VOL 23 / ISSUE 06 / 18 FEBRUARY 2021 / £4.49

1 YEAR SINCE THE MARKET CRASH

What’s changed and are there any bargain stocks left?

VACCINE BOOST CAN MOONPIG FUNDS WHICH FOR MARKETS AS CONTINUE TO PAY DIVIDENDS REOPENING EYED FLY HIGHER? EVERY MONTH 210x297

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Actual Investors

Baillie Gifford & Co Limited is the Authorised Corporate Director of the Baillie Gifford ICVCs. Baillie Gifford & Co Limited is wholly owned by Baillie Gifford & Co. Both companies are authorised and regulated by the Financial Conduct Authority. EDITOR’S VIEW Why we should be fearful of zombies Begbies Traynor Q4 2020 Recovery could be constrained by Red Flag report shows companies kept afloat thanks to state support 13% increase in UK firms in significant

hey may not be too busy just yet distress but insolvency specialists are feeling Tfairly confident about their near-term prospects which, on the flipside, is bad news for UK businesses. On 12 February the recently-listed insolvency and business advisory firm FRP (FRP:AIM) signalled its confidence in the future with plans to pay quarterly dividends while also pointing to a ‘positive’ outlook. Fellow practitioner Begbies Traynor’s (BEG:AIM) latest quarterly Red Flag Alert Report (covering the three months to 31 December 2020) identified 630,000 businesses in significant distress – a 13% Government to step in and support them. increase quarter-on-quarter and figure described However, what the UK will be desperate to as the ‘tip of a very large iceberg’, with executive avoid is a situation where there are lots of zombie chairman Ric Trayor commenting that there are companies, i.e. heavily indebted firms being kept ‘many zombie businesses which have been hanging afloat by a mixture of bank and state lending on by a thread for years before this pandemic’. which could hamper the economic recovery from In short, based on what they are seeing, both the pandemic. Begbies and FRP reckon the Covid impact has Or in other words Sunak will not want a repeat merely been delayed rather than averted by the of the situation in Japan where companies caught various support packages brought through by out by the bubble bursting in the late 1980s were chancellor Rishi Sunak. kept on life support and contributed to a ‘lost Analyst Rachel May at FRP’s house broker Shore decade’ for the Japanese economy in the 1990s. Capital said: ‘Whilst it is too early to call whether From an investor perspective it is extremely it is the start of an emerging trend, the latest important to pay close attention to the balance insolvency statistics for December 2020 reported sheets of your holdings of individual stocks, a 9% increase in company insolvency volumes, particularly if they operate in a sector which is being marking the first monthly year-on-year increase heavily impacted by Covid-19. since the start of the pandemic.’ And in this context the latest and immediately preceding entries in our First Time Investor TURNING JAPANESE series should prove very useful as they help A lot of the affected businesses will be privately- with getting to grips with the fundamentals of a owned small and medium-sized enterprises but balance sheet. there will be listed small caps (and large caps in fairness) which will be under considerable pressure, particularly as state funding is scaled back. By Tom Sieber Deputy Editor Many otherwise viable businesses have been hit hard by the pandemic and it made sense for the

18 February 2021 | SHARES | 3 CFA UK News Publication of Provider the Year of the Year CFA UK (Highly Commended) Contents Journalism CFA UK Awards 2019 Journalism Awards 2020 EDITOR’S 03 VIEW Why we should be fearful of zombies

Vaccine optimism builds as firms seek clear Covid-19 exit plan / Oil surge helps revive Shell after strategy concerns / Coupang targeting $50 billion 06 NEWS IPO / Global stocks see largest ever week of buying / Cordiant Digital first of new breed of investment trust to IPO

GREAT New: / Helios 10 IDEAS Updates: RWS / BHP UNDER THE 16 BONNET Moonpig shares: not cheap but a very interesting business 1 year since the market crash: What’s changed and are there any bargain 20 FEATURE stocks left?

30 RUSS MOULD Blame game won’t stop the next Gamestop

34 FEATURE Creating a plan to invest cash saved during lockdown

38 FUNDS Funds, investment trusts and ETFs that pay dividends every month

42 ASK TOM How will changes to the pension age impact me? MONEY 43 MATTERS Are annuities still relevant to investors and how much could you get? FIRST-TIME 46 INVESTOR More tricks and tips for analysing company financial statements

50 INDEX Shares, funds, ETFs and investment trusts in this issue

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 30 days before the publication of an article that mentions set out below. such interest. Reporters who have an interest in a company they have written about should not transact the shares within 30 days after the on-sale date of the 1. In keeping with the existing practice, reporters who intend to write about any magazine.

