Good and Bad News for Investors

STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS

VOL 19 / ISSUE 46 / 23 NOVEMBER 2017 / £4.49 SHARES WE MAKE INVESTING EASIER CAN YOUR HOME FUND YOUR RETIREMENT?

Good and bad news for investors

WHY DO 5 QUESTIONS COMPANIES DIGITAL DISRUPTION RAISED BY BUY BACK HOW TO INVEST IN GAME ZPG’S MOVE ON SHARES? CHANGING COMPANIES GOCOMPARE The Fundsmith Emerging Equities Trust Fundsmith LLP (“Fundsmith”) is authorised and regulated by the Financial Conduct Authority and only acts for the funds (FEET) research team searches the world to to whom it provides regulated investment management and find companies that make their money from a transaction arrangement services. Fundsmith does not act for or advise potential investors in connection with acquiring large number of everyday, repeat, predictable shares in Fundsmith Emerging Equities Trust plc and will not transactions and will benefit from the rise of the be responsible to potential investors for providing them with protections afforded to clients of Fundsmith. consumer in developing economies. Prospective investors are strongly advised to take their own For example, Indofood sold 9 billion packets of legal, investment and tax advice from independent and suitably qualified advisers. The value of investments may Indomie noodles last year, Magnit welcomed 11 million go up as well as down. Past performance is not a guide to shoppers a day, MercadoLibre sold over 50 million future performance. items on its website last quarter and Dabur’s Hajmola FEET Performance, % Total Return tablets were taken 26 million times a day in India. Year ending 31st August 2017 2016 2015 Since inception

You may never have heard of them, despite their FEET Share Price +3.6 +21.5 -16.2 +15.5 scale, but all can be found in the FEET portfolio. Source: Financial Express Analytics.

www.feetplc.co.uk EDITOR’S VIEW When should you sell an investment? Important lessons on monitoring your portfolio and making high quality investment decisions

nvestors share a common goal: I remarked to fund manager Chris finding an investment which Bailey of Daniel Stewart Dynamic Isubsequently goes up in value. Opportunities Fund (LU1603418408) Knowing when to sell that investment that I was surprised to see him recently depends on a variety of factors. This taking profits on numerous stocks despite could include hitting a valuation target, the fund only having launched a few a company (assuming you’ve bought months ago. a stock) experiencing a change in Many investors would expect a fund circumstances or you simply needing to be a long-term investor, yet the Daniel the money for something else. Stewart product expects to have an While we’re often told by investment average holding period of between three experts about the merits of a ‘buy and and 12 months for a stock and typically hold’ strategy, that doesn’t mean ignoring your make 10%+ on a trade. investments completely. It is important to monitor ‘We look for anomalies and catalysts to revert a changes in price and the reasons behind a rise or fall stock back to its normal valuation,’ says Bailey. ‘For in the value of your investments. example, we bought Kingfisher (KGF)as we thought If something has shot up in value, try and work its French business was undervalued. We sold out if there is a valid reason and whether that half the position when the shares jumped up on a additional valuation is justified – if not, that might be Goldman Sachs research note.’ your trigger to sell or at least take some profit. The Bailey argues that he’s been investing in theory is that markets will eventually revert to companies during moments of relative fair value. weakness. His approach is fine as long as If an investment has fallen in value, Investors stocks don’t stay depressed for ages. do the same exercise and work out if Don’t assume this fund will always be something has gone wrong or if the suffer from able to crystallise gains in short periods market is being overly pessimistic and short- as there is a real risk that markets stay so now could be a good time to buy irrational for a long time. In this scenario more at a cheaper price. termism investors would still need to be patient Monitoring your portfolio doesn’t when investing in this fund. need to be a daily task, although don’t be too relaxed in your approach and only check in ANOTHER TAKE ON THE SUBJECT once a year. In contrast, Orbis director Daniel Brocklebank says his team of fund managers hold stocks for an TWO DIFFERENT VIEWS average of 3.5 years, even though they are also Strategies behind cashing out of investments looking for under-priced stocks with potential cropped up in two fund manager meetings I’ve to re-rate. had over the past week. Although there were He says investors suffer from short-termism. ‘If similarities with regards to buying cheap and selling you can act in a way to take long-term decisions, you once a stock has re-rated, each fund manager had have a competitive advantage. Few other people are a difference approach in terms of how long to wait thinking this way. If you also take fewer decisions, before hitting the ‘sell’ button. you take high quality ones.’ (DC)

23 November 2017 | SHARES | 3 Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 23 NOVEMBER 2017 TO THE RELEVANT STORY

EDITOR’S VIEW GREAT IDEAS GREAT IDEAS 03 When should you sell 14 Ba ck NCC’s cyber 15 Alpha Financial an investment? security recovery Markets Consulting looks like a winner BUDGET COVERGARE 06 All the important GREAT IDEAS UPDATE information relevant 06 16 W e update on to investors Vodafone, Jaywing and Harwood BIG NEWS 08 Worldwide dividends WEEK AHEAD surge in record high 18 Finan cial results and third quarter ex-dividends over the coming week BIG NEWS 08 Oc ado growth story TALKING POINT turning sour? Good and bad news 21 Fi ve big questions for investors raised by ZPG’s BIG NEWS ‘opportunistic’ 09 Bla ck Friday to bring takeover approach further retail woe for GoCompare

BIG NEWS 10 New clean energy fund heading to the market with 4.5% yield 21

STORY IN NUMBERS 12 Carilli on’s dramatic collapse in value and other stories in numbers

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 | 23 November 2017 Contents

MAIN FEATURE FUNDS 24 Di gital disruption 42 The pros and cons of 32 multi-manager funds MONEY MATTERS 32 Can I use my home to LARGER COMPANIES fund my retirement? 44 GKN payout faces axe

MONEY MATTERS SMALLER COMPANIES 34 What does the rise of 45 Major cash injection ‘unretiring’ mean for to boost Science in pension planning? Sport

UNDER THE BONET SMALLER COMPANIES 36 Why RELX is one of 46 Keystone to become the best companies third UK-quoted in the FTSE 100 law firm

FEATURE INDEX 38 We explain why 47 Index of companies companies buy and funds in this issue back shares

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.

23 November 2017 | SHARES | 5 BIG NEWS Lower living costs and higher wages centre stage at this year’s Budget But it’s hard to ignore the gloomier economic outlook

hancellor Philip Hammond was very upbeat result in a typical taxpayer paying at least £1,075 less in his Budget statement despite downgraded tax than in 2010/11. C OBR forecasts for the UK economy. The headline annual ISA contribution limit will Productivity growth and business investment stay the same at £20,000. However, anyone saving estimates were also revised down. into a Junior ISA will benefit from a higher annual UK GDP is now expected to grow by 1.5% in 2017 subscription limit of £4,260 versus the current (previously estimated at 2%), 1.4% in 2018 and 1.3% £4,128 level. in both 2019 and 2020 – before picking up to 1.5% in Stamp duty has been immediately abolished 2021 and 1.6% in 2022. for anyone buying their first home worth up to From a personal finance perspective, positive £300,000. In higher price locations such as London news includes a prediction that the annual rate of first time buyers won’t pay stamp duty on the first CPI inflation would peak at 3% in the current quarter £300,000 for properties worth up to £500,000. The and progressively fall to the Bank of England’s 2% Government says 80% of first-time buyers will pay target over the next year. no stamp duty at all as a result of this rule change. The National Living Wage will increase by 4.4% to Enterprise Investment Scheme (EIS) investment £7.83 from April 2018. That is good for workers but limits will be doubled for technology and other bad news for companies with large staff numbers ‘knowledge intensive’ sectors, while ensuring including retailers who are already under pressure that EIS is not used as a shelter for low-risk capital from difficult trading conditions. preservation schemes. The Government says its Budget will reduce costs Finally, a freeze on short-haul air passenger duty of living as well as boost wages. From April 2018, it is welcome to people who like to holiday abroad. will increase the personal allowance to £11,850 from Long-haul duty will also be frozen for economy £11,500 which is the amount you can earn before passengers. paying income tax. The Government had already Yet it isn’t good news for anyone who flies pledged to lift the personal allowance to £12,500 premium economy, business or first class as duty will by 2020/21. increase by £16 or an extra £47 for anyone travelling The threshold at which the 40% higher rate of tax by private jet. Yet let’s face it, if you can afford a is applicable will increase in April 2018 to £46,350 private jet the extra duty charge is hardly going to from £45,001. The Government says this change will break the bank. (DC)

6 | SHARES | 23 November 2017 BIGBIG NEWSNEWS The winners and losers on the stock market from Hammond’s Budget Housebuilders see biggest fall amid good and bad news for the sector

hares in housebuilders fell after the Budget announcement which failed to deliver the kind Sof radical changes to planning or extended financial support desired by the market. Although Chancellor Philip Hammond pledged £44bn to help build 300,000 homes a year by 2020, a lack of detail has gone down poorly with investors. In particular, there was no comment on extending Help to Buy. There was also vagueness in terms of planning changes and an investigation into why housing starts are lagging planning permissions (potentially implying housebuilders may be hoarding land). The latter could have an impact on MJ Gleeson (GLE) which, as well as building low-cost homes in the North of England, also buys and sells land in the South. Following the Budget announcement, Grenfell tragedy – could be beneficial to Marlowe’s housebuilders Barratt Developments (BDEV) led (MRL:AIM) fire testing business and sprinklers the sector lower with a fall of 2.9% to 615p with specialist Premier Technical Services (PTSG:AIM). Persimmon (PSN) also down by 2.2% to £26.15. CRUDE AND CIDER WHAT WAS ANNOUNCED ON HOUSING? A change to allow tax losses associated with oil There were some brighter spots for the sector, and gas fields to be transferred when those assets including investment in delivering a skilled are bought and sold was welcomed by North Sea construction workforce and no stamp duty for first operator EnQuest (ENQ). time buyers on homes worth £300,000 or less. ‘If drafted in the right way, these measures will be The changes to stamp duty could also be good for another positive step by Government in increasing estate agents if they encourage more prospective the investability of the UKCS (UK Continental Shelf),’ buyers to go ahead with purchases. The UK’s leading says chief executive Amjad Bseisu. agent Countrywide (CWD) saw its shares rise 3.4% The leisure sector will welcome the freeze in to 114.75p following the Budget announcement. alcohol duties for 2018; however the Chancellor Pumping £1.1bn into a scheme to support private did indicate a plan to increase duty on ‘cheap, developers in progressing strategic sites including high strength, low quality products’ from 2019, regeneration projects could benefit civil engineering namechecking ‘white ciders’ in particular. firms like Keller (KLR) and Kier (KIE). Brewer C&C’s (CCR) White Ace product falls into Staying on the housing theme, Hammond’s this category and any duty hike could also impact pledge to ensure councils have the resources customer habits at Conviviality’s (CVR) Bargain to make buildings fire safe – a response to the Booze franchise. (TS)

23 November 2017 | SHARES | 7 BIG NEWS Worldwide dividends surge in record high third quarter New figures from Janus Henderson reveal how companies are being increasingly generous with shareholder rewards

DIVIDENDS PAID by listed companies across the investors are enjoying the benefits of this growth, globe hit their highest third quarter level on record as it feeds through into higher dividends.’ in 2017, according to the latest report from asset Investors looking to play the global income manager Janus Henderson. theme can choose from a large selection of There was growth almost across the board, funds. Examples include M&G Global Dividend adding up to a year-on-year increase of 14.5% in (GB00B39R2R32) and Henderson International the period to $328.1bn. Income Trust (HINT). (TS)

