Shares We Make Investing Easier

STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS

VOL 19 / ISSUE 19 / 18 MAY 2017 / £4.49 SHARES WE MAKE INVESTING EASIER

DO HIGH PROFIT MARGINS MAKE THEM INVINCIBLE?

CYBER SECURITY WHY GLOBAL STOCKS IN FUNDS DON’T HOT DEMAND ALWAYS LIVE AFTER UP TO THEIR RANSOMWARE NAME ATTACK EVE SLEEP IPO: IS THIS THE NEXT FEVERTREE?

FTSE 100 BREAKS 7,500 LEVEL FOR FIRST TIME EVER EDITOR’S VIEW Is this loss making firm really worth £140m? Think of Fevertree and Purplebricks when you look at new IPO, Eve Sleep

nvestors looking for the ‘next big platform to buy and sell a house. thing’ may want to take a closer look However, it certainly has a first mover I at Eve Sleep (EVE:AIM), which joins advantage in terms of disrupting the the stock market today (18 May). marketplace and having invested You may think its £140m market a substantial amount of money in valuation is completely unjustified for marketing to drive brand awareness. a loss making business. However, many Eve Sleep looks like a blend of investors were also quick to dismiss both these situations. A glance at Fevertree (FEVR:AIM) and Purplebricks various online reviews would suggest (PURP:AIM) when they joined the stock that customers like the quality of its market for having unrealistic growth products. It has also made quite an ambitions – and just look at them now. impression on the market in terms of Fevertree is up 1,139% since floating on the stock brand awareness, given the business is less than market in November 2014; and Purplebricks has three years old. risen by 253% since its IPO (initial public offering) in December 2015. I can see some similarities CASHED UP AND READY TO GO between these two stocks and Eve Sleep in terms The £35m raised alongside its IPO provides decent of growth potential. firepower to fund a greater level of marketing. The company claims the European market opportunity ALL ABOUT THE GROWTH for mattresses is worth £5bn. I’d imagine it would I thought Fevertree looked dull when it joined need to raise even more money next year to throw the stock market as a supplier of tonic water and at marketing in order to sustain momentum with ginger ale. Yet its sales have consistently grown growing brand awareness. since joining AIM and I’ve lost count for how Venture capital investor Octopus invested many times it has said that trading is ahead of three times in the business before it joined the market expectations. stock market. ‘We knew the team were unusually Purplebricks saw its share price struggle in its talented entrepreneurs who would dare to go big early days as a listed company as many people said and create change, and that’s exactly what they its shares were overvalued. What sceptics failed have done,’ says Luke Hakes, investment director at to recognise was the rapid growth potential in the Octopus Ventures. business – which has since become very clear. Eve Sleep saw revenue jump from £2.6m in 2015 Eve Sleep is an online retailer of mattresses, to £12m in 2016. Losses at the adjusted EBITDA pillows, sheets and duvets, offering a 100 day free (earnings before interest, tax, depreciation and trial and 10 year guarantee for mattresses. It is one amortisation) level moved from £1.5m to £11.3m of several online players in its market disrupting an in the same time period. industry populated for decades by retailers with Investors are being asked to pay nearly nine physical stores. times the most recent year’s sales, if you exclude Fevertree has thrived thanks to customers the new cash. That may not be too excessive if regarding its products as being high quality, 2017’s sales are significantly higher than 2016’s. thereby differentiating itself from the more Purplebricks was valued at approximately 12 times generic competition. forecast sales for the financial year when it floated, Purplebricks is not unique in offering an online excluding cash raised at IPO. (DC)

2 | SHARES | 18 May 2017 CONVICTION

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This advert is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a ﬁ nancial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Jupiter Asset Management Limited is authorised and regulated by the Financial Conduct Authority and its registered address is The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ. 13516-0417 Contents INTERACTIVE PAGES CLICK ON PAGES NUMBERS TO JUMP 18 May 2017 TO THE RELEVANT STORY

EDITOR’S VIEW 02 Is this loss making firm really worth 02 £140m?

BIG NEWS 06 Investors swarm over UK cyber stocks

BIG NEWS 07 Caus e for optimism on UK shares

BIG NEWS 08 Ima gination facing fight for independence

STORY IN NUMBERS GREAT IDEAS UPDATES 10 Pa ddy Power’s $19m 15 We update our view 06 bet, stake building on SDX Energy in Thomas Cook and more stories in GREAT IDEAS UPDATES numbers 16 Chrome price shock puts cloud GREAT IDEAS over Tharisa 12 Fishing Republic is a real catch WEEK AHEAD 20 Results, trading GREAT IDEAS updates and ex- 14 Now is the ideal dividends over the time to invest in coming week Wilmington

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 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 | 18 May 2017 Contents

MONEY MATTERS MAIN FEATURE 22 H ow to collect 28 Th e strongest dividends in shares 24 companies on the UK rather than cash stock market

MONEY MATTERS LARGER COMPANIES 24 N avigating the 34 Fir st mid-cap tech pensions ‘lifetime float for 19 months allowance’ SMALLER COMPANIES INVESTMENT TRUSTS 35 M ore to come from 26 W atch out for fund Warpaint after managers changing 80%+ rally their process SMALLER COMPANIES 36 Im pax Asset Management has 28 growing green appeal TALKING POINT 38 Wha t can retail investors learn from fund managers?

FUNDS 40 G lobal funds don’t always live up to their name

UNDER THE BONNET 43 Is BTG’s share price weakness an opportunity?

WHO WE ARE BROKER RATINGS EXPLAINED: EDITOR: DEPUTY NEWS Daniel EDITOR: EDITOR: We use traffic light symbols in the magazine to illustrate Coatsworth Tom Sieber Steven Frazer broker views on stocks. @SharesMagDan @SharesMagTom @SharesMagSteve FUNDS AND REPORTER: JUNIOR REPORTER: CONTRIBUTERS Green means buy, Orange means hold, Red means sell. INVESTMENT TRUSTS David Stevenson Lisa-Marie Janes Emily Perryman EDITOR: @SharesMagDavid @SharesMagLisaMJ Tom Selby James Crux Emma Lunn The numbers refer to how many different brokers have @SharesMagJames that rating.

PRODUCTION ADVERTISING MANAGING DIRECTOR Eg: 4 2 1 means four brokers have buy ratings, Head of Production Sales Executive Mike Boydell Michael Duncan Nick Frankland two brokers have hold ratings and one broker has a sell 020 7378 4592 rating. Designer [email protected] Rebecca Bodi The traffic light system gives an illustration of market views Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, but isn’t always a fully comprehensive list of ratings as some 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852. banks/stockbrokers don’t publicly release this information. All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.

18 May 2017 | SHARES | 5 BIG NEWS Investors swarm over UK cyber stocks Ransomware attack sparks surge in demand for specialist shares

rganisations across the world have What is the leading cause been thrown into disarray by a of ransomware infecons? ransomware hacking attack O Spam/phishing emails (46%) that has hobbled IT systems. That’s prompted investors to take another Lack of employee training (36%) look at firms which help defend Malicious websites/internet ads (12%) against cyber security breaches. Other (5%) Experts are calling it the biggest Lack of security (1%) ransomware attack so far, with more Source: Symantec, Dao than 200,000 computers believed to have been infected from Russia to Taiwan. The event shut down IT systems that manage parts of valuation at its IPO (initial public offering) on 14 the NHS, German railways, Nissan and scores of December 2016. other organisations across the globe. Distributed denial of service (DDoS) specialist The significant news resulted in investors flocking Corero Network Security (CNS:AIM) increased by to cyber-related stocks at the start of the week. nearly 13% to 8.75p on the same day. FTSE 250 networks and security services specialist DDoS attacks are similar to ransomware Sophos (SOPH) rallied nearly 8% to 367.1p when infections in that they are both forms of shutting stock market trading began on 15 May, adding down targeted websites and IT systems, normally nearly £120m to its market value. for cash, although not exclusively. We’ve consistently backed the business for Corero has developed its own SmartWall success since it joined the stock market in July 2015 platform which it sells to internet service providers at 225p per share, and it remains one of our top among others. pick in the security sector. Manchester-based IT security consultancy NCC RANSOMWARE EPIDEMIC (NCC) saw its share price rally by more than 3% to Ransom attacks can be highly lucrative business 142.25p on 15 May, while much larger gains were for online criminals. Financial gain is believed to be chalked-up by AIM cyber companies. the primary motive behind the majority of attacks Shares in consultancy and managed services on enterprise systems. These accounted for 41% minnow ECSC (ECSC:AIM) soared almost 26% of cyber-attacks in 2016, claims data from security to 497.5p. That pushed the company’s market firm Radware, up from 25% in 2015. capitalisation to nearly £45m, three-times its £15m Most attacks are instigated through spam and phishing emails, which encourage the unwary to click on links under false pretences, opening the cyber backdoor for criminals. ‘According to IDC, global spending related to cybersecurity services, software and hardware reached $74bn in 2016,’ says investment bank Societe Generale. ‘IDC expects spending to reach $100bn by 2020. That would represent an average annual growth rate of 8.3%, twice the expected growth in overall IT spending.’ (SF)

6 | SHARES | 18 May 2017 BIGBIG NEWSNEWS Cause for optimism on UK stocks A third of advisers think London shares will provide ‘best’ medium-term return

new report from pension, insurance and highest point despite ongoing scandals relating to investment firm Aegon UK shows a third the Trump administration. A of financial advisers believe UK shares will Interestingly Morgan Stanley’s analysis of the generate the ‘best return’ for clients on a three to reaction to better-than-expected first quarter five-year view. results globally shows ‘misses have generally been At the same time, data from investment bank punished more than beats have outperformed’ Morgan Stanley shows 64% of UK companies suggesting ‘a reasonable degree of earnings posted first quarter earnings ahead of consensus optimism is already in the price’. expectations, providing some support for this confidence in the prospects for UK plc. VICTIM OF THEIR OWN SUCCESS Aegon’s investment director Nick Dixon comments: RECORD HIGHS ‘Developed markets like the US have outpaced The UK stock market continues to perform strongly other equities in recent years and now appear with the FTSE 100 trading at a new record above to be a victim of their own success with financial 7,500 at the time of writing. The mid cap FTSE 250 advisers turning to alternatives that offer the index also hit its best ever level earlier in May. potential for better returns. Financial adviser opinion is somewhat split with ‘While advisers are pointing towards long-term some eyeing these all-time highs nervously; 16% of value in UK equities, the split in their opinions respondents in the Aegon research think UK stocks is reflective of continued uncertainty about the are the most overvalued asset class. longer-term impact of Brexit. Four months into Donald Trump’s turbulent ‘A rise in inflation and stunted wage growth presidency, UK financial advisers have also signal a warning for financial advisers and demand signalled a move away from US equities, which a higher margin of safety as the volatility of the have outperformed most other equity markets pound and political strain continue to pose a risk.’ since 2009. Dixon says Aegon itself favours the UK and Nearly two in five (38%) of financial advisers think Europe over the US but is taking a more cautious US equities are the most overvalued asset class. approach and has increased the weighting of cash The S&P 500 is a hair’s breadth away from its in its portfolios. (TS)

18 May 2017 | SHARES | 7 BIG NEWS Imagination facing fight for independence Looming IP battle with Apple may spark sale of graphics technology company

he long-term independent future of UK graphics chip designer Imagination Technologies (IMG) Tlooks increasingly in doubt. The Hertfordshire-based company is facing a potentially long and expensive battle with Apple, which has announced plans to cut intellectual property (IP) ties with Imagination. Imagination designs graphics processing units (GPU), called PowerVR, that run the slick visuals on iPhones and iPads, such as games and video. Apple plans to develop its own GPU chips in- house once the current licensing agreement with Imagination comes to end, potentially within 15 months to two years. That puts 45% of Imagination’s revenue and 60% of its profit at risk.

