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VOL 19 / ISSUE 47 / 30 NOVEMBER 2017 / £4.49 SHARES WE MAKE INVESTING EASIER HOW EXPERTS FIND THE BEST COMPANIES We explain how to filter the market using a well-established formula

PROPERTY AND INFRASTRUCTURE FLOATS WITH A DIFFERENCE THE LOWER RISK WAY OF GETTING OVERSEAS EXPOSURE

BUMPER EDITION: FREE SMALLER COMPANIES ‘SPOTLIGHT’ REPORT INSIDE

HOW TO INVEST IF YOU HAVE A FLUCTUATING INCOME

EDITOR’S VIEW Don’t rule out a UK general election in 2018 Investment bank Morgan Stanley says the risk of Labour getting into power isn’t fully priced in to the market

e’re approaching the point sector and away from outsourcing firms where investment experts give and defence companies. W their predictions for big themes Morgan Stanley believes there is more in the year ahead. We will publish our than a 50% chance of another UK general analysis of the key issues facing investors election in the second half of 2018. Secker in 2018 in a fortnight’s time (14 Dec). says investors should already be aware Ahead of that article, it is worth of the Labour-related risk to parts of the touching on one issue which has the UK stock market as many stocks have potential to be a much bigger concern for already had this risk discounted into their investors if Brexit negotiations don’t go smoothly. valuation. However, he doesn’t believe the risk is That issue is the potential for Labour to get fully discounted yet. into power and what that would mean for a large number of companies on the UK stock market. STOCKS AT RISK Before we explain why, it is important to stress that Labour has talked about raising the minimum wage Shares is an unbiased publication when it comes to which could be bad news for businesses with low political matters. profit margins and large staff numbers such as some retailers. WHY A ‘RADICAL’ LABOUR COULD BE In response, Morgan Stanley has analysed the A GAME-CHANGER UK market for companies with high domestic Morgan Stanley’s chief European equity strategist exposure and a combination of low margins and Graham Secker says if he was a UK fund manager, high number of employees and produced a list of he’d be very concerned about a potential change 35 vulnerable stocks. in government in 2018. ‘It could be the biggest It says the likes of Ocado (OCDO), Sainsbury’s shake up in the domestic backdrop since the (SBRY), Serco (SRP) and Tesco (TSCO) are among 1970s,’ he adds. those could be most negatively impacted by a Secker’s point lies with how new governments Labour government, even after netting off the over the past 30 years or more haven’t really positive impact from easier fiscal policy that could pushed through any radical policy ideas – yet the boost overall economic growth. Royal Mail (RMG) situation could soon change, judging by Labour’s and Go-Ahead (GOG) are among the stocks most comments over the past year. ‘You need to think at risk from the nationalisation threat. about areas such as corporate tax rates going up, What happens if Brexit talks go well and nationalisation and favouring labour over capital,’ there is renewed confidence in May as prime he says. minister? Secker says that while it is feasible for the aforementioned ‘at risk from Labour’ stocks THREE BIG ISSUES TO CONSIDER to bounce back, he says this may only be a short Labour’s election manifesto in 2017 gave support term trade. to re-nationalising infrastructure-related assets ‘Without there being more of a shift in opinion such as utilities, postal services, telecoms and polls from Labour to Conservative, how much bus/rail. The Party wants to raise corporate taxes are you really going to chase these stocks?’ up to 26%. And spending priorities could shift in he concludes. We’ll be watching this situation favour of low-income households and the public closely. (DC)

30 November 2017 | SHARES | 3 Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 30 NOVEMBER 2017 TO THE RELEVANT STORY

EDITOR’S VIEW 03 Don’t rule out a UK general election 09 in 2018

BIG NEWS 06 UK banks pass latest stress tests

BIG NEWS 06 Centrica’s yield could be a phantom menace

BIG NEWS 07 Co nvaTec and BIG NEWS Merlin to be 09  New European- ejected from focused fund FTSE 100 10 offers tastier way to play e-commerce BIG NEWS logistics boom 07 UK engineers in demand with STORY IN NUMBERS customers and 10 Ma jestic Wine’s investors comeback and other stories in numbers BIG NEWS 08 Tri -Pillar promises GREAT IDEAS ‘completely different’ 12 Focusrite is in a global infrastructure growth groove proposition GREAT IDEAS 13 Snap up Galliford Try as its shares look oversold

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 | 30 November 2017 Contents

LARGER COMPANIES 34 Wh y 20 GlaxoSmithKline’s HIV division could nearly double in value by 2020

SMALLER COMPANIES 35 Go for the premium end of the pubs industry for hearty returns

SMALLER COMPANIES 36 Shares in bathroom firm look like a real bargain

GREAT IDEAS UPDATE INVESTMENT TRUSTS INDEX 15 We update on Tracsis, 26 A safer way to 38 Ind ex of companies Ramsdens, IMImobile get international and funds in this issue and Aggreko exposure SPOTLIGHT TALKING POINT FUNDS 39 Bumper report on 18 Ocado’s major 28 N avigate emerging smaller companies breakthrough... but market risk with funds at what price? THIS WEEK: 15 PAGES OF BONUS CONTENT MONEY MATTERS ANGLE WEEK AHEAD 30 How to invest if you AVATION JAYWING SKINBIO 19 Financial results and have a fluctuating STATPRO Growth & ex-dividends over income THINCATS Innovation the coming week MONEY MATTERS MAIN FEATURE 32 How the Budget 20 Ho w experts find affects you the best companies

INCLUDES COMPANY PROFILES, COMMENT AND ANALYSIS NOVEMBER 2017 2017 NOVEMBER

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.

30 November 2017 | SHARES | 5 BIG NEWS UK banks pass latest stress tests Lloyds performs best but Barclays and RBS are at the bottom of the class

or the fourth year in a row the Bank of England (BoE) has run its checks to see how the UK Fbanking sector would withstand another financial crisis. For the most part investors in the sector can now breathe a sigh of relief. For the first time since 2014 no bank needs following the results of the tests on 28 November. to raise cash in the wake of the stress test AJ Bell investment director Russ Mould although Barclays (BARC) and Royal Bank of comments: ‘The tests show RBS and Barclays Scotland (RBS) would have fallen below their have the lowest margin for error in the event the minimum capital levels in the scenario run by Bank of England’s stress-test scenario comes to the BoE, which it says is equivalent to the worst pass and this may be reflected in their relatively possible outcome from Brexit. lowly valuations.’ Top of the class is Lloyds Banking (LLOY) which Separately the BoE wants UK banks to hold an would retain a sufficient capital buffer in the extra £6bn buffer to cover risks beyond Brexit stressed scenario even before management action. including misconduct costs and global debt Most shares in the sector traded modestly lower levels. (TS) Centrica’s yield could be a phantom menace Dividends remain at serious risk of another deep rebasing cut

DIVIDEND PAYMENTS from reported 26.4p. are already under pressure based energy supplier Centrica (CNA) Centrica is caught between on current consensus, which must be considered at serious the rock of stiff competition and anticipates reduced income risk in the wake of the group’s a hard place of Government every year through to 2020. shocking profit warning last intervention, savage regulation That could mean further week (23 November). and price caps. downward pressure on the share In a third quarter trading Its shares are down 40% this price ahead. Even more so if update the British Gas-owner year to 139.3p. Based on current Centrica is eventually forced to slashed earnings guidance dividend forecasts, the stock rebase shareholder payouts, to 12.5p per share (EPS) for offers a prospective 8.6% yield. with the potential for capital 2017 after losing 823,000 UK We view that high yield as a losses to far exceed implied yield consumer customers and facing warning sign by the market that returns. ‘significant market pressure’ it doesn’t believe the dividend SHARES SAYS:  in North America. The EPS forecasts are realistic. We have been long-run bears on consensus forecast had been Centrica will presumably do Centrica and have been proved 15p. everything possible to avoid right time and again. We remain The latest setback continues a having to cut the payout, as it highly sceptical and don’t believe multi-year EPS declining trend. did to devastating effect three you should own the stock. (SF) For example, in 2012 the group years ago. Yet future dividends

6 | SHARES | 30 November 2017 BIGBIG NEWSNEWS ConvaTec and Merlin to be ejected from FTSE 100 They will be replaced by Just Eat and DS Smith among other index changes

he healthcare sector has taken a blow 250 from the FTSE 100 are support services group on news that one of its biggest London- Babcock International (BAB) and leisure expert Tlisted stocks will be ejected from the Merlin Entertainments (MERL). (LMJ) FTSE 100 in December following the index’s quarterly reshuffle. A decline in the valuation of woundcare specialist ConvaTec (CTEC) means the stock will be demoted to the FTSE 250, as there are now other firms in the mid cap index with higher valuations who will be promoted. ConvaTec has recently been in the headlines after cutting its forecast full year sales growth from 4% to between 1% and 2% as supply issues affected sales in Europe, the Middle East and Africa. Fast food ordering platform provider Just Eat (JE.) has been promoted to the FTSE 100 alongside health and safety technology group Halma (HLMA) and packaging firm DS Smith (SMDS). The two other stocks being demoted to the FTSE

UK engineers in demand with customers and investors Further sector upside on the cards, according to analysts

ANALYSTS ARE becoming per share upgrades and were UBS team. increasingly confident of the best performing shares,’ say Shares in this latter pair have earnings outperformance analysts at UBS. performed well since late June, potential across the engineering Since the end of June shares although their more modest sector. Investment bank UBS is in Fenner and Renishaw have respective gains of 18% and among those to have picked up rallied 42% and 48% respectively. 9.5% may imply further upside on the trend. to come. UBS believes eight out of 13 MORE TO COME FROM SOME In a sector-wide research note UK engineers beat expectations Earnings momentum is still to in late October stockbrocker Peel on organic top line growth in be fully recognised in some Hunt flagged a ‘much stronger the third quarter of 2017 (July share prices. global trading backdrop,’ being to September). They calculate ‘We also see full year upside enjoyed by sector constituents. average organic growth in the potential for consensus at ‘The fundamental outlook for period was running at 7%. Bodycote (BOY) and Vesuvius broader UK industrial companies ‘Fenner (FENR) and Renishaw (VSVS) after strong third quarter is one of enormous opportunity,’ (RSW) saw significant earnings top line progression,’ add the it noted. (SF)

30 November 2017 | SHARES | 7 BIG NEWS Tri-Pillar promises ‘completely different’ infrastructure proposition It is targeting new-build projects and operational ones where it can help to enhance profit

nvestors looking to avoid paying a premium for more for John Laing Infrastructure’s assets than infrastructure funds have until 4 December to they are worth; or a 13.2% premium for GCP Itake part in the IPO (initial public offering) offer Infrastructure’s (GCP) assets, according to analysis for a new fund with a difference. We think the by AIC and Morningstar. shares are worth buying. Tri-Pillar is letting retail investors take part in Tri-Pillar Infrastructure Fund will be advised by its IPO; anyone interested can apply through a CAMG which is run by former bosses of John Laing stockbroker such as AJ Bell Youinvest. By doing so Infrastructure Fund (JLIF). you wouldn’t pay a premium to net asset value. CAMG’s chief executive Andrew Charlesworth The fund hopes to raise up to £200m. says Tri-Pillar’s proposition is ‘completely different’ The UK infrastructure sector has become a to its peer group. He believes investors could crowded space as numerous funds and other potentially make greater returns versus other finance houses compete to buy assets with infrastructure funds due to the type and location long-term, regular cash flows. That’s pushed up of assets being targeted. the price for assets plus there are very few available Tri-Pillar is targeting 4.5% annual dividend on the UK market. (2.25% in the first year) and 8% to 10% annual Tri-Pillar is focusing on the US and Europe. It will total return (share price appreciation and dividend) invest in primary assets (i.e. new build projects) over the long-term. as well as secondary assets (projects already operational). ‘We believe we can invest in primary projects and potentially see their value double once they become operational,’ says Charlesworth. ‘We will also find ways in which to enhance their earnings.’ THE UK INFRASTRUCTURE SECTOR HAS Tri-Pillar is currently in talks to invest £50m in a BECOME A CROWDED SPACE AS NUMEROUS waste recycling project with a potential 15% to 20% yield. It is also bidding for a portfolio of European FUNDS AND OTHER FINANCE HOUSES assets from a private fund being wound up. COMPETE TO BUY ASSETS WITH LONG-TERM, The latter features a broad mix of assets REGULAR CASH FLOWS including healthcare, education, road and “ communications projects. While there is no guarantee it will win the bidding process, Charlesworth is confident Tri-Pillar stands a good chance of winning. ‘The seller wants a competent buyer to do a deal with them. We’ve got lots of experience and All the rival quoted infrastructure investment Tri-Pillar benefits from being able to buy lots of trusts trade at a big premium to their net asset different assets. Many other infrastructure funds value. For example, you would currently” pay 5.8% have restrictions over what they can invest in.’ (DC) 8 | SHARES | 30 November 2017 BIGBIG NEWSNEWS New European-focused fund offers tastier way to play e-commerce logistics boom