4 | SHARES | 18 February 2021 SCOTTISH MORTGAGE INVESTMENT TRUST

Successful investing is as much about what you don’t know. So, we never stop learning.

What’s next? It’s a question we ask ourselves every day. So, we speak to academia, to authors, to people who think differently, to help us imagine the future. This helps us seek out those genuinely innovative businesses which are providing new solutions, and disrupting existing industries. As actual investors we believe it’s our task to find these companies, and make sure they reach your portfolio. Over the last five years the Scottish Mortgage Investment Trust has delivered a total return of 351.7% compared to 96.8% for the index*. And Scottish Mortgage is low-cost with an ongoing charges figure of just 0.36%**.

Standardised past performance to 31 December* 2016 2017 2018 2019 2020 SCOTTISH MORTGAGE 16.5% 41.1% 4.6% 24.8% 110.5% FTSE ALL-WORLD INDEX 29.6% 13.8% -3.4% 22.3% 13.0%

Past performance is not a guide to future returns. Please remember that changing stock market conditions and currency exchange rates will affect the value of the investment in the fund and any income from it. Investors may not get back the amount invested.

Find out more by watching our film at scottishmortgageit.com A Key Information Document is available. Call 0800 917 2112.

Actual Investors

*Source: Morningstar, share price, total return in sterling as at 31.12.20. **Ongoing charges as at 31.03.20 calculated in accordance with AIC recommendations. Details of other costs can be found in the Key Information Document. Your call may be recorded for training or monitoring purposes. Issued and approved by Baillie Gifford & Co Limited, whose registered address is at Calton Square, 1 Greenside Row, Edinburgh, EH1 3AN, . Baillie Gifford & Co Limited is the authorised Alternative Investment Fund Manager and Company Secretary of the Trust. Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). The investment trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised and regulated by the Financial Conduct Authority. NEWS Vaccine optimism builds as firms seek clear Covid-19 exit plan Cumulative number of global vaccinations has overtaken number of infections

he UK government hitting its target to secure extra funding arguably in a better position vaccinate all vulnerable groups by 15 to take advantage. T February and the virus replication rate Data from Australia which reopened in the falling below one is helping the market get very Autumn suggests people are twice as likely to want excited about the prospect of the economy to eat out compared with before the pandemic, being unlocked as ‘reopening trades’ in the pointing to strong pent-up demand. travel and leisure sector regain their popularity The opportunity to pick up market share from with investors. weaker operators while benefitting from strong The onus is now on Boris Johnson to articulate demand means some companies could get back to a clear Covid-19 exit strategy with an update profitability faster than anticipated. scheduled for 22 February. In addition, there has been significant capacity The government’s prior reluctance to provide reduction over the last 12 months which has a clear plan has prompted some firms in the positive implications for margins. However, the hospitality sector to tap shareholders for a second potential for a strong growth hasn’t been lost on time in order to secure extra funding and provide trade and private equity buyers. headroom in the case of further slippage. Pubs group Marston’s (MARS) turned down Pub operator JD Wetherspoon (JDW) raised (4 February) an offer from US private equity firm £93.7 million on 20 January at a 5% discount to its Platinum Equity. Meanwhile, former chief Greene prior closing price, and on 25 February Mitchell’s King chief Rooney Anand has raised £200 million & Butlers (MAB) which owns All Bar One and from investors including US investor Oaktree Nichols announced a heavily discounted (36%) Capital to invest in the sector. £350 million rights issue. In the event that overseas travel remains off the According to Numis analysts Wagamama owner agenda due to the risk of importing new strains of Restaurant Group (RTN) and catering firm SSP the virus, pubs and restaurants could get a much (SSPG) are also likely to raise new money given the needed shot in the arm. [MG] relatively tight headroom of their banking facilities. Vaccine doses per 100 people in countries The extra funds come on top of the sector with the highest total vaccinations raising £400 million of cash from shareholders in 2020 as well as accessing £500 million of funding 0 7. through the governments various coronavirus 0 loan schemes. 0 51.1 Numis reckons that most hospitality firms are 50 working on the assumption that they won’t be able 0 to reopen until the second quarter which implies, 30 . they will miss out on the boost that Easter trading 20 1 Germany Turkey

would provide. China Russia Brail 10 India . .5 . .7 .5 This means an earlier opening than currently Israel Ara mirates United U US 0. expected would have a positive impact on 0 hospitality shares, with those that moved early to Source: Our World Data 09:30 GMT 15 Feb 2021

6 | SHARES | 18 February 2021 NEWS Oil surge helps revive Shell after strategy concerns

