Q2 2022: 8 Years Of Special Dividends

30 June 2022
By Maynard Paton

Happy Thursday! I trust your shares continue to perform better than mine during 2022.

A summary of my portfolio’s progress:

  • Q2 return: -2.9%*.
  • Q2 trades: None.
  • YTD return: -15.7%* (FTSE 100: -1.0%)
  • YTD winners/losers: 2 winners vs 9 losers.

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees and paid dividends)

My portfolio’s 2.9% Q2 drop leaves my shares 15.7% lower this year and nursing their worst half-year decline since I commenced this blog at the start of 2015. I think I have to go right back to the second half of 2011 to find a similarly underwhelming six-month performance.

At least Q2 did not reveal any major RNS disappointments. Andrews Sykes, Mountview Estates and M Winkworth in fact lifted their ordinary dividends while S & U and Tasty disclosed promising progress despite the uncertain economy.

But the market’s disillusionment towards smaller companies is leaving many of my shares marooned at best.

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S & U: Record Dividend Delivers 6% Yield After FY 2022 Results Signal Higher Expected Write-Offs And Risk Of ‘Adverse Economic Environment’

28 June 2022
By Maynard Paton

Results summary for S & U (SUS):

  • A “lower than normal” bad-debt provision underpinned a record full-year profit, which in turn supported fresh highs for net asset value (NAV) and the dividend.
  • Very mixed signals are emerging from the main motor-loan division, with encouraging collection rates offset by “a more heightened risk of an adverse economic environment” and higher expected write-offs among new loans.
  • Further surplus cash from the motor-loan division was redirected into the property-loan subsidiary, which reported a bumper performance and prompted optimistic near-term management predictions.
  • ROCE levels remain modest and suggest SUS’s inherent value is biased towards the asset value of its loan book rather than annual earnings.
  • Despite current-year profit running “above budget“, the £21 shares trade at 1.24 times NAV and offer a 6% yield. I continue to hold.

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[Podcast] PHOTO-ME INTERNATIONAL With Mark Atkinson And Maynard Paton

19 June 2022
By Maynard Paton

I recently recorded a pilot episode of The Private Investor’s Podcast with my good friend Mark Atkinson. We talked about Photo-Me International and the investment potential of passport photos and self-service washing machines: 

We cover:

  • 00:00 Introduction and portfolio YTDs.
  • 00:52 Photo-Me and why Mark has been buying.
  • 05:10 Is self-service laundry a winning business model?
  • 09:26 How do the fruit juice and pizza machines work?
  • 12:16 The financials of Photo-Me.
  • 13:51 Serge Crasnianski recently invested £20m. What does he know?
  • 19:01 Other directors and the absence of a board-level CFO.
  • 19:51 The recent trading statement and expected revenue.
  • 20:24 Is Mark still bullish and would he buy more?
  • 22:51 How big a position is Photo-Me for Mark?
  • 23:26 Would Maynard now buy Photo-Me?

We may record more podcasts if sufficient interest is shown!

Happy listening!

Maynard Paton

PS: The recording took place on 14 June 2022.

[SharePad] Screening For My Next Long-Term Winner: INTEGRAFIN

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19 June 2022
By Maynard Paton

Difficult market conditions for highly-rated ‘quality’ shares have prompted further back-to-basics filtering.

Hence a new screen to identify companies offering robust financials, respectable growth, useful director ownership… and a reasonable valuation.

The exact filter criteria I employed for this search were:

  • Net borrowings less total leases of no more than zero (i.e. a net cash position excluding IFRS 16 lease obligations);
  • An operating margin of 20% or more;
  • A five-year uplift to operating profit of at least 50%;
  • Management owning at least 10% of the company, and;
  • A forecast P/E of 20 or less.

I applied the screen the other day and SharePad returned 17 matches:

(Source: SharePad)

I selected IntegraFin because:

  • The £1 billion market cap was among the largest on the list;
  • The operating margin was a remarkable 78%, and;
  • The shares had dropped 49% from their five-year high.

Let’s take a closer look.

Read my full IntegraFin article for SharePad.

Maynard Paton

CITY OF LONDON INVESTMENT: FuM Drops 13% To Below $10b After H1 2022 Discloses 49% Margin, Welcome Special Dividend And (Finally!) Some New Client Money

19 June 2022
By Maynard Paton

Results summary for City of London Investment (CLIG):

  • The Karpus merger ensured impressive headline progress, but this H1 performance was almost identical to the preceding H2 as funds under management (FuM) remained at $11b.
  • Wishful thinking perhaps, but two consecutive quarters of net FuM inflows following consistent FuM outflows may signal clients re-appraising CLIG’s ‘value’ approach.
  • Rough market conditions during the subsequent H2 will test CLIG’s investments, with FuM dropping 13% to below $10b not indicating obvious outperformance.
  • A wonderful 49% margin and net cash of £25m funding a welcome £7m special dividend suggest the accounts can survive any further market weakness.
  • Although the possible P/E is 11 and the yield tops 7%, the shares have been rated modestly for years as major new clients remain extremely elusive. I continue to hold.

