CITY OF LONDON INVESTMENT: Subdued H1 2024 Shows Rising Staff Costs Cutting Profit By 5% Although Welcome ‘Engagement’ With George Karpus And Bumper $224m Q3 FuM Inflow Now Lend Greater Support To 9% Yield

10 July 2024
By Maynard Paton

H1 2024 results summary for City of London Investment (CLIG):

  • A subdued performance due to ongoing market “headwinds”, with funds under management (FuM) and revenue up 2%, profit down 5% and the dividend kept at 11p per share for the fourth consecutive H1. 
  • CLIG blamed further FuM withdrawals of $294m on higher deposit rates and appealing index trackers, although the follow-up Q3 statement reported a bumper $224m inflow as clients reappraised the group’s “compelling” portfolio valuations. 
  • A “strategy of engagement” with unhappy major shareholder George Karpus has led to welcome cost cuts, yet the staff profit-share continues to edge higher and doubts persist about whether CLIG is run for the benefit of employees instead of shareholders.
  • Other questions from this H1 concern the effectiveness of the salesforce, the reduced disclosure on fee rates, the necessity of a main-market listing, the revised testing for goodwill impairment and the failure to meet the group’s sole KPI.
  • While CLIG’s own projections point to earnings that just about support the 33p dividend and 9% yield, publishing USD accounts but declaring GBP dividends may confuse the 1.2x payout-cover policy. I recently bought more and continue to hold.

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SYSTEM1: Positive H1 2024 Reveals Platform Revenue Up 44% And Leads To Encouraging Dividend Reappearance While £17.5m Illustrative CMD Ebitda Projection Supports Possible £15 Share Price And Reinforces Bid-Target Speculation

23 June 2024
By Maynard Paton

H1 2024 results and Capital Markets Day (CMD) summary for System1 (SYS1):

  • A positive H1, with platform revenue up 44%, greater workforce productivity and improved cash generation leading to better-than-expected Q3/Q4 statements and the upcoming reappearance of the dividend.
  • H1 progress was not perfect, and drawbacks included questionable adjustments, revenue per client seemingly stagnating and services beyond ad-testing — which offer much larger addressable markets — still losing sales and still requiring product revamps.
  • Despite the higher H1 revenue, direct costs declined a remarkable 17% to deliver a record 88% gross margin. But significant bonuses limited the Ebitda margin to 13% — somewhat below the “at scale” target of 30%.
  • The subsequent CMD disclosed founder/executive John Kearon is now evaluating “long-term strategic opportunities“, which raises questions about his “relentless execution” of his own platform plan.
  • The CMD also provided a £17.5m illustrative Ebitda projection, which supports a possible £15 share price and reinforces my speculation that SYS1 could/should become a bid target.

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MOUNTVIEW ESTATES: Reassuring 59% Gross Margin And Hefty £29m Property Acquisitions Support Satisfactory H1 2024 Although £100 Shares Still Trade At NAV Despite Possible £189 Value

17 May 2024
By Maynard Paton

H1 2024 results summary for Mountview Estates (MTVW):

  • A satisfactory H1 performance, showing revenue up 5% and profit up 16% buoyed by the gross margin on property sales rebounding to a reassuring 59%.
  • Despite a hefty £29m spent acquiring new properties, greater debt, higher interest costs, extra tax and the chunky dividend kept net asset value (NAV) at approximately £101 per share. 
  • Properties purchased after a 2014 valuation and then sold look to have realised limited gains, and could explain why NAV growth has slowed and the share price has stagnated during recent years.
  • The protracted search for a replacement non-exec could spark further tensions between the board and unhappy shareholders, with the chief executive still entrenched through family support albeit with no obvious successor.
  • The £100 shares currently offer a 5% income, the highest for decades aside from the banking crash, and could be worth £189 if all the group’s properties were sold today at their vacant possession value. I continue to hold.