BIG CHALLENGE FOR APPLE Imagination implies it will be nearly impossible for on combined revenue of approximately £21m. In Apple to develop its own chips without infringing contrast, PowerVR generated a £13.5m operating on the UK company’s IP rights. profit on £43.3m of licensing and royalty revenue. Dispute resolution procedures under its existing Analysts think PowerVR will become loss making licence agreement have been triggered, but once Apple stops being a customer. analysts remain sceptical. Liberum’s Menon has cut his share price target ‘With Apple adopting strong arm tactics with for Imagination from 325p to 95p, which is just all those it has disputes on IP resolution, we do below the current 103.53p trading price. He offers not expect Imagination to arrive at an acceptable a bleak outlook even if some operations are sold conclusion through such mechanisms,’ says leaving just the PowerVR business. Liberum analyst Janardan Menon. ‘In the absence of significant cost cuts and Apple has fought IP battles with several chip assuming a high single digit revenue growth for the technology companies including Qualcomm, Nokia business, it will take another five to six years before and InterDigital. the business turns profitable in our estimation,’ says Menon. LOSS-MAKING FUTURE? Imagination plans to sell its MIPS and Ensigma TAKEOVER TARGET? operations to bolster its balance sheet and slash One leftfield possibility is that Imagination is costs. MIPS is Imagination’s central processing bought out by another chip technology business unit (CPU) business which is essentially a brain also in dispute with Apple in an attempt to that powers computers. Ensigma develops strengthen its own hand. connectivity technology designs for Internet of Imagination’s graphics IP is world class and Things (IoT) applications. valuable but there are too many unknowns to In the six months to 31 October 2016, MIPS guess at potential share price values, in our and Ensigma suffered £7.8m of operating losses opinion. (SF)

8 | SHARES | 18 May 2017 THIS IS AN ADVERTISING PROMOTION

Finsbury Growth & Income Trust

he outlook for the world’s economy and consequently for global and UK equities is T as promising as at any time since, say, the formal founding of the London Stock Exchange in 1801. The reasons to be cheerful arise from technology. Virtually every company we meet tells us that digital technology is NICK TRAIN changing their business and mostly for the better; either offering unprecedented cost savings, or, more important, new growth from enhanced products and services. It is equally significant that technology promises to bring about a marked reduction in the cost of energy, as fracking, solar and battery combine to undermine the old cartels. Look back through economic history – the big leaps forward for homo sapiens tend to be associated with new, (c25%) we are invested in a number of UK cheaper energy sources. technology companies or UK companies For Finsbury Growth & Income Trust we doing interesting things with technology. look to benefit from these benign trends Key examples are RELX, Sage, Daily Mail by investing across three broad themes. & General Trust and Fidessa. Finally, Our heaviest exposure (c50% of the total returning to the opening proposition that portfolio) is to the owners of great global Equity as an asset class is cheap, we are consumer brands – everything from Johnnie long term investors in several stock market Walker and Remy Martin through Magnum proxies (c25%), that should do well if we Ice Cream and Oreos to Burberry. We expect are correct to be optimistic Examples are people around the world to get richer and Hargreaves Lansdown, Schroders and that these brands to benefit – as they have done 200 year-old growth company, the London already over decade after decade. Next, Stock Exchange itself.

IMPORTANT INFORMATION

Finsbury Growth & Income Trust PLC (the “Company”) is a UK investment trust listed on the London Stock Exchange and is a member of the Association of Investment Companies. As this Company may implement a gearing policy investors should be aware that the share price movement may be more volatile than movements in the price of underlying investments. Past performance is not a guide to future performance. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. There can be no assurance that the Company’s investment objective will be achieved and investment results may vary substantially over time. This document is for information purposes only and does not constitute an offer or invitation to purchase shares in the Company and has not been prepared in connection with any such offer or invitation. Investment Trust share prices may not fully reflect underlying net asset values. There may be a difference between the prices at which you may purchase (“the offer price”) or sell (“the bid price”) a share on the stock market which is known as “bid-offer” or “dealing“spread. This is set by the market makers and varies from share to share. This spread typically averages 1-2% each way on the mid-market price (the price halfway between the bid and offer prices), and can fluctuate and at times be higher than average. Net Asset Value per share is calculated in accordance with the guidelines of the Association of Investment Companies. Net assets are stated inclusive of income received. Any opinions on individual stocks are those of the Company’s Portfolio Manager and no reliance should be given on any such views. Any research in this document has been procured and may have been acted upon by Lindsell Train Limited for its own purposes. The results are being made available to you only incidentally. The views expressed herein do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of Frostrow Capital LLP and no assurances are made as to their accuracy. This is issued by Frostrow Capital LLP which is authorised and regulated by the Financial Conduct Authority (“FCA”). Before investing in an investment trust referred to in this advertorial, you should satisfy yourself as to its suitability and the risks involved, and you may wish to consult a financial adviser. STORY IN NUMBERS

$19M £900M

HIGH STREET BANK RETURNS PADDY POWER’S FANTASY BET TO FULL PRIVATE OWNERSHIP UK TAXPAYERS CAN enjoy save the bank in 2009, once PADDY POWER BETFAIR a £900m windfall from the dividends are included. (PPB) has paid $19m initial Government’s bailout of Lloyds Chancellor Philip Hammond consideration for a daily Banking (LLOY). Chief executive has warned the 72% stake in fantasy sports business that Antonio Horta Osorio says fellow recipient of state funds isn’t forecast to break even for taxpayers got back this sum Royal Bank of Scotland (RBS) another two years. above the amount put in to could be sold at a loss. The acquisition is a business called DRAFT which offers something similar to fantasy football leagues, albeit focused on the major US sporting IMPROBABLE leagues across baseball, hockey, $502m UK ‘UNICORN’ American football and golf. DRAFT claims a broader segment of its customers are THIS IS THE amount of fresh growth funding secured by winners compared with some Cambridge-based virtual reality start-up, Improbable. The firm’s of its rivals where a large technology is typically used in gaming percentage of winnings go to just design but founders Herman Narula 1% of the players. and Rob Whitehead have much wider Paddy Power will boost applications in mind in future. The marketing spend on DRAFT to new cash comes from Japan’s help it maximise revenue growth Softbank, which is not taking a opportunities. controlling interest (more than 50%). This implies the rest of the business is worth more than $502m, qualifying Improbable as a UK ‘Unicorn’ – a start-up innovation business worth in excess of $1bn. Softbank was behind the £24.3bn takeover of former FTSE 100 UK chip design champion ARM in 2016.

10 | SHARES | 18 May 2017 STORY IN NUMBERS

3 YEARS BACK INTO THE BLACK 11% FOSUN TO PROMOTE MICROWAVE AND RADIO frequency kit GREECE AS AN HOT SPOT designer Filtronic (FTC:AIM) will report FOR CHINESE TOURISTS its first pre-tax profit after three years of red ink. The company, whose technology SHANGHAI-BASED INVESTMENT is used in mobile phone masts and base company Fosun has increased stations, has enjoyed a spell of strong its stake in travel agent Thomas trading that means it is likely to beat Cook (TCG) to 11%. market expectations for £1m pre-tax Two years ago, the group profit. Analysts at Panmure Gordon have backed by billionaire Guo now upped their estimate to £1.4m for the Guangchang took a 5% stake in year to 31 May 2017. The company ran up the company for £91.8m. nearly £15.5m of pre-tax losses during According to media reports, 2014 to 2016, when the share Fosun wants to use its stake in price collapsed from more than Thomas Cook to start building 60p to about 5p. It now trades vacation packages to boost at 13.41p. the number of Chinese tourists jetting off to Greece 10-fold.

HIGHEST PROSPECTIVE DIVIDEND HIGHEST PROSPECTIVE DIVIDEND YIELDS: FTSE 350 STOCKS YIELDS: AIM STOCKS Carillion 9.1% NAHL 11.3% Rio Tinto 7.8% Cenkos Securities 10.4% Lancashire 7.7% Elegant Hotels 8.2% Card Factory 7.7% Central Asia Metals 7.6% Petrofac 7.5% Gattaca 7.6% Galliford Try 7.2% Belvoir Lettings 6.9% Taylor Wimpey 7.0% Personal Group 6.7% Debenhams 6.8% M Winkworth 6.4% Redefine 6.8% Polar Capital 6.1% BP 6.7% Redde 6.1% Source: Sharepad. Data as of 15 May 2017 Source: Sharepad. Data as of 15 May 2017

18 May 2017 | SHARES | 11 GREAT IDEAS Fishing Republic is a real catch The specialist retailer has first mover advantage in a fragmented industry

he potential to enjoy sales up 41% to £5.8m, reflecting profitable growth from FISHING REPUBLIC organic growth and continued T a fragmented industry  BUY store expansion. means fishing tackle retailer (FISH:AIM) 39p Encouragingly, like-for-like Fishing Republic (FISH:AIM) is a Stop loss: 23p store sales were up 16%. tiddler worth netting at 42p. Increased marketing and New store openings, healthy Market value: £14.8m an improved range boosted like-for-like growth metrics and performance and the full rising online sales are reasons the fishing tackle marketplace is benefits of new stores added in to hook the £14.8m cap, whose both large and highly fragmented 2016 will come through this year. main fishing season is off to a with over 2,000 mainly owner- Fishing Republic’s online good start. operated specialists operating in strategy is also going Steered by founder and chief the space. swimmingly; it is successfully executive Steve Gross, Fishing Smaller retailers lack the bank transitioning from sales via Republic is one of the UK’s largest financing and stock range of third-party platforms to higher fishing retailers by floor space. larger, ambitious players such as margin own website sales. Selling leading brands as well as Fishing Republic. These grew 132% to £662,000 own-brand clothing and tackle, A £3.75m placing last summer to account for 40% of total typically from out-of-town outlets, is helping to fund the expansion online sales, up from just 16% in Fishing Republic’s extensive of the store network and the previous year. product range is a key competitive the development of Fishing Finishing 2016 with £2.1m advantage. Its ‘destination’ stores Republic’s digital strategy. net cash in the coffers, Fishing are able to draw customers from Republic doesn’t pay a dividend a wide radius. GOING SWIMMINGLY currently, as surplus cash is being Results (24 Apr) for the year to reinvested to increase the scale HOOK A WINNER December 2016 revealed 32% of the business. Angling is the UK’s sixth largest growth in profit before tax and House broker Northland monthly participation sport and exceptional items to £403,000 on Capital forecasts adjusted pre-tax profit of £500,000 on £8.6m sales for the current financial year. (JC)

BROKER SAYS: 001

FISHING REPUBLIC FTSE ALL SHARE 48 46 44 42 40 38 36 34 32 30 Rebased to ﬁrst 28 Source: Thomson Reuters Datastream 2016 2017

12 | SHARES | 18 May 2017 We strive to discover more.

