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VOL 19 / ISSUE 44 / 09 NOVEMBER 2017 / £4.49 SHARES WE MAKE INVESTING EASIER 6 CHEAP STOCKS IN AN EXPENSIVE MARKET WE USE THREE METHODS TO SPOT RARE POCKETS OF VALUE

RETAIL INVESTORS LOSE OUT BIG TIME WITH IPOS SCOTTISH MORTGAGE PLEADS FOR PATIENCE INTEREST RATE HIKE: WHY EXPERTS DON’T EXPECT ANOTHER ONE SOON TO KNOW LOCAL COMPANIES, KEEP LOCAL COMPANY. LET’STALKHOW.

FIDELITYCHINA That’s whyDaleNicholls, managerofFidelity ChinaSpecialSituations, andhis team of SPECIALSITUATIONSPLC researchersare basedinHongKongand Chinaischanging, presenting significantinvestment Shanghai. Theirlocal knowledgeand opportunitiesfor thosewho knowwhere to look. connectionsmakethemwell-placed to identifyand benefit fromvaluation anomalies Why? Well,the spendingpowerofagrowingand affluent as they arise. middle class is increasingly driving theeconomy. And governmentreforms supportthisshift to afocus on the So,ifyou’relooking forlocal knowledge-basedinvestment new consumer. in amarketthat’s toobig to ignore, take acloserlookat theUK’slargest Chinainvestmenttrust. In suchavastand complexmarket, youneed on-the- groundexpertise to take fulladvantage of thesechanges Please note thatpastperformanceisnot aguideto andthe resultingundervaluations, particularly of small and thefuture. Thevalue of investments cangodownaswell medium-sized companies,which can occur. as up andyou maynot get back theamountinvested. Overseas investments are subject to currency fluctuations. PAST PERFORMANCE Investments in small and emergingmarkets canbemore volatilethanother overseas markets. Sep 12 – Sep 13 – Sep 14 – Sep 15 – Sep 16 – Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 To find outmore,gotofidelity.co.uk/china FidelityChina SpecialSituations 36.8%25.9% 6.9% 50.3% 21.6% or speaktoyouradviser. NetAsset Value FidelityChina SpecialSituations 35.0% 22.7% 2.6% 49.0% 25.1% Share Price

MSCI China 12.4% 4.5% 1.6% 31.7% 28.8%

Source of performance: Fidelityand Morningstar as at 30 September 2017 on abid-to-bid ba- sis withincome reinvested in GBPterms.Copyright ©2017 Morningstar Inc.All Rights Reserved. The comparativeindexofthe investment trust is MSCIChina.

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Job No: 55294-6 Publication: Shares Magazine Size: 297x210 Ins Date: 09.11.17 Proof no: 1 Tel: 0207291 4700 EDITOR’S VIEW Why you should look beyond ‘the story’ with stocks

A good company doesn’t always equate to a good investment if the price is wrong

ne of the golden rules of investing is to emergence as a higher margin business now it never overpay for stocks. There are plenty has sold the transportation division which was the Oof good companies on the stock market, yet weaker part of the group. that doesn’t mean they are all good investments. TT’s management says the company has fixed Overpaying for a stock greatly reduces the some of the problems which have depressed chances of the investment working out well. performance in the past and it is now focused on Over time a pricey company will revert back to opportunities in areas such as robotics, aerospace, a more normal valuation if its earnings, margins, medical devices and electrical items in the home. opportunities and market position are average ‘This is a different business to what it was three rather than superior. to four years ago,’ says chief executive Richard You should only pay a premium valuation for a Tyson. ‘It used to be an automotive play; not now. company that displays exceptional characteristics We’re an electrical component supplier, investing in such as sustainable growth, consistent high levels future technology and enjoying a stronger balance of return on capital employed or a market position sheet.’ with considerable barriers to entry. I appreciate many readers won’t be experts IS TT WORTH BUYING? when it comes to valuing stocks. That’s why we The £366m business is certainly very interesting. regularly point out in Shares articles if something However, Tyson’s revelation that margins are low looks cheap, fair value or expensive. We also and that TT is only in the top three to five market comment on whether a stock deserves a premium positions for its sectors (rather than a dominant valuation or not. player), together with analysis of financial ratios, makes me question whether it is worth buying at LOOK BEYOND ‘THE STORY’ present. Making a judgment on valuation is crucial when The CEO says more work is needed to make the researching investments. Quite often I’ll hear about business a higher margin one. Stockbroker Peel someone buying a stock because it made a profit Hunt forecasts TT will post a mere 6.4% operating last year and is forecast to make a bit more profit margin in 2017 rising next year to 6.9%. this year. Their ‘buy case’ may also be justified The stock trades on 20 times forecast earnings by the company operating in a trendy part of the for 2018. That looks rich given the low margins – market. however, pre-tax profit is forecast to increase by Sadly those two factors do not necessarily mean 17% next year which is a positive, so too is a £57m such a company is a good investment if it is already estimated net cash position. trading at a high valuation and doesn’t possess TT’s shares have done well in 2017 after going the aforementioned characteristics to justify a nowhere for years, reflecting the turnaround premium rating. efforts. I’ll be watching this one closely to see A relevant example is TT Electronics (TTG) how the company spends its cash and what those which I met last week. At first glance it looked actions do for margins. For now, the price looks up really interesting, particularly the promise of its with events. (DC)

09 November 2017 | SHARES | 3 Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 09 NOVEMBER 2017 TO THE RELEVANT STORY

EDITOR’S VIEW 03 Why you should look 10 beyond ‘the story’ with stocks INTERNATIONAL BIG NEWS CONSOLIDATED 06 The fall-out from first AIRLINES SET TO rate rise in a decade INCREASE CAPEX

BIG NEWS BY 24% 07 Sc ottish Mortgage pleads for patience

BIG NEWS GREAT IDEAS 08 Merry Christmas for 12  Harwood Wealth Morrisons Management prospers BIG NEWS 09 Why Indivior’s opioid GREAT IDEAS UPDATE addiction treatment is 15 Elementis set for likely to be approved further growth this month WEEK AHEAD STORY IN NUMBERS 16 Financial results and 10 ‘Real ’ London house ex-dividends over prices to fall the coming week

GREAT IDEAS TALKING POINT 11  Turkish Domino’s 18 Retail investors miss looks tastier than the out on large gains UK operator from IPO offers 18

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 | 09 November 2017 Contents

36

MONEY MATTERS 36 Inv estment and pension planning when you remarry

MONEY MATTERS 38 HMRC repays £262m pension ‘super tax’ – how do I make 22 a claim? MAIN FEATURE 22 6 Cheap stocks in an LARGER COMPANIES expensive market 40 Stobart has attractive 34 dividends and plenty INVESTMENT TRUSTS of growth 30 The appeal of looking beyond the UK for SMALLER COMPANIES dividends 42 Footasylum shares off to an impressive start FUNDS 32 New evidence in SMALLER COMPANIES active vs passive 43 Lok’n Store set for big investment debate expension

UNDER THE BONET INDEX 34 On The Beach is a 45 Index of companies superb growth stock and funds in this issue

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: CONTRIBUTORS 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 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 Design Sales Executive Mike Boydell Rebecca Bodi Nick Frankland two brokers have hold ratings and one broker has a sell 020 7378 4592 rating. Designer [email protected] Darren Rapley 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.

09 November 2017 | SHARES | 5 BIG NEWS The fall-out from first rate rise in a decade Sterling and bank bulls disappointed as pace of future increases to be gradual

he market is taking the first interest rate hike ‘The UK remains in a precarious economic in more than 10 years in its stride. At its 2 position with high levels of consumer debt and the T November meeting, the Bank of England’s Brexit negotiations delaying investment decisions, Monetary Policy Committee (MPC) voted by a so we think that low interest rates are helpful in majority of 7-2 to increase rates from 0.25% to keeping the economy strong. 0.5%. ‘Assuming the inflation outlook stabilises, we Failure to act would have implied governor Mark think this is the first, and last, interest rate hike we Carney and his colleagues had suffered a severe will see for a while.’ loss of confidence in the UK economy and would Strategists at investment bank UBS reckon the have probably resulted in a negative reaction from Bank of England may have erred by increasing investors. rates at this point given they expect the economy The expected rally in the pound and financial to ‘slow persistently through 2018 as the Brexit stocks did not materialise amid indications there process weighs increasingly heavily on sentiment may only be two more rate rises in the next three and confidence’. years. ‘We now think the hike – which, in our view, This also helps explain why the housebuilding is not without risk – may come to be seen as a sector, which could in theory be negatively mistake unless a range of important data indicators impacted by higher rates if homebuyers are put off start to improve soon,’ they add. (TS) by more expensive mortgages, has largely shrugged off an initial negative response. Ratings agency Fitch reckons the Bank of England is unlikely to approve a rate rise in the next 12 months due to the impact of Brexit uncertainty. There has been some speculation the Bank of England is simply giving itself some leeway to cut rates again if UK economic conditions deteriorate.

WHAT ARE THE EXPERTS SAYING? Sanlam investment analyst Matthew Brittain comments: ‘The UK has not seen an increase in its base rate for over 10 years, so while the hike doesn’t come as a surprise, it marks a significant HOUSEBUILDERS RESILIENT AFTER BANK OF ENGLAND’S MOVE moment. Company Share price move since rate hike (%) BANKS FAIL TO FIRE ON RATE RISE Barratt Developments -0.23 Company Share price move since rate hike (%) Bellway 0.14 Barclays -1.1 Berkeley 0.35 HSBC 0.03 Bovis Homes -0.99 Lloyds Banking -1.2 Persimmon 0.42 Royal Bank of Scotland -2.5 Taylor Wimpey 0.60 Source: SharePad as at close on 6 Nov Source: SharePad as at close on 6 Nov

6 | SHARES | 09 November 2017 BIGBIG NEWSNEWS Scottish Mortgage pleads for patience Investment trust may have to dip into reserves to maintain dividend track record

ne of the UK’s largest investment trusts, were to fall out of favour and a suggestion that Scottish Mortgage (SMT), has sounded a any market volatility may well be used as a buying Odownbeat tone about market conditions opportunity for existing stocks in the portfolio. and questioning the future upside from The emphasis of the fund is on capital the tech giants which have fired its growth but the dividend has nonetheless performance so far in 2017. Amazon top been increased for the last 34 years. It The £6.4bn Baillie Gifford fund, run holding at was acknowledged that continuing this by James Anderson and Tom Slater, 7.7% of track record for the March 2018 financial has substantial holdings in the likes year would likely require the company to of Amazon, Facebook, Google-owner the fund dip into its revenue reserves. (TS) Alphabet and Chinese internet giants DISCLAIMER: Editor Daniel Coatsworth has a personal investment in Alibaba, Baidu and Tencent. Scottish Mortgage In comments accompanying first half results (3 Nov), the investment trust says Anderson and Slater ‘have been considering the future prospects for all six of these companies, asking if they still have the potential to become a multiple of their current size’. There was also a commitment to stick to a long- term investment approach even if its investments

Loss of UK challenger bank Is GVC clearing confidence in UK in £1.1bn the decks for IPO market takeover Ladbrokes bid?