Aberdeen Standard European Logistics is hoping to generate higher yields than UK assets

new vehicle is launching on the London Stock Exchange which will enable investors A to gain access to the pan-European logistics market for the first time. The £250m IPO (initial public offering) offer for Aberdeen Standard European Logistics Income is open to retail investors until 11 December. We are enthused by its proposition and rate the shares as a ‘buy’. The shares are expected to commence trading on 15 December. The investment trust will target an annual total return of 7.5% including a dividend yield of 5.5%. According to Aberdeen Standard’s global head of real estate investment research Andrew Allen, the logistics market in continental Europe is, for the most part, less developed than the UK. This is linked to the penetration of e-commerce with Allen noting that in the UK online sales account for 15% of all retail sales but just 8% in continental Europe. The yields on European logistics assets tend to Logistics follows the cancellation of another be higher than the UK as the market is less mature. property-linked IPO, although the two funds are In comparison, there is strong competition for UK sufficiently different for us not to worry about the logistics assets, making them expensive to buy. former’s imminent stock market float. ‘You can get prime yields of perhaps 4% in the UK M7 Multi-Let REIT was set to be the largest REIT compared with 5% or 6% in Europe and the cost of IPO in 2017, planning to raise £300m to invest in finance is cheaper,’ Allen says. UK commercial property. Following a delay to its He adds that unlike the UK, rents in continental flotation, it subsequently said some prospective Europe tend to be automatically linked to inflation. investors were interested in buying its seed That should give the investment trust a smoother portfolio privately. It also cited the high volume income profile and help support the dividend. of recent IPOs focused on UK real estate for not The company has a large pipeline of assets pursuing its listing. to target and already has exclusivity on a €20m Recent real estate-linked IPOs include UK- multi-let logistics facility in Germany. Allen reckons focused logistics play Warehouse REIT (WHR), the fund will be fully invested within six to nine social housing specialist Triple Point Social Housing months. (SOHO) and supermarket investor Supermarket The float of Aberdeen Standard European Income REIT (SUPR). (TS)

30 November 2017 | SHARES | 9 STORY IN NUMBERS

Uncorking a EUROZONE ECONOMY Majestic turnaround KNOCKING RETURN ON INVESTMENT in Majestic Wine’s THE LIGHTS (WINE:AIM) Naked Wines business was restored OUT to 98% from 48% in the six months to 2 October, as the wine specialist stripped back spending on underperforming Purchasing managers’ index US direct mail and reduced (PMI) data on the eurozone marketing spend for acquiring economy shows jobs growth new customers for its online and manufacturing orders at crowdfunding arm. 98% 17-year-highs and suggests Two years into CEO Rowan the economy could be growing Gormley’s turnaround plan, faster than expected. Majestic Wine’s half year results The headline PMI figure from (23 Nov) revealed an impressive swing IHS Markit came in at 57.5 from break-even to adjusted profit (any figure above 50 implies before tax of £6.8m, with Naked Wines growth) with the upturn led by profitable in all three geographical the manufacturing sector. markets and the traditional Majestic PMI readings are considered Retail business growing profitably to be reliable indicators for in a challenging market. future economic growth because they are based on surveys of the people responsible for buying the goods and services required by a company. SSE EYES BIG COST SAVINGS

CUTTING COMBINED group free cash flow of £215m This all depends on the deal OPERATING costs and overlap leading to £180m or so of being approved by regulators, is the main reason why big six dividends for shareholders. and that simply cannot be taken energy supplier SSE (SSE) Another factor to consider for granted. We would expect wants to merge with rival is the potential for improving negotiations with watchdog Npower/Innogy in the UK. the Npower/Innogy margins, Ofgem to drag on deep into So it is instructive that presumably from streamlined 2018. management predict ‘greater operations and modest price than £100m’ of cost synergies, increases. Investment bank according to analysts. Berenberg calculates that this Some number crunchers could add another £74m to any think these savings could savings. be much bigger. Analysts at investment bank Macquarie have a base case £140m a year, and that implies combined

10 | SHARES | 30 November 2017 We're investing in ugly ducklings...

At the Scottish, we take a contrarian approach to global We categorise the first as ugly ducklings – unloved companies that stock markets. most investors shun. These firms face fundamental challenges, and the market has become extremely pessimistic about their prospects. We are high-conviction investors and focus on stocks that are out But we see their out-of-favour status as an opportunity. of favour with mainstream investors, as we believe these offer the greatest potential for long-term gains. This is because popular stocks The second category is where change is afoot. These companies tend to be overvalued – while out-of-favour stocks are often too have made significant changes to their prospects, but the cheap. We aim to exploit this inefficiency for our shareholders. improvements are not yet recognised by the market. So, while other managers continue to steer clear, we see the potential for profit. The investment environment is inherently cyclical. We see cycles in industry fundamentals, corporate behaviour, analyst views In the third category are companies that have more to come. Unlike and investor sentiment. These cycles are closely linked: when the first two categories, these companies are generally recognised as an industry’s fundamentals have been strong for some time, good businesses but we see an opportunity as the market does not management teams, analysts and investors tend to be overly appreciate the scope for further improvement. optimistic about its future. This leads to irrational investment A painstaking process decisions. Some of our best opportunities arise at the opposite To identify the right opportunities, we use a qualitative and point in the cycle – when a downturn leads to excessive pessimism quantitative analytic framework to research companies’ fundamental about a company’s prospects. When this happens, we can buy stocks prospects. We carefully assess any management change and precisely when the profit opportunity is greatest. restructuring actions, and consider the likely extent of any An innovative investment approach earnings recovery. We believe investment returns are driven by a change in a company’s Companies in our portfolio can move along an axis from “ugly prospects and an accompanying change in market perceptions. ducklings” to “change is afoot” and then “more to come”. When Often good companies are overly admired and consequently ugly ducklings become fully fledged swans, we’re looking to sell. become overvalued. A company that has been badly run or is down Until then, we keep portfolio turnover to a minimum. on its luck may offer much more potential for improvement and, eventually, for outstanding returns. As contrarian investors, we see For more information visit www.thescottish.co.uk three distinct investment categories.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest. The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all. Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority. Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this promotion should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor. This promotion is issued and approved by SIT Savings Ltd, registered in Scotland No: SC91859, registered office: 6 Albyn Place, Edinburgh, EH2 4NL. Authorised and regulated by the Financial Conduct Authority. Telephone: 0131 225 7781 | Email: [email protected] | Website: www.thescottish.co.uk GREAT IDEAS Focusrite is in a global growth groove Music and audio products specialist is set to make an increasingly big noise

nvestors seeking a small cap with a formidable track record XXXXFOCUSRITE  BUY  BUY and global ambitions should (xxx)(TUNE:AIM) xxxp 324p I Stop loss: 210pxxp tune in to Focusrite (TUNE:AIM). The music and audio products Market value: xxx£188m specialist develops and markets hardware and software products used by amateur musicians and audio professionals to realise the high-quality production of recorded and live sound. Although the shares have already done very well over the grew, while in Novation, the armed with £14.2m net cash, last few years, we believe the growth of its Launchpad grid- underpinning a 38% hike in the business could get much bigger. based controllers and Launchkey full year dividend to 2.7p. There’s still significant upside keyboard controllers both This means the AIM-quoted from new product launches and accelerated. company has ample balance further gains in a growing global ‘This is the first report under sheet firepower to increase audio production market. new chief executive Tim Carroll, market share through the an industry professional with penetration of existing products BECOMING A BIG NOISE career history at US competitor and through expansion into With a reputation for innovation Avid,’ says research group Edison. adjacent products categories, and disruption, Focusrite’s ‘The strategy is evolving to both organically and through products span everything emphasise actions to grow the selective acquisitions. from audio interfaces and customer base, increase lifetime Edison forecasts pre-tax profit grooveboxes to music-making value of customers, and expand to hit £10m in the year to August apps which consistently rank in into new markets.’ 2018 and £10.6m in 2019. It the top 10 for music creation Focusrite is growing estimates 3p dividend next year tools on Apple’s app store. everywhere from the US (its and 3.3p in 2019. (JC) Forecast-beating full year largest market) to Europe results on 21 November and China, supported by an revealed sales up 21.6% to e-commerce website delivering £66.1m and a 33.5% surge in products internationally. BROKER SAYS: 001 pre-tax profit to £9.5m. Stockbroker Panmure Gordon FOCUSRITE This performance was believes the high potential FTSE ALL SHARE driven by its audio recording markets of China, Japan, rest 340 Rebased to first 320 equipment arm Focusrite as well of Asia and Latin America are 300 as Novation, the brand family particularly ripe for Focusrite to 280 supplying hardware and software exploit further. 260 240 for creating and playing electron 220 Within Focusrite, the Scarlett, AMP-LE FIREPOWER 200 180 Source: Thomson Reuters Datastream Clarett and RedNet ranges all Focusrite finished the year 2016 2017

12 | SHARES | 30 November 2017 GREAT IDEAS Snap up Galliford Try as its shares look oversold Market is not giving credit for ambitious expansion plans following Construction division setback earlier this year

e think shares in housebuilding, GALLIFORD TRY  BUY construction and (GFRD) £11.51 W Stop loss: £9.21 regeneration business Galliford Try (GFRD) are being unfairly Market value: £952.8m dogged by a hit from legacy contracts earlier this year. This creates an opportunity to invest at an attractive price in a business with credible plans to Campbell says: ‘The shares used Regeneration business is boost profit more than 60% out to trade at a significant premium expected to benefit from to 2021. from about 2012 onwards, growing demand as Housing Galliford has three divisions: correctly reflecting Galliford Try’s Associations look to develop housebuilder Linden Homes leading return on equity, driven social and private homes. accounts for about a third of by the high returns from its The prospects for this group revenue; Partnerships & Construction and Partnerships & division may also be helped Regeneration makes up nearly Regeneration businesses, as well by the £1.1bn of new money 12%; and Construction which as its capital structure.’ announced in the Government’s accounts for the remainder. latest Budget (22 Nov) to support Linden contributed the LIMITED RISK OF FURTHER private developers in developing bulk of profit for the financial CONSTRUCTION WARNINGS regeneration projects. year ending 30 June 2017 as The risk of further warnings Galliford could be hit by Construction slipped into a loss on the construction side the uncertain economic after a £98m hit from problems now looks limited. This is the environment in the UK but the on legacy contracts announced first such write-down for the diversified nature of its three in May. business since 2001 and no businesses, which operate in The hangover from this further deterioration has been different markets with different setback has dogged the stock announced in the three updates customers and different funding with the company lagging which have followed the initial sources, should help it remain housebuilding peers by nearly warning. resilient. (TS) 50% year-to-date. This is despite The company is also no longer the write-down only being worth bidding on large scale, fixed price BROKER SAYS: 034 around 8% of its market value at infrastructure contracts like the the time it was announced. ones on which it ran into trouble. GALLIFORD TRY 1600 FTSE ALL SHARE - PRICE INDEX Galliford is now the cheapest The plan to grow pre-tax profit 1550 1500 housebuilder in terms of price- will be delivered by increasing 1450 to-earnings, on a multiple of 6.4 volumes at Linden by around 1400 1350 times, and the shares trade at 10% a year and boosting margins 1300 1250 just a small premium to its rivals from 18.2% in the 2017 financial 1200 1150 on a price-to-book basis. year to around 19% to 20%. Rebased to first 1100 Source: Thomson Reuters Datastream Liberum analyst Charlie The Partnerships & 2016 2017

30 November 2017 | SHARES | 13 INVESTMENT FACTS. WHO CAN YOU TRUST?

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TRACSIS RAMSDENS (TRCS:AIM) 575p (RFX:AIM) 188p

Gain to date: 10.6% Gain to date: 32.4% Original entry point: Original entry point: Buy at 520p, 22 December 2016 Buy at 142p, 15 June 2017 LEEDS-BASED Tracsis (TRCS:AIM) has bounced OUR POSITIVE STANCE on pawnbroker Ramsdens back following a year to forget, in share price (RFX:AIM) continues to pay off as the group terms. Having spent most of 2017 in negative has revealed a very strong set of first half results territory following its inclusion in our list of best (27 Nov). ideas for the year, the stock is back showing a Particularly impressive was the contribution modest profit. by its retail jewellery and foreign currency The smart transport analytics and infrastructure businesses where gross profit was up 30% and 35% company was left deeply frustrated by its failure respectively. For the wider group, pre-tax profit to pull off a value-enhancing acquisition in its last grew by 63% year-on-year to £5.2m. financial year (to 31 July), a fundamental part of Investment bank Liberum has subsequently its buy-and-build strategy. We believe that will be upgraded its earnings per share (EPS) forecast by corrected in the current 12 month period, with 6% to 16.2p for the year to March 2018 and its perhaps more than one deal on the cards. 2019 EPS by 2% to 16.4p. Management is upbeat about deal opportunities The one fly in the ointment for analyst Justin going forward. And July’s enterprise software Bates is the future direction of the gold price with contract win, worth potentially several million assumptions for the precious metal trimmed by 6% pounds, shows the inherent opportunities in the for the 2019 financial year. underlying business. Since joining the stock market in February It’s also worth noting that Tracsis has more 2017 the market has rewarded Ramsden’s strong than £5m of deferred earn out payments sat on performance and future potential. The shares are the balance sheet. This relates largely to previous now up by 118.6% on the 86p issue price and are acquisition Ontrac. If the company does pay most also comfortably ahead of the levels we flagged of that money out it would surely imply very strong them at in June. trading from that business. That’s something to Despite the stellar share price performance, the look out for in half year results around March or valuation does not look overly demanding at 11.6 April 2018. times forward RAMSDENS 200 FTSE ALL SHARE earnings. For

180 Rebased to first comparison, SHARES SAYS:  160 rival H&T We anticipate a renewed spell of share price 140 (HAT:AIM) is momentum that suggests Tracsis shares remain 120 on an earnings worth owning, for now and beyond. (SF) 100 multiple of

80 Source: Thomson Reuters Datastream 11.9. BROKER SAYS: 1 0 0 MAR APR MAY JUN JUL AUG SEP OCT NOV

SHARES SAYS:  Keep buying. (TS)

