good for us investors!
Let’s now use SharePad to investigate Warpaint London — a cosmetics business with high sales per employee.
Summary: CGS’s results were acceptable but contained several irritating drawbacks. In particular, a recovery at the engineer’s troubled machining division has been seemingly postponed for two years. Furthermore, management has now downgraded customer demand from “strong” to “steady”. Oh, and a depreciation review inflated group profit by 10%. CGS does have strengths — not least its cash pile and dividend history — but I suspect the firm’s stalled earnings will keep the shares marooned for now. I continue to hold.
Glen and Graham will each spend 20 minutes presenting an insightful investing topic. The rest of the evening will be dedicated to the panel answering investment questions from the audience. I am looking forward to taking part and I am sure the occasion will be very educational and entertaining.
ShareSoc is a not-for-profit organisation that is dedicated to the support of individual investors. Event tickets are currently on sale and are apparently selling fast.
Summary: Publishing results at 4:28pm on a Friday is never a good sign. And sure enough, the recruitment software outfit warned of yet another profit slump. Still, at least revenue inched to a new record as the firm enjoyed greater subscription income. Meanwhile, an anonymous tip-off has set me straight about OLEE’s contract with HMRC — the deal appears not to have been lost after all. All I can do now with this illiquid share is hope for an earnings rebound. I continue to hold.
Summary: A couple of earlier updates had already signalled this lacklustre first-half performance. Indeed, several references to competitive pricing and re-designed products implied the advertising research specialist may no longer be the ‘pioneering’ force it once was. Furthermore, the new Ad Ratings service could be hard pushed to become a real money-spinner and return the group to growth. That said, margins remain good, there is cash in the bank and the P/E might be 9… if you believe some significant development expenditure will eventually pay off. I continue to hold.
Summary: I was broadly satisfied with these full-year figures, which set new records for revenue, profit and the dividend. However, the statement and City presentation provided numerous little niggles — not least a bizarre management decision that has delayed product approval within the United States for a further six months. Still, TSTL’s collection of medical disinfectants continue to produce attractive accounts and perhaps their biocidal qualities have been underlined by recent deals with the NHS and Parker Laboratories. I continue to hold.
Summary: The antibody specialist delivered yet another set of record results, with my number-crunching indicating underlying growth of 20%. However, I was disappointed to discover early sales of the important new troponin product had been below expectations — and may have left the lofty P/E valuation open to debate (at least for now). Still, the business continues to exhibit magnificent accounts while a special dividend for the third consecutive year underpins the board’s confidence. I continue to hold.
Summary: These figures were not as good as I had hoped. The lowest first-half sales for seven years created a not-insignificant operating loss and left cash flow dependent on tax refunds. Still, the geoscience software specialist talked of a stronger second half and I remain hopeful the accounts will eventually showcase the high margins and expanding revenue the directors continue to predict. For the time being, I just have to trust a stronger oil price can one day tempt GTC’s customers to increase their spending. I continue to hold.
Happy Wednesday! I hope you continue to find my Blog useful… and that your shares served you well during the summer.
Unfortunately, my portfolio has not exactly sizzled during the last three months.
In particular, notable price advances from Andrews Sykes and Mincon were offset by further declines at System1 and Tasty. Elsewhere, highly rated holdings FW Thorpe and Tristel have come off the boil, while stagnant positions MountviewEstates and Oleeo remain, well, stagnant.
It has all meant that, nine months into the year, I am up 4.4% versus a 1.0% total return produced by the FTSE 100*. No doubt about it, my gains this year have been far from stellar. But following two years of lagging the index, I will happily take my current outperformance for 2018.
Recent RNSs from my shares have been broadly positive. Once again there was a mix of satisfactory to lacklustre statements, and I am glad no major horror stories emerged.
And I did venture to one AGM, which helped prompt my portfolio’s only Q3 trading.
Summary: Widespread snow followed by a glorious heatwave were always going to prompt demand for ASY’s heating products and air conditioners during this first half. However, I did expect the equipment hire firm to have recorded sales growth in excess of the 7% actually reported. Still, operating profit gained 14% while the accounts continue to showcase high margins and surplus cash. Plus, the second-half ought to show bumper figures and help deliver the firm’s best-ever annual performance. I continue to hold.
Summary: SUS reported satisfactory first-half progress, with the group’s main car-loan division now set to deliver its 19th consecutive year of growth. The performance was accompanied by the usual drawbacks — tighter underwriting leading to fewer new customers, and debt write-offs continuing to soar (this time by 32%). The group’s boss reckons we’re at a “relatively late stage of the economic cycle”, too. Still, I remain happy to collect the 4.4% yield and back the veteran directors who carefully steward their £134m family shareholding. I continue to hold.
Summary: The hapless restaurant chain delivered a rather dismal — but not completely disastrous — set of first-half figures. “Unfavourable” weather was partly blamed for underlying sales falling approximately 4%, which in turn led to an operating loss. The numbers also carried a further substantial write-down while net debt jumped following adverse cash movements. But recovery hopes still remain — costs have been cut, menus have been re-jigged and some sites are even “outperforming expectations”. I continue to hold.
Summary: The specialist lighting manufacturer delivered its fifth consecutive year of record results, although describing an underlying 2% profit advance as “excellent” overplayed the performance somewhat. Still, the figures were a touch better than I had expected and showcased all the usual financial attractions — decent margins, vast surplus cash and robust reinvestment returns. Sales of some new high-tech products apparently “rocketed”, too. That said, TFW suffered mixed divisional performances while the share-price rating remains rich. I continue to hold.
Summary: These results were quite satisfactory and actually revealed record first-half revenue — despite the estate-agency group remaining dependent on London’s difficult property market. In fact, the confident management narrative said sales commission rates had increased and also described online rivals as “digital experiments”. Meanwhile, the accounts seem in decent shape, the outlook appears relatively encouraging and the valuation is hardly extended. I continue to hold.
My decision to join SharePad was not difficult. I have used the investment software since 2015 and consider it to be an exceptional service for private investors. I also rate the educational and analytical articles that SharePad has become renowned for.
My SharePad articles will cover my stock-screening efforts — tracking down respectable companies that offer attractive financials, capable managers, reasonable prospects and modest valuations. I hope you find what I write useful.
The articles will probably replace my Watch List reviews, which I admit have been somewhat infrequent of late. I would like to think a return to proper schedules and deadlines will increase my content output…
…and in doing so help me find decent buying opportunities and improve my investment returns!
Summary: MCON extended its bumper 2017 progress with some very satisfactory first-half figures. The specialist drill manufacturer claimed greater orders from the mining sector had supported 12% organic sales growth, while my sums suggested a robust 19% operating margin was reached during the second quarter. In addition, current trading appears healthy and a recent acquisition may have performed much better than expected. However, a P/E in excess of 20 probably reflects all of the positives, especially given cash conversion remains below par. I continue to hold.