FOOD PROVIDER Bakkavor has FINANCIAL SERVICES group GAMING FIRM GVC (GVC) is selling pulled its planned Main Market IPO. Aldermore (ALD) has agreed the its Turkish operations as part of It cited ‘current volatility’ in the terms of a £1.1bn takeover offer by an exit from unregulated markets. new issues market which overrode South Africa’s FirstRand. There is speculation that this ‘sufficient institutional demand’ to The deal values the bank at 313p move, announced on 2 November, cover the offering from the supplier per share and is priced at a 22% is aimed at paving the way for the of pizzas and desserts to Tesco premium to the price on the day company to launch a formal bid for (TSCO), Marks & Spencer (MKS) and before takeover talks were revealed Ladbrokes Coral (LCL). Waitrose. Bakkavor was joined by on 12 October. Reports suggest previous communication towers operator Since the confirmation on 6 bid talks stalled over GVC’s Arqiva, which has also postponed November, Aldermore’s shares involvement in so-called ‘grey’ its float, promising to ‘revisit the have crept up and at time of unregulated markets. Ladbrokes’ listing once IPO market conditions writing are near FirstRand’s shares are up 8% since GVC improve’. (JC) offer price. (DS) announced the disposal. (TS)

09 November 2017 | SHARES | 7 BIG NEWS Merry Christmas for Morrisons Drift at supermarkets group is a gift-wrapped buying opportunity

downwards drift at WM Morrison forecourts operator Rontec, while preparing to Supermarket (MRW) presents a buying supply neighbourhood retailer McColl’s (MCLS) Aopportunity before the grocer unwraps its from January 2018 in a deal that revives the Christmas trading update (9 Jan 2018). Chief Safeway label. executive David Potts’ charge has reported Forecasting a rise in pre-tax profit to an eighth consecutive quarter of like-for- Eighth £365m (2017: £337m) this year ahead of like sales growth, up 2.5% (ex-fuel) in the consecutive £407m next, Shore stresses Morrisons third quarter to 29 October. quarter of like- is ‘a business with a strong financial Though representing a modest for-like sales constitution’. Year-end net debt will slowdown on the prior quarter, Shore have fallen below £1bn for a comfortable Capital believes Morrisons ‘enters the growth leverage ratio of 1.1 times, Morrisons forthcoming “peak” trading period in has a strong balance sheet with freehold good shape and on the front foot’. Shielding backing, not to mention a progressive dividend cash-strapped shoppers from the impact of lower and a pension surplus. sterling, Morrisons’ Price Crunch and Way Down promotions are pulling in consumers and its Best premium own label range has been dramatically SHARES SAYS:  expanded in time for Christmas. Buy at 217.8p. (JC) Vertically integrated, the grocer is building out its wholesale business with Amazon UK and BROKER SAYS: 783

Sweet and sour from ABF Uneven picture for diversified food, ingredients and retail conglomerate

FOODS-TO-FASHION conglomerate Impressive annual figures dollar exchange rate, as the recent Associated British Foods’ (ABF) saw reflected a strong recovery in sugar strengthening of the euro against its shares fall 3.7% to £32.20 despite profits, growth at Twinings Ovaltine, the greenback has a beneficial the delivery of better-than-expected not to mention market share transaction effect on eurozone full year results on 7 November, with gains from discount fashion chain margins. adjusted pre-tax profit ticking 22% Primark. Liberum Capital argues that higher to £1.31bn. But the retailer’s muted 1% like- ‘ABF offers investors compelling Investors were underwhelmed as for-like growth and news Primark’s exposure to secular growth trends ABF confirmed it will reduce the size first half margins will be squeezed by in retail over the next 10 years’ and of three Primark stores in the US and the pound’s weakness versus the US ‘margins should continue to expand added that higher volumes and lower dollar, took the shine off the numbers. from full year 2018 onwards as the costs ‘will only partially mitigate Primark’s operating margin this FX impact abates and the group the effect of much lower EU (sugar) year should be similar to last year’s benefits from maturing stores and prices’. levels, despite the weaker sterling/US operating leverage.’ (JC)

8 | SHARES | 09 November 2017 BIGBIG NEWSNEWS Why Indivior’s opioid addiction treatment is likely to be approved this month Injectable treatment RBP-6000 has blockbuster potential harmaceutical firm Indivior (INDV) is A positive outcome for Indivior could help it win optimistic its drug to help fight opioid back investors’ favour after a difficult period for the P addiction will be approved by the US Food business. and Drug Administration (FDA) on 30 November. Indivior is currently appealing against a court On 31 October the majority of the FDA’s Advisory ruling that a proposed generic drug by Dr Reddy’s Committee supported the approval of the RBP- did not infringe the patent of Indivior’s Suboxone 6000 drug, which bodes well for approval as the product, its best-selling existing therapy for opioid FDA tends to agree with committee decisions. addiction. If approved, RBP-6000 could become the largest The launch of a generic rival could see its revenue generating product at Indivior. It has peak Suboxone product lose up to 80% of its market sales potential of $1bn, according to broker Numis. share within a matter of months, warned Indivior in Opioid addiction is a huge issue in the US as September. more than 33,000 people were killed through Numis analyst Paul Cuddon expects RBP-6000 to opioid abuse in 2015 according to Centers for be launched in the first quarter of 2018 if approved Disease Control and Prevention. and anticipates a settlement with Dr Reddy’s. (LMJ)

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‘REAL’ LONDON HOUSE PRICES T O

F

A

L

L

REAL ESTATE BUSINESS what is pencilled in for every Savills (SVS) is forecasting other region in the UK. London house prices will This would reverse a trend increase by just 7.1% in the going back to the 1980s which next five years. saw the Capital experience higher This is materially short of the growth. In the last five years, for expected rate of inflation out example, London house prices to 2022 (9.5%) and well below have advanced by 56%.

RETAIL INVESTORS BLOCKED FROM FUNDSMITH’S THIRD FUND LAUNCH

24%

INTERNATIONAL RETAIL INVESTORS won’t be allowed to invest CONSOLIDATED AIRLINES in Fundsmith’s latest fund despite the asset manager’s previous two products being big hits SET TO INCREASE CAPEX with the general public. BY 24% Fundsmith has launched its third product called Fundsmith Sustainable Equity Fund. It will only be BRITISH AIRWAYS owner International available to institutional investors such as pension Consolidated Airlines (IAG) is to increase funds and they will each need to invest at least annual capital expenditure by 24% to €2.1bn. £5m under rules stipulated by the asset manager. The leisure giant says the new spending The fund will feature the same portfolio as one plan will run from 2018 until 2022. Its run by Fundsmith for charity Comic Relief over the previous capex guidance was an average of past three years. €1.7bn annually between 2016 and 2020.

10 | SHARES | 09 November 2017 GREAT IDEAS Turkish Domino’s looks tastier than the UK operator Why DP Eurasia is more attractive than UK-focused Domino’s Pizza Group

nvestors wanting exposure to the leisure sector without XXXXDP EURASIA  BUY the risks of an over-supplied (xxx) BUY xxxp I (DPEU)Stop loss: 230p xxp market like the UK should consider the company running MarketStop loss: value: 150p xxx the Turkish and Russian Market value: operations of Domino’s Pizza, £334m namely DP Eurasia (DPEU). The business is displaying has 51% market share of the TRY similar characteristics previously 1.2bn (£237m) Turkish fast food seen with the UK and US versions pizza delivery market. ‘The sector of Domino’s, namely a shifting has grown by 16% to 17% a year point with online sales. over the last few years and this Selim Kender, chief strategy trend is expected to continue,’ he which isn’t good for fast food officer at DP Eurasia, says other adds. delivery firms. DP Eurasia has Domino’s master franchise Stockbroker Peel Hunt says the replicated its Turkish ‘castle’ owners saw like-for-like sales company’s long-term target is strategy in Russia and only serves take off once the online channel 900 stores which would take 13 postcodes where it knows it can represented 50% of overall years to achieve at a rate of 30 deliver in less than 30 minutes, delivery orders. DP’s Turkish new sites a year. thereby giving it a competitive business is close to hitting this ‘Management develops advantage over rivals. The magic metric. clusters of stores, “castles”, which company will commence Russian ‘We’ve found customers provide very fast delivery times expansion beyond Greater who order online do so more to local households and, critically, Moscow by the end of 2017. frequently and there is a higher make the areas around clusters Peel Hunt forecasts TRY 43.2m ticket price,’ comments Kender. unattractive to competitors,’ says pre-tax profit in 2017 versus TRY DP Eurasia has 490 Domino’s Peel Hunt analyst Ivor Jones. 29.4m in 2016. Pre-tax profit Pizza stores in Turkey; of which Four years ago DP Eurasia won is expected to hit TRY 60.1m in 355 are owned and operated by the master franchise for Russia, 2018 and TRY 86.8m in 2019, sub-franchisees. The remaining replacing someone else who had illustrating how this is truly a 135 sites are corporate-owned only managed to open 13 stores rapid growth story. (DC) and located in Turkey’s main in 17 years, all in Moscow. It cities. quickly fixed the operations and BROKER SAYS: 2 0 0 Kender says corporate stores now has more than 100 stores in are more profitable and benefit the Greater Moscow region. DP EURASIA N V 260 FTSE ALL SHARE from DP Eurasia’s control over Its first Russian sub-franchisee 250 240 how they are run and having opened a store in late 2016 and 230 220 direct access to the consumer, it now has nine sub-franchisee 210 200 thereby enabling it to closely stores. The long-term target 190 monitor customer preferences for Russian corporate and sub- 180 170 and trends. franchisee is 1,500 stores. 160

150 Source: Thomson Reuters Datastream He also states that DP Eurasia Moscow often has bad traffic JUL AUG SEP OCT

09 November 2017 | SHARES | 11 GREAT IDEAS Harwood Wealth Management prospers through consolidation The small cap is in the middle of a rapid buy-and-build strategy

ampshire-based company will end 2017 with Harwood Wealth HARWARD WEALTH £18.1m net cash position. HManagement (HW.:AIM) MANAGEMENT  BUY Watson forecasts 3.2p is a highly acquisitive business (HW.:AIM) 155p dividend per share for 2018. in the financial planning Stop loss: 124p Despite Mann describing the and discretionary wealth company as a ‘growth’ stock, the management space. Market value: £95.9m dividend figure implies a yield of It has acquired over 53 2.1% so investing in Harwood can businesses to date, including legislation in the financial advice provide some income as well. four in the first half of 2017 and space. We believe Harwood will two more recently. The four continue to create value by businesses bought in the first THE TIME IS NOW consolidating the IFA market, half period cost an average of Mann says it’s a good time to be having raised £10m via a share £2.1m each and added an extra in financial services as people placing in March to add to the £1bn in assets under influence need advice about pension company’s fire power. (AUI) to the firm. freedom. The company’s share price has This method of increasing Since the Government increased by 91% since its stock the size of a business is also announced its pension freedom market flotation in March 2016 employed by Harwood’s policy in the 2014 budget, more and Watson sees ‘intrinsic value much larger peer St James’s people have needed to seek north of 230p a share’. (DS) Place (STJ). However non- advice on what to do with their executive chairman Peter Mann pension. HARWOOD WEALTH MANAGEMENT FTSE ALL SHARE - PRICE INDEX differentiates his business from According to the company, 220 those similar to wealth managers post pension reform, it receives 210 200 like St James’s Place. fee revenue from customers into 190 Mann says those businesses their 70s. Previously, Harwood 180 170 which join up with the Harwood would stop receiving revenue 160 brand are free to operate when clients were age 65. 150 in their own way. There are N+1 Singer analyst Andrew 140

130 Source: Thomson Reuters Datastream significant advantages to using Watson says Harwood is 2016 2017 the company’s infrastructure ‘profitable and highly cash BROKER SAYS: including its back office functions generative’. He estimates the 1 0 0 for reporting purposes but they are not mandated to do so. Harwood is making hay as the IFA market consolidates due to rising costs of doing business. Drivers include staying regulatory compliant on top of further