BROKER SAYS: 1 0 0

30 November 2017 | SHARES | 15 GREAT IDEAS UPDATES

IMIMOBILE AGGREKO (IMO:AIM) 201.5p (AGK) 860p

Gain to date: 27.1% Loss to date: 12.8% Original entry point: Original entry point: Buy at 158.5p, 8 December 2016 Buy at 987p, 12 January 2017 TO MAINTAIN double-digit organic growth is no THE TEMPORARY power solutions provider is mean feat in the current economic environment enduring a torrid 2017, as reflected in a weak and IMImobile (IMO:AIM) deserves credit. performance for the shares since we highlighted The company’s software helps businesses to their appeal in January. engage and communicate with their customers Our original hope was that Aggreko would online. enjoy a good recovery this year; sadly that’s not It reported 12% organic revenue growth in its been the case. half year results to 30 September, with headline The latest shock came on 21 November when revenue jumping 48% to £53.1m, aided by the it revealed the early termination of a contract in acquisition of Infracast. Japan, a trimmed order in Zimbabwe, continuing That deal should enhance its position in the weakness in its Argentinian business and financial services space and create notable cross- disappointing order intake. selling opportunities. Cash generation was typically The shares suffered an intraday fall of more than stronge at £5.7m. This could nudge the company a 10% on the third quarter statement as Aggreko little closer to making a dividend decision in the not observed its pipeline of potential contracts was too distant future. ‘taking longer to convert than last year’. The one concern is pressure on profit Peel Hunt analyst Andrew Nussey puts the margins, which continue to get squeezed. This is company’s woes down to ‘oil price volatility, unwelcome, if not unsurprising, given ongoing emerging market uncertainty, new technology and demands to refresh and develop the product suite unpredictable competitor behaviour’. in what is still a fairly nascent industry. Panmure Gordon analyst Michael Donnelly is Management remain very confident of hitting concerned that guidance for a return on capital forecast full year earnings before interest, tax, employed (ROCE) of 20% cannot be maintained depreciation and amortisation of £12.4m. That despite assurances from the company. only implies 8% growth. We think there is a He notes reasonable chance IMImobile can beat guidance. AGGREKO consensus 1100 FTSE ALL SHARE 1050 earnings SHARES SAYS:  1000 estimates have Still a buy. (SF) 950 fallen by 20% 900 over the last 12 BROKER SAYS: 1 0 0 850 800 months on a

750 Source: Thomson Reuters Datastream ‘growing asset 2016 2017 base’.

SHARES SAYS: Time to cut our losses. We close our trade at 860p.

BROKER SAYS: 4 7 6

16 | SHARES | 30 November 2017 VIDEOS WATCH THE LATEST SHARES VIDEOS

SAMPLE VIDEOS CLICK TO PLAY Kerim Sener, managing director Dennis Thomas, CEO and – Ariana Resources (AAU) Richard Wilkins CFO – Phoenix Global Mining (PGM)

Stewart Cazier, head of retail Andrew Prelea, president and João Andrade, group CEO – ThinCats executive director Romania & co-founder – Vast Resources (VAST) – Widecells Group (WDC)

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 TALKING POINT Our view on topical issues Ocado’s major breakthrough... but at what price? The company seems to be bearing more costs than expected with licensing deal

nline grocer Ocado the ground running. further development of other (OCDO) has finally struck The new deal suggests Ocado customer fulfilment centres close O a major deal to power will have to bear a larger chunk to other large urban areas. an overseas supermarket with of costs than one might have The partnership will have its technology. This is a major initially expected. Therefore the minimal impact on Ocado’s breakthrough for the business market will continue to pay close earnings in the current financial as the desire to strike a major attention to the company’s cash year to 3 December and will be international partnership has burn going forward. ‘earnings neutral’ next year, been touted by the company Ocado will provide its since the fees earned will be for a very long time. OSP (Ocado Smart Platform) offset by the costs of establishing While the shares surged by system to build and drive the partnership. 20% on the news (28 Nov), Casino’s online food business ‘In full year 2019 and beyond,’ are investors getting ahead of in France. That encompasses promises Ocado, ‘the profitability themselves? A closer look at everything from robots that of Ocado Solutions is likely the finer details shows that pick groceries to software that to grow as the fees from the Ocado won’t make any money routes delivery vans. transaction increase and as other on the agreement with French The odd bit, in terms of deals are signed’. supermarkets operator Groupe a traditional licencing deal, Chief executive Tim Steiner, Casino in the near future. involves a lengthy period to set whose first overseas deal with Most licencing deals involve up the partnership. The two a mystery regional European a third party paying money to companies will spend at least retailer in June disappointed use an established platform. two years building a customer some investors, says he expects Theoretically the intellectual fulfilment centre to serve the the Casino deal to be the first of property owner sits back and lets Greater Paris area, as well as numerous collaborations with the cash roll in; or perhaps more the Normandie and Hauts de retailers around the world. realistically it slots in a proven France regions. We imagine there will be system and a partnership can hit The pair will also consider numerous analyst research notes in the coming days reappraising the Ocado investment case with the assumption that if a major international food retailer has endorsed the UK business’ technology, so too will others. We will write a more detailed analysis of the stock in the New Year once more information is available on the Casino deal and from the analyst community. (JC)

18 | SHARES | 30 November 2017 WEEK AHEAD

FRIDAY 1 DECEMBER IG IGG THURSDAY 7 DECEMBER AGMS AGMS FINALS Aberdeen Asian Smaller Companies London Finance & Investment LFI CareTech CTH Investment Trust AAS ECONOMICS INTERIMS DFS Furniture DFS UK Clipper Logistics CLG Green REIT GRN Services PMI Mulberry MUL Haydale Graphene HAYD DS Smith SMDS James Halstead JHD WEDNESDAY 6 DECEMBER AGMS PureCircle PURE FINALS Abcam ABC Ruffer Investment Company RICA EasyHotel EZH Aeorema Communications AEO Starvest SVE Numis NUM Fidelity Asian Values FAS Oxford Metrics OMG Frontier IP FIPP MONDAY 4 DECEMBER Redhall RHL Foresight Solar VCT FTSV FINALS RWS RWS MJ Gleeson GLE Character Group CCT Schroder European Real Estate Hemogenyx Pharmaceuticals HEMO MXC Capital MXCP Investment Trust SERE Henderson International INTERIMS INTERIMS Income Trust HINT RhythmOne RTHM Mercia Technologies MERC The Investment Company INV AGMS Plastics Capital PLA Sanditon Investment Trust SIT IG Seismic Services 1GSS Stagecoach SGC EX-DIVIDEND MySale MYSL SysGroup SYS Debenhams DEB 2.4p Taptica International TAP Tricorn TCN DFS Furniture DFS 7.5p UK Mortgages UKML TRADING STATEMENTS JP Morgan Global ECONOMICS Carillion CLLN Growth Income JPGI 3.04p UK AGMS Netcall NET 1.16p Construction PMI Billing Services BILL Next NXT 53p Ceres Power CWR Orchard Funding ORCH 2p TUESDAY 5 DECEMBER Gattaca GATC Palace Capital PCA 9.5p FINALS YouGov YOU Town Centre Securities TOWN 1.25p Victrex VCT ECONOMICS Town Centre Securities TOWN 7p INTERIMS BRC Shop Price Index Vertu Motors VTU 0.55p Collagen Solutions COS ECONOMICS Consort Medical CSRT UK Iomart IOM RICS House Price Balance Tatton Asset Management TAM Industrial Production Vianet VNET Manufacturing Production WYG WYG Construction Production TRADING STATEMENTS Click here for complete diary Allied Irish Banks ALBK www.sharesmagazine.co.uk/market-diary Ferguson FERG THERE ARE HIGH expectations for EasyHotel’s (EZH:AIM) full GLOBAL PACKAGING industry year results on 6 December given leader DS Smith (SMDS) continues that it said in October that second to enjoy firm end demand as half trading was ahead of the consumers increasingly buy board’s expectations. products online. It reports half The company has already told year results on 7 December. the market that total system The company makes the robust, FULL YEAR RESULTS (4 Dec) sales grew by 39% to £29.7m in corrugated cardboard protective from Character Group (CCT:AIM) the 12 months to 30 September wrapping used by many popular provide the first opportunity to and that its owned hotels had internet retailers. check on trading trends since significantly outperformed rivals, DS Smith has been recently the toy distributor’s recent profit according to analysis by analytics talking up particularly strong warning (11 Oct). firm STR Global. markets in Germany, France, parts The company’s Stretch Investors will now want income of Eastern Europe and Spain. Armstrong and Laser X toys details and guidance on the Pay close attention to input are expected to be among the company’s expansion plan as well costs at the forthcoming results bestsellers this Christmas, in the as an update on how its newer and the company’s ability to pass opinion of an array of retailers. hotels are performing. them on to customers.

30 November 2017 | SHARES | 19 HOW EXPERTS FIND THE BEST COMPANIES

WE EXPLAIN HOW TO FILTER THE MARKET USING A WELL-ESTABLISHED FORMULA

prospective investor should judge a company and its management on the ability to deliver shareholder value. But what do we mean by this term? A You might be tempted to look at growth in metrics such as pre-tax profit or earnings per share. A more refined measure, often employed by investment analysts and fund managers, is provided by return on capital employed (ROCE). Investors can use this well-established formula to find the best companies on the stock market. In this article we look at how to calculate ROCE, why it matters and we explain situations when a high ROCE can be bad. We also highlight four examples of companies which we believe can offer a sustainably high ROCE over the long-term.

20 | SHARES | 30 November 2017 THE IMPORTANCE OF ‘WACC’ To truly generate shareholder value a company needs to be generating a return on capital employed which is consistently ahead of its weighted average cost of capital (WACC). In a nutshell, it means making a larger return on the money spent to improve the business than the average cost of funding for that investment. Fund manager Terry Smith is on record as saying he looks for a ROCE of at least 15% when deciding if a company is a suitable investment for his roster of collectives which includes the £10bn Fundsmith Equity (GB00B41YBW71) fund.

HOW TO CALCULATE ROCE To fully define and outline how to calculate ROCE we should break it down into its two constituent parts: the return and the capital employed. The return is usually defined as operating profit. The capital employed represents the amount of money required for a business to function. A widely used measure of this is shareholders’ funds plus debt liabilities. Shareholders’ funds will typically be equivalent to a company’s total assets, which could be everything from factory equipment to a global brand, minus liabilities. Helpfully all these numbers can be found in a company’s accounts. because it calculates the figure by dividing return Let’s use Tesco’s (TSCO) accounts from the by the average of opening and closing capital February 2017 financial year as an example. employed. Shareholders’ funds could also be described as Even if we do take 8.1% as the ‘true’ figure, it is shareholders’ equity or in Tesco’s case, total equity. still below the 15% ROCE figure desired by many investors. Tesco’s ROCE has actually been poor for CALCULATE THE RETURN some time. It fell from 14.5% in 2013 to 4% in 2015. Operating profit = £1.28bn Tesco operates in a mature and highly CALCULATE CAPITAL EMPLOYED competitive market with slim profit margins Total equity = £6.41bn and has plenty of capital tied up in areas like Non-current liabilities = £20.03bn supermarkets, stock and logistic facilities. Total equity + non-current liabilities = £26.44bn PUT IT ALL TOGETHER WHICH STOCKS HAVE HIGH ROCE? £1.28bn/£26.44bn = 0.048 x 100 = 4.8% Firms with high ROCE will often include those with ROCE = 4.8% limited capital requirements to fund their future growth. We’ve used the unadjusted operating profit Good examples include an internet-based firm figure for our calculations; other people like to like Rightmove (RMV) or businesses like Domino’s strip out one-off items. Furthermore there are Pizza (DOM) which see franchisees bear a other ways in which to adjust the calculation significant brunt of the capital burden. methodology. They often trade on high valuations but these are For example, Tesco’s website says its ROCE figure typically justified by the long-term returns enjoyed should be much higher at 8.1%. That’s partially by shareholders.

30 November 2017 | SHARES | 21 WHEN HIGH ROCE IS A BAD SIGN There are times when a high ROCE can be a worry. In a recent conversation with Shares, James Milne at Crux Asset Management said a ROCE out of step with the long-term average for a stock was a potential red flag. A rising ROCE tells you two things about a company. Either the return is increasing faster than capital employed or the capital employed is being reduced. The former might be achieved by a successful shift in strategy or entry into a new market. The latter can only really be achieved by cost cutting or, at the very least, scaling back investment in the business. BlackRock fund manager Stuart Reeve, who helps look after the asset manager’s global income fund, comments: ‘A rising ROCE can be a bad sign if that rising ROCE is unstainable. This occurs when a company is growing returns on capital employed without reinvesting in the business. ‘The rising ROCE will only continue for so long, until heavy reinvestment is required, and the associated high costs consume free cash flow and can overwhelm dividend growth,’ adds Reeve. When you adjust for leases, the average ROCE ‘For example, a company may be reducing over the past 10 years for WH Smith is much lower costs to boost ROCE, but this cost reduction may at 11.9%. be unsustainable, and heavy reinvestment may The company has recently been slashing costs be required at some point in order to maintain in its high street operation as management have competitive position or keep up with an evolving looked to manage a steady decline in sales. industry.’ In the last financial year, £12m worth of costs were taken out of the high street division and a LOOK FOR COMMON CHARACTERISTICS further £18m of savings are targeted over the Even if a company is generating strong ROCE thanks coming three years. to a rising return, this can attract competition This reduced investment has had an impact. as others look to get a piece of the action. It can WH Smith has placed in the bottom five of the put pressure on the price a company charges annual poll of best and worst shops by consumer for its products and services as it reacts to the champion Which? in each one of the last eight competitive threat. years. To deliver sustainably high returns a business Fans of the company would argue this is needs to operate in a market with strong barriers to mitigated by the success of its travel division which entry or enjoy specific advantages like scale, a strong benefits from its position in train stations and brand or patented technology. airports across the country. The division is also Retailer WH Smith (SMWH) generates a high expanding internationally and its sales overtook the ROCE. According to financial information provider high street division for the first time in the year to SharePad the 10-year average is 54.2% and in the 31 August 2017. latest financial year it posted a ROCE of 59.4%. However, if the underinvested high street offering Although these numbers are inflated by the fact starts to damage the travel brand or if demand the company leases a lot of its stores, these are in this side of the business tails off for some over exceptionally high figures for a company operating in reason, then the company’s returns could come a competitive industry like retail. under threat.