UK dividends made a comeback despite some North America +10.2% of the uncertainty caused by Brexit. Underlying growth, stripping out the impact of currency and special dividends, came in at 17.5%, the fastest in Europe ex-UK +7.3% the world. Ben Lofthouse, global equity income fund manager at Janus Henderson says: ‘In recent years it has been rare to see dividends growing in every Asia Pacific +36.2% region of the world at the same time. ‘As the global economy continues its long- awaited post-crisis normalisation, confidence is improving, and company profits are rising. Income Ocado growth story turning sour? Sales growth is slowing and margins could come under pressure, warns UBS

UBS HAS slashed its price target for than might be perceived’, his bear ‘points to a world where stores (not online supermarket Ocado (OCDO) case supported by the halving of standalone warehouses) act as from 200p to 190p and reduced Ocado’s sales growth seen this mini-distribution and click-and- earnings estimates amid evidence quarter at a time when Ocado is collect hubs for online grocery.’ of slowing sales growth. investing to boost capacity. While Ocado has best-in-class According to Kantar Worldpanel’s Ekstein warns: ‘With online technology and offers SaaS latest grocery industry figures grocery addressable market growth (Software-as-a-service) and store- (14 Nov), Ocado’s sales growth slowing to modest levels (+ circa pick modules as part of the Ocado slowed to 6.8% for the 12 weeks to 3.5% year-on-year in volume), we Smart Platform offered to other 5 November, down from 12.6% in see it struggling to deliver the top- retailers, Ekstein says ‘such deals the 12 weeks to 13 August. That’s line growth the market expects, signed so far, with Morrisons (MRW) a concern going into Christmas without aggressive (i.e. expensive) and an unnamed international trading. customer acquisition from other retailer, haven’t crystallised material Analyst Daniel Ekstein believes retailers.’ value.’ (JC) the UK online grocery market ‘is The UBS number cruncher thinks shifting to maturity more quickly the Amazon-Whole Foods merger BROKER SAYS: 538

8 | SHARES | 23 November 2017 BIGBIG NEWSNEWS Black Friday to bring further retail woe Profit margins could be hurt if retailers cut prices to shift goods

eep discounts across the retail sector in the run-up to Black Friday (24 Nov) look set to Dtrigger a further flurry of profit warnings in YET ANOTHER COST HEADACHE THE January, if not before Christmas. The nation’s shopkeepers are slashing prices to SECTOR COULD DO WITHOUT drive custom at a time when consumer incomes are being squeezed. Marks & Spencer (MKS) CEO Steve Rowe is on record as believing the recent interest rate rise ‘might have more of a psychological impact tough prior year comparative, the data confirm the than people think’ on consumer spending. squeeze“ on household incomes continues. The likes of Debenhams (DEB), Mothercare As has been the case in recent years, the (MTC), Morrisons (MRW), Dixons Carphone (DC.) forthcoming cyber weekend and broader festive and the aforementioned Marks & Spencer all period should boost the takings of structurally- languish on share price lows, showing investors advantaged online players, although online” industry are pricing in the risk of a slew of post-Christmas body IMRG predicts the expected £7bn that will be earnings alerts. spent over the seven days of Black Friday week will The Office for National Statistics (ONS) reports also require a record level of product returns to be (16 Nov) a 0.3% fall in retail sales figures for October processed, yet another cost headache the sector – while impacted by unseasonal weather and a could do without. (JC)

Boku hopes to make Accrol: back and EasyJet takes its mark kicking up a stink advantage of rivals’ struggles MOBILE PAYMENTS specialist Boku TOILET ROLLS-to-industrial wipes (BOKU:AIM) hopes AIM can provide manufacturer Accrol (ACRL:AIM) BUDGET AIRLINE EasyJet (EZJ) the support needed to help the has returned from suspension is benefiting from extra capacity business advance towards a maiden on AIM (20 Nov) and announced after Air Berlin declared insolvency profit. It has raised £45m with a £18m placing to shore up its and Monarch Airlines entered £30m of this sum going to selling balance sheet. administration earlier this year. shareholders. Accrol was suspended in October Revenue per seat growth is The US-based business provides due to a short-term funding crunch, anticipated to be positive by ‘low to direct carrier billing to content having been beset by higher costs mid-single digits’ in the six months providers and major mobile networks. and a health and safety fine. to 31 March 2018 – better than For the six months to 30 Besides the heavily discounted previously expected. June 2017 the company made a placing, Accrol now warns it is on The good news overshadowed a $2.8m loss before interest, tax, course for break even or a marginal drop in pre-tax profit in the year to depreciation and amortisation on loss this year at the EBITDA level 30 September as lower ticket prices, $10.2m revenue. (SF) and has shelved this year’s final currency headwinds and higher dividend. (JC) costs dragged on profitability. (LMJ)

23 November 2017 | SHARES | 9 BIG NEWS New clean energy fund heading to the market with 4.5% yield It will consider investments in areas such as battery technology and energy storage new income fund will launch on 1 December technology and a shift in social awareness of giving investors the chance to earn regular climate change and sustainability, clean energy has A dividends from the boom in clean energy evolved to become a huge, reliable and dependable projects. industry since the turn of the decade and now VT Gravis Clean Energy Income Fund plans to forms an important component of the global energy mainly invest in specialist closed-end funds and generation mix today,’ says William Argent of Gravis, companies with clean energy operational assets. an adviser to the fund. It will also consider taking small stakes in Among the potential attractions to investors is the investments linked to the wider clean energy theme, targeted 4.5% income yield and charges capped at such as new battery technology, energy storage and 0.8%. Dividends will be paid quarterly. pollution cutting measures, for example. ‘Our aim is to deliver dependable returns for our investors, and this fund is a perfect marriage of our SUPPORTIVE BACKCLOTH expertise and the requirements of our investors,’ ‘Supported by government initiatives, improved says Stephen Ellis, also of Gravis. (SF) What’s going on with Royal Mail? Talks with unions to continue as company reports better-than-expected interim results

AN IMPROVEMENT in Royal Mail’s On 16 November the company concerned about potential strikes (RMG) financial performance reported operating profit of £260m over Christmas. This period plays risks being overshadowed by the after transformation costs in the a significant role in full year continuing threat of labour strikes. half year to 24 September which was performance as people generally ahead of consensus forecasts for send more letters and cards. £238m. In October the company won a Its overseas division GLS continues legal ruling to block strikes until to perform strongly as sales were up further talks had taken place. This 9% to £1.2bn over the period, driven seven-week mediation process has by volume growth in markets such as at least reduced the chances of the Germany, Italy and France. festive period being disrupted. The UK business remains a However, analysts at Liberum sore spot though. Addressed letter says there are risks ‘from either volumes were down 5% excluding higher costs to settle the dispute or election mailings during the snap the threat of disruption encouraging general election earlier this year, customers to seek alternatives’. which is within the full year forecast At the current 400p the shares of a 4% to 6% decline. trade on a March 2018 price-to- Investors have also been earnings ratio of 9.9 times. (LMJ/TS)

10 | SHARES | 23 November 2017 ADVERTORIAL RESILIENT INCOME FROM THE SENECA GLOBAL INCOME & GROWTH TRUST PLC

DIVIDEND GROWTH... KEY POINTS The trust has increased 6.0 Figure 1 dividends every year since 2014 5.93 6.14 5.0 5.67 • A VALUE DRIVEN, MULTI-ASSET APPROACH: as shown in figure 1. 5.25 5.42 ‘MULTI-ASSET VALUE INVESTING’ 4.0 • OBJECTIVE OF CPI +6% AND DIVIDEND GROWTH 1 AHEAD OF INFLATION OVER A TYPICAL CYCLE ...AHEAD OF CPI... 3.0 • STRONG FIVE YEAR PERFORMANCE WITH LOW Dividend growth has been 2

VOLATILITY ahead of CPI every year since per share Pence 2.0 • QUARTERLY DIVIDENDS, CURRENT YIELD 2014 as shown in figure 2. CIRCA 3.6%3 1.0 • DIVIDENDS INCREASED EACH YEAR AHEAD OF CPI 0.0 SINCE 2014 ...FROM A DIVERSE RANGE 2013 2014 2015 2016 2017 • DIVERSE SOURCES OF INCOME OF ASSETS Source: Seneca Investment Managers, Bloomberg Figure 3 shows how the Trust sources its income from a wide 5.0 Figure 2 AS VALUE INVESTORS, INCOME AND YIELD ARE AT THE HEART range of assets, underpinning the OF WHAT WE DO. THE SENECA GLOBAL INCOME & GROWTH 4.0 TRUST USES DIVERSE SOURCES OF INCOME TO UNDERPIN resilience of the dividend. After RETURNS AND DELIVER QUARTERLY, GROWING DIVIDENDS. costs, the Trust currently offers an income yield of circa 3.6%3. 3.0

Figure 3 2.0 PORTFOLIO PORTFOLIO DISTRIBUTION OF INCOME BY ASSET CLASS UK equities Overseas equities Fixed income & cash Specialist assets 1.0

0.0 2014 2015 2016 2017 -1.0 SGT Dividend CPI Source: Seneca Global Income & Growth Trust plc, Report & Accounts 30.04.2017 Figures 1 and 2 to April 30th year ends. There is no guarantee that dividends will continue to increase or grow ahead of CPI.

33.7 25.1 12.8 28.4 % of total assets 29.1 21.3 13.0 36.6 % of total income 3.9 3.8 4.6 5.8 Yield (%) The income and yield figures are based on estimates of the future 12 months of income. The actual income received may be higher or lower than estimated.

Cumulative performance (%) 3 months 6 months 1 year 3 years 5 years Trust share price 2.6 6.7 16.5 42.0 102.4 Trust NAV 3.7 7.1 16.0 38.9 73.3 Benchmark 2.2 3.1 4.8 12.5 20.6

Discrete annual performance (%) 30.09.2017 30.09.2016 30.09.2015 30.09.2014 30.09.2013 Trust share price 16.5 16.2 5.0 12.5 26.7 Trust NAV 16.0 15.4 3.8 3.9 20.0 Benchmark 4.8 3.6 3.6 3.5 3.5

Things you should be aware of 1Seneca IM defines a typical investment cycle as one which spans 5-10 years, and in which returns from various asset classes are generally in line with their very long term averages. There is no guarantee that a positive return will be achieved over this or any other period. 2Annualised volatility of returns over five years versus FTSE World ex-UK, FTSE UK Private Investor Balanced, AIC Flexible Investment Sector, FTSE All Share and Investment Association Mixed 40-85% shares. 3Current yield: the yield calculation is based on the latest quarterly dividend, annualised, compared against the month end share price as at 30.09.17. Performance and dividend data sources: Seneca Investment Managers Ltd (SIML), Bloomberg & Morningstar. Share prices calculated on a total return basis with net dividends reinvested. NAV returns based on NAVs excluding income and with debt valued at par. Returns do not include current year revenue. Benchmark: LIBOR GBP 3 Months +3% to 06.07.17 thereafter CPI +6% after costs. Past performance should not be seen as an indication of future performance. The information in this article is as at 30.09.2017 unless otherwise stated. The value of investments and any income from them will fluctuate, and investors may not get back the full amount invested. Seneca IM does not offer advice to retail investors. If you are unsure of the suitability of this investment, take independent advice. Before investing, refer to the latest Annual Report for details of the principle risks and the trust’s fees and expenses. Net Asset Value (NAV) performance may not be linked to share price performance. Shareholders could realise returns that are lower or higher. The annual investment management charge and other charges are deducted from income and capital. SIML is authorised and regulated by the Financial Conduct Authority, registered in England No. 4325961 with its registered office at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. FP17/455 STORY IN NUMBERS

FROM £1.7BN Can Premier Oil deal with TO £0.1BN IN its debt? OIL AND GAS producer Premier Oil (PMO) is SIX YEARS coming to the end of a mixed 2017. The year has encompassed a financial restructuring and an BELEAGUERED SUPPORT SERVICES company unexpected exploration success offshore Mexico. Carillion (CLLN) continues to struggle. Last The company headed into the final quarter of week its share price crashed by over 30% to 28p the year with net debt of $2.8bn, up slightly from on yet another profit setback and a warning the half year total of $2.7bn. about breaching its debt convenants. The share price performance Going back to mid-May 2011, the company in 2018 is likely to depend on the was worth a whooping £1.7bn compared to extent to which rising production today’s £120m market cap. and a higher oil price can help the This equates to the company losing 93% of company reduce its borrowings. its value in the space of six years. Ouch.