12 | SHARES | 09 November 2017 Limited,Limited, Henderson GlobalInvestors Henderson GlobalInvestors (BrandManagement) SarlandJanusInternational HoldingLLC. (BrandManagement) SarlandJanusInternational HoldingLLC. Financial ConductAuthority toprovideFinancial ConductAuthority toprovide investment investment products products andservices. andservices. TelephoneTelephone calls mayberecorded calls mayberecorded and monitored. and monitored. ©2017, ©2017, JanusHenderson Investors. JanusHenderson Investors. The nameJanusHenderson InvestorsThe nameJanusHenderson Investors includesHGIGroup includesHGIGroup 2606646),2606646), Gartmore Gartmore Investment Investment Limited(reg. Limited(reg. no. no. 1508030), 1508030), (eachincorporatedand registered (eachincorporatedand registered inEngland andWales inEngland andWales with registered with registered o o ce at201Bishopsgate,ce at201Bishopsgate, London London EC2M 3AE) are EC2M 3AE) are authorised andregulated authorised andregulated by by the the Henderson InvestmentHenderson Investment FundsLimited (reg. FundsLimited (reg. no. no. 2678531), 2678531), HendersonInvestment HendersonInvestment ManagementLimited(reg. ManagementLimited(reg. no. no. 1795354), 1795354), AlphaGenCapitalLimited(reg. AlphaGenCapitalLimited(reg. no. no. 962757), 962757), Henderson EquityPartners Henderson EquityPartners Limited(reg. Limited(reg. no. no. Issued in the UKby Janus Henderson Investors. Janus Henderson Investors isthe name under which JanusCapital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Janus Henderson nancial goals. your long-term exists tohelp you achieve

INVESTING IN YOUR FUTURE [email protected] [email protected] o 0800 832 call uson call uson www.hendersoninvestmenttrusts.comwww.hendersoninvestmenttrusts.com ToTo seeourrangeofinvestment seeourrangeofinvestment trustsvisit trustsvisit YourYour capitalisatrisk. capitalisatrisk. goals forthefuture. aim ofhelpingyou tomeetyour nancial regions andmarkets, alldesignedwiththe across manyassetclasses, geographical Today we manage13investment trusts are ouroldestbusiness. dates backto1934, andinvestment trusts Henderson GlobalInvestors, butourhistory the merger ofJanusCapitalGroup and The companywas formedin2017 from

r emailusat by Janus Henderson Trusts,Investment managed Find usonFacebook @HGiTrusts H030353/0717H030353/0717 GREAT IDEAS UPDATES

MIDWICH SCISYS (MIDW:AIM) 527p (SSY:AIM) 126p

Gain to date: 41% Gain to date: 14% Original entry point: Original entry point: Buy at 375p, 24 August 2017 By at 110.5p, 6 April 2017 AUDIO VISUAL (AV) distributor Midwich SIX MONTHS AGO investors were being spooked (MIDW:AIM) expects the global AV market to reach by reports that Brexit could scupper European Space $230bn by 2022, it said at a capital markets day in Agency (ESA) work for SciSys (SSY:AIM). October. How wrong that now looks in the face of the That equates to a compound annual growth rate recent €18m deal to supply ground station control (CAGR) of 5%. and communications technology on an ESA satellites The European AV market is expected to hit mission. $53.5bn by 2022, good news for a company with Finally the market appears to be waking up to the exposure to France, Germany, Ireland and Spain to positive re-rating potential here. For example, at the name a few of its end markets. current 124.5p the company trades on an enterprise The company also says the use of digital value to earnings before interest, tax, depreciation advertising boards over print posters is one driver and amortisation (EBITDA) of 7.5-times, about half of the sector as well as the growth of touch screen the government displays in shops, schools and workspaces. SCISYS software peer 130 FTSE ALL SHARE - PRICE INDEX Another factor behind the company’s success is 125 group average, the need for new technology to replace outdated 120 according to 115 equipment. This could include replacing screens to 110 analysts. 105 handle 4K definition. 100 95 Midwich is targeting new areas such as lighting 90 and professional audio markets. This year’s 85

80 Source: Thomson Reuters Datastream acquisition of Earpro in Spain and Gebroeders van 2016 2017 Domburg in the Netherlands is a clear sign of intent to exploit these new sectors. SHARES SAYS:  Perhaps the biggest driver of the AV market’s At FinnCap’s 155p target the stock would still trade success and by association Midwich’s own, is the on a rough 40% sector discount. widespread adoption of flat panel displays to replace Still a buy. (SF) projectors. The company estimates the flat panel display BROKER SAYS: 1 0 0 market is expected to exhibit a CAGR of 15% from this year until 2022.

SHARES SAYS:  The market backdrop is encouraging, keep buying. (DS)

BROKER SAYS: 1 0 0

14 | SHARES | 09 November 2017 GREAT IDEAS UPDATES

ELEMENTIS Elementis also plans to sell the underperforming surfactants business early next year. (ELM) 281.3p N+1 Singer analyst James Tetley says Elementis is on track to meet full year expectations and is ‘well Gain to date: 20% positioned to deliver another year of good growth in Original entry point: 2018’ through organic growth and M&A. ELEMENTIS Buy at 234.5p, 10 November 2016 FTSE ALL SHARE - PRICE INDEX 320 310 SPECIALTY CHEMICALS business Elementis (ELM) is 300 290 set to grow operating profit across the board despite 280 unplanned production outages in its chromium 270 260 division and raw material cost inflation. 250 Earlier this year, we were impressed by Elementis’ 240 230 Source: Thomson Reuters Datastream $360m acquisition of antiperspirant ingredients 2016 2017 manufacturer SummitReheis. In the last 12 months Elementis has rallied 20%, partially driven by the acquisition as it helped to boost sales by 26% to SHARES SAYS:  $334.1m in the first half of 2017. Elementis has a promising growth outlook and The integration of SummitReheis is on track and trades on 13.6 times forecast earnings per share for the company is undertaking pricing actions to tackle 2018. (LMJ) higher raw material costs that have curbed profit growth in the speciality products division. BROKER SAYS: 046

GUINNESS Investing in listed Capturing strong A play on growing GLOBAL MONEY MANAGERS asset managers returns on capital global savings Equal weighted, concentrated portfolio of 30 stocks with high active Guinness Funds are built on an investment philosophy focusing on areas we know well share and well controlled stock specific risk. and like. The global listed asset management sector is one of those areas that can offer exciting returns. Our Global Money Managers portfolio invests in asset managers around the world. 110% Guinness Global Money Managers • High returns on capital 90% IA Global sector Successful asset management companies can grow using relatively little capital and are highly scalable. Overall shareholder returns can therefore be very high FE Offshore Financial Sector 70% in • Growing global savings Global savings, particularya in conventional assets under management, are growing 50% significantly faster than world GDP. This is supporting surprisingly resilient growing revenues in the sector, despite some pricing headwinds 30% • Low balance sheet risk Asset management companies tend to have very low gearing versus other financial sectors 10% Source: Financial Express From Fund launch (31.12.10), in GBP (especially banks), reducing balance sheet risk

-10% • Above average dividend yield The sector typically exhibits high free cashflow, which currently translates into higher dividend 2011 2012 2013 2014 2015 2016 2017 yields on average than the broad equity market

Total Return, in GBP (to 30.06.17) YTD 1 Year 3 Years 5 Years From Launch • Higher beta Return 13.6% 38.2% 31.6% 138.3% 107.0% The sector has the potential to significantly outperform the market (capture higher beta) Fund Quartile 1st 1st 4th 1st 1st during periods of equity market strength, however bear in mind it may underperform Rank in IA Sector 10/272 6/269 206/236 13/204 40/179 noticeably in weak markets IA Global Sector 7.1% 23.7% 43.1% 89.2% 75.6% FE Offshore Financial Return 9.0% 37.5% 48.0% 98.2% 71.9% Sector • Which investors should consider this Fund? Those who will accept higher year year-on-year volatility in return for the potential for a higher long run return; and have a long term investment time horizon Discrete years (X Class, in GBP) Jun '13 Jun '14 Jun '15 Jun '16 Jun '17 Fund 47.8% 22.6% 13.3% -16.0% 38.2% Learn more about what managers Tim Guinness and Will Riley think about the investment IA Global Sector 21.4% 9.0% 8.4% 6.7% 23.7% FE Offshore Financial opportunity at guinnessfunds.com/global-money-managers-fund 29.6% 3.3% 12.8% -4.6% 37.5% Sector Source: Financial Express

Past performance is not a guide to future returns. The value of your investments and the income received from them can fall W: guinnessfunds.com E: [email protected] as well as rise. You may not get back the amount you invested. T: 0845 519 2161 WEEK AHEAD

FRIDAY 10 NOVEMBER Jackpotjoy JPJ TalkTalk TALK INTERIMS Land Securities LAND TRADING STATEMENTS Castings CGS Picton Property Income PCTN Barratt Developments BDEV Vedanta Resources VED Speedy Hire SDY AGMS Volex VLX Trifast TRI Barratt Developments BDEV TRADING STATEMENTS Vodafone VOD Hays HAS BBA Aviation BBA Wentworth Resources WRL Jupiter UK Growth AGMS TRADING STATEMENTS Investment Trust JUKG Galliford Try GFRD BBA Aviation BBA ECONOMICS Tlou Energy TLOU Bovis Homes BVS UK Vinaland VNL ITV ITV Unemployment Rate MONDAY 13 NOVEMBER Meggitt MGGT THURSDAY 16 NOVEMBER FINALS Polypipe PLP INTERIMS Carrs CARR UBM UBM Assura AGR Lonmin LMI AGMS British Land BLND INTERIMS Global Petroleum GBP Dart DTG McKay Securities MCKS A & J Mucklow MKLW 3i III TRADING STATEMENTS Smiths SMIN Investec INVP Dignity DTY ECONOMICS Mediclinic International MDC Ladbrokes Coral LCL UK QinetiQ QQ. Lonmin LMI CPI Royal Mail RMG Taylor Wimpey TW. HPI TBC Bank TBCG TUESDAY 14 NOVEMBER RPI Young & Co’s Brewery YNGA PPI FINALS TRADING STATEMENTS McCarthy Stone MCS WEDNESDAY 15 NOVEMBER Coats COA INTERIMS FINALS Keller KLR AVEVA AVV Avon Rubber AVON Norcros NXR BTG BTG Fenner FENR Premier Oil PMO DCC DCC Game Digital GMD Regional REIT RGL Electrocomponents ECM Zambeef ZAM Safestore SAFE FirstGroup FGP INTERIMS AGMS Intermediate Capital ICP Celtic CCP Close Brothers CBG Experian EXPN Genus GNS Great Portland Estates GPOR Prairie Mining PDZ Helical Bar HLCL EX-DIVIDEND Premier Foods PFD Abcam ABC 7.36p Anpario ANP 2p Bunzl BNZL 14p Diversified Gas & Oil DGOC $0.02 M J Gleeson GLE 17.5p Genus GNS 16.2p Jupiter European Opportunities Trust JEO 6.5p INVESTORS IN luxury goods New Star leader Burberry (BRBY) have Investment Trust NSI 0.8p been rocked by news that chief Rotala ROL 0.85p creative officer Christopher Raven Russia RUSP 3p IN THE FACE of virtual saturation Bailey will leave the company Sanditon of telecoms and broadband in the at the end of 2018, having been Investment Trust SIT 0.9p UK, it’s becoming increasingly recently been replaced as CEO by Spire Healthcare SPI 1.3p difficult to see the levers TalkTalk Marco Gobbetti. Swallowfield SWL 3.5p (TALK) can pull to drive profitable Half year results on 9 Tristel TSTL 2.63p earnings growth. November will mark the first ECONOMICS official appearance of Burberry’s Flat forecast dividends and limited hope of a buyer emerging UK new boss. Retail Sales Investment bank Berenberg paint a bleak picture considering half year results on 15 November sees Burberry as one of the most Click here for complete diary are expected to show a 70% exciting restructuring stories in www.sharesmagazine.co.uk/market-diary the luxury goods sector. decline in pre-tax profit to £12m.