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ANDREWS SYKES: Preparing For A Bidder? Bumper £25m Special Dividend, ‘De-Risked’ Pension Scheme And Intriguing Executive Appointment Prompt My Speculation After Eclipsing Record H1 

26 April 2024
By Maynard Paton

H1 2023 results summary for Andrews Sykes (ASY):

  • A bumper £25m special dividend was the clear highlight of this record H1, which reported net cash reaching £39m after revenue increased 2% and profit gained 14%.
  • Progress was underpinned mostly by ASY’s European depots, where revenue climbed 17% and earlier restructuring led to “significantly reduced” losses in France. 
  • The “de-risking” of the pension scheme was a welcome surprise and, alongside a very intriguing executive appointment, could be interpreted as preparing the company for a potential bidder.
  • The accounts remain very respectable, with the H1 margin at a super 25%, cash generation helped by tight stock management and bank debt kept at zero.
  • A possible 13-14x P/E does not appear outrageously expensive, although the limited free float, weather-sensitive operations and mixed H2 outlook might restrict any re-rating. I continue to hold.

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ANDREWS SYKES: Water Pumps Rather Than Heatwave Scramble For Air Conditioners Drive Record FY 2022, Lift Net Cash To £37m And Support 20%-Or-More Margin For 20th Consecutive Year

19 April 2024
By Maynard Paton

FY 2022 results summary for Andrews Sykes (ASY):

  • A record FY performance, with revenue up 10% and profit up 8% buoyed mainly by greater demand for water pumps rather than the scramble for air conditioners during the 40-degree summer.
  • Bolstered by strong Italian, Dutch and Belgian progress and defying problems in France, European revenue climbed 24% and represented a record 31% of the group’s top line during H2.
  • A £2m write-down of unpaid customer invoices appeared to draw a line under the group’s problematic Middle Eastern division.
  • Revenue per employee reached a new £151k high although hire revenue at 1.07x the cost of hire equipment indicated no real improvement to fleet productivity.
  • The accounts remain very favourable, showcasing net cash of £37m, a 26% return on equity and a 20%-or-more operating margin for 20 consecutive years. I continue to hold.

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M WINKWORTH: ‘New Blood’ Sought To 3-4x Revenue At Certain London Branches After ‘Challenging’ Market Reduces H1 2023 Profit By 26% And Leaves ‘Progressive’ Dividend Yielding 6.9%

31 March 2024
By Maynard Paton

H1 2023 results summary for M Winkworth (WINK):

  • Only the dividend advanced higher (+7%) after a “more challenging” property market alongside greater costs caused franchisee network income to decline 5%, revenue to remain flat and profit to drop 26%. 
  • WINK’s franchisees continue to report greater SSTCs and exchanges versus other agents, with sales commissions improving to an estimated £5.4k per transaction and “new blood” being sought to 3-4x franchise revenue at certain London branches. 
  • A third company-owned office seems on the horizon, although the departure of WINK’s successful Tooting manager plus unclear financial progress at Crystal Palace do raise questions about the in-house approach.  
  • A lower margin and adverse cash generation reflected this H1’s reduced sales activity, but a post-H1 update indicated a stronger H2 2023 that ought to include greater returns from franchisee loans. 
  • Projected earnings of c12p per share may limit increases to the 11.7p per share dividend, although net cash of £4m alongside owner-directors committed to a “progressive” payout should sustain the 6.9% yield. I continue to hold.

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S & U: Record H1 2024 Overshadowed By Subsequent 8% Dividend Cut As Economic ‘Headwinds’, Greater Regulation And Higher Debt Costs Leave £18 Shares Valued Below 1x NAV

24 March 2024
By Maynard Paton

H1 2024 results summary for S & U (SUS):

  • A record H1, during which larger loan sizes and lower-than-normal bad debts offset higher interest costs and pushed net asset value (NAV) to a fresh £18.86 per share high.
  • This H1 was then overshadowed by February’s trading update, which revealed H2 motor-loan collections alarmingly reduced from 94% to 90%, extra Q4 write-offs of approximately £5m and the second-interim dividend cut by 8%.
  • Greater FCA regulation, including the new Consumer Duty regime, is prompting SUS to revise its motor-finance lending and seems likely to lead to inherently lower margins, reduced transactions and higher regulatory-admin expenses.
  • Net finance costs absorbed a significant 12% of H1 revenue, with post-H1 debt increasing to £224m — equivalent possibly to 100% gearing — and borrowing rates perhaps now at 8%.
  • Tighter regulation, greater debt expense plus various economic “headwinds” leave the £18 shares at 2014 levels and below 1x NAV, a valuation that has occurred only occasionally during the last 30 years. I continue to hold.

