STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS
VOL 20 / ISSUE 30 / 02 AUGUST 2018 / £4.49 SHARES WE MAKE INVESTING EASIER LEISURE SECTOR TO THE RESCUE
THIS WEEK DIAGEO FACEBOOK BP AND MORE
How experiences and attractions are helping to save retailers
GOING GLOBAL: FUNDS WITH INTERNATIONAL HORIZONS CAN DIVERSIFY YOUR PORTFOLIO EDITOR’S VIEW Why it’s important not to get blinded by big numbers You need to keep some perspective when it comes to financial news
ome pretty astronomical figures for user data and serving online ads, and have been thrown around in the these companies will find themselves in Sfinancial press of late. an increasingly hostile environment from On 26 July headlines pointed to regulators (and perhaps also society as a $118bn being wiped off the market whole as the pendulum swings back on valuation of social media giant privacy issues).’ Facebook, while recent research on However, Facebook is still trading UK dividends – the Link Asset Services above where it was when the data UK Dividend Monitor report – scandal initially blew up in March as highlighted a record £30.7bn in the intervening optimism that the affair ordinary dividends being paid by would leave barely a scratch on the UK companies in the second quarter. investment case has been dashed. Taken Journalists look to draw readers to a at a glance the $118bn figure makes the story and highlighting such seemingly huge sums is story seem more cataclysmic then it really is. one way of selling content and attracting clicks. Your Similarly the record £30.7bn identified in the job as an investor is almost the opposite. You need Dividend Monitor report and a forecast for total to look beyond these distractingly big numbers to annual dividends of £97.8bn – also a record – is less place them in context and in relative terms. impactful when placed in its proper context. To take the Facebook example, yes the shares The dividend total would represent an annual fell heavily at the bell after the company increase of 3.2% and compares with the £66.9bn downgraded guidance. And, even in percentage paid out in 2008. However in real terms, factoring terms, 20% is a very substantial fall for a company in the impact of inflation, the compound annual of Facebook’s size. growth rate in UK dividends over the intervening The negative market reaction reflected period is a more underwhelming 1.6%. (TS) slowing user growth in the wake of the data breaches linked to its controversial association with Cambridge Analytica and new European privacy rules as well as constrained margins as the company spends money on advertising to restore its image and invests in data handling. Amid a similarly negative reaction to the latest earnings from Twitter some observers are even beginning to question if the social media sector may have topped out.
LOGGING OFF SOCIAL MEDIA GIANTS Saxo Bank head of equity strategy Peter Garnry says: ‘Facebook, Alphabet/Google and Twitter are synonymous with selling “free services” in exchange
2 | SHARES | 02 August 2018 As with all investing, your capital is at risk. Past performance is not a reliable indicator of future results.
Orbis Investments (U.K.) Limited is authorised and regulated by the Financial Conduct Authority VIEWING SHARES AS Contents A PDF? CLICK ON PAGE NUMBERS TO JUMP TO THE START OF THE RELEVANT SECTION 02 EDITOR’S VIEW Why it’s important not to get blinded by big numbers What bumper US growth means for funds, stocks and currencies / 05 BIG British businesses ‘on sale’ as deal flow set to accelerate / Cloud firm NEWS UKFast fires the stock market starting gun / McColl’s warning raises red flags / Speculation brewing over South Western franchise future amid timetable issues / BP boosts dividend for first time in four years
09 GREAT New: Diageo, XP Power IDEAS Updates: Croda, Ibstock, Alliance Pharma, Cranswick
16 TALKING Have you missed the boat on these rising stars or is there still POINT time to climb aboard? 19 MAIN FEATURE Leisure sector to the rescue 25 INVESTMENT TRUSTS Most loved investment trusts
30 FUNDS How to pick the right global equity fund for your portfolio 32 AEQUITAS The City state we’re in…
34 MONEY Investing for growth in retirement / When you pay tax in MATTERS your ISA and SIPP / Why you should ignore the Lifetime ISA cynics
40 EDUCATION Why KPIs are an essential tool to decoding a company’s performance
43 INDEX Shares, funds, investment trusts and ETFs in this issue
securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor DISCLAIMER agrees that the reporter can write about the interest, it should be disclosed to Index of companies and funds in this issue readers at the end of the story. Holdings by third parties including families, trusts, IMPORTANT self-select pension funds, self select ISAs and PEPs and nominee accounts are included in such interests. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. 2. Reporters will inform the editor on any occasion that they transact shares, Comments published in Shares must not be relied upon by readers when they derivatives or spread betting positions. This will overcome situations when the make their investment decisions. Investors who require advice should consult a interests they are considering might conflict with reports by other writers in the properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited magazine. This notification should be confirmed by e-mail. do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions. 3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor. Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it 4. A reporter should not have made a transaction of shares, derivatives or spread will be disclosed. Shares adheres to a strict code of conduct for reporters, as betting positions for seven working days before the publication of an article that set out below. mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within seven working days after the 1. In keeping with the existing practice, reporters who intend to write about any on-sale date of the magazine.
4 | SHARES | 02 August 2018 BIGBIG NEWSNEWS What bumper US growth means for funds, stocks and currencies The US releases its strongest quarterly GDP levels for four years
ew figures reveal the US gross domestic product N(GDP), expanded by 4.1% during the second quarter. Although slightly below expectations this still represented the fastest rate of growth since 2014. The update reflects the relative buoyancy of the US economy which have also evident in strong corporate earnings and UK investors with holdings in US-focused funds and companies such as Ferguson (FERG) who bring in STOCKS most of their cash across the pond could benefit. The aforementioned Ferguson is a building materials distribution company which makes over FUNDS 90% of its profits in the US hence it changed its The Artemis US Select Acc Fund (BMMV510) name from Wolseley to the title of its US division which is aimed at capital growth has already last year. gained 13% in three months. JP Morgan US Equity This company has been on the ascent this Income Fund (B3FJQ59) has returned 10.7% in year, the shares gaining 17.7% since March. For a three months. cyclical company like Ferguson that needs a strong economy to really make money, the GDP data will T T be good news. When economies do well, orders go up and Ferguson’s goods are required. On a slightly smaller scale, marketing products company 4Imprint (FOUR) also makes the lion’s share of its money in the US and on 31 July it reported results for the six months to 30 June which were ahead of expectations. A feat it has achieved consistently in recent years. It is also heavily tied to US growth.
CURRENCY While the best GDP numbers since 2014 should be seen as a positive developments, the forex markets reflected the high expectations ahead of the release and the dollar actually dipped in the 2009 2010 2011 2012 2013 2014 2015 2016 2017 wake of the news. (DS)
02 August 2018 | SHARES | 5 BIG NEWS British businesses ‘on sale’ as deal flow set to accelerate Digital disruption and emerging investor activism key drivers
akeover, merger (M&A) and spin-out activity merger with Asda being a good example. is expected to accelerate in the months ‘On the face of it, the transaction is being driven T ahead as UK businesses aspire to bolster by the need for the two companies to leverage their competitive advantages and/or release extra their combined purchasing power to negotiate shareholder value. cheaper prices from suppliers,’ say the Jefferies Already this year several UK firms have been research team. targeted with deals either agreed or negotiations However, they also see an underlying concern that ongoing, including the £18bn-plus potential Amazon is circling the food retail sector, while the takeover of TV and broadband supplier Sky (SKY) likes of Ocado (OCDO) and Just Eat (JE.) are emerging by US cable group Comcast or 21st Century Fox. players in an increasingly complex UK grocery space. Other £1bn-plus British buyouts struck this year Activist investors are also playing their part in include property internet business ZPG and trading the gathering swirl of M&A. This year US private software supplier Fidessa, while the merger of equity firm Elliot has taken stake in Whitbread Virgin Money (VM.) with banking business CYBG (WTB), property group Hammerson (HMSO) and (CYBG) is expected to complete later this year. software business Micro Focus (MCRO) in attempts Mature operators looking to secure market share to encourage management to explore shareholder in the face of disruptive emerging threats from value creation measures. digital new entrants are one of the chief reasons ‘We expect to see a wave of pending and for this M&A splurge, according to investment bank potential vertical mergers across technology, Jefferies. Its analysts believe this is a major factor in media, healthcare, energy and general industrials,’ some of the UK’s biggest deals, Sainsbury’s (SBRY) say the Jefferies experts. (SF)
UK Inbound M&A –By Acquirer Origin, Q2 2018 (1)
North America £27.2bn Europe 24 transacons £2.8bn 28 transacons Central Asia 0 transacons China £0.3bn 2 transacons
Japan 0 transacons
Africa / Middle East Asia Pacific (Ex-China) £2.9bn Total <£0.1bn 1 transacon 19 transacons £33.4bn South & Central America 82 transacons (2) 0 transacons
Source: Jefferies Note: Transacons exclude share buybacks and recapitalisaons (1) Total of transacon values. Transacon value is calculated as the sum of the target’s (2) Includes eight transacons with undisclosed acquirer geography equity value and net debt. Excludes transacons with undisclosed transacon value (3) David Geffen, GSO Capital Partners, LP Jynwel Capital, Mubadala Capital
6 | SHARES | 02 August 2018 BIGBIG NEWSNEWS Cloud firm UKFast fires the stock market starting gun Fresh growth funding likely to fuel acquisitions spree
ritish data and communications hosting business UKFast is targeting joining the BLondon stock market, with ambitions to secure a market valuation of £350m or more. The company operates out of 40,000 square feet of data centre space in Manchester, providing customers with a full range of enterprise could tools and services. While details of any initial public offering are currently thin on the ground it is believed that UKFast would use fresh growth funding to accelerate acquisition activity as it battles for depreciation and amortisation (EBITDA) margins are market share with cloud giants Amazon Web thought to be running around 40% to 45% mark. (SF) Services and Microsoft’s Azure. ‘The company has an enviable record of strong SHARES SAYS: organic growth, high margins and solid cash flow,’ In the same space as Iomart (IOM:AIM), UK Fast says Philip Carse of IT analysis company Megabuyte. would be a welcome high quality business addition In 2017 UKFast saw revenues expand 18% to the UK technology investment space. (SF) to £47m while earnings before interest, tax,
