Stocks with Momentum Behind Them and a Sunny Outlook Ahead

STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS

VOL 19 / ISSUE 32 / 17 AUGUST 2017 / £4.49 SHARES WE MAKE INVESTING EASIER

Summer Sizzlers

STOCKS WITH MOMENTUM BEHIND THEM AND A SUNNY OUTLOOK AHEAD

SELL OFF REBOUND WHAT NEXT FUNDS HUNTING AFTER MARKET RECOVERY VOLATILITY? POTENTIAL

DREAM INVESTMENT? WE TEST OUT MATTRESS BRAND EVE SLEEP The opportunity of a Lifetime (ISA)

Aged 18-39? Save £4,000 each year, and the government will give you £1,000 – for free – to spend on your first home, or retirement.

Open an account today Up to £32,000 youinvest.co.uk in free government Low-cost SIPPs, ISAs, funds & shares bonuses

Capital at risk. We don’t offer advice so if you’re unsure please consult a financial adviser. Tax rules may change. Paying into a Lifetime ISA may affect employer pension contributions and your future entitlement to means tested benefits. You will incur a 25% government withdrawal charge on any money you withdraw before age 60 unless you are using it to buy your first home, therefore you may get back less than you paid in.

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 EDITOR’S VIEW Shell goes electric Will strategy shift from oil major lead to boos or applause

n last week’s Editor’s View we A growing middle class in India and mentioned Trump as a possible China buying their own cars has long been Icatalyst for a summer sell off and seen as a driver of oil prices but growing so it is proving. momentum behind a shift to electric And having reached two month vehicles could challenge this orthodoxy. highs in late July crude oil prices have endured another round of volatility ELECTRIFYING THE DEBATE partly inspired by the spat between In July Volvo pledged that all cars will be North Korea and the US. electric or hybrid by 2019 and regulation Oil often appears to be a vehicle in the EU and other major geographies is for the market to express its view on pushing other car manufacturers in the economic and political backdrop. this direction. Understandably given the role it plays in fuelling How will the oil and gas majors, companies like the world economy. BP (BP.) and Royal Dutch Shell (RDSB) in the UK, respond if a key source of demand for WHAT ARE THE LONG-TERM PROSPECTS oil disappears? FOR OIL? This matters to most investors given the For now markets have calmed down, although contribution these two companies make to the total the resulting rebound in the dollar and signs of dividend from the FTSE 100. According to the latest slowing demand in China have not proved helpful Dividend Monitor report from Capita Asset Services, to crude in the interim. As we write the global oil, gas and energy stocks accounted for more than benchmark for oil, Brent, is holding just above $50 12% of the available dividend income from the index per barrel while its US counterpart West Texas in the second quarter. Intermediate trades at around $47. Shell appears to be increasingly preparing itself for This author has generally held to the view that an electric future. Chief executive Ben van Beurden a combination of two factors will provide support says his next car will be electric and the Anglo- to oil prices in the long-term. First the world Dutch firm has announced from early next year it still needs oil and lots of it. It remains the main will sell electricity to industrial customers in the UK, way we power transportation and is used in the including to its own 600 domestic sites. There is talk production of plastics and insulation products and of rolling this plan out to North America too. for heating. It may be too early to predict the death of fossil Second it is a finite resource and while fuels but if Shell is planning for a low carbon future it technology may eventually unlock reserves which is something to think about at least and a reminder are beyond the reach of the world’s oil producers to keep an open mind about future economic and today, we will run out eventually. market developments. (TS)

17 August 2017 | SHARES | 3 Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 17 August 2017 TO THE RELEVANT STORY

EDITOR’S VIEW GREAT IDEAS 03 Shell goes electric 13 Greggs expansion still has legs 22 BIG NEWS 06 Big trouble for big GREAT IDEAS ticket retailers 14 Non-Standard Finance’s sub-prime BIG NEWS growth story 07 Telit trauma continues amid GREAT IDEAS UPDATES CEO drama 16 Tesco turnaround on track BIG NEWS 08 Mears reassures GREAT IDEAS UPDATES after Grenfell-related 18 Ryanair has delays further to fly

BIG NEWS TALKING POINT 09 Dividend potential 19 Where next for flagged at Clarkson market after sell off?

STORY IN NUMBERS WEEK AHEAD 10 IQE’s heady ascent 20 Results, trading and other stories updates, AGMs in numbers and more over the coming week

LARGER COMPANIES 6 22 Could a Pru UK exit be on the cards?

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 | 17 August 2017 Contents

SMALLER COMPANIES MONEY MATTERS 23 Spinnaker spies 34 Time to review energy opportunities 36 pension drawdown arrangements SMALLER COMPANIES 24 Harvest the recovery MONEY MATTERS at Carr’s 36 Official stats expose great pensions divide MAIN FEATURE 25 Summer Sizzlers FUNDS 38 Bold recovery UNDER THE BONNET calls can bring big 30 Eve Sleep could be rewards AIM’s next dream investment INDEX 40 Index of companies, INVESTMENT TRUSTS funds, investment 32 Why investment trusts and ETFs in this trusts use gearing week’s magazine

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 Holly Black The numbers refer to how many different brokers have @SharesMagJames that rating. MANAGING DIRECTOR PRODUCTION ADVERTISING 4 2 1 Mike Boydell Head of Design Senior Sales Executive Eg: means four brokers have buy ratings, Rebecca Bodi Nick Frankland two brokers have hold ratings and one broker has a sell 020 7378 4592 rating. CONTACT US: Designer [email protected] [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, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852. but isn’t always a fully comprehensive list of ratings as some All Shares material is copyright. Reproduction in whole or part is not permitted without written banks/stockbrokers don’t publicly release this information. permission from the editor.

17 August 2017 | SHARES | 5 BIG NEWS Big trouble for big ticket retailers Near-term outlook for non-food retailers is negative

alling real wages, faltering consumer With consumers deferring spend on big ticket confidence and imported inflation are now items, ScS’ like-for-like order intake for the year to F having a big impact on appetite for big 29 July eased off 0.7%, although CEO David Knight purchases. British shoppers are tightening their stressed impressive two year like-for-like order intake belts, meaning the near-term outlook for purveyors growth of 14.3% and assured ScS’ traded in line with of furniture, white goods and even motor cars is expectations for the 52 weeks ended 29 July. increasingly uncertain. THE DIXONS DEBATE SITTING (INCREASINGLY) UNCOMFORTABLY Shares is sticking with our positive stance on On 15 June, living room furniture leader DFS another big ticket specialist, Dixons Carphone Furniture’s (DFS) share price cratered on a profit (DC.). Shares in the electricals-to-mobile phones warning that spooked the retail sector, material retail giant crashed following a savage downgrade downgrades ensuing as DFS explained that trading (11 Aug) from ‘outperform’ to ‘underperform’ with had ‘weakened beyond our expectation’. a 230p price target by Exane BNP Paribas. Subsequently, cash-generative made-to- The note highlighted unhelpful structural order sofas seller DFS, which has announced the trends in the UK mobile phone market and also acquisition (3 Aug) of rival Sofology, has issued a questioned Dixons’ quality of earnings, particularly second mild warning (10 Aug), cautioning earnings its recent changes to revenue recognition around for the year ended 29 July will now be at the low end insurance and warranty sales. of the previously downgraded £82-£87m range. Shares in the Carphone Warehouse-to-Currys Second half revenue disappointed owing to PC World brand owner have de-rated sharply on ‘significant declines in store footfall and customer concerns about mobile profitability, director share orders across April, May and June’, blamed on sales and broader concerns about the UK economy. general election jitters and economic uncertainty, Yet joint broker Deutsche Bank has issued a buy exacerbated by warm weather in May and June. note and reiterated its 400p price target, seeing a number of levers which can be pulled to control SCS AT THE SHARP END profitability. Deutsche expects a reassuring first Rival sofas seller ScS (SCS) is also at the sharp end of quarter update next month (7 Sep). It forecasts this faltering consumer confidence, having reported robust 4% like-for-like growth in Dixons Carphone’s (9 Aug) a 5% drop in like-for-like orders in the second core UK business that could foster more positive half of the year amid softer market conditions. sentiment towards the stock. (JC)

6 | SHARES | 17 August 2017 BIGBIG NEWSNEWS Telit trauma continues amid CEO drama We look at the fall out as chief steps down amid questions over US indictment

he chief executive of connectivity kit designer Telit Communications (TCM:AIM)is stepping Tdown from the board after it emerged he had previously been indicted in the US. Shares in the Internet-of-Things specialist are IT IS A SOURCE OF CONSIDERABLE bouncing back at 135p after Oozi Cats resigned with immediate effect, on hopes the move could ANGER THAT THE CHARGE HAD mark a turning point for the business. Telit revealed NOT BEEN DISCLOSED. an indictment against Cats had been ‘knowingly withheld’ from advisers at the firm. Telit said ‘it “ is a source of considerable anger’ that the charge had chairman. The company also dismissed speculation not been disclosed over its financial condition, trading performance and it had ‘only been and business relationships as having” ‘no substance’. made aware of its The firm said it ‘stands behind the group’s audited existence through accounts to 31 December 2016 and the most Source: www.telit2market.com third parties’. recently published interim statement’.

INVESTIGATION LAUNCHED ISRAELI FIRMS DISAPPOINT The firm launched an investigation last week to Telit is the latest in a string of Israeli tech firms assess whether Cats, who has led the firm since to disappoint investors. Earlier this year artificial 2000, was the same Uzi Katzi who had been intelligence business Adgorithms – which has accused of wire fraud in Boston in 1992. since changed its name to Albert Technologies It is reported that he and his wife, Ruth V. Katz, (ALB:AIM) – revealed revenue dropped 26% in were accused of ‘flipping’ properties to take out 2016 and the firm was $7.9m in the red for the mortgages with inflated values. year, compared to a loss of $2.2m a year earlier. The allegations come just days after Telit’s share The company also warned on profit shortly after price collapsed. Shares fell from 257.5p to 100p joining the market in 2015. The shares are down after the business slashed its dividend, cut growth 80% on their issue price at 27p targets and revealed it had plunged into the red in Albert Technologies says its research and its half year results (7 Aug). development expenses more than doubled to Yosi Fait is acting as interim chief executive $5.1m while sales and marketing costs leapt from officer and will conduct a review of the company’s $950,000 in 2015 to $4.1m in 2016. activities and costs. The firm said it was ‘moving But there are some success stories coming from on from this difficult situation’ and was confident the region; earlier this month US company Intel in the strategic and operation strength of the bought Israeli business Mobileye, which specialises business. in autonomous driving technology. Intel paid Telit said it would appoint three additional non- $15.3bn for the firm as it ramps up its focus on executive directors, one of whom will become driverless cars. (HB)

