My ShareScope Articles

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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):

This time the filter returned 17 matches, including Rightmove, Games Workshop, Cerillion, Property Franchise and six other shares I have studied for ShareScope.

I selected Tatton Asset Management because its impressive 40%-plus margin was the highest among the remaining seven names.

Let’s take a closer look.

Read my full TATTON ASSET MANAGEMENT article for ShareScope >>

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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;
• A share price denominated in pounds sterling.

This time SharePad returned 13 companies:

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.

Let’s take a closer look.

Read my full WYNNSTAY article for SharePad >>

Maynard Paton

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12 October 2024
By Maynard Paton

Mark Leonard has been described as the “best capital allocator you have never heard of“.

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.

Let’s take a closer look.

Read my full SOFTWARE CIRCLE article for SharePad >>

Maynard Paton

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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:

Sure enough, Castings’ 303p shares trade (just) below the group’s 308p per share net asset value:

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.

Let’s take a closer look.

Read my full CASTINGS article for SharePad >>

Maynard Paton

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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.

Let’s take a closer look.

Read my full LINDSELL TRAIN INVESTMENT TRUST article for SharePad >>

Maynard Paton

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27 July 2024
By Maynard Paton

An illustrious dividend history and a worthwhile yield have brought RWS to my attention. The language-translation group presently offers:

• An unbroken record of dividend increases since its 2003 flotation;

• A despondent share price that provides a 6.5% yield;

• Forecasts for further growth, albeit tempered by significant profit adjustments and unnerving management changes, and;

• A long-time board member with a £170 million investment who has never sold a share.

I pinpointed RWS after revisiting a SharePad filter that shortlisted companies where the last five years had shown their dividends going up but their share prices going down:

I selected RWS because its shares had fallen the furthest among the shortlist. I also noted the group’s forecast P/E was a modest 8x.

Not only has RWS’s dividend increased during the last five years, the payout has been lifted every year for a remarkable 19 years!

But the rising dividend has not stopped the shares plummeting to 189p, which supports a £696 million market cap:

Let’s take closer look.

Read my full RWS article for SharePad >>

Maynard Paton

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13 June 2024
By Maynard Paton

The email I received was intriguing:

“The numbers speak for themselves. The company has repurchased more than 75% of shares outstanding since 1999, has a decent return on equity (last financial year approximately 18%), and is trading at an EV/EBITDA of 3-4 due to £20m net cash on the balance sheet.

The market has either overlooked the stock entirely or is pricing in profits falling off a cliff, which I don’t see happening given the maximum decline of 40% after the GFC. I’d love to know what you think.”

The company in question is Colefax (CFX), a small-cap so obscure that even I — a keen investor for 30 years — had previously never heard of.

But any business that has bought back more than 75% of its shares must be worthy of further investigation. Sure enough, Colefax’s share count has reduced from a peak of 28.5 million during 1999 to 6.2 million today:

What is going on? Let’s take a closer look.

Read my full COLEFAX article for SharePad >>

Maynard Paton

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17 May 2024
By Maynard Paton

Oh dear. Today I am writing about Victoria, a £228 million carpet manufacturer that last year attracted attention following an adverse audit:

When I last looked at an adverse audit for SharePad, a commotion erupted that debated whether I was simply reporting “transcription errors” or spotlighting something more sinister.

So to be clear:

• What follows is just my interpretation from reading Victoria’s 2023 annual report and other company statements;

• I have not inspected every part of Victoria’s accounts nor considered every aspect of the wider investment case, and;

• Please do your own research and form your own conclusion.

And with that, let’s take a closer look.

Read my full VICTORIA article for SharePad >>

Maynard Paton

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13 April 2024
By Maynard Paton

Everybody loves shares that keep on rising.

SharePad lists 37 names that have consistently delivered 15% or more annualised returns during the last one, three and five years:

The shares of independent energy supplier Yü Group have certainly kept on rising; they have more than tripled since April 2023 and have 20-bagged since early 2019.

Factors involved in this superb investment include:

• A ‘market-pariah’ valuation caused by an adverse accounting review;
• An astounding recovery buoyed by elevated energy prices;
• A ‘scalable’ business that generates extra revenue without a commensurate increase to the workforce, and;
• The entrepreneurialism and commitment of founder Bobby Kalar.

Let’s take a closer look.

Read my full YÜ GROUP article for SharePad >>

Maynard Paton

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24 March 2024
By Maynard Paton

Rockwood Strategic could be the ideal choice for anyone wishing to capitalise on the sorry state of UK small-caps.

A check of your own portfolio may support Rockwood’s belief that numerous UK small-caps are ready to be revitalised by fresh management and then be sold to the highest bidder.

You may not be able to appoint new board executives and argue for takeovers, but this £60 million ‘activist’ investment trust can do so on your behalf and has a 125% return to prove it:

Let’s take a closer look.