16 | SHARES | 09 November 2017 ADVERTORIAL ALIGNED WITH OUR INVESTORS Seeking the best equity opportunities, globally

AT SARACEN FUND MANAGERS, WE ALIGN OUR INTERESTS WITH THOSE OF INVESTORS – WE ARE EMPLOYEE OWNED AND HAVE SIGNIFICANT PORTIONS OF OUR PERSONAL ASSETS INVESTED INTO OUR FUNDS. WE AIM TO IDENTIFY LEADING GLOBAL BUSINESSES WHERE WE EXPECT PROFITS AND DIVIDENDS TO GROW OVER THE NEXT 10 YEARS.

he TB Saracen Global Income and Growth Fund Performance since inception (from 06/11 – 09/17) Fund, co-managed by Graham Campbell and David Keir, aims to grow both capital Tand income over the long-term by investing in market leading businesses at attractive valuations and supportive dividend yields. The most important part of any investment decision is the price you pay. We aim to identify and invest in 40-60 leading global businesses which we believe will be able to grow profits and increase dividends over the long-term. The fund is independently rated by RSM and “A” rated by Square Mile Research. TB Saracen Global Income and Growth Fund has an active share of over 90%. The fund has been ranked first quartile over one year and second quartile over five years. 1 The historic dividend yield is 2.6% , which Source: Financial Express rose 8% year on year2. There is an annual Total Return, Bid to Bid, GBP terms. Past performance is not a reliable indicator of management fee of 0.75% and annual charges of future results. The value of your investment and the income derived from it can go 0.99% (B Shares). There are no entry or exit fees down as well as up and you may not get back the money you invested. and no performance fees. We offer Income and Accumulation shares. AJ BELL Fund has been selected as part of the FAVOURITE Saracen Fund Managers has a rigorous AJ Bell Favourite Fund List 2017 FUND LIST investment process. We have a long-term 2017 investment horizon and we focus on factors that drive returns, namely: cash and growth. Many investors require income and capital to fund their Cumulative Performance after all ongoing charges to 29th September 2017 aspirations. Banks and government bonds offer very low levels of return for savers. In comparison, 1 6 1 3 5 Since month months year years years launch1 equities still appear attractive and with signs that economic growth is strengthening, we TB SGIG B +0.4% +2.2% +19.1% +44.8% +91.7% +104.5% Acc believe we have identified a portfolio of quality businesses that offer value and will benefit from Sector -1.3% +1.4% +12.3% +36.2% +73.8% +81.6% the persistence of global economic growth. Average Quartile 1 2 1 2 1 1 Click here to find out more information Ranking 1Source: Financial Express; launch date 07 June 2011 1 Based on 4.27p per share on Income shares for 2016 Sector: IA Sector (Global Equity Income) 2 HI 2017 rate was 3.94p per share.

Issued by Saracen Fund Managers Limited. This document represents the views of Saracen Fund Managers Limited at the time of writing. This information should not be construed as an invitation, offer or recommendation to buy or sell investments, shares or securities or to form the basis of a contract to be relied on in any way and is by way of information only. If you have any doubt whether the TB Saracen Global Income and Growth Fund is suitable for you and you wish to receive advice you should contact your Financial Adviser. Please note that Saracen Fund Managers Limited do not provide financial advice. This Fund may not be appropriate for investors who plan to withdraw their money in the short-term (within 5 years). The Fund should be viewed as a medium to long- term investment only. A full list of the risks and costs applicable to this Fund can be found in the Prospectus. Subscriptions will only be received and shares issued on the basis of the current Prospectus, Key Investor Information Document (KIID) and Supplementary Information Document (SID). These are available, in English, together with information on how to buy and sell shares, on-line at: www.tbaileyfs.co.uk. Taxation levels, benefits and reliefs may all vary depending on individual circumstances and are subject to change. The historic yield reflects distribution payments declared by the fund over the previous year as a percentage of its share price. The value of investments and the income from them may go down aswell as up and you may get back less than the amount invested. Past performance is not a guide to future performance. Saracen Fund Managers Ltd, 19 Rutland Square, Edinburgh, EH1 2BB. Tel: 0131 202 9100 and on-line at www.saracenfundmanagers.com. Saracen Fund Managers Limited is authorised and regulated by the Financial Conduct Authority. Registered in Scotland No. 180545.

TALKING POINT Our view on topical issues Retail investors miss out on large gains from IPO offers Having a We calculate that institutional investors have made nearly six times as much on flotations than thebright general public

idea available price in the market on AVERAGE GAIN MADE day one. ON IPOS IN 2017 The difference is astonishing. Institutional investors, such as actively-managed funds and pension funds, would have made Institutional an average 11.8% gain if they’d bought all of the 77 companies investors who floating on the London Stock Exchange this year. The data bought at IPO assumes they paid the IPO offer price. offer price: In contrast, retail investors would have only made 2% average gain if they’d bought at the first possible chance, being 11.8% the market open on the first day of dealings.

WHY ARE RETAIL INVESTORS TREATED DIFFERENTLY? The majority of IPOs offers are Retail not open to the general public. The people running stock market investors who flotations such as brokers and banks find it easier to call round bought at etail investors are missing a small group of people who can out on significant gains potentially put up large amounts market open Renjoyed by institutional of cash to support an IPO. investors who are able to Involving thousands of retail on first day take part in IPOs (initial public investors is much more of an offerings), according to analysis effort given lots of paperwork of dealings: by Shares and AJ Bell. and promotional work; hence We’ve calculated the share why the general public tends price performance of every IPO to have to wait until a stock is 2.0% this year and compared the trading before they can buy. gains between buying at the IPO So why have retail investors offer price and buying at the first only be able to enjoy a fraction

18 | SHARES | 09 November 2017 TALKING POINT of the returns generated for investors on average have this started trading. However, we’d institutional investors in this year paid 9.8% premium to buy say Strix was an exception to analysis? The answer is simple. IPOs compared to institutional normal IPOs. Many stocks have started trading investors buying at the IPO offer The business was the last at a much higher price than their price. holding in a private equity fund IPO offer. trying to wind itself up, so the Strong demand for stock WHICH STOCKS TRADED AT THE owner was effectively happy to pushes up the price ahead of the BIGGEST PREMIUM? get rid of Strix at a discounted market open, so the first trades This year’s biggest difference price, according to Chris White, are settled at large premiums between the market opening a fund manager at Premier Asset to the price made by the price on the first day of dealings Management. institutional investors in the offer and the IPO offer price was Alfa Financial Software (ALFA) period. SkinBioTherapeutics (SBTX:AIM) started trading on the stock with a 47.2% premium. The market 29.2% above its IPO DISCOUNTED STARTING PRICE Manchester University spin- price at 420p and now trades at One view among City experts is out priced its IPO at 9p, started 489.9p. that IPOs are generally priced at trading at 13.25p and peaked at Retail investors should always a 10% to 20% discount to their 16.25p in April. think about what a company is theoretical value. So a company Retail investors had to pay a worth before buying the shares. worth 100p per share would 34.5% premium to institutional Never race to buy IPOs simply normally float at 80p or 90p. investors who took part in the for fear of missing out on the Pricing the shares in such a IPO of kettle controls specialist post-listing rally. Inevitably most way makes them attractive to Strix (KETL:AIM). new stock market listings go up, institutional investors and in The lure of a 7% dividend yield then back down slightly (as early theory suggests the shares are (based on the IPO price) and birds take profit) before heading more likely to rise once they cheap valuation made Strix seem back up. That gives you plenty float, as the value adjusts to a no-brainer for many investors, of time to research a stock and more normal levels. hence why so many people were decide at what price you’d be We calculate that retail happy to pay up when the shares happy to buy, if at all. (DC)

BIGGEST DIFFERENCE BETWEEN MARKET OPEN PRICE ON FIRST DAY OF DEALINGS AND IPO PRICE

SKINBIOTHERAPEUTICS 47.2% STRIX 34.5% BASKERVILLE CAPITAL 30.0% SAFFRON ENERGY 30.0% ALFA FINANCIAL SOFTWARE 29.2% MEDICA 27.6% SOSANDAR 25.8% STRANGER HOLDINGS 25.0% FANDANGO HOLDINGS 25.0% EMMERSON 25.0%

Source: Shares, AJ Bell, MoneyAM. Data taken 3 November. Cover all IPOs so far in 2017 and excludes Introductions

09 November 2017 | SHARES | 19 TALKING POINT Our view on topical issues

BEST PERFORMING IPOS IN 2017: COMPARING CURRENT PRICE TO IPO PRICE ALPHA FX 142.3% TOUCHSTONE EXPLORATION 106.9% RAMSDENS 106.4% K3 CAPITAL 66.3% MEDICA 64.4%

BEST PERFORMING IPOS IN 2017: COMPARING CURRENT PRICE TO MARKET OPEN PRICE ON FIRST DAY OF DEALINGS ALPHA FX 118.9% RAMSDENS 96.1% TOUCHSTONE EXPLORATION 76.5% K3 CAPITAL 55.7% RAINBOW RARE EARTHS 37.2%

WORST PERFORMING IPOS IN 2017: COMPARING CURRENT PRICE TO IPO PRICE INTEGUMEN -45.6% UP GLOBAL SOURCING -31.3% GLOBAL PORTS -31.1% ANGLO AFRICAN OIL & GAS -28.8% HEMOGENYX PHARMA -25.1%

WORST PERFORMING IPOS IN 2017: COMPARING CURRENT PRICE TO MARKET OPEN PRICE ON FIRST DAY OF DEALINGS INTEGUMEN -50.5% UP GLOBAL SOURCING -40.9% EMMERSON -40.0% ANGLO AFRICAN OIL & GAS -39.4% PATH INVESTMENTS -33.6%

Source: Shares, AJ Bell, MoneyAM. Data taken 3 November. Cover all IPOs so far in 2017 and excludes Introductions

20 | SHARES | 09 November 2017 VIDEOS WATCH THE LATEST SHARES VIDEOS

SAMPLE Alastair Smith, CEO of Avacta (AVCT) VIDEOS Richard Shepherd-Cross, Investment Manager of Custodian REIT (CREI) CLICK TO PLAY

David Archer, CEO of Savannah Stephen Blyth, CEO and Richard Myson, Resources (SAV) CFO of Xpediator (XPD)

Visit the Shares website for the latest company presentations, market commentary, fund manager interviews and explore our extensive video archive

www.sharesmagazine.co.uk/videos Six How to spot value Cheap in an expensive Stocks market

20 [ENDS] holdings is often considered the maximum number of stocks you would need for a decent portfolio

tock markets across the globe are marking a ‘new paradigm for valuing new highs as investors continue to focus equities’. In a letter to clients of Smore on how fast earnings are growing his Greenlight Capital fund, reported by rather than how these earnings are being valued. Bloomberg, he wrote: ‘The persistence of this ‘Growth’ and ‘value’ investing are typically dynamic leads to questions regarding whether seen as being in opposition to each other and value investing is a viable strategy.’ growth is on a winning streak. The US Russell AJ Bell’s investment director Russ Mould says 1000 Value Index has returned 9.7% in 2017 one fund manager recently moaned to him that against 24% for the US Russell 1000 Growth there is no value in momentum stocks at present Index. That trend is being replicated on this side – and no momentum in value stocks. of the Atlantic too. We’re in a difficult time for markets despite Hedge fund manager David Einhorn – a noted the headline indices racing ahead. Nevertheless value investor – has even questioned if there is keep reading as we do have some good news.