SENTIMENT CHANGING 82% TOWARDS BOND VALUATIONS THE NUMBER OF investors investment professionals. a slight reduction in the who think corporate bonds are However the figure for the proportion of investors who overvalued has dropped for third quarter period is still think government bonds the first time in six quarters, very high at 82% (versus 84% are overvalued, down according to a new study by in the second quarter). to 79% from 82% in the the CFA, an association of The study also recorded previous quarter.

12 | SHARES | 23 November 2017 Limited,Limited, Henderson GlobalInvestors Henderson GlobalInvestors (BrandManagement) SarlandJanusInternational HoldingLLC. (BrandManagement) SarlandJanusInternational HoldingLLC. Financial ConductAuthority toprovideFinancial ConductAuthority toprovide investment investment products products andservices. andservices. TelephoneTelephone calls mayberecorded calls mayberecorded and monitored. and monitored. ©2017, ©2017, JanusHenderson Investors. JanusHenderson Investors. The nameJanusHenderson InvestorsThe nameJanusHenderson Investors includesHGIGroup includesHGIGroup 2606646),2606646), Gartmore Gartmore Investment Investment Limited(reg. Limited(reg. no. no. 1508030), 1508030), (eachincorporatedand registered (eachincorporatedand registered inEngland andWales inEngland andWales with registered with registered o o ce at201Bishopsgate,ce at201Bishopsgate, London London EC2M 3AE) are EC2M 3AE) are authorised andregulated authorised andregulated by by the the Henderson InvestmentHenderson Investment FundsLimited (reg. FundsLimited (reg. no. no. 2678531), 2678531), HendersonInvestment HendersonInvestment ManagementLimited(reg. ManagementLimited(reg. no. no. 1795354), 1795354), AlphaGenCapitalLimited(reg. AlphaGenCapitalLimited(reg. no. no. 962757), 962757), Henderson EquityPartners Henderson EquityPartners Limited(reg. Limited(reg. no. no. Issued in the UKby Janus Henderson Investors. Janus Henderson Investors isthe name under which JanusCapital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Janus Henderson nancial goals. your long-term exists tohelp you achieve

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

r emailusat by Janus Henderson Trusts,Investment managed Find usonFacebook @HGiTrusts H030353/0717H030353/0717 GREAT IDEAS Back NCC’s cyber security recovery Scale of growth potential may not be reflected in forecasts

anchester-based NCC (NCC) is showing NCC  BUY genuine signs of (NCC) 226p M Stop loss: 165p stability and recovery after a difficult period in late 2016 and Market value: £613m early 2017. Investor sentiment is starting to improve towards the company and its prospects, and we believe there could be at least 20% upside to the share price over sparked a profit warning just improvement in pre-tax profit to the next year. over a year ago. Over-optimistic £30.3m. NCC is a cyber-security management then extended At first glance that leaves the consultant and provider of the bad news in January 2017 shares looking fairly expensive software escrow services, which after revealing a lacklustre third- on a price to earnings multiple of basically means it keeps safe vital quarter performance, triggering about 30. But we believe that the code for enterprise software and more earnings downgrades. cyber security demand drivers applications. Those issues now seem to are in place for NCC to perform The two sides of the have gone away. With a beyond the realm of current business complement each (relatively) new chairman and expectations. other. While escrow is slower chief executive, NCC has been Part of that will come from growth, it supplies the bulk of steadied, streamlined and readied strengthening profit margins the company’s profit and cash for a return to real growth. as NCC moves away from generation from a globally The signs are encouraging. In reselling third party products and dominant position. its most recent trading update develops more tools of its own. The ‘assurance’ side of its (for the three months to 31 Some analysts believe a share business brings a high value August) the company hinted at price of 265p is feasible in the cyber advice arm, plus web site a return to double-digit organic next year. But having traded and software performance and growth, if you strip away various beyond 300p prior to last year’s security testing, sometimes called one-offs. warning, we think a return to ethical hacking (although these The company also gave a clear those levels is quite possible. (SF) latter bits are up for sale). signal to the market that it is Cyber security consulting confident of meeting full year BROKER SAYS: 123 should represent the faster expectations. NCC GROUP growth engine in the future given FTSE ALL SHARE 260 Rebased to ﬁrst that organisations and individuals WHAT THE MARKET EXPECTS 240 are increasingly under threat from Current forecasts for the 220 various hacking attacks. 12 months to 31 May 2018 200 180 anticipate mid-teens growth in 160 A PAINFUL YEAR earnings before interest, tax, 140 120

A combination of acquisition depreciation and amortisation Source: Thomson Reuters Datastream 100 indigestion and contract delays (EBITDA) and about a 12% 2016 2017

14 | SHARES | 23 November 2017 GREAT IDEAS Alpha Financial Markets Consulting looks like a winner This is a great way to play outsourcing growth in the asset management industry

any investors are wary March 2017 with a 19% margin. about recent stock XXXXALPHA  FINANCIAL BUY Berenberg analyst Sam market floats as they MARKETS(xxx) xxxp England says: ‘We believe these M Stop loss: xxp want to see how a company CONSULTING strong EBITDA margins can be performs as a listed business maintained at current levels, and Market BUY value: xxx before investing. (AFM:AIM) 166.5p consequently we estimate that We can understand why many Stop loss: 133.2p a 10% CAGR in EBITDA 2018-20 people are nervous about new is possible. These strong margins market entrants, given several Market value: £172m should help contribute to robust recent examples of companies cash generation in the coming issuing profit warnings soon after management. years as well.’ IPO (initial public offering). The company seems to have The company is seeking However, there occasionally made hay as the large managers to move into other markets, comes along a newly-floated outsource more and more of potentially via acquisitions. business which has a solid track their work to specialists like Alpha is currently trading on record and looks like it is worth Alpha. This is definitely a growth 17.2 times forecast earnings for backing before the wider market industry and Alpha only has an the year to March 2019 with a cottons on to its existence estimated 8% to 10% share of 2.9% prospective dividend yield. and earnings potential. Alpha addressable markets, according We’re comfortable with this Financial Markets Consulting to estimates by investment bank rating given that pre-tax profit (AFM:AIM) is one such company, Berenberg, so still plenty of is expected to increase by just in our opinion. opportunities to chase. under 10% in both the March 2019 and 2020 financial years. WHAT DOES ALPHA DO? EARNINGS PROFILE Add in the appeal of net debt Alpha provides support services Alpha has increased revenues at having this year been reduced to almost every aspect of asset a compound annual growth rate to zero and the presence of high management; namely what is (CAGR) of 37% between 2011 margins and you’ve got a nice called the front, middle and and 2017, indicating the growing little business. (DS) back offices. need for the company’s services. The front office is the revenue With European regulations BROKER SAYS: 001 generator of a firm and its staff such as the updated Markets in ALPHA FINANCIAL MARKETS CONSULTING will be fee generators. Middle Financial Instruments Directive FTSE ALL SHARE office handles risks and strategy (MiFID II) coming in early next 172 while the back office looks after year, there will certainly be a lot of 170 regulatory compliance and data work to keep the company busy. reporting. Earning before interest, tax, 168 Alpha’s clients include 75% depreciation and amortisation 166

of the world’s largest asset (EBITDA) jumped from £2.2m Rebased to ﬁrst

164 Source: Thomson Reuters Datastream managers by assets under in 2013 to £8.6m in the year to OCT NOV

23 November 2017 | SHARES | 15 GREAT IDEAS UPDATES

VODAFONE JAYWING (VOD) 229.3p (JWNG:AIM) 24.5p

Gain to date: 8.5% Loss to date: 29% Original entry point: Original entry point: Buy at 211.4p, 12 October 2017 Buy at 34.5p, 9 February 2017 WE SAID THE market was being too gloomy on A PROFIT WARNING has put our trade on Vodafone (VOD) and half year results illustrate marketing services group Jaywing (JWNG:AIM) the point. Investors were caught on the hop by in the red. The Sheffield-based business says the mobile network giant’s upbeat message, with clients with consumer-facing operations have cut continued organic revenue growth in most markets. their marketing spend as a result of more difficult Full year guidance for earnings before interest, trading conditions. tax, depreciation and amortisation (EBITDA) has One third of Jaywing’s profit is normally been raised from the previous 4% to 8% growth generated in the fourth quarter of the year, so range to ‘around 10%’. there is a lot riding on the current period in terms That’s helped by having properly converged of winning back the market’s favour. communications – mobile data, broadband, We’re naturally disappointed by the company’s enterprise, cloud etc. There’s also the push for news and believe investors should stay patient with cost reductions, while even problem child India is the business. We’re confident this will be a short- showing signs of improvement. term setback and that it will be business as usual at The UK remains an issue, although service some point next year. revenue declines here are slowing. The Jaywing is a data specialist and helps companies agreement with dark fibre network builder to understand what people are saying about CityFibre Infrastructure (CITY:AIM) will make them online as well as monitoring competitor a massive difference in time, bringing the activity. These services will continue to be in converged communications opportunity that demand longer term, hence we remain positive should bolster margins. on the stock. For example, UK EBITDA margins are 18.9%, And don’t forget that it also helps lenders comply barely half the with accounting VODAFONE GROUP JAYWING FTSE ALL SHARE Germany and FTSE ALL SHARE standards in 46 235 Rebased to ﬁrst Italy levels. terms of how 230 44 225 There’s also 42 much capital 40 220 more confidence 38 they should 215 36 210 in the dividend, 34 hold – so this 205 32 200 with the shares 30 isn’t a pure- 195 yielding a 28 play marketing Source: Thomson Reuters Datastream 26 190 Source: Thomson Reuters Datastream 2016 2017 24 Rebased to ﬁrst generous 5.8%. 2016 2017 business.