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BIOVENTIX: End Of 7-Year Special-Dividend Run After Record FY 2023 Spotlights Encouraging Alzheimer’s P-tau217 R&D And Leaves £50 Shares Trading At 31x P/E

27 February 2024
By Maynard Paton

FY 2023 results summary for Bioventix (BVXP):

  • A record FY, with revenue up 9% and profit up 8% albeit split between a post-pandemic H1 rebound followed by a standstill H2.
  • Sales efforts were supported by best-seller vitamin D (+7%) and second-best-seller troponin (+30%), although the latter may not be too far away from reaching ‘peak’ revenue. 
  • Significant long-term progress continues to rest upon R&D success with the University of Gothenburg, which has published encouraging lab results using BVXP’s antibodies to identify early-stage Alzheimer’s through p-tau217.
  • While revenue per employee at a super £801k and minuscule £11k capex continue to underpin amazing cash generation, the total dividend was unchanged at 152p per share, dividend cover has reduced to almost 1x and the seven-year run of special payouts has now ended.
  • The £50 shares trade at a premium 31x P/E and reflect understandable Alzheimer’s optimism alongside the general revenue longevity and terrific economics of successful antibodies. I continue to hold.

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FW THORPE: Record FY 2023 Delivers 21st Consecutive Annual Dividend Increase, Suggests SchahlLED Acquired At 5x Ebitda And Justifies £35m Cash Reserve To ‘Some Shareholders’

11 February 2024
By Maynard Paton

FY 2023 results summary for FW Thorpe (TFW):

  • A record FY performance bolstered by acquisitions that showed total revenue up 23%, adjusted profit up 16% and the ordinary dividend lifted for the 21st consecutive year.
  • Largest division Thorlux continued to fare well, expanding by almost 30% helped by SchahlLED acquired at a possible 5x Ebitda.  
  • Mixed progress was experienced elsewhere, with Dutch profit down 8%, Zemper yet to show its full potential and the EV-charging joint venture going from profit to loss.
  • Despite acquisition payments of £19m, very respectable cash conversion left cash only £6m lower at a very useful £35m — a figure that required justification to ‘some shareholders’. 
  • A possible 20x P/E seemingly reflects TFW’s distinguished operating history and the persistent demand for energy-saving lighting rather than doubts about the significant acquisition expense and near-term prospect of subdued trading. I continue to hold.

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MINCON: Prospect Of H2 Profit Dropping 45% Overshadows Underwhelming H1 2023 And Heightens Concerns About Debt Covenants, Dividend Payments And Boardroom Strategy

01 February 2024
By Maynard Paton

H1 2023 results summary for Mincon (MCON):

  • An underwhelming H1 performance caused by reduced mining-customer activity, with revenue down 5%, profit down 12% and an unchanged dividend paid more than two months later than normal.
  • This H1 was overshadowed by October’s Q3 update, which warned of weaker sales, lower margins, exceptional costs and H2 Ebitda dropping 45%.
  • The Q3 update — and possibility of a difficult FY 2024 — heightened concerns about the group’s debt covenants, capital-intensive growth strategy, dividend payments and boardroom personnel.
  • Hopes of improved financials seem to rest upon a mining-customer revival, further geothermal installations plus R&D projects such as Greenhammer and subsea micropiling becoming commercial successes.
  • The shares currently trade below their 2013 flotation price and leave minority investors trusting the 56% family owners take the necessary action to safeguard the business. I continue to hold.

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TRISTEL: Positive FY 2023 Reveals Revenue Up 22%, New 5%-Plus Dividend-Growth Policy And Mooted 38p Royalty Per US Ultrasound Disinfection  

14 January 2024
By Maynard Paton

FY 2023 results summary for Tristel (TSTL):

  • A positive post-pandemic performance, with strong overseas progress helping FY ‘continuing’ revenue gain 22% and FY profit rebound up to 28% albeit after a bevy of adjustments.
  • The FY highlight was a doubling of the final dividend backed by a welcome new policy to increase the ordinary payout by at least 5% a year.
  • TSTL revealed ultrasound-probe decontamination supported 33% of group sales and implied a potential 38p royalty per ultrasound disinfection within the United States. 
  • The accounts showed a record 81% gross margin and net cash recently topping £14m, although restatements continue to occur and audit fees appear unusually steep.
  • An estimated 22x P/E for FY 2028 is not an obvious bargain, but a premium rating could be justified by further meaningful growth, lucrative US royalties and the prospect of fresh leadership. I continue to hold.