22 | SHARES | 09 November 2017 HOW TO FIND VALUE Value investing may be out of fashion but Shares still believes in considering valuation when it comes to judging an investment. Just look at the fate of leisure group Merlin Entertainments (MERL) which fell nearly 20% in the wake of a recent profit warning (17 Oct). WHAT ARE VALUE STOCKS? The news undermined its growth credentials and Value stocks ares ones which trade on shined an unfavourable light on its high price-to- lowly valuations relative to the market or earnings (PE) ratio in excess of 20-times. their sector and/or their intrinsic worth. Investing in undervalued companies provides what is often described as a ‘margin of safety’ WHAT ARE GROWTH STOCKS? which can help you avoid those kinds of sharp A ‘growth’ stock is usually defined as a losses. company whose earnings are expected to grow at an above-average rate either for its industry or the overall market. A ‘growth’ investor will buy such a stock even if it appears to be expensive based on metrics such as the PE ratio.

EXPENSIVE MARKETS ARE MAKING IT Worried “TRICKY TO FIND VALUE” Expensive markets are making it tricky to find value – but it is not impossible. Data from Capital Economics suggests the FTSE All-Share is trading at around a 50% premium to its long-run average PE ratio; and the US S&P 500 trades on an earnings multiple of 17.9 against a 10- year average of 14.1. Buried within the market is a pocket of value stocks. To find them, we’ve decided to look beyond the standard PE figure and use a range of alternative metrics. We’ve accessed three filters offered by Stockopedia’s screening service partly inspired by the processes deployed by legendary investors. Recognising a stock can be cheap for a reason; we have also applied the knowledge of the Shares team to filter out the bad stuff and arrived at a list of six stocks which we believe offer winning value.

09 November 2017 | SHARES | 23 Contrarian value THE PROCESS This stock screen applies the approach of US fund manager Bill Miller INCLUDES: to find companies which are trading below their intrinsic value and which have the potential to rebound. 1. Price to free cash The process includes looking at the share price relative to free cash flow of less than 3 flow, sales and earnings growth. Miller had a track record of beating the market for 15 straight years at former employer Legg Mason 2. Free cash flow between 1991 and 2005. greater than a year ago 3. Sales growth 4. Price to earnings growth ratio below 1.5

as a well-managed, low risk bank proposition and the fact that CHEAP STOCK #1 with strong growth that is not leases are starting to lapse for VIRGIN MONEY (VM.) 288.6p constrained by capital or market branches inherited from the Virgin Money’s shares are very size,’ says Investec analyst Ian Northern Rock acquisition in cheap and we don’t expect them Gordon. 2012. to stay so for long. Virgin’s ratio of cost to income Virgin currently trades on 0.9 The stock was previously has continually fallen since 2012 times price to 2018’s forecast weighed down by concerns over thanks to rapid loan growth and tangible net asset value per its capital – yet the mortgage operational efficiencies. Further share; and 6.9 times forecast lender recently reassured the improvement is expected for earnings for 2018. Those are market with guidance that two reasons. First, there is a very cheap ratios. its CET1 ratio (a measure to plan to launch a digital banking It ticks many other boxes on see if the balance sheet can service. This will start in late our contrarian value screen withstand economic shocks) 2018 and efficiency gains are including price to earnings will be 13.5% at the end of the expected from 2019 onwards. growth ratio below 1.5 (it is year. That’s above the 12% level Analysts also think Virgin 1.46 for 2017, according to at which management thinks is will soon announce plans to Stockopedia). Revenue is in a appropriate for the business. close more physical branches strong rising trend, so too pre-tax ‘We continue to regard Virgin in light of the incoming digital profit. (DC)

24 | SHARES | 09 November 2017 CHEAP STOCK #2 Aviva (AV.) 514p After a difficult few years in the wake of the financial crisis, chief executive Mark Wilson has helped steady the ship at this large insurance business. Summarising last year’s results Wilson said: ‘Aviva’s results are simple and clear cut: more operating profit, more capital, more cash, more dividend. And there is more to come.’ Wilson took over as CEO in January 2013 and has since divested an interest in Dutch insurer Delta Lloyd, exited markets such as France, Russia, the US and Malaysia and acquired Friends Life in a £5.6bn deal. The aim has been to build a more streamlined operation which can generate plenty of cash with a focus on offering UK customers a one-stop shop for all their insurance needs (including life, accident and health) alongside asset management. Wilson appears to have gone a long way to achieving this goal. A shift to managing insurance and savings online could help the company in its efforts to cross- sell products across its customer base going forward. The company’s presence in our value screen suggests the surplus capital at the end of June progress, we believe Aviva can market is not giving full credit for based on European Solvency II be a sector leading risk-adjusted Aviva’s transformation despite rules governing how much cash dividend and capital return story a reasonably strong run for the insurers need to hold against the under Solvency II.’ (TS) shares. risk of financial shocks. Given the strategy of This surplus capital can be narrowing the focus on the used for shareholder returns, to AVIVA UK, we admit the fate of Brexit buy back shares for acquisitions 560 FTSE ALL SHARE - PRICE INDEX negotiations is a potential risk and to re-invest in the business, 540 520 facing the business. potentially boosting organic 500 However, the fact that ratings growth. 480 agency Moody’s recently Investment bank UBS has a 460 440 upgraded Aviva’s credit rating ‘buy’ recommendation and 580p 420

is very important. It noted price target. It comments: ‘While Source: Thomson Reuters Datastream the company had £11.4bn of the transformation strategy is in 2016 2017

09 November 2017 | SHARES | 25 Deep value checklist THE THREE MOST Benjamin Graham was a legendary figure known IMPORTANT RATIOS as the ‘father of value investing’ and was a ACCORDING TO GRAHAM mentor to Warren Buffett. The following stock screen applies Graham’s 10-point checklist of valuation and financial measures. Devised not Earnings yield = long before his death in 1976 this approach was earnings per share divided by share more systematic than his other value investing price strategies. Dividend yield = Interestingly this screen threw up several dividend per share divided by share housebuilders. We discussed our reservations price on housebuilders in last week’s Editor’s View column and this is an indication of why you Debt less than book value need to take other factors into account when determining if a stock is genuinely undervalued.

CHEAP STOCK #3 miners. source of production, thereby In the third quarter of 2017 lifting group gold output and Centamin (CEY) 140.5p Centamin’s all-in costs were $732 further boosting cash generation. All the big spending on mine per ounce of gold produced. It Analysts think the shares development has been sold gold for an average price of are worth 180p based on the completed at Centamin’s flagship $1,283 per ounce. consensus view, implying nearly project, meaning it should now Rather than pay any taxes in 30% upside over the next year. have an attractive stream of Egypt, Centamin instead has a Add in the near-6% dividend yield cash to help fund handsome profit share agreement with the and you’re potentially looking at dividends. government, to whom it currently tasty returns. (DC) The gold miner is forecast to pays 40% of free cash flow after pay 10.9c (8.2p) dividend in 2018 costs. That figure gradually rises CENTAMIN 200 FTSE ALL SHARE - PRICE INDEX which equates to a 5.8% yield on to 50% by 2020. 190 the current share price. Gold is produced via an open 180 170 Its Sukari project in Egypt is pit and underground at Sukari. 160 one of the top-quality gold mines Work is underway to develop a 150 140 in the world. It benefits from new underground section called 130 having high grades of gold, so Cleopatra which the miner is 120

110 Source: Thomson Reuters Datastream costs are lower than many other confident will become another 2016 2017

26 | SHARES | 09 November 2017 CHEAP STOCK #4 Moss Bros (MOSB) 92.6p A downwards drift from 120p in the summer to 92.6p presents a buying opportunity at Moss Bros. The retailer’s strong balance sheet and high dividend yield provide a margin of safety and should limit further downside. Based on the 6.2p dividend forecast by Cantor Fitzgerald for the financial year to January 2018, Moss Bros’ plump 6.7% dividend yield (as well as recent share price weakness) indicates the market is worried about further earnings downgrades. We believe the progressive payout will be secure given it has a £21.5m net cash position. That cash pile is approximately one fifth of its market value. Headwinds facing the self- styled ‘first choice for men’s tailoring’ include competition, rising labour and currency costs and the squeeze on consumer incomes. This year’s hire sales were hit by the later timing of Easter, which traditionally signals the start of the wedding season, and a trend towards lounge suits rather than traditional morning dress. Encouragingly, Moss Bros is respectively in 2019. More grooms are choosing making progress with numerous Moss Bros trades on a mere 5.1 to buy rather than hire their online and store initiatives, times EV/EBITDA (enterprise value wedding suits, which is at while online expansion offers to earnings before interest, tax, least beneficial for Moss Bros’ an exciting overseas growth depreciation and amortisation) retail business and Tailor Me opportunity. which is too cheap, in our view. personalisation service. ‘Despite the short-term It currently boasts 18.4% return Nevertheless, Moss Bros’ half headwinds, we continue to see on capital employed, according year results (28 Sep) were strong scope for profits to double from to Stockopedia, which is a very with pre-tax profit up by 16% to the current base over the medium healthy figure. (JC) £4.2m. term’, writes Cantor Fitzgerald, MOSS BROTHERS Retail like-for-like sales grew a buyer whose 130p price target 125 FTSE ALL SHARE - PRICE INDEX 5.1% thanks to investment in suggests 40% potential upside. 120 115 staffing, stores and product For the current year, the 110 ranges and this positive broker forecasts pre-tax profit 105 100 momentum carried over into improvement from £6.9m to 95 the opening eight weeks of the £7.2m for earnings of 5.6p per 90

85 Source: Thomson Reuters Datastream second half period. share, ahead of £7.3m and 5.7p 2016 2017

09 November 2017 | SHARES | 27 Free cash flow cows WHAT THIS APPROACH Inspired by investment writer Jae Jun, Stockopedia’s ‘free cash flow cows’ stock screen CONSIDERS: looks for companies which are cheap relative to the amount of free cash flow they generate. Unlike earnings, cash cannot be manipulated Enterprise value (market cap plus any through clever accounting and should therefore liabilities) to free cash flow offer a true picture of how a company is performing. Free cash flow to long-term debt Free cash flow growth

and plans to move to a lower- calibre in a takeover situation. CHEAP STOCK #5 grade section in 2020. Broker RFC Ambrian has Base Resources Approximately 80% of the a A$0.54 price target which (BSE:AIM) 19.75p value of its production comes equates to 31p at current An improvement in the price of from ilmenite and rutile with exchange rates. In comparison, mineral sands since 2016 has zircon accounting for the rest. stockbroker Numis has a 30p helped miner Base Resources to They are used to help make price target. Both imply you generate a large amount of cash paint, plastics and ceramic tiles could make at least 50% return in and dramatically reduce its debt. among other applications. 12 months. (DC) Some analysts think it could be Base’s shares are incredibly BASE RESOURCES completely debt free by the end cheap, trading on a mere 3.1 FTSE ALL SHARE - PRICE INDEX 21 of 2018. times EV/EBITDA (enterprise 20 19 The company owns 100% value to earnings before 18 17 of the Kwale minerals sands interest, tax, depreciation and 16 15 operation in Kenya. It has been amortisation). That’s at least half 14 13 producing from a high-grade the level at which we’d expect 12