the customer offer to maintain our McColl’s warning raises red flags competitive position.’ Supply chain disruption and margin pressures maul Numis Securities lowers its 2018 earnings estimate from earnings at McColl’s £50.4m to £43.4m and its 2019 estimate from £54.9m to £45.8m. CONVENIENCE STORES-TO- chain disruption following the McColl’s is making progress NEWSAGENTS operator McColl’s administration of Palmer & Harvey with its acquired Co-op stores and Retail (MCLS) has taken a and the ‘Beast from the East’, the successful introduction of the mauling following poor half year McColl’s half year profits slumped on Safeway brand. results (23 Jul) and a damaging a 2.7% decline in like-for-like sales. However, Liberum Capital profit warning. Warm weather has subsequently points out the structural premium Sentiment toward the stock, helped like-for-likes to improve, price gap enjoyed by convenience down from 294p last October yet full year adjusted earnings will operators is narrowing, partly to 157p, has also been hit by the be flat and McColl’s cautioned that driven by increased industry M&A resignation of finance director ‘looking further ahead, to 2019 and and the rise of the discounters and Simon Fuller, who is off to beyond, it will remain important to warns this consolidation may force newspaper publisher Reach (RCH). manage intense cost pressures in a more capital intensive model Heavily affected by supply the business, whilst also investing in upon McColl’s. (JC)
02 August 2018 | SHARES | 7 BIG NEWS Speculation brewing over South Western franchise future amid timetable issues Operator FirstGroup is in talks over delayed timetable changes and improvements
rouble could be brewing at train operator FirstGroup (FGP) amid reports it is set to T renegotiate its South Western Railway contract due to timetable changes barely a year after taking over the franchise. According to media reports, South Western is at loggerheads with Network Rail on the operational and financial fallout. FirstGroup says it is simply using a mechanism in its contract which allows for such discussions. Liberum’s Gerald Khoo notes FirstGroup’s rail division is enduring mixed fortunes with downside risk as high fixed costs could expose Great Western in good shape, high losses in profitability in the event of falling sales, even its TransPennine Express contract, while South if the parent company has effective ‘stop-loss Western is ‘profitable but potentially at risk.’ arrangements’ as part of the franchise agreement Khoo says rail franchises have substantial to limit the damage. (LMJ)
numbers from BP’s US rivals BP boosts dividend for first time Chevron and ExxonMobil as well as UK counterpart Royal Dutch in four years Shell (RDSB). Key milestone in Dudley-led renaissance at oil and gas giant With the big step out in US shale, investors will hope chief executive Bob Dudley is not OIL MAJOR BP (BP.) is clearly departing too far from the template feeling pretty confident as it ups BP’s last quarterly which helped steady the ship the dividend for the first time in four dividend payment before during his near eight year tenure. years and unveils a $10.5bn deal to Dudley look over in the wake of the secure substantial US shale assets Gulf of Mexico spill was highly damaging Gulf of Mexico oil from BHP Billiton (BLT). $0.14 per share spill back in April 2010. The modest 2.5% increase in the Encouragingly the BHP quarterly dividend to 10.25 cents per transaction is expected to boost share accompanied results for the analysts will have already increased cash flow and earnings from three months to 30 June which beat their forecasts to factor in higher oil the get go and the company has expectations (31 Jul). prices. It also comes off the back of pledged to maintain gearing below This beat is impressive given many weaker than expected second quarter 30%. (TS)
8 | SHARES | 02 August 2018 GREAT IDEAS Diageo is a spirited long-term investment Guinness-to-Johnnie Walker brands owner is a high quality compounder worth buying and holding
iven the uncertainties brewing over Brexit and DIAGEO BUY Gglobal trade wars, now (DGE) £28.02 is a good time to buy into the Stop loss: £22.42 dependable earnings of, and the positive momentum behind, Market value: £69.8bn Diageo (DGE). The world’s biggest spirits company continues to benefit Highly cash generative, the from its enviable portfolio progressive dividend-payer of winning brands include returned £1.5bn to shareholders Johnnie Walker whisky, through a buyback last year and Smirnoff vodka, Guinness and management has announced Captain Morgan rum. a new £2bn share buyback The top holding in star fund programme for full year 2019 moat, engendering loyalty manager Nick Train’s Finsbury to boot. among consumers, conferring Growth & Income (FGT), Diageo pricing power upon the business is a high-quality compounder, HIGH-QUALITY TIPPLE and creating barriers to entry ownership of which will help Shares remains an admirer for Diageo’s rivals. investors sleep better at night of the spirits and beer This beverages behemoth during what could prove producer’s coveted brands. owns more top-50 global spirits turbulent market times ahead. These represent an economic brands than any other company and boasts earnings that are DIAGEO’S BIGGEST BRANDS MOST RECENT diversified by geography and FULL YEAR PERFORMANCE product category; Diageo is Organic Organic Reported also the biggest spirits player in the US, the industry’s largest volume net sales net sales profit pool. movement movement movement (%) (%) (%) PALATE-PLEASING PERFORMANCE Global giants Since Ivan Menezes took over Johnnie Walker 3 5 5 as CEO in 2013, Diageo has increasingly focused on emerging Smirnoff - -2 -5 markets, operating margins and Baileys 6 6 5 cash generation. The £69.8bn Captain Morgan 6 2 -1 cap offers a compelling play on Tanqueray 14 15 12 the long-term ‘premiumisation’ trend in developing economies, Guinness 3 5 2 where the burgeoning ranks of Source: Diageo the middle class increasingly
02 August 2018 | SHARES | 9 GREAT IDEAS
aspire to drink premium brands. RISKS TO CONSIDER Better-than-expected results Risks for investors to consider for the year ended 30 June include valuation – Diageo trades (26 Jul) showed organic net on 22.6 times the 124p of year sales growth of 5%, ahead of to June 2019 earnings per share consensus estimates, with forecast by Berenberg, based on Diageo generating a bumper pre-exceptional pre-tax profit of £2.5bn in free cash flow. almost £4bn. Furthermore, foreign exchange The investment bank looks guidance for a negative £10m for £4.27bn of pre-tax profit and hit to 2019 operating profit was 132p of earnings in fiscal 2020, much more benign than the with the dividend estimated to £49m impact consensus had rise to 0.69p (2018: 0.65p) this been bracing itself for. year ahead of 0.72p in fiscal 2020. And in terms of the category Nevertheless, we are performance, scotch and gin comfortable with the premium sales were firmly on the up, the rating given Diageo’s quality, former driven by Johnnie Walker, international diversity, reliable the latter by Tanqueray and cash flows and progressive Gordon’s, albeit vodka continued dividend, while the new buyback to decline. should provide downside share Through Tanqueray and price support. Gordon’s, Diageo is riding the Other risks for investors to major renaissance in the gin weigh up include the potential category, especially in the UK for tighter regulation and and Spain, that is powering the higher excise taxes, notably growth at AIM mixers marvel in the US, as well as ongoing Fevertree Drinks (FEVR:AIM), price competition in US vodka with Gordon’s benefitting from and its impact on Smirnoff’s the successful launch of its profitability. Pink variant. Future bouts of Brexit- ‘While Diageo’s growth inspired sterling weakness relative to the US spirits market could be positive for Diageo, improved in full year 2018,’ development of the business, not only providing a translation writes Berenberg, ‘management Diageo has the balance sheet benefit, but a transaction would not guide on when strength to return capital to tailwind too as its scotch would the company may stop losing shareholders whilst boosting become even more competitive market share. However, CEO Ivan its internationally-derived internationally. (JC) Menezes appeared confident earnings through mergers & that market share losses will acquisitions (M&A). BROKER SAYS: 14 8 3 continue to slow over the course Having acquired the G of full year 2019.’ Casamigos tequila brand last 2900 Besides boosting the cash summer, Diageo is increasing 2800 coffers, Berenberg also believes its stake in China-based baijiu- 2700 the rumoured disposal of to-wine seller Shui Jing Fang 2600 Diageo’s US ‘tail brands’ would from 39.7% to up to 60%. And 2500 be ‘strategically positive, as US don’t forget, it also has majority 2400 consumers continue to drink less control of United Spirits, a key 2300 but better.’ route to market for its brands in 2200 In addition to the organic the gargantuan Indian market. 2017 2018
10 | SHARES | 02 August 2018 GREAT IDEAS Upbeat XP Power has scope to grow beyond expectations Complex engineer is using clever acquisitions to add extra value
hen a share price has products, is a good example. doubled in 18-months XP POWER BUY XP pays regular and growing investors might think (XPP) £36.20 dividends, up 6.5% in the half to W Stop loss: £28.96 that they have missed the boat. 33p, paid out on a quarterly basis This is not the case, in our (16p Q1, 17p Q2). It’s able to do so Market value: opinion, with XP Power (XPP), £697m because cash generation is always which we continue to view as solid. The modest dip to £15.8m a genuine growth stock. in the first half from operations is Capable of outperforming developed hand-in-hand with impressive given that the company current single-digit pre-tax the end customer. was building inventory to meet profit growth expectations. pre-existing demand. For those unfamiliar with OUTSTANDING TRACK RECORD Some components shortages the investment story, XP Power XP’s operating track record have been in evidence this year is a science-based engineer is outstanding. Order intake and there’s been a bit of price of complex power equipment typically runs ahead of revenues, inflation added to costs but solutions. which tells investors that future management seem to have Many power systems demand is growing faster than managed the supply chain well require custom output voltage work currently on its plate. to cap the impact. combinations, unique control This increased about 10% The other concern would be or status signals and specific in the first half to 30 June from a major cyclical downturn in mechanical packaging for once currency fluctuations are demand, although management optimal performance and stripped out, important to get a have seen little evidence of that integration. This is kit designed true picture because it sells most happening in the foreseeable for when off-the-shelf solutions of its kit overseas. future, while previously won simply won’t do, which is In terms of profit, operating design wins and strong orders encouragingly frequent. margins, which take into account offset that threat. (SF) This is where XP’s engineering staff and factory costs, nudged stands out. The company has up, from 21.7% to 22.2%. That BROKER SAYS: 4 1 0 a stated aim to have the most shows it is getting the benefit of comprehensive and up-to- new facilities in low-cost Asia. W date product range in its target XP also makes select 3800 markets, particularly in defence/ acquisitions, always with an 3600 aerospace, healthcare, rail and a eye to bolster the customer or 3400 few other custom power niches. product expertise base. May’s 3200 Combined XP estimates a £31.8m purchase of Glassman 3000 £1.5bn target market with High Voltage, expanding the 2800 projects typically several years product range into specialised 2600 2400 in the making and often high voltage and high powered 2017 2018
02 August 2018 | SHARES | 11 GREAT IDEAS UPDATES
CRODA IBSTOCK (CRDA) £51.58 (IBST) 245.2p
