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VOL 19 / ISSUE 08 / 02 MARCH 2017 / £4.49 SHARES WE MAKE INVESTING EASIER WILL ADMIRAL AND DIRECT LINE BE FORCED TOT CU DIVIDENDS? TOP TRICKS: THREE NIFTY WAYS TO GET MORE FROM THE LIFETIME ISA

Our latest views Five stocks at risk if on Lloyds, RBS there’s a new Scottish and other banks independence vote

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MKT-1839_CMC_Q3_Press_Adverts_Support_Shares_Mag_297x210_V2.indd 1 12/12/2016 16:45 EDITOR’S VIEW Learn from Buffett’s words of wisdom Why it can pay to read shareholder letters from investment companies and fund managers

he publication of Warren Buffett’s about their decision making versus annual Berkshire Hathaway individual companies. Anyone serious T shareholder letter is often treated about investing should take a good look like a release of a new book from a at investment fund reports as they can best-selling author. The media gives it give valuable insights into why certain significant publicity and pore over the decisions were made. legendary investor’s every word. For example, investment company The broader investment community RIT Capital Partners’ (RCP) latest results also latch on to Buffett’s annual tome, include a good commentary by chairman looking for new insights into how Lord Rothschild on how RIT views the the man became one of the world’s world from an investment perspective. most successful investors. Rightly so. The one line that really stood out was: Berkshire has achieved 20.8% compound annual ‘There could well be a period ahead of us when the gain since 1965, more than twice the return from avoidance of risk is as high a priority as the pursuit the S&P 500 index including dividends (9.7%). of gain.’ Investors often get tunnel vision in the pursuit WHAT’S IN THE LETTER? of making a profit. Rothschild’s comment is a good Buffett’s honesty in his shareholder letter is reminder that you also need to think about other refreshing. It always contains a few valuable lessons, things, particularly to avoid wealth destruction. showing how you can learn from mistakes, as well as This statement is also echoed in Athelney Trust’s engaging in interesting debates about investing. (ATY) newly-published results which contains a few Share buybacks are the topic of debate in pearls of wisdom. his latest letter. He’s a fan of them, as long as a In his latest commentary, Athelney chairman company can buy its shares below their intrinsic Manny Pohl criticises companies for being short- value. Buffett also raises a good point whereby term in the pursuit of shareholder value, trying to companies shouldn’t do buybacks if the cash is meet market expectations to boost the share price needed to protect or expand the existing business and not focus on investing in the business for the or when an acquisition could add greater value. longer-term. Very few individual companies explain to ‘What does managing for shareholder value shareholders why they’ve come to certain decisions mean? It means managing for cash flow not such as share buybacks or detail in great length the earnings per share: it means managing for the long- cash requirements for their existing business. term not the short-term,’ says Pohl. I believe individual companies should take a leaf out of Buffett’s book and follow his example in COMING SOON IN SHARES explaining why they’ve come to certain decisions. In the coming months we’re going to discuss Off the top of my head, retailer Next (NXT) is the in Shares the best sources of information on only company to actually do this. investment strategies and explain how they could help make you a better investor. WHERE ELSE CAN I FIND GOOD COMMENTARY? Until then, I suggest you devour the material You often get a lot more frank discussion from from Berkshire, RIT and Athelney. They really are people who run investment companies or funds essential reading. (DC)

02 March 2017 | SHARES | 3 INTERACTIVE Contents PAGES CLICK ON PAGE NUMBERS TO JUMP 02 March 2017 TO THE RELEVANT STORY

03 Learn from Buffett’s 13 R eliable growth and words of wisdom income with Zytronic 32  Genus strikes 06 New ruling could 14 We update our views tasty deal to boost lower insurers’ on Treatt and Serco European position dividends 34 Diversified Gas & Oil 06  Moneysupermarket gets to work on growth margin concerns

07 Stocks to watch as Scottish vote talk returns

07 Gleeson not reliant on giveaways 16 Can you live off a natural yield? 33 Blue Prism is up 500% 08 Is Woodford set for a in less than a year u-turn on banks? 18 T op tips if you’re late to retirement planning 36 Guide to spread betting 20 We remain unimpressed by 44 A game changing year banking shares for Oxford BioMedica?

22 T op tricks: Three nifty 46 Searching out secure ways to get more from income via funds 10  Vital numbers the Lifetime ISA on cyber-attacks, 48 Results, trading Buffett’s mistakes 28 Funds to play updates, AGMs and and more emerging markets more over the coming recovery week 12 E arn more every year with Bunzl

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 | 02 March 2017 CURIOSITY

It’s human nature to constantly seek out more

Progress has always depended on curiosity. helping us look after our clients for more than Our desire to know more never ceases and 30 years. it’s inherent in our fund managers’ approach to For more information visit jupiteram.com or search active management. It’s why we encourage JUPITER ASSET MANAGEMENT. Market and individuality of thought and the freedom to exchange rate movements can cause the value pursue investment opportunities. of an investment to fall as well as rise, and you We call it the human advantage. And it’s been may get back less than you originally invested.

THE HUMAN ADVANTAGE

Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. 11963-08.16 BIG NEWS New ruling could lower insurers’ dividends Income investors may have to rethink Admiral and Direct Line’s appeal

otor insurers are in the doldrums following worse than expected changes to the way Mpersonal injury claims are calculated. Analysts now believe the likes of Admiral (ADM) and Direct Line (DLG) will no longer pay special dividends which have previously made them firm favourites with income investors. We highlighted the risks to the sector last month in Shares, pointing to Admiral and analysis by investment bank UBS. It Direct Line may to some peers is Hastings (HSTG) which suggested a reduction in the so-called no longer pay we flagged ahead of the changes as our ‘Ogden rate’ from 2.5% to 1% had preferred play in the space. already been priced in to the value of special Although it says it will book a one-off insurance company shares. dividends £20m Ogden-related charge alongside The new rate has now been confirmed full year results, it is not sitting on a at -0.75% which will cause a bigger dent to backlog of liabilities which would be affected insurers’ profit than the market had expected. by changes to the rate. Ogden is used to calculate compensation It also enjoys low costs, has a well-integrated payments to victims of car accidents based on approach to price comparison sites and a solid the return any money paid out can earn when it technology platform. is invested. SHARES SAYS: WHAT IS THE FINANCIAL IMPACT? Keep buying Hastings at 236.2p. Admiral and Direct The lower the rate, the higher the lump sum Line are both well-run businesses, but now is not the time to buy their shares – even after their recent required. Direct Line had previously warned a one decline in value. (TS) percentage point decrease in the rate would wipe £190m off its profit. It now says the new discount rate will hit by pre-tax profit by £215m to £230m after Moneysupermarket reinsurance recoveries. margin concerns Admiral says the estimated total net financial impact of all claims settling at the new rate is FULL YEAR results (28 Feb) from price comparison £140m to £175m. site Moneysupermarket.com (MONY) reveal pressure on margins and revenue behind 2016 levels in the PREMIUMS SET TO RISE first two months of 2017. The shares were punished UBS expects insurance premiums will have to rise heavily on the news. and that customer churn could become a problem Liberum analyst Ian Whittaker says his key fear in the industry. about the stock, that increased marketing spend to ‘We expect this to lead to higher acquisition counter competition would undermine profitability, is expense ratios across the industry, although this is realised by these results. beneficial for those trying to grow share.’ Gross margins for 2016 fall from 80% to 74.8% and Among the insurers in a stronger position relative guidance is for a further fall to 73% in 2017. (TS)

6 | SHARES | 02 March 2017 BIGBIG NEWSNEWS Stocks to watch as Scottish vote talk returns Which areas of the market might be affected if there is another referendum?

terling is under renewed pressure amid Financial firms with headquarters in Scotland, speculation Scottish first minister like Royal Bank of Scotland (RBS) and SNicola Sturgeon will trigger another Standard Life (SL.) both fell as polls independence referendum in 2018. narrowed ahead of the 2014 vote as Reports suggest her English did Glasgow-headquartered engineer counterpart Theresa May is preparing Weir (WEIR) and engineering services for another vote amid anger north business Babcock (BAB). of the border over May’s hard Brexit The latter was marked down as stance, including an expected exit from investors fretted about the loss of Royal the Single Market. Navy contracts for its shipyard in Rosyth, As well as impacting the currency Dunfermline. markets, the announcement of a second SSE (SSE) could also lose substantial state referendum, to follow the one held in September support for renewable energy projects if Scotland 2014, is likely to lead to some volatility on the exited the UK. stock market. WHAT DO THE POLLS SAY? LESSONS FROM HISTORY Most polling gives the ‘No’ campaign a healthy lead Looking at the shares which were affected in 2014 but a recent BMG poll for the Herald newspaper could offer some insight into areas to watch if calls saw support for independence at 49% if undecided for an independence vote solidify. voters were excluded. (TS)

homes means its buyers are not Gleeson not reliant on giveaways reliant on this giveaway. Company has little exposure to inflated house prices Management sees scope for growth as Gleeson expands into BUDGET HOUSEBUILDER MJ Gleeson Liberum forecasts, but this is justified areas such as Cumbria and West (GLE) could interest investors by the greater growth potential in Yorkshire and it recently opened a looking for exposure to the sector its niche of building low-cost homes new branch office in Nottingham. but nervous about an overheated on brownfield sites in the North of In the background its strategic property market. England. The average selling price of land business is humming away, The dividend was hiked 44% at the its homes is just £125,000. delivering a steady stream of profit half-year stage to 6.5p as increased as land, concentrated in the South cash flow helps bolster the balance FOCUS ON GENUINELY of England, is progressed through sheet and the company signaled its AFFORDABLE HOMES the planning system. confidence in demand (27 Feb). A Although around two thirds of prospective yield of more than 3.5% completions in the six month period SHARES SAYS:  looks increasingly attractive. benefited from the Government’s Gleeson has an attractive The company trades at a premium Help to Buy scheme, chief executive business model. Buy its shares to its larger peers on a price to book Jolyon Harrison tells Shares the at 589p. (TS) ratio of more than 1.8 times, based on affordability of the company’s

02 March 2017 | SHARES | 7 BIG NEWS Is Woodford set for a u-turn on banks? Investor prepares his third and final managed fund for Woodford Investments ritain’s most famous fund manager Neil unlike Woodford’s other two funds, CF Woodford Woodford is not ruling out banks for his Equity Income (GB00BLRZQ620), which he dubs a Bsoon-to-launch CF Woodford Income Focus total return fund ‘but with an income responsibility’, fund, despite previously having a negative view and Woodford Patient Capital Trust (WPCT). on the sector. A more concentrated portfolio prioritising income Interestingly, the notorious bank bear has been generation, the new fund will be unfettered by quoted as saying ‘I think banks are more investable the long tail of unquoted and small quoted tech than they have been in a long time, but I can’t tell businesses found in the first income product. you whether they will appear in the portfolio or not’. Investors can apply for units in CF Woodford The inclusion of banks, a logical source of high Income Focus through their stockbroker. The launch yield, would represent a u-turn for Woodford, offer period runs from 20 March until 12 April. (JC) who as recently as November 2016 told the AJ Bell Investival conference banks were ‘unappealing investments’ and concluded ‘life will remain difficult for banks to earn attractive returns’. Targeting an income of 5p in its first year off a £1 launch price, implying an initial yield of 5%, the new fund will benefit from the flexibility to invest overseas. Moreover, it will only invest in quoted assets,