11 Source: Thomson Reuters Datastream section since December 2013 someone to pay for a miner of its 2016 2017

28 | SHARES | 09 November 2017 CHEAP STOCK #6 Portmeirion (PMP:AIM) 930p Ceramic homewares manufacturer Portmeirion’s shares continue to recover in the wake of a severe 2016 profit warning, triggered by a period of subdued Asian demand in India and South Korea, Portmeirion’s third biggest market. We see good reason to buy at the current price, particularly as the stock is very cheap based on certain metrics. In fact, it passes all seven of the measures that constitute Stockopedia’s Free Cash Flow Cows screen. Portmeirion boasts well- invested manufacturing assets and heritage British brands – Portmeirion, Spode, Royal Worcester, Pimpernel – the latter providing a durable competitive advantage. Geographically diversified, the ceramics maker’s half year results (3 Aug) revealed 18% improvement in pre-tax profit to £1.6m on sales up 16% to £33.1m. The integration of scented candles-to-reed diffusers seller Wax Lyrical is on track, with new collections and co-branded home fragrance products having been successfully launched. This augurs well with the seasonally important second half underway. A positive trading update in January could provide a catalyst for a re-rating. Sterling weakness also provides a boon Cantor Fitzgerald analyst Mark company as top out of nine stocks for exports to Europe, where Photiades has a ‘buy’ rating and in the household goods sector. Portmeirion remains under- £12 price target for Portmeirion, (JC) represented. implying potential upside of 29%. PORTMEIRION Prodigiously cash generative, For calendar 2017, the analyst FTSE ALL SHARE - PRICE INDEX Portmeirion increased the forecasts pre-tax profit recovery 1000 interim dividend by 5.7% to to £8.7m (2016: £7.8m), ahead of 950 7.4p, continuing its record of £9.6m and £10m respectively for 900 never having cut or withheld fiscal years 2018 and 2019. 850 the dividend since its 1988 stock Portmeirion is trading on 9.3 800 market debut, while net debt was times price to free cash flow. On 750 Source: Thomson Reuters Datastream reduced by £8m to £1.7m. that basis, Stockopedia ranks the 2016 2017

09 November 2017 | SHARES | 29 INVESTMENT TRUSTS The appeal of looking beyond the UK for dividends We explain how Henderson International Income Trust finds opportunities in overseas markets

he Bank of England’s DIVERSIFYING YOUR of 4.9p per share, up a healthy recent move to raise UK DIVIDENDS 5.4% year-on-year. While that is T interest rates from 0.25% Importantly, Henderson a good performance, investors to 0.5% reflects a determination International Income Trust should not assume future returns to get a grip on inflation, often looks to find these companies will be the same. The value of dubbed the ‘cruellest tax’, since it from across the globe but not investments can go down as well erodes savers’ purchasing power. the UK, offering investors the as up, so you could get back less Those investors concerned chance to diversify from any UK than you invested. by inflation and the impact of investments they may have, and The quarterly dividend payer’s Brexit on domestic earnings may in particular UK-based income ongoing charges figure (OCF), wish to consider some exposure generating stocks. currently 0.88%, has reduced to rising dividends generated As at 30 September 2017, from 1.39% in the year of its away from the UK’s shores. One the portfolio’s exposure to the launch as a result of asset growth relevant product is investment Americas, Europe and Asia Pacific and a reduction in fees in April trust Henderson International stood at 34.4%, 40.2% and 26.5% last year. Income Trust (HINT). respectively. The trust has also grown The global equity income This is significant, as investors significantly since launch; net universe continues to be in good who focus solely on UK-listed assets nearly doubling in size health and it is possible to find firms, or the funds that invest in to around £200m in 2016 companies offering real dividend them, run the risk of significant after combining assets with growth. Despite many overseas income concentration. Henderson Global Trust and markets scaling new heights, ‘More than 70% of the UK’s equities still look attractively income as a market comes valued relative to bonds. from the top 20 stocks,’ says Dividend-income diversifier Lofthouse. ‘We’ve undertaken Henderson International Income never to own UK names, so we Trust seeks to provide a high and offer diversification,’ continues rising level of dividends as well Lofthouse, who remarks that this as capital appreciation over the alarming concentration of UK medium to long term. equity income hasn’t reduced Ben Lofthouse has managed in the years since Henderson the trust since launch in 2011. International Income Trust’s A dividend seeking, valuation launch. ‘If anything, it has gone driven investor, Lofthouse looks the other way,’ he explains. for companies that have strong fundamentals, good balance PAYOUT PROGRESS sheets and attractive cash flow In the financial year to 31 August characteristics that can support 2017, Henderson International growing dividends, tending to Income Trust generated a total focus on companies that yield return of 18.8% in net asset above 2%. value (NAV), including dividends

30 | SHARES | 09 November 2017 INVESTMENT TRUSTS through the issuance of shares to boost liquidity, broaden wealth ANNUAL PERFORMANCE (WITH INCOME) (%) manager demand and lower charges. DISCRETE YEAR PERFORMANCE % CHANGE PRICE NAV ‘Dividend growth has been good in the portfolio and 30/09/2016 to 29/09/2017 15.8 16.3 widely spread across sectors 30/09/2015 to 30/09/2016 28.4 29.4 and regions,’ says Lofthouse, addressing last year’s 30/09/2014 to 30/09/2015 8.5 2.5 performance. 30/09/2013 to 30/09/2014 -0.1 7.5 The investment trust’s 28/09/2012 to 30/09/2013 13.7 17.3 valuation discipline often leads All performance, cumulative growth and annual growth data is sourced from Morningstar. Lofthouse to invest in out-of- Past performance is not a guide to future performance. favour sectors and regions. Europe has been the largest Driven by earnings growth, the number one US consumer regional exposure in the portfolio others to materially increase electronics retailer. for some time, and an economic their shareholder rewards ‘We look for businesses recovery has seen strong included smartphones leader that have consolidated,’ he performance over the past year Samsung, logistics leviathan says of the latter, a successful from a number of European Deutsche Post and soft drinks turnaround tale and dividend stocks. distributor Coca-Cola European growth stock which has 30% Some of last year’s largest Partners. market share, ‘and where dividend increases came from there has already been a lot the likes of Dutch bank Van AVOIDING VALUE TRAPS of pain.’ Lanschot, and French banks Not averse to a turnaround Natixis and BNP Paribas. tale, Lofthouse seeks to avoid EMERGING MARKETS Stronger balance sheets and value traps by ‘focusing on free INTEREST clearer regulatory requirements cash flow’, a factor in the trust’s Last year’s most significant regarding capital levels enabled outperformance of peers since change in portfolio composition those names to pay larger launch as ‘it is one way to avoid was the increase in emerging distributions. balance sheet problems’. markets exposure. This Another way of eschewing was mainly driven by new GEOGRAPHICAL FOCUS stock market disasters is ‘not Chinese investments such as Country % reaching for too much yield’; food manufacturer Dali and since optically high yields are sportswear manufacturer/ United States 32.2 often a red flag for impending retailer Anta Sports. France 8.9 dividend cuts. ‘Buying reasonably attractive Lofthouse prefers to put income stocks through time has China 8.4 investors’ money to work generally outperformed,’ insists Germany 7.2 with industry leaders which Lofthouse, arguing his strategy Netherlands 5.8 benefit from economies of has the potential to provide scale, diversification of earnings good returns to investors in a Switzerland 4.8 streams and also pricing power. variety of market conditions. Australia 4.5 Exemplars in the portfolio ‘It takes you away from include Samsung, offering a bubbles, so you avoid excessive Norway 3.8 compelling combination of free valuations,’ says Lofthouse, South Korea 3.2 cash flow growth, increased while even in a down market, diversification and rising dividends provide downside Italy 2.8 shareholder returns, software protection for patient portfolio Source: Janus Henderson Investors. Data as of 30 September 2017 giant Microsoft and Best Buy, builders. (JC)

09 November 2017 | SHARES | 31 FUNDS New evidence in passive vs active investment debate UBS looks at the performance of funds in Europe over a 20 year period

here is new evidence that styles of active firmly supports actively management include ACTIVE OUTPERFORMANCE Tmanaged funds in the value, quality and ISN’T UNIVERSAL passive versus active debate. momentum. Investment bank UBS has The aim of active When it comes to outperformance, not analysed the performance of management is every strategy is equal. For example, more than 27,000 mutual funds to outperform a UBS found that European actively- in Europe over the past 20 years. benchmark such as a managed funds focusedPositive on US and global It found active managers have specific stock market investment strategies (about one third of collectively outperformed their index. the total assets under management) have benchmark after fees by average underperformed their 0.42% per year since 2000. FEES, FEES, FEES benchmark and the That figure rises to 0.78% One of the biggest performance of passive outperformance per year when criticisms of active products since the comparing after-fee returns to management is the financial crisis. their passive competition rather higher fees compared than benchmark. We’ll explain to passive investments. what all those terms mean in Subsequently, there is a second. widespread belief that passive investments equal lower costs A REMINDER ABOUT and better performance. THE DEBATE Global passive assets are set to A dispute has raged for years more than double from $14trn over which type of investment in 2016 to $37trn by 2025, delivers the better overall returns according to a recent report for investors: active or passive? from professional services firm Passive investment means PwC, emphasising their growing buying a vehicle such as a popularity. tracker fund or exchange-traded Some industry observers have fund (ETF) which mirrors the even speculated on the demise performance of a broad cross of active portfolio management information is already reflected section of the market or perhaps completely. in a security’s price. a specific industry or geography. Analysts at UBS beg to differ, In theory, the more efficient a Good examples include a FTSE saying the belief that active given market is, the harder it is to 100 tracker fund or an emerging funds underperform benchmarks outperform the simple strategy markets-based ETF. ‘is a myth… even after fees’. of holding a passive basket of all Active investment involves the securities in it. a fund manager hand-picking THE REAL DISCUSSION But while the market may stocks, bonds, property or other The debate really boils down to be completely efficient some assets; with portfolio weightings market efficiency. In essence, it of the time, and reasonably that match their investment might be described as the degree efficient most of the time, it objectives. The most ubiquitous to which all publicly available isn’t completely efficient all of

32 | SHARES | 09 November 2017 FUNDS the time as market structure and participant supply/demand WHY PASSIVE FUNDS CAN UNDERPERFORM A BENCHMARK characteristics change. It is on these sometime 1 They experience tracking error as they cannot perfectly match inefficiencies that active the performance of the benchmark. This tracking error is greatest managers hope to capitalise. One in periods where constituents are added and/or removed from a way of doing this is to specialise benchmark. and become a relative expert in a niche. Many fund managers 2 Passive funds charge fees to cover the administration of the do this by concentrating on a fund’s assets, transactional costs and management fees. As a result, particular sector, geography in a perfect world, where there is no tracking error, passive funds or style. will always underperform their benchmark due to these costs. Private investors often do this too, typically concentrating Source: UBS on smaller companies, where professional research is both active and passive products We don’t expect arguments limited. Some stocks are priced as tactical bets. This might be over passive or active incorrectly because most to provide hedging, gain from investment to stop anytime investors don’t know these sector rotation strategies or soon. But perhaps a more companies exist or don’t properly boost a portfolio’s exposure to productive debate for investors understand the story. emerging markets, for example. would be deciding how much The UBS report comments: ‘It is important to remember of your optimal portfolio ‘We found more focused and that in a rising market passive should be in active or passive specialised funds are more likely, returns are very attractive at investments. (SF) as a group, to generate alpha.’ low cost but that inevitable Alpha describes the excess market corrections will bring a returns of a fund relative to the continued appreciation for the return of a benchmark index. value of active investments,’ says PwC’s Olwyn Alexander, leader MOVING THE DISCUSSION ON of its global asset and wealth On the surface, it would seem management team. that investors are migrating ‘Both will be key building toward passive strategies. Yet blocks in balanced portfolios to investors are increasingly using meet specific investor outcomes.’