Gain to date: 18.5% Loss to date: 18.1% Original entry point: Original entry point: Buy at £43.47, 15 Feb 2018 Buy at 299.4p, 10 May 2018 CHEMICALS COMPANY CRODA (CRDA) is THE MARKET continuing to deliver strong trading as its latest ALREADY knew half-year results beat expectations thanks to its brick maker Ibstock Personal Care and Life Sciences divisions. (IBST) was a victim Since our last update in April, shares in Croda of delays associated have gained approximately 11% to £51.58. with an exceptionally Pre-tax profit rose 1.7% to £170.8m in the first half cool winter and early of 2018 and sales were up 0.6% at £702.8m when spring in the UK. the impact of currency changes are stripped out. However a 30 In Personal Care, sales growth came in at 9.3% July trading update reveals that now demand while revenue growth in the Life Sciences division has recovered, the company is unable to fully was 2.3%. service its customer base thanks to issues in its Croda’s strategy is to drive top line organic production facilities. growth for stronger margins and invest in As a result, and factoring in maintenance disruptive technologies for future growth. spend to address the problems in its factories, This latter part of the strategy was reflected in earnings before interest, tax, depreciation the acquistion during the period of marine biotech and amortisation will come in below previous firm Nautilus, which uses microbial biodiversity to forecasts for between £130m and £134m at create new actives and ingredients. between £121m and £125m. Numis analyst Kevin Fogarty reckons Croda’s This largely looks a headache of the company’s strengthening balance sheet can yield rewards for own making which is frustrating for investors shareholders with a special dividend potentially in and for Shares given we recently highlighted the the pipeline later this year. attractions of the stock. He is impressed with improving profitability Notably recent first half results (31 Jul) from as Croda increased earnings margins by 50 its main UK rival Forterra (FORT) were more basis points despite headwinds from currency impressive with revenue up 10.6% to £162.7m. fluctuations, which are forecast to moderate in 310 IBSTOCK the second half of 2018. 290 5200 CRODA INTERNATIONAL 270
4800 250
4400 230 2017 2018 4000
3600 SHARES SAYS: 2017 2018 Given demand for its products remains strong, SHARES SAYS: the shares could recover if the group successfully We remain confident in Croda as a top quality pick tackles its production issues. Investors will be with organic and acquisitive growth, and see the hoping for more clarity when the group reports its looming special dividend as another catalyst. (LMJ) first half numbers in full on 9 August. (TS) BROKER SAYS: 7 8 2 BROKER SAYS: 5 5 0
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ALLIANCE PHARMA CRANSWICK
(APH:AIM) 92.2p SUPERB (CWK) £33.04 STOCKS FOR Gain to date: 47.5% Gain to date: 12.7% Original entry point: 2018 Original entry point: Buy at 62.5p, 21 Dec 2017 UPDATE Buy at £29.32, 8 Feb 2018 THERE HAS BEEN a good start to the year at OUR BULLISH CALL on fresh pork, sausage and Alliance Pharma (APH:AIM) with sales rising cooked poultry processor Cranswick (CWK) remains 10% to £54.5m in the six months to 30 June, driven 12.7% in the money, although the shares have by its International Star brands. recently fallen back from their £34.60 June peak. Sales of scar reduction treatment Kelo-Cote Fears over the potential impact of retail sector have surged 77% to £10.9m and macular pigment consolidation on suppliers, and on the meat supplement MacuShield sales jumped 22% to industry of a recent CO2 shortage, may be weighing £3.7m over the same period. on sentiment. Profitability is expected to increase over the first Cranswick’s first quarter update (30 Jul) also half at a lower rate than sales due to the impact of revealed a slowdown in sales growth to 3.2% amid spending to boost marketing and selling activities. modest deflation and against a barnstorming Alliance says head lice treatment Vamousse, comparative. which was acquired from TyraTech (TYR:AIM) in Encouragingly however, the high quality food December, delivered revenue of £2.7m. producer flagged positive contributions from each In the second half of 2018, Vamousse sales are product category, said total export revenues were expected to grow further as kids head back to school. modestly ahead year-on-year and reassuringly left Niche products under Alliance’s local hero product full year guidance unchanged. range are performing in line with expectations. Continuing to invest in its asset base, Cranswick Unfortunately, Alliance’s small attractions also include an unbroken dividend bedrock products are trading growth track record stretching back to 1990. slightly behind expectations due Shore Capital forecasts pre-tax profit and dividend to manufacturing delays and improvements to £95.3m (2018: £92.4m) and distributor order phasing. 55.7p (2018: 53.7p) respectively for the year to Numis analyst Sally Taylor next March. remains upbeat, arguing some of the effects from delays and order phasing are expected to be resolved in the second 3500 CRANS ICK
half of the year. 3300
110 ALLIANCE PHARMA 3100 100 2900 90 80 2700 70 2017 2018 60 50 40 SHARES SAYS: 2017 2018 We’re sticking with Cranswick, a high-quality, cash-generative food producer well placed to drive SHARES SAYS: long-term growth in profits and the shareholder We are not overly concerned about the issues in payout to boot. (JC) Alliance’s bedrock portfolio and remain confident on future growth prospects. (LMJ) BROKER SAYS: 4 2 0
14 | SHARES | 02 August 2018 Investing in the future needn’t be rocket science
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We don’t offer advice about the suitability of our products or any investments held within them, if you require fi nancial advice you should consult a suitably qualifi ed fi nancial adviser. The value of investments can go down as well as up and you may get back less than you originally invested. TALKING POINT Our views on topical issues Have you missed the boat on these rising stars or is there still time to climb aboard?
Exceptional companies can deliver some extraordinary long term returns
highly successful, yet unnamed, fund manager, A is quoted in full year results (24 Jul) from flooring star turn Victoria (VCP:AIM) as delivering the following pearl of markets-related wisdom: ‘[Investment is] not a well- behaved machine that cranks out returns to owners of all equities...Instead quite extraordinary returns flow from a tiny fraction of the companies in existence.’ This is certainly the case on a magical ride is carpets underlying pre-tax profit leaping AIM, where the likes of online manufacturer-turned-innovative from £29.4m to £40.8m. fashion phenomenon ASOS flooring company Victoria whose In his outlook statement (ASC:AIM), soft drinks star turn shares have advanced more executive chairman Wilding says: Fevertree Drinks (FEVR:AIM) than ten-fold to 820p since Kiwi ‘I often hear non-shareholders and litigation finance provider Geoff Wilding took control of the worrying that they have “missed Burford Capital (BUR:AIM) business in late 2012. the boat” with Victoria - although have delivered share price gains The latest results confirmed I am at a total loss to understand beyond the dreams of even the a fifth consecutive year of why they would think that.’ most optimistic IPO backers. underlying earnings per share He continues: ‘Our earnings (EPS), free cash flow and per share growth has happened FLOORING THE COMPETITION operating margin growth, with for two reasons: firstly, organic Another junior market listed sales up 28.6% to £424.8m “self-help” actions (reducing stock that has given investors including acquisitions and overheads, better raw material
VI T RIA FEVERTREE DRI B RF RD A ITA 900 4000 2000 800 3500 1800 1600 700 3000 1400 600 2500 1200 500 2000 1000 400 1500 800 300 600 1000 200 400 100 500 200 0 0 0 2013 2014 2015 2016 2017 2018 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018
16 | SHARES | 02 August 2018 TALKING POINT procurement, more efficient our market share and expanding group, and Wilding and Hamers logistics, leveraging the our product offering, and, of have a 19-20% return on sales in knowledge of our industry course, through acquisition, sight on a three year view. expert senior management for which we continue to find Still not convinced? Cantor to rationalise our production many promising and high quality Fitzgerald, a buyer with a 960p footprint, etc.), and secondly, opportunities. price target, forecasts growth in earnings accretive acquisitions. ‘We could continue making pre-tax profit to £70.8m this year, And what on earth would make three-to-four acquisitions a year building to £75.1m and £79m anyone think we will stop either for the rest of my (intended in 2020 and 2021 respectively, activity any time soon?’ very long) life and not run out although further acquisitions of good opportunities!’ would alter the picture. WILD-ING, I THINK I LOVE YOU With flooring industry expert Yes, the shares have performed Philippe Hamers, CEO, at his FEVERTREE’S GOT PLENTY phenomenally well, but side, Wilding eschews ‘failing OF FIZZ Victoria remains a compelling turnarounds’ and looks for fairly Based on the current £35.91 consolidation story in a highly- priced targets with modern, share price, premium carbonated fragmented, growing global well-equipped factories, mixers marvel Fevertree Drinks flooring industry, with just 12% committed, talented and is already up nearly 26 fold on share of the UK carpet market, honest management and broad its 2014 134p issue price, so around 15% of the Australian distribution channels. prospective investors can be carpet market and less than 1% Prospective new investors forgiven for assuming they’ve of Europe’s ceramic market. might also note that apart from missed this particular party. Under Wilding’s stewardship, acquisition-led growth, Vitoria Fevertree has executed its Victoria has been scaling up has scope to grow margins market opportunity nigh-on through acquisitions, last year and earnings within existing flawlessly, leveraging first mover completing the takeovers of businesses. Victoria achieved advantage in premium mixers ceramic tile makers Ceramiche a record underlying EBITDA to address a market need. Yet Serra and Keraben, the latest in a margin of 15.2% last year, up 140 while the posh tonic water- line of earnings accretive deals. basis points thanks to efficiency to-smoky ginger ale seller’s Rather than paying a dividend, measures taken across the nosebleed valuation now means
Victoria is deploying its free cash flow towards paying down debt and acquiring other high quality, earnings-accretive flooring manufacturers. Fevertree has Wilding also insists that: executed its market ‘The market opportunity we have before us is absolutely opportunity enormous. There is around nigh-on flawlessly,“ 1,700m sqm of flooring sold leveraging first each year in Continental Europe, “mover advantage 300m sqm sold in the UK, and in premium 180m sqm sold in Australasia. Victoria sells circa 55m sqm of mixers to flooring (excluding underlay), in address a total, across all three markets. market need ‘The point I am emphasising is this: there is almost unlimited scope for growth - both organically through increasing
02 August 2018 | SHARES | 17 TALKING POINT Our views on topical issues
future disappointments will be and spirits partners mean we are 29 US states. harshly punished, management increasingly well positioned as the Warrillow insists the tie-up has perfected the art of under- growing move to premiumisation ‘is a significant endorsement promising and over-delivering, and long mixed drinks continues and provides a strong platform guiding towards (24 Jul) full year to develop across the globe.’ for Fevertree US in 2019 and profit ‘comfortably ahead of Fevertree took over direct beyond’. SGWS distributes on expectations’ following a tasty control of its US distributor behalf of Bacardi, Diageo (DGE) first half performance. relationships on 1 June, seeing a and Pernod Ricard, companies Half-year revenue grew significant opportunity across the with strong spirits brands that by a forecast-busting 45% to pond for its tonics and a wider require accompanying premium £104.2m and Fevertree served mixer range for dark spirits, the mixers, this looks an astute up a 36% hike in pre-tax profit latter an increasingly important strategic move. to £32.65m-plus as well as a component of the long-term With a ‘hold’ rating on the
40% dividend uplift to 4.22p, investment case. stock due to its ‘extremely underpinned by a bulging net Fevertree has inked an premium valuation metrics’, cash pile of £56.4m (2017: agreement with Southern Shore Capital scribe Phil Carroll’s £40.5m) with which to invest Glazer’s Wine and Spirits (SGWS), upgraded estimates for 2018