Trump pledges £300m glass ceiling Conygar sells military boost property portfolio ANALYSTS REMAIN sceptical that IN NEWS which could have a new broadcast rights for ‘live’ CONYGAR INVESTMENT COMPANY knock-on effect for the likes of Champions League football in the (CIC:AIM) is set to sell its property BAE Systems (BA.), US president UK through 2018-2021 will fetch portfolio to Regional Commercial Donald Trump has announced a significant premium on last Midco for £129.8m. Assuming it he wants to increase military time. BT (BT.A) currently screens goes through, the deal would leave spending by anywhere upwards of the competition exclusively via a the company in a debt-free position $54bn. However any benefit may record £299m per season deal with and with the capacity to invest in its be limited given Trump’s ‘America governing body UEFA. Preliminary development assets. The pipeline First’ rhetoric. This is likely to see US bids will start this week but number includes a mix of leisure, residential operators get priority on any large crunchers at investment bank UBS and commercial projects. (TS) contracts. (TS) see a shared agreement as more likely. This could see BT and Sky (SKY) pay around £150m a season each. Sidestepping more football hyper-inflation would be a relief to both sets of shareholders. (SF)

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0118 324 3190 / 0800 690 6568 / Company No: 8120200 / Authorised and Regulated by the Financial Conduct Authority STORY IN NUMBERS

15.7% JUMP £24.3bn IN UK REMORTGAGE Personal pension APPROVALS IN JANUARY contributions break HOMEOWNERS ARE RUSHING to take advantage of historically low interest rates by locking in new mortgage deals. Lending data new record from the British Bankers Association shows 28,862 remortgaging THE TOTAL AMOUNT of approvals in January 2017, up 15.7% year-on-year. There was even money invested in personal momentum in new mortgage approvals, up 2.5% month-on-month pensions by employees and to 44,657 in January. The Bank of England is widely expected to employers reached £24.3bn in push up rates at some point in the near future if inflation gets out the fiscal year ending 5 April of control. 2016, a new record and up from £20.3bn a year earlier. Automatic enrolment into pension schemes is certainly according to market research a major reason behind the all- group Statista. Many people time high figure. assume China and Russia are This trend is likely to the major sources of such continue as regulations require damaging computer incidents, a minimum 8% contribution 24% but they came fourth and (including 5% from employees) fifth respectively after the UK from April 2019 onwards. and Germany. At the moment employers DDoS is one of the most and staff only have to common forms of cyber-attacks contribute 1% each – all figures on organisations, responsible are based on the employee’s US WORST for stealing users’ details, salary level. passwords, personal data, or OFFENDER FOR just shutting down IT systems CYBER-ATTACKS en masse. Lloyds bank was reportedly ALMOST A QUARTER (24%) on the end of a DDoS attack of DDoS cyber-attacks in in January when thousands of the fourth quarter of 2016 customers were prevented from originated from the US, using their online accounts.

$6.47bn: Warren Buffett’s costly mistake THE LATEST SHAREHOLDER Berkshire paid $434m for eye-watering $6.47bn. letter from Warren Buffett’s Dexter Shoe in 1993 and the His error caused Berkshire investment business Berkshire value of the business soon went shareholders to hand out Hathaway reveals how one to zero. It paid for the acquisition far more than they received. acquisition is ingrained in the in equity, giving Dexter’s sellers ‘Today, I would rather prep legendary investor’s memory 25,203 shares in Berkshire. That for a colonoscopy than issue for a bad reason. amount of stock is now worth an Berkshire shares,’ says Buffett.

10 | SHARES | 02 March 2017 STORY IN NUMBERS

FIRST DIVIDEND GROWTH 66% IN A DECADE Potential 10 jump in IMI’s YEARS FROM INTU 2017 earnings THE UK’S BIGGEST shopping centre owner, Intu Properties (INTU), has lifted its dividend for per share the first time in 10 years. The payout moves EARNINGS PER SHARE (EPS) could possibly from 13.7p to 14p on the back of 7% increase in improve by two thirds this year for fluid dynamics underlying profit for 2016 to £200m. The show of engineer IMI (IMI) in a best case scenario. faith is at odds with the uncertainty around Brexit Analysts at Numis Securities believe the and its impact on consumer confidence and a company could achieve 100p EPS versus consensus retail sector digesting higher business rates. forecast around the 60p mark at present. Jefferies analyst Mike Prew is not convinced They foresee a potential ‘jaw-dropping’ impact that Intu is a good investment at present, of operational gearing as costs are stripped from reiterating a 229p price target and ‘underperform’ the business. Achieving this EPS uplift would recommendation. Intu presently trades at 290p. require pulling off a major acquisition.

HIGHEST 1 YEAR TOTAL RETURN FROM BEST PERFORMING FTSE ALL-SHARE REAL ESTATE INVESTMENT TRUSTS SECTORS SO FAR IN 2017

1 Segro SGRO 21.6% Sector Gain/Loss 2 Safestore SAFE 16.3% Personal Goods 14.2% 3 Assura AGR 14.7% Forestry & Paper 12.6% 4 Tritax Big Box BBOX 14.5% Mining 9.5% REIT Tobacco 9.1% 5 Hansteen HSTN 12.6% Industrial Metals 8.1% 6 Workspace WKP 11.3% Beverages 8.0% 7 Hammerson HMSO 11.2% Electronic & Electrical 7.7% 8 F&C UK FCRE 11.0% Equipment Real Estate Household Goods & 7.4% Investment Home Construction 9 Schroder Real SREI 9.3% Estate I.T. General Industrials 5.6% 10 Custodian CREI 8.8% Industrial Engineering 4.7% REIT Source: SharePad. Data to 27 Feb 2017 Source: SharePad. Data to 27 Feb 2017

02 March 2017 | SHARES | 11 GREAT IDEAS Earn more every year with Bunzl FTSE 100 distributor excels at buying companies and making them better

he return of Bunzl (BNZL) in which it operates. to more normal valuation BUNZL  BUY levels is reason to take (BNZL) £22.39 WHAT DOES BUNZL DO? T Stop loss: £15.50 another look at one of the Bunzl is quite simple to FTSE 100’s best dividend Market value: £7.5bn understand. It supplies things growth stories. that companies need in order to It could benefit from Donald do business; but not items they Trump’s plans to boost the US would sell to their customers. For economy as North America example, it supplies disposable accounts for 60% of its sales. coffee cups to cafes and food The ongoing recovery in the oil wrap to supermarkets. and gas sector is also helpful. It It buys companies and makes provides safety equipment to them better, leading to increased the space. profitability and cash flow. Shares in the distribution The latter helps to fund higher business soared last summer dividends each year and funds as investors flocked to own more acquisitions. Bunzl calls this companies with big overseas a ‘compounding strategy’. earnings which would enjoy a It has paid out £1bn in translation boost when reported dividends since 2004 and spent in sterling. The benefits were £2.4bn on acquisitions – all self- apparent in full year results funded. Acquisitions drive reported earlier this week (27 its earnings. Feb) with Bunzl estimating a 10% Organic revenue growth boost from currency conversion. Bunzl’s shares fell nearly was next to nothing in 2016, 20% in late 2016 as investor partially as a result of losing a IN AND OUT OF FAVOUR appetite for bond proxies big customer. However, pre-tax Bunzl is often considered to be a waned. They’ve now started to profit – assuming no change in ‘bond proxy’ which is a term to recover as investors return to exchange rates – grew by 6% describe defensive companies quality businesses in the face which is a better indicator of that have safe, predictable returns of uncertain global economic Bunzl’s typical performance. (DC) and fairly limited share price conditions. movements year in, year out. We think it is unfair to BROKER SAYS: 285 Bond proxies become less classify Bunzl as a bond proxy.

BUNZL desirable when there are Its share price has doubled FTSE ALL SHARE expectations for higher interest in the past four years which 2500 2400 rates. The stock market expects doesn’t conform to the normal 2300 more significant returns from pattern of a pedestrian, 2200 equities at this point in the cycle, defensive stock. The company 2100 making bond proxies and their calls itself ‘GDP-plus’, meaning 2000 limited likelihood of large share its earnings should grow in 1900 1800 Source: Thomson Reuters Datastream price gains less appealing. excess of GDP in the countries 2016 2017

12 | SHARES | 02 March 2017 GREAT IDEAS Reliable growth and income with Zytronic Touch technology firm has copper-bottom balance sheet

eliable growth at a displays are in demand, 30 reasonable price is not ZYTRONIC  BUY inches or larger, used as they are always easy to find among (ZYT:AIM) 405p to engage with consumers or R Stop loss: 324p smaller companies but Zytronic boost productivity. This is a plus (ZYT:AIM) is a UK technology Market value: £61.7m for Zytronic because it means business that offers just that. more capacitive technology Paying dependable dividends on components are used per unit, a 4%-plus yield, investors get a boosting profit margins. carefully run, attractive, income- The company sold 14,000 paying stock with all the tax display units of 30 inches or breaks that AIM offers. bigger last year, up from 9,000 The shares often look in 2015, helping gross profit inexpensive relative to the wider margins improve from 41.9% to sector; they currently trade on 42.8% year-on-year. a forward price to earnings (PE) Encouragingly, underlying multiple of 14.2 for the full year trading continues to strengthen. to 30 September 2017. The Given management’s typically rating dips to 13.5-times 2018 cautious guidance, this could see forecasts. This is largely due to the company outperform current the project nature of its contacts expectations. Further positive with limited forward visibility, a notes on trading would likely factor that upset trading briefly in see forecasts raised, bolstering early 2013. investor sentiment further and But Zytronic is also a big trigger a meaningful re-rating of exporter (95% of revenue goes the stock. overseas) that stands to leverage With net cash of £11.6m (19% the weak pound through this of the market cap), there’s also a year and beyond as previous applications, ATM machines in decent chance that some of that hedging contracts unwind. It particular, but is increasingly surplus money could be returned is also improving the quality tapping new markets. Interactive to shareholders as a special of its profits through judicious screens for gaming terminals are dividend. (SF) investment in research and a significant market, plus vending development, and has emerging machines, medical appliances, BROKER SAYS: 001 growth market opportunities entertainment displays and other ZYTRONIC before it. industrial applications where FTSE ALL SHARE 460 touch-screen controls tend to 440 BIGGER DISPLAYS, HIGHER get bashed about. It supplies the 420 PROFITS displays for London’s ‘Boris Bikes’ 400 380 The Newcastle-based company terminals, for example. 360 designs and builds rugged, For many of the company’s 340 320

mainly touch-interactive displays. customers bigger is better. Source: Thomson Reuters Datastream 300 It built its reputation on outdoor Much larger and curved touch 2016 2017

02 March 2017 | SHARES | 13 GREAT IDEAS UPDATES

TREATT SERCO (TET) 325p (SRP) 116.33p

Gain to date: 25.5% Loss to date: 17.5% Original entry point: Original entry point: Buy at 258.93p, 16 February 2017 Buy at 141p, 22 December 2016 OUR ‘BUY’ CALL on flavour and fragrance specialist EXPECTATIONS WERE VERY low ahead of Serco’s Treatt (TET) has yielded a sweet 25.5% gain. An (SRP) results, so why did its shares fall 18% when excellent trading statement (23 Feb) was the the figures were published on 22 February? To catalyst for another round of earnings upgrades. be honest, we’re not sure as results were in line Although it is tempting we are resisting the urge with expectations and there was no change to to take profits. This high-quality business should the company’s earnings guidance for the 2017 continue to deliver healthy organic growth and financial year. could enjoy further upward earnings revisions. We chose to include Serco as one of our tips The £164.9m cap it expects profits for the year of the year in 2017 in the belief that the market to September to ‘substantially exceed’ previous would focus on growth prospects rather than past expectations. Top line momentum has been problems. The shares have so far gone the opposite gathering pace due to new business wins and way than we’d hoped. growth with existing customers, while Treatt is also The company has flagged it is chasing six seeing the beneficial impact from higher product large contracts. Decisions will be made on these margins as it delivers more enhanced solutions to contracts in the next 12 months, we understand. food ingredient, food and beverage customers. They include SERCO GROUP Encouragingly, order books for the rest of this FTSE ALL SHARE transport work 160 Rebased to first year and next are ‘materially up’ on a year ago. 150 in the Middle Paid-for research house Edison has upgraded its 140 East and prison full year pre-tax profit estimate by more than 20% 130 work in Australia.