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Issued by Aberdeen Asset Managers Limited, 10 Queen’s Terrace, Aberdeen AB10 1YG, which is authorised and regulated by the Financial Conduct Authority in the UK. Telephone calls may be recorded. aberdeen-asset.co.uk Please quote A SM 01 GREAT IDEAS Now is the ideal time to invest in Wilmington We argue that professional training and information specialist is undervalued

e see an attractive RESTRUCTURING STRATEGY value opportunity WILMINGTON We think its beefed-up ‘Sixth Wat professional  BUY Gear’ programme of focusing information specialist (WIL) 252.02p on three key markets – risk and Wilmington (WIL). Admittedly Stop loss: 200p compliance, professional and investors may have to be patient; healthcare – and abandoning its although a 3.3% prospective Market value: £220m underperforming legal business dividend is a sweetener while makes sense and could help get you wait. the share price moving. Based on forecasts from N+1 The company plans to Singer, Wilmington trades on dispose of its Ark division, which a June 2017 price-to-earnings provides legal support services, ratio of 12.9 times but this falls and a formal sale process has to 10.9 times for the year to commenced. June 2018 as the benefits of its The aforementioned purchase recent £19m acquisition of the of Health Service Journal, the Health Service Journal start to UK’s leading health information, be realised. insight and networking business, The rating looks too cheap from Ascential (ASCL) at the for a company with consistent start of 2017 is expected to be profit growth. Indeed, N+1 Singer election of Donald Trump. earnings enhancing in its first analyst Johnathan Barrett implies full year. now is the ideal time to buy the REGULATORY DRIVEN A rise in net debt as a result shares for the first time or top up BUSINESS of this acquisition will be an existing holding. The company provides training partly mitigated by the £7m Furthermore, we also note and information services to disposal of the leasehold on its the stock has proved to be very highly regulated professions previous head office in London resilient in the face of many like law, finance, insurance and (announced 4 May) and a move market headwinds. For example, pharmaceuticals. into a new site to be used by all its shares didn’t collapse last year In the first half of its June of Wilmington’s businesses in like many others amid Chinese 2017 financial year, 78% of its the capital. (TS) debt concerns, Brexit or the revenue came from subscription BROKER SAYS: 005 WILMINGTON’S PRE-TAX PROFIT and repeatable information PROGRESSION sales which helps support 30 WILMINGTON £26.3m earnings visibility. FTSE ALL SHARE 25 £22.4m 300 £20.9m Under chief executive Pedro 20 £18.4m 250 £16.6m Ros, appointed in late 2014, the 15 company has been pursuing a 200 10 more integrated strategy with 150

5 growing digital and international 100

Source: N+1 Singer. E=estimate Rebased to ﬁrst

exposure (43% of sales are now Source: Thomson Reuters Datastream 0 50 2014 2015 2016 2017e 2018e derived overseas). 2012 2013 2014 2015 2016

14 | SHARES | 18 May 2017 GREAT IDEAS UPDATES

previously anticipated the work would have to wait SDX ENERGY until after the conclusion of the religious festival. The outcome from this testing could act as (SDX:AIM) 60p a catalyst for the shares after they fell on news (5 May) that the SD-1X well, while uncovering Gain to date: 56.9% a shallower gas find, did not uncover oil in Original entry point: commercial quantities in deeper intervals. 38.23p, 2 February 2017 Welch says the existence of a working petroleum system in these same intervals means A NEGATIVE REACTION to the latest results from oil could be produced from elsewhere in the drilling on SDX Energy’s (SDX:AIM) South Disouq concession. A working petroleum system means concession in Egypt’s Nile Delta is eating into the all the geological elements required to produce gains on our trade but we remain bullish. hydrocarbons are present. Chief executive Paul Welch told an audience at The company plans further drilling to prove a Shares investor evening in Edinburgh on 15 May up the oil potential in the field and has already

SDX ENERGY (LON) that testing of FTSE ALL SHARE scheduled a seven-well programme in Morocco in the gas discovery 70 Rebased to ﬁrst the remainder of 2017. at South Disouq 60 will now be 50 SHARES SAYS:  completed 40 Recent weakness is an opportunity to top up. (TS) before Ramadan 30 begins on 26 20 BROKER SAYS: 001

10 Source: Thomson Reuters Datastream May, having 2016 2017

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Seeking the best value in smaller companies

ff Long-term growth: targets 15% p.a. compound growth over a 3 - 7 year investment period (please note this is a target only and is not guaranteed). ff Focused portfolio: aims to invest in12 - 18 UK micro-cap companies. ff Strategic investments: aims to take influential positions of 3% - 25% in each underlying business to help drive shareholder value. ff Experience: drawing on Downing’s 30 years of experience, we employ a private equity style investment approach and an extensive due diligence process. Find out more www.downing.co.uk/strategic 0207 416 7780

This advertisement is a financial promotion approved under the Financial Services and Markets Act 2000 by Downing LLP, which is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). You should note that your capital is at risk with this investment. Past performance should not be seen as an indication of future performance. The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested. The price of shares in the Company is determined by market supply and demand and may be different to the net asset value of the Company. Investments in the Company are also subject to risks associated with investments in the UK property market. Please refer to the Prospectus for full details of the Offer, risks and charges. Registered office: Downing LLP, Ergon House, Horseferry Road, London, SW1P 2AL. GREAT IDEAS UPDATES

SEEING MACHINES THARISA (SEE:AIM) 4.38p (THS) 110p

Gain to date: 21% Gain to date: 42% Original entry point: Original entry point: Buy at 3.62p, 21 July 2016 Buy at 77.5p, 29 September 2016 BOARD ROOM changes at Seeing Machines MINER THARISA (THS) tells Shares its full year (SEE:AIM) hint at the increasing opportunities earnings and cash flow expectations may have to for the company. be downgraded if the chrome price doesn’t recover Mike McAuliffe has been appointed the new from its recent sell-off. We view the commodity chief executive officer of the driver monitoring market correction as a short-term issue and not a system technology specialist. reason to dump shares in Tharisa. He had been running the company’s automotive The chrome price has been affected by a credit business Fovio since September 2016 and was squeeze in China where authorities are trying instrumental in developing Seeing Machines’ to stop banks from lending too much money. strategy in this area. That’s hurt commodities demand – hopefully A major car manufacturer has already signed up only temporarily. to install Seeing Machines’ platform in some luxury Tharisa remains positive and says it will focus on cars due for launch this year. improving operational efficiency, feed grades and Former boss Ken Kroeger moves to an executive metal recovery rates. ‘Chrome has gone from highs chairman role. That suggests he will remain hands- of $390 per tonne late last year to the mid $100s on with driving the development of new market level at the moment,’ says chief executive Phoevos opportunities, perhaps where his industry insight Pouroulis. ‘Those levels aren’t sustainable.’ and expertise is best put to work. These include He adds: ‘The chrome market is always very fleet trucks, rail, planes and more. volatile. We

THARISA (LON)

SEEING MACHINES This is a FTSE ALL SHARE can withstand FTSE ALL SHARE 180 Rebased to ﬁrst 6.00 Rebased to ﬁrst company 160 the cyclicality in 5.50 potentially on 140 prices thanks to 5.00 the cusp of 120 being a very low 100 4.50 transformation cost operator.’ 4.00 80 60 3.50 in terms of mass Broker Peel 40 3.00 market adoption 20 Source: Thomson Reuters Datastream Hunt assumed

2.50 Source: Thomson Reuters Datastream JUL SEP NOV JANMAR APR 2016 2017 of its technology. chrome prices would fall this year to $170 per tonne. Its forecasts for Tharisa’s SHARES SAYS:  financial year ending September 2018 only use a FinnCap believes the shares could go as high as 12p, $188 per tonne chrome price – not the $300+ level implying more than 170% upside from the current at which the metal recently traded. level. We remain positive on the investment case. (SF) SHARES SAYS:  Take advantage of recent share price weakness (down 23% since early May) and buy more at 110p. Peel Hunt has a 205p price target. (DC)

BROKER SAYS: 002

16 | SHARES | 18 May 2017 Stocks and shares ISA

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The value of investments can go down as well as up and you may get back less than you originally invested. We don’t offer advice about the suitability of our products or any investments held within them, if you require financial advice you should consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change.

Why Miton Global Seeking to exploit opportunities in Opportunities the investment Trust is unique trust sector

n order to generate returns, we believe investors will increasingly need to look for I alternative investments, away from funds, which invest in company shares and bonds1. One such area is the investment trust sector, where there are an increasing number of investment opportunities following a series of significant structural changes. The massive infrastructure expenditure mooted during Trump’s election campaign has the potential to place the government bond market under severe stress. We believe the high valuations on which global company shares, otherwise known as equity markets, currently trade is a direct result of the very low alternative returns available from large proportion of the investment trust bond securities. Should bond yields 2 sector has become effectively off limits continue to rise, stockmarkets could be to such firms as they are unable to cope undermined. Moving on from a period of with the huge capacity and liquidity levels unconventional monetary policy would required by these new mega-chains be healthy in the long term, however, whose assets under management number stockmarkets are likely to undergo a in the billions. period of turmoil whilst investors adapt to the new reality. Under such a scenario This dynamic has in effect served to investors would be able to obtain ‘orphan’ hundreds of investment trusts, measurable income from conventional many of whom are now under-researched sources. They would be less inclined to and increasingly illiquid as demand has own “Income manufacturing“ trusts which naturally slowed, despite there being no invest in aircraft leasing or infrastructure critical issue with the trusts, assets or funds. The damage to the share prices their overall strategies. Without demand, would come from a change in demand the share prices of these investment patterns rather than from significant trusts have slowly drifted lower than the damage at a portfolio level. value of their underlying assets creating a significant opportunity for the diligent Since 2000, those investment companies and specialist investor to buy. that traditionally bought investment trusts have undergone a process of Miton Global Opportunities Trust plc consolidation. Consequently, many (MIGO) is, we believe, a unique investment companies have merged to form vast proposition that specifically seeks to wealth management chains. The impact exploit opportunities in this part of the of this consolidation has meant that a investment trust sector. MIGO’s patient ADVERTORIAL

investment approach allows it to extract In summary, we are focused on extracting the embedded value in those investment DEFINITIONS embedded value, which already exists, trusts that are trading at a lower price not trying to generate returns from trying to the value of the underlying assets in 1Bond - A loan to second guess unpredictable future order to realise gains over the medium in the form of a share price or market movements. As to long term. The key driver is the fact security, either MIGO is on a discount to its underlying that in the current climate, investors are issued by a UK or assets combined with the discounts being paid royally for accepting liquidity overseas government that exist within the Trust we believe 3 (government bonds) or risk . The fact that we enjoy closed ended company (corporate there is good scope for this latent protection (investment trusts have a fixed bonds), which pays a value to be realised. We are excited by number of shares) is crucial in allowing fixed rate of interest the opportunities and believe MIGO’s us to fish away from the crowds. It allows over a given time research-led approach has the ability us to take patient decisions knowing that period, at the end to make gains over the long-term, in a of which the initial there is no risk of having to meet short amount borrowed significant but under exploited segment term redemption requests. is repaid. of the UK market.