SHARES SAYS:  SHARES SAYS:  Shareholders should expect better returns as a It’s always frustrating to experience a profit warning period of heavy investment comes to an end. (SF) yet we remain bullish on the company from an investment perspective. Buy amid share price BROKER SAYS: 18 8 2 weakness at 24.5p. (DC)

BROKER SAYS: 1 0 0

16 | SHARES | 23 November 2017 GREAT IDEAS UPDATES

HARWOOD WEALTH Achieving over a 16% return on our Great Ideas trade in just over two weeks is a great start and we MANAGEMENT see more to come from the share price. (HW.:AIM) 180p The upbeat statement led stockbroker N+1 Singer to upgrade its full year 2017 EBITDA forecasts by 11% to £4m. Gain to date: 16.1% Harwood has a lot of capacity for more deals Original entry point: following a £10m equity fundraising at the mid- Buy at 155p, 8 November 2017 year point and its balance sheet is healthy with HARWOOD WEALTH MANAGAMENT £19m in cash. THE HIGHLY ACQUISITIVE Harwood Wealth FTSE ALL SHARE N+1 Singer 220 Rebased to ﬁrst Management (HW.:AIM) released a trading a 210 says that if the 200 statement on 16 November saying it expects 190 company keeps revenue and adjusted EBITDA (earnings before 180 acquiring it 170 interest, tax, depreciation and amortisation) 160 could hit a £10m 150 performance for the full year to be ahead of 140 EBITDA run rate market expectations. 130 Source: Thomson Reuters Datastream ‘in due course’. 2016 2017 The company says its outperformance has been achieved by a mix of organic and acquired growth, SHARES SAYS:  although it did make seven acquisitions in its Keep buying at 180p. (DS) financial year so perhaps not an even mix.

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

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

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

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

FRIDAY 24 NOVEMBER Treatt TET Versarien VRS FINALS Topps Tiles TPT TRADING STATEMENTS Future FUTR Urban & Civic UANC Panther Securities PNS INTERIMS UDG Healthcare UDG Softcat SCT Babcock International BAB INTERIMS AGMS Fuller Smith & Turner FSTA Acal ACL Bluefield Solar Income Fund BSIF AGMS Alpha Financial Markets Ironridge Resources IRR Coal of Africa CZA Consulting AFM Oilex OEX JP Morgan Emerging BCA Marketplace BCA Oncimmune ONC Markets Investment Trust JMG Cranswick CWK Thor Mining THR K&C REIT KCR GB Group GBG Target Healthcare THRL Origin Enterprises OGN IG Design IGR THURSDAY 30 NOVEMBER Petra Diamonds PDL KCOM KCOM FINALS Severstal SVST Pets at Home PETS Daily Mail and General Trust DMGT MONDAY 27 NOVEMBER Park Group PKG Grainger GRI Scholium SCHO FINALS Marston’s MARS ULS Technology ULS Patisserie Holdings CAKE On The Beach OTB AGMS INTERIMS Premier Asset Management PAM Berkeley Energia BKY Kainos KNOS INTERIMS Blancco Technology BLTG Ramsdens RFX BTG TBG Clinigen CLIN Trakm8 TRAK Greene King GNK Ferguson FERG AGMS OPG Power Ventures OPG JP Morgan Smaller JP Morgan Global Emerging PayPoint PAY Companies Investment Trust JMI Markets Investment Trust JEMI Torotrak TRK Ncondezi Energy NCCL Manchester & London TRADING STATEMENTS Surface Transforms SCE Investment Trust MNL Go-Ahead GOG Scotgold Resources SGZ TR European Growth Trust TRG AGMS Wilmcote WCH TUESDAY 28 NOVEMBER ASOS ASC Wolf Minerals WLFE Baillie Gifford Japan Trust BGFS FINALS CVS CVSG Gooch & Housego GHH WEDNESDAY 29 NOVEMBER FINALS Dukemount Capital DKE Greencore GNC Brewin Dolphin BRW European Metals EMH ITE ITE Britvic BVIC Ferrum Crescent FCR Shaftesbury SHB Impax Asset Management IPX Greatland Gold GGP Sanderson SND INTERIMS Revolution Bars RBG Findel FDL St Ives SIV LondonMetric Property LMP EX-DIVIDEND Motorpoint MOTR Albion Technology & Pennon PNN General VCT AATG 2p RPC RPC Aviva AV.A 4.38p INVESTORS WILL BE looking for Telford Homes TEF Bellway BWY 84.5p further signs of stability in the Headlam HEAD 7.55p retail business and progress THE PRESSURE on Trakm8’s Hill & Smith HILS 9.4p from its fast-growing veterinary (TRAK:AIM) profit should lift now International business when UK pet specialist that a spell of heavy investment Consolidated Airlines IAG €0.13 Pets at Home (PETS) posts half in new products and marketing is JD Sports Fashion JD. 0.26p year results on 28 November. coming to an end. James Halstead JHDA 2.75p Sentiment towards Pets at Investors will be looking Lok’n Store LOK 7p Home has been hit by worries for evidence of this shift in Octagonal OCT 0.1p over competition and faltering UK circumstances when the company Origin Enterprises OGN €0.18 consumer confidence. reports half year results on 27 REA Holdings RE.B 4.5p At the first quarter update (8 November. Renewi RWI 0.95p Aug), Pets at Home pleased with The telematics markets in Tate & Lyle TATE 8.4p news of 2.7% like-for-like revenue which the company operates Tarsus TRS 3p growth, buoyed by services certainly have exciting potential, Volta Finance VTA €0.16 revenues including joint venture yet unpredictable insurance YouGov YOU 2p vet practice income and continued demand remains an area to watch recovery in merchandise trading. with Trakm8. Click here for complete diary www.sharesmagazine.co.uk/market-diary

18 | SHARES | 23 November 2017 Four things to look for in a truly different investment manager

Every investment firm claims it is different 2 THINK LIKE A LONG-TERM BUSINESS from its competitors, yet many produce OWNER

results that are anything but different. Shares represent ownership in companies. Company fundamentals do not change constantly throughout the day. That’s a simple concept, but an easy At its heart, an active fund manager’s proposition should be simple one to forget amid all the noise of financial markets. – to provide you with performance that is sustainably better than average. But how can you identify managers who can deliver this sort At Orbis we look at long-term potential, not short-term buzz. Successful of performance? owners don’t give up when challenges arise, and neither do we.

There’s no one answer, but we think there are four key principles to ‘investing differently’.

3 AVOID OVERCONFIDENCE AND ACCEPT UNCERTAINTY

1 INSIST ON AN ALIGNMENT OF INTERESTS Commonly held beliefs and intuitive assumptions often lead to overconfidence and an underestimation of the level of uncertainty. Investment managers are human, and self-interest is a natural part of Such behaviour can be difficult to avoid, as it ‘feels right’. It also leads to human behaviour. If a manager’s interests (keeping their job) conflict with opportunity for those investors able to embrace uncertainty. yours (long-term performance), they may place their interests above yours. This makes an alignment of interests essential. Signs of good alignment At Orbis we are comfortable feeling uncomfortable, and we embrace the include: opportunities that uncertainty provides. We don’t make macro-economic bets or try to time the market. Rather, we are all about ‘bottom-up stock- > OWNERSHIP STRUCTURE picking’ and finding opportunities that aren’t obvious. Investing differently requires patience, and if your investment manager has external shareholders, patience may be in short supply. Pressure for short- term profits could conflict with a focus on your long-term results. 4 At Orbis, we are a privately owned company with no external pressure for OPPOSE CONSENSUS short-term profits. We only focus on your long-term performance. To stand-alone is to feel vulnerable. Opposing consensus can be psychologically challenging and feels uncomfortable to many investors – > CO-INVESTMENT but we believe it is necessary for above average long-term returns. Fund managers should eat their own cooking. If their own fund isn’t good enough for them, why should it be good enough for you? At Orbis we invest confidently in unpopular or ignored areas. Our funds deviate significantly from their benchmarks. We believe the best long-term At Orbis, our people put their own money in the same funds you do, and investment ideas are often found in areas of the market which are out of pay the same fees. Collectively, our employees are one of the largest favour with most investors. investors in the Orbis Funds.

> SYMMETRICAL PERFORMANCE FEES The bigger a manager’s portfolio, the harder it is for them to invest Investing differently can be rewarding, but it differently from market benchmarks. isn’t for everyone. We think a manager should be paid for the returns of their portfolios, not the size of their portfolios. At Orbis, you get a fee refund if our funds don’t beat their benchmarks, so our success is tied to yours. Where do you stand?

When investing, your capital is at risk Financial Advisers: www.orbis.co.uk This article does not constitute investment advice. Direct Investors: Search “Orbis” on AJ Bell www.youinvest.co.uk or invest directly via www.orbisaccess.co.uk INVESTMENT FACTS. WHO CAN YOU TRUST?

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

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* The £1 for 1 month and then £12 a month offer is only available to new subscribers. Your first payment will be £1 and thereafter subscriptions will automatically continued, billed at £12 per month unless cancelled. Subscriptions can be cancelled at any time by calling 0207 378 4424 between 8am - 4.30pm on Monday to Friday. No refunds are offered during the cancellations period but all outstanding issues and services will be fulfilled. For enquires contact us at [email protected] TALKING POINT Five big questions raised by ZPG’s ‘opportunistic’ takeover approach for GoCompare We take a look at why the proposals were made, rejected and whether a higher price will be offered

rice comparison site transformation was marked by a patch before racing ahead thanks GoCompare (GOCO) has change of group name to ZPG in to solid financial results. P rejected two takeover February 2017. Comparison sites tend proposals from Zoopla-owner Like ZPG, GoCompare started to operate across several ZPG (ZPG). The suitor is now life as a spin-off from another ‘verticals’ like insurance, utilities said to be considering its options company. It was siphoned off and financial products and ahead of a 12 December ‘put up from insurer Esure (ESUR) in GoCompare derives 92% of its or shut up’ deadline. 2016. revenue from a competitive Both proposals (one in May GoCompare’s brand is insurance market. and another in November) probably best known for the valued the business at £460m irritating but enduring adverts or 110p per share; the first was featuring fictional opera singer 2 Why is ZPG interested in structured as an all-share deal Gio Compario. Since being listed GoCompare? and the second was a mixture as a standalone business at 76p ZPG has not gone on the record of cash and shares. GoCompare per share, GoCompare’s shares to explain its rationale for the says 110p per share undervalues initially went through a rocky deal but presumably Chesterman its business. sees it as a means of rounding out its price comparison offering. Investec analyst Steve Liechti 1 Who are the two parties reckons the deal has merit. involved? ‘GoCompare makes sense for Daily Mail & General Trust ZPG, in our view, for its £143m of (DMGT) floated online property insurance switching sales (no.2 site Zoopla in June 2014. The player) – a competitive and well founder and current CEO of the penetrated but growing market. group, Alex Chesterman ‘ZPG already owns uSwitch has since pursued an and Money.co.uk with ambitious plan to create strength in utilities/ a one-stop-shop for financial services consumers to ‘research, switching, but insurance find and manage their homes’ capability is sub-scale.’ at the front end and offer an ‘end-to-end solution for property professionals’ at the back end. 3 What are the risks for ZPG? This has largely been achieved ZPG’s previous acquisitions had by the acquisition of comparison a closer fit to its property market sites such as uSwitch and focus. Although GoCompare Money.co.uk, as well as several does not strip out different types other ancillary businesses. The of insurance in terms of their

23 November 2017 | SHARES | 21 TALKING POINT Our view on topical issues

revenue contribution, motor but arguably realistic given our insurance is believed to account fundamental view’. for the majority. It is difficult to see Shore Capital analyst Roddy shareholders warming to ZPG’s Davidson has concerns about interest unless there is more a tie-up. ‘We are uneasy that money on the table. Investment ZPG’s strategy in the price ZPG HAS UNTIL 12 DECEMBER bank Berenberg, which is more comparison space appears to TO ‘PUT UP OR SHUT UP’ ON positive on GoCompare, thinks have moved on rapidly from a bid of at least 130p would be building on the strength of GOCOMPARE required. uSwitch’s position in the home services space, developing complementary financial “ 5 Could the deal be revived? services switching revenues It seems odd that ZPG didn’t (following the recent acquisition raise its proposed price second of Money.co.uk), and cross time around for GoCompare selling with its digital property given that its first proposal was brands (an approach that turned down. we believe offers potentially ” Liechti believes the suitor significant incremental revenue ‘does not wish to pay up’, so one potential), to adopting a less 16% to the 95p closing price could assume the ground is being focused and more generic on the day prior to the receipt prepared for another approach model,’ he says. of the latest proposal, it was and an attempt is being made Davidson adds that recent priced at a discount to a close to flush out shareholders who M&A has already made the of 110.5p less than a month would be amenable to an business more complex and earlier on 11 October. improved offer. the process of integrating Investec’s Liechti, perhaps Reuters reports that an GoCompare has material unsurprisingly given he has a unnamed major shareholder at execution risks and could strain ‘sell’ recommendation and 99p GoCompare believes the firm the resources of management. price target on GoCompare, should ‘react positively’ to a bid He also comments that says the price is ‘not generous, in the region of 125p. (TS) GoCompare is ‘behind the curve in terms of its software and technology infrastructure, and the depth of its offering to consumers when compared to other comparison players’.

