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

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20 January 2023
By Maynard Paton

Today I have revisited a SharePad 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 consistently above 20% is probably quite special.

To narrow the field down further, I also sought companies that carried net borrowings of less than zero (i.e. net cash):

(Source: SharePad)

I selected Quartix because it was among the worst share-price performers during the last twelve months. Let’s take a closer look.

Read my full Quartix article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: STRIX

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12 December 2022
By Maynard Paton

A profit warning and 32% share-price crash brought Strix to my attention the other week:

(Source: SharePad)

This small-cap dominates the market for kettle controls, and I wondered whether that strong competitive position could support an eventual recovery.

Let’s take a closer look.

Read my full Strix article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: TRUSTPILOT

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18 November 2022
By Maynard Paton

Read a set of company results, and chances are you will spot a reference to Trustpilot. Examples of quoted businesses mentioning the popular review website include:

  • AJ Bell: Our operational performance indicators have shown excellent levels of customer service as demonstrated by our high 4.5-star Trustpilot score.
  • AO World: “Over 350,000 Trustpilot ratings, averaging an “Excellent” 4.6/5 stars.
  • Big Yellow: “We have over 3,200 reviews from the independent review site TrustPilot. These reviews average a 4.7 out of 5-star rating, labelled as “Excellent” on the TrustPilot ratings scale.”
  • Procook: “We are pleased to have retained our excellent-rated Trustpilot score of 4.8.
  • Redde Northgate: “Customer satisfaction is the cornerstone of our business success and the ‘excellent’ satisfaction scores achieved across our businesses from Trustpilot.
  • Redrow: “We continue to be rated as ‘excellent’ on Trustpilot.
  • ScS Group: “Improved Trustpilot rating to the maximum 5 stars, maintaining our ‘Excellent’ rating with over 370,000 reviews.”
  • Travis Perkins: “The experience with Toolstation remains best-in-class with the business achieving a 4.6-star rating on Trustpilot.

With so many quoted companies trumpeting their Trustpilot reviews, is Trustpilot itself worthy of a 5-star investment rating?

Let’s take a closer look.

Read my full Trustpilot article for SharePad.

Maynard Paton

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

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20 October 2022
By Maynard Paton

Difficult market conditions have led to depressed ratings for many asset-flush shares.

Hence a new screen to pinpoint companies offering cash-rich balance sheets and market caps below their book value. I have attempted to avoid ‘value traps’ by demanding the shares pay a dividend and offer a history of trading above book value.

The exact filter criteria I employed for this search 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.

I applied the screen the other day and SharePad returned 22 matches:

(Source: SharePad)

I selected Redrow from the five house builders at the top of the list because the group’s recent results included very clear guidance:

Redrow’s own projections put its 400p shares on a P/E of approximately 4 and a yield of at least 8%

Combined with a net asset value of 554p per share that gives a price to book of 0.72, the FTSE 250 constituent is very much trading at the ‘deep value’ end of the market spectrum.

Let’s take a closer look.

Read my full Redrow article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: SHOE ZONE

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23 September 2022
By Maynard Paton

Top of the shops among this year’s market carnage has been Shoe Zone.

The discount shoe retailer has enjoyed an amazing 46% share-price gain so far this year in a sector blighted by rising costs and recessionary fears:

(Source: SharePad)

A trio of upbeat trading statements caught the market’s attention this summer.

The first occurred during June and referred to “strong margin improvements“:

“29 June: Shoe Zone is pleased to announce that since the publication of its interim results in May, the business has been trading well and has also seen strong margin improvements and cost savings, in particular as a result of rent reductions and good supply chain management, which are expected to continue into Q4 of the Company’s financial year for the 52 weeks to 2 October 2022″.

The second update followed in July, and revealed “stronger than expected” trading:

“26 July: Shoe Zone is pleased to announce that since the publication of its trading update on 29 June 2022, trading has been stronger than expected due to higher than expected demand for summer products, particularly in the last two weeks. The Company has also continued to experience margin improvements as a result of good supply chain and cost management.”

And the third update occurred last month, and confirmed trading had “continued to exceed expectations“:

“31 August: Shoe Zone is pleased to announce that since the publication of its trading update on 26 July 2022, trading has continued to exceed expectations due to continued strong demand for summer and back-to-school products throughout August. The Company also continues to benefit from the margin improvements as outlined in recent trading updates.”

The remarkable run of RNSs also revealed the group lifting its current-year profit expectations from “not less than £8.5 million” to “not less than £10.5 million“.

The profit upgrades and share-price surge will of course be welcomed by shareholders, although the company’s longer-term performance could mean the positive summer may not be a persistent phenomenon.

The shares joined AIM at 160p during 2014 and, eight years later, the price stands at… 160p:

(Source: SharePad)

Let’s take a closer look.

Read my full Shoe Zone article for SharePad.

