10 October 2018 Page 1

Issue 2018/11 www.trendwatch.co.uk 10 October 2018

Blood on the streets!

ARNAGE! Well, what did you expect? It is Oc- Austrian newspapers, Mr Juncker suggested a deal Stock market sectors tober after all! could even be done in time for the next EU summit in C ☺ uptrends Today (Thursday) is the sixth straight day of about a week’s time. “I have reason to think that the falls for the S&P500 in America. This is the longest rapprochement potential between both sides has in- Household goods 16 losing streak for the benchmark in at least two years. creased in recent days.”. Industrial metals 12 The ‘FANG’ stocks (Facebook, Amazon, Netflix and Assuming this is not just the grape juice talking – Oil eq. & services 34 Google – now Alphabet) are in an even worse state. Mr Juncker is famously partial to the grape – one Netflix fell more the 8% yesterday alone. Yesterday, wonders why the EU has suddenly stopped being Stock market sectors the Nasdaq had it’s biggest fall for 7 years. As at yes- beastly to us, and actually seems to be keen on set- terday, nearly three-quarters of US stocks were trad- tling.  downtrends ing below their 50-day moving average. Equity mar- I have a theory about that. Sometime in the next few * General industrials -1 kets around the world have taken their cue from weeks – possibly even in the next few days – the EU Banks -63 America; they’re plunging too. Yesterday, China’s could be wrestling with a problem that will dwarf & materials -50 Shanghai Composite index fell to . Electricity -52 its lowest level since late 2014. FTSE 100 This brings me back to the Food & drug retailers -21 What has caused all this? Let 7,800 blood on the streets on global FTSE 250 ex Inv Co -43 me answer that question via a stockmarkets. One reason for 7,600 FTSE Fledgling ex Inv Co -20 somewhat circuitous route. this is concerns over president 7,400 What a difference a year Trump’s trade war with China. FTSE SmallCap ex Inv Co -57 makes! A year ago, Teresa May 7,200 But most analysts see the prima- Gas, water & multiutilities -36 stepped up to the Conservative 7,000 ry reason as a serious sell-off in General retailers -42 conference lectern, barely able to 6,800 global bond markets. Industrial transportation -98 speak for coughing, while a 6,600 Falling bond prices result in Mobile telecoms -103 prankster tried to thrust a P45 N D J F M AM J J A S O N D J F M AM J J A SO higher yields. This week, the Tobacco -14 into her hands, and magnetic let- yield on the US 10-year Treasury Travel & Leisure -40 tering slithered from the backdrop. It could almost bond hit a 7-year high of nearly 3.26%, driven mainly have been a metaphor for Mrs May’s premiership. by the fact that central banks are now well into their Yet a few days ago, at this year’s party conference, tightening cycle as they push up -term interest Mrs May literally danced to the lectern to the strains rates to try to damp down incipient inflation. of Abba’s Dancing Queen. Whether you found this Less experienced investors are often somewhat per- spectacle embarrassing or rather sweet, it’s undenia- plexed as to why what seems like relatively small ble the she had a new-found spring in her step. Her movements in bond market yields should be so con- speech was well received too, overshadowing Boris’s cerning. The reason is that the bond market ultimately attempt to foment rebellion from the fringes. determines, for example, how much interest compa- What has caused this new confidence in Mrs May nies have to pay on their borrowings, and how much demeanour? Could it be that she has suddenly become homeowners pay on their mortgages. On average, a more optimistic about a Brexit agreement? It seems mortgage holder in this country pays around £700 a so, if European Commission president Jean-Claude month on a 25-year mortgage, assuming the interest Juncker is anything to go by. Interviewed by three rate is about 4.5%. If interest rates go up from 4.5% to, say, 6.75%, your monthly repayments would soar TrendWatch Barometer above £1,000 a month, and you may not be able to af- London-listed shares ford it. The trouble with the low interest rate environment % of total no. of % change 07-Sep 05-Oct that we’ve had since the 2007 banking crisis is that shares monitored on fortnight everyone – companies, individuals, even countries – OFFICIAL LIST: have loaded up on debt like crazy, with little or no thought to what might happen when rates start rising Uptrends 8.43% 7.62% -0.81% again. Indeterminate 64.37% 64.38% +0.01% Which brings us back to the EU, and the problem it Downtrends 27.20% 28.00% +0.80% could have on its hand as early as a week or two, A problem that, as I said, will dwarf Brexit. It could also AIM-LISTED: dwarf the banking crisis. Uptrends 12.53% 11.94% -0.59% That problem is Italy. Indeterminate 68.34% 59.13% -9.21% (Continued on page 9) Downtrends 19.13% 28.93% +9.80% SHARE SELECTIONS IN THIS ISSUE INVESTMENT TRUSTS: Uptrends 7.01% 6.17% -0.84% Boohoo Group (BOO) 8 Indeterminate 75.47% 71.75% -3.72% Geogia Capital (CGEO) 4 Downtrends 17.52% 22.08% +4.56% Savannah Petroleum (SVAP) 5 EXCHANGE TRADED FUNDS: Sigma Capital Group (SGM) 6 Uptrends 5.23% 16.86% +11.63% (SPDY) 7 Indeterminate 70.93% 80.23% +9.30% Downtrends 23.84% 2.91% -20.93% SThree (STHR) 5 10 October 2018 Page 2

Honey, I shrunk the portfolio!

The TrendWatch portfolio: Valuation as at 10 October 2018 Date Buy Price now gain/ F/c gross Mkt. gain/ Outperf. STOP- Share (and EPIC code) bought price (p) * (p) loss (%) yield (%) loss (%) (%) LOSS **

1pm (OPM) AIM 01/02/18 51.50 46.50 -9.7 1.9 -2.3 -7.6 46 4imprint (FOUR) 13/09/18 2070.00 2090.00 1.0 2.6 0.2 0.8 1615

AFH Financial Group (AFHP) AIM 20/08/15 161.50 404.00 150.2 1.8 14.5 118.4 332

Arena Events Group (ARE) AIM 21/06/18 65.00 66.00 1.5 3.5 -3.4 5.1 56 Ascential (ASCL) 02/03/17 303.30 363.20 19.7 1.6 -0.1 19.9 367 Ashstead Group (AHT) 23/06/16 1045.00 2054.00 96.6 1.7 14.9 71.0 1950

Augean (AUG) AIM 16/08/18 42.50 47.00 10.6 - -3.1 14.1 43 Avation (AVAP) 04/02/16 144.50 253.00 75.1 2.5 23.6 41.7 199

Avingtrans (AVG) AIM 19/07/18 223.50 217.50 -2.7 1.7 -4.8 2.2 184

B.P. Marsh & Partners (BPM) AIM 21/06/18 289.00 280.00 -3.1 1.6 -3.4 0.3 250 (BBY) 30/03/17 266.40 265.10 -0.5 2.2 -0.0 -0.4 246 BATM Advanced Comm. (BVC) 29/03/18 27.65 37.40 35.3 - 3.3 30.9 33 Beazley Group (BEZ) 04/02/09 103.90 531.00 411.1 2.7 51.0 238.5 495

Beeks Financial Cloud (BKS) AIM 13/09/18 127.00 104.00 -18.1 0.2 0.2 -18.3 107 Cairn (CNE) 26/04/18 229.00 228.80 -0.1 - -1.6 1.5 211

Ceres Power Holdings (CWR) AIM 21/06/18 152.30 188.49 23.8 - -3.4 28.2 160 Charter Court Financial Serv. (CCFS) 21/06/18 323.00 310.00 -4.0 3.5 -3.4 -0.6 286 Cineworld Group (CINE) 24/05/18 263.00 291.00 10.6 4.1 -5.4 16.9 252 Clarke (T) (CTO) 08/01/18 85.70 79.40 -7.4 4.7 -5.0 -2.5 71

Colefax Group (CFX) AIM 18/07/13 252.50 550.00 117.8 1.0 13.9 91.3 440 (CSP) 27/04/17 272.60 316.40 16.1 4.1 0.9 15.0 300 DiscoverIE (DSCV) 29/03/18 415.00 398.00 -4.1 2.5 3.3 -7.2 356

dotDigital (DOTD) AIM 24/05/18 82.40 86.00 4.4 0.8 -5.4 10.3 80

Draper Esprit (GROW) AIM 09/11/17 396.50 525.00 32.4 0.2 -2.1 35.3 504

Eland Oil & Gas (ELA) AIM 12/10/17 72.00 113.00 56.9 - -3.1 62.0 107

Elecosoft (ELCO) AIM 13/09/18 81.00 82.50 1.9 1.0 0.2 1.7 68 Entertainment One (ETO) 14/09/17 260.50 387.20 48.6 0.4 0.4 48.0 330

FairFX Group (FFX) AIM 29/03/18 90.00 137.50 52.8 - 3.3 47.9 120

Gordon Dadds Group (GOR) AIM 19/07/18 176.50 178.00 0.8 3.4 -4.8 5.9 152 Gym Group (The) (GYM) 16/08/17 210.00 296.50 41.2 0.6 -0.8 42.4 263