To provide an idea of the scale of MIGO’s In addition to the natural defensive buffer investment universe, there are currently 2Bond yield -The created by owning deeply discounted over 400 investment trusts listed on the interest received assets, owning shares in MIGO offers London Stock Exchange with an aggregate from a fixed income useful diversification given some of the value of over £100 billion. Over 280 security and is usually current themes. Specific opportunities of these investment trusts are currently expressed annually in the Indian stockmarket, residential as a percentage based less than £250 million in size, and offer on the investment’s property in Berlin and Forestry all feature exposure to a broad range of alternative cost, its current prominently in the portfolio. asset classes from the likes of property to market value or its natural resources. MIGO is therefore able face value. The value of investments may fluctuate to offer significant diversification across which will cause fund prices to fall as this pool of potential opportunities. well as rise and investors may not get 3Liquidy risk - The back the original amount invested. We expect the continued consolidation risk stemming from Miton does not give investment advice, of the wider investment community to the lack of if you are unsure of the suitability of precipitate further structural change for marketability of this investment you should speak to an investment that investment trusts under £250 million in cannot be bought a financial adviser. Investment Trust size. Furthermore, there appears to be or sold quickly Companies such as MIGO and those in no let-up in the growth of alternative enough to prevent which it invests may borrow money, asset classes creating future or minimize a loss. which can then be used to make further opportunities, many with an income investments (gearing). In a rising market, bias. This development should lead to this ‘gearing’ can enhance returns to an increasing supply of future shareholders. However, if the market opportunities going forward. falls, losses will be multiplied.

IMPORTANT INFORMATION

The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Miton and do not constitute investment advice. Miton has used all reasonable efforts to ensure the accuracy of the information contained in the communication, however some information and statistical data has been obtained from external sources. Whilst Miton believes these sources to be reliable, Miton cannot guarantee the reliability, completeness or accuracy of the content or provide a warrantee. Investors should read the Trust’s product documentation before investing including, the latest Annual Report and Accounts and the Alternative Investment Fund Managers Directive (AIFMD) Disclosure Document as they contain important information regarding the trust, including charges, tax and specific risk warnings and will form the basis of any investment. This financial promotion is issued by Miton, a trading name of Miton Trust Managers Limited. Miton Trust Managers Limited is authorised and regulated by the Financial Conduct Authority and is registered in England No. 220241 with its registered office at 6th Floor, Paternoster House, 65 St Paul’s Churchyard, London, EC4M 8AB. MFP 17/182. WEEK AHEAD

FRIDAY 19 MAY INTERIMS FUTURE FUTR GRAINGER GRI TRADING STATEMENTS HIKMA HIK MONDAY 22 MAY FINALS AVEVA BABCOCK INTERNATIONAL VOLVERE VLE It’s been a volatile past three The firm took a hit in March TRADING STATEMENTS years for computer-aided design after having its Magnox nuclear INTERTEK ITRK and manufacturing software power station decommissioning THE RESTAURANT GROUP RTN specialist AVEVA (AVV). End contract cancelled. But the drop SPECTRIS SXS markets (oil, marine, nuclear, for in revenue won’t come until example) have been stretched 2020/21 as the contact ends in TUESDAY 23 MAY which has clamped down on big August 2019. FINALS capital investment projects that Babcock’s share price has ASSURA AGR pay-off for the company. That been under pressure since the AVEVA AVV worm might be turning although final quarter of last year and BIG YELLOW BYG we’d anticipate most of any investors will be hoping for some CRANSWICK CWK top line growth will be currency good news from this support ELECTROCOMPONENTS ECM stimulated. Look out for better services behemoth. When it HIBERNIA REIT HBRN cash generation than expected reports full year results on 24 HOMESERVE HSV and positive rhetoric from CEO May. SHAFTESBURY SHB James Kidd, in his first official SEVERN TRENT SVT results (23 May) since taking the BRITISH & AMERICAN INTERIMS top job from highly-rated Richard INVESTMENT TRUST BAF 5.7P GREENCORE GROUP GNC Longdon. BUNZL BNZL 29P THE PARAGON GROUP BURFORD CAPITAL BUR $0.06 OF COMPANIES PAG UNITED UTILITIES UU. CARNIVAL CCL $0.4 RENEW RNWH WIZZ AIR WIZZ CINEWORLD CINE 13.8P TOPPS TILES TPT INTERIMS CAPITA CPI 20.6P UDG HEALTHCARE UDG DAILY MAIL AND GENERAL TRUST DMGT DOWNING THREE VCT DP3H 2.5P WEDNESDAY 24 MAY URBAN & CIVIC UANC EXOVA EXO 2.35P FINALS TRADING STATEMENTS FDM FDM 10.3P BABCOCK INTERNATIONAL BAB CARD FACTORY CARD GATTACA GATC 6P GREAT PORTLAND ESTATES GPOR INCHCAPE INCH GYM GROUP GYM 0.75P HOGG ROBINSON HRG EX-DIVIDEND HILL & SMITH HILS 17.9P LOMBARD RISK MANAGEMENT LRM ACTION HOTELS AHCG 1.5P HUNTSWORTH HNT 1.25P MEDICLINIC INTERNATIONAL MDC ADVANCED MEDICAL IRISH CONTINENTAL MARKS & SPENCER MKS SOLUTIONS AMS 0.62P GROUP ICGC €0.08 PENNON PNN AVINGTRANS AVG 1.2P IFG IFP 3.35P SCHRODER REAL ESTATE IT SREI INGENTA ING 1P VEDANTA RESOURCES VED MANX TELECOM MANX 7.2P INTERIMS MINCON MCON €0.01 BRITVIC BVIC MIDWICH MIDW 7.09P TRADING STATEMENTS JOHN MENZIES MNZS 13.1P DIXONS CARPHONE DC. WM MORRISON KINGFISHER KGF SUPERMARKETS MRW 3.85P SOCO INTERNATIONAL SIA 5P THURSDAY 25 MAY SPECTRIS SXS 34P FINALS DAILY MAIL & GENERAL TRUST Look for an update on the spring TOWN CENTRE CALEDONIA INVESTMENTS CLDN SECURITIES TOWN 3.25P HALFORDS HFD launch of a new of its RMS (one) risk management platform when TARSUS TRS 6.4P HELICAL BAR HLCL VENTURE LIFE GROUP VLG 0.04P INTERMEDIATE CAPITAL ICP Daily Mail & General Trust (DMGT) reports its first half results on WORLDPAY WPG 1.35P MITIE MTO WHITBREAD WTB 65.9P PAYPOINT PAY 25 May. Other areas of focus are likely to include the direction of XAAR XAR 6.7P PETS AT HOME PETS Click here for complete diary TATE & LYLE TATE advertising revenue.

20 | SHARES | 18 May 2017 authorised andregulated bytheFinancialConductAuthoritytoprovide investmentproductsandservices.Telephone callsmayberecordedandmonitored. Gartmore Investment Limited (reg. no. 1508030), (eachPartners incorporated and registered in England and Wales Limited (reg. no.2606646), with registered office at 201 Bishopsgate, London EC2M 3AE) are Henderson InvestmentFunds Limited (reg. no.2678531), HendersonInvestmentManagement Limited(reg.no.1795354), HendersonAlternativeInvestmentAdvisor Limited(reg.no.962757), HendersonEquity Henderson Fund by Henderson Global Investors. Henderson Global Investors is the name under which Management Limited (reg. no. 2607112), Henderson Global Investors Limited (reg. no. 906355), Issued in the UK marketplace It’s aglobal

ARE YOU A GLOBAL INVESTOR? amount originallyinvested. fluctuations, andyoumaynotgetback the well asrisearesultofmarketandcurrency investment andtheincomefromitcanfallas a guidetofutureperformance.The valueofan Please rememberthatpastperformanceisnot meet yourinvestmentneeds. Investors hasarangeofsolutionswhich aimsto growth oramixtureofboth,HendersonGlobal If yourpriorityishighincome,longtermcapital experts. strategies professionallymanagedbyregional offer awiderangeofinvestmentobjectivesand investment approach, ourmanagedcompanies of dynamicglobalmarketsorwantacautious advantage for yourchildren, lookingtotake Whether youareretirementplanning,investing Henderson hasaglobalviewofthemarket. investment trustsandcompanies, rangeofmanaged diverse andestablished innovation anddevelopment.Now, witha has beenattheforefrontofinvestmenttrust years,HendersonGlobalInvestors For over80 managed byHenderson investment trusts,expertly Take aglobalviewof 5656 856 0800 www.hendersoninvestmenttrusts.com For moreinformationvisit by Henderson Investment Trusts, managed Find usonFacebook @HGiTrusts

H 021717/0316ad MONEY MATTERS Helping you with personal finance issues How to collect dividends in shares rather than cash We explain the difference between Scrip and Drip dividend schemes

crip dividend schemes offer shareholders the S option to increase their investment in a company by receiving dividends in new shares rather than cash. They are different to Drip schemes and dividend reinvestment services offered by your stockbroker, as we now explain. Scrip distributions are generally acknowledged in the form of fractions paid per existing share. For example, a company might issue a scrip dividend of 0.05 shares for each single share held by existing investors. ‘Scrip schemes THREE provide WAYS TO REINVEST shareholders with DIVIDENDS an opportunity to increase their • USE A SCRIP SCHEME understanding running scrip dividend schemes shareholding • USE A DRIP SCHEME how a Scrip include banks Barclays (BARC) over time at no scheme works, and HSBC (HSBA), construction • USE A STOCKBROKER’S cost,’ explains REINVESTMENT even if you cannot group Costain (COST) and retailer Kevin Firth, SCHEME participate in Debenhams (DEB). managing director at one. That’s because Scrip schemes are often Computershare Investor the dividend payment offered by companies to avoid Services. method dilutes all shareholders paying out too much of their ‘There is no stamp duty for in a particular stock. cash as they might have other the shareholder to pay, and An increased number of needs for that money. no commission cost to the shares in issue will reduce an ‘Companies using Scrip shareholder for acquiring the existing investor’s proportional schemes can retain cash, as shares, making such schemes ownership in that company. there is no need for them to very popular with shareholders pay money to shareholders who with particularly small holdings.’ WHICH COMPANIES OFFER decide to take their dividend in Many stockbrokers or SCRIP SCHEMES? shares,’ says Firth. investment platform providers BP (BP.) is one of the biggest do not support this method companies currently offering a IS THERE A TAX ADVANTAGE of dividend payment for Scrip dividend programme. WITH SCRIP DIVIDENDS? their customers. It is worth Other FTSE 350 companies Although Scrip dividend

