Quality UK Investment Blog
25 August 2015
By Maynard Paton
Quick update on Record (REC).
Event: Business update published 25 August
Summary: A very disappointing statement. A major client has withdrawn $2.8bn from REC’s administration and I’ve had to slash my earnings guess by 27%. The shares have dropped significantly, though at 29p they remain valued at 10x possible profits and yield 5.7%. The business remains high margin and cash rich, but sadly still dependent on a small number of customers. I continue to hold.
Today I’m summarising my current thoughts on French Connection (FCCN), a small-cap fashion retailer that continues to suffer from poor trading and which remains an under-whelming investment in my portfolio.
You can read my earlier Blog posts on FCCN here. But to cut to the chase, a trading statement in April owned up to weak retail sales and it’s likely the current year will witness FCCN’s seventh overall annual loss in eight years.
One day I’m sure a sustained turnaround here could deliver an exceptional share-price gain — although there is the real chance this company may never actually turn…
Anyway, prompted by FCCN’s share price falling steeply of late, I’ve weighed up the various pros and cons of what has become a very frustrating business and investment. Just to confirm, I continue to hold the shares.
5 August 2015
By Maynard Paton
Today I’m reviewing the six shares that reside on my Watch List. After all, there’s no point in me operating a Watch List if I don’t occasionally review the progress of my potential investments — and ensure I’m all ready to buy when their valuations become more attractive!
So here is what’s happened at my Watch List companies since the initial write-ups.
16 June 2015
By Maynard Paton
Quick update on Record (REC).
Event: Final results published 16 June
Summary: Satisfactory results, with a positive outlook and a 10% dividend lift supporting my belief that REC’s recovery is gathering pace. However, news of a 10% company-wide salary hike for staff was not so pleasing, and my earnings guess for 2016 has been trimmed accordingly. Nevertheless, the accounts remain impressive and the valuation looks lowly, and I have bought more shares today.
04 June 2015
By Maynard Paton
Today I’m owning up to the second of two new investments I’ve made during the last few months.
I say ‘owning up’ because this second share has so far been a complete disaster. Indeed, what I thought could have been a ‘perfect stock’ has instead rewarded me with a 37% paper loss :-(
The company in question is World Careers Network (WOR), an obscure AIM-quoted business that develops and sells recruitment software for major employers.
I purchased the shares during February and March 2015 at an average price of 320p including all costs. The bid price now is 200p and the holding currently represents about 3% of my portfolio.
When I bought, I was convinced this £24m firm offered all the hallmarks of a successful investment. Alongside claims of supplying “world-class technology”, other attractions included a blue-chip client list, generous margins, a cash-flush balance sheet, respectable sales growth and a long-time founder/entrepreneur at the helm. Furthermore, a possible P/E of just 7 suggested the shares were a bargain.
However, events have since not gone my way as I will explain in a moment. And I dare say some investors would have never touched WOR in the first place due to its humungous bid-offer spread and dominant 80%-plus family ownership.
26 May 2015
By Maynard Paton
Quick update on Electronic Data Processing (EDP).
Event: Interim results published 26 May.
Summary: Another rather dull update from this rather dull software microcap. These results were a little disappointing on the revenue and profit fronts, but at least there was some useful progress on the balance sheet. One day I trust EDP’s business can advance significantly and provide some long-awaited excitement. Until then I’ll just have to make do with the uncovered 7.2% dividend yield. I continue to hold.
24 April 2015
By Maynard Paton
Quick update on French Connection (FCCN).
Event: Trading update published 24 April
Summary: Profit warning — poor H1 Retail sales will mean greater-than-expected group losses this year. However, the profitable Wholesale and Licensing divisions continue to perform as expected. Turnaround possibilities remain, but the protracted wait has become just that bit longer once again. What’s needed now is some radical management action. I continue to hold.
30 March 2015
By Maynard Paton
Quick update on Tasty (TAST).
Event: Preliminary results published 30 March
Summary: A very promising set of results, buoyed by a strong second half. Notable features included robust cash flow and the clearing of some debt, which might suggest TAST is able to expand significantly without hefty external financing. Either way, I firmly believe the family management here can replicate its earlier success at Prezzo (PRZ) and could perhaps quadruple TAST’s current market cap. I continue to hold.