TREATT 120 FTSE ALL SHARE to £11.5m-plus, Some of these 110 340 while its year to deals, if won, 320 100 300 September 2018 90 Source: Thomson Reuters Datastream may not impact 2016 2017 280 forecast rises by profit until 2019. 260 240 almost 29% to 220 north of £12.6m. SHARES SAYS:  200 180 We have full confidence in the management team; 160 Source: Thomson Reuters Datastream 2016 2017 the key issue is the pace of the turnaround. Serco says its road to recovery will be long. Anyone who SHARES SAYS:  followed our suggestion to buy in December 2016 Although Treatt’s prospective PE is approaching 20 needs to be very patient or cut their losses now. We times, based on forecast earnings of 16.5p, we’re remain confident that Serco’s shares will end the staying positive given the sales momentum and year higher than when they started. (DC) higher margins. (JC) BROKER SAYS: 2 11 3 BROKER SAYS: 1 0 0

14 | SHARES | 02 March 2017 VIDEOS WATCH THE LATEST SHARES VIDEOS

SAMPLE VIDEOS Richard Clemmey, MD of CLICK TO Martin Perrin, CFO of Tertiary Minerals (TYM) PLAY Vipera (VIP)

Alex Borrelli, Chairman & CEO and Jeremy Hawke, Mining & Operations Director of BMR (BMR)

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

www.sharesmagazine.co.uk/videos MONEY MATTERS Helping you with personal finance issues Can you live off a natural yield? Low yields mean keeping a pension pot intact is harder than before

n theory a sensible approach for income-seeking I investors, the ‘natural yield’ retirement strategy has been slammed as a ‘bonkers’ tactic that is unsuited to the current low yield environment.

WHAT IS NATURAL YIELD? The concept of natural yield has been around for generations. Instead of selling your investments to provide income, you only draw the income generated by the investments themselves. This could include dividends from shares, bond coupons and interest on cash. Proponents of natural yield Bell Youinvest. a recent blog. argue that it is a safer strategy Overweighting high-yield asset than drawing pension capital WHY HAS IT COME classes like commercial property because there isn’t a risk of UNDER ATTACK? and high-dividend equities can your money running out. In Although natural yield is a good be risky because they tend addition, you can pass the theory, in practice it isn’t as easy to have large drawdowns, intact retirement pot onto your or safe as it might seem. The especially during stressful children when you die. yield from investments can vary market conditions. During the ‘The argument is that considerably so your income financial crisis, global real estate investors should be focused on could be vastly different from investment trusts lost 56% in income and not the size of the one year to the next. value and UK equity income pot, designing the portfolio so Abraham Okusanya, director assets lost 47%. The drawdowns cash comes in from coupons at Finalytiq, describes natural in emerging market bonds and dividends to meet your yield as a bonkers strategy for were significantly lower at 14%, needs and ensure you can live all but very wealthy retirees. He according to Okusanya. to the standards you want. says the approach creates an The idea is to take the unacceptable level of volatility NATURAL YIELD IN A LOW- stress out of gain-hunting and in retirees’ income and makes YIELD ENVIRONMENT effectively run an immunisation budgeting nearly impossible. Deriving an income from strategy, matching cash out ‘Once adjusted for inflation, natural yield is particularly with cash in,’ explains Russ natural income yield is highly difficult in the current economic Mould, investment director at unlikely to meet the spending environment of low interest stockbroker and self-invested pattern of most retirees, bar the rates on cash and poor yields on personal pension provider AJ very wealthy,’ Okusanya writes in fixed interest products. Even if

16 | SHARES | 02 March 2017 MONEY MATTERS you find a high yielding product, that yields can change quickly much of the yield will be wiped and significantly. If a stock has an out by inflation. unusually high yield it could be Patrick Connolly, head of a sign the market is saying the communications at financial dividend is unsustainable and advice firm Chase de Vere, says could be scrapped. investors are effectively being Retirees should think about forced to take more risk to their capacity for loss and how generate the same level much money they really need to of income. live on. ‘It was previously considered ‘While income generation will possible to hold a balanced and be a key financial goal for many diversified investment portfolio, people it doesn’t make sense to including equities, property, try and produce an unrealistically fixed interest and cash, and to high level of income if this means generate a natural income of compromising on your asset around 5% per annum. This is no allocation strategy and taking longer the case,’ he states. excessive levels of risk. Instead of searching for high ‘Those who do this might yielding assets, Connolly says a have a solution which works in better approach is to focus on the short-term, but could very long-term asset allocation by easily be storing up problems for holding a diversified investment the future in terms of volatile portfolio with an acceptable investment performance and level of overall risk. If this doesn’t potentially significant capital generate enough natural income, losses,’ warns Connolly. you can top this up by making capital withdrawals rather than BEST OF BOTH WORLDS looking for riskier income options. Whichever retirement income This is akin to the ‘total return’ strategy you choose, it can be investment approach, which sensible to have a guaranteed ignores the difference between level of income which at least capital growth and dividends. It covers your basic living costs. seeks to draw income from both This guaranteed income is likely in a sustainable way. to come from defined benefit pension schemes, the state IS NATURAL YIELD SUITABLE pension and annuities. FOR ANYONE? ‘A guaranteed income can be Generating a natural income to secured via the state pension and cover your expenditure might an annuity to cover basic living work well if you have realistic have a role to play. In addition, it costs and needs. Investment income targets and are prepared might be suitable for someone income, either via income to take some investment risk. who has a different agenda – drawdown or other investments, However, you will need a very for example constructing their can then be used to fund more large pension pot in the first portfolio in the most tax-efficient discretionary spending which place to be able to generate a big manner,’ says Jon Wingent, head in itself is more variable. This enough yield. of portfolio specialists at Lloyds combination of certain income ‘If you’re wealthy and your Wealth Investment Office. and variable income in retirement pension isn’t your sole source of Even then, Wingent says is likely to be a good strategy for income then natural yield could investors need to remember most people,’ says Mould. (EP)

02 March 2017 | SHARES | 17 MONEY MATTERS Helping you with personal finance issues Top tips if you’re late to retirement planning Don’t panic! Anyone in their 40s and 50s still has time to build up a pension

ife often gets in the way of our best laid plans. Saving Lfor a first home, raising kids and sky-high tuition fees often mean people don’t think seriously about retirement until their 40s or 50s. If this sounds like you, don’t panic! Everyone’s pension journey is different and, with a bit of planning, you can still build a nest egg that will last throughout your retirement. Automatic enrolment reforms contributions in order to work converted into £1,000 in your mean that, from 2019, all UK out what you need to pay in each SIPP through tax relief. employers will have to offer year for a decent retirement. Furthermore, any investment a workplace pension and So if you start at age 40, you’re growth is tax-free, while match at least your first 3% of looking at total contributions of withdrawals will be taxed in the contributions. That’s free money around 20%. Clearly this is just a same way as income. from both your employer and guide, but it gives you an idea of the Government. how much extra you might need MAKE THE MOST OF YOUR You will also be entitled to to save. TAX ALLOWANCES some state pension, provided There are a range of Government rules allow you to you have at least 10 years of different vehicles available for save up to £40,000 a year in total qualifying National Insurance retirement saving. For many, a in a SIPP, inclusive of tax relief contributions. The Government self-invested personal pension and dependent on earnings. has a handy tool you can use (SIPP) provides the right mix of That means even if you start to check your state pension flexibility, investment choice saving later in your life, you can entitlement. Click here. and low charges. still utilise free money from the Increases in life expectancy Like other types of pension, Government to boost the value mean the age at which you SIPPs are extremely tax efficient. of your pension pot. receive your state pension is Tax relief is paid at your marginal Furthermore, ‘carry forward’ likely to rise in the future. rate, so if you are a 40% taxpayer rules mean that, if you haven’t So what can you do to make you get 40% tax relief. used your pension allowances sure your own contributions For example, if you make an in the previous three tax years, go further? £800 contribution into your SIPP, you can use them in the current you automatically get £200 in tax tax year – meaning you could TOP UP YOUR EXISTING relief from the Government. utilise a bumper allowance of CONTRIBUTIONS You can also claim a further £160,000. A handy rule of thumb suggests £200 through your self- that you can halve the age assessment tax return. That TOM SELBY, at which you start making means a £600 contribution is senior analyst, AJ Bell

18 | SHARES | 02 March 2017 Shares Investor Evenings are designed to showcase a number of presentations from dynamic companies. Join us in London on March 7th and March 23rd BOOK YOUR COMPLIMENTARY TICKET. REGISTER FREE TODAY

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Companies presenting March 23rd Sound Energy (SOU) James Parsons - CEO Sound Energy is a well-funded Mediterranean upstream company, listed on AIM, with cost covering production, a cornerstone investor, a strategic partnership with Schlumberger (one of the largest companies in our sector) and an active and potentially transformational drill programme. Sphere Medical (SPHR) Dr Wolfgang Rencken - CEO Sphere Medical is a dynamic and growing company specialising in the development of innovative medical monitoring and diagnostic equipment. Their products are used in a wide range of medical applications, enabling faster clinical decision-making and improved patient outcomes, whilst providing efficiencies that result in reduced healthcare costs.

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Why attend? Event details The chance to network with other private investors, wealth Location: Novotel Tower Bridge, managers, private client brokers, fund managers and financial London EC3N 2NR institutions. Presentations to start at: 18:30 For any enquiries, please contact: Complimentary drinks and buffet available Chris Williams, Spotlight Manager after presentations [email protected] | 0207 378 4402

Register free now www.sharesmagazine.co.uk/events TALKING POINT Our views on topical issues We remain unimpressed by banking shares Updated views on Barclays, Standard Chartered, Lloyds, HSBC and RBS

e have produced a BARCLAYS STANDARD CHARTERED snapshot of the latest (BARC) 225.7P (STAN) 725P W set of results from the RESULTS: 23 FEBRUARY RESULTS: 24 FEBRUARY main London-listed banks to help you navigate the sector. WHAT DID WE LEARN? WHAT DID WE LEARN? In this article we discuss Barclays is better capitalised After posting the first loss in the most important figures, than many had feared with more than 25 years in 2015, the management outlook, how a core capital ratio of 12.4% company crept back into profit investors reacted and our current against an expected 11.8%. The in 2016. There is little prospect view on each investment case. company also revealed plans for of the dividend being restored in an accelerated divestment of its the near-term. non-core assets (the so-called Profit excluding one-off bad bank). items came in at $1.1bn against Profit more than trebled in expectations for $1.4bn with its 2016 to £3.2bn but the company SCPE private equity unit proving was still short of expectations particularly troublesome. for nearly £4bn. Management remain cautious with no plans to HOW DID THE SHARES REACT? increase the dividend at present. The shares sank, reflecting a more negative market mood HOW DID THE SHARES REACT? towards the sector and its Up 3% when the results were own worse-than-expected first announced but quickly performance. reversing gains as investors fully digested the numbers and the WHAT IS OUR VIEW NOW? downbeat tone of management. In theory, a recovering Standard Chartered could provide an WHAT IS OUR VIEW NOW? interesting way of playing Like several of its peers, Barclays emerging markets resurgence. has risen sharply from the lows In reality, there are just too seen in the wake of the Brexit many uncertainties to warrant vote. We see little scope for investing in this stock. further upside.