22 | SHARES | 18 May 2017 MONEY MATTERS schemes offer a cost saving when it comes to acquiring new shares, there are no particular tax advantages to signing up to a scrip dividend scheme. Scrip dividends are treated as taxable income in exactly the same way as if the dividend was paid as cash. Dividend income received by individual shareholders is taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for those who fall into the additional rate band. A £5,000 tax free dividend allowance was introduced in April 2016. This allowance was meant to reduce to £2,000 at Cruise ship operator Carnival offers a Drip dividend scheme the start of the 2018/19 tax year but the Government has put that company’s Scrip scheme. Evans, head of middle office at amendment on hold as part of financial services firm Killik & Co. wider delays to its Finance Bill. WHAT IS A DRIP SCHEME? ‘A Drip uses the cash dividend Many companies on the received on the pay-date and HOW ARE SCRIP SHARES stock market have withdrawn purchases the new shares at ADDED TO MY INVESTMENT their Scrip dividend schemes the prevailing share price on ACCOUNT? and instead set up dividend that day.’ Investors can either hold shares reinvestment plans (Drip There is a broader range of directly with a company which schemes) to facilitate companies on the stock market offers a Scrip dividend scheme shareholders wanting to reinvest offering Drip versus Scrip or they have the option to put their dividends. dividends. For example, cruise their Scrip dividends into ISAs The operator of the Drip ship operator Carnival (CCL) and or pensions. (typically the company’s registrar) media giant Sky (SKY) offer Drip ‘How this is done will depend pools the cash dividends payable dividends, according to share on how the shares are held – to shareholders who have chosen registrar Equiniti. directly, or through a broker or to use the plan, purchases shares custodian or wealth manager,’ in the market and allocates them WHAT ABOUT STOCKBROKER says Michael Kempe, chief to the shareholders. REINVESTMENT SCHEMES? operating officer, shareholder There is typically a charge of In some cases, investors will want solutions at Capita Asset 0.5% to 1% of the value of the to reinvest dividends for stocks Services. ‘If you hold the share shares bought. To participate where the company doesn’t run directly you’ll need to put them in the scheme your name a Scrip or Drip Scheme. in your ISA yourself.’ must appear on the company’s This can be done by using While many shareholders own share register. a stockbroker which runs a shares directly, others will do ‘The difference between a dividend reinvestment scheme, so via their broker’s nominee Scrip dividend scheme and Drip such as AJ Bell Youinvest. It offers account. It depends on the is that a Scrip dividend reinvests customers the ability to use broker, but investors who hold the dividend at a fixed rate, dividend cash to automatically shares in a nominee account determined in advance of the buy more shares from only £1.50 should be able to participate in a dividend pay-date,’ says Neil per transaction. (EL)

18 May 2017 | SHARES | 23 MONEY MATTERS Helping you with personal finance issues Navigating the pensions ‘lifetime allowance’ A simple and easy-to-understand guide to tax rules for people in retirement

nvestors attempting to pick the excess above £1m. If you include buying an annuity (a their way through the mire take it as a lump sum before age guaranteed income for life), I of pension tax rules could be 75, a 55% charge will be applied taking a tax-free lump sum or forgiven for losing the will to live. to the excess. If you leave it keeping your money invested However, if you’ve saved in the scheme to take it as an and choosing drawdown. diligently and have a retirement income later, an immediate 25% For example, if someone buys pot approaching £1 million, it’s charge will be levied. an annuity worth £300,000, they vital you know how the system If you choose the latter option, have used up 30% of their £1m works so you can shelter as much don’t forget that when you lifetime allowance. of your hard-earned pension as take money out of the scheme possible from the taxman. later you’ll also pay tax at your WHAT IF I HAVE A DEFINED marginal rate of income tax BENEFIT PENSION? WHAT IS THE LIFETIME meaning the two options are The lifetime allowance still ALLOWANCE? likely to lead to broadly the same applies if you have a defined The lifetime allowance dictates tax being paid. benefit or ‘final salary’ pension, how much you can withdraw although this involves a different from your pension in a tax- HOW DOES IT WORK? calculation. incentivised environment. It’s important to note that a When the pension is put into Currently, the lifetime allowance pension which becomes worth payment, you multiply your is set at £1m – although as more than £1m won’t instantly annual entitlement by 20 and I’ll explain later there are be subject to a lifetime allowance add that figure to any tax-free ‘protections’ which may charge. It is only when a benefit cash you get in order to calculate allow you to lock in to a crystallisation event (horrible what you’ve used up. higher allowance. jargon, sorry) occurs that your If you breach your lifetime pension scheme ‘tests’ whether CAN I HAVE A HIGHER allowance, the charge you pay or not you need to pay a charge. LIFETIME ALLOWANCE? depends on how you withdraw Benefit crystallisation events You may already be lucky enough

24 | SHARES | 18 May 2017 MONEY MATTERS to have one of the various The 2016 version of individual protections that have been protection is available to you if available from HMRC since 2006. the value of your pensions at 5 If not, it is possible to lock April 2016 was more than £1m. in a higher lifetime allowance Your allowance is protected at of up to £1.25m by applying that respective amount. You can for one or both of the forms continue contributing to your of protection introduced in pension without worrying about 2016 – ‘fixed’ protection and losing this protection. ‘individual’ protection. If your total pension savings CONSIDER TAKING are worth more than £1m, or FINANCIAL ADVICE you think they might grow to As you’ve probably worked out more than £1m, you should now, the lifetime allowance consider checking if you’re regime is hideously complicated. eligible to apply. Unfortunately I can’t cover all the vagaries in this article, but if HOW DO THEY WORK? you think you might be affected Fixed protection allows you it could be worth speaking to to keep a £1.25m allowance pensions already worth more a financial adviser to help you provided you have no other than £1m but the catch is navigate the quagmire. protections, other than the 2014 you can’t make any more version of individual protection. contributions into your pension – TOM SELBY You don’t need to have if you do, you lose the protection. Senior analyst, AJ Bell

CASE STUDY: JOHN’S take all of his tax free cash and his individual protection. PENSION IS VALUED AT leave the rest in his fund. At this John decides to maximise MORE THAN THE CURRENT point the lifetime allowance his pension contributions LIFETIME ALLOWANCE is £1,050,625 (assuming CPI and pays in £160,000 gross inflation increases of 2.5%). using his £40,000 annual allowance and each of SCENARIO 1: John’s fund the previous three years’ has grown and is now valued unused annual allowances – at £1.3m. John uses his fixed previously he could not make protection of £1.25m and has contributions and keep his an excess of £50,000. fixed protection. His fixed He decides to leave this in the protection is now revoked. fund and pays an excess charge John now uses his individual of 25% or £12,500. protection of £1.2m to access AT 5 APRIL 2016 John had If John had not had the his full fund of £1.16m with no £550,000 in his SIPP and protection then the excess excess tax charge. £650,000 in his employer’s would have been £300,000 and If John had not had pension scheme, £1.2m in total. the tax charge £75,000. individual protection he He decided to apply for fixed would only have been able to and individual protection 2016. SCENARIO 2: John’s fund has contribute £50,625 to bring his In 2020, when John is 60, he fallen to a value of £1m which is fund value up to the standard decides to go into drawdown, below the £1.2m allowance for lifetime allowance.

18 May 2017 | SHARES | 25 INVESTMENT TRUSTS Watch out for managers changing their process Numerous investment trusts and funds are amending their strategy and the types of assets they can hold

SHAREHOLDERS n increasing number of wants to lift ARE ALWAYS ASKED Trust (PCGH) will also funds and investment the maximum be asked in June trusts are making investment TO VOTE ON to vote on a fairly A PROPOSED MAJOR amendments to how they invest in unquoted significant change to or operate. Investors should companies to 80% CHANGES TO HOW how its fund is run. therefore keep a close eye on of the fund from A FUND IS RUN This investment products in their ISA or SIPP 60%; remove a 30% collective was launched (self-invested personal pension) maximum limit on non- in 2000 with the intention as there is a chance your funds UK investments; and enable the of being wound up in January may not stay exactly the same in fund to own as much as 20% of a 2018. At the time of the launch structure or focus as when you single company (was 15%). Polar felt the pharmaceutical originally made the investment. It believes this will enable sector was being valued as if it Topical examples include the investment trust to have was going out of business due to Neil Woodford-run Woodford ‘greater flexibility to capture widespread patent expiries, says Patient Capital Trust (WPCT) growth and follow-on investment fund manager Dan Mahony. which in late April said it would opportunities’. Shareholders will ‘We said pharma was cheap seek shareholder approval to vote at its AGM on 12 June. and investors should look at it. amend current investment People asked us to make the restrictions. Its shares are down TAKING A BROADER fund a low risk product, so 13% since launching in 2015 APPROACH we didn’t have much (higher when it raised £800m. Investors in Polar Capital Global risk) biotech in the fund,’ he Woodford Patient Capital Healthcare Growth & Income explains. ‘It was run for widows

26 | SHARES | 18 May 2017 INVESTMENT TRUSTS and orphans.’ manager Utilico. The fund did well on the ‘At Premier, we occasionally income front, picking up good see non-utility infrastructure dividends from large cap pharma opportunities, but weren’t stocks. However, Polar says allowed to take advantage its ‘minimal’ exposure to low of them in the fund,’ says yielding biotech stocks has cost Smith. ‘Up to now we’ve the fund ‘considerably’ in terms offered long term, relatively of capital return. low risk and visible streams of income through utility assets. WHERE NEXT FOR POLAR? Something like toll roads give The fund manager says Polar has you a similar profile.’ now talked to various investors with regards to the future of the TWEAKING THE PROCESS fund. They want the same lower Changes to how investment risk approach again, yet Mahony trusts or funds are run can often says it has now become difficult be more subtle. For example, to run a pure play pharma fund, Martin Currie Asia (MCP) due to the price pressures faced recently said it would enhance its by the underlying companies. dividend by paying out of capital. ‘The sector is not valued in the That means selling small chunks same way it was seven to eight of its investment portfolio to years ago. We believe it is now The fund will be renamed Polar fund dividends, alongside natural time to broaden the mandate Capital Global Healthcare Trust, income from its assets. and invest across more parts of if everything goes to plan. Another example is JPMorgan the healthcare sector.’ American (JAM) which will Mahony says healthcare THUMBS UP TO tweak its portfolio in the future is going through a period of INFRASTRUCTURE in response to a review of ‘major structural change’ and he OPPORTUNITY fund manager Garrett Fish’s believes that some of the most Changes aren’t restricted to investment decisions over interesting players in the sector the investment trust space. In the past 14 years. The review will be technology companies the open-ended funds world, showed he did well over the and insurers, rather than simply shareholders in Premier Global longer term, but some gains drug makers. Utilities Income Fund have just were eroded by holding onto The proposed switch in voted in favour of expanding its shares for too long or selling investment strategy is likely to investment remit and changing shares disadvantageously. see a reduction in the yield from the name to Premier Global JP Morgan says the portfolio the fund, as it will now have a Infrastructure Income Fund is likely to be more concentrated large cap growth mandate, albeit (GB0031637282). in the future and Fish will have with a similar risk profile to the Historically the fund focused a more ruthless approach to current fund. on areas like energy and water. underperforming holdings. ‘The current portfolio is Now it plans to add investments Finally, keep an eye on structured 80% income, 20% in assets which may include how Alliance Trust (ATST) growth. The new approach, airports, toll roads, sea ports performs in the near term. It is if approved by shareholders, and hospitals. only a few weeks into its new will be 90% growth and 10% Fund manager James Smith multi-manager investment innovation. I define growth as is well versed in these markets strategy which involves eight being companies valued at more thanks to his background in fund managers each selecting than $5bn and innovation at utilities and infrastructure approximately 20 stocks for the less than $5bn,’ says Mahony. when he worked for asset portfolio. (DC)