Hurricane Energy (HUR) AIM 13/09/18 52.15 52.50 0.7 - 0.2 0.5 46

IMImobile (IMO) AIM 25/06/15 147.50 314.00 112.9 - 7.7 97.7 301 Inspired Energy (INSE) 01/02/18 21.25 21.25 0.0 3.2 -2.3 2.4 17

iomart Group (IOM) AIM 31/03/16 270.00 376.00 39.3 2.0 17.9 18.1 353 IP Group (IPO) 26/04/18 138.40 116.20 -16.0 - -1.6 -14.7 112 (JLG) 16/08/18 287.20 303.20 5.6 3.0 -3.1 8.9 250 Kenmare Resources (KMR) 13/09/18 240.00 247.00 2.9 - 0.2 2.7 198

Keywords Studios (KWS) AIM 06/02/14 147.50 1552.00 952.2 0.1 13.3 829.0 1600 (KIE) 24/05/18 1072.00 887.50 -17.2 8.1 -5.4 -12.5 840

Kromek Group (KMK) AIM 24/05/18 26.50 26.00 -1.9 - -5.4 3.7 25

Marlowe (MRL) AIM 08/01/18 385.00 498.50 29.5 - -5.0 36.3 448 NEX Group (NXG) 01/03/18 665.00 1033.00 55.3 1.8 1.8 52.6 844

Oxford Metrics (OMG) AIM 09/11/17 62.25 69.50 11.6 2.1 -2.1 14.1 63

Patisserie Holdings (CAKE) AIM 25/05/17 365.75 429.50 17.4 1.1 -2.5 20.4 390 Robert Walters (RWA) 16/08/17 505.00 640.00 26.7 2.4 -0.8 27.8 613 Rolls-Royce Holdings (RR.) 21/07/16 744.00 886.20 19.1 1.4 10.2 8.1 875

RWS Holdings (RWS) AIM 19/07/18 448.50 421.50 -6.0 1.8 -4.8 -1.3 405 S&U (SUS) 12/10/17 2005.00 2270.00 13.2 5.3 -3.1 16.8 2208

Smartspace Software (SMRT) AIM 16/08/18 107.00 85.00 -20.6 - -3.1 -18.1 85 1 (SUR) AIM 12/10/17 40.50 36.00 -11.1 3.6 -3.1 -8.3 35

Taptica International (TAP) AIM 19/07/18 329.00 335.00 1.8 1.5 -4.8 7.0 300 Tarsus (TRS) 30/04/15 233.50 274.00 17.3 3.9 6.2 10.5 266 Continued on next page... 10 October 2018 Page 3

...continued from previous page... Date Buy price Price now gain/ F/c gross Mkt. gain/ Outperf. STOP- Share (and EPIC code) bought (p) * (p) loss (%) yield (%) loss (%) (%) LOSS **

Telford Homes (TEF) AIM 26/04/18 440.50 366.50 -16.8 4.7 -1.6 -15.4 373

Venture Life (VLG) AIM 16/08/18 48.00 46.50 -3.1 - -3.1 -0.1 40 VP (VP.) 07/12/17 900.00 1130.00 25.6 2.9 -0.1 25.7 938

Wey Education (WEY) AIM 13/09/18 16.25 13.50 -16.9 - 0.2 -17.1 13

Averaged gains (%): 42.5 2.4 1.5 40.4

TrendWatch portfolio's percentage profit: 42.50% Change since last full TW: -5.00% Market's percentage profit (tracker fund) †: 1.49% TrendWatch has outperformed market by: 40.42%

1 Formerly Lakehouse * Buy price is the price as at close of business on the Thursday following publication of the recommendation. ** A blue stop-loss limit means that the limit has been raised since the last issue; red means it has been lowered. † 'Market gain' is the resultant gain/loss if the holding had been inv ested in a tracker fund. (See 'Technical Notes' on back page).

BECAUSE of the exceptional falls on the London stockmarket, and (up 1.9%) has won a contract from T-Mobile to deploy its AminoOS because this issue is a day later than usual (thank you for your under- software, which allows already-deployed devices to be upgraded so standing), I’m doing something unusual. The valuation table on the that customers can benefit from next-generation TV experiences previous page, and extending to this page, normally reflects the posi- without having to replace existing ‘set-top boxes’ and without the tion as at the close of business on the preceding Friday (or the start need for expensive visits to the customer, or the need to replace their of business on Monday). On this occasion, our table is up to date as hardware. The value of the contract was not disclosed, but T-Mobile at yesterday (Wednesday). has more than 200,000 customers subscribing to its TV broadcast You’ll see that the portfolio has shrunk quite a bit since the last services. Arena Events (down 2.5%) has acquired the UK and Mid- issue. In fact, in the first three days of this week, no less than 13 dle East temporary structures business from the Structure Group of shares have been stopped out. That’s how bad things are. Companies Ltd for £1.3m. It has also exercised its option to acquire That said, the narrative below relates to the gains and losses over the remaining 49% of its subsidiary Arena Hong Kong for £1.35m. the past four weeks up to last Friday, as is our custom. Aircraft leasing business Avation (up 7.1%) has delivered its first Not surprisingly, our crop of double-digit gains up to last Friday new ATR 72-600 aircraft to Danish Air Transport on a 12-year lease. was smaller that usual. There were four of them, offset by five corre- It has also entered into a conditional sale and purchase agreement sponding losers. for the sale of one 23-month old A321-200 aircraft to an Asian buyer. No wonder our portfolio declined by 1.7% up to last Friday. But the Hayward Tyler, a subsidiary of Avingtrans (up 5%), has secured average gain on our portfolio constituents remains above 50% – over $3m worth of contracts related to molten salt applications in 50.4% to be exact; which outperforms the FTSE All Share index by advanced nuclear and solar power technologies in the USA. just under 48%. Balfour Beatty (down 3%) has won a £223.2m Sai Sha Road The big winners and losers are in the tables below. But again, re- Widening Project in Hong Kong, It has also won a £60m contract for member that these figures relate to the close-of-day prices on Friday, the construction of a state-of-the-art learning and teaching facility therefore they don’t take into account the carnage of this week. for the University of Glasgow; and a £33m construction contract at Other news in brief: The acquisitive independent financial ad- Strathclyde University. Robert Bosch has made its previously- viser network AFH Financial (down 2.4%) has made a further announced £9m equity investment in Ceres Power (up 4.3%), rep- three acquisitions worth a total of £8.82m. Amino Technologies resenting a stake of about 4.4% of the enlarged share capital. To maintain its stake at a level of around 10% of the enlarged share capi- 4-week GAINERS % gain Reason tal, Weichei Power has invested an additional £1m. The shares of legal firm Gordon Dadds (down 4.3%) have been suspended fol- Augean +16.9% Interim results indicated that its full-year lowing its disclosure that it was in discussion with Ince & Co Interna- results would exceed market expecta- tional regarding a possible merger. Radiation detection technology tions. specialist Kromek (down 2.3%) has been awarded $1.8m funding from the US Defense Threat Prevention Agency to develop a next- Serica Energy +10.8% Announcement of a further extension to early November by the US Office of generation radionuclide identification device to meet future military Foreign Assets Control (OFAC) relating operational challenges. Support service group Marlowe (2.7%) has to the supply of essential gods and acquired Tersus Consultancy for £3.7m. Tersus is a testing and in- services relating to the Rhum gas field in spection service focused mainly on asbestos. the North Sea. Serica is taking over BP’s Tarsus Group (down 4.3%), the international business-to- 50% interest in this field, but the other business media group, announced the following transactions. First, it 50% is owned by the Iranian Oil Compa- ny, which will shortly be back under US 4-week LOSERS % loss Reason sanctions following the Trump admin- istration reneging on the Iran anti- Robert Walters -14.1% No adverse price-sensitive news. nuclear treaty. On Monday of this week, the OFAC announced a further 1-year Maintel Holdings -13.5% Lacklustre interim results, in which it report- extension, causing Serica’s share price ed a loss of £200,000. to leap by a further third. GVC Holdings -13.4% No adverse price-sensitive news. Hurricane Energy +10.6% Good progress in the development of its Lancaster field in the North Sea. NMC Health -11.0% No adverse price sensitive news. Entertainment One +10.2% Positive trading update. Smartspace -11.7% No adverse price sensitive news.

10 October 2018 Page 4

is acquiring the remaining 50% stake in the Group's existing Mexi- an institutional placing. can joint venture, EJK Tarsus Mexico, from E.J. Krause & Associ- Wey Education (down 8.9%) has set up a subsidiary in Nigeria, ates for cash consideration of approximately US$18.0m. Second, it’s on which Wey will base its services there. However, its proposed acquiring a further 25% interest in AMB Tarsus Exhibitions in joint venture in China is taking longer than expected because of South East Asia, taking its overall interest to 75%. Third, it has es- delays in obtaining the necessary documentation. tablished a strategic partnership with Streamline Marketing Group Finally, Lakehouse has changed its name to Sureserve (down in the UAE. To finance these transactions, it raised a gross £24m in 5.4%). ❑

(p) A ug ean (p) Serica Energy (p) Hurricane Energy

90 60 60

50 70 50

40 50 40

30 30 30

20 10 20 N D J FM A M J J A S O N D J FM A M J J A S O N D J F M A M J J A S O N D J FM A M J J A S O N D J FM A M J J A S O N D J FM A M J J A S O

(p) Entertainment One (p) Robert W alters (p) Maintel Holdings 800 400 1,000 700 350 900 600 300 500 800

250 400 700

200 300 600 N D J FM A M J J A S O N D J FM A M J J A SO N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M AM J J A S O