Crude prices rally amid hopes for demand recovery and supply disruption

ew threats to supply and recovery of the recent GameStop phenomenon, hopes pegged on vaccine Other which could provide another leg to the N roll-outs and US stimulus are commodities oil price rally. helping oil prices extend their stunning are surging too This rally has helped Shell to recover start to 2021. with copper hitting its losses after investors gave the As we write this is contributing to thumbs down to its 11 February big gains for the FTSE 100 thanks to its highest levels strategy update with Berenberg the heavyweight status of BP (BP.) and since 2012 noting that for all the talk on the energy Royal Dutch Shell (RDSB) on the index. transition the renewables arm ‘remains While the demand recovery story is a the division with the lowest return target for medium-term one, the problems on the supply the company’. [TS] side, other than the planned quotas imposed Crude Oil BFO M1 Europe FOB $/BBl by producers’ cartel OPEC and Russia, appear to 2 be more short term in nature. 0 The freezing temperatures in Texas which have 5 disrupted oil production are starting to ease and 5 tensions in the Middle East seem to have simmered 5 52 down for now. 50 Though there are apparent signs of speculators 11 1 25 1 15 moving into the oil market, following in the wake JAN FEB

$12 billion with losses narrowing Coupang targeting $50 billion IPO to $475 million. BlackRock, Bill Ackman and RIT Capital Partners are Exposure to the Coupang story among the Korean e-commerce disruptor’s backers is possible through investment trust RIT Capital Partners (RCP), SOFTBANK-BACKED COUPANG Founded in 2010 by Bom Kim, which invested in the company in has filed to go public in the US, Coupang is feared and admired by April 2018. Coupang represented with reports suggesting the South competitors in equal measure and 2.4% of RIT’s net assets as of Korean e-commerce giant is aiming is regarded as a rival to Amazon the end of June 2020 and a for a valuation of around $50 billion in South Korea, where its ‘Rocket successful IPO could see the value as it aims to tap into voracious Delivery’ service, which promises of its stake increase. investor appetite for high-growth delivery within 24 hours, has shaken RIT has an objective of long-term tech stocks. up the market. capital growth while preserving This would make Coupang Also backed by Sequoia Capital, shareholders’ money through the biggest IPO in New York by a asset management behemoth market cycles and invests in a company based outside of the US BlackRock and billionaire investor diversified, international portfolio since Jack Ma’s Alibaba came to Bill Ackman, Coupang’s sales for across a range of asset classes, market in 2014. 2020 nearly doubled to nigh-on both quoted and unquoted. [JC]

18 February 2021 | SHARES | 7 NEWS Global stocks see largest ever week of buying

Technology still ‘hot’ but the market may be at risk of over-heating

he opening week of February saw the BofA Bull & Bear indicator largest ever weekly inflow of cash into T global shares, according to Bank of Up to 7.7 from 7.5 this week America’s global research team, as well as the largest ever inflow into technology stocks. 7.7 Of the total inflow of $58.1 billion into equities, some $25.1 billion or close to half flowed into US large-cap stocks, the second-highest figure on 4 6 record, while $5.6 billion flowed into US small-cap 2 8 stocks, the third highest figure on record. Buy Sell Technology stocks posted their best ever week Extreme 0 10 Extreme of inflows at $5.4 billion, while flows into bonds Bearish Bullish reached $13.1bn, pushing the yield on US ‘junk’ or sub-investment grade loans to below 4% for Source: BofA the first time in history, despite a 33% increase in Analysts warned that as more people are issuance compared with 2020. vaccinated and the US reopens, the ‘velocity’ of Part of these inflows were financed by investors money through the economy will lead to a spike in taking $10.6 billion out of their cash holdings, inflation as consumers go on a spending spree. with Bank of America noting it saw the biggest At the same time, companies are likely to use the drawdown of cash by its own private clients since reopening to lift prices, as seen in the latest small September 2019. business survey which showed plans to raise prices Investors also withdrew $800 million from gold in the next three months were at the highest level funds, marking the first month of net outflows in in two years. two months. In that scenario, analysts believe, real assets Private client asset allocation at the bank marked such as commodities, real estate and ‘collectibles’ a new high for equities at 63.1%, while bonds made including art, fine wine and luxury goods are up 19.1% and cash was reduced to 11.7%. likely to outperform financial assets like stocks and bonds, which have a poor track record during Weekly global equity flows ($bn) periods of sharply rising inflation and interest rates. At the same time, the bank flagged that its Bull 50 & Bear equity market indicator had moved another notch towards ‘Sell’ territory, from 7.5 to 7.7, with 30 a reminder that the last time the indicator gave a ‘contrarian’ Sell signal was 30 January 2018. 10 The median three-month return from a -10 ‘Sell’ signal, of which there have been 12 since 2000, is minus 9% for global stocks and minus -30 45 basis points or 0.45% for the US 10-year