BARCLAYS STANDARD CHARTERED FTSE ALL SHARE FTSE ALL SHARE 260 Rebased to first 850 Rebased to first 240 800 750 220 700 200 650 180 600 550 160 500 140 450 Source: Thomson Reuters Datastream 120 400 Source: Thomson Reuters Datastream 2016 2017 2016 2017

20 | SHARES | 02 March 2017 TALKING POINT

LLOYDS BANKING HSBC ROYAL BANK OF SCOTLAND (LLOY) 69.7P (HSBA) 649.4P (RBS) 234.9P RESULTS: 22 FEBRUARY RESULTS: 21 FEBRUARY RESULTS: 24 FEBRUARY

WHAT DID WE LEARN? WHAT DID WE LEARN? WHAT DID WE LEARN? Pre-tax profit for 2016 was up In the words of Shore Capital RBS, unlike Lloyds, is still miles 158% to £4.24 billion, a level analyst Gary Greenwood, HSBC away from repairing the damage not seen since 2006. Overall is a stock ‘the market appears to wrought by its own failings and the results were better than have (wrongly) assumed is a one the financial crisis. expected and guidance for 2017 way bet on rising US rates’. A 2016 loss of £7bn is more suggests consensus forecasts on The results revealed a 62% than three times as large as the forward earnings and dividends year-on-year decline in 2016 £2bn posted in 2015 thanks to may also be too conservative. profit thanks to several one-off ongoing legal action in the US The Government also cut its items. The $7.1 billion figure and an abandoned effort to sell holding from 5% to less than 4% was a long way short of the $14 its Williams & Glyn business. in the wake of the results. billion expected by analysts. Guidance is for a return to Recent top-line trends do not profitability in 2018. Investors will HOW DID THE SHARES REACT? look too encouraging either only believe it when they see it. They topped the FTSE 100 with $11 billion of revenue in leaderboard on the day as the fourth quarter against the HOW DID THE SHARES REACT? investors lapped up the big $12.3 billion consensus forecast. They retreated but perhaps not increase in profit and positive Management also pointed to by as much as you might have outlook. The shares have several near-term headwinds feared given the scale of the subsequently given back some including forex movements and losses. The market clearly had of those gains amid broader lower UK interest rates. low expectations. weakness in the sector. HOW DID THE SHARES REACT? WHAT IS OUR VIEW NOW? WHAT IS OUR VIEW NOW? Not well. Having endured a sharp We reported how the shift in It’s a good performance but fall in the aftermath of the results strategy with regards to Williams we want to see more in order the shares are now down 8.5% on & Glyn could speed up the to get excited. Chief executive their pre-results level. return of dividend payments but Antonio Horta Osorio has done a performance remains too poor great job of turning the business WHAT IS OUR VIEW NOW? for us to suggest considering around but we are a little We’re not the biggest fans this as an investment. The nervous of the £1.9bn deal to of banking stocks full stop; Government’s 72% stake is an acquire MBNA’s consumer credit however, HSBC is perhaps one unhelpful overhang. (TS) card business at a point in the of the more interesting of the economic cycle where bad debts bunch. Assuming the company could be about to rise. can maintain dividend payments it could interest income investors on a 6% prospective yield.

LLOYDS BANKING GROUP HSBC ROYAL BANK OF SCTL.GP. FTSE ALL SHARE FTSE ALL SHARE FTSE ALL SHARE 90 750 Rebased to first Rebased to first 280 Rebased to first 85 700 80 260 650 75 240 70 600 220 65 550 200 60 500 55 180 50 450 160 Source: Thomson Reuters Datastream Source: Thomson Reuters Datastream 45 400 140 Source: Thomson Reuters Datastream 2016 2017 2016 2017 2016 2017

02 March 2017 | SHARES | 21 TOP TRICKS: THREE NIFTY WAYS TO GET MORE FROM THE LIFETIME ISA

help them build a decent savings and investment pot via this new type of ISA. You may question why we’ve written £33,050 when the Government says you can only earn up to £32,000. That’s because we’ve spotted a loophole nvestors can receive up to £33,050 of free where you can earn an extra £1,050. Keep reading money from the Government by using the new to discover how to do it. Lifetime ISA. We’ve spotted three neat ways to Iget a head start with grabbing this bonus cash if WHAT YOU WILL LEARN FROM THIS ARTICLE you are less than 40 years old on 6 April 2017. In this article we explain how the new Lifetime ISA Even if you are 40 or older on this date, you works; how to get the most from it; and we discuss shouldn’t make the mistake of thinking the Lifetime how it compares to a pension. ISA is irrelevant to you. We’ve identified a good Furthermore, we explain the decisions you way in which you can help family and friends access need to make when deciding if the Lifetime ISA is the Government bonus cash. In doing so, you can appropriate for you.

22 | SHARES | 02 March 2017 THREE TOP TRICKS LIFETIME ISA IN 20 SECONDS Our top tactics involve transferring existing positions from Cash ISAs, Stocks & Shares 1. Available to anyone under 40 years as of ISAs or Help To Buy ISAs. 6 April 2017 We also advise anyone under 40 who is 2. Pay in up to £4,000 a year and receive 25% cash not ready or able to start using a Lifetime bonus from the Government ISA to put £1 in an account to guarantee 3. Bonus paid until you reach age 50 qualification for the Government bonus cash until you are 50 years old. We will 4. Penalty-free and tax-free withdrawals if using explain these strategies in full later on. money to buy first home or you have critical illness 5. For all other circumstances, money locked away HOW DOES THE LIFETIME ISA WORK? until age 60 unless you pay 25% penalty on total THREE NIFTY The Lifetime ISA is quite easy to understand. Adults investment pot under the age of 40 (as of 6 April 2017) can open an account and pay in up to £4,000 in each tax WAYS TO GET year. The Government pays 25% bonus (i.e. up to £1,000) on these contributions annually. The bonus MORE FROM THE is paid up to the age of 50. You can withdraw money without penalty to buy WHO IS BEST SUITED TO your first home worth up to £450,000 or if you are USING A LIFETIME ISA? terminally ill. Otherwise the money is locked in the The free cash from the account until you reach age 60. Withdrawals at this Government makes Lifetime ISAs stage will be tax-free. very attractive – but they aren’t right Anyone who wants to ‘unlock’ the money before for everyone. this age (excluding first property purchase or critical They are great if you want to illness) will be subject to a nasty 25% penalty charge buy your first house or save for which includes any money you’ve made thanks to retirement. They aren’t necessarily investment growth. More on this later. the best wrapper for your savings and investments if you want to access the WHERE CAN I GET A LIFETIME ISA? money for other reasons before the age Share dealing and self-invested personal pension of 60 due to exit penalties. (SIPP) provider AJ Bell Youinvest is likely to be Neither is the Lifetime ISA one of the first providers to launch a Lifetime ISA, automatically a more attractive potentially in late April or May. substitute for pensions; it depends The Financial Conduct Authority has yet to on your personal circumstances. finalise the full rules and regulations for the savings Anyone in full time employment and investments wrapper, hence why you are should benefit from additional pension unlikely to see many financial services providers contributions from their employer which you have Lifetime ISAs ready for the 6 April official wouldn’t get with a Lifetime ISA. Both wrappers launch date. have Government bonus payments, albeit Everything in this article is only based on guidance presented in different forms. One is tagged as a to date and could be subject to minor amendments ‘bonus’, the other is ‘tax relief’ – essentially they once the final regulations are published. are the same. Longer-term we wouldn’t be surprised to see To help you better understand when to use the the Government take a more flexible approach to Lifetime ISA, we will now run through a range the circumstances in which you can access cash of different real life scenarios. If you’ve already earlier than age 60. This might involve borrowing bought your first home, skip past the first section money from the ISA without any charges to fund until you see ‘Scenario 2’ where we discuss other a wedding, for example, as long as the funds are reasons to use – or not use – a Lifetime ISA from paid back. that point onwards in the article.

02 March 2017 | SHARES | 23 SCENARIO 1: SAVING TO BUY YOUR FIRST HOME

YOU CAN SAVE money into a Lifetime ISA and a 25% bonus anyway, but you only get the money withdraw funds (including any Government bonus) on exchange of contracts on your first home. By to buy your first home at any time from 12 months transferring to a Lifetime ISA you get the bonus after opening the account. after the first year so the Government’s free cash can benefit from any investment growth. TOP TRICK #1 Transfer money from an existing Cash ISA or Stocks SHOULD YOU SAVE IN CASH OR INVEST IN & Shares ISA to quickly fund your Lifetime ISA and THE STOCK MARKET? qualify for FREE MONEY from the Government. Help to Buy ISAs are only allowed to hold cash whereas you can also hold shares and investment You won’t get any Government bonus until the funds in a Lifetime ISA. money has been in the new account for at least This brings us to a very important point. Where 12 months. should you invest if you are saving up for a house: The money from your Lifetime ISA to help fund in cash or the stock market? It all depends on when a first home is paid directly to the conveyancer/ you plan to buy the house. solicitor, not you. As a rough guide, we believe you should stay in cash if you want to buy within three years. TOP TRICK #2 That period is unlikely to give you enough time to Transfer money from an existing Help to Buy ISA recover from any large dip in the stock market. by 5 April 2018 and contribute additional money Opt for lower-risk, global diversified investment to your Lifetime ISA in that tax year to qualify funds if you want to buy within three and five years. for MORE THAN the £1,000 FREE MONEY you’d Anyone with more than five years before they normally be able to get from the Government. want to buy a house should consider a broader portfolio of equities, funds and bonds, albeit not Anyone who has already invested money into a high risk investments. Help to Buy ISA has the chance to earn a bumper bonus after the first year of using a Lifetime ISA. HOW MUCH COULD YOU EARN? Here’s how to do it. The average deposit for first time buyers in 2016 The Help to Buy ISA launched on 1 December was £32,321 according to Halifax. Therefore 2015. You are allowed to invest up to £1,200 in someone who saves the maximum £4,000 the first month, then a maximum of £200 a month each year into a Lifetime ISA and receives the thereafter. The maximum investment would Government’s bonus of £1,000 each year could end therefore be £4,200 by the end of up with enough money in roughly six to March 2017 (i.e. a week before seven years. the Lifetime ISA launches). You would make £35,646 in Transfers from Help to HOUSE DEPOSIT GOAL: six years if your investment Buy ISA to the Lifetime INVEST IN STOCK MARKET OR portfolio grew at 5% a year. ISA don’t contribute STICK TO CASH? For those putting the Depends when you want to buy. towards the £4,000 We’d suggest: money into cash, your yearly allowance, yet • Less than three years: stick to cash savings would be worth they do qualify for • Three to five years: low-risk £36,418 after seven years the bonus. investments of investing the full amount So you could transfer • Five+ years: A diversified and achieving 1% interest. £4,200 from a Help to Buy investment portfolio Anyone saving half the ISA and save a further £4,000 maximum amount in a Lifetime into the Lifetime ISA in the ISA (£2,000 from you; £500 from first year for a total of £8,200. The the Government) would take 10 years Government will pay a bonus on the full to reach the average deposit via the stock amount, worth £2,050. market at 5% annual return; and 13 years via cash There is a catch. The Help to Buy ISA comes with at 1% annual interest.

