[SharePad] Small-Cap Spotlight Report: LINDSELL TRAIN INVESTMENT TRUST

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16 August 2024
By Maynard Paton

Could now be the time to back Nick Train?

The buy-and-hold fund manager was for years feted for selecting blue-chip multi-baggers such as Diageo, RELX and London Stock Exchange.

But recent times have witnessed a stark change to market conditions…

…and Mr Train admitting to a “mortifying” underperformance that even necessitated a public apology.

The shares of Lindsell Train Investment Trust, an investment trust managed by Mr Train, have for example lost 60% from their 2019 peak and are now back to a level first achieved eight years ago:

(Source: SharePad)

Yet Mr Train’s supporters may now want to consider this £154 million trust as a way of profiting from his potential comeback.

Importantly, this trust owns 24% of Mr Train’s fund-management firm, which last year paid a £39 million dividend split between Mr Train, his colleagues and this trust…

…and yet this 24% stake appears valued by the stock market at less than 2x earnings.

Let’s take a closer look.

Read my full LINDSELL TRAIN INVESTMENT TRUST article for SharePad >>

Maynard Paton

ANDREWS SYKES: ‘Robust’ FY 2023 Delivers Record £23m Profit After 13% Workforce Reduction Helps Lift Group Margin To 29% High

07 August 2024
By Maynard Paton

FY 2023 results summary for Andrews Sykes (ASY):

  • A “robust” FY performance, which delivered a record £23m profit through “careful cost management” and positive sales momentum within a number of European countries.
  • UK air-conditioning revenue declined 14% to £8m following lower summer temperatures, leaving the domestic market’s progress to again be dictated by pump hire — up 2% to register a sixth consecutive FY improvement.
  • Closing the French subsidiary, curtailing Middle Eastern losses and reducing the wider workforce by 13% were among the decisive actions that helped the group margin achieve a new 29% high.
  • The very respectable accounts showcased net cash at £20m, capex requirements of just £3m, a 34% return on equity and a “fully de-risked” pension scheme.
  • A possible 13-14x P/E does not appear outrageous, with the restricted free float, weather-sensitive operations and absence of obvious economies of scale counterbalanced perhaps by bid-target potential. I continue to hold.

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M WINKWORTH: Non-Exec Appointments Invite Bid-Target Speculation After Suppressed Property Market Reduces FY 2023 Profit By 25% And ‘Top 3 Contender’ Ambition Prompts 9 Branch Closures 

29 July 2024
By Maynard Paton

FY 2023 results summary for M Winkworth (WINK):

  • Only the dividend advanced higher (+6%) as a suppressed property market alongside greater costs left franchise-network income 8% lower, revenue unchanged and profit down 25%.
  • Requiring every franchisee to be a “top three contender” prompted nine branch closures but underpinned industry-leading sales, lettings and conversion statistics versus (now anonymous) rival agents.
  • Company-owned offices now include Pimlico and collectively reported a £0.48m profit, although divisional progress remains dominated by Tooting — the exit strategy for which is unclear.
  • After reporting a lower margin, adverse cash conversion and weaker employee productivity, a post-FY update heralded a stronger FY 2024 that supports a possible 12-14x P/E and near-6% yield.
  • Celebrations marking the chairman’s 50-year tenure invite bid speculation, especially following the appointment of two non-execs with M&A backgrounds and sector merger activity involving Property Franchise and Belvoir. I continue to hold.

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

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27 July 2024
By Maynard Paton

An illustrious dividend history and a worthwhile yield have brought RWS to my attention. The language-translation group presently offers:

  • An unbroken record of dividend increases since its 2003 flotation;
  • A despondent share price that provides a 6.5% yield;
  • Forecasts for further growth, albeit tempered by significant profit adjustments and unnerving management changes, and;
  • A long-time board member with a £170 million investment who has never sold a share.

I pinpointed RWS after revisiting a SharePad filter that shortlisted companies where the last five years had shown their dividends going up but their share prices going down:

(Source: SharePad)

I selected RWS because its shares had fallen the furthest among the shortlist. I also noted the group’s forecast P/E was a modest 8x.

Not only has RWS’s dividend increased during the last five years, the payout has been lifted every year for a remarkable 19 years!

(Source: SharePad)

But the rising dividend has not stopped the shares plummeting to 189p, which supports a £696 million market cap:

(Source: SharePad)

Let’s take closer look.

Read my full RWS article for SharePad >>

Maynard Paton

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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Q2 2024: ‘When It’s Drizzling Gold, Reach For A Bowl’

30 June 2024
By Maynard Paton

Happy Sunday! I trust the first half of 2024 has been positive for your shares.

A summary of my portfolio’s progress:

  • Q2 return: +10.8%*
  • Q2 trades: 3 top-ups (City of London Investment, Mountview Estates and S & U).
  • YTD return: +20.0%*
  • YTD winners/losers: 5 winners vs. 5 losers.

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

This year has witnessed my best-ever H1 since I commenced this blog at the beginning of 2015. As I predicted within my 2023 review, System1 has dominated my returns and what was a large weighting has become even larger. April’s positive statement from the advert-testing specialist helped push my portfolio to new a record high.