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My Portfolio: Year In Review 2023

02 January 2024
By Maynard Paton

Happy New Year!

I trust you enjoyed the festive break and are now ready to battle the market for another twelve months!

This 4,833-word post provides a ‘year in review’ of my current holdings. I recap how each business performed during 2023 as well as provide a few remarks about valuation. 

These reviews are very useful to write, not least because they help ensure I am still invested for the right reasons. Any upsets I will suffer during 2024 will most likely be caused by the shares I already own rather than any new shares I will buy.

I undertook the same annual review at the start of 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022 and 2023.

My portfolio gained 15.3% during 2023. This other post explains that performance in more detail and clarifies how my portfolio begins 2024.

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CITY OF LONDON INVESTMENT: George Karpus Explains AGM Protest Votes, Absence Of New Clients And ‘Tremendous Opportunities’ For Corporate Cash Management

19 December 2023
By Maynard Paton

AGM summary for City of London Investment (CLIG):

  • CLIG’s largest shareholder George Karpus voted against the group’s non-execs at the AGM and declared “this board should be replaced with a seasoned group of directors that understand the enormous potential of CLIG“.
  • My subsequent conversation with Mr Karpus revealed a somewhat alarming lack of board action following reduced funds under management, dwindling fee rates and a dividend he believes may become “questionable“.
  • They are not client driven” was how Mr Karpus summarised the absence of significant new mandates. Greater cross-selling between group divisions CLIM and KIM was still required, too.
  • Mr Karpus explained how a corporate cash-management service could lead to “tremendous opportunities” that might add an extra £1b-plus to CLIG’s funds under management during the next five years.
  • Mr Karpus also expressed frank views about the group’s approach to corporate governance, its use of consultants, the over-exposure to Russian shares and employees still working from home.

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CITY OF LONDON INVESTMENT: Profit Share Rising To 26% While FY 2023 Revenue Slides 16% Raises Further Questions About Employee Pay,  Future Margins And Viability Of 10% Dividend Yield

15 December 2023
By Maynard Paton

FY 2023 results summary for City of London Investment (CLIG):

  • Ongoing market “headwinds” caused average funds under management (FuM) to decline 12% to $9.2b, which led to revenue dropping 16% and profit diving 29%.
  • New USD reporting may expose CLIG’s prior progress benefitting from a weaker GBP, with the GBP dividend unchanged since FY 2021 versus the USD equivalent down 11%.
  • Significant new clients remain very elusive, with FuM outflows of $357m during this FY prompted by higher deposits rates and CLIM funds returning 3% (or less) five-year CAGRs.
  • The profit-share proportion increasing from 24% to 26% during a difficult FY raises further questions about employee pay and the likelihood of additional pressure on profit margins, earnings and ultimately the dividend. 
  • While CLIG’s own projections point to earnings of 34p per share that just about support the 33p payout and 10% yield, achieving the group’s total-return KPI to FY 2024 is looking increasingly uncertain. I continue to hold.

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MOUNTVIEW ESTATES: Lowly 50% FY Gross Margin Despite Record £395k Average Sales Price Signals Property Purchases Realising Limited Gains And Leaves £100 Shares Trading At NAV 

28 October 2023
By Maynard Paton

FY 2023 results summary for Mountview Estates (MTVW):

  • A lacklustre FY performance, with profit down 2% to the lowest level for ten years despite average property sales (excluding ground rents) rising 14% to a record £395k.
  • Property sales achieving a 50% gross margin, the worst for 14 years, suggest properties purchased following a 2014 valuation have realised very limited premiums on disposal.   
  • Debt remains under control at 12% of the property estate, although £56m was spent on new properties — the largest amount since FY 2008 — despite management talk of ongoing “difficult economic circumstances“.
  • Protest votes against the board’s composition and remuneration continue to increase, with property investor David Pears among the unhappy shareholders asking questions at the latest AGM.
  • The £100 shares trade at net asset value (NAV), which in theory prices in no future property gains, and offers a 5% income, the highest for decades aside from the banking crash. I continue to hold.

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