in the future growth of this North America’s biggest wine point to adjusted pre-tax profit international business. and spirits distributor, to be its of £70.4m (2017: £56.4m), rising CEO Tim Warrillow insists ‘our exclusive distribution partner in to £83.5m and £97.4m in 2019 relationships with key customers the on-trade channel across and 2020 respectively. Based on estimated earnings “ of 49.5p this year, Fevertree trades on an eye-watering 72.5 times forward earnings, SGWS distributes on behalf of falling to a still incredibly frothy Bacardi, Diageo and Pernod Ricard, 61.4 times the 58.5p of EPS companies with strong spirits brands Carroll has in his spreadsheet that require accompanying premium for next year. Yet bulls will note that mixers, this looks an astute strategic move Shore Capital expects ‘the “ premium mixer market to grow based on current consumer premiumisation trends and for Fever-Tree to continue to both drive this growth and be a beneficiary of it. The ultimate question is how big is the opportunity and what is a fair valuation for Fever-Tree? Part of the issue is that market expectations have been and will likely remain overly prudent.’ The brokerage adds: ‘Our view is that the company is going to continue to grow strongly, maybe not at the percentage levels historically, but then if the US takes off it could be a possibility.’ (JC)
18 | SHARES | 02 August 2018 LEISURE SECTOR TO THE RESCUE
How experiences and attractions are helping to save retailers
he leisure sector is arguably the unsung HIGH STREET WOES saviour of the high street and other The struggles of the high street have been well retail destinations. Companies offering documented. Inflation, slow wage growth and Brexit T attractions and experiences such as gyms uncertainties have created a problematic backdrop and bowling are helping to fill vacant shops and for the retail sector and indeed other consumer- bring back the energy which attracts consumers. facing businesses such as restaurant companies. They are acting as very important tenants for Profit warnings from Debenhams (DEB) and shopping malls and similar retail destinations, Dixons Carphone (DC.) as well as widespread helping to drive footfall which effectively brings closures by restaurant chains, including Carluccio’s new life to the retail properties and also puts other and Byron, are clearly concerning. shops in a better position to trade well. According to an independent Grimsey Review, It is no wonder that many retail landlords are 100,000 shops could be left empty within a decade helping to foot the bill for revamped or new leisure if the crisis continues. fit-outs, as these companies are becoming the Retail property investor Stewart & Wight (STE) lifeblood of the surrounding premises. suffered a 12.1% drop in the value of its estate over Investors should look very hard at the UK- the past year, saying it has little prospect of quoted leisure space as we believe many of the re-letting at current rental levels when leases companies are being undervalued in terms of their expire on shops in its portfolio. importance and ultimately their ability to drive Real estate group Hammerson (HMSO) last future earnings. month said it would sell £1.1bn of retail properties
02 August 2018 | SHARES | 19 and confirmed plans longer term to exit the retail park sector completely, saying its future only lay in premium retail outlets and flagship retail destinations. It’s a bleak situation but importantly there are some bright spots as the consumer hasn’t given up spending completely. The Confederation of British Industry’s latest retail sales gauge showed stores enjoyed robust sales growth in July, slowing less than expected. Some retailers with physical stores like Joules (JOUL:AIM) and JD Sports Fashion (JD.) are In some cases, new gyms are opened near continuing to churn out good numbers, and retailers or in leisure centres where people can many leisure companies are reporting decent refresh themselves after a hard workout as Gym earnings as they continue to grab a share of Group does not offer food and beverages. consumers’ wallets. An example of Gym Group working with retailers is the Redhill branch, which is located above a PROPERTY OPPORTUNITIES FOR Sainsbury’s (SBRY) store and offers free parking. LEISURE COMPANIES Treharne says the gyms do not depend on other The closure of numerous retail outlets provides retailers to bring in footfall and believes an opportunity for leisure companies to pick up it is more of a collaborative effort to benefit property cheaply, either buying freehold or taking local businesses. out lower than average leases. Some leisure activities won’t be able to fit LEISURE COMPANIES HAVE THE ‘PULL FACTOR’ straight into an existing building, but others can. Cinemas tend to need larger buildings than most Gyms are a great example of a business that could shops but they can open in old churches or large quickly set up inside an old shop or even a pub. retail outlets, although most chain operators would As more people adopt healthier diets and try probably prefer new-build sites. and keep fit, there has been a surge in budget gym Often cinemas are built as part of redevelopment chains in the UK both on and off the high street to projects. For example, various shops and cafes tap into these trends. will be transformed at Piries Place in Horsham to Gym Group’s (GYM) chief executive John make room for a new retail and leisure complex. Treharne says his business has been able to take Everyman Media (EMAN:AIM) is building a new advantage of an increasing amount of retail space cinema in a former Waitrose unit and Whitbread but stresses the location still has to be good. (WHB) is turning a café and a former Pets Corner When looking for new sites, Gym Group’s shop into a Premier Inn hotel. management considers if it is close to the local Cineworld (CINE) says some of the cost of community, has high visibility and whether it refurbishing many of its existing cinemas is being boasts lots of physical space for plenty of activities. met by landlords, illustrating how a leisure business is seen to be such an important ‘pull factor’ for retail landlords. Cineworld also benefits as it says customers tend to spend more in a refurbished site. Landlords are also helping to spruce up some of Hollywood Bowl’s (BOWL) outlets, with some paying out up to £2m for a full fit-out to gain further value from their investment. In some cases, landlords can provide lease incentives instead of funding refurbishments and fit-outs, which boosts profits and cash flow. Broker Liberum analyst Joe Brent argues return on capital employed (ROCE) for Hollywood Bowl is
20 | SHARES | 02 August 2018 strong even without landlord contributions. The analyst says if landlord contributions for scheduled projects were 50% of new site capital expenditure, Hollywood Bowl’s ROCE would grow to 20.6%. Without any contributions, returns would only be 112 basis points lower. Cinemas’ fortunes move up and down depending on the quality of the film slate in certain periods although there is generally a strong level of demand throughout the year. Hollywood Bowl’s chief financial officer Laurence Keen argues that bowling has an edge over cinemas as demand isn’t dependent on particular events like a blockbuster film. People like to bowl at any time of the year. Keen says bowling offers good value, decent food and arcades to keep people entertained after the pins are down. It can also be seen as a part of a broader day trip, whereby people meet their friends to go shopping, have a drink, go bowling and perhaps go for a meal at the end of the evening. We note that more than a quarter of Hollywood Bowl’s sales come from arcades which is perhaps an area more susceptible to a drop in trading should consumers experience harsher economic conditions. companies is Escape Hunt (ESC:AIM), which provides escape rooms where a group of people EXPERIENCES RATHER THAN PRODUCTS are encouraged to work together for their freedom Many consumers are currently valuing experiences by finding clues and solving puzzles. over buying material items which plays to the The business is certainly ‘trendy’ at the moment leisure sector’s strengths. and it recently struck a deal to build Doctor Langton Capital analyst Mark Brumby says many Who-themed escape rooms in the UK. However, people are looking for kooky activities to do instead it remains loss making and issued a veiled profit of heading to the shops. Unusual social activities warning last month. include axe-throwing bar Whistle Punks, crazy golf You can have a great idea, but the business won’t courses from Swingers, social darts bar Flight Club, be a good investment proposition unless it can ping pong club Bounce and even shuffle boarding. achieve decent scale and operate with a handsome Leisure analyst Mark Brumby from Langton profit margin. We have major concerns that Capital acknowledges these experiences are more Escape Hunt won’t be able to meet this threshold, popular, yet he is worried about how these firms particularly as the market is already well supplied. will scale up and avoid becoming temporary fads Escape rooms usually involve a variety of should the market becomes more saturated. scenarios such as people in room trying to evade Relevant to this point on UK-listed leisure a (pretend) kidnapper or murderer, or saving the
02 August 2018 | SHARES | 21 world from destruction. Immotion is talking to retail landlords Intu (INTU) Asset manager Gresham House owns a 5% stake and Hammerson about installing VR pods into in Escape Hunt as fund manager Graham Bird is various shopping centres as they are excited about confident the company can take advantage of an using them to help boost footfall. interesting niche and lack of knowledge around Merlin itself is looking at using different types of the activity. buildings to increase its range of attractions. Most Escape Hunt believes only 10% to 15% of people of its outlets require large outdoor premises like in the UK have heard of escape rooms based on a theme parks or indoor locations such as aquariums. survey, up from 5% at the time of the company’s However, it does have some propositions that can stock market debut in April 2017. be fitted into smaller buildings such as its Shrek’s Bird argues there is no established brand or Adventure experience which is situated in London’s network for escape rooms, offering an Escape Hunt County Hall. an opportunity to build a high quality brand as it One of its most intriguing new experiences changes from a franchisee model to an owner- this year is Merlin’s Bear Grylls Adventure where operator one. Locations in high streets with strong thrill seekers can test their limits by undertaking footfall, a high concentration of students and tough mental and physical challenges. The first tourists would suit the business. site will be located as part of the Birmingham NEC exhibition complex. VIRTUAL REALITY’S NEW EXPERIENCE People can choose from indoor climbing and We’re more enthused by virtual reality being skydiving, tackling heights with high ropes or even used as the backbone for leisure experiences. go exploring underwater. Immotion (IMMO:AIM) recently joined the UK For hard core adventurers, they can choose stock market and is trying to build a business the ‘Basecamp’ experience where they have to that supplies VR pods and associated content to escape a room by solving puzzles, hit targets with leisure operators and shopping centres. precision, survive a challenging maze and tackle an A partner builds the equipment in China and assault course. Immotion creates the content which includes Numis analyst Tim Barratt says the growth sitting in machines that let you feel as if you are opportunity from new brands is compelling with actually riding a rollercoaster or going down a the Bear Grylls experience potentially hitting a very long slide, among many other ideas. margin conversion of 40% compared to 34% for Immotion has a deal with Merlin the Midway division which includes Madame Entertainments (MERL) to provide multi-sensory Tussauds and the Sea Life aquariums. VR experience pods to two Legoland centres in In a bid to capitalise on the success of Peppa the UK and US, letting six year-olds race across Pig and appeal to families, Merlin is also planning mountains, rivers and hot lava. indoor attractions that allow visitors to experience Executive chairman Martin Higginson says the world of popular kids franchise.