09 November 2017 | SHARES | 33 UNDER THE BONNET We explain what this company does On The Beach is a superb growth stock The holiday retailer’s shares have doubled in the past two years and still have further to travel

pproximately 12m people STRONG TRACK RECORD book short-haul packages 2014 A every year, a trend on 2015 which holiday seller On The Beach (OTB) plans to capitalise 2016 by investing in technology to 22% CAGR 2017 drive sales. On The Beach is an online retailer of short-haul beach 84 holidays. Its platform allows people to custom-build their own 71 vacation by choosing their own 63 flights, hotels and extra services. 33% CAGR Its shares are highly rated, yet 46 we think that’s justified given the business is going through a 31 period of rapid growth. 18 23 EARNINGS PROFILE 13 Pre-tax profit is expected to REVENUE (£m) EBITDA (£M) have jumped by 31% to £28m Source: Company & Numis Securities Research. CAGR = Compound annual growth rate in the year to September 2017. Panmure Gordon analyst Mark Numis says: Since listing in September 2015, On The Beach Irvine-Fortescue forecasts shares have more than doubled, materially outperforming peers £36.9m pre-tax profit in 2018, such as Thomas Cook, TUI, Expedia and Priceline. On The Beach rising to £45.1m in 2019. has proven the robustness of its business model over the last The recent performance has two years, with revenue and EBITDA growing by a compound been boosted by the £12m annual growth rate of 22% and 33% respectively. acquisition of Sunshine.co.uk in May. That deal is earnings in earnings per share out to On The Beach has also been enhancing and provides access to 2019. How many other highly gaining traction overseas with an additional 200,000 customers, profitable companies do you full year revenue growth of which the company believes will know are growing at that pace? 48% in its international markets drive higher margins. (Sweden and Norway), according Based on the latest share RECENT TRADING STRENGTH to a recent trading update. price of 411.75p, On The Beach Irvine-Fortescue says the That progress has given it the is trading on 18.1 times forecast company experienced significant confidence to launch in Denmark earnings for 2018. Yes, that is a growth for the majority of the early next year. high rating – however you have key summer trading period and to consider that analysts expect has strong forward momentum COMPANY STRATEGY 29% compound annual growth going into the new financial year. On The Beach has a slightly

34 | SHARES | 09 November 2017 UNDER THE BONNET

different business model compared to many traditional travel agents. It does not own any planes or shops, resulting in lower costs and flexibility in how it pursues growth. The company plans to make its website more personalised and provide more choices such as airports and hotels for a set price, which could improve conversion rates. Its goal is to encourage visitors to buy something when visiting depreciation and amortisation COPING WITH AIRLINE its website, instead of simply (EBITDA) will increase by £2.3m,’ SECTOR WOES browsing. says Burns. It has been a tough year for Numis analyst Richard Stuber Another potential strategy the airline sector, with Monarch is impressed by On The Beach’s for growth is entering the entering into administration ability to drive online traffic, long-haul beach market, which earlier this year and Ryanair citing an impressive 70m unique management could achieve (RYA) cancelling thousands of visitors to its website. through acquisitions or organic flights due to pilot rostering ‘Rich content, intuitive growth. issues. platform design and Following Monarch’s fall, On personalisation encourages IMPACT OF TERRORIST The Beach announced a one-off conversion; and its unique ATTACKS exceptional cash cost to help relationships with beach hotels According to On The Beach’s customers organise alternative coupled with volume, means chief executive Simon Cooper, travel arrangements if they it can secure exclusive terms terrorist attacks are not deterring booked a flight with Monarch. to further drive margins,’ says people from travelling abroad Most of the costs, estimated Stuber. with demand particularly strong at £2m by Numis, will be Investec analyst Karl Burns for destinations such as the covered by insurance and agrees that focusing on Balearic Islands, the Algarve and therefore is not expected innovation is the way forward, Greek islands. to significantly impact the arguing that significant margin While he concedes the recent company’s outlook. upside can be achieved from terrorist attack in Barcelona Investec says lost capacity higher sales per booking via affected people’s willingness to from Monarch and Ryanair improved hotel content. travel, there was no ‘general lull’. will be scooped up by other ‘For a 2.7% per booking Cooper also believes that low-cost carriers, leaving seat increase, we estimate that people are generally resilient pricing falling year-on-year, earnings before interest, tax, to cutting spending on holidays which will positively impact thanks to On The Beach’s flexible On The Beach as it makes ON THE BEACH GROUP payment model, which is helpful travelling cheaper. FTSE ALL SHARE - PRICE INDEX 500 when inflation is on the rise. 450 400 350 SHARES SAYS:  300 We are optimistic that On The Beach can continue to draw in sun 250 200 seeking travellers through its innovative platform and, in doing so, richly reward shareholders. Buy at 411.75p. (LMJ) Source: Thomson Reuters Datastream 2015 2016 2017

09 November 2017 | SHARES | 35 MONEY MATTERS Helping you with personal finance issues Investment and pension planning when you remarry

Preparation is even more crucial the second time around

f you’re embarking on a second or subsequent I marriage there are lots of important financial considerations to think about. You’ve probably built up more assets and you might have children from previous relationships, making your circumstances more complicated than they were the first time around.

WHERE DO I START? A good starting point is to discuss your existing investments, pensions, income and property. You should also explain to your partner any ongoing financial commitments from previous relationships, such as child maintenance. Once everything is laid out on the table you can decide how to move forward with your money. Try to estimate what your day- to-day income and expenditure is likely to be and then agree on It will depend on factors such and so this becomes very who will pay for what. as whether the value of your relevant if there is a big age gap It’s important to discuss your assets is evenly split or not and between the couple,’ says Charlie long-term financial goals, such your wider family circumstances. Musson, spokesperson for AJ Bell as saving for your children’s Keeping assets separate will Youinvest. university fees and planning for usually be the better option if ‘If one person has a time retirement. This will influence there is a big age gap between horizon of 20 years and the other how you invest as a couple. you. In general, the level of risk plans to access their money in someone can afford to take two years, this is likely to have a SHOULD WE COMBINE OUR decreases as they get older and significant impact on the way the INVESTMENT ASSETS? their investment time horizon money is invested. Deciding whether to manage shortens. ‘As a result, where there is your investments separately ‘Time horizon is one of the a significant age gap couples or amalgamate them can be crucial determinants of an might decide to look at their difficult. appropriate investment strategy investments separately so they

36 | SHARES | 09 November 2017 MONEY MATTERS can adopt strategies to suit the some schemes reduce the value out what you’d like to happen differing needs of both parties.’ or even disqualify a spouse from if the marriage breaks down. receiving death benefits for very The agreements aren’t legally HOW DOES REMARRYING recent marriages. binding but they are seen as AFFECT MY PENSION? If your pensions are already influential by the courts. Pension planning can become in payment, analyse whether It is vital to get a new will, very complicated when there the decisions made are still particularly if you have children is more than one spouse and appropriate to ensure you both from a previous relationship. family to consider. have sustainable income to last When you remarry, any existing Fiona Tait, technical director for the rest of your lives. will you have becomes null and at Intelligent Pensions, says if Make sure you update your void. you have been divorced you death benefit nomination form Alex Brown, wealth might have given up some of with the name of your new management director at your pension benefits to your spouse. You can also choose Mattioli Woods, says ensuring ex-spouse as part of the financial whether you want your pension assets go to the right person settlement. to go to your natural children on death is one of the biggest It’s important to review your or to both natural and step (or concerns among couples who remaining pension and do what adopted) children. have children and then remarry. you can to replace the lost ‘The natural concern is that benefits. You should also ensure PLANNING FOR THE WORST leaving total assets to the your pensions are working If you’ve been through a surviving spouse could see their efficiently. divorce before, you’ll know children subsequently cut out of ‘All of your financial assets, how stressful the process is, future inheritance, but equally including pensions relating to particularly when it comes to they don’t want to see their previous employments, should sorting out finances and assets. surviving spouse struggle due to have been assessed during the Ensure you do all you can to half the wealth being directed divorce process. Now may be a avoid this stress a second time straight to the children instead,’ good time to consider whether around. says Brown. you need to consolidate some or Patrick Connolly, head of One option is to place your all of them within a single plan communications at Chase de inheritance in a trust. Trusts and whether your investment Vere, suggests agreeing at the can be structured to distribute choices need to be reviewed,’ outset what will happen to money to your spouse and says Tait. your pensions, investments and children in the amounts you If you have a final salary property in the future and how specify; ensuring everyone you scheme, check whether your your finances will be structured. care about is treated fairly. new spouse is eligible to receive You might want to consider a spouse’s benefits. The trustees of pre-nuptial agreement setting DON’T FORGET TAX AND INSURANCE When you remarry it’s worth reviewing your tax arrangements. You might be ENSURING ASSETS GO TO THE RIGHT PERSON ON DEATH IS able to make use of the tax allowances given to married ONE OF THE BIGGEST CONCERNS AMONG COUPLES WHO HAVE couples and move assets from CHILDREN AND THEN REMARRY’ one person to the other to reduce your tax bill. It’s also important to ensure policies like life insurance are “ updated to show your new partner as the beneficiary. (EP) ” 09 November 2017 | SHARES | 37 MONEY MATTERS Helping you with personal finance issues HMRC repays £262m pension ‘super tax’ – how do I make a claim? We explain the different forms to complete and how the system works

f you’re looking to make Because an emergency tax have no other sources of I the most out of the pension code is applied, HMRC divides income freedoms, managing withdrawals the personal allowance by 12, • P55: If you have cashed in so you pay as little tax as possible meaning only £958.33 of the part of your pension and is absolutely critical. withdrawal is tax-free. The next don’t intend to make any A quarter of your pension £2,791.67 (£33,500 divided by further withdrawals pot can usually be withdrawn 12) is taxed at 20%, with the Once you’ve sent off the form tax-free, with the remaining remaining £6,250 taxed at 40%. you should get your money back 75% taxed in the same way as After all that, our saver gets back within 30 days. income. £6,941 – which is £3,059 less According to HMRC, a This should be the case than they expected. whopping £262m has been whether you buy a guaranteed repaid to savers who have been income stream (an annuity), keep overtaxed since the pension your money invested and draw freedoms launched. a regular income (drawdown), However, this is probably or take an ad-hoc ‘uncrystallised the tip of the iceberg because funds lump sum’ (UFPLS). it only covers those who have RELYING ON THE completed the official forms. HEALTH WARNING EFFICIENCY OF HMRC TO While 107,000 of these The UFPLS option comes with forms have been sent to HMRC a health warning. If you’re SORT OUT YOUR FINANCES since April 2015, we reckon planning to make a single UFPLS ISN’T A GREAT STRATEGY somewhere in the region of half withdrawal from your fund a million withdrawals that risk you risk being hit with a hefty “ being overtaxed were made ‘emergency’ tax bill from HM during that period. That leaves Revenue & Customs (HMRC). hundreds of thousands of savers Rather than treating this as who have done nothing to get a single payment, the taxman their cash back. assumes you are going to keep Clearly relying on the taking money out of your fund GETTING YOUR MONEY BACK efficiency of HMRC to sort for the rest of the year. If you have been overtaxed” on out your finances isn’t a great Take someone who makes a your pension, you need to fill out strategy, so the only way to UFPLS withdrawal of £10,000 in one of three forms: guarantee you aren’t short- April – the start of the tax year – • P53Z: If you have cashed changed is to sort it yourself by and has no other income. Given in your entire pension and filling out the correct tax reclaim that the personal allowance is have one or more other form. currently £11,500, they would sources of income understandably expect to pay no • P50Z: If you have cashed Tom Selby, senior analyst, tax on the money. in your entire pension and AJ Bell

38 | SHARES | 09 November 2017 The opportunity of a Lifetime (ISA)

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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 LARGER COMPANIES Stobart has attractive dividends and plenty of growth The firm has issues with its biomass energy division but that looks temporary