17 August 2017 | SHARES | 7 BIG NEWS Mears reassures after Grenfell-related delays Mears contracts held up due to safety concerns following tragedy

ousing contractor Mears (MERS) is being out earlier this month due to gas safety fears. been hit with delays to its contracts As Southwark is one of Mears’ clients, it’s Hfollowing the Grenfell Tower tragedy Order book unlikely that maintenance work will be in June. This has brought expected done while the building remains empty. revenue for 2017 down to £800m from down to Miles also says the government has £830m while analysts at Liberum have £2.8bn told RSLs that in the next 13 weeks, revised the company’s order book down from which he expects to be extended to six to £2.8bn from £3.1bn. months, to declare every one of their The company’s chief executive David £3.1bn properties is safe. If they can’t deliver Miles tells Shares, ‘the order book is safe accommodation they may be forced to unaffected, work is not been taken away from us outsource or sell housing stock. and given to another contractor’. The delays are The company hiked its dividend by 5% to 3.45p due to clients of the company including registered a share in the six months to 30 June. ‘You may social landlords (RSL) being ‘extra careful’ in Miles’ lose a bit of turnover or profit but we’re still words when it comes to safety. putting the dividend up by 5%. I hope it’s clear For instance residents of the Ledbury estate message, I haven’t lost the work, it’s just delayed,’ in Southwark, South-east London were moved says Miles. (DS) 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. H&T ‘changing Menzies and DX UK inflation 110% Guinness Global Money Managers the face of deal off undershoots • 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 pawnbroking’ again FE Offshore Financial Sector LOGISTICS AND aircraft services 70% in • Growing global savings DESPITE THE GOLD price aiding company John Menzies (MNZS) THE RATE OF UK inflation did not Global savings, particularya in conventional assets under management, are growing pawnbroker, personal loan provider is pulling out of deal to sell its increase as expected and remained 50% significantly faster than world GDP. This is supporting surprisingly resilient growing revenues in the sector, despite some pricing headwinds and watch retailer H&T (HAT:AIM), distribution business to AIM-quoted at 2.6% in July against expectations 30% the company’s chief executive John DX (DX.:AIM). of a rise to 2.7%. The second month • Low balance sheet risk Asset management companies tend to have very low gearing versus other financial sectors 10% Source: Financial Express Nichols says he’s ‘changing the face The companies had been working in row that prices rose less than From Fund launch (31.12.10), in GBP (especially banks), reducing balance sheet risk of pawnbroking’. on the transaction for six months expected. -10% • Above average dividend yield He adds that while pawnbroking and according to John Geddes, Analysts believe the latest data The sector typically exhibits high free cashflow, which currently translates into higher dividend is majority gold-based, H&T has corporate affairs director at will reduce pressure on the Bank of 2011 2012 2013 2014 2015 2016 2017 yields on average than the broad equity market widened the portfolio away from Menzies, there was ‘strong strategic England’s (BoE) interest rate-setting Total Return, in GBP (to 30.06.17) YTD 1 Year 3 Years 5 Years From Launch • Higher beta the precious metal. The company logic’ to the combination. committee to boost rates, despite 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 is looking at a whole basket of However a profit warning from inflation being higher than the 2% 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% products that people can lend DX in July caused Menzies to look target. (LMJ) FE Offshore Financial Return 9.0% 37.5% 48.0% 98.2% 71.9% Sector • Which investors should consider this Fund? against including smart phones and at the finances again. The board 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 tablets, which Nichols says is the concluded on 15 August it would 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% younger generation’s ‘currency’. (DS) not proceed. (DS) 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 8 | SHARES | 17 August 2017 E: [email protected] as well as rise. You may not get back the amount you invested. T: 0845 519 2161 BIGBIG NEWSNEWS Dividend potential flagged at Clarkson Cash rich shipping group can increase payout and invest in the business

hipping services provider Clarkson (CKN) company should also be in a position to drive a big is planning to drive shareholder returns by increase in its dividend. Sinvesting in the business, despite difficult Smith speculates the company will boost the shipping and offshore markets but should have full year dividend by 8% to 70p in the year to 31 money left over to distribute to shareholders too. December 2017. Clarkson is lining up spending across the group, Clarkson has faced a challenging backdrop since particularly in its ship broking and finance divisions, the demise of US financial firm Lehman Brothers and is focusing on improving its technology to during the financial crisis, hitting demand when increase operational efficiency. the supply of new ships increased. This situation is The company is well positioned to sanction this starting to reverse. expenditure as it is now debt free and has net In 2016, global new building orders for vessels funds of £71.4m at its disposal. over 20,000 deadweight tonnage hit a new low of Panmure Gordon analyst Colin Smith says the 217 compared to 1,874 orders in 2008. (LMJ)

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 STORY IN NUMBERS 318% up and still going SHARES IN IQE (IQE:AIM) less than eight months. technologies. Shares has flagged have caught fire in 2017 on a The Cardiff-based company this emerging growth story wave of exciting commercial develops specialist semiconductor right from the off, first 30.25p breakthroughs. The stock compounds used in wireless in September 2016, long before closed out 2016 at 37.75p on communications and, increasingly the share price reaction, and 30 December only to soar to in future, for emerging multiple times since. That implies 126.5p records on 10 August. technologies, such laser- and even more staggering 318% That’s a stunning 231% gain in based photonics and infrared paper profit in under a year. IQE FTSE ALL SHARE 22 June 2017 – Reveal 140 Rebased to ﬁrst 1 Dec 2016 – Accelerating growth ‘huge upside’ potential in emerging technologies 120 from new iPhone 8 – Shares ﬁrst 100 22 Sep 2016 30 March 2017 – Flag analysts spots re-rating potential getting on board, forecast hikes 80

60 27 July 2017 – Analysts 40 widely accept Apple deal Source: Thomson Reuters Datastream 20 AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL

ODEY ENTHUSIASM 6% STANDARD FOR SKY BID WANES LIFE HEDGE FUND MANAGER Crispin Odey is pondering dropping his support for 21st Century Fox’s bid PROFITS RISE to buy Sky (SKY) on the basis the £11.7bn bid undervalues the pay-TV broadcaster. Odey is only JUST AHEAD the 15th biggest shareholder in the company with a stake of 1%, but if further support erodes off OF MERGER the back of continuing regulatory delays then the deal could conceivably collapse even if it gets the INSURANCE AND ASSET manager Standard belated backing of the authorities. Life enjoyed a 6% jump in profits for the first half to 30 June just ahead of its £11bn merger with Aberdeen Asset Management. Operating pre-tax profits hit £362m, higher than TH analysts expected despite investors pulling out 15 £3.7bn worth of assetes during the six months. The question is how will the new entity Standard Life Aberdeen (SLA) cope with the pressure from low cost passive funds?

10 | SHARES | 17 August 2017 STORY IN NUMBERS

£2

DECADE SINCE FRENCH GAMING MACHINES BANK FUND FREEZE LIMIT LIKELY IT IS NOW 10 years since the event which for many marked the onset of the financial crisis. On 9 August French bank BNP Paribas moved RESEARCH FROM CREDIT Suisse suggests there to freeze redemptions from three funds with is an increased chance the Government will interests in collateralised debt obligations slash the maximum stake for fixed odds betting (CDOs) which it realised it could not value. CDOs terminals from £100 to £2 in a review later this were the vehicles which were used to package year. This could mean a big hit to profitability at up and sell on sub-prime loans as premium- bookmakers William Hill (WMH) and Ladbrokes rated debt. Fears have been raised in 2017 Coral (LCL). The investment bank quantifies this that sub-prime car finance deals could be the as a 40% hit to profits at William Hill and 50% at catalyst for another crisis. Ladbrokes Coral.

BEST PERFORMING SECTORS WORST PERFORMING SECTORS YEAR TO DATE YEAR TO DATE Share price Share price Company Company gain loss FTSE 350 Industrial Metals 38.2 FTSE 350 General Retailers -3.36 FTSE 350 Personal Goods 29.9 FTSE 350 Construction & Materials -4.42 FTSE 350 Forestry & Paper 20.8 FTSE 350 Media -4.47 FTSE 350 Electronic & Electrical Equipment 20.5 FTSE 350 Automobiles & Parts -4.52 FTSE 350 Beverages 19.8 FTSE 350 Food & Drug Retailers -5.09 FTSE 350 Nonlife Insurance 18.3 FTSE 350 Pharmaceuticals & Biotechnology -6.56 FTSE 350 Household Goods & Home FTSE 350 Oil & Gas Producers -8.5 15.9 Construction FTSE 350 Electricity -9.79 FTSE 350 Financial Services 15.4 FTSE 350 Fixed Line Telecommunications -18.3 FTSE 350 Health Care Equipment & Services 11.2 FTSE 350 Oil Equipment, Services -30.7 FTSE 350 Industrial Engineering 11.1 & Distribution Source: SharePad Source: SharePad

17 August 2017 | SHARES | 11 Voting is open for the AJ Bell Fund & Investment Trust (FIT) Awards!

You are invited to have your say on who you believe to be the best investment funds and trusts in the UK marketplace.

An expert panel of investment professionals have already narrowed down the choices available to create a final shortlist of 6 investment funds or trusts in 15 award categories.

The award categories have been chosen to reflect how you, as investors, typically look for an investment, therefore cover all major regions, sectors and markets.

VOTE NOW

VOTE TO WIN A MEAL FOR TWO at Raymond Blanc’s famous two Michelin-starred Le Manoir aux Quat’Saisons (T&Cs apply)

SPONSORED BY GREAT IDEAS Greggs expansion still has legs Feast on food-on-the-go retailer for growth and tasty capital returns

nvestors seeking a tasty APPETISING RETURNS growth and income stock for XXXXGREGGS  BUY  BUY Following strong first half results uncertain times should snack (xxx)(GRG) xxxp £11.77 (1 Aug), which revealed positive I Stop loss: 941.6pxxp on bakery food-on-the-go retailer 3.4% like-for-like growth and a Shares Greggs (GRG). believes Market value: xxx£1.18bn good start to the second half, the affordable sausage rolls-to- Berenberg upgraded (9 Aug) sandwiches seller can expand Greggs from ‘hold’ to ‘buy’ and its estate significantly, while upped its price target from self-help measures should help £10.20 to £13. sustain its run of strong like-for- For calendar 2017, Berenberg like sales momentum. forecasts adjusted pre-tax profits of £81.4m (2016: £80.3m) and TASTY OPPORTUNITY a 31.9p dividend, rising to £86m Under CEO Roger Whiteside and and 33.8p respectively in 2018. since the fourth quarter of 2013, Greggs’ strong cash generation Newcastle-headquartered Greggs and balance sheet support this has generated 2%-plus like-for- progressive dividend, though like sales growth in every quarter, the retailer has form with one driven by its transformation from off returns of capital too, having traditional baker into a food-on- areas centred on work, travel paid a £20m special dividend in the-go business. and leisure, it also has low store July 2015. Breakfast meal deals and coverage in England’s south Management targets £40m of savoury favourites provide the west and Northern Ireland and net cash at year-end, but should earnings ballast, although Greggs can therefore increase its shop this cash position rise materially now offers a range of healthier numbers by high double digits north of this level, it will products spanning sandwiches, over the coming years. return capital to shareholders. salads, bakes and soups and has Key competitors (Subway, Costa Though given the supply chain widened its sugar-free drinks Coffee) have significantly more investment underway, 2019 is range to tap into changing stores, implying room for Greggs likely to be the earliest point at consumer preferences. to expand, while a popular debut which such a return will occur. Greggs is already an ‘Drive-Thru’ shop in Greater established operator with a Manchester indicates a demand network of more than 1,800 for further Drive-Thru locations. BROKER SAYS: 3 4 0 branded UK food-on-the-go Disposable incomes are