24 | SHARES | 02 March 2017 SCENARIO 2: I WANT TO USE THE LIFETIME ISA AS A RETIREMENT SAVINGS VEHICLE AS I ALREADY HAVE A HOUSE

EARLIER IN THE article we said one of our ‘top SHOULD YOU STOP PAYING INTO YOUR tricks’ for making the most of the Lifetime ISA PENSION AND USE A LIFETIME ISA INSTEAD? was to transfer existing money from a Cash ISA Many people will look at the bonus associated with or Stocks & Shares ISA. That also applies if you the Lifetime ISA and assume it is more generous want to use a Lifetime ISA as a retirement than a pension. It isn’t. savings vehicle. Basic rate taxpayers can put £4,000 into a You need to be certain that you don’t want to pension and the Government will top it up with access the money before 60 without a penalty. You 20% tax relief to £5,000. The same £4,000 into a would be transferring money from a vehicle that Lifetime ISA also becomes £5,000 thanks to the has instant access to one with restricted access. 25% Government bonus. You should also consider any fees from The 20% and 25% figures are a bit confusing; transferring your portfolio as some providers will they ultimately lead to the same total figure. impose a charge for ISA transfers. The former calculation is 20% based on the total amount including the Government’s contribution. TOP TRICK #3 The latter is based on the amount you contribute. Are you close to turning 40 years old and worried A higher rate tax payer gets 40% tax relief on that you will miss out from qualifying for a pensions. They put in £4,000 and the Government Lifetime ISA because you don’t have any money at tops it up by £1,000 so your total inflow is £5,000. present to invest? Open a Lifetime ISA and deposit An extra £1,000 is then taken off your tax bill. That £1. This will guarantee you access to the account certainly beats a Lifetime ISA. and mean you can invest later in life up to the age If you are a higher rate taxpayer, you will be of 50 and still qualify for the Government Bonus. better off with a pension until you breach the annual (£40,000 a year) and lifetime (£1m) Once you’ve worked out your allowances, when you become liable capacity for funding the for nasty tax charges. At this stage, Lifetime ISA purely as a the Lifetime ISA is a very good retirement vehicle, the DON’T SACRIFICE LONGER TERM alternative option if you want next step is to establish SAVINGS JUST TO BUY A HOUSE to save further money and your time horizon for • Opting out of a workplace pension benefit from Government investing and risk to focus on saving for a house incentives. appetite. deposit via a Lifetime ISA could be a One area to consider Theoretically, the dangerous move when weighing up the longer time you can • You’d lose the benefits of time in the Lifetime ISA versus market for retirement saving spend invested in the pensions decision is the fact • You may also lose out on valuable market, the higher employer contributions and that saving in the former the risk you can afford Government tax relief – ie. TWO SETS vehicle can impact your to take. However, not OF FREE MONEY – to your pension benefit entitlement. Another everyone has the appetite factor to consider is that you can to put their money into less take money from your pension aged predictable areas like emerging 55; you need to be 60 to start cashing in markets, biotech stocks or commodities. Lifetime ISA money without penalty. This decision is purely up to you. Furthermore, anyone contributing to a We will be running a series of articles in March workplace pension is likely to get additional and April that discuss fund and stock suggestions contributions by their employer. Indeed, under for different risk appetites and time horizons. auto-enrolment all employers will eventually Make sure you keep reading Shares every week be required by law to match your first 3% of as these articles will provide a wealth of ideas for contributions and many will offer an even better you to research further and potentially consider as deal. Therefore that’s even more ‘free’ money additions to your portfolio. going into your retirement savings pot.

02 March 2017 | SHARES | 25 SCENARIO 3: I DON’T KNOW IF I WILL BUY A HOUSE AND I DON’T KNOW IF I WILL NEED TO ACCESS MY SAVINGS BEFORE I RETIRE.

THIS IS A tricky situation. Our first reaction would a reduction of £7,237 – significantly more than the be: ‘don’t tie up your money’ as once it is in a £5,000 that the Government would have put in Lifetime ISA, it is there until you turn 60 if you your pot as annual bonuses. want to avoid penalties (and don’t want to buy A normal Stocks & Shares ISA will give your first house). you the freedom to move money in and out The exit charges can be really painful once you whenever you like, subject to you having liquid look at a few illustrations. For example, investing investments. A Lifetime ISA will give you free £4,000 a year (and receiving £1,000 a year from money, assuming you also contribute, but those the Government as a cash bonus) would see your funds are locked away. portfolio grow to £28,949 after five years assuming If you can, open both a Lifetime ISA and 5% annual gain on your investment, according to a Stocks & Shares ISA. Contributing to both calculations by AJ Bell. wrappers would allow you to have a pot of money If you withdrew that money from your Lifetime that is easily accessible and a pot that would also ISA before 60 and didn’t use the money to buy benefit from the Government bonus. your first home, you’d only be left with £21,712 Just remember that you can only invest a after paying the 25% Government penalty. That’s maximum £20,000 a year across all types of ISAs.

SCENARIO 4: GIVE YOUR FRIENDS AND FAMILY A HELPING HAND

ANYONE OVER THE age of 40 and not eligible necessary incentive to encourage them to keep for the Lifetime ISA shouldn’t ignore the savings the money invested in the stock market or held and investment wrapper. It could be the ticket to in cash. helping people develop a healthy habit of saving Everyone in the UK has a £3,000 ‘gifting money from a young age. allowance’ per year, being the maximum A great birthday or Christmas someone can give to another present for someone in your individual without the recipient family or a friend might be ARE YOU TOO OLD FOR having to pay inheritance money that you insist they LIFETIME ISA? WHY NOT HELP OTHERS tax. That means you could put into a Lifetime ISA. theoretically give your child • You can gift up to £3,000 a year Your child might without inheritance tax liabilities up to three quarters of the already have a Junior money they are allowed • Putting cash into your child’s ISA and money from Lifetime ISA (if they are over 18) to put into a Lifetime ISA that wrapper could be could encourage them to develop each year without any transferred into a Lifetime their own long-term savings habit tax liabilities. They’d then ISA once they turn 18. benefit from the Government Many parents are worried bonus on this gift, if held in a their children will spend any Lifetime ISA. money inside a Junior ISA once You can give more than £3,000 a they become an adult and have control year to your family and they wouldn’t have over the funds. Instead, the 25% Government to pay inheritance tax as long as you lived for at bonus from the Lifetime ISA could be the least seven years after gifting this money. (DC)

26 | SHARES | 02 March 2017 KEEP READING THIS CLICK ON THE BOXES TO JUMP WEEK’S SHARES AND TO A STORY DISCOVER: FUNDS TO PLAY GENUS STRIKES BLUE PRISM IS UP EMERGING MARKETS TASTY DEAL TO BOOST 500% IN LESS THAN RECOVERY EUROPEAN POSITION A YEAR PAGE 28 PAGE 32 PAGE 33

A GAME CHANGING YEAR SEARCHING OUT SECURE FOR OXFORD BIOMEDICA? INCOME VIA FUNDS PAGE 44 PAGE 46

WHO WE ARE BROKER RATINGS EXPLAINED: EDITOR: DEPUTY NEWS FUNDS AND Daniel EDITOR: EDITOR: INVESTMENT TRUSTS We use traffic light symbols in the magazine to illustrate Coatsworth Tom Sieber Steven Frazer EDITOR: broker views on stocks. @SharesMagDan @SharesMagTom @SharesMagSteve James Crux @SharesMagJames JUNIOR REPORTER: CONTRIBUTERS Green means buy, Orange means hold, Red means sell. Lisa-Marie Janes Emily Perryman @SharesMagLisaMJ Tom Selby The numbers refer to how many different brokers have that Nick Sudbury rating. PRODUCTION ADVERTISING MANAGING DIRECTOR Head of Production Sales Executive Mike Boydell Eg: 4 2 1 means four brokers have buy ratings, Michael Duncan Nick Frankland 020 7378 4592 two brokers have hold ratings and one broker has a sell Designer [email protected] rating. Rebecca Bodi Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, The traffic light system gives an illustration of market views 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. INVESTMENT TRUSTS Funds to play emerging markets recovery We look at the range of UK-listed investment trusts

merging markets enjoyed stabilised and emerging market years, especially in Latin America. a significant comeback in countries have certainty not These factors have most likely E2016, despite a pullback experienced sustained positive not yet been factored into World towards the end of the year. The capital inflows yet,’ he says. Bank and other projections for outlook remains equally exciting, Dehn gives three reasons EM growth in the years ahead,’ so let’s look at the key drivers why these conditions are likely he concludes. and some of the investment to change in ways that will trusts that provide exposure to be supportive for growth in WHICH INVESTMENT TRUSTS this region. the region. SHOULD I BUY? The MSCI Emerging Markets Emerging markets (EM) Emerging markets-themed Net Total Return Index increased 1 should benefit from a gentle investment trusts currently trade by 32.6% in sterling terms during upswing in commodity prices as on a 10.6% average discount to 2016. That’s the first year of developed economies stimulate net asset value. outperformance relative to fiscally and EM countries Trading on a 13.3% discount developed markets since 2012. continue to accelerate. is JP Morgan Emerging Markets Jan Dehn, head of research Falling real interest rates in (JMG). Portfolio manager at Ashmore (ASHM), suggests 2 EM will support growth as Austin Forey comments: ‘So far the World Bank is being too central banks should cut rates this year we’ve seen further conservative by estimating that from extremely high real levels. progress by emerging markets, emerging market countries will, Capital flows to EM should supported by some signs of on average, grow more than 3% 3 resume in a gentle fashion on economic progress as well as faster than developed economies the back of clear outperformance recovery in commodity markets. in the next three years. of EM fixed income and equity ‘Despite political uncertainty, ‘So far emerging market markets compared to developed valuations are reasonable and countries have been able to markets. the long term case for emerging retake the global growth initiative ‘In addition, many EM markets remains solid. mainly on the back of extremely countries should be able to grow ‘We have a collection of strong competitive real exchange rates. faster due to the serious reforms and in many cases outstanding Commodity prices have merely they have undertaken in recent businesses in the portfolio; in

28 | SHARES | 02 March 2017 INVESTMENT TRUSTS general they have continued EMERGING MARKETS INVESTMENT TRUSTS to deliver good results in the Investment Trust Share price (p) Discount to net asset last six months. We maintain value (%) our focus on finding companies Fundsmith Emerging Equities 1073 0.9 with sustainable competitive JPMorgan Global Emerging Markets Income 124.13 3.2 advantage, consistent cash Aberdeen Frontier Markets 67.88 5.6 flow generation, and strong Utilico Emerging Markets 208.5 10.8 management teams.’ Templeton Emerging Markets 652.5 12.5 Forey says one long-term holding embodying these Genesis Emerging Markets 628 13.0 characteristics is Taiwan JPMorgan Emerging Markets 740 13.3 Semiconductor Manufacturing Aberdeen Emerging Markets 543 14.3 Co. The chipmaker reported Ashmore Global Opportunities GBP 3.79 21.4 better-than-expected fourth Ashmore Global Opportunities USD 3.75 24.8 quarter earnings as demand Source: AIC, Shares. Data taken 24 February 2017 for high-end microchips outpaced forecasts, led by strong demand for components Vitasoy and Sao Paolo-listed consistent returns from a portfolio of Apple’s iPhone. drugs maker Hypermarcas. of emerging market funds. ‘Additionally we view the Moody seems confident there company as having strong PLENTY OF BARGAINS is significant value to be realised governance and aligning Other trusts trading at steep from discounts on his holdings if themselves well with minority discounts include Ashmore there is a sustained recovery in shareholders.’ Global Opportunities (AGOL) emerging markets. ‘Our view on and Utilico Emerging Markets emerging markets is reasonably THE TERRY SMITH METHOD (UEM). positive, as a number of big Trading at a modest 0.9% We’d also suggest you look at negative factors have abated,’ discount to net asset value is Templeton Emerging Markets says Moody, adding ‘relative Fundsmith Emerging Equities (TEM), managed by Carlos valuations stack up pretty well (FEET). Steered by highly Hardenberg with the help of versus developed markets.’ respected fund manager Hong Kong-based emerging Portfolio positions include Terry Smith, the trust focuses markets trailblazer Mark Mobius. Weiss Korea Opportunity Fund on quality consumer stocks Known for its focus on value, (WKOF:AIM), which invests which should benefit from the bottom-up research and long- primarily in listed preferred rise of the consuming class in term investing, Templeton shares issued by South Korean developing economies. Emerging Market’s main companies. In many cases Smith buys businesses with holdings include Brilliance China these trade at a discount to the defensible and strong market Automotive, the maker and corresponding common shares positions, typically derived seller of BMW vehicles in China; of the same companies. from brands, trademarks and Chinese internet services giant Moody is also keen on the distribution networks. Tencent; and South African underlying assets held in Fidelity He wants relatively media monolith Naspers. China Special Situations (FCSS), predictable revenues, high the Dale Nicholls-managed returns on capital and the SEEKING CONSISTENT trust with a focus on private ability to deliver compound RETURNS companies in ‘new economy’ growth in shareholder value Also on a wide discount is the areas. An early backer of Alibaba, over time. Aberdeen Emerging Markets the trust has increased its Holdings include India-based Investment Company (AEMC), holdings in undervalued state- Godrej Consumer Products, whose managers Andrew owned enterprises which have soymilk, tea and juice maker Lister and Bernard Moody seek attractive assets. (JC)