22 | SHARES | 30 November 2017 HOW TO USE ROCE – AN EXPERT’S VIEW By Stuart Reeve, portfolio manager, BlackRock Global Income Fund (GB00B3L7Q242)

ROCE can be a useful metric in telling us about the company’s historic profitability and can give us some idea of how efficient they have been with their capital. However, a high ROCE alone is not enough for us to consider a company for investment in the BlackRock Global Income Fund. We focus on the high-quality companies of the future, not on backward looking screens. Therefore, we are looking IT IS NOT GOOD ENOUGH for companies with high and sustainable return on incremental capital employed. THAT A COMPANY HAS It is not good enough that a company has historically HISTORICALLY MADE made high ROCE; we need confidence that the company HIGH ROCE; WE NEED is reinvesting that return back into its high return areas, in order to sustain those returns and their growth. “CONFIDENCE THAT THE This is where the focus on incremental capital, the next COMPANY IS REINVESTING dollar spent, comes in. ROCE does not tell us anything about this incremental spend. THAT RETURN BACK INTO ROCE tells us how much investment a company ITS HIGH RETURN AREAS, required to achieve the operating profits they have delivered. Therefore it is a useful signal of how efficient IN ORDER TO SUSTAIN the company has been in deploying capital. THOSE RETURNS AND THEIR Comparison on ROCE between companies can reveal GROWTH. companies who have required high levels of investment in order to achieve the same level of return. If such high levels of investment are required to achieve these returns, it might suggest that the returns are not sustainable and therefore lead us to avoid the company. A high ROCE in isolation is not sufficient to indicate that a company can sustain high returns, and additionally a low historical ROCE in isolation is not sufficient to indicate ” that a company will always generate low returns. We must also consider the existing asset base of the business, and the returns on the incremental dollar spent. A high or rising ROCE is also attractive to competitors or new entrants to an industry. Therefore, we also focus on barriers to entry and the competitive advantages of a business to understand that these high returns are sustainable. Otherwise, a high ROCE is risky from a competitive DISCLAIMER: Editor Daniel Coatsmith has a personal investment in Fundsmith Equity Fund referenced in standpoint as growth will become increasingly costly. this article

30 November 2017 | SHARES | 23 4 STOCKS WITH HIGH ROCE

InterContinental Hotels Group (IHG) Micro Focus International (MCRO) 10-year average lease-adjusted ROCE: 22% 10-year average lease-adjusted ROCE: 32.4%

What does the company do? Operates upwards of 5,200 hotels across the globe under several well-known brands including Holiday What does the company do? Inn and Crowne Plaza. It helps companies refresh and update their IT systems, often bringing out-of-date infrastructure How does it achieve consistently high returns? up to speed to cope with challenges like cloud InterContinental only owns a handful of hotels computing, e-commerce and mobile applications. and focuses instead on franchising and managing premises. How does it achieve consistently high returns? As well as generating premium margins, the Micro Focus is very efficient at managing its portfolio asset light model also enables it to grow quickly of products, bringing in new lines and boosting with limited capital investment and to focus on operating efficiency. building preferred brands based on guests’ needs, The company has a large installed base of and on strong delivery systems, such as its branded customers whose subscription payments account hotel websites and call centres. for more than 40% of revenue, with upwards of 50% The company also has a strategy of developing its coming from subsequent maintenance fees. pipeline of new hotels from high growth markets. Why are the high returns sustainable? Why are the high returns sustainable? It has a wealth of experience and expertise in core The strength of its brands should help protect computing languages like COBOL, Linux and open its robust returns. Holidaymakers and business source SUSE. travellers will often opt for a brand they know Management have taken on a big challenge with and trust. The diversified nature of its portfolio the $8.8bn merger of Hewlett Packard Enterprise running from high end resorts to its budget Holiday Services and will be looking to bring margins for this Inn Express offering should also provide some business in the low to mid-20s up to speed with the resilience. mid-40s consistently achieved by Micro Focus.

INTERCONTINENTAL HOTELS - (TOTAL RETURN) MICRO FOCUS - (TOTAL RETURN) FTSE ALL SHARE - (TOTAL RETURN) FTSE ALL SHARE - (TOTAL RETURN) 1800 3000 Rebased to first Rebased to first 1600 2500 1400 1200 2000 1000 1500 800 600 1000 400 500 200 Source: Thomson Reuters Datastream 0 Source: Thomson Reuters Datastream 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

24 | SHARES | 30 November 2017 4 STOCKS WITH HIGH ROCE

Spirax-Sarco Engineering (SPX) Victrex (VCT) 10-year average lease-adjusted ROCE: 23.4% 10-year average lease-adjusted ROCE: 29.1%

What does the company do? What does the company do? It is a specialty chemical company with a 70% Spirax has two divisions: its steam specialities market share in the supply of polyether ether business (75%) and WatsonMarlow unit (25%). The ketone or PEEK resin. former manufactures steam control products and This super-strong, heat resistant and lightweight serves industries as diverse as food and oil. The plastic is used as an alternative or replacement for latter is a leader in the supply of peristaltic pumps. metal in areas like transport, the industrial sector, electronics and medical devices. How does it achieve consistently high returns? The company invests heavily in product How does it achieve consistently high returns? development and employs more than 1,500 sales The firm not only makes PEEK resin, it also has the and service engineers with strong expertise. capability of manufacturing finished and semi- Although it manufactures leading products, finished products for its customers. steam at high temperatures and high pressure This added value allows it to charge a premium means products often have to be replaced. Spirax price, particularly given its materials and products sells a significant volume of replacements on its often deliver higher performance and greater large installed base of equipment. Around 50% of efficiency than the alternatives. its sales come from this avenue. Why are the high returns sustainable? Why are the high returns sustainable? Internal estimates suggest if producers of materials The company has a high-quality earnings profile. running from medical implants to oil equipment No one industry represents more than 20% of its substituted its materials with PEEK in their supply sales and no individual customer accounts for more chain its market would increase seven-fold. than 1% of sales. The company has already invested heavily in There is a good balance between higher growth extra production capacity and product innovation. markets and those which are more defensive. The It now ‘faces an end-market environment that is ‘spares and repairs’ element of the business should near universally positive for volumes’, according to also help protect its returns going forward. investment bank Berenberg. (TS) SPIRAX-SARCO - (TOTAL RETURN) VICTREX - (TOTAL RETURN) FTSE ALL SHARE - (TOTAL RETURN) FTSE ALL SHARE - (TOTAL RETURN) 000'S 3000 350 Rebased to first Rebased to first 300 2500 250 2000 200 1500 150 1000 100 50 500 Source: Thomson Reuters Datastream

0 Source: Thomson Reuters Datastream 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

30 November 2017 | SHARES | 25 INVESTMENT TRUSTS A safer way to get international exposure The London stock market benefits from higher standards of corporate governance and transparency

here’s a neat trick governance rules in the world. EXAMPLES OF INVESTMENT investors can use to gain ‘These often benefit TRUSTS HOLDING T exposure to international from stronger corporate LONDON-LISTED STOCKS earnings without buying a governance standards than WITH LARGE OVERSEAS single overseas-listed stock. other jurisdictions,’ says Lucy OPERATIONS The US, Europe, China, India Macdonald, fund manager at FIDELITY SPECIAL VALUES plus emerging markets in Latin Brunner Investment Trust (BUT). HENDERSON OPPORTUNITIES America, Asia, Africa and the That makes investing on INVESCO PERPETUAL SELECT UK EQUITY Middle East are all accessible the London stock market a JPMORGAN MIDCAP from the relative comfort of the significantly safer bet than KEYSTONE INVESTMENT TRUST London stock market. China or Russia, for example MERCANTILE INVESTMENT TRUST Companies in the FTSE 100 where the financial sector and collectively earn far more from state governance are widely SANDITON INVESTMENT TRUST overseas markets than they do considered to be less robust. SCHRODER UK GROWTH from the UK. Estimates typically Just look at the uproar from SCHRODER UK MID CAP range from anywhere between the investment community when Source: Shares two-thirds to around three- the UK’s chief markets watchdog quarters of sales. the Financial Conduct Authority a possible London flotation of Take Vodafone (VOD) for (FCA) proposed changes to listing Saudi Aramco, the world’s largest example, which has large mobile rules. The potential changes are oil producer and controlled by phone operations in India, Africa designed to beat New York to the Saudi royal family. and across parts of Europe. Drinks firm Diageo (DGE) sells more Guinness in Nigeria than it does in Ireland, while banking group Standard Chartered (STAN) has its headquarters in the UK but generates 95% of profit in Asia, Africa and the Middle East. Investing via investment trusts is one of the easiest ways to get exposure to multiple FTSE 100 stocks in one go.

REGULATIONS PROVIDE A SAFETY NET The real bonus for UK-based investors is that companies listed in London must conform to some of the most stringent corporate Aramco, the world’s largest oil producer

26 | SHARES | 30 November 2017 INVESTMENT TRUSTS

FINANCIAL CONTROVERSIES centre of the investment trust’s This is not to suggest that the investment policy. London stock market is without its controversies. The £671m fine SOLID FUNDAMENTALS handed out to aerospace group Beyond income attractions, Rolls-Royce (RR.) over bribery Gergel says he looks for claims at the start of this year is companies with strong cash IT IS IMPORTANT THAT a good example. As is BT’s (BT.A) flows and good fundamentals. discovery of a £530m accounting ‘I look at their balance sheets INVESTORS SPREAD RISK AND black hole at its Italian business, and management and I also THE BEST WAY TO ACHIEVE which wiped nearly £8bn off the look to pay a reasonable price THIS IS TO INVEST GLOBALLY group’s market value. for the shares,’ he adds. Even so, there are arguably no His top picks at the moment better stock market regulations include oil produces BP (BP.) “ anywhere in the world. and Royal Dutch Shell (RDSB), ‘UK companies allow investors and banking group HSBC access to overseas growth (HSBA). while enjoying our high level of But it is not just multi-billion legal protections and corporate pound UK companies that (RWS:AIM), which sells its governance rules,’ says Simon offer exposure to overseas intellectual property services all Gergel, manager of Merchants growth. Many AIM companies over the world. ” Trust (MRCH). are also truly international. Merchants was set up Richard Power, head of quoted AIM’S GLOBAL APPEAL in 1889 and has increased smaller companies at Octopus James Halstead (JHD:AIM), dividend payouts annually Investments, has previously Advanced Medical Solutions for 34 consecutive years. It flagged his support for the (AMS:AIM), Clinigen (CLIN:AIM), concentrates on UK-based likes of biotech research tools Craneware (CRW:AIM) and companies, mainly in the FTSE supplier Abcam (ABC:AIM), Gooch & Housego (GHH:AIM) 100 index. adhesive products manufacturer are other AIM companies with Dividends sit front and Scapa (SCPA:AIM), and RWS worldwide reach identified by Power. ‘It is important that investors spread risk and the best way to achieve this is to invest globally,’ says Patrick Connolly of independent financial adviser Chase De Vere. ‘The cheapest way to do this is through a diversified investment trust, such as the Witan Investment Trust (WTAN) or a low-cost tracker fund such as the L&G Global 100 Index (GB00BG0QP265),’ he adds. Witan has about a third of its assets invested directly in the UK, with the rest spread across the globe, with stakes in firms with international horizons like RELX BP, a top pick for Simon Gergel (REL) and Unilever (ULVR). (SF)

30 November 2017 | SHARES | 27 FUNDS Navigate emerging market risk with funds We look at how to gain access to these high growth markets using AJ Bell Youinvest’s ‘favourite funds’

ou need considerable skill and experience to invest FIDELITY EMERGING MARKET Ysuccessfully in emerging FUND (GB00B9SMK778) markets given the political, • Fund size £2.1bn economic and currency risks • Yield 0.8% involved. • Annual fee 0.99% Although it is possible to gain • Top Holdings Naspers, Taiwan exposure to this space through Semiconductor, HDFV Bank low-cost exchange-traded funds • 5-years annualised returns which track indices like the 13.06% MSCI Emerging Market Index, there is a strong argument for paying sligthtly more to benefit Fidelity Emerging Market is well-regarded fund manager from a fund manager’s stock managed by Nick Price who with a steady track record of picking expertise. aims to outperform the MSCI outperformance to his name’. Even the best managers can Emerging Market Index by 2% The portfolio tends to be made get caught out by volatility a year. Fund consultant Square up of mid to large cap names in these markets in the short Mile says: ‘[Price] is happy to and will typically consist of 75 term, but several funds have construct a portfolio that looks holdings although the number performed well in the long-term very different to the benchmark can range between 60 and 120 at and particularly in the last 18 and there are few formal risk any one time. Price and his team months as sentiment towards constraints on the portfolio.’ look for companies that can emerging markets has improved. Jake Moeller, head of UK and withstand competitive pressures Using investment platform Ireland research at Thomson and are able to compound AJ Bell Youinvest’s ‘favourite Reuters Lipper, says: ‘Nick attractive earnings growth fund’ list we now discuss three Price has established a strong throughout the economic cycle. relevant funds. reputation at Fidelity and is a This is a truly global fund, with three regional portfolio managers. Amit Goel is responsible for emerging Asia, Angel Ortiz for Latin America and Greg Konstantinidis for Europe, Middle East and Africa stocks. Simon Dorricott, associate director of Morningstar, notes the growth style fell out of favour in 2016 and as a result the fund saw a period of relative weakness. However, he adds in the longer term ‘investors have been well rewarded’.