GREGGS outlets. However, Greggs is softening, input costs rising and FTSE ALL SHARE adding new stores and believes the food-on-the-go market is 1200 Rebased to ﬁrst 1150 it can expand its estate well ultra-competitive. Yet Greggs 1100 beyond 2,000 UK stores in the looks well placed to cope given 1050 medium term. its value credentials as well as 1000 Not only is Greggs successfully self-help measures including 950 shifting its exposure away from store refits and investments 900 850 Source: Thomson Reuters Datastream shopping locations and towards across systems and supply chain. 2015 2016

17 August 2017 | SHARES | 13 GREAT IDEAS Non-Standard Finance’s growth story in sub-prime Non-Standard Finance is a expanding player in the sub-prime lending space that pays a healthy dividend

he speciality lender sector GROWING FOOTPRINT on the market is full of NON-STANDARD The company currently has three risks. Failure on the part of FINANCE brands in its stable - Everyday Tborrowers to repay loans being  BUY Loans, Loans at Home and among the most prominent. But (NSF) 66.75p TrustTwo - and is soon to add Non-Standard Finance (NSF) is a Stop loss: 50p George Banco to that list. With firm growing fast, consolidating £260m of debt capacity available the sub-prime lender market Market cap: £211.63m according to house broker Shore at pace. Capital the business is well Chief executive John van positioned for further Kuffeler tells Shares the company BUY AND BUILD M&A activity. mitigates the the risks of rising The company is a consistent The UK sub-prime lending impairments by meeting the buy-and-build player, its latest market remains pretty borrower in person. acquisition is George Banco, fragmented. It is estimated Its Everyday Loan business, announced on 3 August. The to serve around 10m people. which is an unsecured branch business is the second-largest Growth is slowing in the UK and based lender, is planning to open player in the UK guaranteed disposable income is getting 53 new branches by the end of loans market. squeezed by inflation, this the year. This business interviews The deal is expected to backdrop should be helpful to customers one-on-one, building complete next month and be providers of alternative finance, a relationship and according to earnings enhancing in its most of which are also highly van Kuffeler, reducing the first year following cash generative. risk of impairments. The completion. The The valuation does not look It is also increasing business is business cost too demanding. The shares its focus on the £53.5m. trade on a forward looking price guaranteed loans well positioned JP Morgan puts to earnings ratio of 12.8 using market, in which an for further a target price of estimates from Gurjit Kambo, approved third party M&A activity 92p on the stock, analyst at JP Morgan Cavenove. backs the borrower. implying 37.8% The prospective dividend yield The CEO was formerly upside. is 3.5%. (DS) the chair of beleaguered Non-Standard Finance Provident Financial (PFG) and achieved the unlikely double BROKER SAYS: 2 0 0 has capitalised on his former of increasing profitability while company’s failure to revamp its continuing to invest significant NON-STANDARD FINANCE FTSE ALL SHARE home collection credit business. sums in the business when 80 Rebased to ﬁrst He’s taken at least 400 agents it released its half year to 75 who used to work for Provident, 30 June results recently. The 70 following the company’s profit firm’s pre-tax profit improved 65 warning in June, decision to force by 26% to £5.4m, while 60 its agents to become full-time earnings per share were up 55 50 Source: Thomson Reuters Datastream staff and axe 2,000 jobs. 15% to 1.35p. 2015 2016

14 | SHARES | 17 August 2017 THIS IS AN ADVERTISING PROMOTION

If successful, this could strengthen both the French economy and potentially the European project. With potential for greater political stability in the eurozone combined with gently growing confidencexi, we SIGNS OF believe Europe offers an attractive opportunity to investors at present. All financial investments involve an element of risk Therefore, the value CONTINENTAL SHIFT of your investment and any income from it will vary and your initial investment amount cannot be guaranteed.

As political instability starts to fade in the To find out about the increasingly positive outlook for this region eurozone, shares from the region can and to learn more about BlackRock’s wealth of experience in offer value, says portfolio co-manager Greater Europe, please visit blackrock.com/uk/brge Stefan Gries.

What is the outlook for financial services in Europe? There are positive signs in that measures from the European Central Bank (ECB) are making it easier for eurozone banksi to lendii, although when we look at the businesses themselves, banks are making less money from loans than a few years ago. An increase in the base rate of interest would boost banking profits, but with inflation in Europe at 1.4%iii, there is little pressure on the ECB to raise the base rate. Also, margins are eaten away quickly by competition; there are more than a thousand lending institutions in Germany aloneiv.

The banking sector is also one of those most likely to be affected by political volatility and so we are only invested in European banks we believe exhibit better profit trends and good capital reserves.

Are you positive about growth in continental Europe this year? Yes, European earnings for the first quarter were very positivev and expectations for continued growth are goodvi. The ECB has extended

quantitative easing – which aims to manage inflation and incentivise i ECB, the euro area bank lending survey, June 2017 growth by increasing the supply of money in the economy – until the ii ECB, the euro area bank lending survey, April 2017 (https://www.ecb.europa.eu/stats/pdf/ vii blssurvey_201704.pdf?ae4008c7f33e40f7e4eed7ed48a5ad51) end of 2017 . Eurozone business confidence is at its highest level iii Euro Stat, May 2017 since 2011viii and consumer trends have been improving. Growth in iv Statista, 2008 to 2015 v BlackRock, European Equity Barometer Review, January 2017 (https://www.blackrock.com/uk/ Europe remains low, but much of Europe’s business comes from intermediaries/literature/newsletters/european-equity-barometer.pdf) outside the continent, so the region’s success also depends on growth vi BlackRock, as above vii ECB, March 2017 abroad. Please remember that past performance is not a guide to viii Trading Economics, May 2017 future performance. ix MSCI & Bloomberg, June 2017 (S&P 500 +221% in USD terms, Euro Stoxx600 +112% in USD terms – January 1 2009 to June 30 2017) x Sentix, June 2017 (https://www.sentix.de/index.php/en/sentix-Economic-News/the-situation-in-euroland- What is your view on the price of shares for companies in continues-to-grow.html) xi Lipper, outflows for European Equites YTD as at end of June 2017 Greater Europe?

Europe has underperformed the US market following the 2008 financial Trust specific risks: Overseas investment will be affected by movements in crisisix. That potentially creates an opportunity to find good value currency exchange rates. Therefore the value of these investments may be European shares. After retreating from Europe in 2016, investors have unpredictable and subject to greater variation. Investment strategies, such as begun to return to the regionx. borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall. The Trust’s investments may have low liquidity, which often causes the value of these investments to be Have you been able to use political uncertainty and market less predictable. In extreme cases, the Trust may not be able to realise the volatility to your advantage over the past 12 months? investment at the latest market price or at a price considered fair. It is always difficult to say that a particular share was bought or sold This material is not intended to be relied upon as a forecast, research or as a result of politics. That said, some of the big political events over investment advice, and is not a recommendation, offer or solicitation to buy the past 12 months, together with rising inflation, have had an impact or sell any securities or financial product or to adopt any investment strategy. on share prices. French president Emmanuel Macron’s 2017 election The opinions expressed are as at July 2017 and may change as subsequent conditions vary. victory, for example, created a real chance for pro-growth reform.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. BlackRock have not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the Key Features document and the Annual and Half Yearly Reports available at blackrock.com/uk/brge for more information where you can find a full explanation of these type of investment techniques and more information about the risk profile of the investment. We recommend you seek independent professional advice prior to investing.

© 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. ID: 235480. GREAT IDEAS UPDATES

TESCO COUNTRYSIDE (TSCO) 178.7p PROPERTIES (CSP) 355.2p Gain to date: 9% Gain to date: 18.1% Original entry point: Original entry point: Buy at 164.45p, 25 August 2016 Buy at 301.2p, 25 May 2017 SUPERMARKET TESCO (TSCO) will soon drop out A STRONG RECENT run for Countryside of our Great Ideas portfolio after the requisite 12 Properties (CSP)has helped it close the gap on months. Performance has been up and down with the wider sector we identified when adding the shares hitting highs above 200p last autumn and shares to our Great Ideas portfolio in May 2017. trading as low as 166.5p in early July. We consider Although we continue to like the business the this turnaround tale to be one worth sticking backdrop looks more uncertain as house prices with. Full year results (12 Apr) revealed good began to stall and amid reports the Government progress with the recovery at the nation’s biggest will withdraw the Help to Buy scheme earlier than supermarket, UK like-for-like sales growing 0.9%, expected. This initiative has been very supportive the first reported full year growth for seven years. to the housebuilding sector. As we discussed in our CEO Dave Lewis says Tesco is on track to achieve its initial article on Countryside its activity supporting 3.5%-to-4% operating margin target by 2019/20. housing associations and local authorities to Stronger cash generation and a drop in net debt regenerate public land provides some insulation means Tesco will also return to the dividend list from a wider downturn in the housing market. in the 2017/18 financial year following a two year However, on balance we think it is worth booking absence. A strong subsequent first quarter update some profit ahead of what could be a more (16 Jun) revealed a forecast-busting 2.3% hike in UK difficult second half to 2017 for the housebuilders. like-for-like sales and the latest Kantar Worldpanel The valuation case is now less compelling for grocery share figures (25 Jul) were positive for Countryside. It trades on 10.4 times the September COUNTRYSIDE PROPERTIES Tesco too. While the squeeze on consumer FTSE ALL SHARE 2018 earnings spending and cut-throat competition are risks to 380 Rebased to ﬁrst per share 360 weigh, the planned £3.7bn takeover of Booker 340 forecast by (BOK) will turn Tesco into the number one player 320 investment in the domestic cash and carry market. This should 300 bank Berenberg, 280 TESCO help keep costs roughly in line FTSE ALL SHARE 260 220 and prices down 240 with its peers. 220 Source: Thomson Reuters Datastream 210 for longer than 2015 2016 200 rivals and bring 190 180 greater exposure SHARES SAYS:  170 to the growing We continue to like Countryside’s model but see 160 Rebased to ﬁrst ‘out-of-home’ risks of second half weakness as sentiment towards 150 Source: Thomson Reuters Datastream 2015 2016 food market. the sector worsens. (TS)

SHARES SAYS:  BROKER SAYS: 4 1 0 We remain positive. (JC)

BROKER SAYS: 7 6 6

16 | SHARES | 17 August 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 Thursday 7 September 2017 and meet directors from Jaywing, Sound Energy and Vipera plus more companies to be announced.