22 | SHARES | 02 August 2018 SPORTS DIRECT’S SPACE CONUNDRUM players or viewers may pick up a few items while The issue of space leaves us puzzled as to how visiting its premises. Sports Direct (SPD) plans to roll out eSports arenas Game Digital is involved in the venture via its in some of its stores. BELONG brand, effectively its eSports offshoot. Sports The retailer announced a partnership with Game Direct paid £3.2m for 50% of the intellectual property Digital (GMD) to host live matches between players of Belong and will be entitled to half its profits – in battling it out in various competitive video games. exchange for a £55m loan to Game Digital. We’re perplexed as to how Sports Direct will According to YouGov, eSports generated £565m make any decent money from this venture, plus in global sales last year and an audience of 385m. question whether the benefits of e-sports is worth By 2020, forecasts by the data analytics firm giving up store space previously used to sell clothes suggest eSports will deliver over £1bn in sales and and sporting equipment. nearly double its audience to 600m. ESports as a concept is very popular as many Liberum analyst Adam Tomlinson is supportive people – particularly youngsters – enjoy watching of the deal as he believes it will boost Game other people play games. Sports Direct may argue Digital’s transformation from a retailer exposed to that it will increase footfall into its stores and the gaming console cycle into eSports.
FOUR LEISURE STOCKS TO BUY
Our top leisure picks related to the attractions and experiences theme are Gym Group, Hollywood Bowl, Cineworld and Immotion.
GYM GROUP
THE BUSINESS IS forecast to in 2020, according to Group has proven its ability make £15.5m adjusted Liberum’s estimates. While to run a highly-successful pre-tax profit in 2018, rising the gym sector is highly business and continue to drive to £23.1m in 2019 and £27.1m competitive, we believe Gym up earnings.
160 THE GYM GROUP 150 140 130 120 110 100 90 80 2016 2017 2018
02 August 2018 | SHARES | 23 HOLLYWOOD BOWL
IT HAS SUCCESSFULLY tested well as having more efficient shareholders via ordinary different pricing models and operations. and special dividends. found ways to drive up the It is a well-run business Liberum forecasts £24.6m volume of people bowling generating lots of cash that pre-tax profit in 2018, rising and the amount of money can be reinvested in its to £25.7m in 2019 and £28.2m people spend in its sites, as estate and returned to in 2020.
CINEWORLD
THE CINEMA OPERATOR spruced-up cinemas led led by refurbishment gains has exposure to multiple to higher spending per and greater buying power. The geographic territories and customer. analyst consensus forecast has proven the benefits of Its recent foray into the is for £316m pre-tax profit in reinvesting money back US market presents a new 2018, rising to £403m in 2019 into its estate as earnings growth driver, and £437m in 2020.
IMMOTION
THIS IS A high-risk investment the right place at the right reality as it greatly improves the selection as the business is time as leisure operators and end-user experience. There are still very young and currently companies on a broader scale presently no earnings forecasts loss-making. We think it is in are keen to embrace virtual in the market. (LMJ/DC)
24 | SHARES | 02 August 2018 INVESTMENT TRUSTS Most loved investment trusts These are some of retail investors’ favourite collectives, but why are they so popular?
he whole investment trust space seems to be T going through a resurgence in popularity. In 2017 independent financial advisers (IFAs) bought a record £990m of investment trusts through their favourite platforms, according to statistics provided by the Association of Investment Companies (AIC). That’s a 46% jump on the £679m ploughed into investment companies in 2016, and 41% up on the previous high of £704m in 2015. industries and geographic because the number of units is This is a stark change for a regions at a stroke. not fixed. sub-sector of the stock market Also known as close-ended Investment trusts work a bit that has for years struggled with funds, they are listed on the differently. Like normal equities, an image problem that had seen London stock market which they have a set number of shares investment trusts ignored by makes them easy to buy (and in issue (although new shares many IFAs, wealth managers and sell), and are risk managed by can be issued and existing stock DIY investors. Perhaps the penny expert fund managers. bought back as circumstances is finally dropping. Traditional funds split their change), and the price of those About time too because assets into units, and as investor shares rises and falls in line with investment trusts can provide demand for a fund rises it issues buying and selling behaviour. instant portfolio diversification more units. That’s why they across a range of companies, are called open-ended funds, INVESTOR FAVOURITES Not all investment trusts are 8000 T R W D RD equal, in the eyes of investors, C TTI RT IN BURY with some much more popular 7000 than others. But why? The obvious answer is share 6000 price performance, the ultimate 5000 arbiter. This makes perfect sense since the whole point of 4000 investment is to have more asset
3000 wealth in the future than you have today. 2000 No exit penalties and 2015 2016 2017 2018 consistently rising dividends
02 August 2018 | SHARES | 25 INVESTMENT TRUSTS
TOP 10 MOST LOVED INVESTMENT TRUSTS (SHARE PRICE PERFORMANCE, AJ BELL PLATFORM) 1 year 3 year 5 year Scottish Mortgage 36.2% 105.6% 233.0% Woodford Patient Capital -21.8% -30.6% N/A Finsbury Growth & Income 16.8% 50.0% 89.3% City of London 4.9% 22.7% 44.5% RIT Capital Partners 10.3% 37.8% 83.4% HICL Infrastructure 0.5% 14.6% 52.4% Witan Investment Trust 10.6% 48.9% 97.3% Murray International -5.9% 44.2% 23.2% Edinburgh Investment Trust -4.2% 12.2% 35.9% Tritax Big Box 6.4% 46.5% N/A
IT Global index 17.9% 61.2% 93.9% IT UK Equity Income 5.9% 22.7% 43.4% FTSE All Share* 9.0% 31.6% 52.8% Source: Trustnet, *FTSE Russell to 29 June
are other pluses for many That may be too small a investment trusts, while the sample size to draw firm width of discounts or premiums conclusions on its own, but any to net assets and the level of claim that Scottish Mortgage is
ongoing charges are also likely Scottish Mortgage the UK’s favourite investment to form part of an investor’s trust is more powerful when selection criteria. stands out. Run by you consider that it also heads A long track record of respected manager popularity lists of other platforms
performance and the perceived James Anderson too, such as Hargreaves quality of the managers for the best part of Lansdown, Barclays and running the show are other “two decades (with Interactive Investor, for example. important factors, points out The same goes for Finsbury James Budden, director of help from capable Growth & Income (FGT), City of retail marketing & distribution deputy Tom Slater), “ London (CTY) and RIT Capital at Baillie Gifford, which runs it is the most popular Partners (RCP), which sit on the Scottish Mortgage (SMT) investment trust multi-platform popularity lists. investment trust. Scottish Mortgage stands with retail investors GROWTH NOT TECHNOLOGY out. Run by respected manager using the AJ Bell So what is the Scottish James Anderson for the best part platform, as the Mortgage secret sauce? Big of two decades (with help from table shows stakes in some of the most capable deputy Tom Slater), it exciting mega-cap growth is the most popular investment companies helps. The trust has trust with retail investors using 9.9% of its funds invested in the AJ Bell platform, as the online retail giant Amazon, for table shows. example, whose shares have
26 | SHARES | 02 August 2018 INVESTMENT TRUSTS
risen five-fold in five years. top 10 holdings. people will know. But Woodford There are decent stakes in ‘Sure, they use and develop and investors will be hoping it Netflix, genome testing kit technology to make their cars doesn’t stay that way. maker Illunima, and two of smarter, safer, more efficient and There is certainly plenty China’s internet stars, Tencent more desirable but they remain of exciting potential around and Alibaba. automotive firms, says Budden. BenevolentAI’s biotech research So big of technology? No, database internet bank Atom says James Budden, who rejects BLUE SKY THINKING Bank and the cancer treatment claims that Scottish Mortgage Investing in emerging stars of technology of Autolus, the trust’s is a tech trust. We are looking tomorrow is clearly popular biggest bet with more than 13% for ‘blue sky growth,’ he says, with retail investors. That is just of its funds tied up. aiming to buy the ‘best growth the strategy of Neil Woodford’s Finsbury Growth & Income companies in the world for the Woodford Patient Capital Trust and City of London stand apart next five or 10 years,’ he says. (WPCT), still a firm favourite with from both Scottish Mortgage He also argues the point that investors even though its share and Woodford Patient Capital Amazon is at its heart a retail price performance continues to in their chosen investment business that very effectively stink up the stock market. universe, concentrating is using the internet and other This explains the yawning largely on UK-listed large cap technologies to sell its wares. 12.6% discount to net assets companies, and ones that pay The great thing about versus the 2.3% premium on decent dividends too. internet-based businesses is which Scottish Mortgage trades. The respective share price that they can ‘scale-up with Presumably, Woodford Patient performances set the pair little capital needed’, the Baillie Capital’s continuing popularity apart. Finsbury, managed by Gifford man says. is down to the previously star manager Nick Train, has ‘Facebook and Google are pristine, albeit now more put up returns around double basically advertising businesses,’ blemished, reputation of Neil those of City of London over the that’s certainly where the vast Woodford himself. past three and five years. That majority of revenue and profits Online estate agent makes their makes their similar come from, while car makers Purplebricks (PURP:AIM) is premiums to net assets (about Tesla and Ferrari feature probably one of the trust’s 1%, give or take) all the more among Scottish Mortgage’s only major holdings that most puzzling. (SF)
02 August 2018 | SHARES | 27 THIS IS AN ADVERTISING PROMOTION
Change brings opportunity
James Henderson, Fund Manager for Henderson Opportunities Trust, explains why this period of change and uncertainty is a good opportunity for active UK stock pickers.