02 March 2017 | SHARES | 29 THIS IS AN ADVERTISING PROMOTION EUROPE IN A WORLD OF ‘ALTERNATIVE FACTS’

hese are interesting Europe outside the UK it through to the second round times. Suddenly continues to make everyone of voting in May, she is likely everything is different nervous. The Netherlands will to lose out to either François – populism has be first to the polls in 2017, and Fillon (Republican) or Emmanuel Tbecome protectionism under the Far Right party of Geert Macron (Independent) in a the mantra of ‘Make America Wilders will, like all European repeat of the 2002 election, Great Again’ and Brexit is ‘alt-right’ parties at present, when her father lost convincingly set to lead the UK to sunnier likely poll a significant number to Jacques Chirac. Autumn sees climes. A few minor details, of votes on an anti-immigration the German elections, where such as the interconnected bill. But Wilders will likely it looks likely that Chancellor nature of global supply chains not be included in a coalition Merkel will be re-elected. and the relationships between government when it comes to companies and regions, are running the country. IS REGIONAL RECOVERY being forgotten for now. As an aside, if there is a TAKING HOLD? Europe is in many ways now referendum in the Netherlands, The suggestion is that populism in the eye of the storm. The UK the Dutch have made it quite will not overthrow the European is stumbling along an undefined clear that it would be advisory path of ‘boring but reliable’ and unknown path towards only. It is a pity that now ex- economic progress. That may Brexit, with the government Prime Minister Cameron did enable investors to look again at promising no damage to the not think through the potential out of favour European markets economy and full access to risks of the UK referendum in and the improving trend in European trade, while not June 2016. This was a point profits. Given that Europe’s paying any bills. A few nervous made by the Supreme Court in gross domestic product (GDP) is dissenters, quickly shouted down a recent ruling over how the UK expected to grow by about 1.5% by a partisan, right-wing press, government can start the process in 2017, and that an improving are quietly asking ‘how?’ to leave the EU (Article 50). economic climate is leading France faces a key election to more relaxed government PRAGMATISM STILL in April and May, and there is spending, there is every reason DOMINATES EUROPEAN a growing opinion that, even if to hope that Europe is now in POLITICS Marine Le Pen of the extreme- a virtuous, rather than vicious, The political backdrop in right National Front party makes circle.

30 | SHARES | 02 March 2017 THIS IS AN ADVERTISING PROMOTION

CHART 1: INFLATIONARY CHART 2: DEMAND FOR LOANS GLOSSARY: PRESSURES PICKING UP IN IS INCREASING GROWTH: Growth investors EURO AREA search for companies they believe have strong growth potential. Their earnings are expected to grow at an above-average rate compared to the rest of the market, and therefore there is an Source: Thomson Reuters Datastream, expectation that their share Source: Thomson Reuters Datastream, Fathom Consulting, covering Euro area, as at prices will increase in value. Fathom Consulting. ‘Headline inflation’ is 30 December 2016. percentage year-on-year change in the Euro area, as at 9 February 2017. The European INFLATION/INFLATIONARY monetary policy committee (MPC) has a target of near or below 2% for headline related to higher consumer PRESSURES: The rate at which inflation. spending. Banks are seeing a the prices of goods and services widening net interest margin are rising in an economy. The (the difference between the Consumer Price Index and Retail With a combination of income generated from loans Price Index are two common better growth and emerging and the interest paid out to measures. inflationary pressures (Chart 1), depositors), albeit a gradual one, yields on 10-year bonds have and increasing demand for loans, VALUE: Value investors search risen to over 0.3% in Germany as Chart 2 shows. for companies that they believe and over 2.3% in the US, as Markets have seen a rapid are undervalued by the market, at 8 February 2017. This has move out of ‘growth’, and and therefore expect their share major implications for banks into ‘value’. This is an over- price to increase. and recovery names. It is clear simplification, but one that that, regardless of intense global gives a reasonable gist of what political uncertainty, the market is happening. This switch has magic trick. has chosen to believe in the hope pushed up the price of ‘value’ There are significant hurdles of economic recovery. stocks to beyond their ten- ahead, but they are not yet It remains to be seen how year average, while valuations visible. We are keeping a wary strong this recovery turns out on growth stocks have fallen eye open, while looking for to be, or how long it lasts, but it below theirs. This trend may outstanding companies that would be wrong to ignore it. have further to run, but the key have been penalised far too Companies more sensitive to to 2017 will be signs that the harshly by the market. We accept changes in the background shift towards value has gone that it looks too early to make economy, such as Atlas Copco far enough, given the reality a significant move back into in Sweden and Siemens that growth in our ‘mature, ‘growth’ yet, but that may well in Germany, are seeing an low growth world’ cannot be be the direction of travel on a six- improvement in many areas conjured into existence like a to nine-month view.

Before investing in an investment trust referred to in this document, you should satisfy yourself as to its suitability and the risks involved, you may wish to consult a financial adviser. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. Issued in the UK by Henderson Investment Funds Limited (reg. no. 2678531), incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE, is authorised and regulated by the Financial Conduct Authority to provide investment products and services.

02 March 2017 | SHARES | 31 LARGER COMPANIES Genus strikes tasty deal to boost European position New plan to boost pig arm and revive beef and dairy operations

nimal genetics specialist Genus (GNS) has caught our eye after striking an interesting A partnership deal with leading pig breeding business Hermitage. Genus uses genetics to produce cattle for high- quality beef, pork and milk for farmers. Its pigs genetics business (PIC) will acquire the genetic rights and intellectual property of Hermitage and gain exposure in Russia, Ukraine and Europe. It will also benefit from Hermitage’s exclusive distribution and supply chain expertise. commercialisation and awaits the outcome of its Peel Hunt analyst Charles Hall says Genus’ request to terminate its contract with ST. If this is actions will see its European market share rise unsuccessful, Genus will only have to wait until its from 11% to 15%. The PIC arm accounts for 85% contract expires on 31 August 2017. of Genus’ group profit. Liberum analyst Lisa De Neve anticipates pre-tax profit growth will more than double from 6.7% WHAT’S NEXT ON THE AGENDA FOR GENUS? in the year to June 2016 to 15.8% two years later Genus hopes to launch its Genus Sorted Semen thanks to a forecast recovery in weaker markets (GSS) technology later this year, which allows and a positive effect from volatile currency. farmers to produce female calves for milk. Hall is optimistic the technology will help the WHAT ARE RISKS TO GROWTH? underperforming bovine division which has The pigs division is outperforming the bovine struggled with difficult market conditions in China business as lower beef volumes and intense and competition in North America. competition hit revenue in the half year to 31 The analyst says GSS will reduce costs by a net December 2016. c£5m due to lower royalty payments and provide a In North America profit fell by 27% in constant ‘material commercial opportunity’. currency, driven by an 11% decline in dairy volumes. In August 2016, a US jury ruled Genus infringed Nate Zwald has been appointed as the new two patents belonging to Inguran, trading as Sexing chief operating officer of Genus’ bovine business Technology (ST), to develop its own technology. who aims to tackle these issues by raising prices It was ordered to pay royalties of $1.75 per straw in Latin America and improving sales execution. of semen sold, but these payments are smaller Zwald used to be the operations boss at Alta than anticipated. Genetics North America. Genus has its sexed semen ready for Genus should benefit from broadly favourable GENUS market conditions in porcine and a recovering dairy FTSE ALL SHARE 2100 market in Europe and the US, while prices are likely 2000 to remain depressed short-term in China. (LMJ) 1900 1800 1700 SHARES SAYS:  1600 Buy at £17.33. 1500 1400 1300 Source: Thomson Reuters Datastream BROKER SAYS: 032 2016 2017

32 | SHARES | 02 March 2017 SMALLER COMPANIES Blue Prism is up 500% in less than a year Robotic process designer continues hot streak

ast-growing workforce automation specialist Blue Prism (PRSM:AIM) already expects to F comfortably beat 2017 forecasts. The current year to 31 October 2017 has got off to a flying start with 83 new software deals signed and sealed, including 49 with entirely new clients, and 34 existing customers extending their previous agreements. ‘To put these figures in perspective, Blue Prism sold 96 new robotic process automation (RPA) licences last year and had 81 upsells – which were to 47 customers,’ explains John O’Brien, an analyst at technology business website TechMarketViews. Blue Prism management highlights ‘strong momentum’ experienced in 2016 has continued into the current financial year. Backed by a ‘strong pipeline’ of potential new work, the Merseyside- based business has now told investors that revenues this year will be ‘materially ahead of existing market expectations’. Sales estimates from Investec had been pitched at £14.1m for the 12 months to 31 October 2017. The investment bank has since upped its revenue extensive channel partner network of IT-based expectations for both this year and next by around consultancies and infrastructure groups that resell 17% and 14% respectively. That implies turnover of the platform. Partners include many blue-chip £16.5m rising to £19.7m in 2018. global organisations such as Accenture, Deloitte, Investec’s operating loss expectations remain Capgemini, Hewlett Packard Enterprise and IBM. unchanged for both years at £8.1m and £5.7m All of Blue Prism’s 83 first quarter licences came respectively, as Blue Prism continues hefty through this route. investment in sales and marketing in its dash Blue Prism landed on AIM on 18 March 2016, for growth. raising a total of £21.1 million at 78p per share, although £11.1 million of that went to selling AUTOMATING THE MUNDANE founders and shareholders. That gave the business RPA software works by mimicking computer a market capitalisation of £48.5 million but its value keyboard inputs a human would perform on an has since soared. The shares are currently changing application user interface (UI) to perform routine hands for 473.5p, slapping a £295m price tag on rule-based clerical administration tasks. Not only the company. does this improve input accuracy and speed, it also helps customer organisations reduce running costs SHARES SAYS:  by freeing the human workforce to concentrate on A true industry disruptor. Buy at 473.5p. (SF). other valued-added tasks. The key to this year’s fast start is Blue Prism’s BROKER SAYS: 001

02 March 2017 | SHARES | 33 SMALLER COMPANIES Diversified Gas & Oil gets to work on growth Acquisition a solid demonstration of deal-driven model

ew AIM oil and gas outfit Diversified Gas & Oil (DGOC:AIM) is wasting no time executing on its Nbuy-and-build strategy onshore the US. A mere three weeks since joining the UK junior stock market, the company has announced (24 Feb) the $1.75m acquisition of mature conventional wells in the Appalachian basin. Although modest in financial terms, the deal lifts output by 15% to 5,600 barrels of oil equivalent per day. It further underlines the credibility of the company’s approach which involves buying conventional assets from larger shale-focused peers at an attractive price. The company says the asset will pay for itself through operating cash flow in less than two years. The deal will be funded from internal resources, with SHARES SAYS:  the company sitting on $7m of net cash post its IPO We feel the market will like this story and (initial public offering). continuing M&A should help support a rising The additional cash flow helps underpin Mirabaud’s share price. Mirabaud has a price target of 105p dividend expectations which imply a prospective yield versus a 63.25p trading price at the time of of 5.6%. Investors should expect further deals from writing. (TS) Diversified Gas & Oil through the course of 2017.