Sponsored by London - Thursday 7 Sept 2017

Companies presenting

Jaywing Martin Boddy, Chief Executive Jaywing is an agency specialising in the application of data science in digital marketing, risk and customer servicing. It employs approximately 600 people in the UK and Australia, one of ten of which is an experienced data scientist. It has a blue chip client base with unusually high levels of recurring revenues. Increasingly, its focus is on developing data-led products to provide differentiation, fuel growth and increase margin. Its ambition is to distribute its products internationally allowing it to gain access to faster growing and less competitive markets whilst continuing to grow its UK agency business.

Sound Energy (SOU) James Parsons, CEO Sound Energy is a well-funded African and European upstream gas company, with a recent significant discovery in Morocco, a cornerstone investor, a strategic partnership with Schlumberger (one of the largest companies in the sector) and a potentially transformational drill programme. James Parsons, CEO will provide an update on their licence areas and their move towards gas production.

Vipera (VIP) Martin Perrin, CFO Vipera is a leading provider of mobile financial services platforms. The Vipera platform provides the easiest, fastest, most cost-effective way to develop and operate mobile data services. Solutions powered by Vipera run today on more than 500,000 phones, on hundreds of mobile networks in many countries. Founded in 2005, Vipera has offices in Zurich, Milan and London.

Plus more to be announced

Shares will be taking their Spotlight investor evenings to MANCHESTER on October 12 and EDINBURGH on September 21. Follow this link www.sharesmagazine.co.uk/events for full details. REGISTER FOR YOUR COMPLIMENTARY TICKET TODAY

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

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

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

RYANAIR IBSTOCK (RYA) €13.55 (IBST) 232.4p

Gain to date: 35.7% Gain to date: 28.8% Original entry point: Original entry point: Buy at €12.09, 25 August 2016 Buy at 180.5p, 26 January 2017 LOW COST AIRLINE Ryanair (RYA) continues OUR POSITIVE CALL on brick manufacturer to fly higher following a successful buyback Ibstock (IBST) is being rewarded and first half programme and strong results in the three results (10 Aug) suggest the momentum is being months to 30 June 2017. maintained. Revenue was up 9% to £228m and Since we flagged Ryanair’s potential, shares in pre-tax profit before one-off items hit £43.3m, a the airline have rallied 35.7% to €18.55 (14 August), 14.4% increase on the first six months of 2016. but its performance has been mixed through the The dividend was hiked 8% to 2.6p. This strong summer due to Brexit and pricing competition showing is supported by continuing strong demand concerns. from the housebuilding sector with a previous Last month, the airline reported a 55% increase in oversupply of brick stocks no longer a headwind for pre-tax profit to €397m thanks to a later Easter and a the industry. The main negative was an increase in 1% rise in both average fares and ancillary revenues. net debt from £133m at the beginning of 2017 to However, Ryanair reiterated that average fares are £160m. And with reports the Help to Buy scheme likely be cut by 8% in the six months to 31 March for prospective home buyers may be scrapped 2018 as competitive pricing starts to bite. early and signs of a slowing housing market in the Further volatility was prompted by warnings of UK it may be prudent to book some profit. The flight disruption between the UK and Europe if stock, which traded on 10.4 times 2017 consensus

IBSTOCK Britain does not remain in the European Union’s FTSE ALL SHARE forecast earnings (EU) Open Skies deal. This facilitates freedom of 280 Rebased to ﬁrst when we first travel throughout the EU. 260 flagged its 240 Despite these headwinds, we remain confident 220 attractions, is that Ryanair has more to offer thanks to its ancillary 200 now on a less sales, which deliver 75% of the group’s profitability 180 attractive looking according to Deutsche Bank’s Anand Date. 160 multiple of 13 140 Source: Thomson Reuters Datastream Ancillary sales are generated from non-ticket 2015 2016 times. sources such as RYANAIR FTSE ALL SHARE baggage fees and SHARES SAYS:  6000 Rebased to ﬁrst on-board food The shares are starting to run out of steam. Book 5500 and theoretically profits ahead of any potential downturn in the UK. (TS) 5000 could support 4500 future BROKER SAYS: 8 3 0 4000 profitability even 3500

3000 Source: Thomson Reuters Datastream if ticket prices 2015 2016 continue to fall.

SHARES SAYS:  Keep buying at €13.55. (LMJ)

BROKER SAYS: 4 1 0

18 | SHARES | 17 August 2017 Our views on topical issues TALKING POINT Where next for market after sell off? FTSE 100 drops 3% in three days after war of words between Washington and Pyongyang

s markets return to Pharma players also did Editor’s View article, for most some semblance of not have a great time during long-term investors it makes A normality following the increasingly bellicose sense to hold your nerve and the geopolitical chest thumping exchanges between the two stay invested even when markets between the US and North Korea, states, with GlaxoSmithKline get choppy. (DS) investors are moving back from (GSK) and Shire (SHP) dropping their safe havens. 59.5p to £14.75 and 261.5p to KEY NEAR-TERM MARKET The escalating war of words £38.01, respectively. MOVING EVENTS briefly sent investors scurrying into safety-first assets such as MACHO TALK 28 August gold, bonds and select currencies. Of course, when there’s talk of Third round of Brexit talks After President Donald Trump being ‘locked and loaded’ and threatened North Korea with ‘fire other macho lines regarding 1 September and fury’ the FTSE 100 endured military might, defence stocks US non-farm payrolls three days of consecutive losses tend to do well. BAE Systems which wiped off 3.1% of its value. (BA.) climbing 6.5p to 582p from 14 September Those stocks with the most through the volatility. UK interest rate decision exposure to the global markets However, as this is a US issue, were hardest hit, including it’s the American-listed defence 20 September miners and banks. names that did well from the US interest rate decision Among the FTSE 100 stocks escalating war of words. down was HSBC (HSBA) which Missile companies Lockheed 24 September dropped 35.8p to 734.5p from Martin and Raytheon hitting German federal elections open on 9 August to close Friday record highs. 11 August. Now calm has returned to the markets, with South Korea’s exchange and currency both up. There has been a global rebound, with equities up across the globe. In the box there are details of some of the scheduled announcements which could have a bearing on the future direction of markets in the coming weeks. As the North Korean episode demonstrates though there is little investors can do to prepare for external shocks. And as discussed in last week’s

17 August 2017 | SHARES | 19 WEEK AHEAD

EX-DIVIDENDS FRIDAY 18 AUGUST BLOOMSBURY AGMS PUBLISHING BMY 5.6P GRAND GROUP INVESTMENT GIPO BRISTOL WATER BWRA 4.38P SYSTEM1 GROUP SYS1 CARNIVAL CCL $0.4 MONDAY 21 AUGUST DIXONS CARPHONE DC. 7.75P FINALS DAIRY FARM BHP BILLITON BLT INTERNATIONAL DFI $0.07 INTERIMS Beleaguered construction PIRES INVESTMENTS PIRI services company Carillion TBC BANK TBCG (CLLN) is releasing results on ECONOMICS Wednesday 23 August and UK investors will be hoping for some CBI INDUSTRIAL ORDER EXPECTATIONS good news. The firm’s share TUESDAY 22 AUGUST price collapsed on 10 July after INTERIMS releasing a profit warning which ANTOFAGASTA ANTO cost CEO Richard Howson his job. First half results from advertising CAIRN ENERGY CNE However the company’s giant WPP (WPP) on 23 August EMPRESARIA EMR subsequent £1.3bn contract will be worth keeping tabs on PERSIMMON PSN for HS2 won in partnership with for two reasons. Advertisers are JOHN WOOD GROUP WG. Eiffage and Kier (KIE) on 20 July seen as good bellwethers for the AGMS suggests that it might not be all economy because companies will PUMA VCT10 PUMX doom and gloom. EX-DIVIDEND increasing spending on ads when ONE SAVINGS BANK 1SBA 2.3P they are feeling positive and scale back during tougher times. WPP DAIRY FARM WEDNESDAY 23 AUGUST has significant scale, breadth and INTERNATIONAL DFIB $0.07 INTERIMS geographic reach. Second, the DAIRY FARM CARILLION CLLN commentary from chief executive INTERNATIONAL DFIJ $0.07 HANSTEEN HOLDINGS HSTN Martin Sorrell tends to be both DEVRO DVO 2.7P VEDANTA RESOURCES VED entertaining and insightful. FDM GROUP FDM 12P WPP WPP FIDESSA FDSA 15.3P AGMS HICL INFRASTRUCTURE HICL 1.96P DORIEMUS DOR HONG KONG LAND INDEPENDENT NEWS & MEDIA INM HOLDINGS HKLB $0.06 TRIAD GROUP TRD HONG KONG THURSDAY 24 AUGUST LAND HOLDINGS HKLD $0.06 INTERIMS JARDINE LLOYD HUNTING HTG THOMSON JLT 12.2P MACFARLANE GROUP MACF JPMORGAN BRAZIL PREMIER OIL PMO First half results (21 Aug) INVESTMENT TRUST JBP 0.8P POLYMETAL INTERNATIONAL POLY from European floor coverings LONDON STOCK PLAYTECH PTEC distributor and dividend star turn EXCHANGE LSE 14.4P PV CRYSTALOX SOLAR PVCS Headlam (HEAD) will confirm LOW & BONAR LWB 1.05P ECONOMICS further market share gains and MANDARIN ORIENTAL MDO $0.02 UK strong cash generation, though MANDARIN ORIENTAL MDOB $0.02 INDEX OF SERVICES the outlook statement will be key, MANDARIN ORIENTAL MDOJ $0.02 SECOND ESTIMATE GDP August being a peak month for UK MITON UK CBI REALISED SALES educational refurbishments. In a MICROCAP TRUST MINI 0.36P AGMS recent pre-close update (18 Jul), MONDI MNDI €0.19 CITY OF LONDON GROUP CIN Headlam highlighted revenue PARK GROUP PKG 1.95P NEXTENERGY SOLAR FUND NESF growth in the UK and Continental RAMSDENS HOLDINGS RFX 1.3P PUMA VCT 8 PUM8 Europe in the six months to June, SECURITIES TRUST SERVISION SEV with positive progress made in OF SCOTLAND STS 1.45P TRIPLE POINT INCOME VCT TPV1 the residential and commercial Click here for complete diary sectors alike. www.sharesmagazine.co.uk/market-diary

20 | SHARES | 17 August 2017 INVESTMENT FACTS. WHO CAN YOU TRUST?