4 Why was the proposal turned down and does it undervalue GoCompare? According to GoCompare chairman Peter Wood the takeover proposal ‘is highly opportunistic and fundamentally undervalues the company and its prospects’. While the deal represented a relatively modest premium of Image courtesy of Zoopla.co.uk

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supported by (+ free P&P!) DIGITAL DISRUPTION CHALLENGES AND INVESTMENT OPPORTUNITIES ARE EMERGING AS TECHNOLOGY SHAKES UP ALMOST EVERY PART OF LIFE

isruption is everywhere. Changes to DISRUPTION IMPLICATIONS established industries and employment When Walter Price, fund manager at Allianz dynamics are shaking to their foundations Technology Trust (ATT), first met the Airbnb team D almost every aspect of life. he was so impressed that he dumped his stakes in Customers are constantly looking for cheaper, online competitors Expedia and Priceline. faster and better services, and providers like ‘Airbnb is an experience more than just a room, Amazon, Netflix, WhatsApp, Uber, Airbnb, and so we thought it was a disruptive model, quite a many others, are among the companies with a strong model,’ he says. solution. Even something as simple as the ice cream The transition is happening in so many places; industry is being disrupted. US-based Eden Creamery from transport to energy, communications to makes healthy and natural foods and owns the healthcare, manufacturing, entertainment, Halo Top ice cream brand. It has taken around taken education and even government. around 5% market share, according to Simon Gergel, ‘This can be challenging, yet it can also bring fund manager of Merchants Trust (MRCH). significant opportunities,’ states Melissa Gallagher, ‘You can now go through the internet direct to head of investment trusts at Allianz Global consumers with products that aren’t necessarily Investors. in (US supermarket giant) Walmart, allowing disruption of an industry that’s traditionally been very stable and quite highly rated,’ Gergel says. For example, Harry’s Razors is among the brands taking on the virtual duopoly of men’s shaving held by Gillette and Wilkinson Sword, using the online- only sales channel.

24 | SHARES | 23 November 2017 DIGITAL DIVIDE That’s reflected by their vast market values and Many experts now think digital disruption has massive influence on wider stock markets. If we become a binary issue for organisations; adapt switch the much smaller Netflix for Microsoft, or die. also a highly disruptive enabler ($84.6bn market ‘Companies are seeing a digital divide, where cap versus $641.9bn respectively), the group their fortunes are increasingly determined by the represents the five biggest companies on the S&P extent to which they succeed or fail to embrace 500, worth a combined $3.31trn. digitisation,’ says Allianz. Put another way, they represent 13.6% of the ‘Those companies that adapt are likely to prove index’s value. Considering the S&P 500 makes up more productive, command higher margins and something like 70% to 80% of the value of all US deliver out-sized growth compared to those that stocks, it means these five companies alone are cannot.’ worth between 9.5% and 10.9% of all US stock market value. TRANSFORMATION LEADERS Most experts see the US and China leading digital There’s no doubt that, when it comes to disruption, disruption across the globe. Facebook, Amazon, Apple, Netflix and Google China’s Alibaba is already an online retailer (owned by Alphabet) – otherwise known as the of phenomenal scale, while Tencent’s WeChat FAANG stocks – will have the biggest implications platform is taking users far beyond social media. for the majority of investors. ‘It allows users to talk to their mates, order a taxi, buy a cinema ticket, music or clothes all without the need to visit a third party website,’ THE FAANGS explains Chris Sanderson, co-founder of the Future Laboratory, a consultancy that helps organisations prepare for 21st Century demands.

BUBBLE, WHAT BUBBLE? This all sound very exciting but many investors are increasingly concerned about runaway valuations. This year the share prices of Facebook, Amazon, Microsoft and Alphabet have each made 30% to 50% gains.

23 November 2017 | SHARES | 25 MICROSOFT S&P 500 COMPOSITE FACEBOOK CLASS A APPLE AMAZON.COM NETFLIX ALPHABET (GOOGLE'S PARENT COMPANY) 4000 3800 3600 3400 3200 3000 2800 2600 2400 2200 Source: Thomson Reuters Datastream 2000 2016 2017

More generally, technology companies recently EARNINGS-BACKED RALLY helped power the S&P 500 index to a record close There is a major difference between current of 2,594.38 (8 November 2017), fuelling talk of a ambitious investment multiples versus those of the new tech bubble. late 1990s – real earnings. ‘Investors always revert back to the dotcom ‘In the technology bubble of the late 1990s, crash,’ says Allianz’s Walter Price. there were no earnings and stock market Yet Price and other fund managers, such as Polar valuations were based on clicks or eyeballs, or any Capital Technology Trust’s (PCT) Ben Rogoff and variety of unusual valuation metrics,’ Price says. Herald Investment Trust’s (HRI) Katie Potts, dismiss This time round technology share prices are rising any notion that we are heading for tech collapse with earnings upgrades that are outstripping an 2.0, in other words a repeat of the massive crash of otherwise low growth environment. 2000 to 2003. ‘While valuations have trended higher, the

26 | SHARES | 23 November 2017 investment backdrop remains favourable and the prevailing inflation rate remains broadly supportive of current equity valuations,’ says Polar Capital’s Ben Rogoff. THE NEW TECHNOLOGY CYCLE APPEARS ‘Fortunately, the US is experiencing its fastest pace of earnings growth in five years with S&P TO HAVE ENTERED A MORE PERNICIOUS 500 earnings forecast to increase 10% this year, PHASE. THIS IS LIKELY TO PROVE THE with potentially more to come in 2018 if the new administration delivers on its tax reform pledge.’ BEGINNING OF THE END OF TRADITIONAL IT It’s all a far cry from the euphoric ratings of 18 “ years ago, when Microsoft was valued at nearly 50-times earnings, and Intel and Oracle sported three-digit PEs (price to earnings ratios). Today Microsoft trades on 23.5 times forecast earnings for its current financial year, according to Reuters data; Alphabet and Facebook trade on 25.8 and 27.0 PE ratios respectively. INVESTMENT TRUSTS TO PLAY THE DIGITAL The forward PE of the S&P 500 even after its DISRUPTION THEME ” record run stands at 18.2, hardly eye-popping. ALLIANZ HERALD POLAR CAPITAL Even the Information Technology sector part of TECHNOLOGY INVESTMENT TECHNOLOGY that index is on a PE of only 19.2. TRUST TRUST TRUST TOP HOLDINGS TOP HOLDINGS TOP HOLDINGS FOURTH INDUSTRIAL REVOLUTION Apple IQE Apple ‘We are at the beginning of something, not the Micron Technology GB Group Alphabet (Google) end,’ says Walter Price at Allianz Technology Trust. Amazon Diploma Microsoft Topics including cloud computing, artificial Microsoft IDOX Facebook intelligence (AI), robotics and automation, cyber Square BE Semiconductor Samsung Industries Electronics Facebook Bango Tencent Samsung Next Fifteen Alibaba Electronics Communications DXC Technology Silicon Motion Amazon Palo Alto Networks Pegasystems TSMC Alphabet (Google) M&C Saatchi Applied Materials

23 November 2017 | SHARES | 27 security and auto technology are some of his pet Capital Trust manager. ‘This is likely to prove themes. the beginning of the end of traditional IT with ‘We are embarking on a revolution,’ he says, ‘the disruption likely to prove significantly greater than digital revolution’ after steam, electricity witnessed thus far.’ and computers. Concepts such as cloud computing and AI CLOSER TO HOME have been around for several years but what’s For investors, the disruption investment changed is cheap and plentiful processing power, opportunity raises questions. What will it mean for points out Ben Rogoff. Driving down hardware individual companies, industries and nations? What costs – such as PCs, servers and network are the implied risks, rewards and valuations; and infrastructure – has also helped. how should you position your portfolio? ‘The new technology cycle appears to have It is arguably a mistake to think the UK is going entered a more pernicious phase,’ says the Polar to create a technology giant to compare against

EVERY MINUTE THERE ARE AN ESTIMATED

3.5bn Google searches

29.2m 3,833 WhatsApp Uber messages taxi rides 58,520 downloads from $265,273 Apple’s app Amazon store sales

28 | SHARES | 23 November 2017 Google or Facebook – most experts believe it highly unlikely or impossible. But there are plenty of good disruptive businesses listed in the UK; the secret is to hunt for niches. ARTIFICIAL INTELLIGENCE TECHNOLOGIES That doesn’t mean putting money into a WILL BE THE MOST DISRUPTIVE CLASS crowdfunding initiative involving a Silicon Roundabout start-up. You already have lots of OF TECHNOLOGIES OVER THE NEXT 190 innovative companies listed on the London Stock Exchange. YEARS DUE TO RADICAL COMPUTATIONAL Just look at the way ASOS (ASC:AIM), “POWER, NEAR-ENDLESS AMOUNTS OF Moneysupermarket (MONY) and Rightmove (RMV) have harnessed the internet to shake- DATA, AND UNPRECEDENTED ADVANCES IN up commonplace tasks like buying clothes, an insurance policy or finding a new home. DEEP NEURAL NETWORKS. Industry disruption is ‘majorly important to what we do,’ says Paul Jourdan, one of the founders of Amati Global Investors, a small cap fund manager. THESE WILL ENABLE ORGANISATIONS WITH ‘I don’t think we should be chasing the next AI TECHNOLOGIES TO HARNESS DATA IN FAANG,’ he says, preferring to seek out UK companies that are ‘changing the way we work, ORDER TO ADAPT TO NEW SITUATIONS changing our lives’. He typically looks for opportunities where AND SOLVE PROBLEMS THAT NO ONE HAS a company has deep domain expertise within EVER ENCOUNTERED PREVIOUSLY a niche, high growth potential, decent market 3.5bn advantage and has the right kind of financing. Jourdan’s favourites include virtual queuing Google searches specialist Accesso Technology (ACSO:AIM) and gaming services group Keywords Studios SOURCE: GARTNER, JULY 2017 (KWS:AIM). 29.2m 3,833 TAKE AIM AT DISRUPTION WhatsApp Jourdan is also a fan of Frontier Developments ” Uber (FDEV:AIM), the online games designer using the messages taxi rides internet and social media to publish and promote 58,520 its products. downloads from $265,273 Apple’s app Amazon store sales