28 | SHARES | 30 November 2017 FUNDS

Moeller agrees, saying that LAZARD EMERGING as the portfolio uses Lazard’s MARKETS (GB00B24F1G74) ‘forensic’ accounting approach • Fund size £1.1bn to pick stocks it will generally • Yield 1.7% have lower volatility against the • Annual fee 1.06% benchmark. • Top Holdings China This fund also uses bond Construction Bank, analysts to help the bottom-up Sberbank of Russia, Taiwan stock pickers with information on Semiconductor the macro situations of countries • 5-years annualised returns within the region. Bond prices 8.25% and yields are often a good indicator of a country’s economic health so is a useful tool to have Lazard Emerging Markets is strength. They will also consider in reserve. run from New York by James companies with improving Potential investors should note Donald who Moeller describes financial returns. that Lazard has periodically closed as ‘an emerging markets veteran Square Mile says: ‘Their this fund to new investors as who is able to navigate the often fundamental research discipline the manager runs considerable choppy waters of this region’. has worked well in uncovering assets in emerging assets. Also, The investment team aim valuation anomalies and helped liquidity is a consideration for the to identify companies that are isolate the managers from the investment team which limits the trading on favourable valuations swings in sentiment that can potential for investing in smaller or in other words priced cheaply dominate these markets from but potentially fast-growing relative to their financial time to time.’ companies.

JP MORGAN EMERGING ‘In a market where investors are MARKET INCOME looking for yield, it is an attractive (GB00B5N1BC33) proposition but the broader risk of emerging markets investing still • Fund size £294.55m applies,’ Moeller says. • Yield 3.8% Square Mile thinks the • Annual Fee 0.93% fund’s well-defined philosophy • Top holdings Taiwan and process it follows regardless Semiconductor, Moscow of market conditions is one of Exchange, China Mobile the fund’s best attributes. • 5-years annualised returns The fund’s management 8.49% saw a major change in 2015 when its former lead manager Richard Titherington left for JP Morgan Emerging Market Moeller says: ‘The concept Hong Kong to become chief Income has three managers; of sustainable dividends in investment officer of JP Morgan’s Omar Negual, Amit Mehta and this region may be difficult for Emerging Markets and Asia Jeffrey Roskell. It is the odd many investors to appreciate Pacific Equities team. However, one of the trio with a focus on and justifiably so.’ However, Square Mile doesn’t see this income although the managers he adds that the team can find development as a significant will not sacrifice growth for the companies prepared to fund change in terms of the fund’s income according to Square Mile. dividends out of strong cash flow. long-term strategy.

30 November 2017 | SHARES | 29 MONEY MATTERS Helping you with personal finance issues How to invest if you have a fluctuating income

It’s possible to keep your finances flexible yet still invest for your future

f your income varies from one month to the next it can I be difficult to determine your investment strategy. You might decide to put £200 a month into a diversified portfolio but find this plan is scuppered when your income drops and expenses increase. There are several ways you can ensure your finances stay flexible while building up a nest egg for your future.

CREATE AN EMERGENCY FUND Having an emergency fund is crucial if you have a fluctuating income. You need enough money rates it won’t help you build income. This could be calculated to pay day-to-day living costs as up a nest egg for your future. If by looking at your previous six well as unexpected bills. you’ve got extra income left over, or 12 months’ earnings. If after Keeping the fund as cash will investing it in the stock market several months it seems too enable you to access your money offers the greatest chance of high or too low, you can alter the quickly and avoid having to sell long-term growth. percentage. investments that have dropped The first step is to work out You can set up a regular in value. what your investment monthly investment It’s generally advisable to have objectives are – it One scheme through around six months of outgoings could be saving approach is to your investment saved up in an emergency fund. up for your platform. Some ‘Riding the wave of fluctuating kids’ university invest every month providers can income can be very stressful but fees, a house a fixed percentage be very flexible; having a sizeable emergency deposit or a of your average for example, AJ fund gives security and peace comfortable Bell Youinvest of mind, even in those weeks retirement. earnings over the lets you amend or months when income can This will help past six or 12 your investment suddenly fall at a moment’s you to determine instructions up notice,’ says Tom Selby, senior how much money months to 11.59pm on the analyst at AJ Bell. you need to save night before the deal. overall. You can then try to Selby recommends setting FIGURE OUT HOW MUCH marry this with your fluctuating up a different bank account to TO INVEST earnings. invest from (as opposed to your Having a cash buffer is important, Selby suggests investing a fixed current account) as the trade but in an era of paltry interest percentage of your monthly simply won’t be placed if the

30 | SHARES | 30 November 2017 MONEY MATTERS cash isn’t in your account. This Putting your money into ‘A self-employed person who is helpful if your earnings have dividend-yielding investments relies on growing their business dropped. could be helpful if you’ve already to fund their retirement is built up a large portfolio. essentially putting all their eggs in DECIDE WHAT TO INVEST IN ‘If you have capital and are one basket,’ warns Selby. You might be tempted to invest looking to stabilise your income ‘If the business fails, they will in the highest dividend-paying then this is a good option. have nothing to fall back on in old investments in an effort to boost However it might not be best age, other than whatever state your monthly income, but that advised if you are looking to pension entitlements they have might not be the wisest move. make regular ongoing savings built up.’ Patrick Connolly, head of into a plan as you may just end Although you don’t get communications at Chase up recycling income from one employer contributions, pensions de Vere, says the investment investment to another,’ says Oliver are still a valuable way of saving principles of using tax-efficient Smyth, wealth management for your retirement. You get wrappers and an asset allocation consultant at Walker Crips. tax relief on contributions and strategy that meets your your money grows free from objectives and attitude to risk DON’T FORGET tax. When you withdraw money apply whether you have a YOUR PENSION after age 55, one quarter of the fluctuating or a fixed income. If you’re self-employed you won’t pension can be taken as tax-free In fact, he says most working be automatically placed in a cash and the remainder is taxed people shouldn’t be using company pension scheme. This at your marginal rate. investments to supplement means you don’t benefit from their income unless they’re employer contributions and are BE CAREFUL IF YOU’RE A approaching retirement and completely responsible for setting HIGHER EARNER phasing down their workload. up your own pension. Most people’s annual pension ‘They should be focused on Many self-employed people allowance is equivalent to their building assets to help cater for consider their business to be their earnings, up to a maximum of their later years,’ he adds. pension, but this can be risky. £40,000. But this is restricted for people with taxable income in excess of £110,000. You have to calculate your ‘adjusted income’ (income plus pension contributions) and for every £2 that is over £150,000, your pension allowance is reduced by £1. Dan Brent, consultant at Thomas Miller Investment, warns people with fluctuating incomes could accidentally pay too much into pensions one year and subsequently incur charges. If you’re unsure, speak to a financial adviser. Pensions aren’t the only way to save for retirement. You can invest up to £20,000 a year into ISAs, enabling your money to grow free from income tax and capital gains tax. (EP)

30 November 2017 | SHARES | 31 MONEY MATTERS Helping you with personal finance issues How the Budget affects you Stability for savers and a boost for first-time buyers

hancellor Philip The move, when combined Someone who saves the Hammond’s first with the Lifetime ISA, could maximum of £4,000 a year in a Cpost-election Budget provide a serious boost if you’re Lifetime ISA for 10 years could delivered some welcome – if under 40 years old and saving for end up with a total fund value, slightly unexpected – stability your first home. including Government bonus and for savers. As a reminder, savers aged 18- investment growth, of £66,000 The build-up to the set-piece 39 can pay up to £4,000 a year (assuming post-charges growth was dominated by rumours the into a Lifetime ISA and receive a of 5% per year). Treasury would take the axe to 25% Government bonus. The combination of the pension tax relief in order to raise Withdrawals are tax-free for £26,000 Government bonus some much-needed cash. the purchase of a first home and investment growth via the In the event a crippling (provided it is worth £450,000 or Lifetime ISA and the £5,000 combination of worsening less), after your 60th birthday or stamp duty saving means the growth forecasts, a slim majority if you become terminally ill. Early house would cost £274,000 – in the House of Commons withdrawals for any other reason essentially a 10% reduction. and the all-consuming process incur an exit penalty which And while clearly for many of Brexit left a hamstrung means you could get back less young people saving enough for Hammond unable to pursue such than you put in. a deposit will remain a serious controversial reform. Under the old system, a challenge, a 10% discount on a The only minor changes were first-time buyer who bought £300,000 purchase is not to be confirmation of an increase a house worth £300,000 sniffed at. in the lifetime allowance to would pay £5,000 in stamp £1,030,000 and the Junior ISA d u t y, b r i n g i n g t h e t o t a l c o s t Tom Selby, allowance to £4,260. to £305,000. Senior Analyst, AJ Bell Both rises were in line with Consumer Price Index (CPI) Average first Previous New stamp Saving inflation, meaning both will time buyer stamp duty duty charge stay the same in real terms. All house price* charge other pension and ISA savings allowances were unchanged.

A RABBIT OF SORTS UK £207,693 £1,654 £0 £1,654 Hammond’s big announcement centred on stamp duty and was targeted squarely at the London £409,795 £10,490 £5,490 £5,000 young voters who gave the Conservatives a bloody nose at the general election. South The Chancellor has scrapped East £276,773 £3,839 £0 £3,839 stamp duty altogether for first- time buyers on properties worth £300,000 or less. For properties North £125,591 £12 £0 £12 costing up to £500,000, no stamp

duty will be paid on the first *Source: Halifax First Time Buyer Review £300,000.

32 | SHARES | 30 November 2017 You invest Invest monthly in a low-cost DIY pension You choose Choose from a wide range of investment options You benefit Low-cost dealing from as little as £1.50

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

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 Why GlaxoSmithKline’s HIV division could nearly double in value by 2020 Analyst believes new drug approval could drive value in HIV business

harma giant GlaxoSmithKline’s (GSK) drug Juluca should help to GSK'S Pdrive value in its HIV-focused ViiV HIV ARM business after being approved by the COULD BE US Food & Drug Administration (FDA). WORTH $30BN HIV is a virus that damages cells in IN THREE the immune system, making it more difficult for people to fight off infections YEARS and disease.

MARKET IS ‘UNDERVALUING’ HIV BUSINESS Juluca is the first treatment for HIV-1 that contains just two drugs, dolutegravir and rilpivirine, instead of three to help reduce toxicity in patients. HSBC analyst Steve McGarry values the ViiV division at $16bn today and forecasts sales of approximately $8.1bn in 2023. He believes the market is undervaluing the business. Based on the analyst’s 2020 forecasts, the ViiV business could be worth closer to $30bn. Glaxo’s total market cap in 2018 could be an expensive year for the firm dollars is currently around $86bn. if it goes ahead with the Pfizer deal and also McGarry says operating margins will ‘comfortably buys Novartis’s minority stake in Glaxo’s consumer exceed 50%’ once several large clinical studies are joint venture. completed. He estimates the total cost could be $24bn, This is despite potential competition which might result in a dividend cut, as the ratio from US-listed Gilead’s HIV drug bictegravir, between net debt and earnings would be a commercialisation of which could be delayed demanding 3.5 times if these transactions were if GlaxoSmithKline takes legal action. McGarry funded entirely by debt. believes this is a possibility due to the ‘striking Another threat is a potential generic version of similarity of both drugs and how they act’. GlaxoSmithKline’s multi-billion asthma treatment Advair Diskus, which could drag on Glaxo’s earnings DIVIDEND CONCERNS ON POTENTIAL M&A growth in the longer term if rivals gain regulatory GlaxoSmithKline’s share price has fallen by 16.9% approval. Its competitors in this area Hikma (HIK) to £12.98 so far this year. and US-listed Mylan have failed so far. One of the biggest concerns weighing on These headwinds look like they might already the stock is a potential dividend cut following be reflected in the price as GlaxoSmithKline offers speculation the drugs giant might buy US-listed a generous dividend yield of 6.1% and trades on Pfizer’s consumer division. an undemanding forecast 11.9 times earnings per Beaufort Securities analyst Ben Maitland says share in the year to 31 December 2018. (LMJ)

34 | SHARES | 30 November 2017 SMALLER COMPANIES Go for the premium end of the pubs industry for hearty returns Young’s and Fuller’s shine in a difficult market and they’re now joined on the stock market by City Pub Group

remium-end pub companies say they are the menu and replace it with something else”,’ says managing to grow sales in a difficult market as Young’s chief executive Patrick Dardis. ‘That gives us P a result of ongoing investment in their estate the flexibility to adapt to price changes.’ and benefits such as being able to respond quickly Fuller’s has extended trading areas and invested in to changes in food costs. staff training which has helped to boost sales, says its Young’s (YNGA:AIM) and Fuller, Smith & Turner chief executive Simon Emeny. The company is also (FSTA) have both reported strong results over the in the middle of a multi-million pound IT-upgrade for past few weeks, citing the aforementioned reasons its brewery; and investment in accommodation will for their success. see 100 bedrooms added to its existing portfolio of High-quality interiors, good customer service and 724 bedrooms over the next two years. the appeal of freshly-made food are also cited as Investors should note the recent addition of key contributors to rising profit. another premium pub group to the stock market. Young’s adjusted pre-tax profit grew by 11.2% City Pub (CPC:AIM) joined AIM on 23 November and to £24.9m in the six months to 2 October. Fuller’s operates 34 premium pubs across southern England. adjusted pre-tax profit grew by 4% to £23.8m in the The £102m company features the same team six months to 30 September. The latter attributes who built up former AIM-quoted Capital Pub its success to investment in the business resulting Company and sold it to Greene King (GNK) for in higher volume of sales and the ability to push up £93m in 2011. prices without damaging demand. City Pub intends to double the size of its estate Food menus for both Young’s and Fuller’s are over the next three to four years. It likes to buy printed by each of their pubs rather than a standard pubs which are already trading well. It benefits menu for all their estate. ‘If something has suddenly by switching supply contracts to the group’s gone up in price like venison, we can say to pub centralised platform which it says helps to quickly managers “when you run out of venison, take it off improve operating margins.