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

Shares magazine is produced by our expert editorial team, offering 24/7 coverage and insight into today’s vibrant investment markets. A subscription to Shares gives you access to the SHARES digital investment hub and a host of benefits including: > Your weekly digital magazine brimming full of investment ideas > Market news and company updates > Exclusive investor tools including live share prices

Try it now for just £1 for the 1st month and then just £12 a month*.

Explore the best investment news and latest share prices

+ Subscribe today at www.sharesmagazine.co.uk/subscribe £ % £ £ £

* 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] LARGER COMPANIES Could a Pru UK exit be on the cards? Merger of UK businesses may indicate a future divestment and potential catalyst for the shares

TSE 100 global life insurer Prudential (PRU) has been rallying this year, its share price Fup around 10% to £17.78 since the end of 2016. Its recent results beat consensus forecasts by 5% and 7% on new business revenue and profit respectively. UK PROFIT But the company merging its UP JUST UK businesses is perhaps the most significant piece of recent news 1% IN from Prudential. FIRST HALF Combining the company’s asset manager M&G and Prudential UK and Europe into a new entity called M&G Prudential is being done to create a more ‘capital-light’ operation according to the board.

REFINING THE FOCUS However, for a business worth nearly £50bn it might make sense to cut off some divisions that aren’t as profitable as others. If the newly packaged up UK businesses were sold off, Prudential would be purely are a drag on the company yet, its life premium US and Asia focused. revenues are up 22% to £721m in the first half. In The potential sale of the UK arm is likely to be one terms of profit growth though, the UK is lagging of the hot topics when Prudential holds its investor behind the company’s other regions, especially day on 16 November. for long term business. While Asia and the US The structural growth story of Asia is well known increased by 20% and 22% respectively, the UK and the baby boomer group in the US is ripe for only increased operating profit by 1% to £480m. Prudential’s US life business, Jackson. The division M&G Prudential is expected to produce to enjoyed a 7% rise in operating profit in the first savings of £145m a year from 2022 after a one-off six months of 2017 and according to the firm is outlay from shareholders of £250m. This suggests outperforming the wider market. that a sale of the business is not happening any In Asia, new business profit is up by 18% and with time soon. Which is not a disaster as the firm has the firm is expecting a further 700m people to enter strong fundamentals. the middle class in the next five years, the region has Based on forecasts Arjan van Veen, analyst huge potential. at UBS, predicts that Prudential is trading on a Prudential says that ‘by 2020, the spending of the forecast price to book ratio of 3-times and using middle class in the Asia-Pacific region is expected to his earnings per share figure, price to earnings surpass that of the US and Europe combined’. ratio of 12. This is already at a slight premium to its peers but if the UK business is sold it could SALE MAY NOT HAPPEN FOR SOME TIME change the market’s view of the stock and drive This is not say that the Prudential’s UK operations further share price strength. (DS)

22 | SHARES | 17 August 2017 SMALLER COMPANIES Spinnaker spies energy opportunities Micro cap cash shell in the market for oil and gas firms

ash shell Spinnaker Opportunities (SOP) is closing in on its first acquisition which could Cact as a catalyst for the share price if the deal is well received. The micro cap floated with a standard listing on the Main Market in May (17 May). This reflects a growing trend of cash shells shunning AIM in favour of a standard listing which is typically cheaper. We featured an article from an outside contributor on this issue back in June.

WHO IS BEHIND THE BUSINESS? A cash shell is a vehicle which has no assets apart from cash and is generally set up with the intention of identifying a business to acquire. Spinnaker is no exception to this rule and is looking to provide a route to market for a business through a reverse takeover. It is focusing on firms valued between £5m and £30m in the energy or industrial sectors. The founders of the company provide a clue as to any likely target. They include managing director Andy Morrison, a 17-year veteran of Royal Dutch Shell (RDSB) and BG, Richard Liddell, previously operations director at Premier Oil (PMO), and former BP (BP.) and Shell man Tony Harpur. Directors have invested £310,000 of their own cash in the venture and £1.1m was raised at IPO. Their plan is to depart once the first acquisition is complete so investors in the company are placing weighted towards the oil and gas and energy faith in their ability to identify a worthy target. The industry, but also include one option in the supply focus is on cash generative companies which do chain and technology space’ towards the upper not face unfunded financial commitments in the end of the valuation range. Morrison adding that near-term. The company started with just under only a ‘handful of opportunities’ remain live. 30 opportunities with a ratio of 3:1 between The company is next likely to update in targets in the energy and industrial sectors. late August or early September. There is little Once any reverse takeover is complete the newly speculation in the current share price which is listed business will almost certainly look to raise down on the 5p issue price at 4.52p. capital through a share placing. SHARES SAYS:  WHAT IS THE LATEST? High risk but may be worth a look ahead of its first In a July update Spinnaker noted that the investment. (TS) ‘opportunities now under consideration remain

17 August 2017 | SHARES | 23 SMALLER COMPANIES Harvest the recovery at Carr’s US nuclear foothold a positive catalyst for agriculture-to-engineering firm

his looks a canny time to harvest the earnings seem to be recovering. recovery potential at agriculture products-to- Investec Securities’ Nicola Mallard has upgraded Tengineering play Carr’s (CARR). her price target from 170p to 195p to reflect The $20m acquisition (7 Aug) of US engineering NuVision and the profit recovery she forecasts for business NuVision brings a strong foothold in the the year to August 2018. Results for the year to main nuclear markets of the US and will boost August 2017 are forecast to show lower normalised Carr’s future earnings. pre-tax profits of £11.3m (2016: £14.1m), although Pittsburgh-headquartered NuVision’s customers Mallard looks for a strong rebound to £15m next include the US Department of Energy, major nuclear year ahead of £16.3m in fiscal 2019, with increased energy suppliers, public utilities and international dividends of 4.3p and 4.5p shaded in for these governments. latter years. NuVision boasts a very healthy order book and the acquisition offers potential for revenue synergies with Carr’s other nuclear engineering businesses. SHARES SAYS:  Sentiment towards Carr’s, whose agriculture We see merit in the NuVision deal and note that division supplies farm machinery and feed blocks at 143p, there’s more than 36% upside towards for cattle, is recovering following a period of weaker- Investec’s price target. (JC) than-expected demand in the US feed market and a delayed engineering contract. Encouragingly, this BROKER SAYS: 1 1 0 contract has now been signed and US cattle prices

LightwaveRF leaps NWF’s fuel supply LiDCO secures on Apple launch makes up for rising first customer for feed costs SMART HOME TECH tiddler programme LightwaveRF’s (LWRF:AIM) shares AGRICULTURAL SUPPLIER NWF HOSPITAL EQUIPMENT monitoring shot up almost 20% to 28p on (NWF:AIM) has been hit by rising specialist LiDCO (LID:AIM) has news (14 Aug) its exciting next costs of feeds although offset scored its first US customer for generation Apple HomeKit product this by growing its fuel supply its high usage programme. The range for controlling smart devices business. undisclosed customer, one of the is about to launch (3 Oct) in Apple’s The company had invested in world’s largest cancer hospitals, retail stores in the UK and UAE, as new fuel depots in the South East signed a deal for 44 monitors well as online. which exceeded expectations to check the amount of blood Led by charismatic CEO Andrew in the first year of operating. flowing around the body. On an Pearson, LightwaveRF also flagged As its feed division buys its annualised basis the contract an extensive marketing campaign raw materials under forward should result in a 35% uplift in to publicise the new range of purchase contracts, increases in LiDCO’s annual recurring revenue products, which control smart prices impacted margins as the in the US. Year-to-date shares in devices in the home with iOS apps company was not able to fully the company are up nearly 50% and Siri voice commands. (JC) pass on these increases. (DS) at 8.8p. (LMJ)

24 | SHARES | 17 August 2017 Summer Sizzlers

STOCKS WITH MOMENTUM BEHIND THEM AND A SUNNY OUTLOOK AHEAD

17 August 2017 | SHARES | 25 eo-political tensions aside, the specialist marketing company Next Fifteen trend for UK stocks has been firmly Communications (NFC:AIM), Impax Asset positive so far in 2017 as investors Management (IPX:AIM) and private healthcare have shrugged off another electoral provider NMC Health (NMC). shock and ongoing Brexit fallout. ‘Momentum’ investing works on the principle That pushed the FTSE 100 index to within that the ‘trend is your friend’ and typically means Gtouching distance of record 7,547.63 highs until buying assets which are enjoying consistent price the recent North Korea inspired wobble. Other appreciation. To put it more simply it involves indicies have performed even more strongly with buying what is going up. the FTSE 250, FTSE Small Cap and FTSE AIM All- Share up by 8.7%, 10.4% and 17.6% respectively NEED FOR CATALYSTS as we write. If a share is going to keep on rising it requires We have run a very simple screen to identify catalysts to maintain investor interest. This could the 100 best performing London-listed stocks. be a drugs trial, drilling result, new contract or Because smaller companies can be driven higher positively-received trading or strategy update. by just a small number of trades and may be There is a well-worn investor adage that rising from a very low base we have limited our ‘elephants don’t gallop’ but some big names selection to companies valued by the market have proved this wrong in 2017. Some due to at £100m or more to ensure we are capturing merger and acquisition (M&A) activity. Payment genuine momentum. processing firm Worldpay (WPG) up more than 40% and subject to a recommended £9.3bn frim TREND IS YOUR FRIEND US rival Vantiv. Happily, several of the stocks on the list are The positive outlook which has driven already constituents of our Great Ideas portfolio. housebuilding stocks like FTSE 100 constituent Names like litigation finance provider Burford Persimmon (PSN) and its smaller counterpart Capital (BUR:AIM), flavour and fragrance Countryside now looks cloudier after reports the specialist Treatt (TET) and housebuilder Government may scrap the Help to Buy scheme Countryside Properties (CSP). We have identified and signs a malaise in the London property five more stocks which we think can sustain their market is spreading beyond the capital. recent soaraway performance. In contrast, the names we highlight in the Our selections encompass software firm remainder of this article still have fuel in the tank WANdisco (WAND:AIM), cards, gift bags and clearly identifiable catalysts which can drive and crackers maker IG Design (IGR:AIM), their shares higher. (TS)

FTSE 100 - PRICE INDEX FTSE AIM ALL-SHARE - PRICE INDEX 8600 Rebased to first 8400 FTSE 250 - PRICE INDEX FTSE SMALL CAP - PRICE INDEX 8200 8000 FTSE 100 - PRICE INDEX FTSE AIM ALL-SHARE - PRICE INDEX 7800 8600 Rebased to first 7600 FTSE 250 - PRICE INDEX 8400FTSE SMALL CAP - PRICE INDEX 7400 8200 7200 8600 Rebased to first 8000

7000 Source: Thomson Reuters Datastream JAN FEB8400MAR APR MAY JUN JUL 7800 AA giftgift 8200 7600 8000 7400 forfor 7800 7200 7600 7000 youyou Source: Thomson Reuters Datastream 7400 JAN FEB MAR APR MAY JUN JUL 26 | SHARES | 17 August7200 2017 26 | SHARES | 10 August 2017