Georgia on my mind…

GEORGIA CAPITAL (CGEO) • A controlling interest of more than 50% in Georgia Healthcare Group: a £283m separately listed LSE Official List share; Business description: For the avoidance of doubt, the “Georgia” referred to here is not the US state of Georgia, but the sovereign state • Additionally, it retains a 19.9% interest in the Bank of Georgia of Georgia, which straddles Asia and Europe (most of it is in Asia). It Group. is not a member of the EU, nor NATO. But it is a member of the UN. Consequently, the company is now classified as an industrial con- The currency is the Georgian Lari (currency code: GED). The ex- glomerate. change rate is around GED3.43 for one . Georgia Capital was once the investment banking arm of Bank of Bull points: Georgia, currently an £850m entity separately listed on the main  Very strong earnings growth is forecast. market of the . In May this year, Georgia  Its declared aim is to deliver shareholder returns of 10 times Capital was demerged over the next 10 years. from Bank of Georgia. (p) Georgia Capital The shares look very inexpensive, with PEG ratios of just 0.40 As to the rationale of  and 0.68 for this year and next respectively. the demerger, that 1,200 would take too long to 1,150  Although Georgia is still a quite poor developing country, its explain here. If you’re GDP is growing at a good rate, currently around 5.5% a year. 1,100 that interested, you can  The company has a robust balance sheet, and also considers 1,050 always pop along to the that its share price significantly undervalues its investments. It Investors section of the 1,000 has therefore initiated a US$45m share buy-back programme, company’s website and 950 which should underpin the share price. read the prospectus. J J A S O  Brokers have a price target of 175p, 53% above the current However, it certainly price. seemed a rational move. Bank of Georgia is a bank, pure and simple.

In contrast Georgia Capital is more like an industrial holding compa- Risk factors: ny, with its fingers in all sorts of pies. These include:  Political risk – it borders Russia. • Georgia Global Utilities, investing in water utilities and renew- able energy generation;  The beverage business is performing poorly.

• m(2): a developer of commercial and residential property in Summary: Earlier this year, we were invested in both Bank of Georgia; Georgia and (as a result of the demerger) Georgia Capital. We crys- • Teliani Valley: a Georgian wine and beer business, selling its tallised a 25.25% profit on Bank of Georgia and a loss of 11.25% on products to 15 countries; Georgia Capital. Does that mean that Georgia Capital is not such a highly regarded investment? Not at all! It’s just that, following the • Aldagi: investor in the Georgian motor vehicle, property, cred- demerger, investment managers had to decide what weighting, if it life and casualty insurance business", as well as wider mar- any, they wanted the two companies to have in their portfolio, a deci- kets in cargo and agricultural insurance.; sion that depended on the investment objectives of their various 10 October 2018 Page 5

portfolios. Consequently, there was a lot of buying and selling going system of parliamentary democracy and a decent enough human on, leading to a fair amount of volatility in each share – which is one rights record. reason why we got stopped out of both. Those portfolio adjustments should be finished by now, Year: 2013 2014 2015 2016 2017 2018** 2019** enabling us to look at each company on its merits. Revenue (GELm) 0.00 0.00 132.9 240.7 363.7 403 523.9 TrendWatch is all about finding reasonably priced growth Pre-tax profit (GELm) 0.00 0.00 45.1 106.9 69.8 72.8 116.2 companies. You can see from our table that there’s no ques- Normalised eps (p)* 0.00 0.00 0.80 0.33 0.58 1.77 2.73 tion that Georgia Capital is a growth company. Judging from Norm. eps growth rate (%) -58.4 +75.6 +203.4 +54.4 brokers’ forecasts, this looks set to continue. Which brings us to Georgia the country. Is it a safe and Prospective price/earnings (p/e) ratio: 22.0 14.2 stable place to invest? Well, there is political risk involved in Prospective p/e:earnings growth (PEG) ratio: 0.40 0.69 investing in any country. In fact, I would say that the political Forecast dividend yield (%): - - risk of investing in the UK is currently much higher than *Normalised earnings per share takes into account any unusual or one-off items **Forecast investing in Georgia because of the fact that Brexit hangs in the balance. BUY (1135p; yield: nil; market capitalisation: £441 million; initial Of course, there’s the not insignificant matter of Russia’s invasion stop-loss: 912p; EPIC: CGEO; sector: Industrial conglomerates; clas- of the disputed territories of South Ossetia and Abkhazia in 2008. sification: FTSE SmallCap; website: http://georgiacapital.ge). ❑ Assuming no further trouble from that source, Georgia has a stable SThree: riding the demand for high-tech staff STHREE (STHR) money back from the client. Summary: Business description: Liberum sees SThree as being well-positioned longer term, given SThree is a pure-play specialist recruitment company with a its exposure to STEM markets and to the more resilient contract focus on Science, Technology, Engineering and Maths – the so called business (as opposed to permanent staff recruitment). Liberum also ‘STEM’ segments of the staff recruitment industry. This sector spe- considers the shares to offer the most attractive risk-reward profile cialisation is achieved via its operating brands: Year to November: 2013 2014 2015 2016 2017 2018** 2019** • Computer Futures (IT and communications technology) – the biggest brand in profit terms, accounting for 43% Revenue (£m) 634.3 746.9 848.8 959.9 1,115 1,271 1,397 of SThree’s gross profit last year. Pre-tax profit (£m) 7.39 15.9 26.7 27.2 27.6 37.6 45.0 • Huxley Associates (banking and finance); Normalised eps (p)* 8.18 15.1 19.9 20.7 25.0 28.1 32.6 • Progressive (engineering and oil & gas); Norm. eps growth rate (%) -35.0 +84.8 +31.7 +4.1 +20.7 +12.2 16.0 • Real Staffing Group (life sciences). Prospective price/earnings (p/e) ratio: 13.4 11.5 Prospective p/e:earnings growth (PEG) ratio: 0.84 0.83 It operates pretty much around the world, including Europe, the Asia Pacific region, the Middle East and the US. In 2017, Forecast dividend yield (%): 3.74 3.95 the biggest slice of its gross profit (28%) came from Germany. *Normalised earnings per share takes into account any unusual or one-off items **Forecast Trading in continental Europe is particularly robust currently. in the sector. We already have one of SThree’s peers in the Trend- Contract and temporary staff recruitment accounted for 71% of Watch portfolio: Robert Walters, which is almost identical in size to gross profits last year, and is growing. SThree in terms of market capitalisation. At the time of writing Rob- It was founded 1986, and floated in London in November 2005. ert Walters is performing well, up 26.7%.There seems no reason why SThree shouldn’t do likewise. Bull points: Less than 16% of its gross profit comes from the UK. Exposure to  It is focused on high-growth sectors of the global economy. the UK may turn out to be a bull or bear point depending on the out-  Double-digit earning growth is forecast, combined with low come of the Brexit ne- (p) SThree PEG ratios (see table). gotiations. But the way I see it, once we’ve left 375  It is increasing its market share. the EU, a lot of the  It has structural growth potential in Germany and the US. uncertainty in British 350  It has the highest dividend pay-out ratio of its peer group. boardrooms will have 325 lifted, and projects 300  The consensus brokers’ price target is 832p, representing a currently on hold will 30% premium to the current price. be given the green light, 275  The relocation of UK support staff from London to Glasgow is with all this this implies 250 currently in progress. It will cost £12m-£13m but is expected for the recruitment of N D J F M A M J J A S O N D J F M A M J J A SO to save £4m-£5m a year from full-year 2019. skilled staff. BUY (357.5p; yield: 3.95%; market capitalisation: £482 million; Risk factors: initial stop-loss: 286p; EPIC: STHR; sector: Professional & commer-  Brexit uncertainty. cial services; classification: FTSE SmallCap; website:  The strength of its contract recruitment business puts a strain www.sthree.com). ❑ on its cash, as it often has to pay the staff before receiving the Savannah on the cusp of becoming a big oil and gas player

SAVANNAH PETROLEUM (SAVP) after securing one exploration asset (R1/R2 PSC) in the Agadem Rift Basin in Niger. In July 2015, it raised a further US$ 36m in equity to Business description: [NB: Not to be confused with Savannah acquire its second asset (R3/R4 PSC) in Niger. After making 5 out of Energy] 5 successful oil discoveries so far this year, early production is ex- Savannah Petroleum is a UK-based exploration and production pected in early 2019. company, established in 2013 to pursue opportunities in sub- Savannah is expanding into Nigeria through the planned acquisi- Saharan Africa. It floated on AIM (raising US$ 50m) in August 2014 tion of some upstream and midstream gas assets from Seven Energy 10 October 2018 Page 6

for US$280m, making it a major player in the Nigerian gas market. Niger assets in for free. The key asset is the Uquo gas field. This deal is expected to close  The robust geology of the exploration licence area in Niger before the end of means that the chances of a successful well are very high the year. It was (better than 75%) and the cost of finding the oil is very low able to acquire (less than $0.75 per barrel). Compare and contrast that to these assets for the cost of finding North Sea oil. materially less than fair value Risk factors: because Seven had financial  Political risk. According to the UN in 2017, the Rebublic of problems, and Niger was ranked 189th out of 189 countries in the UN’s was therefore a Human development index. The country was a former forced seller. The French colony and is therefore French-speaking. Its constitu- payback period tion declares it to be a secular nation, with freedom of wor- for the deal is ship for all; but 99% of the population are Moslems. It has expected to be borders with seven other countries, notably the troubled around 3 years, region of northern Nigeria to the south and the failed state of and should then Libya to the north-east. be a cash cow for  Niger is a difficult country in which to work. It is very large, many years. being almost twice the area of France; but the vast majority Getting the oil Agadam - BFA pipeline route of it is in the Sahara Desert, which means that it is very hot out of Niger is Potential Agadam - Kaduna pipeline and arid. Transport infrastructure is poor. The population is Existing oil pipeline key to monetis- only around 20 million, but with the average family having 7 Domestic oil pipeline ing the discover- Zinder Refinery children, the country is overpopulated, with poor healthcare ies. The map Kaduna Refinery and education. (right) shows the various export routes that have been considered. The com- Year: 2013 2014 2015 2016 2017 2018** 2019** pany has now signed a memorandum of understanding be- tween the Governments of the Republic of Niger and the Revenue ($m) 0.00 0.00 0.00 0.00 0.00 91.8 161.8 Federal Republic of Nigeria envisaging the construction of Pre-tax profit ($m) 0.00 (14.6) (7.58) (9.82) (27.4) 20.8 56.8 an export pipeline from the Agadem Rift Basin to a refinery Normalised eps ($)* 0.00 (0.096) (0.047) (0.043) (0.099) 0.028 0.052 in Northern Nigeria. This could be built quite quickly, in Norm. eps growth rate (%) +84.0 around 6 months. Prospective price/earnings (p/e) ratio: 15.9 8.61