18 May 2017 | SHARES | 27 28 | SHARES | 18 May 2017 ne way of discovering the strongest DIFFERENT TYPES OF MARGIN companies on the UK stock market There are different ways of measuring is to look at profit margins. HIGH MARGINS profit and equally there are different O Companies which are left with GIVE A COMPANY types of margin which can be more lots of money after deducting costs A DEGREE OF appropriate when looking at different from sales have a stronger position PROTECTION sectors. from which to fight competition than someone with very low profit margins, for Gross margin: Gross profit (revenue example. They also have strength in terms of minus cost of sales) divided by revenue being able to consider reinvesting money into multiplied by 100. their business. This is probably the most intuitive measure of Some investors might think high profit margin profitability. If it costs you £5 to make a handbag businesses are invincible. We’d certainly argue they which you sell for £20, your gross margin is are better placed to cope with challenges, but none calculated as follows: ((20 -5) ÷ 20) x 100 = 75%. of them are guaranteed to be the last man standing in difficult times. Operating margin: Operating profit (revenue Let’s now take a closer look at the topic of profit minus cost of sales and operating costs) divided margins and discuss some of the higher margin by revenue multiplied by 100. stocks on the market. Businesses of any scale have expenses beyond manufacturing and paying staff. These could A QUICK LESSON ON PROFIT include marketing, research and development and It is important to understand the difference administration and are likely to expand in line with between profit and profitability. Supermarket Tesco the growth of the business. (TSCO) posted an operating profit of £1.28bn in The operating margin therefore gives a fuller its February 2017 financial year which towers over picture of profitability, and is almost always lower, the £170m generated by online second hand car than the gross margin. Returning to the handbag marketplace Auto Trader (AUTO) in the 12 months example if you spend a further £5 marketing each to 27 March 2016. However, Auto Trader achieved this profit on HIGH MARGIN UK STOCKS revenue of £281.6m while Tesco’s was derived Company EPIC Operating margin from sales of nearly £50bn. In other words, Auto 5-year average (%) Trader has a much better operating profit margin Rightmove RMV 71.4 than the much larger supermarket. Ashmore ASHM 64.7 Hargreaves Lansdown HL. 58.7 ASSET LIGHT MODEL Mail.ru MAIL 52.2 The big difference between the margin achieved by Burford Capital BUR 48.8 Auto Trader and Tesco is easy to explain. Playtech PTEC 47.8 While Tesco incurs myriad of costs relating Auto Trader AUTO 47.6 to energy, transportation, staffing and other InterContinental Hotels IHG 45.5 expenses associated with its large store estate, Indivior INDV 44.4 Auto Trader is effectively just a website and IG IGG 44.3 its costs are mainly limited to investment in Victrex VCT 41.1 technology. It has what is sometimes described Admiral ADM 36.6 as an asset light model. United Utilities UU. 36.5 A similar example is online property site Paragon of Companies PAG 35.4 Rightmove (RMV) which posted an operating British American Tobacco BATS 34.1 profit of £161.6m on revenue of £220m for 2016, AA AA. 33.4 making it one of the highest margin companies on Abcam ABC 32.5 the UK stock market. Lancashire Holdings LRE 31.4 Rightmove is rewarded by the market for its Micro Focus International MCRO 30.3 high margins with a premium valuation, trading on Randgold Resources RRS 30.1 forward price-to-earnings ratio of 26.5 times. Source: Stockopedia, 10 May ‘17

18 May 2017 | SHARES | 29 individual handbag then this cuts your profitability by stripping out costs. This would 75% gross margin down to a 50% eventually impact sales as the quality of operating margin. its product or service could suffer. A high margin would quickly be Net margin HIGH MARGINS eroded if sales start falling faster Most businesses incur other costs AREN’T ALWAYS than costs. not related to their day-to-day SUSTAINABLE operations but which still need to There are several factors which can be taken into account. These could put pressure on margins. We now include interest payments and tax. discuss four of them: Subtracting these from operating profit helps you arrive at net profit which, in turn, can 1. Competition be used to calculate the net margin. A company operating in an area with high margins will inevitably attract a competitor who also wants There are plenty of other measures of margin to enjoy the financial benefits of doing that line of including the EBITDA (earnings before interest, tax, business. depreciation and amortisation) margin which is Unless there are significant barriers to entering heavily used in the software sector and the cash the market in the form of technology, scale or flow margin which shows how efficient a company regulation then the incumbent firm may have to is at converting sales into cash. cut prices in order to compete. However, the operating margin is the measure Moneysupermarket (MONY) was a trailblazer which can probably be best applied across in the price comparison space for some time. industries and our table shows the London-listed Sadly competition has now intensified which has stocks with the highest five-year average operating necessitated Moneysupermarket spending more profit margins. money on marketing to remain at the forefront of consumer’s minds. WHEN MARGINS ARE AT RISK Liberum analyst Ian Whittaker comments: ‘This Identifying a company with a high operating margin has manifested itself in declining gross margins at is just the start; it is important to also look at the MoneySupermarket which fell by 520 basis points sustainability of margins. in 2016 and we estimate that gross margins will In the short-term a company could drive up decline a further 150 basis points in 2017 to 73.4%.’

30 | SHARES | 18 May 2017 2. Increase in input costs 4. Operational problems Another space which has seen the established Sausage skin manufacturer Devro (DVO) issued a players threatened by emerging competition is terrible profit warning in November 2016 which supermarkets, where discounters Aldi and Lidl have caused the shares to lose nearly a fifth of their value. disrupted the market. Among the problems it faced were technical The pressure on margins in this sector has been issues around the supply of product from its facility exacerbated by rising input costs thanks to the in the Czech Republic and difficulties in getting new collapse in sterling which followed the Brexit vote. plants in China and the US up to full capacity. On 10 May 2017, Sainsbury’s (SBRY) shares were This translated into a drop in its operating marked down as it reported a decline in its already margin from 8.3% in 2015 to 6.3% in 2016. The skinny full year operating margin from 2.74% to company has launched a strategic development 2.42% as it had been unable to fully pass on higher programme to improve margins focused on costs to its customers. enhancing sales capabilities, increasing the efficiency of manufacturing and launching 3. Regulation differentiated products. This is a particular risk for consumer-facing businesses. On 9 May 2017, shares in energy companies Centrica (CNA) – which owns British Gas – and SSE (SSE) fell sharply after prime minister MARGIN IMPROVEMENT MACHINE Theresa May pledged an end to ‘rip-off’ energy LEGACY SOFTWARE infrastructure company prices with a cap on bills, something which would Micro Focus (MCRO) is a useful case study in clearly hit profitability. margin improvement for investors. The FTSE 100 firm has a great track record in extracting value. It is currently in the middle of its biggest challenge: integrating the $8.8bn reverse takeover of the software bit of Hewlett Packard Enterprise, also known as HPES. Micro Focus supplies a range of application and infrastructure management tools used to build, manage, test and modernise applications built on a wide range of platforms, such as COBOL, Novell and SUSE Linux. Many mature companies’ IT systems run on these platforms, including many of the world’s financial institutions. Micro Focus has typically generated adjusted operating margins in the mid-40% range (43% in its last reported year to 30 April 2016). HPES’ equivalent margins were about 21%, a level at which they’ve been stuck for several years. Micro Focus is confident of improving HPES’ margins within three years of the acquisition closing. Cross-selling products, stripping out overheads and streamlining internal processes are some of the ways it could achieve this goal. David Toms, analyst at broker Numis Securities, anticipates HPES will have operating margins of circa 40% over the next few years. On HPES’ last reported revenue of $3.13bn, margins of that magnitude would double operating profit from the business to more than $1.25bn. (SF)

18 May 2017 | SHARES | 31 THREE STOCKS TO BUY long term AUTO TRADER GROUP FTSE ALL SHARE We have identified a trio of companies whose view and buy 500 Rebased to ﬁrst profitability arguably does not face any of the at 407.4p. 450 aforementioned threats in the near-term. They Auto Trader 400 all have a consistent track record of delivering is reliant on the 350 300 high margins. used car market 250 We believe these are genuinely high quality (around 85% of 200

names with a strong competitive position which the stock on its 150 Source: Thomson Reuters Datastream gives them pricing power. website) which 2015 2016 2017 They offer products or services which are either could see some near-term benefit as buyers opt of such superior quality, are so reliable, better for used cars to avoid the hefty VED tax on some than competitors or scarce. Or they enjoy such new cars. a dominant market share, that they can increase The company is the market leader with a 75% their prices without losing market share or share which should help protect its extremely impacting overall demand for what they do or what healthy margins. Auto Trader’s website is the one they produce. most visited by prospective car buyers because it has the most listings. Car retailers are therefore AUTO TRADER (AUTO) 407.4P compelled to use its products, reinforcing its Shares in second hand car website Auto Trader position. It has a 59.9% operating margin. have stalled year-to-date amid waning sentiment There are four key areas of operation – selling, to the car market. buying, marketing and managing – and each one Investors have been concerned about the is broken up into different levels with price points strength of the UK domestic economy, the moving progressively higher. pressures facing consumers and the introduction of By cross-selling and upselling to existing clients, the Vehicle Excise Duty (VED). the company can increase average revenue per Don’t be put off by these negative factors. Take a retailer (ARPR) and further bolster its margin performance. EBIT MARGIN 80 AUTO TRADER According to Liberum’s forecasts, which are % 70 ahead of the consensus estimate, the stock trades 71.2 73.1 60 67.2 on a prospective price-to-earnings ratio of 21.4 50 times. That is a material discount to the average 40 of 26 times seen since its March 2015 IPO (initial 30 20 public offering). The broker has a 530p price target 10 on the shares.

0 Source: Liberum Risks to consider include a possible tightening in MAR 2017E MAR 2018E MARCH 2019E the availability of car finance. (TS)

CRANEWARE (CRW:AIM) £11.95 Scotland’s Craneware (CRW:AIM) supplies innovative financial analysis tools to hospitals. It is fast growing, generates lots of free cash flow and is a consistently high margin company. Nearly all of its business is in the US despite the company being based in Edinburgh. That curiosity stems from the private healthcare system across

CRANEWARE the pond. FTSE ALL SHARE Founded 1400 Rebased to ﬁrst 1300 in 1999, 1200 1100 Craneware 1000 provides 900 800 cloud-based 700 600 technology 500 400 Source: Thomson Reuters Datastream solutions that 2014 2015 2016 2017

32 | SHARES | 18 May 2017 help hospitals and other healthcare providers more business contracts with high levels of recurring effectively price, charge, code and retain earned revenue. It generates high margins and has limited revenue for patient care services and supplies. capital expenditure requirements. Canaccord Craneware has been busy adding extra tools and Genuity estimates Playtech will be sitting on a services to its platform which should help bolster €330m net cash position at the end of 2017. already sticky customers – about 85% of annual Analysts point out that gambling firms rarely revenue is recurring. switch technology back in-house, meaning Playtech That implies about $46m of recurring revenue should have a sticky client base once it has this year to 30 June 2017 ($57.8m forecast in total) persuaded them to use its technology. and operating profit of approximately $15m, on a Financial data provider Stockopedia calculates that 25.9% forecast operating margin. Playtech has enjoyed an average 47.8% operating The future of the US healthcare system is not profit margin over the past five years. Investors may clear under president Trump’s administration yet wish to also look at the EBITDA margin which is more market drivers for value-based care look set to stay closely related to net profit margin. in place, in our opinion. Net profit provides the base number from which Craneware has mapped out how it can address EBITDA is calculated; importantly, it includes all the five-point healthcare reform plan trying to be of a company’s costs and expenses which aren’t pushed through by Trump. included in the calculation of operating profit. With excellent cash generation, $45m of net cash Morgan Stanley forecasts that Playtech’s EBITDA on its books plus a $50m untapped funding facility, margin will be 41.2% in 2017 and 41.6% in 2018 – the company has the flexibility to build in-house both very healthy numbers. The gaming division products or obtain them via acquisition. (which accounts for c87% of group revenue) Analysts forecast annual growth of 15% a year EBITDA margin is in the region of 43% to 44% but through to 2020 in organic terms. the headline figure is pulled down by Playtech’s There is scope to do even better when you financial division being sub-30% margin. consider its bulletproof balance sheet and plenty of It is worth touching on the financial division as growth options to explore. That appears to justify its performance has been fairly lacklustre over Peel Hunt’s £14.50, 12-month target price for the the past year while it restructured operations. share price, even in the face of the stock’s premium A few years ago it pulled out of two financial price to earnings (PE) ratio of 30-times. (SF) sector acquisitions worth more than £500m amid regulatory concerns. PLAYTECH (PTEC) 963P The more recent purchase of CFH seems to have Many people consider Playtech as one of the reignited interest in how its financial arm could grow. quoted gambling firms such as William Hill (WMH) CFH is one of the top interbank straight-through- or Paddy Power Betfair (PPB). In reality, it is a processing venues in the world, claims Playtech. It software firm and should be benchmarked against sees a ‘significant opportunity’ with CFH’s customer technology stocks. base having access to Playtech’s proprietary trading It owns the infrastructure used to supply platform and technology, ‘effectively mirroring gambling company back-end operations. Playtech (our) B2B offering in the gaming division’. (DC) also creates content such as slot machines, live dealer games, poker and bingo. Last summer Morgan Stanley calculated Playtech was among the fastest growing businesses in the technology sector and growing ‘far faster’ than the gambling sector.