7000 Source: Thomson Reuters Datastream JAN FEB MAR APR MAY JUN JUL Wandisco WAND:AIM 797.5P

WHAT IS BEHIND THE SHARE PRICE MOMENTUM? WHAT ARE THE NEAR-TERM A massive rebuilding job of investor CATALYSTS? YEAR-TO- confidence is the short answer. DATE GAIN: Clearly more new contracts will Two key points have dictated that feed the current optimism, while success; cash and growth. Data 295% news of new channel partners replication technology designer of scale will also help. But above WANdisco has attacked its cost all, investors will want to see base with gusto slashing previously firm evidence that upbeat talk eye-popping cash burn to close to is translating into meaningful nothing. The company used $600,000 to fund revenue growth. That Fusion booking (future the business in the six months to 30 June, versus contracted revenue) jumped 173% in the first $5.3m for the same period in 2016, leaving half is highly encouraging and investors will get $9.9m of net cash on the books. Management more detail at interim results expected in early expects to end the year with positive cash flow September. from operations. ‘The world has changed – and WANdisco But that the growth gates have finally opened with it,’ rightly predicted analysts at investment is just as important to the firm’s long-run bank UBS in January. They also presumed that chances of success, and an even higher share the shares ‘are due a pause’ after doubling to price. Developing a blue-chip channel partners 400p-odd in 10 days. That latter comment has (including Amazon Web Services, IBM, Oracle) proven to be a tad too cautious – the stock has rather than chasing business itself is making since doubled again despite a consensus target all the difference. This has led to its biggest price of 465p. (SF) ever single contact worth $4.1m for its Fusion platform, its first ever healthcare deal ($0.65m), and a maiden online retailer agreement, a $2m contract in the US. AA These cut downtime in the event of power outages or cyber attacks, for example, hugely important issues for high volume internet sweetsweet business users such as online retailers and banks. dealdeal

17 August 2017 | SHARES | 27 Pgement 0a2n.9a M 1 IG Design X:AseItM ImpaxI AP s IGR:AIM 371.5P

WHAT IS BEHIND THE SHARE WHAT IS BEHIND THE SHARE PRICE MOMENTUM? PRICE MOMENTUM? Gift packaging, stationery This company’s focus on environmental assets and creative play products YEAR-TO- has clearly paid off this year with its assets under maker IG Design’s (IGR:AIM) DATE GAIN: management (AUM) hitting £6.9bn at the end of strong results and earnings 50.9% July, around a 50% increase since the start of its upgrades have driven share financial year on 1 October 2016. Even President price momentum in 2017. Donald Trump’s declaration to withdraw from the Record full year results (27 Jun) Paris Climate Accord should not dent the firm. were ahead of previously upgraded estimates, Impax’s chief executive Ian Simm says Trump’s a 31% revenue surge to £311m spearheaded move has done little to sate investors’ appetite by growth in the US and Continental Europe. for ‘investments in companies that provide An especially strong cash performance shifted solutions to environmental challenges’. the balance sheet to a cash positive, debt free The firm is riding the wave of increased position. Brexit-buster IG Design is predominantly investor interest an overseas earner with growing geographic and in sustainable and customer diversification. Last year’s acquisition environmental assets. These YEAR-TO- of home décor-to-lifestyle products business include clean energy, waste DATE GAIN: Lang in the US added product and augmented management and water a customer roster that includes Costco, Target, which Simm says ‘are growing 59.5% Walmart, Tesco (TSCO) and Aldi. more rapidly than the main economy’. WHAT ARE THE NEAR-TERM CATALYSTS? For the year to March 2018, Edison Investment WHAT ARE THE NEAR-TERM CATALYSTS? Research’s upgraded forecasts point to normalised These trends show no sign of slowing and the pre-tax profits of £20m (2017: £17.1m) and recent publication of climate-related financial a 5.5p dividend ahead of £22.5m and 6.5p disclosures by a task force from the Financial thereafter. Although the shares have re-rerated, Stability Board should also bolster the company. further earnings upgrades are likely given current Stuart Duncan, analyst at Peel Hunt, thinks it momentum with value retailers in Europe and the should ‘stimulate interest in sectors that will US. New customer wins and upside from licensed benefit in a low carbon economy over the products (Peppa Pig, Star Wars, Paw Patrol) could long term’. spark upgrades. A dramatically strengthened As more focus is being brought upon resource balance sheet means management has flexibility scarcity, population dynamics and inadequate to invest in best-in-class manufacturing and bolt- infrastructure, the firm should expect more on acquisitions. An additional catalyst might be earnings growth from well-positioned companies dividend surprise, last year’s 80% total dividend in its portfolios. (DS) hike to 4.5p increased ahead of analysts’ forecasts. (JC)

28 | SHARES | 17 August 2017 .n5Pications 4m46u Mom Cn:A CI Next FiNftFee NMC Health NMC £22.05

YEAR-TO- WHAT IS BEHIND THE SHARE WHAT IS BEHIND THE SHARE DATE GAIN: PRICE MOMENTUM? PRICE MOMENTUM? 48.1% The digital marketing firm Shares in NMC Health (NMC) has a bias towards a relatively YEAR-TO- have had a good run thanks to buoyant tech sector in the DATE GAIN: favourable regulatory changes, strong full year US and strong footprint in 38.9% results and its looming entry into the FTSE 100. California. The client base In July, we reported that NMC has the potential includes the likes of Facebook, to oust Royal Mail (RMG), which is becoming Google’s parent company Alphabet, and IBM. A more likely as its market cap is at £4.5bn mix of organic expansion and smart deals have compared to Royal Mail’s £4bn. helped deliver strong earnings growth. In April (4 In March, The Abu Dhabi government decided Apr) the company announced earnings per share it would no longer charge people extra to use up 38% in the 12 months to 31 January 2017 private healthcare. and cash from operations more than doubled The regulatory shake-up is expected to drive to £32.8m. Year-to-date the company has made earnings before interest, tax, depreciation and two bolt-on acquisitions and there is plenty of amortisation (EBITDA) towards the top end of a scope for further M&A given limited existing range between $335m and $350m in the year to borrowings and the strong cash generation. 31 December 2017.

WHAT ARE THE NEAR-TERM CATALYSTS? WHAT ARE THE NEAR-TERM CATALYSTS? Investment bank Berenberg reckons the Even this range may be underestimating NMC as company can achieve organic growth in the high Deutsche Bank analyst Marc Hammoud believes single-digits from its US business. It comments: the private healthcare firm will hit $356m ‘Given Next15’s strong positioning, it is possible in EBITDA. to see the momentum in 2017 continue into NMC also plans to increase bed capacity from 2018E, which could result in our forecasts being 680 to 1,450 beds over the next three years too conservative.’ Based on Berenberg’s current and deliver specialist services such as in-vitro estimates the stock trades on 15.2 times forecast sterilisation to drive higher margins. January 2019 earnings. It adds that annual M&A A move into the FTSE 100 at the next reshuffle spend of £20m per year could boost its price in September could also boost NMC as funds target from 500p to 650p. Near-term catalysts set up to track the index would have to buy include half year results in September and news its shares. on any further acquisitions. (TS) In terms of M&A potential, Hammoud says if NMC deploys $500m at the average price to earnings multiple of 14.3 times, it would add an equity value of £1.60 per share, implying a This has the valuation of £28.10. As shares in NMC are currently £22.05, this competition implies 21% upside potential. (LMJ) licked

1017 August 2017 | SHARES | 29 UNDER THE BONNET We explain what this company does Eve Sleep could be AIM’s next dream investment Shares assesses the investment potential of the premium memory foam mattress seller

aving previously raised £22m in private funding Hfrom (current) backers including Channel 4, Octopus Investments and Woodford Investment Management, premium memory foam mattress seller Eve Sleep (EVE:AIM) floated on the AIM market on 18 May, raking in £35m at 101p to accelerate its growth in a £26bn European sleep market. The IPO valued the business at £140m post new money or roughly 11.7 times historic sales, which at first glance looked very expensive for a mattress company. But the share price has subsequently softened to 84.5p (£116.9m), which after big ticket spending is coming and the higher quality mattress some initial in-house scepticism under pressure as consumers the company offers. towards the story, Shares pull in their horns and prioritise Shares also notes the Eve considers a buying opportunity non-discretionary purchases. brand has been named as one for bolder investors. However, the Eve mattress is of the UK’s Top 100 Cool Brands. priced significantly below This is important because SLEEP DISRUPTOR store-based equivalents and desirable brands can garner loyal Co-founded by CEO Jas at £549 for a double mattress, followings and generate fantastic Bagniewski, Eve Sleep is a is under-cutting competitor returns for investors, as seen high-growth, online-focused memory foam-based mattresses with the likes of Fevertree Drinks direct to consumer European such as Tempur. (FEVR:AIM), Joules (JOUL:AIM) sleep brand. The proposition to Interest free credit is also or Ted Baker (TED). consumers is simple; the North available and Eve Sleep has London-headquartered concern injected the marketplace with PILLOW TALK designs and sells ‘the world’s innovation, which means it is Peel Hunt initiated coverage (29 most comfortable mattress’, a growing the market for premium June) with a buy rating and 135p premium memory foam mattress mattresses as well as taking target price, one that implies 60% backed by a 10-year guarantee, market share. Given the growth upside from current levels. Its a 100-day trial and free next-day rates this AIM newcomer is analysts are excited by Eve Sleep’s delivery. generating, it is evident that very strong margin structures and As Shares reports in this consumers are buying into the low investment requirements. week’s Big News (see page 6), lifestyle benefits of better sleep A simple delivery proposition,