Bull points: Prospective p/e:earnings growth (PEG) ratio: 0.19 0.26  As the chairman said recently on Twitter: “Our Forecast dividend yield (%): 2.70 2.16 maiden exploration campaign in Niger has deliv- *Normalised earnings per share takes into account any unusual or one-off items **Forecast ered five discoveries from five wells and resulted in the discovery of more than sufficient oil to enable us to pro- Summary: ceed towards our planned 2019 Early Production System… Perhaps the most surprising thing about Savannah is that its shares [which will] create a material new revenue stream for our are trading at around the level that it floated in 2013, which seems Company.” irrational, given how far the company has come since then. There seems to be investor scepticism that anyone can make a go of becom-  The company is fully funded through to first ing a successful oil producer in Niger. I production early next year. (p) Savannah Petroleum believe their scepticism is misplaced. Ni-  The oil price is strong. ger may be very poor, but it’s a peaceful, 34  Last month, equity research firm Hannam & democratic country, with a democratically Partners reckons that Savannah’s shares now 32 elected government keen to work with trade at a 64% discount to Hannam’s risked 30 companies such as Savannah to unlock the country’s natural resources. Investors also NAV assessment of 80p a share. Its analysis 28 seems to have been vindicated, judging from seem to be sceptical about the Seven deal. the recent price rise. 26 The recent uptrend in the share price sug- gests that investors have belatedly realised  Even after the latest price rise, the brokers’ 24 J F M A M J J A S O that their scepticism is misplaced. consensus price target is 55p, nearly 62% BUY (34p; yield: nil; market capitalisa- above the current price. And brokers have tion: £277.8 million; initial stop-loss: 27p; EPIC: SAVP; sector: Oil & been raising their earnings forecasts. gas; classification: AIM; website: www.savannah-petroleum.com).  Nannam reckons that the Nigerian Uquo gas field alone is ❑ worth almost as much as the current share price, leaving the Sigma Capital leads the housing private rented sector SIGMA CAPITAL GROUP (SGM) communities by delivering new, good quality and well located family homes to rent. Its attractive housing developments deliver strong Business description: social-economic benefits and remains at the forefront of political and Most people would probably agree that, other things being equal, it’s social agendas within Government. better to own your own home rather than renting. Trouble is, since Sigma’s heritage originated from regeneration of run-down areas. the banking crisis and subsequent austerity, it has become very diffi- This is still its focus. It has delivered more than 4,500 homes across cult for people to afford to buy. all tenures in its partnerships with local authority and investment The alternative is, of course, to rent. But it isn’t a particularly at- partners. Not just housing either. Its regeneration activities have also tractive prospect, what with some landlords being rip-off merchants, delivered community facilities and eight schools. and the properties in question are often not very desirable. The business model is designed to deliver a secure, asset-backed So what is to be done? People must live somewhere, and the de- income stream for shareholders. mand for affordable housing greatly exceeds supply. Over the years, it has forged unique and innovative partnerships Enter Sigma Capital Group. Sigma specialises in the creation of with institutional funding sources, house builders, local authorities 10 October 2018 Page 7

and central government. Year: 2013 2014 2015 2016 2017 2018** 2019** For example, in 2016, it forged a funding agreement with Revenue (£m) 5.81 3.87 6.72 5.38 4.44 14.9 20.3 Homes England, a government body. It’s the national hous- ing and regeneration agency for England and the regulator of Pre-tax profit (£m) (0.86) 0.21 2.39 3.57 3.68 7.30 social housing providers. It works with local partners to cre- Normalised eps (p)* (0.96) 0.37 3.39 4.49 4.10 11.4 16.5 ate new affordable homes and thriving neighbourhoods. Norm. eps growth rate (%) +824.5 +32.3 -8.7 +178 +44.7 2017 saw the the successful and widely acclaimed launch on Prospective price/earnings (p/e) ratio 12.9 8.88 the London stockmarket of the PRS REIT plc (PRS standing for Private Rented Sector; REIT is a Real Estate Investment Prospective p/e:earnings growth (PEG) ratio 0.29 n/a Trust). It raised an initial £250m of investment, a long term Forecast dividend yield (%) - - holding vehicle for the homes delivered and managed by the *Normalised earnings per share takes into account any unusual or one-off items **Forecast Sigma Capital platform. This was followed less than nine months later by a hugely successful placing which raised a further increased, with the signing of a major new Collaboration £250m to continue to grow the REIT. The PRS REIT now has the Agreement with Countryside Properties (another TrendWatch capacity to deliver £900m of construction of new family homes for share) in June this year. This agreement provides for the de- rent, delivering around 6,000 new homes initially. livery of over 5,000 new homes over the next three years. Sigma PRS Management Limited, a wholly-owned subsidiary of  Five Sigma-funded sites are now under construction and are Sigma Capital Group, is The PRS REIT plc's investment adviser, expected to be sold to The PRS REIT, subject to the fulfilment sourcing investments, managing assets, and advising the investment of contracted terms. fund manager and The PRS REIT on a day-to-day basis. Sigma’s target is to deliver more than 20,000 new homes for rent  The company says that “the pipeline of development opportu- across key regional cities in England over the next five years. nities remains very strong - sites with gross development cost With its partners, Sigma is responsible for the delivery of the land of about £600m have been qualified, equating to a further assets and management of the planning and construction process. 4,000 new homes approximately”. Once constructed Sigma  The company also says that profitability in H2 will be even oversees the lettings and (p) Sigma Capital Group higher than H1. property management, 140  The shares look very inexpensive on a current year PEG ratio thereby providing the of under 3. complete long-term 120 solution for investors, Risk factors: spanning access to resi- 100  Difficult to think of any, given the fact that the demand for dential land, construc- quality rented accommodation exceeds supply. 80 tion expertise to proper- Summary: ty management. It be- 60 As the company says: “Demand for family housing for rent remains lieves this to be the only N D J F M A M J J A S O N D J F M A M J J A SO very strong against a background of structural undersupply and cohesive platform of its growing need.” The launch of The PRS REIT has fundamentally kind to deliver large scale PRS housing in the UK. changed Sigma’s growth prospects, creating a huge opportunity for it

to cement is leading position in the private rented sector. Bull points: BUY (132.5p; yield: n/a; market capitalisation: £123.6 million; ini-  Its latest interim results reflect the transformational effects of tial stop-loss: 106p; EPIC: SGM; sector: Investment banking & in- the PRS REIT. Revenue was up 168% to £4.8m; pre-tax profit vestment services; classification: AIM; website : quadrupled to £4.2m and cash increased by 29% to £6.7m. www.sigmacapital.co.uk). ❑  Sigma's PRS platform's delivery capability was significantly Speedy Hire closing in on its target of 15% return on capital

SPEEDY HIRE (SDY) Year to March: 2014 2015 2016 2017 2018 2019** 2020**

Business description: Revenue (£m) 349.7 386 329.1 369.4 377.4 398.5 409.7 Speedy Hire is the UK’s leading provider of tools and Pre-tax profit (£m) 4.00 0.20 (52.7) 11.5 14.1 24.3 28.8 equipment hire, and services to the construction, infrastruc- Normalised eps (p)* 0.91 1.82 2.32 2.61 4.23 4.67 5.33 ture and industrial markets. It supplies large national cus- Norm. eps growth rate (%) -2.7 +101 +27.4 +12.6 61.7 +10.5 15.2 tomers, including 85 of the UK’s top 100 contractors, as well as local trades and industries. It’s the safest UK hire provider Prospective price/earnings (p/e) ratio 13.5 11.8 in the industry based on publicly available RIDDOR accident Prospective p/e:earnings growth (PEG) ratio 0.95 1.15 frequency rates. Forecast dividend yield (%) 2.95 3.35 It has more than 200 depots in the UK and Ireland, which *Normalised earnings per share takes into account any unusual or one-off items **Forecast have around 300,000 items for hire. These include small tools and equipment; surveying and measurement instrumentation; faction rates of 90%. lifting and materials handling equipment; low level and non- It also has a small joint venture focused on oil and gas operation in powered access equipment; compressed air; lighting equipment; the UAE and Kazakhstan. temporary power gener- Formerly a housebuilder called Allen Group, it floated in June ation; mechanical (p) Speedy Hire 1989. It sold its housebuilding operation in 2000. pumps, and temporary 65 site communications. 60 Bull points: As well as hiring out  Historically, its return on capital employed (ROCE) has been equipment, it also pro- 55 low. Management is targeting an ROCE of 15%. It is already vides services such as 50 up to 12%. training, asset manage- 45  It is putting particular focus on growing its services side, ment and testing, re- 40 pair, inspection and which is much less capital-intensive than the rest of the busi- 35 ness. Services sales are currently growing at 8% a year. maintenance. Based on N D J F M A M J J A S O N D J F M A M J J A S O customer surveys, it  Brokers’ consensus price target is 710p, nearly 13% above the enjoys customer satis- 10 October 2018 Page 8