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MINCON: FY 2021 Reveals H2 Mining Sales Up 30% And ‘Outstanding’ Greenhammer Tests Yet Obvious ‘Moat’-Like Financials Remain Highly Elusive 

02 June 2022
By Maynard Paton

Results summary for Mincon (MCON):

  • A better-than-expected performance, bolstered by a record H2 and perhaps a cracking Q4 following less pandemic disruption.
  • Positive progress was recorded at all three product divisions, with higher commodity prices pushing H2 mining sales up 30%.
  • Encouraging development news included the long-awaited Greenhammer system delivering “outstanding” test results and potentially becoming available to purchase this year. 
  • Despite the long-term commitment to first-class product manufacturing, MCON’s financials sadly still lack signs of an obvious ‘moat’.
  • The shares do not appear outrageously expensive, assuming H2 extrapolations and upbeat FY 2022 trading do indeed support a 15x P/E. I continue to hold.

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[Podcast] Small Caps, Stock Picking And Index Trackers With Maynard Paton 

19 May 2022
By Maynard Paton

I recently spoke with Lee Cleasby on his Fund Your Retirement podcast. I talked about.

  • My investing journey and experience.
  • RAMP investing: respectability at a modest price (more details here).
  • When to sell or not to sell?
  • Small-caps trailing the FTSE 100.
  • Focusing on UK shares.
  • How beginners should start investing.
  • A real-life example of pound-cost averaging.
  • Starting a pension for my two-year-old son.
  • Coping with media negativity and volatile markets.
  • Thoughts on cryptocurrencies and NFTs.
  • A book recommendation.
  • My website and newsletter.

I think I am better at blogging than talking. Have a listen and decide for yourself:

Happy listening!

Maynard Paton

PS: The recording took place on 5 May 2022. Not quite sure about the weird American voice at the start!

TRISTEL: Pandemic-Disrupted H1 2022 Reveals Product Cull And Profit Reclassification With Dividend Held And Share Price Now 50% Lower

30 April 2022
By Maynard Paton

Results summary for Tristel (TSTL):

  • An underwhelming pandemic-disrupted performance, with the dividend held for the first time since FY 2013 as hospital customers delayed resuming normal purchasing activity.
  • Progress was complicated by the understandable culling of numerous ‘non-core’ products, although the associated reclassification revealed TSTL’s surface disinfectants to be less profitable than previously declared.
  • Sector “lobbying” within the United States for EPA-approved disinfectants might have created a new “commercial opportunity” for TSTL’s DUO foam. 
  • Brexit stock-piling, share options and US costs offered a wide range of profit outcomes, but cash flow remained respectable and bolstered net cash to a useful £9m. 
  • A 50% lower share price on a possible 32x multiple is not an obvious bargain, especially if patent expiries, automated competition or single-use medical equipment cause disruption. I continue to hold.

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[SharePad] Small-Cap Spotlight Report: BEEKS FINANCIAL CLOUD

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23 April 2022
By Maynard Paton

Every share has a bull case and a bear case.

Our job as investors should be to consider the arguments from both sides, and decide which is the stronger before buying or selling.

Beeks Financial Cloud is a good example of a company with distinct pros and cons:

For the bull case, the cloud-computing specialist offers:

  • A strong competitive position in a fast-growing industry;
  • A wonderful revenue history created by recurring customer payments, and;
  • Shareholder-friendly management led by a ‘thin cat’ entrepreneur.

But for the bear case:

  • Past growth has required substantial investment and extra funding;
  • The underlying economics of the business remain unclear at best, and;
  • Plenty of future expansion is already priced into the shares.

Let’s take a closer look.

Read my full Beeks Financial Cloud article for SharePad.

Maynard Paton

Q1 2022: Surging Energy Prices And The Companies Most Vulnerable

01 April 2022
By Maynard Paton

Happy Friday! I trust your shares have performed better than mine so far this year.

A summary of my portfolio’s first quarter:

  • Q1 return: -13.2% loss* (FTSE 100: +2.9% gain).
  • Q1 trades: None.
  • Q1 winners/losers: 0 winners vs 11 losers.

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees and paid dividends)

My portfolio’s 13.2% Q1 drop is sadly my worst three-month performance since I commenced this blog at the start of 2015. My largest three-month declines prior to this year were 11% during August, September and October 2018 and 8% during January, February and March 2020.