SHARES SAYS:  We are fans of all three businesses. Young’s and Fuller’s are good long-term holdings offering a mixture of capital appreciation and dividend yields in the region of 1.5% to 2%. City Pub plans to pay dividends although we expect shareholder returns to be dominated by capital gains in the near term given the demand on its surplus cash to support expansion plans. Buy Young’s at £13.44, Fuller’s at 951p and City Pub at 180.99p. (DC)

30 November 2017 | SHARES | 35 SMALLER COMPANIES Shares in bathroom firm look like a real bargain

Norcros is looking very attractive after £60m Irish acquisition

athroom fit-out firm Norcos (NXR) continues a ‘problem child’ for the business to a strong to look undervalued as it progresses a plan contributor to group profit. B to become a ‘one-stop-shop’ for bathroom The stock trades on a mere six times forecast fittings and accessories. earnings per share of 30.1p for the year ending The Cheshire-based company, best known for 31 March 2019 and offers a prospective yield of its leading Triton shower brand in the UK, recently more than 4.5%, based on Numis’ forecasts. completed the £60m acquisition of profitable Irish Notably these estimates have not yet been shower screens business Merlyn. The deal was updated in the wake of the Merlyn deal which financed by a £31.4m share placing and a new Numis advised on. £120m debt facility. The main risks to weigh include a £52.1m Chief executive Nick Kelsall tells Shares the pension deficit and its exposure to a slightly company is looking at further deals to broaden its uncertain UK economic environment. bathroom product offering. Results for the six months to 30 September SHARES SAYS:  were resilient despite rising input costs in the UK The shares look cheap; buy at 180p. and political instability in its other main market, South Africa. BROKER SAYS: 002 Kelsall notes the latter has gone from being

Cloud group Shares in Empresaria Beeks gets AIM Sanderson acquires hit one-year low IPO away like-minded peer SHARES IN STAFFING specialist NICHE CLOUD SERVICES supplier Cloud software supplier Sanderson Empresaria (EMR) fell to a one- Beeks Financial Cloud (BKS:AIM) (SND:AIM) appears to be trying year low of 100p (24 Nov) after it has joined AIM after raising £7m to accelerate growth without announced that full year pre-tax from investors. sacrificing its cautious reputation. profit would be below market The £24.5m company provides The retail and manufacturing expectations. communication and data storage markets specialist is buying The company has blamed to foreign currency and derivatives owner-managed industry peer historic issues for the trading organisations. Growth plans Anisa, another ‘steady-eddie’ disappointing trading update, include geographic expansion and according to one analyst, for an flagging reduced margins in adding equity trading capabilities, enterprise value of £12m in cash Germany following legislation the latter most likely to come and shares. changes, the impact of which has through acquisitions. The deal should bolster growth been felt earlier than anticipated. Beeks recorded a 48% jump in potential, revenue and cash flow. A weak market in the Middle East revenue for the year to 30 June Sanderson’s shares rallied 12% to has also persisted, creating extra to £4m, although it pluged into a 71p on the news (24 Nov). (SF) costs to resize the business. (LMJ) pre-tax loss of £761,000. (SF)

36 | SHARES | 30 November 2017 NOW IS THE TIME TO FOCUS ON YOUR INVESTMENT PORTFOLIO Come and join Shares and AJ Bell Media at their evening event in London on Thursday 14 December 2017 and meet the directors from Echo Energy (ECHO), ThinCats and Vipera (VIP) with more to be announced.

Sponsored by London - Thursday 14 Dec 2017

Companies presenting

Echo Energy (ECHO) Echo Energy plc is a UK listed South and Central American focused mid-cap gas company in the making. The Company is pursuing a high value piped onshore gas strategy across South and Central America, which includes a Multi Tcf potential Bolivian exploration portfolio as well as the recently announced farm in to substantial assets in Argentina. The Company is led by a team and Cornerstone Investor with strong regional connections and an indisputable track record in building mid cap AIM listed gas businesses with sustainable value growth for Private Investors. The Echo team builds its businesses around three strategic Pillars : Portfolio, People and Partnerships.

ThinCats Stewart Cazier, Head of Retail 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. The company was founded in the aftermath of the global financial crisis, with the aim of offering loans to UK businesses struggling to access funding through traditional channels, whilst providing investors with attractive rates of interest unavailable through many conventional investment portfolios.

Vipera (VIP) Martin Perrin, CFO COME AND Vipera is a leading provider of mobile financial services platforms. The Vipera platform CELEBRATEprovides OUR the easiest, fastest, most cost-effective way to develop and operate mobile data services. XMASSolutions THEMED powered by Vipera run today on more than 500,000 phones, on hundreds of mobile networks inINVESTOR many EVENING countries. Founded in 2005, Vipera has offices in Zurich, Milan and London. WITH OUR RANGE OF FESTIVE TREATS!

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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

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

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

KEY Centrica (CNA) 6 James Halstead 27 Sainsbury’s (SBRY) 3 (JHD:AIM) • Main Market Character Group 19 Sanderson (SND:AIM) 36 • AIM (CCT:AIM) John Laing 8 Scapa (SCPA:AIM) 27 Infrastructure Fund • Fund City Pub (CPC:AIM) 35 Serco (SRP) 3 (JLIF) • Investment Trust Clinigen (CLIN:AIM) 27 Spirax-Sarco 25 JP Morgan 29 • IPO Coming Soon ConvaTec (CTEC) 7 Engineering (SPX) Emerging Market Craneware (CRW:AIM) 27 Income SSE (SSE) 10 Diageo (DGE) 26 (GB00B5N1BC33) Standard Chartered 26 Domino’s Pizza (DOM) 21 Just Eat (JE.) 7 (STAN) DS Smith (SMDS) 19 L&G Global 100 Index 27 Supermarket Income 9 Abcam (ABC:AIM) 27 REIT (SUPR) EasyHotel (EZH:AIM) 19 (GB00BG0QP265) Aberdeen Standard 9 Tesco (TSCO) 3 European Logistics Empresaria (EMR:AIM) 36 Lazard Emerging 29 Markets Tracsis (TRCS:AIM) 15 Income Fenner (FENR) 7 (GB00B24F1G74) Tri-Pillar 8 Advanced Medical 27 Fidelity Emerging 28 Lloyds Banking (LLOY) 6 Infrastructure Fund Solutions (AMS:AIM) Market Fund Triple Point Social 9 Aggreko (AGK) 16 (GB00B9SMK778) Majestic Wine 10 (WINE:AIM) Housing (SOHO) Babcock International 7 Focusrite (TUNE:AIM) 12 Merchants Trust 27 Unilever (ULVR) 27 (BAB) Fuller, Smith & Turner 35 (MRCH) Vesuvius (VSVS) 7 Barclays (BARC) 6 (FSTA) Merlin Entertainments 7 Victrex (VCT) 25 Beeks Financial Cloud 36 Fundsmith Equity 21 (MERL) (BKS:AIM) (GB00B41YBW71) Vodafone (VOD) 26 Micro Focus 24 BlackRock Global 23 Galliford Try (GFRD) 13 Warehouse REIT 9 International (MCRO) Income Fund GCP Infrastructure 8 (WHR) Norcos (NXR) 36 (GB00B3L7Q242) (GCP) WH Smith (SMWH) 22 Ocado (OCDO) 3, 18 Bodycote (BOY) 7 GlaxoSmithKline (GSK) 34 Witan Investment 27 Ramsdens (RFX:AIM) 15 BP (BP.) 27 Go-Ahead (GOG) 3 Trust (WTAN) RELX (REL) 27 Brunner Investment 26 Gooch & Housego 27 Young’s (YNGA:AIM) 35 Trust (BUT) (GHH:AIM) Renishaw (RSW) 7 BT (BT.A) 27 Greene King (GNK) 35 Rightmove (RMV) 21 Halma (HLMA) 7 Rolls-Royce (RR.) 27 Hikma (HIK) 34 Royal Bank of 6 Scotland (RBS) HSBC (HSBA) 27 Royal Dutch Shell 27 IMImobile (IMO:AIM) 16 (RDSB) InterContinental 24 Royal Mail (RMG) 3 Hotels Group (IHG) RWS (RWS:AIM) 27

38 | SHARES | 30 November 2017 THIS WEEK: 15 PAGES OF BONUS CONTENT

ANGLE AVATION JAYWING SKINBIO STATPRO THINCATS Growth & Innovation

INCLUDES COMPANY PROFILES, COMMENT AND ANALYSIS NOVEMBER 2017 2017 NOVEMBER Introduction

Small companies have the capacity to deliver substantial growth, albeit at a higher level of risk, and in this edition of Spotlight our editorial feature looks at how the AIM index has outperformed the FTSE 100 and FTSE 250 since junior market stocks became eligible for ISAs five years ago.

ome of the top AIM story before you do your own performers over this research. period are also covered The firms you can find out Sin the article. more about in this issue We publish Spotlight on a include an aircraft leasing regular basis as a forum for outfit, cutting edge marketing smaller cap companies to play and skin health specialist tell their stories in their own among several others. words. Many of the firms appearing The company profiles are in Spotlight will also appear written by the businesses at our investor evenings in themselves rather than by London and other cities, giving Shares journalists. you the opportunity to grill They pay a fee to get their management on the finer message across to both details of their stories. existing shareholders and prospective investors. The Click here for details of articles therefore cannot upcoming events and how to be treated as independent register for free tickets. comment. However, they can help Previous issues of Spotlight you better understand a are available on our website.

Shares Spotlight NOVEMBER 2017 40 AIM’s long-term boost from ISA change We look at the top performers in the four years since tax wrapper eligibility gave the market a boost

t is a little over four years STARS OF AIM since AIM stocks became eligible for inclusion in an ISA Share performance Company I(individual savings account). since 5 August 2013 (%) In August 2013, in an effort UK Oil & Gas to encourage investment 7110 in growth companies, the Investments authorities gave the green Victoria 1670 light to including junior market shares in these tax wrappers. Keywords Studios 953 Previously this had only Burford Capital 891 been possible in cases where a company had a listing IG Design 837 on another exchange. The Hutchinson China evidence, at least in terms 824 of share price performance, Meditech suggests the move has made Frontier Developments 769 a tangible difference. The FTSE AIM All-Share index IQE 618 is up 39.6% since AIM stocks Plus500 602 have been allowed in ISAs. The FTSE AIM 100, containing CVS 519 the 100 largest firms on the Source: SharePad, 20 November 2017 exchange, is up by an even more impressive 54.2%. This UK Oil & Gas Investments compares with the FTSE 100 up (UKOG:AIM) by 11.9% and FTSE 250 up by As with many small cap oil 30.8%. and gas explorers, it has been AIM stocks underperformed a volatile ride with this stock in the four years preceding but ultimately the shares have the change. The FTSE AIM 100 gushed higher as excitement gained 37% against the FTSE builds over the potential of 100 up 42% and FTSE 250 up Horse Hill asset near Gatwick 84% over the four years to Airport. August 2013. The company recently We now look at some of secured £10m financing the top performing shares to fund drilling and testing currently in the AIM 100 since activity on the development. August 2013 to see where ISA Risks include navigating investors might have made the growing opposition to oil and most significant gains. gas activity onshore UK.