Change, uncertainty and volatility in stock 237%, owing to high demand for their robot market prices are the ingredients that process automation software. The software Henderson Opportunities Trust (HOT) thrives on. addresses a key pain point for enterprises – The Trust is relatively small with net assets of poorly integrated back-office systems – by around £100m at the end of April, spread over a enabling companies to automate interactions diverse list of companies. Our size enables us to between legacy software applications. This move quickly when we see opportunities. allows companies to redistribute labour and Equity markets around the world have save costs. For example, banks can use the experienced greater volatility in 2018. Change is software to process orders for new debt/credit a constant feature of the political and economic cards, while insurance companies can use it to landscape, and this change is epitomised streamline insurance claims by checking internal by the situation in the UK. Here, digital and data and producing a suggested pay-out. technological innovations are challenging established business models, while the country’s ADDING VALUE IN DIGITAL TRANSITION political leaders negotiate leaving the EU and We are in a time of macro-economic and begin to forge new partnerships in a globally political uncertainty, and the digital shift is competitive economy. changing the shape of companies and the way The Trust has the flexibility to go up and in which people interact with them. Through down the spectrum of companies in terms of this, we have focused on identifying companies size to find attractive opportunities. Currently, that provide some sort of value add to help the HOT list holds approximately 15% in the them control their own destiny. For example, FTSE 100, 9% in the FTSE 250, 13% in the we have shied away from holding Marks & FTSE Small Cap and 63% in non-FTSE All Share. Spencer, despite the shares trading on optically The weight in FTSE AIM (alternative investment attractive valuations at times. The company is markets) has increased in recent years because grappling with repositioning itself to address we have tended to find more attractive the structural growth in online sales, as well as opportunities within this space. These are the fragmentation of the market in their key typically young, high growth companies that categories. Barriers to entry have come are unencumbered by legacy issues. down within the retail space with anyone An example of a successful FTSE AIM able to create a brand from their living room investment in the portfolio is robotic process without the need for large investments into software company, Blue Prism. Since its purchase stores or marketing. in March 2016, the share price has appreciated Where we have invested into retailers, it THIS IS AN ADVERTISING PROMOTION
has been in companies that have a niche At the end of April, gearing stood at 13% of within the market, which somewhat insulates the portfolio and we expect to continue to them from the large structural shifts described utilise gearing to invest into differentiated and above. We hold Joules, a premium family attractively valued companies with long term fashion brand, which has positioned itself growth prospects to drive shareholder returns. well across online and offline channels. The HOT has been trading at a discount of about brand is relatively immature and thus has a -15% relative to the net asset value, which long run way for growth both in the UK and typifies investor sentiment towards UK equites Internationally. We think the Joules brand, generally. There is a growing consensus that the which addresses a niche within the expanding worst of Brexit – i.e. the worst possible outcome lifestyle apparel category, is attractive in the – has already been priced into UK equities, which current environment. Indeed, Joules continues could mean valuations have plenty of room to to see sales growth far outstrip new store grow as we move towards a conclusion of the space. This is driving an increase in profitability Brexit negotiations. as management leverages their cost base. These are certainly interesting times for The Trust has the ability to borrow money the UK and we are excited by the number of (gearing) to help grow its underlying net asset opportunities to buy companies with good value, which is limited by the Trust’s board to a businesses at attractive valuations and are maximum of 25% of the company’s net assets. adding value in a changing economy.
Before investing in an investment trust referred to in this article, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. [Past performance is not a guide to future performance]. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. [Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change]. Nothing in this document is intended to or should be construed as advice. This article is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. [We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.]
Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services.
© 2018, Janus Henderson Investors. The name Janus Henderson Investors includes HGI Group Limited, Henderson Global Investors (Brand Management) Sarl and Janus International Holding LLC. FUNDS How to pick the right global equity fund for your portfolio We present six funds picked by investment experts for global exposure
lobal equity funds are very popular with investors, Gaccording to the latest monthly figures from the Investment Association. They showed the IA Global sector was the second bestselling sector in May, attracting net retail sales of £347m. The best performing fund in the sector has returned GLOBAL 92% over the last three years, according to FE data. EQUITY FUNDS But why would you want a global equity fund, what role do they play in portfolios, and assess global equity funds how can you choose the right by putting them into four one for you? different ‘buckets’ according to Global equity funds can be whether they aim to generate a useful one-stop shop for income, whether they should of companies with a ‘moat’, or DIY investors who lack the be a satellite or core holding, high barriers to entry. time and skills to pick stocks and whether they buy quality ‘You need to understand what for appropriate global markets. businesses. you are actually buying, the When you buy a global equity A core holding might be well circumstances in which it can fund, you are letting the diversified with no particular outperform and underperform manager of that fund do the style tilt and perform in line with so you know what to expect in regional asset allocation for you. the benchmark, while a satellite different market conditions and The challenge is to know which fund might be the opposite, with you don’t end up disheartened,’ global fund is best for you as high active share (meaning it is Molica says. inexperienced investors often positioned quite differently from He suggests it’s also important find them hard to tell apart. its benchmark) and requiring to understand how a global fund more patience from investors manager screens stocks. With FOUR BUCKETS FOR because of fluctuating returns. such a huge investment universe YOUR FUNDS The quality bucket might to choose from, funds either When choosing any global include funds like Fundsmith need a methodical approach in fund, a good starting point is Equity (B41YBW7), Investec place to pick future winners or a to think about what you want Global Franchise (B7VHRM9) or large team of researchers to sift it to achieve in your portfolio. Morgan Stanley Global Brands through ideas. AJ Bell fund manager (B45K057). These funds follow a ‘If a group doesn’t believe Simon Molica says he would Warren Buffett-style philosophy in fundamental screening it is
30 | SHARES | 02 August 2018 FUNDS
harder because they have the of the company; it is very whole global universe of stocks focused on capital preservation, to research. You need discipline high and sustainable return to bring the universe down to on capital, long term dividend a manageable size or else you growth. I would expect if we need a big team in place to help had a big drawdown in the you do that.’ market that it could protect When choosing a fund, your capital.’ PSigma IM’s chief investment Investors In the closed-ended space, officer Tom Becket advises should always he points to Scottish Mortgage investors to seek as much bear in mind Investment Trust (SMT), information as they can from managed by Baillie Gifford’s independent data providers and that the asset James Anderson. read commentary and factsheets class is large Molica suggests this could on providers’ websites. “so you need be held as more of a satellite ‘Investors should always bear to do your holding because of its high active in mind that the asset class is homework. share. ‘At the heart of Baillie large so you need to do your Gifford’s investment process is to homework. Make sure you Make sure you search for stocks which display understand how that fund will understand strong growth characteristics. blend with the rest of your how that fund This trust will at times deviate portfolio or you could find will blend with heavily from the returns of the yourself putting too many eggs the rest of your “ benchmark given its long-term in one basket.’ and high active share mentality. portfolio or Investors should be aware that it SIX GLOBAL EQUITY you could find is typically very growth-oriented FUND PICKS yourself putting by investment style.’ Simon Molica highlights two too many eggs PSigma IM holds Artemis global equity fund picks in the Global Income Fund (B5N9956) open-ended universe. Fidelity in one basket for its attractive yield and Global Special Situations value bias, as well as River & (B8HT715), managed by Jeremy Mercantile Global Recovery Podger, is one he suggests could (B9428D3) which Becket says work well as a core holding. ‘allows us to get exposure to Podger has a long track cheaper parts of the world that record, and the fund is well are harder to access’ such as diversified and style neutral with deep cyclical sectors in Europe a tilt towards large-cap stocks. including industrials, energy, and Focusing on misunderstood or some banks. undervalued growth prospects, He also likes thematic fund the fund aims to deliver in a Polar Capital Healthcare Blue range of market conditions, and Chip (BPRBXV2) which he it is backed by Fidelity’s large calls ‘a good long-term growth team of analysts. opportunity’. (HS) The second is James Harries’ Troy Global Income Fund DISCLAIMER: Editor Daniel (BD82KP33) which aims to Coatsworth has a personal protect investors’ capital. Molica investment in Fundsmith Equity comments: ‘I like the philosophy referenced in this article.
02 August 2018 | SHARES | 31 AEQUITAS Insightful commentary on market issues The City state we’re in… The potential outcomes as the day for the UK's exit from the EU looms
ith the omnishambles of Brexit impact on how markets would react. continuing to dominate the front Of greater significance however could be the W pages, the Parliamentary recess seems potential social unrest to follow as, regardless of to have come just in time to spare the nation whether the ‘will of the people’ had changed, the from the chaos taking place in Westminster right sense of betrayal amongst the 17m who voted to in front of our eyes. leave in the original referendum might spill out Having unveiled a ‘unified’ Chequers plan that onto the streets. served up a smorgasbord of euphemisms for our While investors may well welcome the no existing relations with the EU, the combination Brexit outcome, democracy and political of ‘common rulebooks’, ‘mobility frameworks’ engagement would mourn long into the future. and ‘facilitated customs’ was indeed successful in unifying both Leavers and Remainers, but in opposition rather than the support Theresa May had hoped to garner. And so, with less than 150 days until an agreement is required between the UK and EU (of which Parliament will be in session for just 60), the prospect of no deal is one that both voters and investors must seriously begin to prepare for. In this article we take a look at just what they might be.
• No Brexit For a No Brexit outcome to arise, we have to assume at least a change of Government, followed by a second referendum. Whether that comes in the guise of a centralist coalition or a Jeremy Corbyn led Labour party would have a major
32 | SHARES | 02 August 2018 Insightful commentary on market issues AEQUITAS
• A Deal of Sorts • No Deal Whether ‘hard’ or ‘soft’, a deal of any sort As the hardest of exits, the ‘no deal is better than agreed in time for the UK Parliament to approve a bad deal’ mantra seems increasingly likely to and EU to ratify at the December Council meeting become a reality as the clock ticks down. In terms would at least bring to an end the uncertainty of acrimony and consequences, this is perhaps that investors currently face. Having roundly as bad as it could be in the short-term as the UK rejected the softness of Chequers, any such deal would become the only developed nation on the currently seems more likely to be at the hard end planet to have no free or preferential trade deals of the scale. in place with any of its trading partners. For businesses engaged in cross-border activity, the imposition of WTO rules (assuming we were allowed to join) would result in a jump in tariffs on a host of goods until such time that new deals could be arranged. These negotiations are typically measured in years, not months. But just as reaching a deal of sorts creates a potential constitutional crisis, the same can be said for a no deal Brexit. As the heart of the global financial markets, London’s multi-cultural, international focus led to the Capital voting to remain at a rate of three-to-two. Based on the 2011 Census data, inner London boasted a population of over 3.2m of which only 58% identified themselves as British. With this figure likely to have trended closer to 50% in the seven years since, the prospect of London striking out on its own, as a city state, akin to Singapore or Monaco is one not beyond the realms of possibility. Responsible for over a third of UK tax receipts, With such hardness comes inevitable trade the prospect of a wealthy constituent wishing to barriers, an increase in duties and a corresponding untie itself from the rest of the union, taking back rise in inflation as tariffs are passed onto control of its own laws, money, borders and trade consumers. Swiftly following thereafter would be is one that the UK should be most fearful of in the a slowdown in economic activity as trade between long run. the EU and UK came to a shuddering halt whilst administrative processes are put in place. Kevin Doran, managing director, AJ Bell Investments And that’s before we come to the square peg of the Good Friday Agreement, which declared the UK and Ireland as ‘partners in the EU’ and expressly removed any security installations at the border. Containing a provision that promises the people of Ireland to facilitate a unification of North and South should the people of Northern Ireland wish it (Northern Ireland voted 56% to remain in the UK), the Good Friday Agreement mixed with Brexit, brings with it the prospect of a break-up of the Union. Given the SNP position on the subject, a constitutional crisis would be almost inevitable thereafter.