PLAYTECH Most of FTSE ALL SHARE its income 1000 Rebased to ﬁrst 950 comes from 900 850 revenue share 800 750 fees. It enjoys 700 increasingly 650 600 long-term 550

500 Source: Thomson Reuters Datastream business-to- 2014 2015 2016 2017

18 May 2017 | SHARES | 33 LARGER COMPANIES First mid-cap tech float for 19 months Asset management software supplier Alfa could soon join the FTSE 250 index

new software industry IPO (initial public ‘One of the key drivers of success is that Alfa offering) is on the cards with Alfa Financial is the only vendor with modern technology that A Software set to float in June. Analysts also has deep domain expertise as well as a highly speculate a market capitalisation of £800m referenceable customer base globally,’ explains or more. At that level the company would be Rob Warensjo, of the Megabuyte software catapulted into the FTSE 250 index at the following industry analysis boutique. index reshuffle, with 23 FTSE 250 constituents ‘More significantly, perhaps, is how the currently trading at lower valuations. company only seems to be scratching the surface Founded by executive chairman Andrew Page of the market opportunity.’ in 1990, Alfa provides an enterprise system for the asset and consumer finance industry. The FAST EARNINGS GROWTH platform provides new business and agreement Figures revealed in the intention to float management functionality as well as workflow and document highlight strong growth in the year to analytics capabilities. 31 December 2016. The numbers show revenue Alfa has a global client base for its browser- up 35% to £73.3m from which the company based, Java-developed solution that includes earned £32.8m of operating profit, itself up 46%. Barclays (BARC), Bank of America, Mercedes-Benz Interestingly, Alfa remains financially robust and Toyota. Alfa has 10 offices worldwide with enough not to require new funding. About 25% of more than 250 staff. the company is expected to be sold to investors, leaving founders and management firmly in NEW SYSTEMS ADVANTAGE control of the overall business. The world of asset finance may not sound terribly This is a shot in the arm for the UK software exciting yet there should be an opportunity for Alfa sector which has seen little IPO activity of note to develop and grow in this niche space. during the past year or so. IT services and product That’s largely because of the continued reseller Softcat (SCT) was the last industry IPO dominance of legacy IT systems often developed in- of scale, floating at 240p per share in November house. With the demand for increased digitisation 2015, for a £430m market value. Since then its and new functionality, many of these systems are share price has soared more than 80% to 435.7p fast becoming outdated. for a rough £860m market cap. (SF)

34 | SHARES | 18 May 2017 SMALLER COMPANIES More to come from Warpaint after 80%+ rally Analyst predicts significant earnings growth for lipstick seller over next few years

hares in lipstick and eyeliner seller Warpaint (W7L: AIM) have increased by more than 80% Sthis year to 247.59p as investors wake up to its growth potential. The business, which floated on AIM in November 2016, last week delivered maiden full year results ahead of expectations. Sales increased by 21.1% in 2016 to £27m and adjusted pre-tax profit grew by 24.1% to £6.7m. The figures prompted stockbroker Stockdale to raises its 12 month share price target by a very impressive 76% to 300p. Warpaint sells a wide range of cosmetics including eyeshadow and nail polish through its main brand W7. Its close-out business also buys and sells excess stock of branded cosmetics such as Max Factor. It targets discounter retailers such as TK Maxx, B&M (BME) and The Perfume Shop. While Warpaint is enjoying success with W7, it intends develop its other four brands, Outdoor Girl, CopyCat, Smooch and Taxi that target beauty retailers, department stores and the value sector. He says: ‘The key to the W7 success is spotting The cosmetics firm also wants to diversify its trends in cosmetic colourways or new products product range by selling popular accessories such and then quickly launching a W7 offering at a value as make-up bags. price point.’ The company has a strategy to roll out products The company is clearly not sitting on its hands. through selected stores abroad. It hopes to use For example, a new range called Very Vegan will trade shows to increase its presence in various be launched by June, being products specifically export markets such as the Middle East, Africa, developed for vegans. Warpaint believes this range Southern and Eastern Europe. has great potential for growth. In particular, Stockdale analyst Robert Sanders is Stockdale forecasts Warpaint will generate 9.4p encouraged by Warpaint’s potential to gain sales earnings per share in 2017, rising to 11.9p in 2018 traction in the two biggest markets for cosmetics, and 15p in 2019. That implies a price to earnings being the US and China. ratio of 26.3 falling to 16.5 times within two years. According to data from Mintel, the US colour cosmetics market is the largest with a retail value SHARES SAYS:  in 2015 estimated at $11bn. That is nearly three We said to buy at the IPO at 97p last November and times the size of the second largest market China still see further share price upside. Keep buying. at $3.9bn. (LMJ) On the downside, the analyst warns that Warpaint needs to continually deliver innovative products. BROKER SAYS: 001

18 May 2017 | SHARES | 35 SMALLER COMPANIES Impax Asset Management has growing green appeal Impressive demand for its funds trigger higher earnings expectations

nvironmentally focused Impax Asset exceeding the broker’s earlier forecast of £5.9bn by Management’s (IPX:AIM) first half results to 31 September 2017. EMarch show £830m of inflows into its funds. Peel Hunt has upgraded its forecasts for the third Chief executive Ian Simm says the environmental time this year, now expecting earnings per share markets in which the firm invests should benefit of 4.8p. This puts the firm’s price to earnings ratio from the US’s shale and oil industry as there is at a heady 21-times, suggesting the market has greater need for clean water, recycling and waste confidence that Impax can deliver. management. Not only has the firm enjoyed a 27% growth in SHARES SAYS:  assets in six months, it has also doubled its profit in Peel Hunt says the half year results are a clear the same period. indication that Impax is going through a step House broker Peel Hunt says Impax is enjoying change in scale, with profit and assets moving strong momentum as investor demand is robust materially higher. We share the bullish view. (DS) for the group’s products. Impax’s total assets under management now stand at £6bn, slightly BROKER SAYS: 001

Flowgroup eyes Vipera sees the Why marketing £20m back-up plan future with mobile specialist is up banking nearly 60% in a week EMBATTLED BOILER technology developer Flowgroup (FLOW:AIM) INTEREST IS building in mobile SHOPPING CENTRE marketing may be be forced into a hugely financial services specialist specialist SpaceandPeople discounted emergency fund Vipera (VIP:AIM). Its shares have (SAL:AIM) is up nearly 60% in a raise. The £20m cash call would increased in price by 56% in just week to 37.9p. It has guided for be needed if the company cannot over a month to 6.25p. a £1m pre-tax profit in 2017 find a buyer for its independent Vipera secured its largest and a healthy net cash position household energy supply contract to date in April worth of £1.25m. business, Flow Energy. It has $2.4m. It generated €7.9m The shares last September 270,000 consumer customers. revenue in 2016 and a €1.5m crashed after a dividend cut Talks with several parties pre-tax loss. and poor sales of its retail have seen a preferred buyer Mobile banking is popular in merchandising units. These emerge although a deal looks emerging markets which simply are modules with shelving, far from certain. New funding, don’t have the infrastructure for signage, storage and an internet if required, would be priced at retail banks. connection that allows retailers 1.5p per share, a 53% discount to FinnCap says Vipera has an to sell products in shopping the prevailing share price before €8m+ pipeline of work on top of centres. (TS) news broke. (SF) the recent contract win. (DS)

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AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE TALKING POINT Our views on topical issues What can retail investors learn from fund managers? We look for inspiration in six of Standard Life’s top investing principles

an retail investors get a head start by replicating C stock picking and portfolio management techniques used by fund managers? The answer is definitely ‘yes’, although there are some limitations. With this is mind, we attended a presentation on 10 May by asset manager Standard Life (SL.) to see if we could pick up any tips from their fund experts on how a retail investor could build and manage a portfolio of stocks. Before we reveal six of their steps to investment success, it is worth considering that a large asset manager has various advantages over the average retail investor when it comes to choosing stocks. We now give You also have to consider that approach to picking stocks. Most you some examples. funds managers will probably of their strategy could certainly have a large support team, by replicated by a retail investor. KICK THE TYRES helping them research the Taking to the stage were Andrew Millington, acting head market and individual stocks. fund managers Lesley Duncan of equities at Standard Life, says Retail investors have to do from Standard Life UK Ethical ‘the first thing we do is meet everything on their own – and (GB00B6Y80X40) and Harry with companies and get to know probably in their spare time, Nimmo from Standard Life UK the management team’. unless they are lucky enough Smaller Companies Trust (SLS). Retail investors do have the to make a living from the stock They like to look for growth opportunity to attend some market. stocks. These are the companies presentations by companies, but that have strong improvement they tend to be limited to very FIRST STEPS potential for the future, growing small stocks. So how can retail investor take in value but probably not paying Therefore fund managers influence from a fund manager? great dividends. have an advantage in that they Firstly, read their investment Duncan likes Boohoo can pretty much meet anyone process which is often published (BOO:AIM), a young fashion they want. Spending quality on their website. retailer that combines speed time with the management of At Standard Life’s of delivery with access to high a company in which you have aforementioned presentation, fashion. She says it has ‘fleet an investment is extremely two of its fund managers of foot adapting to changes in valuable, in our opinion. discussed their particular the retail market with plenty