-50 Treasury yield, as investors dump stocks for the ‘02 ‘04 ‘06 ‘08 ‘10 ‘12 ‘14 ‘16 ‘18 ‘20 ‘22 safety of US government bonds (bond yields fall Source: BofA Global Investment Strategy, EPFR Global as prices rise). [IC]

8 | SHARES | 18 February 2021 NEWS Cordiant Digital first of new breed of investment trust to IPO Cordiant Digital smashes initial target to raise The UK’s first digital infrastructure investment trust has floated and £370 million another hopes to follow suit

nvestor appetite for all things digital and technology related has started to become I apparent as a new breed of investment trust has launched on the market. The UK’s first digital infrastructure investment trust, Cordiant Digital Infrastructure (CORD), floated this week after raising £370 million, smashing its initial target of £300 million. Hoping to follow in its footsteps is another trust of the same ilk, Digital 9 Infrastructure, which is seeking to raise £400 million. Cordiant Digital, which targets a 9% total return a year on net assets, will invest across the UK, investors ‘give feedback that they like the idea’ of Europe and North America in what it calls the a trust, but will back it in the second fundraising core infrastructure of the digital economy, or ‘the round and adds: ‘We believe this reflects the higher plumbing of the internet’, comprised mostly of data due diligence requirements on an IPO and the centres, mobile towers and fiberoptic networks. potential wasted time and reputational risk if it fails It plans to capitalise on the ‘surging growth to get away. in data consumption and traffic’, and thinks ‘As a result, many IPOs struggle to get away and consumption trends and traffic patterns, as well we have also seen a number of IPOs coming back as the adoption of 5G technology, will provide to the market and raising capital relatively shortly ‘an economic tailwind’ that could last for over after launch.’ a decade. In the case of Cordiant, it’s also worth Digital 9 Infrastructure will invest in similar highlighting it has issued subscription shares as assets to Cordiant but also subsea cables. It’s been part of its IPO, which could’ve boosted demand as reported 98% of the world’s data is carried by these have been used in the past to give a ‘kicker’ subsea cables, and clients include almost all of the to IPO investors. world’s big technology companies. Cordiant has issued subscription shares on a one- The fact Cordiant actually managed to float, let for-eight basis, which could lead to issuance of up alone beat its target, demonstrates the demand to 12.5% of share capital, exercisable if the shares from investors for differentiated ways to play the trade on a premium in the first six months or if the ongoing digitisation of the economy, and brokers share price total return exceeds the target return Numis call it a ‘strong result’ for the trust, given over the first five years. the fact investors are ‘typically highly reluctant’ to Numis warns the cost of holding subscription participate in IPOs. shares for retail investors on platforms ‘can be Numis bemoans that ‘a frustrating number’ of significant compared to their value’. [YF]

18 February 2021 | SHARES | 9 Profit from the reopening with FTSE 250 chemicals firm Elementis The stock is cheap compared to peers but analysts think earnings could recover rapidly and ‘positively surprise’ the market

TSE 250 chemicals firm Elementis (ELM) ticks all ELEMENTIS Fthe boxes for an investor  BUY looking for an overlooked and (ELM) 125.9p undervalued stock set to benefit from the reopening of society Market cap: £731 million and the economy. Elementis has the right mix of sales divisions to benefit from both economic activity picking up again and society reopening, and at a bargain price-to-book value of just 1.2 times, compared to a (used for the industrial and CHEAP VS PEERS much higher 9.45 times for construction sectors), Talc He thinks close to 50% of peers like Croda International (used in paper, paint, plastics, Elementis’ earnings in 2020 will (CRDA), we believe the firm has polyester, ceramics and even likely come from coatings – an been unfairly overlooked by food) and Chromium, with 80% industry that has been quick to the market. of its earnings now coming from recover from the coronavirus the first three aforementioned crisis, and argues that Elementis BUSINESS OVERVIEW divisions according to its 2019 trades cheaply versus peers Elementis’ four main divisions annual report. because of this. He also points are Personal Care (chemicals Berenberg analyst Sebastien out the balance of supply and for deodorants, soap, skin Bray says Elementis has been demand in talc may also tighten care products, etc), Coatings marked down by the market long term, which could add more in the past over its Chromium than 10% to the firm’s earnings Chromium returns at trough levels division, with chromium prices before interest and taxes. generally having been weak This viewed is echoed by for years. analysts at Morgan Stanley, who Bray says analysts ‘have think the strength and speed of spent so much of the past five Elementis’ earnings recovery in years cutting numbers for this 2021 could ‘positively surprise, segment that we suspect many given the company’s gearing to are instinctively reluctant to cyclical end markets (c.55% of model a return of pricing growth sales), as well as the reopening and operating leverage, even if trade (15-20% of sales)’. all macro indicators suggest this Meanwhile both Bray and