Shares Spotlight ISSUE XXX 41 Shares Spotlight NOVEMBER 2017 41 Victoria (VCP:AIM) play products maker has Under executive chairman enjoyed strong growth in Geoff Wilding cash generative recent years and its products flooring specialist Victoria are now sold in more than has achieved scale in carpet 200,000 stores across in manufacturing through excess of 80 countries. acquisitions. It traded with 10,000+ Wilding is now turning his customers and sold over 500m attentions to growing the units in the year to 31 March hard flooring business. The 2017, which saw underlying company has a track record of pre-tax profit shoot up 51% to strong growth in earnings and £16.3m. cash flow. IN AN EFFORT Well-run flooring makers Hutchinson China Meditech like Victoria tend to generate TO ENCOURAGE (HCM:AIM) plenty of cash due to attractive INVESTMENT IN This biopharmaceutical supplier terms, quality debtors company is aiming to become and the long life of their GROWTH COMPANIES, a global leader in therapies for manufacturing assets. oncology and immunological THE AUTHORITIES GAVE diseases. Keywords Studios (KWS:AIM) “ Known as ‘Chi-Med’ it has THE GREEN LIGHT TO Like Victoria, the video game a strong and growing clinical services provider has been INCLUDING JUNIOR pipeline and is backed by a consolidator. In October billionaire Li Ka-shing’s CK 2017 it completed its biggest MARKET SHARES IN Hutchinson group. acquisition to date. It swooped THESE TAX WRAPPERS In October 2017 the company for VMC Consulting and raised £172.6m to invest in its Volt Canada in a combined drug pipeline. deal from Volt Information Scientists, paying around Frontier Developments $66.4m (£50.4m approx) for (FDEV:AIM) the pair. The video games creator has The company serves a fast- gathered momentum in 2017 growing industry and has in particular thanks to Chinese 23 of the top 25 video game internet business Tencent producers on its client roster. taking a 9% stake, potentially ” boosting exposure to a huge Burford Capital (BUR:AIM) market in China, and agreeing The market has really picked a licensing deal for a game up on the litigation service linked to the hugely successful provider’s potential since 2016. Jurassic World film franchise. Burford is the leading operator in this niche space, providing funding for law suits in return for a share of any AND THE REST… compensation award. Of late it has crystallised Cardiff-based IQE (IQE:AIM) designs semiconductor value by selling some of its materials for mobile phones. It has been lifted by interest in these cases. For unconfirmed rumours its tech is in the latest iPhones from example, in June the company Apple. sold a 15% interest in case Spread betting outfitPlus500 (PLUS:AIM) has seen its involving Spanish investment shares move sharply higher in 2017 as it doubled first group and Argentine state half profit and announced full year results would beat oil firm YPF for $66m having expectations. initially invested just $18m in Veterinary practice operator CVS (CVSG:AIM) announced the litigation at the outset. the launch of another potential avenue for growth with a pet insurance product in October 2017. IG Design (IGR:AIM) The gift packaging-to-creative

Shares42 Spotlight NOVEMBER 2017 42 Shares Spotlight Avation

Avation is gaining altitude Website: www.avation.net

vation (AVAP) is an Avation will continue to grow aircraft leasing company Aircraft Type Fleet its fleet and earnings in the managing a fleet of coming year targeting both Acommercial passenger aircraft, Boeing 777- 1 narrowbody and widebody which are leased to airlines 300ER jets, ATR 72-600s from the globally. Avation’s customers Airbus A330-300 1 manufacturer, and the include EVA Air, Philippine possibility to add second- Airlines, easyJet (EZJ), Airbus A321-200 8 hand aircraft on an ad-hoc Mandarin Airlines, Air France, basis. Older aircraft are sold Air India Regional, Condor, Fiji Airbus A320-200 3 when opportunities arise. Airways, Flybe (FLYB), Thomas Cook (TCG), Vietjet Air and Fokker 100 5 Virgin Australia. FY 2017 The group’s fleet includes ATR 72-600 13 widebody and narrowbody jets, RESULTS: ATR 72 turboprop aircraft and ATR 72-500 6 Lease Revenue: 32% Growth COMPANY Total 37 FY2017: $94.2m FY2016: $71.2m HIGHLIGHTS 2017 Fokker 100 jets. The average age of Avation’s fleet is 3.0 EBIT: 32% Growth • Twelfth year as a years while the average lease FY2017: $60.2m; public company. term remaining is 7.7 years (as FY2016: $45.6m at 31 December 2017). • Added EVA Air, Total Assets: 8% Growth Avation operates from its Philippine Airlines, FY2017: $901.1m; headquarters in Singapore Mandarin Airlines and FY2016: $831.8m where it is tax resident and a EasyJet as new airline beneficiary of the Singapore Profit after tax:16% Growth customers. Aircraft Leasing Scheme tax FY2017: $21.3m; • Acquired first incentive. FY2016: $18.3m widebody jets with the Avation’s management team Operating Cashflow: acquisition of Airbus has extensive experience in 20% Growth A330-300 and Boeing aviation and has the expertise FY2017: $63.0m; 777-300ER. to select and acquire aircraft FY2016: $52.5m that will achieve strong • Avation’s long term operational performance EPS: issuer default rating 6% Growth for our customers and at B+(stable) by Fitch FY2017: 36.3 cents; generate stable returns for our and S&P. FY2016: 34.4 cents shareholders. Who is avation? A leader in providing leasing solutions to airlines around the world.

Shares Spotlight ISSUE XXX 43 Shares Spotlight NOVEMBER 2017 43 Shares Spotlight Thincats

Thincats offers an alternative Website: www.thincats.com

lternative assets typically The history of offer returns which are November 2009 ThinCats Kevin Caley and Peter Brown formed the idea for not directly affected a company offering fixed term secured loans to Aby the volatility of financial businesses, with lower risk than equity, providing February markets, providing a great way 2010 a regular income for investors – the idea for the Business Loan Network Ltd was established world’s first peer to business lender. of diversifying an investment to operate the ThinCats platform; so called portfolio, at the same time as to underline the major differences from the stereotyped ‘fat cat bankers’. January 2011 potentially earning attractive The ThinCats online peer to peer lending platform returns, both for those who was launched; one of the very first, and the only one to specialise in secured loans that were all are saving and those who are November 2012 vetted by experienced financial experts. looking to obtain a regular Steadily growing, with 350 active lenders and income. an average loan size of £170,000, ThinCats was ready to take on loans above £1million. This would One of the few leading require significant underwriting, and potential July 2013 alternative lenders offering investors were sought. ThinCats joined as a member of the Peer to Peer investors the choice of which Finance Association (P2PFA). loans to invest in, ThinCats June 2014 gives access to full loan ThinCats launches Australian venture. information packs and a calculated risk grading to help December 2015 ESF Capital acquired a 73.4% stake in ThinCats, investors make an informed with plans to significantly invest in infrastructure, decision. resources and personnel to further improve the April ThinCats loans are backed by 2016 experience for borrowers, Sponsors and investors Europe’s largest non-property P2P loan, £3.5 across the board. security and subject to a formal million for insurance group LAMP, was listed on the credit review prior to being ThinCats platform.[1] August 2016 listed on the platform, and Loan grading was introduced, to further help all loans support established, investors evaluate loans to support their growing businesses from investment decisions, and the growing team at October 2016 ThinCats took up residence in new, larger offices in a variety of sectors and Milestone of £200 million worth of loans arranged Ashby de la Zouch. geographies, helping to drive through ThinCats platform. the UK economy. November 2016 ThinCats became proud patrons of NACFB, the National Association of Commercial Finance Brokers, and received the highest rating of 5 Star December 2016 Rating from Defaqto, the industry standard for Big Society Capital, government backed financial assessing the quality of financial products. institution ‘with a social mission’, partnered with ThinCats to offer Social Investment loans with £2million worth of match funding.

Who is ThinCats? A leading alternative finance provider, dedicated to funding growing and ambitious SMEs, and offering investors the opportunity to invest directly in alternative assets

Shares Spotlight NOVEMBER 2017 44 Shares Spotlight ANGLE

ANGLE – Simple, Easy and Flexible Website: www.angleplc.com

NGLE’s (AIM:AGL mass. The ParsortixTM assay REPLACING THE INVASIVE OTCQX:ANPCY) demonstrated high sensitivity, METASTATIC BIOPSY IN ParsortixTM system can correctly identifying women BREAST CANCER Aharvest cancer cells from with ovarian cancer so that ANGLE is seeking to be the patient blood even when they can receive the care of first company ever to receive there is only one cancer a specialist cancer surgeon, FDA clearance (United States cell in amongst one billion ensuring optimum outcome. regulatory approval) for a blood cells. These ‘circulating Crucially the ParsortixTM assay product harvesting cancer tumour cells’ (CTCs) are also demonstrated high cells from patient blood for travelling in the blood as specificity correctly identifying analysis. The number one part of the process known women with a benign condition cancer centre in the United as metastasis, and are the so that they can be treated by States, MD Anderson is leading cause of secondary cancer in a general surgeon in their local ANGLE’s FDA clinical studies. other parts of the body where hospital, most likely with key- Patient enrolment in the cells settle. Analysis of hole surgery. ANGLE’s pivotal breast cancer the CTCs has the potential to Buoyed by these excellent study will start once ethical transform the way cancer is results, ANGLE is currently approvals are in place. 200 treated through the selection optimising its ovarian test and metastatic breast cancer of therapies targeted to the will be progressing a validation patients together with 200 patient’s individual cancer study over the next 18 months healthy volunteers will be and by the early detection of aimed at securing FDA and enrolled in a trial designed cancer in high risk groups. CE mark regulatory clearance to demonstrate the success so that its test can be sold in of ANGLE’s ParsortixTM system DETECTION OF OVARIAN the United States and Europe in harvesting cancer cells CANCER, THE SILENT KILLER addressing a targeted market from breast cancer patients Earlier this year, ANGLE valued at in more than £300m and that the harvested completed two large scale per annum. cells can be successfully clinical studies each of analysed to provide key 200 patients assessing the WHO IS ANGLE? medical information using potential to detect ovarian multiple different established cancer using ANGLE’s World-leading liquid biopsy downstream analysis ParsortixTM system. These company ANGLE’s (AIM:AGL techniques. ANGLE’s target is studies demonstrated the OTCQX:ANPCY) liquid biopsy to complete its FDA clinical potential of the ParsortixTM and analytical studies by 30 system to out-perform device is becoming the de June 2018. current standard of care facto standard amongst In women with breast in the detection of ovarian leading cancer research cancer that has spread to cancer in women having secondary cancer sites, surgery for an abnormal pelvic centres around the world. the standard of care in the

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United States is to undertake ParsortixTM system in the ANGLE is aiming for ParsortixTM surgery to cut out cells from detection of prostatecancer to become the accepted the secondary cancer site for and in the assessment of its standard for obtaining these investigation to help guide the aggressiveness. The latter very rare cells for analysis. ongoing treatment decisions. point is particularly important The first such partnership has This is highly invasive and in prostate cancer where the recently been announced as often the patient is too weak cancer may range from very a co-marketing agreement for the operation. It would slow developing to highly with QIAGEN, one of the be far better to offer the aggressive. world’s leading molecular patient a blood test instead. In a 40 patient pilot study, testing companies with The University of Southern Barts showed that the 500,000 customers and California has already ParsortixTM system could be revenue of $1.3bn per annum. demonstrated in a 22 patient used to separate patients into pilot study that the same high risk and low risk groups. CAPITALISING ON THE information can be obtained In a 20-month follow-up, POTENTIAL from a simple blood test using Barts showed that the high ANGLE has further ANGLE’s ParsortixTM system. risk patients were ten times strengthened its leading The market potential for a more likely to die than the position in the emerging liquid biopsy in breast cancer low risk patients. A blood test liquid biopsy market by has been estimated as in enabling this distinction has acquiring a downstream excess of £1bn per annum. benefits for both groups: analysis technology of high risk patients can have its own, Axela. The Axela WIDESPREAD ADOPTION IN accelerated treatment rather platform enables ANGLE MULTIPLE CANCER TYPES than waiting for their disease to not only harvest cancer ANGLE’s ParsortixTM system can progression and low risk cells for analysis but also to be used without modification patients can minimise and/or analyse those cells to provide in all solid tumour types for avoid unnecessary invasive the key gene expression a wide range of applications. and toxic treatment. information that is needed. ANGLE’s key opinion ANGLE’s strategy to ensure Following the acquisition, leaders and research use widespread adoption of its ANGLE will now be able to customers are working with ParsortixTM technology is to offer a full “sample to answer” the ParsortixTM system in 20 partner with many large- solution. different cancer types. scale corporates that have ANGLE has recently raised Another advanced area of existing downstream analysis £15m of funding to complete investigation is in prostate techniques for solid biopsy its regulatory clearance cancer where Barts Cancer offering them the ability via studies and bring its Institute in London has been ParsortixTM to harvest cells revolutionary products into pioneering the use of the from blood for analysis. use treating patients.

STATPRO REVOLUTION ALLOWS CLIENTS TO CONSOLIDATE SYSTEMS

46Shares Spotlight NOVEMBER 2017 46 Shares Spotlight Jaywing

Jaywing an exciting opportunity in data science Website: www.jaywingplc.com

aywing (AIM:JWNG) is a levels of recurring revenues, data science-led agency WHO IS JAYWING? two thirds of which is visible and consultancy business Jaywing is a data six months in advance. Jwith a marketing technology Consequently, it enjoys strong division and the beginnings science-led agency and cash generation and working of an international footprint. It consultancy business across a number of industry employs over 650 people in with a marketing sectors, its concentration risk the UK and Australia with 1 in is low. 10 being an experienced data technology division and The agency has two core scientist. It operates a highly the beginnings of an propositions: performance collaborative business model international footprint marketing, where clients that has resulted in one in three rely on Jaywing to generate of its top 50 blue chip clients buying multiple service lines.

Investment in marketing tech Recently it has developed cutting edge technology, using artificial intelligence and virtual reality. Branded Jaywing Intelligence, it delivers unique data and insights, as well as time saving automation, across a range of marketing applications. Jaywing Intelligence will generate high quality licence revenues as well as creating differentiation. It is already being used by more than 15 clients, including Sky, ITV, Anytime Fitness Australia and KPMG.