23 November 2017 | SHARES | 29 DIGITAL TIME LINE

Frontier is among the stocks that feature in Herald Investment Trust’s portfolio. ‘In the UK, AIM Transistor continues to be dynamic in the micro-cap space,’ 1947 says Herald’s fund manager Katie Potts. Jourdan at Amati also believes AIM offers plenty of opportunities for UK investors to tap into 1952 Mainframe disruptive themes. ‘They are becoming less rare,’ computer he says, ‘there are more of them.’ Robotic process automation is one emerging area to shake up how organisations do simple 1958 Silicon chip administration, freeing up more time for staff to add value elsewhere. It’s a theme that has rapidly turned Blue Prism Personal (PRSM:AIM) into an AIM sensation, with its share 1973 computer price soaring by more than 1,000% since joining the stock market at 78p in March 2016. Katie Potts has a stake in Blue Prism, so too does Allianz’s World Walter Price. 1989 wide web Polar Capital’s Rogoff admits to holding a modest stake in advanced driver assistance systems designer Seeing Machines (SEE:AIM). It has 1991 Digital gradually adapted its original kit for big mining mobile phone trucks and now has consumer cars, trains and planes in its sights. Cloud Price at Allianz says the growth in technology is 2008 computing coming from the creation of new markets, rather than simply GDP growth. Investors need to find companies generating Tablet organic growth by creating new markets or 2009 computer stimulating significant change in old markets. (SF) Mass market 2016 virtual reality

Source: Allianz Global Investors

30 | SHARES | 23 November 2017 NOW IS THE TIME TO FOCUS ON YOUR INVESTMENT PORTFOLIO Looking for new companies to invest in? Come and join Shares and AJ Bell Media at their evening event in London on Tuesday 28 and Wednesday 29 November 2017 and meet directors from the companies listed below as well as more to be announced.

Sponsored by London – Tuesday 28 Nov & Wednesday 29 Nov 2017

Companies presenting

28 November 29 November

ANGLE (AGL) is a commercially driven medical Avation (AVAP) is a specialist commercial passenger diagnostic company specializing in the development aircraft leasing company managing a fleet of aircraft of pioneering products in the fields of cancer which it leases to airlines across the world. diagnostics and fetal health. GAN (GAN) is a leading developer and supplier of Cerillion (CER) is a leading provider of billing, online gaming content and enterprise-level business charging and customer management systems to business gaming software systems as well as a with more than 20 years’ experience delivering its provider of supporting operational services. solutions across a broad range of industries. Metminco (MNC) is an ASX and London AIM Mandalay Resources is a Canadian-based natural listed exploration and mining company. resource company with producing assets in Australia, MNC has a portfolio of gold and copper Chile and Sweden, and a development project in exploration projects located in Colombia, Chile. Peru and Chile.

Royal Road Minerals (TSXV:RYR) is a gold and Touchstone Exploration (TXP) copper focused exploration and development is a UK listed but Canadian-based, company. The Company’s objective is to advance international upstream oil and gas ATTEND EITHER the exploration and development of its projects in company currently active in the EVENT AND ENTER Colombia and Nicaragua. Republic of Trinidad and Tobago. THE FREE PRIZE DRAW TO WIN A FANTASTIC FORTNUM & MASON HAMPER

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

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

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

Register free now www.sharesmagazine.co.uk/events MONEY MATTERS Helping you with personal finance issues Can I use my home to fund my retirement? House prices have soared but a pension still offers the best chance of a comfortable retirement

he importance of getting worth less (allowing for inflation) on the housing ladder is than their 2007 levels. T so engrained in British The worst affected are society that many of us are Blackpool and Sunderland, putting it at the expense of other where average house prices long-term savings needs. remain more than 10% below Surveys suggest a quarter their pre-financial crash highs, of people over the age of 50 according to HouseSimple.com. will rely on downsizing when Tom Selby, senior analyst at they stop working and nearly AJ Bell, warns that property, like half of 35 to 54 year-olds plan every other asset, can go down to use property to fund their in value as well as up. retirement. ‘Someone who chooses to The Financial Conduct rely on this single asset to pay Authority warned last year that for their retirement needs to taking the view ‘my house is my understand that, by having all pension’ is extremely risky. The their eggs in one basket, they are regulator’s chief executive urged totally exposed to the housing people not to put all their eggs market,’ he explains. in one basket, pointing out that ‘If, when they come to sell, returns can decline over time. there is a sudden shortage of buyers, a seller relying on WHY IS RELYING ON releasing equity to fund their PROPERTY RISKY? day-to-day living will be left There’s no doubt property can in a very difficult position – be a sound investment. Over particularly if they have no other the past decade, average house income sources.’ prices in London have soared by an impressive 69%. THE DIFFICULTY OF Unfortunately this is not the DOWNSIZING case across the UK. There are 17 When you’re young it can be major towns and cities in England easy to formulate a retirement and Wales where houses are strategy which involves selling your home. But Steve Eggleton, wealth management consultant at

32 | SHARES | 23 Novemver 2017 MONEY MATTERS

Mattioli Woods, says this can if you’re THE POWER OF PENSIONS be a lot harder to do when the looking at property Pensions enable you to invest time comes. Many people have in a huge range of assets across a strong emotional attachment as an investment lots of sectors and geographical to their home, having built up that’s going to increase regions. This diversification can a lifetime of memories in the in value, remember protect you if one particular property. that you have to sell asset or region experiences a Instead of selling, one option is to realise that downturn. to take money out of your home Pension contributions benefit via an equity release mortgage. value from tax relief at your marginal But Eggleton says these typically rate – that’s 20% for basic rate restrict the loan amount to 35% taxpayers and 40% for higher- of the property value. rate taxpayers. When you come ‘Whilst there is no need to to take the money out 25% is repay capital or interest until tax-free, with the rest taxed in death, this route will have wider the same way as income. financial planning implications, ‘There is not a more cost- particularly around inheritance,’ effective method to build a he adds. retirement pot than by using Imagine you released tax-relieved funds to invest in £105,000 secured against a a wrapper which benefits from home worth £300,000 and the tax-exempt growth. Whether it is loan ran for 20 years. Assuming a a standalone personal pension, fixed-interest rate of 4.5% a year, or a group arrangement provided the debt will build to £253,000, by an employer, it is possible to putting a hefty dent in your invest in a wide range of well- children’s inheritance. There will diversified funds capable of hopefully be house price growth meeting all risk profiles,’ says over the same period, but this Eggleton. isn’t guaranteed. COMBINING THE TWO PENSIONS ARE you can’t access your money Most experts think a sensible MORE FLEXIBLE when you need it,’ he adds. approach would be to use a Generating income from Property is also less tax- combination of property and property is much less flexible efficient than a pension. Your pensions in retirement. than generating income from a home plus any buy-to-let ‘Given that huge amounts of pension. properties will form part of your value could well be locked in Fraser Kerr, a financial planner estate for inheritance tax (IHT) someone’s home it would be at financial advice firm 1825, says purposes, which could mean silly not to consider this when a modern pension lets you start, 40% tax is due when you die. planning for retirement,’ says stop, increase and decrease your In contrast, a pension is Selby. withdrawals after the age of 55. usually held in trust and free ‘However, to rely on that solely ‘You don’t have the same from IHT. If you die before age is a huge risk and could leave options with a fixed monthly 75, your children can take your you in a sticky situation if the rent. And if you’re looking at pension as a lump sum or as property market takes a turn property as an investment income without paying any for the worse just when you that’s going to increase in value, tax whatsoever. If you die on need to sell.’ (EP) remember that you have to sell or after age 75, the lump sum to realise that value. This can be or income will be taxed at the time-consuming and may mean beneficiary’s rate of income tax.

23 November 2017 | SHARES | 33 MONEY MATTERS Helping you with personal finance issues What does the rise of ‘unretiring’ mean for pension planning? We look at why individuals are no longer conforming to traditional retirement patterns

etirement in the UK has contribution (DC) plans – where return to work within five years Rtraditionally involved you build up your own pot of of retiring. Men are more likely stopping working at a set point money in order to generate an to unretire than women, as are in time – usually 60 or 65 – with income in retirement – have people who are in good health, a set amount of guaranteed become the main retirement those who are better educated income. This income would savings vehicle for most people. and those still paying off a normally be in the form of a And rules introduced in April mortgage. defined benefit (DB) pension 2015 mean that savers in DC If you’re thinking about or an annuity, perhaps with a plans can spend and invest their returning to work having already smaller personal pension, such money how they want from age accessed your DC pension, there as a SIPP, sat alongside it. 55. This creates a new dynamic are a few things you need to The state pension system has where people are more likely to consider. also been designed based on this continue working while drawing Firstly, do you have ‘protection’ clean break between working from their retirement fund. on a large pension worth £1m+? and not working. The state If you do and don’t want to lose pension ages of men and women it – and pay a potentially hefty will equalise at 65 in 2018 – the tax charge – you need to make women’s state pension age is sure you don’t accidentally make being gradually increased from a contribution and void the 60 at the moment – before rising protection. This is a particular to 66 in 2020 and 67 in 2028. MEN ARE MORE LIKELY TO danger as automatic enrolment The Government plans to means all companies are required bring in a further increase to 68 UNRETIRE THAN WOMEN to put you in a pension scheme by 2039 and has explicitly stated unless you opt-out. it will ‘aim for up to 32%...as Secondly, if you have taken any the right proportion of adult life taxable income from your pension to spend in receipt of the state “ – that is over and above the 25% pension’. tax-free lump sum – your ability to continue saving in a pension will WHY THINGS ARE CHANGING THE CONCEPT OF be severely restricted. Throughout the pensions system UNRETIREMENT While the annual allowance for the idea that retirement means Research published” by tax-advantaged pension saving is stopping working altogether has Manchester University and usually £40,000, those who have become deeply ingrained. King’s College London on the accessed their pension flexibly For many people this is starting phenomenon of ‘unretirement’ see this slashed to just £4,000. to change. As defined benefit emphasises this shifting dynamic. pensions have all but died off The study reveals around Tom Selby, in the private sector, defined one in four retirees in the UK Senior Analyst, AJ Bell

34 | SHARES | 23 November 2017 The opportunity of a Lifetime (ISA)

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AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE UNDER THE BONNET We explain what this company does Why RELX is one of the best companies in the FTSE 100 The professional information and events business is a superb long-term investment

t may be one of the 20 biggest London-listed companies by Imarket cap but unlike other names on this list such as BP (BP.), HSBC (HSBA) or Vodafone (VOD), Anglo-Dutch professional information and events company RELX (REL) has a very limited public profile. In our view this should not obscure an impressive track record of delivering dividend growth and capital gains to shareholders and the group’s capacity to maintain this performance going forward. Until July 2015 it was called Reed Elsevier, formed in 1992 by the merger of UK trade book and magazine publisher Reed International and Netherlands- based scientific publisher WHAT IS ANALYTICS? Elsevier. Identifying, interpreting and communicating A TRULY GLOBAL BUSINESS meaningful patterns in data. Organisations use Today RELX is a truly global business offering information this to forecast and improve performance and analytics for professional and business customers across REASSURINGLY PREDICTABLE also came in at 4% in 2016 several different industries in Recent trading has been after five consecutive years of more than 180 countries. reassuringly predictable. 3% growth. As the accompanying table Underlying revenue growth of This predictability comes at shows it is a leading player 4% for the first nine months a price. Based on consensus across its four market segments. of 2017 was the same as that forecast, the shares trade on The scale of the business is reported for the first half 19.9 times 2018 earnings and reflected in the fact its events and there was no change to offer a forward dividend yield division, despite representing guidance on full year numbers, of 2.5%. just 15% of group revenue, is which should be reported in late More than a third of the the global leader in this industry. February 2018. Revenue growth analysts who follow RELX have

