My ShareScope Articles

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22 September 2023
By Maynard Paton

“Instead of buying back shares or raising dividends, profitable companies often prefer to blow the money on foolish acquisitions. The dedicated diworsifier seeks out merchandise that is (1) overpriced, and (2) completely beyond his or her realm of understanding. This ensures that losses will be maximised.”

Market legend Peter Lynch never liked great companies that ‘diworsified’ into less appealing sectors in the quest for growth.

His book One Up On Wall Street recounted how many famous US stocks blew big money on foolish acquisitions to ensure losses were maximised during the 1980s.

Diworsification sadly remains a popular management strategy, and UK small-caps have not been immune from ambitious boardrooms undertaking low-quality acquisitions and trying to prove Mr Lynch wrong.

NCC is a prime example. The IT group was once dominated by a terrific subsidiary, but lots of acquisitions created a series of mishaps and the shares are now back to where they were twelve years ago:

Let’s take a closer look.

Read my full NCC article for SharePad >>

Maynard Paton

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12 August 2023
By Maynard Paton

I have once again 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 persistent margin and ROE of at least 20% could be very 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 yielded 20 matches, including Games Workshop, Hargreaves Lansdown, Plus 500 and Polar Capital.

I selected Record because it was among the better share-price performers of the last twelve months that I had not already studied for SharePad. Let’s take a closer look.

Read my full RECORD article for SharePad >>

Maynard Paton

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15 July 2023
By Maynard Paton

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

Typically entrepreneurs, the owner-managers who lead quoted companies do seem to think and act differently to standard chief executives.

A hefty investment complemented perhaps by substantial dividends should certainly focus the mind on fundamental business matters…

…versus more common executive considerations such as bonuses, LTIPs, adjusted earnings and career progression.

But seeking owner-managers is not a foolproof way to identify your next great multi-bagger. Hotel Chocolat provides a useful example of what can go wrong even with devoted founders in charge.

The upmarket chocolate retailer floated at 148p during 2016 and its shares reached 530p the other year…

…but a series of mishaps has since dragged the price down to 120p and raised questions about the board’s decisions and composition.

Let’s take a closer look.

Read my full HOTEL CHOCOLAT article for SharePad >>

Maynard Paton

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15 June 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 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 21 matches, including Impax Asset Management, Somero Enterprises, Jarvis Securities and Quartix.

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

Read my full BELVOIR article for SharePad >>

Maynard Paton

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14 May 2023
By Maynard Paton

Let me start by confessing this article covers pension deficits.

What follows is therefore not thrilling and does require some concentration. But please stick with me, especially if you have ever fallen victim to a ‘value trap’.

You see, an onerous pension scheme is a common reason why companies trade on permanently low ratings. The market essentially believes too much of their future profits will have to plug a retirement ‘black hole’ instead of being paid out as dividends.

A good example is Reach, the newspaper publisher that used to be known as Trinity Mirror.

An update the other week confirmed a £95m profit was expected for 2023:

“Profit expectations for FY23 remain in-line with market consensus.(1)
…
(1) Market expectations compiled by the company are an average of analyst published forecasts – consensus adjusted operating profit for FY23 is £95.3m (range from £93.7m to £96.5m)”

…and yet the market cap is £265 million and the 83p shares currently trade on a P/E of approximately 3:

Studying the group’s pension situation goes some way to explain the rock-bottom rating.

Let’s take a closer look.

Read my full Reach article for SharePad.

Maynard Paton

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15 April 2023
By Maynard Paton

I have embarked on further ‘back to basics’ filtering to unearth a potential long-term winner for my portfolio.

This new screen identifies companies that offer a rising dividend, low valuation, robust balance sheet and decent director ownership.

The exact filter criteria I applied for this search were:

• A 5-year annualised dividend growth rate of 10%;
• A forecast 10% dividend increase;
• A trailing 12-month P/E of 15 or less;
• Net borrowings less total leases of no more than 0 (i.e. a net cash position excluding IFRS 16 lease obligations), and;
• A minimum 5% total director shareholding.

I ran the screen the other day and SharePad returned only four matches:

I selected James Latham because it traded on a remarkably low trailing P/E of 6.

SharePad shows Latham’s dividend rising nicely over time with only a couple of setbacks:

SharePad also shows the trailing P/E at its lowest since 2007:

Let’s take a closer look.

Read my full James Latham article for SharePad.

Maynard Paton

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18 March 2023
By Maynard Paton

You can become a better investor by occasionally visiting the stock-market graveyard.

One company that now seems destined for the cemetery is WANdisco, the software developer that the other week suddenly warned of “significant, sophisticated and potentially fraudulent irregularities“.

The shares have been suspended while independent investigators work out what exactly has occurred. Remarks including “significant going concern issues” make for grim reading:

“The identification of these irregularities will significantly impact the Company’s cash position and lead to a material uncertainty regarding its overall financial position and significant going concern issues. The Board now expects that anticipated FY22 revenue could be as low as USD 9 million and not USD 24 million as previously reported. In addition, the Company has no confidence in its announced FY22 bookings expectations.“

I wrote about WANdisco for SharePad during May 2021 and the bombshell announcement must prompt a revisit. What can we learn to help us avoid the next great investment disaster?

Let’s take a closer look.

Read my full WANdisco article for SharePad.

Maynard Paton

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12 February 2023
By Maynard Paton

Difficult market conditions have prompted many investors to find safety through attractive dividend shares.

Hence a new screen to pinpoint companies that boast a dependable payout, a meaningful yield and respectable prospects.

The exact criteria I employed for this search were:

• A record of dividend payments spanning at least 20 years;
• A 10-year dividend growth record of 5% or more;
• A minimum forecast three-year dividend growth rate of 5%, and;
• A forecast dividend yield of at least 4%.

I applied the screen the other day and SharePad returned 14 matches:

I selected Telecom Plus from the shortlist as the company offered the highest forecast dividend growth for the next three years:

Let’s take a closer look.

Read my full Telecom Plus article for SharePad.

Maynard Paton

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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):

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

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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:

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

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

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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:

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

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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:

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:

Let’s take a closer look.

Read my full Shoe Zone article for SharePad.

Maynard Paton

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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:

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:

Let’s take a closer look.

Read my full Cerillion article for SharePad.

Maynard Paton

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:

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