30 | SHARES | 17 August 2017 UNDER THE BONNET which sees the mattress rolled into a box, and low returns rates mean Eve makes far higher margins than web-based fashion retailers for example. Furthermore, Eve mainly focuses on the design, branding, CO-FOUNDED BY CEO JAS marketing and selling of its wares with manufacturing and BAGNIEWSKI, EVE SLEEP fulfilment outsourced. This means IS A HIGH-GROWTH, that the business is able to scale quickly internationally without ONLINE-FOCUSED DIRECT the requirement for significant TO CONSUMER EUROPEAN a successful trial at Next and also capital investment. “ said talks with similar partners SLEEP BRAND. across Europe are underway. SWEET (GROWTH) DREAMS For the current financial year Bagniewski and his team are to December, Peel Hunt forecasts ambitious and want to build sales of £27.2m (2016: £12m) Eve into the leading pan- with a widened loss of £13.1m European sleep brand. Despite awareness, new product (2016: £10.7m), ahead of £66.8m the rapid growth delivered in its introductions – Eve has launched revenue and an £11.5m loss in short history, it currently has a a baby mattress, linen sheets 2018. However, 2019 should fractional 0.1% of a fragmented and a new ‘baby box’ concept” see Eve Sleep achieve a £1.7m European sleep market thought for Mothercare (MTC) – pre-tax profit breakthrough to be worth £26bn. international online expansion as turnover rockets higher to The Eve mattress generates the and global retail tie-ups. £113.7m, forecasts which we overwhelming bulk of revenue Eve Sleep’s half-year trading believe could prove conservative. and is being sold across Europe, update (12 Jul) showcased strong Eve Sleep is currently loss- but included in the offering are trading momentum with sales making at group level and won’t pillows, sheets and accessories up 126% to £11.5m reflecting appeal to risk-averse, cautious and the portfolio is being built strong online-led performances investors. Set against this, Peel out to include beds, bedroom across all territories. UK sales Hunt believes the UK business is furniture and textiles. To drive shot up 107% to £6.3m, while nearing profitability already – it brand awareness and market international sales surged 153% is only the ambitious European penetration the mattress is also ahead to £5.2m. The majority of expansion that is holding back being sold through a number global sales were generated from short term profitability. of retail partners including France and Germany. Next (NXT), Fenwick and Encouragingly, Eve issued Debenhams (DEB). a confident outlook and also SHARES SAYS:  Peel Hunt sees growth announced an acceleration of The balance sheet is ungeared underpinned by rising brand UK retail partner sites following and following forecast cash outflows over 2017 and 2018, FORECAST TABLE – Eve Sleep Peel Hunt sees eve ‘becoming self-funding from free cash flow Ty to Dec Sales (£m) Adjusted PBT (£m) EPS (p) thereafter’. We think the shares 2016A 12 (10.7) (7.8) are worth a look at 84.5p ahead 2017A 27.2 (13.1) (9.4) of interim results (13 Sep). (JC) 2018A 66.8 (11.5) (8.3) 2019A 113.7 1.7 1 BROKER SAYS: 1 0 0 Source: Peel Hunt

17 August 2017 | SHARES | 31 INVESTMENT TRUSTS Why investment trusts use gearing Highly geared investment trusts can turbo charge returns but there are risks

nvestment trusts have a thrust does add volatility to the fund button they can push to boost though, as markets can also Ireturns, it’s called gearing. go down. In a bull market, This involves the manager using gearing can amplify returns but debt to increase the level of SOME TRUSTS WERE when sentiment changes it can holdings rather than having magnify your losses. to sell some securities they’d PAYING HIGH LEVELS David Holder, senior fund rather keep to fund future OF INTERESTS AT 11% analyst at Morningstar says: ‘If purchases. you have a plain vanilla bluechip This facility is not available to WHICH HAS BEEN A portfolio with an equity income open-ended funds and can be PROBLEM“ FOR TRUSTS tilt that has good dividends a selling point for investment coming in, it can use some trusts. For an explanation of LEADING SOME TO gearing as underlying assets the mathematics involved with are lower volatility. There’s gearing please read this article. INVEST INTO RISKIER insurance of returns through For income investors this ASSETS, TO FIND THE the dividends.’ can be particularly useful as it However, Holder also says means trust managers can add a RETURN that a trust with small cap greater number of securities to holdings and high gearing is pay out potential dividends. likely to see greater volatility, If a trust is highly geared it probably not paying out

32 | SHARES | 17 August 2017 INVESTMENT TRUSTS dividends. Ultimately putting off using the instrument. In the premium of 116.2% as the gearing on lower quality assets same report 23% of advisers trust’s net asset value is 41.63p can cause problems. said they were dissuaded from but its share price is 90p. using geared trusts due to Brodie-Smith says, ‘with COST OF DEBT compliance reasons and 22% investment companies they One of the issues with using due to the difficulty of getting tend to over perform over gearing is when and how a hold of risk ratings. longer periods because of manager locks in the borrowing. gearing and the closed ended During the 1990s some structure which means investment trusts locked in managers don’t have to deal borrowing costs when interest with inflows and outflows of rates were in double digits. money. Given that interest rates have ONCE THEY ARE ‘Once they are listed on the now been historically low for LISTED ON THE STOCK stock exchange, sentiment a long time, in hindsight this comes into the share price so was a mistake. EXCHANGE, SENTIMENT it’s not just about asset values. It ‘Some trusts were paying high might add volatility but over the levels of interests at 11% which COMES INTO THE SHARE long term all these things tend has been a problem for trusts PRICE“ SO IT’S NOT JUST to work in their favour to give leading some to invest into them outperformance’. riskier assets, to find the return,’ ABOUT ASSET VALUES. IT A less extreme example says Holder. is the Value & Income Trust Some trusts would simply MIGHT ADD VOLATILITY (VIN) which invests in property, refinance their debt and bring BUT OVER THE LONG typically a geared asset type. the level of interest down to a According to company’s more sustainable level. Holder TERM ALL THESE THINGS investor’s prospectus, the adds that he likes to see a trust will use leverage when it variety of gearing using shorter TEND TO WORK IN THEIR believes that the asset funded term banking facilities which are FAVOUR TO GIVE THEM by borrowing will generate a flexible and cheap. return greater than the cost of Although these bank facilities OUTPERFORMANCE borrowing. There’s no point in have to be paid for whether you borrowing at a rate of 5% and use them or not, Holder says returning less than that per there are lots of trusts locking in annum. cheap long term money at 3%. BIG BETS The company will not raise The Association of Investment According to the AIC, one of new borrowings if the total Companies’ (AIC) director of the highest geared funds it would then represent more communications Anabelle tracks is the British & American than 50% of the total assets. It Brodie-Smith says that some Investment Trust (BAF). This will use gearing between 25% trusts don’t intend to use all fund is using gearing of 140% so and 40% and is currently set their gearing facilities. ‘We had it is at the top end of the scale. at 28%. financial advisers concerned The trust is a UK equity While the average level that the level of gearing would income fund with its portfolio of gearing across all trusts is change once they’d invested for concentrated in investment around 6%, when a manager their clients and it wouldn’t be trusts and biotechnology. Its top is feeling bullish and has the suitable anymore.’ holdings include biotechnology mandate to push the thrust The AIC put out a paper in firms Geron and BioTime, as button, it can really boost November 2016 saying the use well wealth manager St James’s returns. The British and of gearing in investment trusts Place (STJ). American Trust is up 18.9% in put 40% of investment advisers It is currently trading at a six months for example. (DS)

17 August 2017 | SHARES | 33 MONEY MATTERS Helping you with personal finance issues Time to review pension drawdown arrangements Investors who are in capped drawdown are now subject to lower income limits

he amount of pension 150% of the income a healthy income limits. income you can person of the same age could get According to Suffolk Life, this Treceive from a capped from a lifetime annuity. This figure means a £3 or £4 drop in the drawdown product has been is worked out using Government rate per £1,000. A 60-year-old curtailed, further increasing the Actuary Department (GAD) rates, investor with a £200,000 pension attractiveness of flexi-access which are based on an investor’s will have a new income limit of drawdown. But there are lots of age and the yield on 15-year £12,900 – a £900 drop from the things to consider before making Government gilts from the 15th £13,800 limit which would have the move to this type of product. day of the previous month. applied if the 2% minimum rate was used. WHAT IS CAPPED WHY HAS THE INCOME DRAWDOWN? LIMIT FALLEN? WHAT ARE THE ADVANTAGES Capped drawdown is a type At the start of this year HMRC OF CAPPED DRAWDOWN? of income drawdown product published new GAD tables to Although your income limits that was available before 6 April reflect the fall in gilt yields. It will have dropped, there are 2015. Like the newer flexi-access removed the previous 2% floor still several advantages to using drawdown, it enables you to and introduced a new lower capped drawdown. take a tax-free cash sum of up limit of 0%. One of the main benefits is to 25%. The remainder is On 1 July, these new GAD you can continue to contribute invested into funds designed to rate tables took effect. The gilt up to £40,000 per year into pay you an income. yield for July was confirmed your pension. This is because Unlike flexi-access drawdown, as 1.56%, which was rounded your Money Purchase Annual the amount of income you can down to 1.5% for the purposes Allowance (MPAA) won’t be receive is capped. The cap is of calculating capped drawdown triggered.

34 | SHARES | 17 August 2017 MONEY MATTERS

If you switch to flexi-access level of income from the fund drawdown, the amount you can in order to make informed save into your pension once you decisions about their level of start drawing an income is much drawings,’ advises Martin Tilley, lower. You will trigger the MPAA, THIS MAKES CAPPED director of technical services at which was slashed from £10,000 DRAWDOWN A GOOD OPTION Dentons Pension Management. to just £4,000 from April 2017. There’s also a risk that if you Ian Browne, pensions expert FOR PEOPLE WHO HAVE withdraw too much money you’ll at Old Mutual Wealth, says this AN UNPREDICTABLE OR be pushed into a higher income makes capped drawdown a good IRREGULAR WORKING LIFE tax bracket and be hit with a option for people who have “ hefty tax bill. an unpredictable or irregular AND INCOME, WHO MAY BE It’s important to realise that working life and income, who once you switch to flexi-access may be caught out by the MPAA. CAUGHT OUT BY THE MPAA drawdown you can’t reverse it, This could include people who so you need to be sure it’s the are taking a staged retirement; right decision for you. or those who have been made redundant, start drawing an ARE THERE ANY income and then get a new job. OTHER OPTIONS? Browne says the cap set by GUIDE TO CAPPED There are a few other options if the GAD rate can also act as a DRAWDOWN you’re in capped drawdown and guide for investors to help them need to make up your pension manage their drawdown funds • You cannot take out” a new income shortfall. over the long term. capped drawdown product Browne says you could rely on your other assets, for example WHAT ARE THE PROS AND • The maximum income you your ISAs. You can draw as much CONS OF FLEXI-ACCESS can withdraw each year money as you like from an ISA DRAWDOWN? is capped at 150% of the and the withdrawal won’t be For some people it may be GAD relevant annuity with subject to income tax. better to switch to flexi-access no guarantee It’s also possible that you drawdown. Danielle Byrne, have other pension benefits you technical resources consultant • No income has to be taken could rely on, such as the state at AJ Bell, says the main benefit at all pension or other personal and is the ability to take unlimited occupational pensions. withdrawals from your pension, • The upper income limit is Another option is to take an thus giving you greater flexibility reassessed every three years uncrystallised funds pension and freedom. for people under age 75 lump sum (UFPLS). Under UFPLS ‘It may seem like a better rules, you can take lump sums fit for modern retirement,’ • The upper income limit is as and when you want without she says. reassessed every year for going into drawdown. Usually As well as triggering the people over age 75 25% of each withdrawal is tax- MPAA, a downside of flexi- free and the rest is taxable. Your access drawdown is that • You can continue to pay remaining pension can stay without a cap you don’t have £40,000 into your pension invested. any sort of guide over what A downside is that as soon a sustainable withdrawal • If the income taken exceeds as your first UFPLS is taken, could be. the cap the plan will the MPAA will be triggered. In ‘Although there are no automatically convert to a addition, taking high withdrawals uppermost limits, an individual flexi-access drawdown plan. could push you into a higher should assess the sustainable income tax bracket. (EP)