It has also invested £2.6m on set-up and marketing costs for 11 new Flybe (FLYB) routes launched in May and the airline along with EasyJet has committed to basing a further three planes at the airport. This could add an additional 520,000 passengers per year and the company is in discussions with other airlines to increase capacity over the next two years. Cenkos analyst Sandy Chen says: ‘We expect that Southend’s top customer satisfaction ratings and peak time slot availability will continue to attract more aircraft/route allocations.’ f you’re interested in a profitable company paying a decent dividend, take a look at Stobart (STOB). GOODBYE DEBT, HELLO DIVIDENDS IThe diversified infrastructure, energy and aviation Stobart’s recent £124m sale of part of its stake business believes it has plenty of avenues for growth, in trucking company Eddie Stobart Logistics meaning its recent share price rally may have much (ESL:AIM) has helped to clear its debts. Net debt further to go. stood at £121m last year, it now has a net cash Warwick Brady, who took over from founder and position of £2.9m. It retains 12.5% of ESL worth major shareholder Andrew Tinkler as chief executive around £70m. in June, has ambitious hopes for the company. This stronger balance sheet should mean more He wants to turn it into a £2bn market cap cash in shareholders’ pockets in the form of business by 2022. It’s currently worth just shy of dividends. Investment bank Stifel forecast 18p per £1bn. Revenue is forecast to jump from £129.4m in share this financial year, equal to a 6.2% yield on the year to February 2017, to hit £265.5m in 2018 the latest share price of 288.5p. and £354.9m in 2019. Stifel expects the dividend to go up to 18.5p in 2019 and 19.1p in 2020. HOPING TO FLY HIGH The company recently had some setbacks with Stobart has many divisions but it is Brady’s it biomass energy division due to delays with background as chief operating officer of EasyJet (EZJ) commissioning at six plants. But these deals to that suggests where a good chunk of growth will be supply fuel are locked in with contracts so it’s only a generated. Stobart owns and runs Southend airport timing issue. Once all the plants are operational this and Brady believes it could become a major London will be yet another long-term revenue stream for transport hub. the business. (DS) The company has already increased passenger numbers by 25% in the first half of the year to SHARES SAYS:  610,000 customers and is looking to boost that Buy at 288.5p figure to 5m by 2022.

40 | SHARES | 09 November 2017 INVESTMENT FACTS. WHO CAN YOU TRUST?

In uncertain times, when the economy is buffeted by change, it can be hard to know who to trust when investing.

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* The £1 for 1 month and then £12 a month offer is only available to new subscribers. Your first payment will be £1 and thereafter subscriptions will automatically continued, billed at £12 per month unless cancelled. Subscriptions can be cancelled at any time by calling 0207 378 4424 between 8am - 4.30pm on Monday to Friday. No refunds are offered during the cancellations period but all outstanding issues and services will be fulfilled. For enquires contact us at [email protected] SMALLER COMPANIES Footasylum shares off to an impressive start Trainers and t-shirt seller bucks the negative trend among retail stocks

hares in branded footwear and clothing governed by signed written agreements. retailer Footasylum (FOOT:AIM) have risen by Encouragingly, Footasylum plans to build global Snearly 25% on their IPO (initial public offering) recognition for own brands including Kings Will price in less than a week. Investors are clearly Dream, sold under a global wholesale distribution banking on the retailer being the next big thing, contract with ASOS (ASC:AIM), as well as Glorious helped by having support from several well-known Gangsta, Condemned Nationand Alessandro names in the retail sector. Zavetti. Footasylum was established in 2005 by David The company’s core fascia is Footasylum, which Makin, one of the two co-founders of the JD Sports spoke for 97% of last year’s revenue. Each store (JD.) chain. JD Sports’ other co-founder John is fitted out in a distinctive style tailored to the Wardle joined Footasylum as chief executive in local market and making use of video, music and 2008; and now hold the executive chairman role. photography to create a lively youth-friendly Barry Bown – JD Sports’ CEO between 2000 and environment. 2014 – will become chairman next summer when Footasylum also has a fast-growing e-commerce Wardle retires. platform and a wholesale arm for distributing its The retailer operates 61 UK stores in prime high own brands through a network of partners. street locations, retail parks and malls, and sees In the financial year to February 2017, sales rose potential for ‘at least 150’ stores, targeting eight to from £110.4m to £147m with EBITDA (earnings 10 new sites per year. before interest, tax, depreciation and amortisation) Footasylum sells ‘on-trend’ branded footwear growing from £6.1m to £11.2m. and apparel aimed at fashion-conscious 16-to-24 Business remains brisk. Sales shot up an year-olds. impressive 36% to £83.2m in the six months to 26 While the UK consumer is under pressure, August 2017. management argue this demographic ‘typically Footasylum operates in a crowded market and has limited or no dependants’ and a tendency won’t offer dividends short-term. It raised £43.4m to prioritise discretionary spend on cool-looking before expenses at the IPO. It will spend £18.7m clothing and footwear. redeeming preference shares and £3.9m to repay That’s good news for Footasylum, which sells a loan made to the company by the current well-known third party brands including Adidas, chairman. Nike and The North Face, although one risk factor The rest of the IPO cash will support growth to note is the relationship between Footasylum and efforts which include upgrading IT systems and suppliers and brand partners are not in all cases opening new stores. (JC)

42 | SHARES | 09 November 2017 SMALLER COMPANIES Lok’n Store set for big expansion

Broker implies there is potential to make handsome gains on the stock over the long term

torage space provider Lok’n Store (LOK:AIM) completing its accounts as if it was a trading entity looks an attractive prospect as it gears up for rather than a property firm. Sthe most significant period of expansion in its Arguing for the continued growth potential history. of this niche, Jacobs notes the more mature US With a pipeline of 11 new locations set to be market has eight square foot of self-storage space opened (mainly in retail locations) out to 2020, per person against just half a square foot per the group is positioning itself to take advantage person in the UK. of strong industry dynamics in an undersupplied FinnCap believes cash available for distribution market. could increase from 18p in the financial year Chief executive Andrew Jacobs tells FinnCap to July 2017 to 51p in 10 years’ time. Shares that cash available for distribution Applying a 5% yield to the implied – basically how much cash can be paid in thinks the dividend at this point generates a long- dividends minus any capital expenditure shares term share price target of £10.08. That – and earnings before interest, tax, could hit implies the shares could go up by 162% depreciation and amortisation (EBITDA) £10 over the period, equal to an average are more relevant metrics for Lok’n Store 16.2% annual gain (excluding dividends). than pre-tax profit. The profit figure is impacted by the depreciation SHARES SAYS:  of its self-storage sites. Broker FinnCap describes Buy at 385p. that as an ‘accounting quirk’ linked to the group

Is it time to look at Elektron is on the Nighthawk soars on Distil again? comeback trail farm-out deal

A pullback from 3.725p in August Shares in tiny electronics Shares in small cap oil and to 2.3p at premium drinks brand engineer Elektron Technology gas play Nighthawk Energy owner Distil (DIS:AIM) may interest (EKT:AIM) jumped 14% to 19.5p on (HAWK:AIM) have risen to 0.35p investors looking for opportunities 2 November after a surprisingly after it secured a new partner on in stocks which have previously strong third quarter trading its Monarch project. enjoyed strong rallies. update. A Denver-based privately held Distil saw its share price more Sales in the three month period firm is set to take up to 80% of than triple in value between the increased by 34% year-on-year, the project in return for meeting start of 2017 and late summer. principally thanks to success in the drill and production test costs The micro-cap behind RedLeg Elektron’s specialist connector arm of a well and making a separate Spiced Rum, Blavod Black Bulgin. payment of $160,000. Vodka and Blackwoods Gin and Last year Elektron saw group The company’s shares fell Vodka recently reported (24 Oct) revenue crash by 29%, spinning the sharply earlier in 2017 as its continuing growth across its company into the red. (SF) financial position came under brands. (JC) scrutiny. (TS)

09 November 2017 | SHARES | 43 NOW IS THE TIME TO FOCUS ON YOUR INVESTMENT PORTFOLIO Looking for new companies to invest in? Come and join Shares and AJ Bell Media at their evening event in London on Thursday 16 November 2017 and meet directors from Ariana Resources, Phoenix Global Mining, ThinCats, Vast Resources and WideCells Group

Sponsored by London – Thursday 16 Nov 2017

Companies presenting

Ariana Resources (AAU) Kerim Sener, MD Ariana is an exploration and development company focused on epithermal gold-silver and porphyry copper-gold deposits in Turkey. Kiziltepe Mine (Red Rabbit JV) delivered its first gold-silver pour in March 2017, with commissioning and production ramp-up continuing through the period with full commercial production declared in July 2017. Phoenix Global Mining (PGM) Richard Wilkins, CFO Phoenix is a US-focused base metal explorer and developer focussed on advancing the Empire Mine in Idaho into open pit copper oxide production, with additional upside available from potential underground development. The Company intends to deliver production from the Empire Mine in two phases in order to minimise upfront capital requirement and lead-time to cash flow. ThinCats John Mould, CEO ThinCats are one of the pioneers of the peer-to-peer business lending industry; specialising in loans with security and linking retail and institutional investors directly with established business borrowers to provide a serious alternative to high street banks. Vast Resources (VAST) Roy Pitchford, CEO Vast Resources plc is an AIM listed mining and resource development company focussed on the rapid advancement of high quality brownfield projects and recommencing production at previously producing mines in Romania. Vast Resources currently own and operates the Manaila Polymetallic Mine in Romania, which was commissioned in 2015. WideCells Group (WDC) João Andrade, CEO WideCells is building an integrated stem cell services company, focused on making stem cell treatments accessible and affordable.

Follow this link www.sharesmagazine.co.uk/events for full details.

REGISTER FOR YOUR COMPLIMENTARY TICKET TODAY

During the event and afterwards over drinks, investors Event details will have the chance to: Location: Novotel Tower Bridge, London EC3N 2NR

Discover new investment opportunities Registrations 18:00 Presentations to start at 18:30 Complimentary drinks and buffet available after the presentations Get to know the companies better Contact

Chris Williams, Spotlight Manager Talk with the company directors [email protected] 0207 378 4402

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KEY Aldermore (ALD) 7 Eddie Stobart 40 McColl’s (MCLS) 8 Logistics (ESL:AIM) • Main Market Alfa Financial 19 Merlin Entertainments 23 • AIM Software (ALFA) (MERL) • Investment Trust ASOS (ASC:AIM) 42 Midwich (MIDW:AIM) 14 Associated British 8 Moss Bros (MOSB) 27 Foods (ABF) Aviva (AV.) 25 Base Resources 28 (BSE:AIM) Burberry (BRBY) 16 Elektron Technology 43 (EKT:AIM) Elementis (ELM) 15 Flybe (FLYB) 40 Footasylum 42 (FOOT:AIM) GVC (GVC) 7 Nighthawk Energy 43 Harwood Wealth 12 (HAWK:AIM) Management On The Beach (OTB) 34 (HW.:AIM) Portmeirion (PMP:AIM) 29 Henderson 30 International Income Ryanair (RYA) 35 Trust (HINT) Savills (SVS) 10 Centamin (CEY) 26 Indivior (INDV) 9 Scisys (SSY:AIM) 14 Distil (DIS:AIM) 43 International 10 Scottish Mortgage 7 DP Eurasia (DPEU) 11 Consolidated Airlines (SMT) EasyJet (EZJ) 40 (IAG) SkinBioTherapeutics 19 JD Sports (JD.) 42 (SBTX:AIM) Ladbrokes Coral (LCL) 7 St James’s Place (STJ) 12 Lok’n Store (LOK:AIM) 43 Stobart (STOB) 40 Marks & Spencer 7 Strix (KETL:AIM) 19 (MKS) TalkTalk (TALK) 16 Tesco (TSCO) 7 TT Electronics (TTG) 3 Virgin Money (VM.) 24 WM Morrison 8 Supermarket (MRW)

09 November 2017 | SHARES | 45