36 | SHARES | 23 November 2017 UNDER THE BONNET

RELX - DIVISIONAL SNAPSHOT Swede Erik Engstrom since SEGMENT GLOBAL MARKET % OF 2016 November 2009 and he joined POSITION REVENUE back in 2004 when he headed up SCIENTIFIC, TECHNICAL & MEDICAL 1 33.6 the Elsevier part of the business. Provides information and analytics He has delivered on a to help institutions and professionals consistent strategy, moving progress science, advance steadily from print to digital, healthcare and improve performance increasing the sophistication of its analytics tools and shifting to RISKS & BUSINESS ANALYTICS 1 27.6 faster growing geographies to Helps companies assess risk and (in key markets) improve operational efficiency - improve the quality of earnings. its biggest customer is the In 2016 more than half insurance industry its revenues came from subscriptions which tend to have LEGAL 2 in US, 23.5 a recurring element. Provides information and outside US 1 or 2 As RELX notes the solutions it analytics for the legal profession offers ‘often account for just 1% of customers’ total cost base but EXHIBITIONS 1 15.3 can have a significant and positive Encompasses more than 500 events in more than 30 countries impact on the economics of the remaining 99%’. Source: Company reports This relatively low-cost high value offering could make its business more resilient to any a ‘hold’ recommendation on generosity has been backed by future economic downturn. the stock but this fence sitting steadily growing earnings and has historically been exposed by cash flow. THE INVESTMENT CASE strong share price performance. IS NOT WITHOUT RISK For example, investment bank BIG DATA EXPERTISE The single biggest risk for the UBS had a ‘neutral’ rating on RELX is aligned with the big company is a material data the stock four years ago and the data trend which is seeing breach which could undermine share price has subsequently companies in most sectors being client confidence. The threat more than doubled. bombarded with a dizzying of open access – the principle Over the last 10 years the amount of information on a daily of giving away publicly-funded share price has advanced more basis. As far back as 2004 the peer-reviewed research for than 150%. Recent gains have business created a platform to free – continues to bubble been supported in part by deal with its own vast collection away in the background but currency movements. The 85% of public records data. so far the policies adopted by of revenue derived from outside The FTSE 100 constituent most governments worldwide the UK has been flattered when can now take in large data sets have been friendly to large converted back into weakened and funnel out irrelevant and subscription publishers like RELX. sterling. unreliable data and deliver The stellar share price focused information to its clients. SHARES SAYS:  performance is also backed For example, this could help This is one of the highest quality by financial performance. The a car insurance firm calculate businesses on the UK stock company doubled its annual the right level of premium for a market and worth paying a dividend to 36p for 2016 from customer or help a pharmacist premium price. (TS) 18p a decade earlier and has ensure a prescription is not cut the payout at any legitimate. BROKER SAYS: 2711 point through this period. This The group has been led by

23 November 2017 | SHARES | 37 WHY DO COMPANIES

Dividends or buybacks: BUY examining the ways in BACK which a company can spend its excess cash SHARES?

isted companies with strong competitive WHY DO COMPANIES REPURCHASE STOCK? positions typically have pricing power, which There are four strong arguments in favour in turn enables them to generate healthy of buybacks, which have played a part in the margins and crucially, strong cash flow. This elongated bull markets on both sides of the Lcash can be returned to shareholders through two Atlantic. The first posits that if a company is mechanisms, dividends and share buybacks. generating surplus cash, it can return it to Such capital allocation decisions are amongst shareholders and let them decide what to do the most important decisions management with it, rather than squander funds on a risky teams make on behalf of shareholders. Yet acquisition or capacity increases or run an rather worryingly, share buybacks are often not inefficient balance sheet with any cash balance sufficiently understood by investors. earning scant return at low interest rates. Secondly, buybacks can work for investors WHICH FIRMS ARE BUYING BACK SHARES? depending on their tax situation, and whether A large number of public companies are engaged they prefer to be taxed on a capital gain (buyback) in major share buybacks, among them consumer or dividend (income). The third ‘pro’ is that goods giant Unilever (ULVR), retiring €5bn of investors who choose to retain their shares during equity, and DIY outfit Kingfisher (KGF), which has a buyback programme will have an enhanced returned more than £400m to shareholders under stake in the company and thus be entitled to a a £600m repurchasing buyback splurge, above and bigger share of future dividends, assuming the beyond regular dividends. payout is maintained. Others include heating and plumbing products Fourthly, buybacks imply a management distributor Ferguson (FERG), which has launched team feels a company’s shares are undervalued. (3 Oct) a £500m share buyback reflecting Buyback announcements often act as a positive management’s confidence in the company’s share price catalyst, as they are viewed as a vote prospects and cash generation. Also noteworthy of confidence in a company’s near and long-term is plastics packaging provider RPC (RPC), which trading prospects. has delivered 24 consecutive years of dividend growth and is returning up to £100m to UNDERVALUED VERTU? shareholders via a buyback. In the smaller companies arena, one noteworthy

38 | SHARES | 23 November 2017 example is car dealer Vertu Motors (VTU:AIM), much cheaper). Buybacks in the US peaked in 2007 whose share price has fallen on fears over and collapsed in 2008 and 2009 only to accelerate increasingly challenging market conditions. During again in 2011 and 2012. Last but not least, the half to August, the industry consolidator buybacks do not always work. steadfastly refused to overpay for acquisitions, Investors should heed the words of legendary instead buying back £1.6m of its own shares. This investor Warren Buffett from his 2012 letter was the first occasion on which Vertu had bought to Berkshire Hathaway shareholders. ‘Charlie back shares since 2008. [Munger] and I favour repurchases when two Vertu has a formidably strong balance sheet conditions are met: first, a company has ample and believes it is positioned to consolidate funds to take care of the operational liquidity and the market over the next few years as weaker needs of its business; second, its stock is selling competition flounders. Alongside the interims at a material discount to the company’s intrinsic (11 Oct), Vertu’s disciplined board extended its business value, conservatively calculated.’ buyback programme by up to a further £3m, Well-followed UK fund manager Terry Smith has share repurchases to be effected ‘within certain previously argued that management should be pre-set parameters’. required to justify share buybacks by reference to the price paid and the implied return and compare WHY BUYBACKS IRK INVESTORS this with alternative uses for the cash. There are numerous reasons why investors give Smith has stressed investors should analyse the thumbs down to share buybacks. Buybacks share buybacks on exactly the same basis as they can be used to massage earnings per share (EPS) would if the company bought shares in another by reducing the share count at limited cost, which company. Moreover, the pugnacious East Londoner could be used to trigger management bonuses or argues investors should use return on equity to stock options. analyse the effect of share buybacks, rather than These transactions have the mechanical effect EPS fluctuations. of increasing EPS, but not the overall profitability Interestingly in the summer, global premium of the business, since the number of shares in automotive distributor Inchcape (INCH), famed for issue reduces. There is also a risk that companies its strong free cash flow generation, dividends and buy back shares using debt, potentially weakening stock repurchases, decided (27 July) not to extend their balance sheets and competitive position in its share buyback programme. the long term. Perhaps mindful of the wisdom of master History shows companies have a habit of buying investor Buffett, Inchcape explained that it had stock back during bull markets (when their stock deployed cash on acquisitions, while management tends to be more expensive) and not doing so also recognised the need to invest to accelerate during bear ones (when their stock tends to be Inchcape’s organic growth.

23 November 2017 | SHARES | 39 NEXT’S BUYBACK NOUS

Having weighed up the arguments carefully, The important point to note – in line with those investors keen to harness the benefits of Buffett’s guidance – is that Next is generating more buybacks can do so through dedicated ETFs. They cash than it needs to invest in capital expenditure, include US-listed PowerShares Buyback Achievers so key to maintaining competitive advantage, even Portfolio, which selects stocks based on short-term after shelling out these special distributions. repurchasing activity, and UK-listed iShares US Investors keen to understand the balance Equity Buyback Achievers UCITS ETF (BACS). management needs to strike between special Buybacks can help to create shareholder value dividends and buybacks should refer back to Next’s through the efficient deployment of cash and one full year results statement from March. At the company with a good track record here is clothing time, the share price was trading at a relatively retailer Next (NXT). low multiple of future earnings, leaving some to Alongside half year results (14 Sep), Next question whether the company would be better restarted its share buyback, the operational cash off buying back shares, rather than paying special flow of the business remaining robust despite the dividends. myriad challenges facing the weather sensitive As Simon Wolfson explained: ‘The last time the apparel retail sector and importantly, with the company was in a similar situation was in 2008. At share price weak relative to history. that time we were suffering from a combination of As confirmed with its recent third quarter update tough economic conditions, weakening currency (1 Nov), on top of ordinary dividends and four rates and some internal product range issues. special dividends of 45p this year, Next will have ‘Profits were forecast to decline in the year bought back £50m worth of shares by the end of ahead and there was much uncertainty in the this financial year. Evidently, chief executive Simon wider economy as the credit crunch took hold. We Wolfson and finance director Amanda James view took the decision at that time to halt our buyback the shares as undervalued. programme. ‘In hindsight, we were wrong to not buy back shares in 2008 and we hope that hindsight will prove us wrong, on this particular decision, once again! But at this time of significant uncertainty, we feel that the decision to buy back shares is best left IN HINDSIGHT, WE WERE WRONG to shareholders themselves. ‘And of course, shareholders can always use their TO NOT BUY BACK SHARES special dividends to buy shares for themselves. IN 2008 AND WE HOPE THAT Perhaps we have been overly cautious but HINDSIGHT WILL PROVE US companies rarely fail for being prudent with their WRONG, ON THIS PARTICULAR shareholders’ money and in uncertain times such prudence is all the more important. DECISION, ONCE AGAIN! ‘In the long term share buybacks remain our preferred route for returning capital to shareholders and we intend to return to them when market and trading conditions make it appropriate.’ (JC)

40 | SHARES | 23 November 2017 WISDOM IS THE DAUGHTER OF EXPERIENCE

LEONARDO DA VINCI

12 years experience using a multi-manager approach

For over 12 years, the Witan Investment Trust has used a multi- manager approach. By carefully selecting fund managers to run different parts of the portfolio, we can play to their individual strengths and avoid undue reliance on a single manager. This method has served our shareholders well, and the multi-manager strategy has continued to evolve, with others adopting a similar approach too. If you seek capital growth and a growing real income from global equity investments, we can help realise your ﬁnancial ambitions.

Witan Investment Trust plc is an equity investment. The value of an investment and the income from it can fall as well as rise as a result of currency and market ﬂuctuations and you may not get back the amount originally invested.