Maynard Paton

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

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25 August 2022
By Maynard Paton

Another month and another round of ‘back to basics’ filtering.

Introduced earlier this year to identify James Halstead, this screen shortlists companies that offer cash-flush balance sheets, robust margins and dependable dividends. SharePad returned 19 matches:

(Source: SharePad)

I selected Cerillion because the shares were among the few on the shortlist to have moved higher this year. I passed on EMIS and Cardiff Property because the former was subject to a bid and the latter was too small.

Cerillion’s shares have actually five-bagged since the pandemic lows of March 2020 and remain very close to their £11 all-time high:

(Source: SharePad)

Let’s take a closer look.

Read my full Cerillion article for SharePad.

Maynard Paton

[SharePad] Screening For My Next Long-Term Winner: LIONTRUST ASSET MANAGEMENT

28 July 2022
By Maynard Paton

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Difficult market conditions have prompted yet another bout of ‘back to basics’ filtering.

Introduced the other month to identify James Halstead, this screen short-lists companies that offer cash-flush balance sheets, robust margins and dependable dividends. SharePad returned 19 matches:

(Source: SharePad)

I selected Liontrust Asset Management because the shares were highlighted by ace fund manager Keith Ashworth-Lord within his latest Buffettology fund factsheet. Mr Ashworth-Lord wrote:

“Liontrust Asset Management (-15.5%) announced final results which showed substantial growth in average AUM (+43%), revenue (+41%), dividends per share (+53%) and free cash flow (+122%).

The reaction of Liontrust’s share price — which will be seen by the teenage scribblers in the City as high beta — is symptomatic of current market sentiment. As a result, the shares trade on a trailing free cash flow yield of 15% and a trailing dividend yield of 8%. Talk about ‘value’.”

Let’s take a closer look.

Read my full Liontrust Asset Management article for SharePad.

Maynard Paton

[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

[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

[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

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

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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

[SharePad] Small-Cap Spotlight Report: CAKE BOX

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21 January 2022
By Maynard Paton

Oh dear. I had expected this article to celebrate a dynamic growth company that had commendably prospered during the pandemic.

I find myself instead relaying some unusual financial reporting after digging deep into a few annual reports.

Read on to discover:

  • An erroneous £2 million entry within the cash flow statement;
  • The inconsistent disclosure of related-party transactions;
  • The delayed reporting of a website breach to the auditor (and customers);
  • Historic errors” with stock control;
  • The auditor resigning after becoming “concerned about the robustness of the Company’s control and governance frameworks“;
  • The peculiar disclosure of trade payables and receivables, and the level of receivables versus revenue, and;
  • Bookkeeping curiosities such as overdue tax, R&D tax credits and regular revaluations of distribution centres.
(Source: SharePad)

Let’s take a closer look.

Read my full Cake Box article for SharePad.

Maynard Paton

PS: I have provided more Cake Box observations on the Quidisq forum.

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

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15 December 2021
By Maynard Paton

Shares offering ‘Quality At a Reasonable Price’ have been hard to find during the last few years. But recent market conditions might be presenting a few fresh opportunities.

Specialist fund manager Ashmore could meet some QARP-type criteria. At present this £2 billion mid-cap offers:

  • Impressive financials, including a majestic 66% margin and ‘surplus’ capital of more than £600 million;
  • A reliable dividend history, with the payout never being cut during the banking crash and pandemic, and;
  • A reasonable P/E of 12-13 alongside a dividend yield of 5%-plus.
(Source: SharePad)

Let’s take a closer look.

Read my full Ashmore article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: AQUIS EXCHANGE

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21 November 2021
By Maynard Paton

Investors love ‘disruptors’. Find a pioneering upstart that is stealing market share from industry dinosaurs, and your portfolio may enjoy a huge stock-market winner. Amazon of course is the textbook example.

One company that could be a genuine disruptor is Aquis Exchange, a £180 million small-cap trying to revolutionise share trading and taking on the likes of the London Stock Exchange and Euronext.

(Source: SharePad)

Let’s take a closer look.

Read my full Aquis Exchange article for SharePad.

Maynard Paton

[SharePad] Small-Cap Spotlight Report: GOODWIN

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20 October 2021
By Maynard Paton

This quote from Richard Beddard caught my eye the other week:

If something truly special is incubating, we may profit from our investment for decades.”

I am always up for profiting from an investment for decades.

Richard was writing about “pivots” — companies that are adapting to change by “incubating another better business“.

He highlighted four examples and today one of the quartet — Goodwin, a £277 million market-cap engineer — goes under my SharePad microscope.

Richard described these pivots as “decent but humdrum” businesses, but do not let that put you off. Goodwin has 30-bagged during the last 20 years and a heritage of family management could indeed lead to decades of further profit.

(Source: SharePad)

Let’s take a closer look.

Read my full Goodwin article for SharePad.

Maynard Paton