24 March 2015
By Maynard Paton
Quick update on Getech (GTC).
Event: Interim results and acquisition details published 24 March
Summary: A better-than-expected set of results that was blessed with a reasonable outlook statement — a pleasant surprise given GTC serves the battered oil and gas industry. Progress was not perfect, though, with sizeable intangible expenditure and details of a substantial acquisition leaving me on ‘amber alert’. I am minded to await further results before considering any top-up. I continue to hold.
20 March 2015
By Maynard Paton
Quick update on Pennant International (PEN).
Event: Annual results published 17 March
Summary: Headline results as expected, but they hid a weaker second half and some disconcerting cash-flow movements. The figures contained plenty of other irritations and worries, while the chairman’s statement was notable for what it did not say. All told, the results carried too many signs of profit trouble ahead and I sense PEN could return to its haphazard ways witnessed between 2000 and 2009. I have sold.
17 March 2015
By Maynard Paton
Quick update on French Connection (FCCN).
Event: Annual results published 17 March
Summary: Mixed results. The Retail division was subdued, and gave a disappointing second-half performance. However, trading at the Wholesale and Licensing divisions appeared promising. There was further welcome progress on cost cutting, too. This turnaround has still to really turn, and I’ve trimmed my recovery assumptions. But the upside potential remains sizeable. I continue to hold.
18 February 2015
By Maynard Paton
I’m continuing My Watch List today with a look at Daejan (DJAN).
As before, I’m using a question-and-answer template to help me quickly pinpoint worthwhile shares that match How I Invest.
I’m looking for as many Yes answers as possible.
27 January 2015
By Maynard Paton
It’s not often I look at a 12-bagger and decide it’s still worth buying.
But that is exactly what happened when I pinpointed Pennant International (PEN) the other year.
To cut to the chase, this £23m military equipment specialist had suffered badly during the banking crash and the shares had plunged to 6p. But then a succession of upbeat results and contract wins eventually caught me eye and I bought in at 74p during October and November 2013.
What particularly appealed to me was the group landing its largest-ever contract alongside results that spoke of “good prospects for the short, medium and long term”. It’s quite rare to see such ‘multi-horizon’ optimism within a company RNS!
Also prompting me to buy were management’s sizeable shareholding, the firm’s asset-flush balance sheet, a focus on organic growth and a lowly market valuation.
While PEN’s expansion looks to have paused temporarily in 2014, the group’s overall prospects remain positive and I’m pleased to say the appealing executives, financials and valuation remain in place today.
23 January 2015
By Maynard Paton
*** EDIT: 26 FEB 2015: I HAVE SINCE SOLD THIS SHARE. PLEASE READ THE COMMENT SECTION AT THE END OF THE POST ***
Time now to delve into Burford Capital (BUR), a £266m litigation-financing business that joined my portfolio following some very scant research.
The basis of my investment was:
It wasn’t in-depth stuff and luckily I’ve managed to enjoy a reasonable return. I bought between November 2012 and February 2013 at an average of 101p, and I then sold 51% of my holding at 120p between October 2013 and January 2014. The recent market price is 130p.
However…I don’t like to rely on scant research with my investments. So I’ve finally got to grips with BUR and its convoluted accounts to gauge the opportunity ahead, and in particular to understand…
…why the company’s fantastic returns on invested capital haven’t translated into fantastic share-price growth!
20 January 2015
By Maynard Paton
I’m still ploughing through my portfolio to give each of my holdings a much-needed thorough review.
I’ve now come to Record (REC), a £75m currency-hedging business, where you may think my past share dealings have been somewhat bold.
You see, I first bought REC during December 2010 at 37p. At first the company’s updates were not that positive, so within a year I found myself averaging down at 24p — and then averaging down even more at 13p — because my sums pointed to a significantly cheaper valuation.
In fact, by April 2012 I was averaging down further at 11p and then at 10p, which luckily proved to be the bottom. From what I recall, the market was so depressed with the share, the 10p price then equalled REC’s net cash position and essentially threw the actual business in for free.
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