WISDOM IN A CHANGING WORLD

Issued and approved by Witan Investment Services Limited, which is registered in England no.5272533 of 14 Queen Anne’s Gate, London SW1H 9AA. Witan Investment Services Limited provides investment products and services and is authorised and regulated by the Financial Conduct Authority. FUNDS The pros and cons of multi-manager funds Would you pay extra to access an army of fund managers through a single product?

ulti-manager funds are HOW ARE THEY AJ Bell says: ‘Cost is the best investment products CONSTRUCTED? consideration for using a fettered Mwhich contain other A multi-manager fund won’t fund. I work on a best of breed funds as their main holdings tend to just be a hodgepodge approach. One investment house rather than individual stocks, of various funds contained in might be great with one asset bonds or other assets. A multi- a single wrapper. Instead, the class such as UK equities but not manager fund is also known as a fund manager will have an idea good at fixed income. It might fund of funds. of what type of portfolio they be a bit cheaper but you may be The advantage of using one want to have and pick funds that sacrificing returns opportunity of these types of investments will attempt to achieve a certain to save a few fractions of a is that it provides an investor goal with specific funds added percentage point’. with access to a greater number for downside protection, for of brains. Many people like example. Unfettered funds the concept of buying a single By choosing a multi-manager An example of a multi-manager product which provides access fund, an investor is basically fund free to choose from any to an army of fund managers leaving the day-to-day handling provider is Schroders MM looking for the best ideas, each a of a fund to a professional. Diversity Balanced Fund specialist in a certain field. Therefore it’s a great tool for (GB00B5T87K87). It invests The downside is that these the inexperienced investor, or globally using a wide variety of types of funds tend to be more one with a limited amount of external funds overseen by its expensive as you are paying investible money. managers Marcus Brookes and for the services of multiple It is important to note that Robin MacDonald. The fund has underlying fund managers. some multi-manager funds returned 50.21% in five years However, it is clearly worth are only allowed to invest in and its fee is 1.33% per year. paying extra if you’re getting a For Japanese equities, the superior return. fund holds Man GLG Japan CoreAlpha Equity Fund (IE00B64XDT64) and its relative the CoreAlpha Professional Income Fund (GB00B0119B50). For UK equities the Schroders fund uses a few different asset managers including Investec and Majedie.

funds managed by the same Fettered fund investment company, which is Old Mutual Managed Fund described as ‘fettered’. One that (GB00B1XG7V15) only invests in is free to invest in any third party Old Mutual’s products. The fund fund is called ‘unfettered’. has returned 62.7% in five years Ryan Hughes, head of fund with an annual fee of 0.99%. selection at investment platform One benefit to using these

42 | SHARES | 23 November 2017 FUNDS products is that they tend to executive Andrew Bell says he be cheaper although the range looks for ‘a high quality thought of funds to consider for the process, with both imaginative portfolio is limited. and analytical strengths’. Another benefit to using USING FUND MANAGERS fettered funds is the product When to call time on a manager provider should have better WITH VERY DIFFERENT External managers are not likely access to the individual fund VIEWS OF ECONOMIC to outperform indefinitely. managers (and therefore more Witan’s Bell has certain ‘warning information) given they all work OUTLOOKS CAN BE flags’ which he uses to tell for the same company. COMPLEMENTARY him when a manager might “ be out of favour; this includes Choosing external managers FOR THE FUND managers who start behaving John Chatfeild-Roberts is head very differently from their of asset manager Jupiter’s (JUP) historical approach. Merlin range of funds that invest Bell is wary of key staff in other funds. departing and says it’s a trigger When it comes to choosing He says Alice Gaskell and for his team to meet with the external fund managers, Andreas Zoellinger at BlackRock respective organisation. Chatfeild-Roberts wants certain are more cautious and hence Watson at Janus Henderson qualities. ‘A good fund manager have a more defensive growth wants to ensure his fund needs to have a clear head and, stance through overweight” selection gives clients the best importantly, an ability to think allocations to consumer goods opportunity to outperform in a for her or himself. The best and healthcare. range of market conditions. This managers come to their own ‘Both funds have is done by identifying the right conclusions about what to do outperformed their index since balance of regions and flavour next and don’t follow the herd,’ we invested, however their of styles to invest in. he comments. positive relative performance ‘This can only be achieved Nick Watson, fund manager is very complementary if managers stick to their of Janus Henderson Multi and enables our clients to established investment Manager Active Fund experience a more stable approach,’ says Watson. (GB0031413593), says using journey towards competitive Alliance Trust (ATST) at the fund managers with very performance,’ he enthuses. start of 2017 shifted to a multi- different views of economic Witan Investment Trust manager approach in order to outlooks can be complementary (WTAN) is among the select few boost shareholder returns after for the fund. investment trusts with a multi- previously underperforming for Watson has invested in both manager approach. Its chief a long period. (DS) Invesco Perpetual European Income Fund (GB00B28J0T16) and BlackRock Continental European Income Fund (BG00B3Y7MQ71). Talking about the respective fund managers of these products, Watson says Stephanie Butcher at Invesco has a more constructive outlook on Europe and is finding attractively valued opportunities in more cyclical industries such as financials.

23 November 2017 | SHARES | 43 LARGER COMPANIES GKN payout faces axe

New leadership looks likely to reset bar after spares fiasco

ngineering group GKN (GKN) is unearthing axed entirely. further asset black holes in its aerospace division, Eputting its dividend under serious threat. OVER-OPTIMISM The FTSE 100 company has been a consistent GKN provides engineering expertise and products income payer for investors since the financial to the automotive and the aerospace industries. crisis of 2007. In that 10 year period GKN has Its US aerospace divisional management have paid out around £1.1bn to shareholders through significantly over-egged demand for spares on dividends, with payouts increasing every year several long-running programmes. during that spell. The issues first came to light last month, but ‘It numbers among one of the most reliable further internal investigation has revealed much dividend payers in the UK market, ranking 81st bigger problems than originally thought. GKN in the list of top payers for its £152m distribution is estimated to hold around £1.5bn worth of on last year’s earnings,’ says Justin Cooper, chief aerospace inventory across its global operations, executive of Link Market Services, which monitors but some of that kit may now not be sold. UK dividend trends. The company thinks it will have to write off between £80m and £130m of inventory assets, as AXE HANGS OVER PAYOUT one analyst puts it, ‘a magnitude greater than the This full year to 31 December 2017 GKN had been £15m announced with the earlier warning.’ forecast to hand around £160m to shareholders as GKN shares have sunk from 352.8p to 301.8p dividends. The company announced a 5% increase since mid-October 2017. in its interim payout to 3.1p in July. These issues have led to the immediate exit of ‘We expected a final dividend of close to £106m GKN’s aerospace chief Kevin Cummings. This is a to be paid in May next year,’ explains Cooper. ‘But major shock as Cummings had been the company’s its recent profit warning and rocketing losses in its CEO in-waiting following September’s retirement US aerospace division mean that payout now looks announcement by current CEO Nigel Stein. He’s under threat. due to stand down at the end of this year. ‘A new CEO may well choose to reset the clock,’ In the meantime, non-executive director Anne the Link Market Services boss says. Stevens will act as interim CEO until a successor to He is not alone in anticipating a dividend cut. In Stein is appointed. a note entitled ‘CEO designate has gone, dividend An opportunity to reset expectations looks likely will be next,’ Panmure Gordon analyst Sanjay Jha but investors should watch from the sidelines for predicted that the second half payout would be now. (SF)

44 | SHARES | 23 November 2017 SMALLER COMPANIES Major cash injection to boost Science in Sport Online growth, overseas gains and outside bid possibilities among reasons to pocket sports nutrition specialist

ollow both new and existing Excitingly, the funds will build institutional investors and invest further brand awareness in football, F in endurance sports nutrition where SiS’ energy powders and specialist Science in Sport (SIS:AIM). isotonic gels have quickly become firm An oversubscribed £14m placing favourites with elite-level players. (14 Nov) has raised a handy £15m In a conversation with Shares, chief for ‘SiS’, an increasingly strong brand executive Stephen Moon stressed the among elite athletes, whose high gross core UK and EU business broke even margins and rapid gains in a growing in the first half of the year, on sales global sports nutrition market could up 28% to £8.3m, and is on track to soon attract a predator. be profitable at the EBITDA (earnings Existing shareholders also have the before interest, tax, depreciation and chance to buy shares at 70p in an open amortisation) level for the full year. offer, potentially raising another £1m For calendar 2017, Cenkos forecasts for the company. £15.2m revenue (2016: £12.2m), rising Broker Cenkos Securities says ‘this to £25.8m two years later in 2019. potentially represents the final funding round before SiS is cash flow positive’. SHARES SAYS:  The new cash will be used to accelerate SiS’ We’re increasingly excited by Science in Sport’s online and overseas sales growth, with a focus competitive advantages and global growth on supporting online distribution in the vast US potential. Buy at 75p. (JC) sports nutrition and significant Italian sports nutrition markets. BROKER SAYS: 001

THE NEW CASH WILL BE USED TO ACCELERATE SIS’ ONLINE AND OVERSEAS SALES GROWTH, WITH A FOCUS ON SUPPORTING ONLINE “DISTRIBUTION IN THE VAST US SPORTS NUTRITION AND SIGNIFICANT ITALIAN SPORTS NUTRITION MARKETS ” 23 November 2017 | SHARES | 45 SMALLER COMPANIES Keystone to become third UK-quoted law firm It operates in a different way to traditional legal businesses

eystone Law is set to be the UK’s third listed law firm following Gateley (GTLY:AIM) in KJune 2015 and Gordon Dadds (GOR:AIM) in August 2017. Keystone’s model has been described as disruptive compared to more traditional law firms in the UK, although it is hardly revolutionary. The company is dubbed a ‘virtual law firm’; it uses a bespoke IT system called ‘Keyed-in’ which provides lawyers with remote access to document assembly tools so they are not tied to an office. It also offers a performance-based remuneration structure rather than paying conventional salaries. Lawyers receive support from a central London A NEW SECTOR ARISES office providing meeting rooms and support staff The legal sector is relatively new to investors given performing administrative functions. that only two law firms have so far listed in the UK, The model means fee-earners are freed up from so there is still an element of education to be done running a legal practice and cost savings can be in order for the market to understand how law passed on to clients. The firm has been successful firms work. in winning clients, acting for top names including It’s still a tad early to judge the success of Gordon FIFA, Bosch, Siemens, RSA Insurance (RSA), Dadds as a listed company and we note that it took Glencore (GLEN) and Hiscox (HSX). Gateley almost a year to gain any traction with its The firm is gearing up for an AIM float on 27 share price. November, having raised £15m with a placing price Keystone has grown its revenue by around 20% of 160p valuing it at £50m which is £10m more per year since receiving a cash injection from than Gordon Dadds’ market cap on admission. private equity house Root Capital in 2014. Of the cash raised at IPO (initial public offering) A quick look at the results for Keystone’s 2016 after expenses, £5m will go to existing shareholders year show £26m turnover. In comparison, Gateley who are selling down their holdings and £7.4m made £77.6m revenue with pre-tax profit up 19% will be used to redeem loan notes and leave the to £13.1m. company debt-free. Keystone has attracted lawyers from big name firms in the past including Berwin Leighton Paisner and West End firm Davenport Lyons (now part of Gordon Dadds). THE COMPANY IS DUBBED A ‘VIRTUAL LAW FIRM’; It has more than 250 lawyers (all self-employed IT USES A BESPOKE IT SYSTEM CALLED ‘KEYED- with no fixed or minimum remuneration) and 40 support staff, according to the company’s website. IN’ WHICH PROVIDES LAWYERS WITH REMOTE A large part of its overheads are fixed and so ACCESS TO DOCUMENT ASSEMBLY TOOLS SO THEY Keystone believes it could enjoy higher operating ARE NOT TIED TO AN OFFICE margins as the business increases in size. We also “ note that Keystone’s lawyers only get paid once it does. (DS) 46 | SHARES | 23 November 2017 ” INDEX

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23 November 2017 | SHARES | 47