Read my full ROCKWOOD STRATEGIC article for SharePad >>

Maynard Paton

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29 February 2024
By Maynard Paton

Today I am studying Property Franchise, an estate-agency franchising business that appeared on my radar after I reviewed fellow estate-agency franchisor Belvoir last year.

To recap, I finished my Belvoir write-up by suggesting Property Franchise might have been the better sector opportunity:

“The outperformance of Property Franchise following Belvoir’s [unsuccessful bid] approach could in fact mean Property Franchise is the better business of the two. Just like Belvoir, Property Franchise claims to be the country’s largest property franchisor and, funnily enough, was also among the 21 matches from this SharePad screen…

I feel a review of Property Franchise is required to give greater shareholder perspective and to perhaps highlight a more attractive sector opportunity.“

Determining whether Property Franchise or Belvoir is the better sector opportunity has now become academic because the two companies recently agreed to merge.

According to my SharePad filtering, the Property Franchise/Belvoir combination should be an attractive operator. Both Property Franchise and Belvoir continue to appear on my SharePad screen that seeks companies exhibiting:

• An operating margin (latest and 10-year average) of 20% or more, and;
• A return on equity (latest and 10-year average) of 20% or more.

Businesses blessed with a consistent margin and return on equity of at least 20% are probably quite special.

Let’s take a closer look at Property Franchise and the Belvoir merger.

Read my full PROPERTY FRANCHISE article for SharePad >>

Maynard Paton

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27 January 2024
By Maynard Paton

Fashion website Sosandar provides a fascinating dilemma for small-cap growth investors.

Bulls will highlight the online retailer’s very rapid expansion and bold ambition to raise profits to £10 million which, if achieved, would make its £37 million market cap extremely attractive. The story is also backed by keen co-founders and net cash.

Bears will note the £10 million profit ambition is based upon creating a chain of shops alongside continuing to sell clothes online. Sosandar’s website currently makes little profit and the fashion industry — whether selling online or through shops — is blighted by poor economics.

Let’s take a closer look.

Read my full SOSANDAR article for SharePad >>

Maynard Paton

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16 December 2023
By Maynard Paton

I love ‘owner managers’ — company bosses with significant shareholdings who want to build wealth for the long haul.

Such leaders do seem to act differently to standard chief executives. A hefty investment complemented by substantial dividends should certainly focus the mind on long-term operational matters…

…versus more typical executive considerations such as bonuses, expense accounts, awaydays and career progression.

I have attempted to identify promising ‘owner managers’ by screening for companies with the following criteria:

• At least ten years of annual dividend increases, and;
• A minimum 10% total director shareholding.

SharePad returned only eight companies, including James Halstead, Judges Scientific and Craneware:

I selected Lok’nStore as it offered the highest forecast dividend growth among the shares I had not previously evaluated for SharePad.

Lok’nStore’s history of annual dividend increases runs to 13 years, with another three years of payout advances predicted:

SharePad reveals Lok’nStore’s ‘owner manager’ to be executive chairman Andrew Jacobs, who controls 13% of the business:

Let’s take a closer look.

Read my full LOK’NSTORE article for SharePad >>

Maynard Paton

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18 November 2023
By Maynard Paton

Today’s rough market for small-cap shares could be the exact time to hunt for your next great portfolio winner.

Take Judges Scientific, the £540 million group of scientific instrument manufacturers, which joined AIM at 95p at the bottom of the dotcom crash during early 2003:

These shares topped £100 earlier this year to give initial shareholders a staggering 100-bagger return. What can investors learn from this astonishing performer?

Let’s take a closer look.

Read my full JUDGES SCIENTIFIC article for SharePad >>

Maynard Paton

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14 October 2023
By Maynard Paton

Whisper it, but a few UK small-caps are still progressing well and maintaining resilient share prices in this difficult market.

Fonix Mobile is a good example. Recent full-year results from this £206 million business showed revenue up 21%, earnings up 10% and the dividend up 12%, which ensured the shares remain within touching distance of their all-time high:

Fonix currently appears on an old SharePad screen of mine that seeks respectable companies that have grown without acquisition. I have always believed the very best companies are those that can expand ‘organically’ and do not rely on purchasing other businesses for higher profit.

The screen’s filter criteria are:

• Positive five-year turnover and operating profit growth;
• A minimum of 15% for both return on equity (ROE) and operating margin;
• Net bank borrowing of no more than zero (i.e. a net cash position), and;
• A five-year acquisition spend of zero.

I selected Fonix as it had exhibited the strongest revenue growth after Alpha Group — which broke its organic-growth history by announcing an acquisition last month — and VAALCO Energy — an American oil explorer that I had no desire to review.

Let’s take a closer look at Fonix.

Read my full FONIX MOBILE article for SharePad >>

Maynard Paton