Koovs is in fashion River & Mercantile Saffron makes is looking good strong AIM debut AT 46.1P INDIAN youth fashion portal Koovs (KOOV:AIM) is an GRAB A 5% dividend yield and ITALIAN NATURAL gas producer attractive play on the booming benefit from rising investor Saffron Energy (SRON:AIM) demographic of young Indian interest in small and mid-cap plans to boost production 10- urbanites. Koovs’ nine-month funds by investing in River fold after joining AIM (24 Feb). trading statement (25 Jan) & Mercantile (RIV). Half year The company will use the £2.5m highlighted a doubling of sales results on 27 February showed cash raised at the stock market year-on-year to £13.45m with net profit after tax more than listing to complete its Bezzecca mobile transactions up 151%. doubling to £6.1m (2016: gas field development. Cash flow Koovs has since partnered with £2.7m). The asset manager has from the field will be ploughed Bollywood’s go-to designer seen positive net sales in all 11 into a development plan. The Masaba Gupta to launch (23 Feb) quarters since it floated on the shares are already up more than an athleisure wear collection that stock market. (DC) 40% on their 5p issue price to has quickly sold out in numerous 7.2p. (TS) styles. (JC)

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YOUR GUIDE TO SPREADBETTING Everything you need to know about trading the markets through spread bets

What is spread betting and what advantages does it offer?

pread betting is one of the most effective ways to try and take advantage of moves in a whole host of financial markets. Whether you want to trade individual shares; Sindices like the FTSE 100; forex pairs like the pound/US dollar rate or commodities such as gold and oil, you can do this using spread betting. The spread betting companies make a market price, wrapped around where the underlying market is trading.

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Google Play and the Google Play logo are trademarks of Google Inc. Apple and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. In partnership with

This is the spread and for popularly your spread bet - the market moves in traded markets this is usually very tight. real time and many markets these days So, with the FTSE 100 for example, the are tradeable 24 hours of the day. spread bet price may be 7200/7201. If You are not just restricted to trying you think the FTSE 100 is going to rise to profit just if markets are rising. If you would ‘buy’ at the higher price, you think the price is going to drop you 7201 in this case. You would buy so can ‘sell short’ using spread betting. many pounds per point, let’s use £2 Using the example above on the FTSE, in this example. There is no additional if you thought it was going to slide from commission to pay when spread betting, 7200/7201, you could have sold £2 per the company’s profit is tied up in the point at 7200 to open up your trade. market’s spread. Every point the market dropped below Let’s say you are right and the FTSE your entry point would be a £2 profit - rises, the spread bet price will track you are making money from the market the market higher. When the market is sliding. trading at 7221/7222 you decide to take And, if you are a UK taxpayer, with the your profits so sell at 7221. You bought usual caveat that tax laws can change, £2 per point at 7201 and closed the any profits from spread betting are position at 7221. The market moved 20 exempt from capital gains and points in your favour, so with a £2 per income tax. point trade you will have realised £40 profit. If the market had dropped 20 points and you decided to get out, you would have realised a loss of £40. It is completely up to you when you close out

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How can I use it as part of my investing strategy?

Although the popular image of financial cost of the trade. There are additional risks trading is of someone glued to a screen full with this but, managed sensibly and not of prices and charts, trying to second guess overstretching yourself means that spread which way a whole host of markets are betting on shares can be a real alternative to going to move in the next few seconds, you using a stock broker - particularly for short to don’t have to trade this way. You are free medium term opportunities. to choose your own time frame. There are Another way that spread betting can fit plenty of people using spread betting as an into your investment strategy is to use as a alternative way of investing in the short to hedge - a form of insurance. You may have a medium term. Let’s say you had a view on a portfolio of blue chip shares that you want share price over the next few months. You to hold for the long term but in the short could buy the share through a stockbroker term you feel the market is due to take a as usual but spread betting can be a real dive. You are concerned about the effect alternative to this. this will have on the value of your portfolio. If you bought £10 per point of, for You could sell an index such as the FTSE 100, example, the Marks & Spencer spread bet, it FTSE 250 etc. using spread betting to set up is the equivalent of owning 1,000 shares in a hedge. This way, if the market slides then the company. For every point (or penny, in what you lose on your holding of physical the case of spread bets on shares) that the shares can be partly offset by what you market moves in your favour it represents make on your short spread bet. £10 of profit and vice versa if the price If the market rises then you will be drops. But with spread betting there is no losing on your spread bet hedge but commission to pay, no stamp duty and achieving a return on your portfolio. It’s just again any gains are tax free. On top of this, another way that spread betting can be used spread betting uses leverage - this simply in addition to straightforward directional means you do not have to put up the full trading.

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What are the most popular trades and markets?

Many people start spread betting on markets couple of reasons for this. The US stock they may feel they have some familiarity market tends to dictate the direction of the with, or have experienced in the past, rest of the world, which means it is always possibly from an investing point of view. For an important one to watch. And the trading example, plenty of us are aware of the UK’s hours make it attractive. Plenty of people blue chip stock market index, the FTSE 100. using spread betting have a day job which This is a popular market for clients and the doesn’t allow them the time to watch the tight spread means the cost of doing business markets. But US shares usually trade until is very low. It is therefore not surprising that 9pm UK time, so trading can fit around people casts their net a little further afield working hours. and start trading the US market - the Dow It is impossible to ignore the forex or Jones is always a popular one. There are a currency markets when it comes to what is popular to spread bet on. There has been an explosion of interest in these areas in recent years. The spreads are tight and these markets are seldom dull. With the UK’s vote to come out of the EU in June, markets such as the pound have seen unprecedented movements (referred to as volatility). Plenty of traders have been backing their judgement on whether there is worse to come in the likes of the euro versus the pound (EUR/GBP) or whether the sell-off has been overdone and it is time for a recovery.

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What are the costs and what is a margin requirement?

The first obvious cost with spread money for the trade from your broker. betting is the spread - the difference There is a financing charge for this - between the price you buy at and the usually expressed as the bank’s base price you sell at. This is a cost in all rate (LIBOR) plus a small percentage. In markets, there is always a two way price reality this is a relatively modest cost but for buyers and sellers. Spreads have can mount up if you run a trade for more come down drastically over the years than a few months. and most companies are now Because you are trading on margin very competitive. and using leverage, you don’t need to The second cost is what is known as put up the whole cost of the trade, just a financing charge if you run a trade the margin requirement or initial margin overnight. Spread betting uses leverage, deposit. Let’s look at an example. You in effect you are borrowing part of the spread bet on Marks & Spencer buying

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£10 per point at 330p. Your total position size is £3,300 (£10 per point x 330). But your spread bet broker only requires a 5% deposit against this position. So in this case your margin requirement is £165. You may need to add more if you incur losses while you are running the trade, which is why most spread bet clients keep a surplus in their account. It is important to understand that this margin deposit is not a form of commission. When you decide to close the trade completely and realise your profit or loss, that initial margin requirement is freed up once again and is available for other trades.

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IG is a global leader in online trading, providing fast and flexible access to over 10,000 financial markets - including shares, indices, forex, and commodities. Established in 1974 as the world’s first financial spread betting firm, our aim is to become the default choice for active traders globally. We are an award-winning multi-platform trading company, the world’s No.1 provider of CFDs* and a global leader in forex. We provide our clients with the option of a no-negative guarantee on trading accounts, and we now offer an execution- only share dealing service in the UK, Ireland, Germany, France, Australia, Austria and the Netherlands.

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Google Play and the Google Play logo are trademarks of Google Inc. Apple and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. UNDER THE BONNET We explain what this company does A game changing year for Oxford BioMedica? Near term risks, long term reward potential with small cap pharmaceutical firm

ene therapy company Oxford BioMedica (OXB) Gcould be on the cusp of receiving a lucrative flow of money over many years, potentially worth up to $65m to $75m annually in the medium term. Novartis is expected to submit its CTL019 therapy for regulatory approval by the US Food & Drug Administration (FDA) very soon; a decision could be made later this year. Oxford BioMedica has been the sole manufacturer of lentiviral vectors for the CTL019 therapy and hopes it will also be the supplier for the commercial launch of the product. Jefferies analyst Peter Welford as T-cells) are taken from the contract to manufacture CTL019 last October forecast at least patient and the new genes are for Novartis, which believes $1bn worldwide peak sales for placed inside the cells. the therapy has ‘blockbuster CTL019, potentially resulting in DNA in the cells are designed potential’. a recurring revenue stream for to ensure receptors called The therapy is designed to Oxford BioMedica. chimeric antigen receptors treat relapsed/refractory (r/r) ‘The collaboration with (CAR) on the cell surface seek in paediatric and young people Novartis is a significant antigens (CD19) expressed on with B-cell acute lymphoblastic endorsement of Oxford cancer cells. leukaemia (ALL). BioMedica’s technology, and The T-cells and genes are put Novartis’ Phase II clinical trial cements its place as a world back into the body so they can ELIANA evaluated the efficacy leader in the field of lentiviral multiply, detect CD19 on cancer and safety of CTL019 for r/r vectors, in our view,’ says Welford. cells and kill them. B-cell ALL. The therapy met its Compared to other primary endpoint with a strong WHAT DOES THE SMALL treatments, the T-cells stay in overall response rate and an CAP DO? the body to ensure the disease acceptable safety profile. Oxford BioMedica uses its does not return. LentiVector technology platform ROYALTY-GENERATING to create viral vectors with new TELL ME MORE ABOUT PARTNERSHIPS genes, which are used to deliver THE CTL019 THERAPY The company generates royalties genetic material into cells. In 2014, Oxford BioMedica through partnerships including White blood cells (also known agreed an initial three-year GlaxoSmithKline (GSK) and

44 | SHARES | 02 March 2017 UNDER THE BONNET

‘OXFORD BIOMEDICA USES ITS PLATFORM capitalists regarding spin-outs. TO DEVELOP PRODUCTS TO HELP REDUCE ARE THERE RISKS TO GENE THERAPY? SPECIFIC SYMPTOMS OF PARKINSON’S While gene therapy is targeted, DISEASE, A PROGRESSIVE DISEASE OF THE there are risks as normal B cells also express CD19 and are NERVOUS SYSTEM. IT IS CURRENTLY IN A destroyed, although intravenous PHASE I TRIAL.’ immunoglobulin replacement is used to prevent infection. The rapid destruction of cancer Sanofi that use the technology to a Phase I trial. cells produces a cytokine storm, conduct clinical trials. It is also in Phase I trials a dangerous and possibly fatal Its LentiVector platform has for corneal graft rejection immune response. been used in 144 clinical trials and wet age-related macular It essentially means your to develop treatments. It is degeneration, which can cause immune system can work protected by several patents, with problems with vision. against you, although this can the earliest expiring in two years, In the future, Oxford BioMedica be managed with effective drug and other safety features and plans to spin-out or out-license its treatment. manufacturing patents expiring in product pipeline, which will allow Within the healthcare and 2023 and 2034, respectively. another party to use it without pharmaceutical sector, investors Oxford BioMedica uses its infringing intellectual property should tread with caution. platform to develop products to rights for a fee. Oxford BioMedica is still help reduce specific symptoms The business is in discussions undergoing trials as part of its of Parkinson’s disease, a with big pharmaceutical product pipeline and if these fail progressive disease of the companies concerning potential to produce results, it may delay nervous system. It is currently in licensing deals and venture future revenue streams. (LMJ)

WHY SHOULD YOU INVEST IN OXFORD BIOMEDICA?