The primary cause of my Q1 reversal was a profit warning from (by far) my largest holding, System1. Not helping matters were underwhelming results from (what was) my second-largest holding, Tristel.

The rest of my portfolio seems to have suffered from the market’s general unease towards smaller companies.

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[SharePad] Screening For My Next Long-Term Winner: FOCUSRITE

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25 March 2022
By Maynard Paton

The market continues to wobble and I have therefore kept with my ‘back to basics’ filtering.

Applied the other week to identify James Halstead, this screen short-lists companies that have strong balance sheets, robust margins and dividends that have defied the pandemic.

This time SharePad returned 22 matches and I sorted the results on year-to-date share-price performance:

(Source: SharePad)

I selected Focusrite because it was among the year’s worst performers, had not already been subject to my SharePad microscope and its operations were not obviously linked to stock-market volatility.

Read my full Focusrite article for SharePad.

Maynard Paton

MOUNTVIEW ESTATES: £11m Special Dividend Accompanies Acceptable H1 2022 Performance And Could Signal New ‘Run Off’ Phase Leading To Estimated Returns Totalling £264 Per Share

25 March 2022
By Maynard Paton

Results summary for Mountview Estates (MTVW):

  • An acceptable H1 performance, albeit profit was suppressed by fewer property sales that in aggregate achieved a relatively low gross margin.
  • Certain property disposals realising a record 65% premium to their 2014 valuation alongside an £11m special dividend do not suggest inherent trading difficulties.
  • Management remarks of “difficult times that may lie ahead” may explain why expenditure on new properties remains low and net debt has been kept at just 4% of the property estate. 
  • The special dividend, low expenditure and modest debt all perhaps signal a new ‘run off’ chapter, whereby the group consistently sells more properties than it buys.   
  • Book value inched to a record £102 per share, although run-off guesstimates suggest total dividends following a complete estate disposal could total £264 per share. I continue to hold.

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ANDREWS SYKES: Better-Than-Expected H1 2021 Witnesses European Sales Rebound 29% As Net Cash Reaches £22m And Potential Dividend Yield Hits 5%

07 March 2022
By Maynard Paton

Results summary for Andrews Sykes (ASY):

  • Following the disappointing finish to FY 2020, a better-than-expected H1 performance with revenue and profit up 7% and 14% respectively.
  • Progress was buoyed by ASY’s European operations, which witnessed sales rebound 29% to set a new divisional H1 record. 
  • A restatement revealed previously undisclosed furlough income had represented 12% of H1 2020 profit.
  • The books remain in good shape, with a robust 22% margin and net funds at a sizeable £22m, although extra pension contributions are still required.
  • A possible P/E of 13.5 and yield of 5% hardly seem expensive for the appealing financials and potential of further European expansion. I continue to hold.

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SYSTEM1: Data Services Reaching 43% Of Revenue Supports Long-Term ‘Platform’ Ambitions Although Q4 Consultancy Warning Emphasises Risk Of Transition Mishaps

02 March 2022
By Maynard Paton

Results summary for System1 (SYS1):

  • An acceptable H1 performance, albeit with profit lower than I had anticipated due to greater costs associated with the transition to Data services.
  • Data services continue to advance, representing 36% of total revenue for H1 and reaching 43% for the subsequent Q3.
  • UK revenue jumping 33% in part through an influx of new Data clients suggests the partnership with ITV is working.
  • A Q4 sales warning relating to old-style Consultancy activities emphasised management’s upbeat ambitions are susceptible to mishaps.
  • Net cash now represents 25% of the market cap, with long-term multi-bagger upside still obtainable if LTIP revenue targets are met and healthy ‘platform’ margins are delivered. I continue to hold. 

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[SharePad] Screening For My Next Long-Term Winner: JAMES HALSTEAD

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Readers of my blog can claim one month of free data. Click here for details. #ad

23 February 2022
By Maynard Paton

Recent market wobbles have prompted some ‘back to basics’ filtering.

Hence a new screen to identify companies that have strong balance sheets, robust margins and dividends that have defied the pandemic.

The exact filter criteria I applied for this ‘safe haven’ search were:

  • Net borrowings less total leases of no more than 0 (i.e. a net cash position excluding IFRS 16 lease obligations);
  • A trailing 12-month operating margin of 15% or more, and;
  • A minimum five-year record of annual dividend improvements.

I ran the screen the other day and SharePad returned 23 matches:

(Source: SharePad)

I added an extra column to the screening results to sort the 23 on five-year share-price performance.

I selected James Halstead because its shares had improved only 9% since February 2017. Of the three weaker performers, two had already been subject to my SharePad microscope while the third — an obscure Kenyan agricultural business — did not quite fit the ‘safe haven’ approach.

Read my full James Halstead article for SharePad

Maynard Paton