S & U: Monthly Collections Reaching £12m Support Recovery Potential After H1 Statement Discloses Pandemic Write-Offs Of £13.8m

09 October 2020
By Maynard Paton

Results summary for S & U (SUS):

  • Extra write-offs totalling £13.8m did not seem too awful in the circumstances and should reflect the bulk of the pandemic disruption.
  • The interim dividend was reduced by 35% and management hoped for a full-year payout of between 80p and 100p per share.
  • Payment ‘holidays’ have left some 37% of accounts overdue, but monthly collections have rebounded to a respectable £12m after the half-year. 
  • Net debt of £108m remains significant, although cash flow covered interest payments a very reasonable 10x.
  • The shares trade relatively close to book value and could offer double-digit annual returns assuming a full recovery. I continue to hold.

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Q3 2020: Up To 85% Returns From Boring Old Dividends

01 October 2020
By Maynard Paton

I trust your shares have performed well during the last three months.

A quick summary of my portfolio’s third-quarter and year-to-date progress:

  • Q3 gain: +4.4%*
  • Q3 trades: None.
  • YTD gain: +3.4%* (FTSE 100: -20.2%**)
  • YTD winners/losers: 4 winners vs 8 losers 

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees and paid dividends. **Includes reinvested dividends.)

The news from my shares during Q3 was generally satisfactory in the circumstances. 

Among my holdings releasing results during the quarter, two reported lockdown-lowered profits that were complemented with promising director recovery talk. One holding meanwhile lifted its dividend 11% and another announced a very unexpected special payout.

After making no trades during the second quarter, I did not buy or sell during this latest quarter either. Never before since starting this blog during 2015 have I refrained from adjusting my portfolio for six months.

How companies will fare as the pandemic continues is still impossible to predict. I remain 25% in cash and hope a few obvious bargains may one day appear. 

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

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30 September 2020
By Maynard Paton

I am not a great fan of the fund-management industry.

I cannot think of another sector where the employees collect enormous salaries while the customers pay hefty fees and sometimes get nothing in return.

Quite often us amateur investors are better off with simple index trackers rather than falling for the industry’s persuasive advisers and glossy brochures.

Yet here I am about to study Polar Capital — a fund manager that might actually exhibit ‘pandemic proof’ qualities given its investment bias towards technology and healthcare.

Read my full Polar Capital article for SharePad.

Maynard Paton

CITY OF LONDON INVESTMENT: 2020 Dividend Up 11% And Yielding 7.5% After FuM ‘Capacity’ Warning Limits Growth Potential And Explains Upcoming Merger

18 September 2020
By Maynard Paton

Results summary for City of London Investment (CLIG):

  • Funds under management (FuM) endured a rollercoaster second half, but finished the year up 2% to lift profit by 10% and the dividend by 11%.
  • FuM ‘capacity’ has become an issue, and explains CLIG’s limited past progress and probably prompted the upcoming merger. 
  • The Karpus deal appears logical, but similar to CLIG the merger partner has struggled to attract new clients.
  • The accounts continue to sport high margins, decent cash flow, high equity returns and net cash.
  • A potential P/E of 11 and yield of 7.5% seem attractive, although the shares have been rated modestly for years. I continue to hold.

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M WINKWORTH: Stamp-Duty Changes Herald H2 Rebound And Foxtons Outclassed Once Again Following 20% Lockdown Profit Drop

11 September 2020
By Maynard Paton

Results summary for M Winkworth (WINK):

  • A very acceptable lockdown performance, with underlying half-year revenue down 17% and profit down 20%.
  • Temporary stamp-duty changes have supported a “significant uplift in activity” and ought to herald a much stronger second half.
  • Extremely impressive market-share gains continue to be won from London rival Foxtons.
  • Despite a number of accounting re-jigs, the books remain in good shape with respectable margins and net cash.
  • A possible P/E of 11-14 and potential income of at least 4% may offer upside should earnings one day regain their momentum. I continue to hold.