current price.  Market conditions in the UK are still challenging.  It is operationally geared. In other words, it has a large fixed  It is still suffering from the after-effects of the col- cost base consisting of its stores and equipment. Thanks to lapse. efficiency savings (selling off little-used equipment and in- vesting more in equipment where demand is high), it has Summary: Basically, it seems that the company just needs to keep managed to increase sales, resulting in higher margins. Be- on doing what it’s doing. It has an effective strategy to boost ROCE, cause higher sales go through the same fixed cost base, the which is clearly working. Don’t expect fireworks. This is probably a higher sales boost the bottom line. slow-burner. But you may fins, as with many companies, that it will  Its main rival, HSS is experiencing problems due to an exces- get a boost when a Brexit agreement is reached, and customers dust sive debt burden. down their building projects after a long period of uncertainty. BUY  Net debt is falling. (62.2p; yield: 3.04%; market capitalisation: £343.6 million; initial stop-loss: 49p; EPIC: SDY; sector: Professional & commercial ser-  Equipment utilisation is rising. vices; classification: FTSE SmallCap; website : www.speedyservices.com). ❑ Risk factors: Boohoo: Probably the best growth stock on the London market

BOOHOO GROUP (BOO)  The business model has an inherently positive cashflow bias, because goods are sold online for cash, before the suppliers Business description: have been paid. We recommended this share in our issue dated 23 May. It got  A new distribution centre has now been built in Burnley, stopped out – but for no good reason (see ‘Summary’, below). I’m with fit-out on schedule. Its automation will bring efficiency therefore recommending it again now. The information that follows is taken from that issue, savings when it opens in early 2019. updated where applica- (p) Boohoo Group  It says that it is “only scratching the surface of our potential ble. in international sales" and that there are "massive opportu- 250 Founded in Manches- nities overseas". 225 ter in 2006, the group Its outlook statement said that “Trading in the first few 200  started life as boo- weeks of the 2019 financial year has made a strong start. 175 hoo.com, an inclusive Group revenue growth for the next financial year (FY19) is 150 and innovative brand expected to be 35% to 40% with adjusted EBITDA margin targeting young, value- 125 between 9% to 10% and capital expenditure of £50 to £60 orientated customers. It 100 N D J F M A M J J A S O N D J F M A M J J A SO million.” has grown rapidly in the  Online clothes retailing appears to be the way of the future, UK and internationally, at least among the young and fashion-conscious. In contrast, expanding its offering with range extensions into menswear look at what is happening to Marks & Spencer – it’s closing a through boohooMAN. third of its clothing stores. In early 2017 the group extended its customer offering through the acquisitions of the vibrant fashion brand PrettyLit-  The analysts’ consensus price target is 251p, more than 20% tleThing (co-founded by two sons of Boohoo’s cofounder Year to February: 2014 2015 2016 2017 2018 2019** 2020** and CEO Mahmud Kamani), and free-thinking brand Revenue (£m) 109.8 139.9 195.4 294.6 579.8 832 1,081 Nasty Gal. It designs, sources, markets and sells quality clothes, Pre-tax profit (£m) 8.43 8.41 12.4 24.5 31.7 43.8 57.9 shoes and accessories at unbeatable prices. This invest- Normalised eps (p)* 0.77 0.83 1.10 2.06 2.72 3.95 4.93 ment proposition has helped it grow from a single brand, Norm. eps growth rate (%) +234.9 +7.6 +33.5 +86.8 +32.0 +45.5 +24.9 into a major multi-brand online retailer, leading the fash- Prospective price/earnings (p/e) ratio:0 55.1 44.1 ion e-commerce market for 16 to 30-year-olds around the Prospective p/e:earnings growth (PEG) ratio: 2.21 1.97 world. Today the Group sells to 9.8 million customer ac- counts across all its brands in almost every country in the Forecast dividend yield (%): - - world. *Normalised earnings per share takes into account any unusual or one-off items **Forecast It floated on AIM in March 2014. above the current price. Bull points:  The shares are still substantially below their peak of 266p,  Its last full year results, published in April, were superb, and reached just under a year ago. well ahead of market expectations:  Revenue rose by 97% to £579.8m. UK revenue was up Risk factors: 95%; international by 99%. PrettyLittleThing revenue  The shares are very highly rated, with forecast earnings was up 228%, exceeding the company’s expectations. multiples of 55.1 and 44.1 for this year and next respective-  Pre-tax profit rose by 40% to £43.3m ly.  Net cash rose by £74.6m to £133m  Fashions can change very quickly.

 The Boohoo brand now has 6.4m active customers, up Summary: 22%. PrettyLittleThings has 3m active customers, up This is a massively successful online fashion retailer, but still with 128%. huge potential for future growth. Of course, investors know this,  The company has a history of beating forecasts. Its most re- which is why the shares are on such a high p/e multiple. However, cent interim results also beat expectations, with revenue up the PEG ratios are not too bad at 2.2 and 1.9 for this year and next. 50%, adjusted pre-tax profit up 43% and cash up £36.4m to It often pays to pay a premium for a high quality share. BUY £156.6m. Revenue at PrettyLittleThing was up 132% and (216p; forecast yield: nil; market capitalisation: £2.5 billion; initial revenue at Nasty Gal was up 111%. It also raised its revenue stop-loss: 172p; EPIC: BOO; sector: General retailers; classifica- growth guidance for the full year from the range 35% - 40% tion: AIM; website: www.boohooplc.com). ❑ to 38% - 43%. 10 October 2018 Page 9

(p) Altitude Group (p) BBA Aviation (p) Clinigen Group 140 1,2 0 0 360 1,10 0 120 340 100 320 1,0 0 0 300 80 900 280 800 60 260 40 240 70 0 N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J FM A M J J A SO N D J FM A M J J A SO

(p) Bilby (p) GBGI (p) Mortgage Advice Bureau (Holdings) 140 200 700 120 180 100 160 600 80 140 500 60 120 400 40 100 20 80 300 N D J F M A M J J A S O N D J F M A M J J A S O M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O

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Actually, that should come as no surprise to TrendWatch readers. means that the government will have even less money to spend on I’ve been warning about the build-up of financial pressures in Italy the things it should be spending it on, such as ensuring that motor- for years. We’ve just been waiting for the spark to set off the whole way bridges in Genoa and elsewhere are repaired before they fall explosive mixture. Now we have two sparks: rising interest rate plus down (oh-oh… too late). a populist coalition government. But rising interest rates will have a far worse effect on Italian Italy has long been the basket-case of Europe. Italian living stand- banks. Unlike the US and UK, the balance sheets of Italian banks ard are well below where they were 10 years ago. Italy’s GDP (the to- have not been strengthened against future crises. Around 16.4% of tal of all the goods and services the nation produces) is barely above Italian loans are non-performing. Deutsch Bank reckons that comes the level it was when the euro was born in 1999. The Italian debt-to- to around €350 billion, about the same size as non-performing sub- GDP ratio is approaching 135%, about the level it was in Greece when prime mortgages in the 2008 crisis. Furthermore, these non- its economy collapsed. performing loans represent around 13% of eurozone bank assets, an Italian government after Italian government has failed to tackle the already frighteningly high figure. Rising interest rates will drive this problem, with the result that the government is massively in debt. It nearer to 20%. owes €35,000 for every man, woman and child. That’s €6,000 more Italy is one of the most Eurosceptic countries in Europe, not sur- than the Greek people. prising as it has had to live through 5 recessions since the introduc- But here’s the thing. Greece was just about small enough to bail tion of the euro. Polls show that, if there was an equivalent referen- out, though if you recall, there was a serious financial crisis at the dum to Brexit, around 50% of the electorate would vote to leave. time. But Italy is much to big to bail out. It’s the third biggest econo- As a result of the general election held in March, that euro- my in the EU and the 8th biggest in the world by nominal GDP. scepticism has resolved into a coalition between two euro-sceptic Italy currently spends around 10% of its government’s revenues on parties: The League, an anti-immigration party that has declared paying interest on its debts. And now interest rates are rising, which that it wants to leave the eurozone as soon as politically feasible; and 10 October 2018 Page 10