38 | SHARES | 18 May 2017 TALKING POINT

of potential’. They may not be as Nimmo also likes to choose STANDARD LIFE’S SIX sophisticated as Standard Life’s PRINCIPLES OF INVESTING* low risk quality stocks. He system, which includes filters believes this group, along with 1. Go for growth on risk and credit quality, but growth stocks, should remain 2. Go for quality they will certainly be good fine regardless of the state of the 3. Run your winners enough to sort the market into economy. Housebuilder Bellway 4. Concentrate your efforts different silos depending on (BWY) is cited as an example of what you desire. 5. Management longevity one of his preferred stocks. 6. Value isn’t everything TIME AT THE TOP MOMENTUM APPROACH The Standard Life fund *According to two of its fund managers. The two fund managers say Some of these principles won’t apply to managers favour leadership you should ‘run your winners’ all types of investments; for example, longevity in a company. It and not take profit on winning high growth companies wouldn’t suit a bodes well if the founder of a capital preservation strategy. stocks too early. Source: Standard Life / Shares successful company is still in One way to spot companies in control. One could deduce that a rising trend is to use financial they know what they’re doing. websites that offer pre-set filters deteriorating characteristics. Conversely, a company that to screen the market. Look for Standard Life also says this regularly reports a change in ones that say ‘momentum’. tool helps dispassionately steer management may well be one This filtering approach is stock selection. to avoid. relevant to Standard Life’s next Nimmo likes XP Power (XPP) The final principle the top tip, namely concentrating which he claims is below the Standard Life duo apply to their your efforts on certain parts of radar of many investors. He equity selections may seem the market and not trying to says XP is an extremely efficient controversial. They suggest that look at everything. producer of low power solutions. ‘value isn’t everything’. They do The asset manager has a Clearly retail investors are at not restrict themselves to only stock selection filter system a disadvantage because they buying stocks if the rating is low. called ‘Matrix’ which looks for wouldn’t have access to Standard For example, they cite theme companies based on certain Life’s Matrix system. However, park virtual queuing specialist criteria. Nimmo says this system there are plenty of stock Accesso Technology (ACSO:AIM) ‘cuts down the legwork’ and screening services available for as a stock on a high rating, yet reduces the ‘noise’. a small fee to the general public a business which they believe This tool helps the firm identify from the likes of SharePad and is worth owning for attractive companies with improving or Stockopedia, for example. earnings growth. (DS)

18 May 2017 | SHARES | 39 FUNDS Global funds don’t always live up to their name

Investors can often miss out on large chunks of the world without them knowing

lobal funds and exchange- Lyxor MSCI All Country World the largest stock market in the traded funds (ETFs) are UCITS ETF (ACWL). world,’ says Ryan Hughes, head Gbilled as a great way to If you dig deeper into the of fund selection at AJ Bell access lots of companies around underlying portfolios you’ll Youinvest. the world, but their level of discover that both indices are ‘Some actively managed diversification isn’t always as highly skewed towards the US. funds will invest away from high as you might expect. the benchmark but is it highly One of the most common MSCI World covers 23 unusual to find global funds that benchmarks used by tracker markets but the US makes up have little exposure to the US.’ funds and ETFs is the MSCI World 59% of its equity exposure. index. It is tracked by a multitude Its top holdings are Apple, WILL AN EQUAL WEIGHTING of products, including Fidelity Microsoft, Amazon and ETF HELP? Index World (GB00BLT1YP39) Facebook. The next highest In recent years benchmarks have and iShares Core MSCI World country weightings are Japan been launched that give an equal UCITS ETF (SWDA). at 8.6% and the UK at 6.5%. weighting to their constituents, Contrary to what its name MSCI All-Country World meaning they are not skewed by suggests, the MSCI World index covers 46 markets (23 market cap. You can get ETFs that doesn’t cover the whole world developed and 23 emerging) track equal-weighted versions of but only provides exposure to yet the US has a 53% the S&P 500 and the FTSE 100. developed markets. weighting, followed by Japan Unfortunately there don’t at 7.6% and the UK at 5.9%. appear to be any ETFs available HOW DO I GET FULL that track a global equal- EXPOSURE? The reason for the high US weighted index. If you want to invest in both weighting is that the benchmarks Amanda Rebello, head of developed and emerging are constructed on a market passive distribution, UK & Ireland markets you would need to capitalisation basis, meaning that at Deutsche Asset Management, opt for a fund or ETF tracking more exposure is given to the says this is because it would be the MSCI All-Country World largest companies. technically difficult to manage index. There are fewer products ‘There is significant exposure the portfolio in a low-cost way. available but one example is to US equities because it is ‘You’d be starting with an

40 | SHARES | 18 May 2017 FUNDS enormous basket of stocks ‘ ENSURING YOU HAVE EXPOSURE TO DIFFERENT representing all countries with listed equities (or most REGIONS ACROSS THE GLOBE DOES NOT HAVE countries at least) and you’d have to re-balance the portfolio, TO BE ACHIEVED THROUGH A GLOBAL FUND’ say quarterly, to maintain the equal weighting. Another option to consider increase their probability of ‘There would be a risk you’d hit is investing in smart beta ETFs losing money. Far easier to just liquidity constraints for stocks in which weight equities according own it all – and far better for some of the smaller countries. So to specific ‘factors’. The country the probability that you’ll make it’s just technically quite tricky to exposure can vary greatly. decent long run returns through do,’ she explains. Db x-trackers MSCI World thick and thin,’ he says. Minimum Volatility UCITS ETF INVESTING ON A (XDEB) has a 60% weighting Some experts say: ‘Don’t try SINGLE-COUNTRY BASIS to US companies whereas to time the markets; it is easier If you want global equity Db x-trackers MSCI World to own it all’ exposure without a heavy bias Value Factor ETF (XDEV) has a towards the US you could invest weighting of less than 40% to THE ACTIVE APPROACH an equal amount in several US companies. In addition to passive funds, country-specific funds or ETFs. there are a whole host of active There are ETFs providing INVESTMENT OPTIONS funds that take a global approach exposure to single countries Andrew Craig, founder of Plain to investing. and ones with exposure to English Finance and author of Hughes likes Baillie Gifford certain regions like Europe, Latin How to Own the World, says Global Alpha Growth America, Asia Pacific and the there is a low probability of (GB00B61DJ021), which has a Middle East. working out the next ‘hot’ area five-year annualised return of Trevor Clark, operations or what the top performing 17.3%. Top holdings include retail director at Rutherford Wilkinson, asset class is going to be in the giant Amazon, leisure outfit Royal a financial advice firm, says next few years. Caribbean Cruises and insurer selecting funds on an individual ‘More often than not, not Prudential (PRU). basis would enable you to even the experts get this right An alternative is Newton know the exact make-up of and I would argue that amateur Global Income (GB00B7S9KM94) your global exposure. investors who try to time with 15% annualised return over ‘Ensuring you have exposure markets this way significantly the past five years. Top holdings to different regions across include technology group the globe does not have to be Microsoft and tobacco firms achieved through a global fund,’ Reynolds American and Philip he points out. Morris International. When it comes to emerging If you want exposure to small markets, Clark suggests opting caps, Standard Life Investments for a broad fund like Vanguard Global Smaller Companies Emerging Markets Stock (GB00B7KVX245) may be Index (IE00B50MZ724). ‘This suitable for higher risk investors, (approach) means there is not says Hughes. too much risk concentration in Top holdings include Chinese a particular emerging market, optical instruments group Sunny where political risks and global Optical, British tonic water risk aversion can cause stark specialist Fevertree (FEVR) and stock market corrections,’ Japanese online retailer Start he explains. Today. (EP)

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negative reaction to full year results (16 May) A from FTSE 250 specialist healthcare firm BTG (BTG) reflects market focus on the underwhelming performance of its Varithena varicose vein treatment and a stock which was priced for perfection. Investors taking a view on whether this sell-off represents a buying opportunity need to concentrate on its ongoing transition from specialty pharmaceutical, addressing conditions with small patient populations for which there are limited or no existing treatment options, and deriving royalties from products sold by IMPROVEMENTS IN oncology; interventional vascular; partners, to an increased focus PATIENT CARE and interventional pulmonary. on interventional medicine. Patient care can be improved Among its core products Currently revenue is split using interventional medicine is its LUMI range, which BTG relatively evenly between these as it treats diseases locally and developed as a next generation three areas. minimises side effects. It also version of Biocompatibles bead Interventional medicine allows patients to recover faster technology by making the beads seeks to provide diagnosis and compared to conventional more visible inside the body. treatment of conditions in a surgery, which can help LC Bead LUMI is a radiopaque less invasive way by pinpointing hospitals cut costs. bead that sends radiation to the problems inside the body and BTG develops and sells tumour without hitting the rest providing targeted solutions. innovative products directly to of the body, helping to reduce Cantor Fitzgerald reckons interventional radiologists in the side effects. BTG is ‘on the cusp of driving US and uses distributors in Asia. The bead is inserted through a strong growth from its key In 2011, BTG made its first catheter and can be loaded with interventional medicine business major move into interventional doxorubicin to treat liver cancer. from 2018’. medicine when it bought Surgeons can also see where it is This might explain why, despite Biocompatibles for its bead going in real-time and where it recent weakness, the stock still technology, which literally has been up to six months later. trades on a relatively lofty 17.8 involves inserting very small times Panmure Gordon’s forecast beads into the body. EXPANSION IN ONCOLOGY March 2018 earnings per share It has three key areas of focus In 2016, BTG expanded its of 37.2p. in interventional medicine: oncology division by acquiring

18 May 2017 | SHARES | 43 UNDER THE BONNET

Galil Medical, a manufacturer of cryoablation systems and needles. These are used to treat kidney cancer as the needles can be inserted into the tumour. Galil’s systems use compressed argon gas to produce extremely low temperatures that form an ice ball at the tip of the needle as the gas passes through, effectively freezing and destroying the tumour. BTG has funded studies to try and expand the use of the needles to tackle lung cancer and clinical and regulatory work was RePneu as an attractive addition bone metastases. undertaken by BTG. Varithena to its portfolio. Treating pulmonary embolisms is a foam that can be injected RePneu helps people who is a key focus of its interventional into swollen and enlarged veins suffer from severe emphysema, vascular division using its known as varicose veins. It a long-term, progressive disease endovascular system, which was displaces the blood by directing of the lungs caused by smoking. acquired from EKOS in 2013. it to other veins. It makes it difficult to breathe as The EkoSonic system makes Varithena has experienced a the lung sacs have degraded and it easier for blood clot medicine slower launch than anticipated are bloated with air. to get into the affected area by as problems with the payment The coil, which is not yet creating an acoustic pulse to system means it can take at least approved in the US, grabs break up the fibrous elements six months for the hospital to get damaged tissue and props open of the clot. paid for patients on Medicare. the lung to help people to breathe BTG is trying to find out how Cantor describes the better and exercise more. much of the clot-busting drug £4.1m worth of Varithena is needed to help lower the sales in the March 2017 WHAT TO EXPECT bleeding rate and is awaiting financial year as ‘somewhat GOING FORWARD a study readout for its EKOS disappointing’, however, the BTG is bullish about the outlook, acoustic pulse thrombolysis company is optimistic that guiding for mid-to-high teens treatment. uptake will improve when growth in interventional new reimbursement codes are medicine revenue; specialty THE VARITHENA PROBLEM introduced in the US in January pharma sales growth of low- Interventional vascular also 2018. to-mid single digits; and a high encompasses Varithena, of which In 2014, BTG bought PneumRx teen decline in royalty income the bulk of the development, as it saw minimally invasive coil from licensing in the March 2018 financial year. BTG – 2017 REVENUE BREAKDOWN SHARES SAYS:  The 7% share price decline Intervenonal medicine 29.9% 37% following the results looks unjustified. Buy at 664.5p. Licensing Panmure Gordon’s price target of 809p implies upside of more 32.1% Specialty pharma than 20%. (LMJ) Source: Company Reports BROKER SAYS: 036

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