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[SharePad] Screening For My Next Long-Term Winner: Fuller, Smith & Turner

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10 September 2020
By Maynard Paton

First, a wealth warning.

The last price-to-book ‘bargain’ I looked at for SharePad was Hammerson.

Back then investors were in theory able to purchase £1 of assets for just 30p. The share price has since lost 75%.

A few tweaks to the same stock screen now leads me to Fuller, Smith & Turner. 

This pub group has suffered during the pandemic, but sleuthing via SharePad reveals substantial freehold assets that the balance sheet may significantly undervalue. 

This property backing may limit further downside as the group re-opens its pubs and aims to recover.

Read my full Fuller, Smith & Turner article for SharePad.

Maynard Paton

MINCON: H1 Dividend Disappointingly Deferred Yet Bumper ‘Geotech’ Sales Help Profit Gain Up To 28% And Perhaps Support A Reasonable 14.3x P/E

21 August 2020
By Maynard Paton

Results summary for Mincon (MCON):

  • A generally satisfactory update given the pandemic, with underlying revenue up almost 5% and profit before adjustments perhaps up as much as 28%.
  • The postponement of the interim dividend due to Covid-19 was disappointing after earlier statements barely mentioned the virus.
  • An emphasis on “geotechnical” drills and services has reduced the dependence on mining customers to 52% of revenue. 
  • Modest cash generation, average margins and enormous stock levels offer significant scope for accounting improvements during the current ‘moat-rebuilding’ phase.  
  • Various (perhaps optimistic) assumptions alongside opportunities from new products lead to a reasonable 14.3x P/E. I continue to hold.

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Mountview Estates:  FY 2020 Statement Signals Modest 8% Gearing, ’Happy’ Auction-Room Activity And Potential To Pick Up Possible Pandemic Property Bargains

13 August 2020
By Maynard Paton

Results summary for Mountview Estates (MTVW):

  • Standstill 2020 figures that showed 8% more properties sold at prices 9% lower than last year.
  • A maintained dividend, a lack for furloughed staff and the directors currently being “happy in the auction room” underline some pandemic-resilient qualities. 
  • Net debt representing a very modest 8% of the group’s property estate suggests significant scope to pick up any property bargains.
  • This week’s AGM witnessed a further bout of protest votes against the independent non-executives, the board’s pay and the auditors.
  • MTVW’s book value increased by 3% to a record £97 per share, although my calculations suggest the balance sheet could be worth £200-plus per share. I continue to hold.

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[SharePad] Screening For My Next Long-Term Winner: Fever-Tree Drinks

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29 July 2020
By Maynard Paton

They say mums always know best.

Mine has bought Fever-Tree tonic waters for some years now and I recently asked whether she remained a customer. This was her response.

“While we don’t buy many commercial drinks for home consumption these days I would still definitely buy Fever-Tree, generally the original tonic water. I went into an actual shop (M&S) last week for the first time and spotted the selection of Fever-Tree drinks. I was tempted at the time but as the weather was poor decided against it.

If we were having visitors it would definitely be purchased. When going out with certain knowledgeable friends for lunch etc, Fever-Tree is always the drink of choice. If the cafe/restaurant doesn’t sell Fever-Tree it is ‘downgraded’ on our rating and generally abandoned. Availability of Fever-Tree is, to us, a sign of caring about quality.”

I had no idea mum regarded the drinks so highly. If she is representative of every Fever-Tree customer, then maybe the company deserves our attention.

Read my full Fever-Tree Drinks article for SharePad.

Maynard Paton

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

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19 July 2020
By Maynard Paton

Let me start by thanking you for showing interest in an article with Headlam in the title.

Rest assured, not everyone will want to read about this rather dull business that has suffered badly during the pandemic.

But for us contrarians, now may be the time to consider such stocks — unloved names that the market rebound has left far behind.

Headlam seems to possess the industry position, balance-sheet strength and management experience to survive this downturn and recover thereafter. A full share-price recovery could even offer a potential 100% gain.

Read my full Headlam article for SharePad.