Technical Notes

The Five Star Movement, with similar views to UKIP. quantities of Italian bonds – and even threaten the eu- TREND DEFINITION What do they want? Sharp tax cuts, a rollback of pen- ro. So the EU will reject Italy’s budget. But the Italian The analytical criteria that sion cuts and additional welfare spending for people public don’t seem to care about that; the coalition gov- we use to identify uptrends on low incomes. How can it afford to do that? By ernment has the support of around 60% of the elec- and downtrends are tightly growing its budget deficit to 2.4%. That means issuing torate. more sovereign bonds. But that’s unacceptable to the A very big crisis could be brewing here. And that I defined. Our criteria are EU because Italy is already so indebted that yet more believe is why the EU is being nicer to us. It wants a designed to filter out data debt could trigger a default by the government itself or Brexit agreement as quickly as possible so that it can series which are technically by one or more of Italy’s banks. This would trigger a focus all its attention on Italy before the who thing in uptrend or downtrend, but European banking crisis – many banks hold huge blows up in its face. ❑ which are in reality only drifting sideways. Here is a full list of the criteria we require for a data series to be formally October has so far been a week of carnage for TAM 2. But the important thing is not to panic. We’ve been identified as an uptrend: through this situations befr and come out smelling of roses. Here are some things you should bear in mind. • The actual value must • A lot of shares have been stopped out, but many of them at a profit – not necessarily in the current con- lead the 25-day moving tract, but since they were originally bought. average; • The stop system is pro- • the 25-day moving tecting you from bigger average must lead the 65- losses, exactly what it is day moving average; supposed to do, Further- more, it reduces the • the 25-day moving number of open trades, average must have been thus reducing the overall rising for at least 5 days; portfolio risk. • the 65-day moving • The losses look worse average must have been than they really are be- rising for at least 1 day; cause of the gearing. • to filter out passive That cuts both ways. uptrends, the data must The portfolio can recover show a rise of at least faster than you believe 2.5% on the month. possible, again because The analytical criteria for of the gearing. a downtrend are exactly • Lower equity prices the converse of the above gives us the opportunity criteria. to pick up bargains at Any data series not lower prices than we conforming to either set of otherwise would. criteria we describe as • Corrections and bear having an indeterminate markets are all part of trend They are not listed. the investment game. Note that it is quite normal Remember that TAM 2 for a data series to alternate is a medium to long term investment between determinate and indeterminate trends from time to time, but not for it to If you’re not yet a Trendwatch investor and you’re looking for exceptional investment returns, please visit jump directly from an www.trendwatchAM.com uptrend to downtrend, or vice versa without an The charts accurately reflect the performance of the TAM 2 time adjustment of the multipliers on client accounts each time master account from its inception on 1/10/2012, and TGF from a trade is placed on the master account. The effect of this will interval of several days. its inception on 1/10/2015.. be that, other things being equal, a profitable client account will The percentage figures However, even investors who invested at inception will see show a bigger NAV gain than the master account gain. which appear in the title box an appreciably different performance from the master account, Clients investing after this date of inception may see a very for two reasons. different performance profile, as with any other investment. of each section represent First, the master account does not include client charges. Remember too that these are historic figures. While they give the percentage of securities Second, the trade sizes on the master account are fixed, an indication of the skill of the investment managers, past per- in uptrend or downtrend whereas the trade sizes on client accounts will grow as the formance is not a guide to future performance. relative to all securities that NAV of these accounts grow. This is achieved through a real- we monitor in that section. These figures correspond with the latest uptrend and downtrend percentages shown in the various TrendWatch barometers. ❑ * Biffa 8 * Kin & Carta 3 AstraZeneca 115 Goodwin 104 QinetiQ 22 Spinnaker Opp. 70 * BP 10 * Lonmin 10 Avation 29 Halma 12 Reckitt Benckiser 90 Spirent 34 PRICE CHART KEY: * Devro Intl. 1 * Micro Focus 10 Braime (T&J) 'A' 284 Jardine Lloyd Th. 69 Restaurant Gp. 12 Tullow Oil 16 ———– 65-day moving * Ferrexpo 8 * Ross Group 6 BTG 22 Pendragon 13 RPC Group 20 Vesuvius 14 * Georgia Capital 7 * Speedy Hire 2 Entertain. One 93 PPHE Hotel Gp. 117 SAGA 11 Wood (John) 34 average. * Greencore 3 * SThree 10 Evraz Group 13 Premier Oil 18 Sky 82 ———– 25-day moving * JKX Oil & G. 10 Acacia Mining 12 Filtronic 81 Premier Veterin. 42 South32 14 average. 10 October 2018 Page 11

Technical notes

OUR SHARE SELECTION * Arrow Global -7 * RELX -2 CarpetRight -249 Hardy Oil & Gas -86 MS International -25 Severn Trent -13 PROCESS * Augmentum Fin. -8 * Safestore -9 Centaur Media -70 Hill & Smith -43 Ocado Group -21 Shefa Yamim -54 * Balfour Beatty -2 * Stagecoach Gp. -1 Challenger Acq. -278 Hochschild Min. -73 Paddy Pow.Betf. -39 Smith (DS) -55 Our strategy for selecting * Big Yellow -9 * Superdry -8 Charles Taylor -43 Hostelworld -97 Palace Capital -49 Smiths Group -48 the 6 shares recommended in * Bovis Homes -7 * Tarsus -8 Chesnara -27 Howden Joinery -48 Parity -12 Sophos Group -50 each issue is systematic, easy * Carclo -5 * Unilever -2 Clipper Logistics -55 Ibstock -67 PayPoint -31 Spire Healthcare -45 to understand, transparent – * Charter Court FS -5 888 Holdings -68 Cobham -23 IG Group -17 Pennon Group -25 Sports Direct -47 and very effective. * Coca-Cola HBC -2 AA PLC -58 Communisis -88 Inchcape -50 Petropavlovsk -22 SSE -52 Our starting point is the * Creightons -9 Alfa Fin. Soft. -24 Costain -83 Ind. News & M. -30 Plus500 -33 STV Group -17 uptrend list. Note that each * CYBG -5 Allied Minds -71 -102 Indivior -72 Polypipe -11 Ten Entertain. -26 share in our uptrend and * Dail Mail 'A' -7 Aminex -227 Dairy Crest -146 -84 Quarto Group -133 Tesco -25 downtrend lists carries a * Dalata Hotel -10 Ascential -13 Debenhams -238 Intertek Group -31 Rainbow Rare E. -73 Tex