Underpinned by an established agency and consulting business Beyond this, Jaywing’s core business generates high

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sales using search marketing, Facebook, with the traditional see spend start to recover programmatic display TV companies losing on the back of improved advertising and email; and market share (of eyeballs marketing performance. So as brand-led marketing, where and advertising revenue). a specialist in data science clients such as Pepsi and Navigating this world of digital led digital marketing, Jaywing Castrol have switched from media requires deep expertise is expected to benefit from traditional channels, in favour from specialist agencies. this in the medium term. of using high quality content According to eMarketer, in social media and other digital media spend in the UK A strong team with an digital channels to engage now outweighs the combined ambitious goal specific audiences. offline media spend. This The company has a tight and The consulting business digital media spend has experienced management helps clients do smart things come under scrutiny during team that has been in place with their data for marketing 2017 and there is a call from since 2012 and includes or risk. advertisers for their network some high-profile industry The marketing practice agencies to provide them practitioners. manages and combines on with a more transparent cost Their goal is for Jaywing and offline data. It uses it model. It is possible that some to be the number one to build and execute highly large advertisers will look to challenger brand in each of personalised customer disintermediate their media its markets, disrupting through experiences and help clients buying from such generalist the innovative application understand more about agencies and buy media of data science and its their customers and how themselves, but more likely collaborative “One Jaywing” their marketing activities are they will turn to specialist operating model, centred performing. agencies with transparent around client need rather than The risk practice works cost models. organisational structure. Its closely with lenders to build On the consumer side, the strategic collaboration with statistical models, often to proliferation of social media the Data Science Institute at satisfy banking regulation, channels and digital devices Imperial College London is such as calculating capital (smartphones, smart TV) is helping to fuel its innovation. requirements. This is a very totally changing the ability of Whilst the company has specialist field generating high marketers to look for targeted historically been focused in margins. and effective return on the UK, going forward the Jaywing is well placed to investment for their marketing management team has a help clients undertake digital dollars. There is simply more desire to scale the business transformation programmes raw data to analyse and far internationally through the as the big management greater need for data science. distribution of its marketing consultancies often don’t However, right now technology and the acquisition have the breadth of creative consumer-led businesses of complementary businesses. and practical marketing skills in the UK are currently As with its very successful to bring to the table and grappling with difficult trading acquisition in Australia, this agencies tend to lack the conditions. In common with will provide Jaywing with credibility to handle large- previous periods where access to faster growth and scale business and technical there has been a squeeze will improve its overall margin transformation programmes. on consumer spending and as central costs will remain more general economic the same. Positioned to be a winner in a uncertainty, the first action for period of disruption many has been to cut costs, In a tech-based economy, including some marketing JAYWING with ever increasing digital costs. If things continue to 4400 analytics, the marketing follow the same cycle then 4000 profession has changed we can expect the remaining 3600 immeasurably from its ‘Mad marketing spend to move 3200 Men’ days. These days, the towards the most accountable 2800

world’s top media owners and cost effective digital 2400 Source: Thomson Reuters Datastream are the likes of Google and marketing channels and then 2016 2017

Shares48 Spotlight NOVEMBER 2017 48 Shares Spotlight SkinBioTherapeutics

Get under the skin of SkinBio Website: www.skinbiotherapeutics.com

kinBioTherapeutics 2014) has been into the gut Specifically, the lysate could (SBTX:AIM) CEO, Cath microbiome and treatments improve the barrier effect of O’Neill, is one of the for local conditions to the skin by reducing water loss, Sfounders of the company and gut. However, less than 5% protect skin from infection and discovered the proprietary of published research has help the skin repair itself. technology platform, SkinBiotix. been on the skin microbiome, The nascent, Based on its potential across although this is starting to SkinBioTherapeutics received skin health, anti-infection change. seed funding from the and skin repair, the company The company’s proprietary Tech Transfer Office of the was spun-out of Manchester platform technology was University of Manchester for University, attracted investors discovered by CEO Dr. Cath the discovery of SkinBiotix. The and was listed on AIM earlier O’Neill and Professor Andrew Company was subsequently this year. Since then, the team McBain. They observed, spun out of the University of has been making significant and later proved, that when Manchester in March 2016 and advances in developing the specific ‘friendly’ probiotic was funded by OptiBiotix (AIM: technology and product bacteria were taken from OPTI). It then joined AIM in April programmes further. Early the gut and the cells were 2017 and raised £4.5m. talks with commercial partners ruptured, the resulting ‘lysate’ have started. had beneficial effects on COMPANY STRATEGY The premise behind human skin samples. The strategy of the company SkinBioTherapeutics’ is to develop products in three technology is the human specific areas: cosmetics, microbiome which comprises infection control and eczema. over 100 trillion microbes living These areas represent a in a number of different niches combined annual global on or in the body. LESS THAN market of over $100 billion and In the last ten years, there the Company’s initial focus has been a substantial 5% OF PUBLISHED is a cosmetic application for increase in both the sensitive skin. understanding and global RESEARCH HAS BEEN ON The aim is to partner with interest of how the microbiome THE SKIN established, global players, interacts with a human’s which will enable the Company own cells, with the University MICROBIOME to target a greater share of the of Manchester’s skin health “ market than if it acted alone. research team playing a It also serves to derisk the central role. company, as marketing and The vast majority of scaling up costs associated academic research and with these markets are investment (over $1bn since negated.

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WHO IS SKINBIOTHERAPEUTICS? Manchester-based SkinBioTherapeutics is a life sciences company developing products for skin health based on the skin microbiome.

The management of Charles River Laboratories, (cosmetic, anti-infection and SkinBioTherapeutics has a contract research eczema) and the mechanism significant experience working organisation, thereby providing of action of the technology. with such major organisations third party validation of the The achievements of this to commercialise products. test results. The positive result company in such relatively CEO, Dr. Cath O’Neill, in was a key milestone for the short period of time can be particular, has worked with company. summed up by CEO, Cath major FMCG companies At the same time, the O’Neill at the maiden full year as part of her role with the company also provided an results: University of Manchester. update on other progress ‘This has been a significant Since IPO, which encompassed the year for the company; from SkinBioTherapeutics has been initiation of manufacture creating the infrastructure focused on developing the scale-up, pilot scale and team to support the science further and fulfilling formulation (to produce a growth and development the promises made upon version of the lysate that could of the Company, to the listing. be incorporated into a cream scientific progress around In Q3 2017, the company and/or gel) our proprietary skin platform, updated the market with Further work had also SkinBiotix. news that the SkinBiotix been performed around the ‘During the year, we platform had passed third anti-infection properties of have demonstrated three party cellular toxicity tests the platform against the significant properties – barrier for its SkinBiotix technology, most common skin infection improvement, anti-infection confirming previous in-house bacteria, Staphylococcus and repair – which form observations on its safety and aureus. Studies confirmed that the foundations of our three applicability to skin cells. The SkinBiotix was effective for up development programmes. studies were conducted by to five hours, suggesting a We are making good scientific future application rate of 3-4 headway and are starting times a day. These data were initial discussions with presented at a conference partners.’ organized by the prestigious Wellcome Trust on Host Microbiome Interactions in 17 SKINBIOTHERAPEUTICS 16 Health and Disease. 15 14 13 RECORD OF ACHIEVEMENT 12 Other studies have been 11 10 investigating the right 9

dosage of SkinBiotix for all 8 Source: Thomson Reuters Datastream 2016 2017 three different applications

Shares50 Spotlight NOVEMBER 2017 50 Shares Spotlight StatPro

StatPro – the revolution continues Website: www.statpro.com

tatPro believes software across 36 countries using sets StatPro apart. Combining should be simple. the platform. Revolution is a this industry experience with Simple to implement, cloud-based Software as a the latest technology has Ssimple to operate and Service (SaaS) solution and resulted in StatPro Revolution, simple for our clients to was developed to exploit fully the first performance and risk achieve their business the advantages of the cloud analytics solution specifically goals. StatPro provides computing delivery model. designed for the cloud. the analysis that helps the Importantly, it was designed StatPro’s business model is global financial markets tick. to offer nearly limitless on- to rent our software for long Super sophisticated risk and demand computing power term subscriptions providing performance analysis and along with modern data and us with very high visibility on the proper management of application services. When our revenues. Our Annualised the sort of complex financial companies build and operate Recurring Revenues from assets that caused the global applications in this way, they present contracts are now £53 financial crisis are our bread bring new ideas to market million per annum as at 30th and butter. Equity and bond faster and respond sooner to September 2017, up 35% from managers rely on our analysis, customer demands. 31st December 2016 and 59% reports and output to make StatPro employs 330 people from 31st December 2015. their day job manageable. across 10 countries, many of In our mission to replace The world has $160 trillion of whom are professors in maths our legacy software with assets under management or physics – we even have cloud solutions, cloud-based and about $40 trillion of that an actual rocket scientist. It revenue has increased from goes through various StatPro is the quality of the people 68% at the end of December systems. StatPro has invested we employ as much as the 2015 to 82% as at 30th massively in cloud-based technology we produce that September 2017. We believe technology and as a result that we will more or less it is far ahead of its rivals complete the conversion of in terms of efficiency and WHO IS STATPRO? clients to the cloud by end of cost effectiveness. As asset Super sophisticated risk 2020. managers feel the double and performance analysis whammy of lower fees and Company update – higher regulation, they need and the proper management November 2017 to adopt better technology of the sort of complex As we announced earlier in and StatPro is central to their financial assets that caused the year, StatPro has acquired requirements. the award-winning UBS Delta The company’s flagship the global financial crisis risk and performance service product is StatPro Revolution. are this software firm’s from UBS (Union Bank of Launched in 2011, it has grown bread and butter Switzerland). The combination rapidly with over 300 clients of UBS Delta with StatPro

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Revolution will result in one the functionality of Delta into managers look to become of the most comprehensive Revolution over the next three more efficient in light portfolio analytics platforms on years while remaining fully of margin pressure and the market. StatPro Revolution committed to supporting the increased regulation. This already offers a broad existing Delta platform for was highlighted by the CTO of range of performance and the next five years. This is to Schroders, Stewart Carmichael risk services, but it is largely allow for a smooth migration in a recent interview, “It’s the focused on the middle office of all Delta clients over a need for change that drives of asset managers, providing manageable time period innovation, and a combination reporting, monitoring and sales while new features are being of factors is driving change in support. On the other hand, released. asset management. We’re all UBS Delta has grown out of aware of the margin pressures the front office needs of asset and burdens from regulation, managers, supplying decision which is creating a need for support and highly accurate greater operating efficiency— risk analysis, especially for technology innovation is the fixed income assets. Both STATPRO REVOLUTION obvious answer to finding systems are fully multi-asset those efficiencies.” As old and there is some overlap ALLOWS CLIENTS TO technology is replaced, the of functions, but the specific CONSOLIDATE SYSTEMS industry is looking to scalable capabilities of each hugely and flexible solutions that complements the other. allow them to consolidate Integration of the Delta and simplify their operations. team into StatPro’s software StatPro is at the heart of this. development operations has “ Many asset managers already started with a unified Changing technology have old technology running London based team working landscapes and staying their performance and risk on developing the Delta flexible analysis operations. Most functionality into the cloud- Many of StatPro’s clients have multiple systems doing based Revolution platform. are undergoing technology similar tasks, each creating StatPro’s goal is to release transformations as asset” data in their own way, each

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needing separate databases and all the IT costs that go along with that. Trying to piece together all that data together to create meaningful analysis and reports is very hard, time consuming and expensive. The industry has recognised this and is starting to replace old technology with new solutions. Cloud-based platforms like StatPro Revolution allow clients to consolidate systems and reduce the complexity in their operations. Instead of several systems all creating data and duplication of effort, they can now manage their portfolios performance and risk analytics for all their investment types and all their portfolios in one place. all, managing investment Middle Office remains fully in No one system can provide portfolios is what they do as control, but they can provide everything an asset manager a business. Making sure this a ‘self-service’ platform that needs across their business. analysis is correct and in other departments can use Software systems need to work the right format is the job of online to get the information with each other to bring data the Middle Office. Their role as and when they need it. together for further reporting. is split into two main areas. This leads to a more efficient Managing the data across Production of analysis and Middle Office and ultimately, multiple systems is one of distribution of analysis. It’s the competitive advantage for the the hardest challenges our distribution of portfolio analysis client. clients face. Old technology that is one area the industry StatPro continues to work relies on file transfers and is looking to improve through with clients to understand restrictive file formats. This new technology. The issue the challenges they face creates complexity and risk today is that each department and continues to develop in the process and wastes wants to see this information cloud-based solutions with a lot of people time. StatPro in slightly different ways. the Revolution platform. understands that its cloud- Sales and marketing need Data management, scalable based Revolution system will different information to the analytics and flexible need to provide data to other investment risk team and they interfaces are central systems within the client. too are different from the fund components to these solutions StatPro has invested in Web managers themselves. The and through our industry API technology (Application Middle Office often struggle expertise and technology, Programming Interface) which to keep up with the constant we continue to lead the way allows the client to easily demand for ad-hoc analysis in portfolio analytics. The extract data and move it and reports, and when reports Revolution will continue. around where it is needed. This are delayed and in formats intelligent ‘plumbing’ is much such as PDF files, they are often more efficient than managing of little value. Asset managers 170 STATPRO GROUP multiple files and data sources are now looking to innovate 160 150 and is a central part of many with better digital distribution 140 130 asset managers new data of this vital analysis. StatPro 120 management strategies. Revolution allows clients 110 100 Many departments within an to create custom views of 90 asset manager want portfolio analysis that can be tailored 80 Source: Thomson Reuters Datastream 2016 2017 analysis information. After down to an individual user. The

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