17 August 2017 | SHARES | 35 MONEY MATTERS Helping you with personal finance issues Official stats expose great pensions divide There are big differences in people’s provision for retirement

e all know that saving early and often is Wthe key to enjoying a prosperous retirement. But just how much difference can saving in a private pension, such as a SIPP, make to your income in old age? Figures published by the Office for National Statistics recently shed some light on the different outcomes experienced by those who do save, and those who don’t. AVERAGE DISPOSABLE HOUSEHOLD INCOME IN RETIREMENT, £ PER WEEK while providing a useful base SIGNIFICANT DIFFERENCES tut t ss income, is not sufficient to cover t t ss And the difference is significant. 600 most people’s costs. This will In 2015/16, the average 00 particularly be the case for those disposable weekly income in 00 who still have a mortgage to pay retirement for a household that 300 off in retirement or need to pay saved in a private pension was 200 for long-term care. £534.75 versus just £331.33 for 100 Long-term care is particularly those who hadn’t built up their 0 Su s Ruts tst topical at the moment, with own pot. That’s a 60% higher 6 independent estimates 177 income for those who sorted 10 13 16 1 1 2 suggesting one in four people will 201011 20131 1 1 200102 20070 their own retirement compared 2000 need care at some point in their to those who didn’t and relied on gloom. Membership of private lives and costs sometimes running the state. pensions has risen steadily in into tens of thousands of pounds. We can also see from the graph recent decades, with 79% of that the difference between the retired households now having TAKING OWNERSHIP pension ‘haves’ – those who set some private pension income Auto-enrolment only solves the aside money in a private pot – compared to only 45% in 1977. coverage part of the pensions and the pension ‘have nots’ has This trend is likely to continue problem. If you want to enjoy grown sharply since 2010. and accelerate as automatic a comfortable retirement, you This is likely to, at least in enrolment – which requires all need to take ownership of your part, reflect the contraction of employers offer a workplace retirement and save as much the state as post-financial crisis pension to staff – is introduced as you can, taking advantage of austerity cuts reduce the ability across the country. all the savings perks currently of the state to fill the income For the majority the auto- available. void for those who don’t save enrolment minimum total privately. contribution of 8% won’t be Tom Selby, But it isn’t all doom and enough and the state pension, Senior Analyst, AJ Bell

36 | SHARES | 17 August 2017 The opportunity of a Lifetime (ISA)

Aged 18-39? Save £4,000 each year, and the government will give you £1,000 – for free – to spend on your first home, or retirement.

Open an account today Up to £32,000 youinvest.co.uk in free government Low-cost SIPPs, ISAs, funds & shares bonuses

Access compelling recovery situations and management change stories through collectives

hatever the market (SCIN) 9.21% discount to net Estates and ‘more to come’ ideas backdrop there will asset value implies a buying such as Japan’s Nintendo. Wbe stocks which opportunity. or recovery situations or Investing globally with the aim SAVVY SAVVIDES management change stories that of achieving capital appreciation Yet another way to gain exposure could potentially result in big and inflation-busting dividend to recovery situations, as well returns. Recovery investing can growth, the self-managed trust’s as restructuring and ‘hidden be a risky endeavour, which is four-strong management team growth’ stories, is through the why it is so helpful to harness the led by Alasdair McKinnon uses acumen of JOHCM UK Dynamic expertise of fund managers. behavioural finance techniques Fund’s (GB00B4T7HR59) Alex Among the best-known to exploit investors’ tendency Saviddes, a proven backer of recovery funds are the capital to ‘follow the crowd’. By positive corporate change. growth-focused M&G Recovery focusing on stocks that are very (GB0031289217), whose unloved, those with operational manager Tom Dobell invests at improvements that have been least 80% of the portfolio in out- overlooked, and more popular of-favour firms where he believes stocks that can continue to do a good management team is better, the managers build in a making concerted efforts to turn margin of safety. the business around. Contrarian McKinnon’s picks Schroder Recovery fall within three categories: (GB0007893760) invests in UK ‘ugly ducklings’ such as Marks & companies that have suffered Spencer (MKS), ‘change is afoot’ severe share price or profitability stocks including Treasury Wine setbacks, while contrarian Alex Wright’s Fidelity Special Situations (GB0003875100) scouts for unloved, undervalued Savvides (above) is an firms where the market is independent thinker whose overlooking the recovery LINDSLEY RUTH – ‘change’ based investment potential. process has delivered A FANTASTIC CAPITAL outstanding, benchmark-beating RECOVERY FUND FAVOURITES ALLOCATOR WHO HAS returns. Launched in 2008 ‘in Alastair Mundy, the manager of the teeth of the financial crisis’, Investec UK Special Situations GOT THE BUSINESS it has since faced a series of (GB0031075665), puts money to MOVING MATERIALLY turbulent events which have work with the market’s unloved “ tested his mettle. ‘It has been stocks, while over in the closed- very uncertain and volatile all ended funds sector, we think the way through,’ says.Savvides. The Scottish Investment Trust’s His fund is up 100.9% on a 38 | SHARES | 17 August 2017 ” FUNDS five-year basis versus 69.7% for total return from income than the IA UK All Companies sector (the aforementioned funds) do according to Trustnet, ‘but we’ve and we have interesting yield always faced that as a fund, we characteristics that our clients don’t use it as an excuse not to like,’ Savvides adds. invest capital. We use that as a SAVVIDES IS AN Portfolio positions include reason to find interesting ideas INDEPENDENT THINKER buyouts-to-infrastructure that might be undervalued.’ focused 3i (III), purchased during WHOSE ‘CHANGE’ BASED the financial crisis and which POSITIVE CORPORATE INVESTMENT PROCESS HAS has been ‘an absolutely brilliant CHANGE DELIVERED OUTSTANDING, investment for us’, Marks & JOHCM UK Dynamic’s senior “ Spencer and Frankie & Benny’s fund manager believes the BENCHMARK-BEATING operator Restaurant Group market’s misunderstanding of RETURNS (RTN). The fund is also profiting corporate change, typically new from the renaissance underway management teams with new at electronic components-to- strategies, regularly throws engineering consumables play up opportunities for patient, Electrocomponents (ECM) disciplined and unemotional which following a long period of investors. malaise is now outperforming The process Savvides has DIVIDEND DISCIPLINE under new CEO Lindsley Ruth, developed aims to profit from ‘Every company we invest in ‘a fantastic capital allocator who understanding change and has to have had a history” of has got the business moving investing where there is the dividends, has to be paying one materially.’ highest probability of success today or we give them one year Always making up his own but with the highest cash-based grace period where they might mind on a stock, Savvides’ valuation support. be using the cash to pay down backing of Morrisons (MRW) Companies that tend to debt, but they should routinely when the supermarket was alert his antennae are typically be paying dividends out because struggling in 2014 and ‘analysts ones ‘where revenues and the company is cash generative. were all routinely negative sellers performance has tailed off So we take a bit more of our of the company’ has proved a because management has been sound call, with CEO David Potts poor in their capital allocation driving a turnaround of the decisions or run the business grocer. Savvides explains: poorly’. ‘The old management weren’t Savvides sees opportunities accepting of the competition and where the market perception how things were changing, cue is of what the company used to one major profit warning where be under old management, ‘but they had to invest a lot into the reality is a new management price. But what we liked about team has gone in, the company Morrisons was its asset backing. has accepted it needs to change ‘It had a pension surplus at board level and management not a deficit, didn’t have is thinking about how it can major lease assets and had a improve return on capital and competitive advantage in that cash generation. it manufactures its own food. ‘There is this gap that emerges There was a wholesale, capital- between what’s going to happen light growth opportunity that and what has happened, and the market wasn’t thinking that’s where we exist as a fund.’ about.’ (JC)

17 August 2017 | SHARES | 39 INDEX

Intelligent Investments In minutes

Open an account today youinvest.co.uk SIPPs, ISAs, funds & shares

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

KEY Debenhams (DEB) 31 Investec UK 38 Restaurant Group 39 Special Situations (RTN) • Main Market (GB0031075665) Royal Dutch Shell 3, 23 • AIM IQE (IQE) 10 (RDSB) • Fund JOHCM UK 38 Royal Mail (RMG) 29 • Investment Trust Dynamic Fund Ryanair (RYA) 18 (GB00B4T7HR59) Schroder Recovery 38 John Menzies (MNZS) 8 (GB0007893760) Joules (JOUL:AIM) 30 ScS (SCS) 6 3i (III) 39 DFS Furniture (DFS) 6 Ladbrokes Coral (LCL) 11 Shire (SHP) 19 Albert Technologies 7 Dixons Carphone 6 LiDCO (LID:AIM) 24 Sky (SKY) 10 (ALB:AIM) (DC.) Spinnaker 23 BAE Systems (BA.) 19 DX (DX.:AIM) 8 Opportunities (SOP) BlackRock 33 Electrocomponents 39 St James's Place 33 Throgmorton Trust (ECM) (STJ) (THRG) Eve Sleep (EVE:AIM) 30 Standard Life 10 Booker (BOK) 16 Fevertree Drinks 30 Aberdeen (SLA) BP (BP.) 3, 23 (FEVR:AIM) Ted Baker (TED) 30 British & American 33 LightwaveRF 24 Telit Communications 7 Investment Trust (LWRF:AIM) (TCM:AIM) (BAF) M&G Recovery 38 Tesco (TSCO) 16, 28 Burford Capital 26 (GB0031289217) (BUR:AIM) Marks & Spencer 38 Carillion (CLLN) 20 (MKS) Mears (MER) 8 Fidelity Special 38 Morrisons (MRW) 39 Situations (GB0003875100) Mothercare (MTC) 31 GlaxoSmithKline 19 Next (NEXT) 31 The Scottish 38 (GSK) Next Fifteen 26, 29 Investment Trust Greggs (GRG) 13 Communications (SCIN) Carr's (CARR) 24 (NFC:AIM) H&T (HAT) 8 Treatt (TET) 26 Clarkson (CKN) 9 NMC Health (NMC) 26, 29 Headlam (HEAD) 20 Value & Income Trust 33 Countryside 16, 26 Non Standard Finance 14 (VIN) Properties (CSP) HSBC (HSBA) 19 (NSF) WanDisco (WAND:AIM) 26, 27 Ibstock (IBST) 18 NWF (NWF:AIM) 24 William Hill (WMH) 11 IG Design (IGR:AIM) 26, 28 Premier Oil (PMO) 23 WPP (WPP) 20 Impax Asset 26, 28 Prudential (PRU) 22 Management (IPX:AIM)

40 | SHARES | 17 August 2017