Holdings -34 numeric suffix. This number * Dialight -8 Assura Group -70 Dixons Carphone -69 Intl. Cons. Airlin. -22 Rathbone Bros. -17 Thomas Cook -96 represents the number of * Elementis -1 Atlas Mara -111 Domino's Pizza -54 ITE -178 Reach -84 -49 days that the 65-day moving * Flybe Group -9 B&M Europ'n V. -15 DP Eurasia -137 Johnston Press -49 Realm Therap. -39 Victoria -24 average has been in uptrend * Hansard Global -3 BBA Aviation -48 EasyJet -48 JPJ Group -33 Record -108 Vodafone -103 or downtrend. For uptrend * Johnson Matthey -4 Bonmarche -14 Essentra -34 Jupiter Fund M. -56 Renewi -43 Widecells -170 lists, this number is always * Melrose -8 Brit Am. Tobacc. -14 Eurocell -16 Just Eat -41 Renishaw -24 William Hill -46 positive. For downtrend lists, it * Mondi -2 British Land -60 Forterra -58 Kingfisher -41 Rightmove -26 Wincanton -41 is always negative. * Morrison (W) -1 Brown (N) -66 French Connect. -15 Low and Bonar -110 RM -13 Workspace -49 All new uptrends (or down- * NMC Health -4 Burberry -13 Fresnillo -75 Marks & Spencer -20 Robert Walters -12 WPP -24 trends) are collected together * OneSavings Bk. -4 Camellia -59 Genus -11 Mediclinic Intl. -87 Royal Mail -96 XAAR -75 at the beginning of the lists, * PageGroup -1 Canadian O'seas -35 Georgia H’lthcare -16 Menzies (J) -47 RSA Insurance -41 prefixed by an asterisk. New * Pearson -4 Cap. & Regional -80 Gocompare.com -40 Morgan Sindall -25 Sage Group -36 uptrends are those that have * Provident Finan. -5 -22 GVC Holdings -15 Moss Bros. -70 Severfield -30 occurred since the last issue. Note that the numeric suffix will always be 10 or less, because 10 is the number of business days since the last * AB Dynamics 2 * PHSC 3 Blancco Tech. 35 Faroe Petroleum 18 Omega Diagnost. 63 Summit Germany 22 issue of TrendWatch. * Alpha FX 9 * Richoux Gp. 7 Bonhill Group 36 Filta Group 46 Oncimmune 16 Sunrise Res. 93 New uptrends are the ones * Arricano Real Est. 4 * Safestyle UK 4 BP Marsh & Pt. 92 Forbidden Tech. 42 Orosur Mining. 20 Tatton Asset M. 76 of most interest to investors * Ascent Res. 5 * Savannah Pet. 7 Bushveld Min. 34 Gooch & Housego 84 Pennant Intl. 67 Thalassa Energy 63 because it is desirable to get * boohoo.com 8 * Sigma Capital 5 Cake Box 15 Green & Smart 18 Phoenix Glob. M. 38 Thruvision 96 into the trend early. * CAP-XX 9 * SimiGon 8 Catalyst Media 38 Hurricane Ener. 31 PME African Infra. 14 Tiziana Life Sc. 35 Having identified the new * Corero Net.S. 9 * Team17 7 Ceres Power 88 Hydrogen Group 59 Produce Inv. 18 Trans-Siberian 14 uptrends (those prefixed with * Crimson Tide 8 * TP Group 4 Cerillion 96 IGas Energy 16 Proton Power S. 27 Verditek 21 an asterisk), our next step is * Directa Plus 8 * Tyratech 5 Churchill China 32 Impax Asset M. 107 Providence Res. 12 Versarien 97 to perform limited fundamental * DP Poland 8 * Volvere 7 Clontarf Energy 14 Independent O. 100 Randall & Quilter 24 Volga Gas 50 analysis on them to classify * Frontier Smart T. 6 Access Intellig. 191 Cohort 76 Judges Scientific 15 Redcentric 20 Warpaint London 84 them as a ‘Hit’, ‘Maybe’ or * Highland Gold 10 Adept Telecom 69 Craneware 109 Lansdowne Oil 19 Rosslyn Data T. 109 Windar Photonics 20 ‘Miss’. We give our reasoning * Inspiration Health. 1 Aggreg.Micro P. 74 Creo Medical 164 Learning Tech. 40 Scapa 14 Young & Co 'A' 27 so that you can judge for * Keystone Law 9 Anexo Group 15 CyanConnode 12 Leeds Group 40 Serinus Energy 12 yourself whether, in your view, * Manx Telecom 10 Anglo Asian M. 15 D4t4 54 LightwaveRF 14 Sinclair Pharma 67 our reasoning is sound. * Nakama Group 3 Augean 55 Dewhurst 'A' 18 Mission Market. 121 SolGold 23 Finally, we do in-depth * Norman Broadb. 4 Beeks Fin. Cloud 28 Epwin Group 18 MXC Capital 29 Spitfire Oil 39 fundamental research on the * Oxford BioDyn.. 7 Beowulf Mining 18 FairFx Group 148 MyCelx Tech. 30 Strategic Minerals 13 shares in the ‘Hit’ list. The six shares that, in our view, are the best of the bunch become our six formal share recom- mendations. * 7digital -4 * Mortgage Advice -9 Alliance Pharma -22 BowLeven -41 Eco Animal H’lth -64 Gama Aviation -54 As described in the previous * Abcam -1 * PipeHawk -1 Altona Energy -23 BPC -31 Eddie Stobart L. -57 Gaming Realms -11 Technical Note (Trend Defini- * Adv. Medical Sol. -3 * Provexis -9 Altus Strategies -116 Breedon Aggreg. -58 Egdon Res. -39 GB Group -13 tion), the 65-day moving * Amerisur Res. -9 * Restore -1 Amphion Innov. -149 Byotrol -42 Energiser Inv. -12 GCM Resources -65 average is our prime moving * Argos Resources -8 * RTC Group -5 Angle -32 C4X Discovery -13 Ergomed -69 Genedrive -55 average. Remember that, for * Ashley House -3 * Smartspace Soft. -2 appScatter -87 Cadence Miner. -379 Erris Resources -137 Goldplat -144 a share to get into the list, all * Bellzone Mining -6 * Surface Transf. -8 Arbuthnot -27 Cambria Autom. -69 Escape Hunt -31 GoldStone Res. -47 other criteria as set out in the * Chariot Oil & G. -3 * Synairgen -6 Arden Partners -31 Catanae Innov. -144 eServGlobal -71 Good Energy -25 above Technical Note have to * Circle Property -5 * Tungsten Corp. -3 Ariana Res. -53 Cenkos Securit. -43 Ethernity Net. -84 GRC Intl. -31 be satisfied. If they are not, * Condor Gold -1 * WYG -9 ASOS -43 Cloudbuy -97 Falanx Group -58 Greka Drilling -121 the share will disappear from * Distil -1 * Yu Group -5 AssetCo -25 Cloudcall -61 Falcon Oil -71 GYG -62 the list. If all criteria are sub- * Earthport -10 4D pharma -12 Autins Group -243 Concepta -95 Feedback -52 Hardide -27 sequently satisfied and the 65 * Fastjet -6 88 Energy -76 Bacanora Lithium -76 Cora Gold -21 Firestone Diam. -367 Hargreaves Serv. -14 -day MA was not affected, the * Greatland Gold -9 Active Energy -92 Bailey (C H) -32 Cradle Arc -69 First Derivatives -32 Haydale Graph. -114 share will reappear in the list * Heath (Samuel) -10 Adv'd Oncother. -29 BCA Marketplace -14 Cropper (James) -14 Fishing Repub. -66 Heavitree Brew. -20 as a mature (non-asterisked) * HML Holdings -10 ADVFN -125 Berkeley Energia -34 CSF Group -13 Flowtech Fluidp. -22 Hotel Chocolat -60 trend. If the setback was such * hVIVO -5 AFC Energy -118 Big Sofa Tech. -88 DeepMatter -17 Focusrite -21 Hummingbird R. -99 that the 65-day MA suffered a * Imaginatik -5 African Battery -26 Bilby -23 Defenx -64 Frenkel Topping -152 i3 Energy -18 reversal, the recovery will see * Ingenta -2 Agriterra -81 Blockchain Wld. -45 DekelOil -125 Fulcrum Utility -67 IDE Group -291 the share reappearing in the * Landore Res. -1 All Asia Ass. C -199 Bluejay Min. -87 Diurnal -16 Galantas Gold -18 Image Scan -67 list as a new (asterisked) * Malvern Intl. -9 Allergy Therap. -24 BlueRock Diam. -163 easyHotel -58 Galileo Res. -47 ImmuPharma -132 trend. ❑ 10 October 2018 Page 12