Maynard Paton

System1: 2021 Recovery Hopes Seem Dependent Upon ITV And (Bizarrely) 18th Century German Literature Following Profit Crash, Scrapped Dividend And AdRatings Write-Off

17 July 2020
By Maynard Paton

Results summary for System1 (SYS1):

  • Somewhat academic annual figures that showed pre-AdRatings profit down 27% due to weak trading prior to Covid-19.
  • The pandemic has since caused demand for SYS1’s services to drop 38% and created pre-tax losses.
  • AdRatings continues to generate minimal revenue at significant cost, although the tie-up with ITV suggests the fledgling service has some inherent value.
  • SYS1 bizarrely remains very poor at marketing its own services. A flagship company film commences with references to 18th century German literature. 
  • A £3.9m cash buffer ought to keep SYS1 afloat as it moves towards more reliable revenue sources. Valuation in the meantime remains anyone’s guess. I continue to hold.

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Tasty: Radical Management Action Urgently Required As Estimated Pandemic Cash Burn Could Leave Company Broke By November

01 July 2020
By Maynard Paton

Results summary for Tasty (TAST):

  • Largely redundant annual figures that revealed revenue down 6% and another operating loss.
  • TAST’s 56 restaurants were shut in March and my estimates suggest the group could survive without sales until November.
  • The second half seemed encouraging after Christmas bookings were helped by a turkey-themed festive menu.
  • A £2m property disposal bolstered cash and cleared debt but significant liabilities remain.
  • The £2.8m market cap could be a bargain, but radical management action is now essential to keep the business afloat. I continue to hold.

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Q2 2020: 10 Lessons From A 10-Bagger

30 June 2020
By Maynard Paton

I trust your shares have recovered during the last three months.

A quick summary of my portfolio’s second-quarter and year-to-date progress:

  • Q2 gain: +7.8%*
  • Q2 trades: None.
  • YTD loss: -0.9%* (FTSE 100: -16.9%**)
  • YTD winners/losers: 3 winners vs 9 losers  

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, broker-account fees and paid dividends. **Includes reinvested dividends)

I am thankful the news from my shares during Q2 was relatively positive. In particular, four of my holdings declared dividends — which seems encouraging given the numerous payout suspensions witnessed of late. 

Mind you, I did not escape the dividend cancellations entirely. One of my shares sadly scrapped its payout after admitting the pandemic had led to weaker sales and operating losses.

Just how the market will fare from here is impossible to say. I did not buy during the March lows and remain 25% in cash… so I am naturally hoping the bargains have not dried up just yet!

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Andrews Sykes: FY 2019 Results Admit 50% Of UK Staff Are Furloughed Although Management Talks Of “Resilient” Trading And Even Declared A Final Dividend

16 June 2020
By Maynard Paton

Results summary for Andrews Sykes (ASY):

  • Creditable full-year figures that showed revenue down 2% and profit down 7% due to less extreme weather. 
  • The decision to furlough 50% of UK staff feels odd given management talks of “resilient” trading, kept company depots open during lockdown and has declared a final dividend.
  • A commendable cash flow projection raises pandemic-profitability questions but suggests extra funding is not needed.
  • An impressive second half ensured the accounts remained healthy with high margins and an appealing return on equity.  
  • A possible P/E of 12-14 and yield of 4.5% does not seem expensive if indeed ASY does “return to normal levels of trading” for 2021. I continue to hold.

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

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11 June 2020
By Maynard Paton

Has the market become too obsessed with ‘pandemic-proof’ shares?

I ask because my SharePad screening has brought Frontier Developments to my attention.

The shares of this computer-game developer have leapt 66% so far this year as industry sales rally during the lockdown.

However, Frontier’s accounting looks rather questionable and the near-£800 million market cap seems completely mad. Yet nobody seems to mind given the company’s apparent resilience to Covid-19.

Read my full Frontier Developments article for SharePad.

Maynard Paton

PS: I have also compared Frontier’s accounting to that of Team17 and Codemasters.

PPS: I have provided further Frontier observations on the Quidisq forum.

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