02 August 2018 | SHARES | 33 MONEY MATTERS Helping you with personal finance issues Investing for growth in retirement Is there an easy way for retirees to grow their portfolio and generate an annual income?
ajor changes to pension rules have given people M in retirement more freedom than ever in how they use their money in retirement – and some retirees may even consider trying to grow their savings pot. Pension freedoms, introduced more than three years ago, mean today’s retirees are not forced lower levels of risk. investments such as high-yield to buy an annuity in order to But, with interest rates at bonds – the debt of companies produce a retirement income. rock-bottom for almost a decade, with a lower-credit rating – and Instead, a growing army of these traditional income payers even emerging market debt. investors are choosing to keep no longer yield enough to even These assets may produce the their money in the stock market beat inflation. yield required but they come even after they stop working. with a higher level of risk. The traditional approach for NOW VERSUS THEN older investors has been to find Investors banking on gilts for Trevor Greetham, head of investments which will pay a their retirement income will multi-asset at Royal London reliable income, in the same instead find the value of their Asset Management, says: ‘Savers way that an annuity would, to cash being eroded year after need to realise that chasing fund their overheads through year. Research by Royal London after high-yielding investments retirement. (see accompanying chart) shows today can involve investing in This has historically meant how much harder it is to find an unhealthily narrow range investing in UK Government a decent yield compared to a of assets that could suffer as bonds (known as gilts) and decade ago. interest rates rise. high-quality corporate bonds, As a result, investors are ‘Investment conditions today which have reliable pay-outs and being forced into riskier income are a world apart from those before the financial crash and Natural yield from different investments retirement strategies need to 10 verage ield ec to ep 0 change accordingly.’ urrent ield une 01 It’s therefore not surprising that more investors are considering a growth strategy in retirement. A nine-year bull run ield ield has given people the confidence to keep some money in the stock
ource o al ondon o al ource market even after they retire. 0 verseas ropert High redit ilts ash Exotic A growth strategy in tocks tocks ield High ield retirement doesn’t mean upping
34 | SHARES | 02 August 2018 Helping you with personal finance issues MONEY MATTERS your risk through extreme keeping enough money in liquid, measures. Instead, investors low-risk choices to cover one consider how much they need or two years’ expenditure, with as an annual income and try to further tranches invested for the build a portfolio which will grow medium and longer-term with by that amount. So, if you have WATCH the aim of growing your pot. a pension pot of £150,000 and OUT! He likes the Fidelity Money need £7,500 a year, you would Builder Income (BBGBFM0) aim to produce growth HIGH YIELD BONDS fund as a shorter-term option; of 5% a year. PRODUCE THE it invests in fixed income assets YIELD REQUIRED and yields around 3.2%. HOW IT WORKS BY RETIREES For the medium-term he likes Most investment platform BUT THEY COME Artemis High Income (BJT0KR0), providers will allow you enter a WITH A HIGHER which has around 40% of its drawdown plan where you can LEVEL OF RISK assets in fixed income and the withdraw the cash you need. So, rest in equities, and yields 5.4%. if your £150,000 grew by 5% to For the longer-term he suggests £162,500, you simply withdraw like property, infrastructure and a growth- focused choice such as your £7,500 and are back where absolute return funds.’ 7IM Moderately Adventurous you started ready to start (B2PB2K5) – it has exposure to UK making your money work for DON’T FORGET THE IMPACT value opportunities and equities the next year. OF INFLATION across the globe. Mike Deverell, partner at But this approach is not Equilibrium Asset Management, without risk. First and foremost, WORDS OF CAUTION believes that’s a very sensible investors need to factor inflation Other advisers are more cautious strategy. ‘If you just aim for as into their calculations. around growth as a retirement high a yield as possible then that Andrew McCulloch, strategy. Brian Dennehy, director actually increases your risk as it relationship manager at 7IM, at Dennehy, Weller & Co, warns rules out certain asset classes says: ‘Not considering the future that a few years of poor returns and leads you to be highly need to beat inflation can create or a downturn in stock markets concentrated in the few assets problems down the line, which is enough to ‘obliterate’ your that provide enough yield. are exacerbated by the fact retirement plan. ‘We prefer a broad spread of that people now live longer in McCulloch adds: ‘The problem asset classes including equities retirement.’ with this approach is that if you and bonds, but also alternatives He suggests a mixed approach, have a year or more of flat or negative returns you start to eat into the capital. Like a snowball rolling down a hill, this can be “ hard to recover from.’ We prefer a broad spread of A final point to note, too, is the asset classes including fees involved in drawing down capital from your pension pot. equities and bonds, but also For example, you might pay alternatives like property, £25 per ad-hoc withdrawal or infrastructure and £100 a year for regular drawdown “absolute return funds payments, as well as the usual trading charges of £1.50 for funds and £9.95 for investment trusts or shares. These should be factored into your calculations. (HB)
02 August 2018 | SHARES | 35 MONEY MATTERS Helping you with personal finance issues When you pay tax in your ISA and SIPP
Although tax-efficient these vehicles do not enable you to avoid HMRC’s grasp entirely
eople putting their money away into an ISA Por SIPP can shelter their savings from tax, but you’d be mistaken for thinking that all aspects of these accounts are entirely tax free. Here we explain the situations where you would end up paying tax on this money – from inheritance tax to being penalised for saving too much.
WHEN THEY ARE TAX FREE Money put into an ISA account can grow free of tax, meaning that you pay no income tax or of 0.5% of the value of the you pay depends on the country. capital gains tax on the returns. transaction when you buy You can usually claim When you withdraw the money shares. You pay this money this money back, but it can from the account there is also automatically if you buy the involve a lot of paperwork and no tax due. shares electronically. information being filed with With a pension or SIPP you This doesn’t apply if you foreign tax authorities. The get Government tax relief on the buy units of an open-ended UK has negotiated a double money you put in, proportionate investment company, also taxation agreement with with your income tax level. This known as an OEIC, or buy some countries, meaning you means that your contributions units in a unit trust from a fund are exempt from paying the are tax free. Any gains within the manager. However, the fund additional tax in some places. pension are also tax free, and managers in the funds you buy Inheritance tax poses the you then pay tax on the lump will have to pay this tax, so biggest threat to your ISA pot, sum or income you draw from it, you’ll pay for it indirectly. as ISAs are considered part of at your marginal rate. Another area where you your estate for inheritance tax may pay tax within an ISA is purposes. Everyone can have WHEN DO YOU PAY TAX? on dividends paid out by any £325,000 of assets before they Despite the above, ISAs and foreign companies that you have to pay inheritance tax, but pensions are not entirely tax own in your ISA or pension. anything above this amount will free. There are certain situations This would only arise if you be taxed at 40%. where you will pay tax. own shares in a company based While this seems like a large First, most people pay stamp overseas, and it doesn’t apply to limit, property is counted as part duty when they buy certain all countries. This tax is known as of your estate, so anyone with a shares. This is usually a tax a ‘withholding tax’ and the rate higher-value home (particularly
36 | SHARES | 02 August 2018 Helping you with personal finance issues MONEY MATTERS
if they live in London and the find the amount you can save into south-east where property defined contribution pensions, prices are higher) and a healthy like SIPPs, is reduced to £4,000. investment pot may hit this limit. Pensions also have a lifetime The only exemption to Inheritance allowance, placing a cap on how this is if you invest in certain tax poses the much you can save up into your shares listed on the AIM stock biggest threat to total pension pot. The limit for market within your ISA. Some the current tax year is £1.03 of these companies are eligible your ISA pot, as million, but this limit is not just for something called Business ISAs“ are considered on the contributions you make to Property Relief. This means that part of your estate your pension over your lifetime – as long as you hold the shares it includes the tax relief you directly and for at least two for inheritance get from the Government and years, they will be exempt from tax purposes all the investment growth on inheritance tax. your pension. However, these companies The value of your pot for are smaller and so tend to be the purposes of the lifetime a riskier investment, meaning allowance will be determined you may not want to put a large either at age 75 or when you portion of your pension or long- is £40,000 for the majority of take money from your pension. term savings in these companies. people. It’s limited to £10,000 The tax rate you’ll pay depends for some higher earners, in on how you use your pension PENSIONS TAX what is known as the ‘tapered money: it’s a 55% tax charge if CONSIDERATIONS annual allowance’. Anything” you you take a lump sum from your With pensions, you face specific save over your limit each year is pension or 25% if you take an taxes if you save too much in not eligible for tax relief, in the income from it. Clearly this can your pension, either each year or same way as the rest of your add up. over your lifetime. contributions are. Pensions have an annual Once you’ve taken advantage of Laura Suter, personal finance limit on contributions, which the pension freedoms you’ll also analyst, AJ Bell
Property is counted as part of your estate, so anyone with a higher-value home and a healthy “investment pot may hit this limit
” 02 August 2018 | SHARES | 37 MONEY MATTERS Helping you with personal finance issues Why you should ignore the Lifetime ISA cynics This product risks being underappreciated