Technical notes

BENCHMARKING Inland Homes -57 Marshall Motor -57 Online Blockch. -38 Rosenblatt -23 Tekcapital -63 Vianet Group -72 Accurate monitoring of our Integumen -60 Mayan Energy -91 OPG Power V.. -76 Rurelec -36 Ten Lifestyle -114 VR Education -34 Iofina -123 Medaphor -28 Oracle Coalf’lds -226 Safeland -124 Tern -20 WANdisco -52 investment performance is of IQE -47 Mereo BioPharm. -69 Ovoca Bio -30 Safestay -42 Tertiary Minerals -76 Webis Holdings -38 critical importance, both for IronRidge Res. -58 Midatech Pharma -13 Patagonia Gold -41 Sanderson -49 Thor Mining -21 Wentworth Res. -36 you and for us. It is not Ironveld -83 Minoan Group -81 Petro Matad -82 Savannah Res. -30 Thorpe (F W) -25 WH Ireland -34 enough to simply monitor the Ixico -32 Mirriad Advertis. -120 PhotonStar LED -49 Scancell -42 TLA Worldwide -25 Wilmcote -136 profit (or loss) on our selec- Jangada Mines -30 Mobile Streams -49 Pittards -48 Scholium Group -70 TMT Invest. -128 Wishbone Gold -282 tions. You are entitled to John Lewis of H. -55 MobilityOne -50 Polar Capital -17 Scotgold Res. -54 Touchstar -53 Wolf Minerals -80 know how we have done Katoro Gold -31 Mortice -48 Porta Commun. -60 Secure Trust Bk. -69 Two Shields Inv. -62 Wynnstay Group -11 relative to the market as a Kellan Group -38 Motorpoint -53 President Energy -88 Shanta Gold -52 Ubisense Gp. -14 XLMedia -97 whole. It is no use us boast- Kibo Mining -30 MP Evans. -11 Prospex O.& G. -149 SIMEC Atlantis E -75 ULS Technology -98 Xtract Res. -187 ing of a 20% profit if the mar- Koovs -43 Mulberry -83 Purplebricks -63 Sirius Petroleum -77 Universe -60 Yolo Leisure -14 ket as a whole has risen Latham (James) -36 MX Oil -131 Quartix Holdings -56 Sound Energy -12 Urals Energy -24 Young & Co 30%. Lekoil -39 MySQUAR -148 QUIZ -25 Spaceandpeople -63 Utilitywise -39 Breweries 'NV' -19 We therefore monitor each LIDCO Group -37 Netcall -16 Rasmala -26 Stirling Industries -66 ValiRx -63 Zibao Metals R. -166 of our recommendations LoopUp -37 NetScientific -172 reach4entertain. -55 Summit Therap. -73 Vela Tech. -145 Zinc Media -19 against a benchmark index. Maestrano -23 Nostra Terra O. -45 Red Rock Res. -103 Synectics -18 Velocity Compos. -26 Ours is the FT All-share In- Maintel -25 Novacyt SA -120 Regency Mines -19 Tandem Group -62 Velocys -58 dex (exc. investment compa- Majestic Wine -42 Numis Corp. -11 ReNeuron -13 Tanfield -147 Venn Life Scien. -42 nies). Manx Financial -31 Octagonal -23 Richland Res. -54 Tasty -66 Verona Pharma -72 Whenever we recommend Marechale Cap. -27 One Media iP -30 Rockfire Res. -12 TechFinancials -142 Vertu Motors -25 a share, we record the value of this index as at the date the share was bought. When we do a valuation or when we sell a share, we record * DB X-trackers FTSE Vietnam $ 8 ETFS Brent 2 year future 32 ETFS West Texas 31 the latest value of the index. * DB X-trackers FTSE Vietnam 9 ETFS Brent 3 years future 32 ETFS WTI 1 Year Future 31 We then add the percentage * ETFS All Commods. DJ-AIGCI 4 ETFS Crude Oil 29 ETFS WTI 2 month (£) 33 change in the index to the * ETFS Natural Gas (£) 5 ETFS Energy 28 ETFS WTI 2 Year Future 31 cost of buying the share. This * iShares MSCI Japan SmallCap $ 5 ETFS Heating Oil 27 ETFS WTI 3 Year Future 31 tells us how much our invest- DB X-trackers MSCI Japan 14 ETFS Live Cattle 72 iShares MSCI Japan 14 ment would have grown had DB X-tr. MSCI Russia 25% Capped Ind. 16 ETFS Livestock 37 iShares MSCI USA Islamic ($) 106 we invested in a market DB X-track. STOXX Eur. 600 Oil & Gas 18 ETFS Oil Brent 29 iShares MSCI World Islamic ($) 16 tracker fund rather than in the ETFS Brent 1 month (£) 31 ETFS Petroleum 30 iShares MSCI World Islamic (£) 110 actual share – the market ETFS Brent 1 year future 31 ETFS Physical Palladium 14 gain/loss. To determine how much we have outperformed (or under-performed) the market, it is tempting to subtract the * iShares FTSE EPRA/NAREIT US * iShares FTSE/EPRA Euro Prop. Index -6 ETFS Cotton -33 tracker gain from the actual Prop.Yield -1 DB X-trackers S&P CNX NIFTY INDIA -11 ETFS Short Crude -31 gain – but this is mathemati- cally flawed. The industry- standard formula for outper- formance / underperfor- mance is: * Albion Development VCT 8 * Fidelity Japanese Values 6 Geiger Counter 13 Phaunos Timber 91 * Albion Tech. & General VCT 8 * HG Capital Trust 8 JPMorgan Private Equity 15 SQN Asset Finance Income 36 ((100 + actual gain) / (100+ * Alpha Real Trust 5 * Schroder Japan Growth 9 Kings Arms Yard VCT 14 Private Equity 13 tracker gain) x 100 – 100 * Baillie Gif. Shiin Nip. 10 Amati AIM VCT 11 Lindsell Train IT 60 SVM UK Emerging Fund 423 If we sell a share at a prof- * Crown Place VCT 8 Doric Nimrod Air One 56 Oxford Technology 2 VCT 157 it, but the tracker index for that share shows an even bigger rise, we record it as a loss against the market. If we sell a share at a loss in a * Biotech Growth Trust -1 Aberdeen New India IT -18 Hygea VCT -89 Mercantile Investment Trust -95 rising market, we record it as * Edinburgh Investments -4 Africa Opportunity Fund -70 Independent IT -43 Pacific Horizon IT -40 an even bigger loss against * Finsbury Growth & Inc. -2 Artemis Alpha -39 India Cap. Growth -21 Perpetual Income & Growth -47 the market. ❑ * Henderson European Focus -1 Asia Total Return Co. -39 Inland Homes ZDP -57 Picton Property Income -16 * Henderson Eurotrust -2 Baillee UK Growth -23 INVESCO Asia Trust -57 Premier Global Infrastruct. -47 * John Laing Environ. Assets -2 Baker Steel Resources -21 INVESCO Income Growth IT -42 Schroder Asia Pacific IT -41 * JPMorgan Emerging Mkts. -2 BlackRock Brit. Smlr. Cos. -25 JPMF Chinese IT -48 Schroder Real Estate IT -19 * Law Debenture Corp. -1 Blue Planet Euro. Fin. -56 JPMF Mid Cap -50 Schroder UK Mid & Sm. Cap -42 * Majedie Investments -10 Derwent London -25 JPMorgan Asian -50 Scottish Oriental Smr. Cos. -20 * & London IT -2 Electra Private Equity -31 JPMorgan Glob. Conv. Inc. -98 SEGRO -25 * RIT Capital -9 F & C Commercial Property -17 JPMorgan Indian -20 Standard Life Equity Trust -47 * Scottish Mortgage & Trust -2 F&C UK Real Estate Invest. -71 Jupiter Green IT -17 Temple Bar Investment -47 * Sequoia Econo. Intra. Inc. -10 Fidelity Asian Values IT -20 K&C REIT -25 TR European Growth -72 * Throgmorton Trust -8 Fidelity China Special Situat. -49 Keystone Inv. -50 TR Property Investments -19 * Troy Income & Growth -4 Fundsmith Emerging Eq. -26 LXB Retail Properties -52 Tritax Big Box Reit -23 * Value & Income Trust -4 Global Resources Invest. -118 Martin Currie Pacific -48 Utilico Emerging Markets IT -24 Aberdeen Asian Smlr. Cos. -23 Henderson Diversified Inc. -100 Marwyn Value -25 Ventus VCT -27 10 October 2018 Page 13

THE TABLE on the right gives the share sales up to the close of business last Friday. But of Stop-loss sales during 2018 course the situation has changed completely as Date Date Buy price Sell price Gain/ loss Mkt. gain/ Out-perf. a result of the severe market fall since Monday. Share So far this week, 13 additional shares have been bought sold (p) (p) (%) loss (%) (%) * stopped out. Sales previously reported in Jan.- Sep. (60 shares): 9.85 2.56 7.11 As usual, we’ll list those in the next issue – though in almost every case, the reason that the Sales since last issue: shares were stopped out will be for no other Altitude Group 29/03/18 26/09/18 72.50 80.50 11.03 6.03 4.72 reason apart from stormy market conditions. BBA Aviation 08/12/16 18/09/18 263.50 294.60 11.80 6.69 4.79 As for the shares stopped out over the past four weeks, as you can see, the net result was Bilby Group 21/06/18 12/09/18 115.50 102.00 -11.69 -3.15 -8.81 close to break even. Clinigen 19/07/18 28/09/18 982.50 845.50 -13.94 -2.43 -11.80 See page 9 for charts. ❑ GBGI 16/08/18 01/10/18 108.50 86.50 -20.28 -0.74 -19.68 Share sale Reason Mortgage Avice Bureau 17/08/17 03/10/18 504.75 554.00 9.76 1.61 8.02 Altitude Group Lacklustre interim results, in which it reported falling to a pre-tax loss. Averaged gain / loss (%): -2.22 1.33 -3.51 BBA Aviation Adverse reaction to news of its $97m acquisition of Firstmark Group. Percentage loss on most recent sales: -2.22% Bilby Group No adverse news. Percentage market gain (tracker fund): 1.33%

Clinigen News that it is raising up to £80m in Trendwatch has underperformed market by: -3.50% * an institutional placing, thus diluting existing shareholders. 1 Buy price adjusted by 1100p in respect of the demerger of Georgia Capital. GBGI Fall in interim pre-tax profit from 2 $8.7m to $3.3m. Formerly Satellite Solns. Worldwide. Buy price adjsted for 1 for 15 share consolidation. 3 Formerly Jackpotjoy Mortgage Ad- Housing market likely to be flat in vice Bureau the near term * See 'Benchmarking' note [panel, right] to see how this figure is calculated.

Date Date Date Date Rank Share % gain Rank Share % gain bought sold bought sold 1 Keywords Studios 06/02/14 - 1158.4 11 Amino Technologies 20/06/13 10/08/18 83.9 2 LoopUp Group 25/05/17 06/02/18 94.3 12 On The Beach 09/01/17 18/06/18 78.5 3 Beazley Group 04/02/09 - 457.3 13 Avation 04/02/16 - 72.3 4 NMC Health 10/12/15 - 262.3 14 Joules Group 02/03/17 13/08/18 63.6 5 AFH Financial Group 20/08/15 - 150.8 15 Eland Oil & Gas 12/10/17 - 61.1 6 Eco Animal Health 08/01/15 09/02/18 147.0 16 FairFX Group 29/03/18 - 61.1 7 IMIMobile 25/06/15 - 140.0 17 Entertainment One 14/09/17 - 57.4 8 23/06/16 - 120.3 18 Nex Group 01/03/18 - 56.4 9 Colefax Group 18/07/13 - 117.8 19 Bilby Group 09/11/17 22/01/18 53.2 10 Yü Group 20/07/17 22/05/18 104.5 20 iomart Group 31/03/16 - 52.4 THIS TABLE shows our biggest recent gains, taken from shares that were sold within the past 12 months and from those shares that are still in our current portfolio (page 3). IN THE NEXT ISSUE we'll show our best performers since TrendWatch was first published.

© Trendwatch Asset Management Ltd 2018 Published by Trendwatch Asset Management Ltd, FREEPOST ANG9505, St. Albans, Hertfordshire, AL3 4BR. Tel. 01727 762629; e-mail: [email protected]. All rights reserved. No part of this publication may be stored or reproduced in any form by any type of electronic or other storage or copying device other than for the subscriber’s personal use without the written permission of the copyright holder. The information and recommenda- tions made in this publication are carefully researched, and every effort is made to ensure their accuracy. However, no representation or warranty is made as the accuracy or completeness of any information, opinions or forecasts contained herein. Material contained in this publication is for general information only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decisions. Trendwatch Asset Management Ltd does not make personal recommendations nor give personal advice. Appropriate independent advice should be obtained before making any such decisions. Subscribers act on the contents of the publication at their own risk. No liability is accepted for any loss arising from their use. Share prices can go down as well as up. Past perfor- mance is not necessarily a guide to future performance. Prices of some small investments may be volatile and the bid-offer spread may be wide. TrendWatch is available by annual subscription only (min. 12 issues a year). No refunds are given for cancellation part-way through the subscription year. Trendwatch Asset Man- agement Ltd is registered in England and Wales. Company no: 4704606. Registered office [not for normal subscriber/client correspondence]: 6B Parkway, Porters Wood, St Albans, AL3 6PA . Trendwatch Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. FCA firm no: 414207.