My portfolio’s Q2 newsflow has also included some intriguing boardroom changes. 

In particular, the odd management set-up at FW Thorpe has taken another twist: out go the roles of joint chief executives and in comes the combined role of chief executive and finance director! I hope to attend Thorpe’s AGM later this year to understand how this appointment was decided (in the meantime, more thoughts can be found here). 

Elsewhere, Tristel has recruited its forthcoming new chief executive who, on paper at least, seems as if he could make a real go of the group’s United States potential. The outgoing chief exec is married to the current finance director, which I suspect/hope means a new finance director will be hired in due course.

Finally, M Winkworth has recruited two non-execs from corporate-finance consultancies with M&A knowledge. Could the estate-agent franchisor be soon erecting its own ‘for sale’ sign? Sector rivals Property Franchise and Belvoir recently merged and maybe Winkworth now feels susceptible to a bid.

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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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[SharePad] Small-Cap Spotlight Report: COLEFAX

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13 June 2024
By Maynard Paton

The email I received was intriguing:

“The numbers speak for themselves. The company has repurchased more than 75% of shares outstanding since 1999, has a decent return on equity (last financial year approximately 18%), and is trading at an EV/EBITDA of 3-4 due to £20m net cash on the balance sheet.

The market has either overlooked the stock entirely or is pricing in profits falling off a cliff, which I don’t see happening given the maximum decline of 40% after the GFC. I’d love to know what you think.”

The company in question is Colefax (CFX), a small-cap so obscure that even I — a keen investor for 30 years — had previously never heard of.

But any business that has bought back more than 75% of its shares must be worthy of further investigation. Sure enough, Colefax’s share count has reduced from a peak of 28.5 million during 1999 to 6.2 million today:

(Source: SharePad)

What is going on? Let’s take a closer look.

Read my full COLEFAX article for SharePad >>

Maynard Paton

[SharePad] Small-Cap Spotlight Report: VICTORIA

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17 May 2024
By Maynard Paton

Oh dear. Today I am writing about Victoria, a £228 million carpet manufacturer that last year attracted attention following an adverse audit:

(Source: SharePad)

When I last looked at an adverse audit for SharePad, a commotion erupted that debated whether I was simply reporting “transcription errors” or spotlighting something more sinister.

So to be clear:

  • What follows is just my interpretation from reading Victoria’s 2023 annual report and other company statements;
  • I have not inspected every part of Victoria’s accounts nor considered every aspect of the wider investment case, and;
  • Please do your own research and form your own conclusion.

And with that, let’s take a closer look.

Read my full VICTORIA article for SharePad >>

Maynard Paton

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.

Read more

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.

Read more

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

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13 April 2024
By Maynard Paton

Everybody loves shares that keep on rising.

SharePad lists 37 names that have consistently delivered 15% or more annualised returns during the last one, three and five years:

(Source: SharePad)

The shares of independent energy supplier Yü Group have certainly kept on rising; they have more than tripled since April 2023 and have 20-bagged since early 2019.

Factors involved in this superb investment include:

  • A ‘market-pariah’ valuation caused by an adverse accounting review;
  • An astounding recovery buoyed by elevated energy prices;
  • A ‘scalable’ business that generates extra revenue without a commensurate increase to the workforce, and;
  • The entrepreneurialism and commitment of founder Bobby Kalar.

Let’s take a closer look.

Read my full YÜ GROUP article for SharePad >>

Maynard Paton

Q1 2024: My Portfolio’s Best And Worst Corporate Cash Managers

03 April 2024
By Maynard Paton

Happy Wednesday! I trust your shares have enjoyed a positive start to 2024. 

A summary of my portfolio’s first quarter:

  • Q1 return: +8.2%* (FTSE 100: +4.0%**).
  • Q1 trades: None.
  • Q1 winners/losers: 4 winners vs 6 losers.

(*Performance calculated using quoted bid prices and includes all dealing costs, withholding taxes, account fees, paid dividends and cash interest **Total return)

The year has started with my best Q1 since I commenced this blog at the beginning of 2015.

As I predicted within my 2023 review, System1 has dictated proceedings and an upbeat statement from the advert-testing specialist has caused its large weighting to become even larger. My portfolio now requires only a further 5% advance to match its all-time high of December 2021. 

Other RNSs from my portfolio were somewhat mixed. Bioventix and Tristel both issued record H1 figures and provided useful increases to their dividends. But S & U warned of lower collections and cut its interim payout, which feels unnerving. I can’t recall the last time a holding of mine reduced its dividend for non-pandemic reasons.  

The rest of my shares seem to be marooned, with the stock market generally circumspect about their prospects given their flat-at-best earnings. Small market caps and limited liquidity due to significant director (and ex-director) holdings have not helped matters.

But I remain convinced the owner-orientated managers — backed by respectable competitive positions and asset-rich balance sheets — will eventually reward shareholders for their patience.

Read more

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.

Read more

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