ast week the Treasury Committee, a group of LMPs tasked with holding the Exchequer to account, published a wide-ranging report on household finances. The report’s recommendations have been widely picked up in the press, with the Lifetime ISA (LISA) – a product created in 2016 to help young people save for a first home or retirement – facing particularly harsh criticism. The MPs criticise the LISA for being too complex and not complementing traditional you’re aged 60 or over, or if you contributions is 25% if you’re pensions, and call for the become terminally ill. a basic-rate taxpayer, meaning product to be abolished. In all other circumstances the an £80 contribution becomes I fundamentally disagree with Government will levy a 25% £100 without you having to do this conclusion. To demonstrate charge on the money you take anything. my point, I will now provide a out – likely to be more than the Higher-rate taxpayers can short, simple explanation of Government bonus if your fund then claim back a further £20 how the LISA works – and a has enjoyed investment growth. and additional-rate taxpayers few ways you could use it And that’s it. £25 through their tax return. alongside your pension. If you fall into either of these SHOULD I GET ONE? brackets, it’s likely a pension will HOW IT WORKS If you’re saving for a first home be a better deal than a LISA for The LISA is only available to it’s a bit of a no brainer – the only your retirement. savers aged 18 – 39, so if you’re thing you’ll need to consider is However, for basic-rate 40 or over you can’t apply. You your investment time horizon and taxpayers the combination can save up to £4,000 a year in the level of risk you want to take. of 25% bonus and tax-free a LISA and the Government will If you’re using a LISA for withdrawal at 60 is compelling. top it up by 25%. retirement, it should be in It could also be a viable Provided you open a LISA addition to your workplace retirement savings alternative before your 40th birthday you pension – which comes with a for wealthier investors who are can keep contributing – and matched contribution as well as pushing up against the £1m receiving the 25% bonus – until a tax relief bonus – rather than pensions lifetime allowance, as your 50th birthday. instead of. well as self-employed workers You can then withdraw the Which is more appropriate who don’t benefit from a money tax-free to put towards then comes down to your matched employer contribution. your first home (provided it is individual circumstances. The worth £450,000 or less), if automatic bonus on pension Tom Selby, senior analyst, AJ Bell
38 | SHARES | 02 August 2018 Sponsored by
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BATTERSEA PARK u m e o a l h l N S p ew la R C d EDUCATION Why KPIs are an essential tool to decoding a company’s performance We look at some of the biggest sectors to reveal the key information you might be missing
irms operating in different owner Dart (DTG:AIM). when exploring results from industries have their own Load factor essentially reveals retailers and pub operators such Fyardsticks for performance, how effectively airlines fill their as Next (NXT), Debenhams beyond the usual metrics like flights by comparing how many (DEB), Greene King (GNK) and pre-tax profit, revenue and miles they fly per seat and per Mitchells & Butlers (MAB). cash flow. passenger. Because airlines have Like-for-like sales offer an These key performance lots of fixed costs the load factor insight into the underlying indicators or KPIs for short has a significant bearing on performance of these can help you spot positive or profitability. consumer-facing companies as negative trends before they For the likes of Holiday Inn they strip out any impact from show up in the P&L or balance owner InterContinental Hotels acquisitions or the opening of sheet. And having a handle on (IHG) and Premier Inn owner new outlets or premises. the key KPIs for specific sectors Whitbread (WTB), revenue per can help you decipher updates available room (RevPAR) offers a STRONG FOUNDATIONS FOR from sector constituents. similar insight. HOUSEBUILDERS RevPAR assesses how well a UK house prices have recently GETTING BUMS ON SEATS hotel can fill its rooms, which come under pressure, and this Take the load factor, which is is calculated by multiplying the is starting to be reflected in the frequently referenced in financial average daily room rate by the average selling prices achieved statements from airlines EasyJet occupancy rate. by the listed contingent of (EZJ), Ryanair (RYA) and Jet2 Sales growth is vital to look at housebuilders. If house prices
40 | SHARES | 02 August 2018 EDUCATION continue to decline, these paid by customers in premiums businesses will have to drive and what’s being paid out to sales at higher volumes to customers in claims by the achieve growth. insurer. The sales rate reveals the A combined ratio of under number of homes sold per outlet 100% implies profitability, and every week and is regularly the lower the number the better reported by the likes of Taylor its underwriting operations are Wimpey (TW.) and Barratt performing. Developments (BDEV). This ratio can be found in Investors should also focus results from firms such as Admiral on forward sales, which reveal (ADM) and Direct Line (DLG). homes that have been ordered Another set of hard-to- but not yet bought by prospective understand companies are the owners, providing a measure of miners, references to terms like visibility on future sales. ‘ore grade’ can be confusing. An ore is a type of rock CHECKING BANKS READINESS Larger companies that contains minerals and FOR STORMY TIMES now have to identify metals which can be extracted. In the wake of the financial crisis The grade describes the there has been greater onus and measure financial concentration of metal and plays on banks to demonstrate their and non-financial an important role in determining ability to withstand adverse key performance the costs of extraction economic conditions. As a rule of thumb, high An emerging metric in the indicators in their quality mines generally boast wake of the crisis has been annual report higher production grades as the the common equity tier 1 precious metal can be extracted ratio (CET1). Expressed as a with relatively less effort, which percentage, this measures a RATIOS AND GRADES results in lower costs. bank’s core equity capital against DECIPHERED In contrast, lower metal grades its overall risk-weighted assets. The insurance sector can be are generally worse as it will take In other words it shows how tricky to unravel, but one of the miner more effort and money much money they have put the most important metrics to to extract the metal and could aside to cover their riskier assets. wrap your head around is the lead to increased operating costs. Current regulations require a combined ratio. This reveals For their counterparts in the CET1 of at least 8%. the difference in what’s being oil and gas sector, useful terms include: operating costs per barrel – which shows how much a company spends to produce each individual barrel of oil; the reserves replacement ratio – which measures the extent to which the company replaces reserves lost to production; and the level of proved and probable or 2P reserves – which are those reserves of oil and gas which geological analysis suggests are more likely than not to be recoverable. (LMJ)
02 August 2018 | SHARES | 41 INVESTMENT FACTS. WHO CAN YOU TRUST?
In uncertain times, when the economy is buffeted by change, it can be hard to know who to trust when investing.
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KEY Greene King (GNK) 40 • Main Market Gym Group (GYM) 20 KEY ANNOUNCEMENTS • AIM Hammerson (HMSO) 6 , 19 OVER THE NEXT SEVEN DAYS • Fund Hollywood Bowl (BOWL) 20 • Investment Trust Ibstock (IBST) 12 HALF YEAR RESULTS: • IPO coming soon Immotion (IMMO:AIM) 22 3 Aug: Cobham, Essentra, International InterContinental 40 Consolidated Airlines, Mondi, Royal Bank of Hotels (IHG) Scotland, William Hill. 6 Aug: HSBC, Synthomer, 4imprint (FOUR) 5 Investec Global 30 Ultra Electronics. 7 Aug: Domino’s Pizza, Hargreaves 7IM Moderately Adventurous 35 Franchise (B7VHRM9) (B2PB2K5) Lansdown, InterContinental Hotels, Intertek, Iomart (IOM:AIM) 7 Admiral (ADM) 41 Meggitt, Standard Life Aberdeen, Zotefoams. JD Sports Fashion (JD.) 20 Alliance Pharma (APH:AIM) 14 8 Aug: Glencore, Hill & Smith, PageGroup, Paddy Joules (JOUL:AIM) 20 Artemis Global Income 31 Power Betfair, Prudential, G4S. 9 Aug: Coca-Cola JP Morgan US Equity 5 Fund (B5N9956) HBC, Evraz, Ibstock, Legal & General. Income (B3FJQ59) Artemis High Income 35 Just Eat (JE.) 6 (BJT0KR0) TRADING UPDATES: McColl's Retail (MCLS) 7 Artemis US Select Acc 5 3 Aug: Pets at Home. 8 Aug: Bellway, UDG Healthcare. Fund (BMMV510) Merlin Entertainments 22 (MERL) ASOS (ASC:AIM) 16 Micro Focus (MCRO) 6 Barratt Developments 41 (BDEV) Mitchell & Butlers (MAB) 40 BP (BP.) 9 Morgan Stanley Global 30 BROKER RATINGS EXPLAINED: Brands (B45K057) Burford Capital (BUR:AIM) 16 We use traffic light symbols in the magazine to illustrate broker Next (NXT) 40 Cineworld (CINE) 20 views on stocks. Ocado (OCDO) 6 City of London (CTY) 26 Polar Capital Healthcare 31 Green means buy, Orange means hold, Red means sell. Cranswick (CWK) 14 Blue Chip (BPRBXV2) Croda (CRDA) 12 The numbers refer to how many different brokers have that rating. Reach (RCH) 7 CYBG (CYBG) 6 RIT Capital Partners (RCP) 26 Eg: 4 2 1 means four brokers have buy ratings, two Dart Group (DTG:AIM) 40 River & Mercantile Global 31 brokers have hold ratings and one broker has a sell rating. Debenhams (DEB) 19, 40 Recovery (B9428D3) The traffic light system gives an illustration of market views Diageo (DGE) 9, 18 Ryanair (RYA) 40 but isn’t always a fully comprehensive list of ratings as some Direct Line (DLG) 41 Sainsbury's (SBRY) 6, 20 banks/stockbrokers don’t publicly release this information. Dixons Carphone (DC.) 19 Scottish Mortgage 25, 31 EasyJet (EZJ) 40 Investment Trust (SMT) Escape Hunt (ESC:AIM) 21 Sky (SKY) 6 WHO WE ARE Everyman Media 20 Sports Direct 23 DEPUTY NEWS (EMAN:AIM) International (SPD) EDITOR: Daniel EDITOR: EDITOR: Ferguson (FERG) 5 Stewart & Wright (STE) 19 Coatsworth Tom Sieber Steven Frazer @SharesMagDan @SharesMagTom @SharesMagSteve Fevertree Drinks (FEVR:AIM) 10, 16 Taylor Wimpey (TW.) 41 Fidelity Global Special 31 Troy Global Income 31 FUNDS AND REPORTER: CONTRIBUTORS Fund (BD82KP33) INVESTMENT TRUSTS David Stevenson Holly Black Situations (B8HT715) EDITOR: @SharesMagDavid Kevin Doran James Crux TyraTech (TYR:AIM) 14 REPORTER: Tom Selby Fidelity Money Builder 35 @SharesMagJames Lisa-Marie Janes Hannah Smith Income (BBGBFM0) UKFast 7 @SharesMagLisaMJ Laura Suter Finsbury Growth & 9, 26 Victoria (VCP:AIM) 16 PRODUCTION Income (FGT) MANAGING DIRECTOR Virgin Money (VM.) 6 Mike Boydell Head of Design Designer FirstGroup (FGP) 9 Rebecca Bodi Darren Rapley Whitbread (WHB) 6, 20, ADVERTISING Forterra (FORT) 12 40 Senior Sales Executive Shares magazine is published weekly every Thursday (50 times per year) by Fundsmith Equity 30 Woodford Patient 27 Nick Frankland 020 7378 4592 AJ Bell Media Limited, 49 Southwark Bridge Road, (B41YBW7) Capital (WPCT) [email protected] London, SE1 9HH. Company Registration No: 3733852. XP Power (XPP) 11 Game Digital (GMD) 23 All Shares material is copyright. CONTACT US: [email protected] Reproduction in whole or part is not permitted without written permission from the editor.
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