DANIEL WILKINSON, associate analyst (healthcare) at Edison gives his view on the investment case: ‘While it is a complex business, investing in Oxford BioMedica offers the opportunity for investors to gain exposure to gene and cell therapies, both directly through its own internal pipeline and its partnerships, notably Novartis. ‘Near term Oxford BioMedica is subject to the usual biotech risks, notably in relation to the clinical and commercial success of Novartis’ CTL019 CAR-T therapy (a drug which Novartis recently in its Q4 results labelled as a potential blockbuster); OXB manufacture a key component of this. ‘In the longer term, the unique nature of Oxford BioMedica’s manufacturing capabilities within cell and gene therapy could attract further partnerships and may provide investors with a pure-play entry in to the cell and gene therapy space without the typical binary biotech risks.’

02 March 2017 | SHARES | 45 FUNDS Searching out secure income via funds Can asset-backed debt funds provide a port in the storm?

f all the long-term consequences of the O financial crisis of 2008, one of the most serious is the partial withdrawal of the banks from some of their traditional lending activities. Tougher capital adequacy requirements have made it more expensive for them to provide loans, which has left key areas of the economy short of funding and created a lucrative gap in the market. Part of the shortfall has been met by the launch of a series of asset-backed debt funds. These specialist investment trusts bracket and lasting for three It is similar to Hadrian’s Wall lend to a variety of different to 15 years. RMDL aims to pay Secured Investments (HWSL), sectors and typically aim to a 4% dividend yield in 2017 as which raised £80m when it generate secure dividend yields it invests its capital with the floated last June. By the end of in excess of 6% per annum for figure rising to 6.5% in 2018 with December the company had income investors. quarterly distributions. made secured loans of £22m James Robson, chief with an average interest rate of LOANS TO SMALL FIRMS investment officer of RM Capital, 8.4% over a four year term. It Arguably the worst affected which manages RMDL, says that had also signed commitment area is small and medium sized they have a large pipeline of letters on behalf of another enterprises (SMEs). Many of opportunities to lend into the £40m. If executed these would these businesses need to borrow targeted space. be sufficient for it to achieve its in order to grow and are willing ‘Our loans are typically target annual dividend yield of and able to pay in the region of project finance style loans 6% with quarterly distributions. 10% per annum for a loan that is where as a lender we take secured on the firm’s assets. enhanced security rather than OTHER ASSET-BACKED RM Secured Lending (RMDL) traditional SME balance sheet DEBT OPTIONS raised just over £50m when it lending, which would be the Another option worth launched in December and plans more typical solution from considering are the mortgage- to lend the money to businesses the general corporate banking backed debt funds such as the with a good visibility over cash market. These loans are secured TOC Property Backed Lending flow and earnings. and should anything go wrong Trust (PBLT) that recently The loans will typically pay we have a number of credit raised £17.3m. It is managed 8% to 12% per annum with enhancements to ensure we are by the direct lending specialist each being in the £2m to £10m likely to be repaid.’ Tier One capital, which plans

46 | SHARES | 02 March 2017 FUNDS to concentrate on regional least 6p per annum. Based on housebuilding across the UK, as the fund’s current share price well as small serviced offices and this equates to a prospective hotel developments. dividend yield of at least 5.3%,’ The fixed rate loans will mainly explains Innes Urquhart, a be secured on land or property member of the investment trust and the intention is to grow the research team at Winterflood. fund to £150m over the next 12 months. It is targeting a 7% FLOATING RATE EXPOSURE dividend yield with quarterly Secured debt funds with a short distributions. duration or exposure to floating UK Mortgages (UKML) was interest rates should do well created in July 2015 and aims when interest rates finally start to provide shareholders with to go up. A prime example is the stable income returns via a £990m NB Global Floating Rate portfolio of loans secured against Income fund (NBLS). UK residential property. It is NBLS provides a diversified targeting a net total return of exposure to US senior secured 7% to 10% per annum and has loans with a bias towards higher an historic yield of over 6% with quality issuers. These debt quarterly dividends. securities rank at the top of the Rob Ford, founding partner capital structure with any further and portfolio manager, says the increases in US three-month strategy behind the fund is to LIBOR likely to feed through into buy a number of UK mortgage higher returns. portfolios and then take ‘We believe that NB Floating advantage of the securitisation Rate Income is an attractive way markets to issue AAA-rated to gain a diversified exposure to paper that will provide around the US loan market. The dividend seven times gearing. yield is 4.5% and has scope to ‘We buy mortgages from many grow as US interest rates rise,’ different organisations including says Ewan Lovett-Turner, director, the high street banks and building investment companies research societies and also have an at Numis Securities. agreement with The Mortgage He also likes the £225m Lender to originate mortgages for CVC Credit Partners European us on an ongoing basis.’ Opportunities (CCPG)fund The more established £450m that invests in European senior TwentyFour Income Fund (TFIF) secured loans. This is yielding invests in European asset-backed 4.8% and has recently switched securities including collateralised to quarterly distributions. loan obligations. It is managed by Before buying any of these TwentyFour Asset Management, funds it is important that you which also runs the UK are comfortable with the areas Mortgages fund, and is one of where it invests, the security Winterflood’s investment trust of the loans and the level of recommendations for 2017. gearing. It is also essential to ‘It targets a net total return of check that it is not trading at an 6% to 9% per annum and aims excessive premium to net asset to pay quarterly dividends of at value. (NS)

02 March 2017 | SHARES | 47 WEEK AHEAD

FRIDAY 3 MARCH FINALS BERENDSEN BRSN LONDON STOCK EXCHANGE LSE STV STVG WPP WPP AGMS ACTUAL EXPERIENCE ACT WANDISCO WM MORRISON SUPERMARKETS’ MONDAY 6 MARCH Cash burn at WANdisco Bradford-based grocer WM FINALS (WAND:AIM) will come under Morrison Supermarkets’ (MRW) DEVRO DVO investor scrutiny when full full year results on 9 March INFORMA INF year results are announced on will be watched closely for the SYNTHOMER SYNT 8 March. The data replication outlook statement. Forecasts ULTRA ELECTRONICS ULE technology designer lifted were upgraded following a shareholder spirits in January fabulous festive trading update TUESDAY 7 MARCH when it reported $0.2m of cash (10 Jan), which revealed 2.9% FINALS consumed by the business in like-for-like sales growth over AGGREKO AGK the fourth quarter of 2016, a the nine weeks to 1 January. AUTINS AUTG massive improvement on the This represented the recovering TRITAX BIG BOX REIT BBOX $6.9m chewed through for supermarket’s strongest DIRECT LINE INSURANCE DLG the same period in 2015. This Christmas performance for ESCHER ESCH hints at first ever positive cash seven years. Chief executive HEADLAM HEAD generation through 2017, among David Potts upgraded full year INTERTEK ITRK management’s key objectives. profit before tax guidance to a JUST EAT JE. Also interesting is momentum £330m-to-£340m range, which LSL PROPERTY SERVICES LSL from the company’s channel will be the first increase in profit PADDY POWER BETFAIR PPB partner network (including IBM, delivered since 2011. (JC) SDL SDL Oracle, Amazon Web Services), SERVELEC SERV which scored several contract OPHIR ENERGY OPHR WORLDPAY WPG successes for the company in late PREMIER OIL PMO XLMEDIA XLM 2016. (SF) RESTORE RST INTERIMS SECURE INCOME REIT SIR ASHTEAD AHT CAIRN ENERGY CNE SPIRAX-SARCO ENGINEERING SPX ST IVES SIV DIGNITY DTY AGMS WEDNESDAY 8 MARCH G4S GFS 88 ENERGY 88E FINALS HILL & SMITH HILS EX-DIVIDEND CLS HOLDINGS CLU LEGAL & GENERAL LGEN ACORN INCOME FUNDS AIF 4.5P LOOKERS LOOK ASHMORE ASHM 4.55P LOOPUP GROUP LOOP AVIVA AV.B 4.19P PAGEGROUP PAGE CARETECH CTH 6.25P RESTAURANT GROUP RTN HARGREAVES LANSDOWN HL. 8.6P STOCK SPIRITS STCK JP MORGAN GLOBAL TYMAN TYMN GROWTH INCOME JPGI 2.2P WANDISCO WAND LAKEHOUSE LAKE 0.5P XP POWER XPP LAND SECURITIES LAND 8.95P INTERIMS OXFORD INSTRUMENTS OXIG 3.7P RESTAURANT GROUP CERES POWER CWR RENISHAW RSW 12.5P Frankie & Benny’s owner AGMS SAFESTORE SAFE 8.05P Restaurant Group (RTN) IMPAX ASSET MANAGEMENT IPX SCOTTISH AMERICAN announces full year results on 8 THURSDAY 9 MARCH INVESTMENT COMPANY SCAM 2.73P March. The focus will be on the FINALS SHIRE SHP 20.64P company’s recovery plan after a AVACTA AVCT ST MODWEN series of profit warnings in 2016. CAPITAL & REGIONAL CAL PROPERTIES SMP 4.06P Investors can expect updates CAIRN HOMES CRN THOMAS COOK TCG 0.5P on the company’s turnaround COUNTRYWIDE CWD UTILICO INVESTMENTS UTL 1.88P efforts, the strategic reviews of DOMINO’S PIZZA DOM WYG WYG 0.6P its brands and a cost-cutting MORRISON SUPERMARKETS MRW programme. For complete diary go to OLD MUTUAL OML www.moneyam.com/forward-diary

48 | SHARES | 02 March 2017 INDEX

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KEY Conygar 8 Koovs (KOOV:AIM) 34 Standard Life (SL.) 7 Investment • Main Market Company (CIC:AIM) Lloyds Banking 21 Templeton 29 (LLOY) Emerging Markets • AIM CVC Credit 47 (TEM) Partners European MJ Gleeson (GLE) 7 • Fund TOC Property 46 Opportunities Moneysupermarket. 6 • Investment Trust (CCPG) Backed Lending com (MONY) Trust (PBLT) Direct Line (DLG) 6 NB Global Floating 47 Treatt (TET) 14 Diversified Gas & 34 Rate Income fund Oil (DGOC:AIM) (NBLS) TwentyFour 47 Income Fund Aberdeen 29 Fidelity China 29 Next (NXT) 3 (TFIF) Emerging Markets Special Situations Oxford BioMedica 44 Investment (FCSS) UK Mortgages 47 Company (AEMC) (OXB) (UKML) Fundsmith 29 Restaurant Group 48 Admiral (ADM) 6 Emerging Equities Utilico Emerging 29 (RTN) Markets (UEM) Ashmore (ASHM) 28 (FEET) RIT Capital 3 Genus (GNS) 32 WANDisco 48 Ashmore Global 29 Partners (RCP) (WAND:AIM) Opportunities GlaxoSmithKline 44 (AGOL) River & Mercantile 34 Weir (WEIR) 7 (GSK) (RIV) Athelney Trust 3 Weiss Korea 29 Hadrian’s 46 RM Secured 46 (ATY) Wall Secured Opportunity Fund Lending (RMDL) (WKOF:AIM) Babcock (BAB) 7 Investments (HWSL) Royal Bank of 21 WM Morrison 48 BAE Systems (BA.) 8 Scotland (RBS) Hastings (HSTG) 6 Supermarkets (MRW) Barclays (BARC) 20 Saffron Energy 34 HSBC (HSBA) 21 (SRON:AIM) Woodford Patient 8 Blue Prism 33 Capital (WPCT) (PRSM:AIM) IMI (IMI) 11 Serco (SRP) 14 Zytronic (ZYT:AIM) 13 BT (BT.A) 8 Intu Properties 11 Sky (SKY) 8 (INTU) Bunzl (BNZL) 12 Standard 20 JP Morgan 28 Chartered (STAN) CF Woodford 8 Emerging Markets Equity Income (JMG) (GB00BLRZQ620)

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