Source: Elementis could emerge from H2 2021’. analysts at Morgan Stanley sees

10 | SHARES | 18 February 2021 the firm’s deleveraging story as potentially adding to the share price. Morgan Stanley analysts believe management’s continuing delivery on its objective to pay down debt could add ‘5% to equity value per year’, while Bray says the dividend cut and covenant extension in 2020 have ‘removed immediate danger and that the business’s high levels of cash generation should drive leverage down thereafter’. The firm’s net debt in recent period in 2019 has led analysts over the last three years, with years has ballooned to almost at Jefferies to estimate net debt its medium term group adjusted $500 million, compared to a net could be cut by $45 million in the operating profit margin objective cash position of $77.5 million in second half of 2020. being 17%. 2016, something which has also Relative weakness in the Elementis also argues that weighed on its share price. company’s share price has also specialty chemicals companies seen it become a takeover with margins in the range of GETTING DEBT UNDER target, with US rival Mineral 14% to 17% currently trade CONTROL Technologies seeing three at 17 times to 19 times 2021 But the company said in offers, the last worth 130p per EV/EBITA (enterprise value to September it was on track to share, rejected with Elementis earnings before interest, tax and deliver a ‘significant’ reduction arguing the offers ‘significantly amortisation), and that applying in net debt in the second half of undervalued’ the business this range to average operating 2020. That and the fact net debt and ignored the firm’s ‘clear profit for the Personal Care, remained at the same level in strategy to create value for its Coatings and Talc businesses the first half of 2020 as the same shareholders’. over the last three years implies Detailing the reasons why it a valuation of 163p to 190p per thinks it is worth 200p per share Elementis share. when it rejected the last takeover The company adds that offer in December, Elementis this excludes its Chromium points to the fact it is the owner business, which could be valued of ‘differentiated resources with at an additional 35p per share, high scarcity value’, including the implying a group valuation of world’s only commercially viable 200p or more per share as the high-quality rheology grade firm ‘delivers on its medium hectorite mine. term objectives’. It also highlights the fact over 80% of earnings are now 140 EEENIS from Personal Care, Coatings 100 and Talc, which benefit from

‘fundamentally attractive’ 60 margins and GDP growth, with the divisions achieving 20 an average adjusted operating profit margin of around 15% 2020 2020

18 February 2021 | SHARES | 11 Lloyd’s insurance investor Helios is set for big gains A hardening of rates means potential for significant profit growth

elios Underwriting the year ahead’ thanks to the (HUW:AIM) is unique HELIOS UNDERWRITING ‘favourable rate environment’, H as an acquirer and  BUY while Lancashire (LRE) boss consolidator of Lloyd’s insurance (HUW:AIM) 187p Alex Maloney cited ‘positive market underwriters. So pricing trends across most of our far the firm has bought 43 Market cap: £63 million business lines’. limited liability vehicles or The last few years have been LLVs, including some of the the third.’ tough for the insurers as a wave best Lloyd’s Names as they Having raised £20 million of of non-traditional investors were formerly known, as their equity capital last November, piled the market, throwing owners age or decide to exit and having protected itself from money at the business in a the business. Covid claims, the firm is set to desperate attempt to generate Commercial insurance rates underwrite £110 million of risk returns and depressing rates in have soared in the last year as a this year, an increase of 60% on the process. result of coronavirus, meaning the size of the portfolio at the Having been hit with that those who are prepared start of last year. losses, those investors are to put up capital can earn More significantly, it will only now withdrawing from the significantly higher returns in reinsure slightly more risk than market. Meanwhile, by keeping the next few years. it did last year which means the its head down and steadily For chief executive Nigel amount of retained business will adding capacity, Helios was Hanbury, the current market jump from just over £20 million able to weather the storm and represents a golden opportunity to almost £60 million. now finds itself with a strong for Helios. ‘I have seen three Hanbury’s enthusiasm is following wind and the ability to “hard markets” in my 40 echoed by others in the market. deploy significantly more capital years in the business’, he Andrew Horton, chief executive to capture higher rates. says. ‘The last was almost 20 of Beazley (BEZ), described As well as generating capital y e a r s a g o , a ft e r 9 / 1 1 . T h i s i s himself as ‘very positive about growth, Helios is aiming to pay out a rising proportion of Consolidation of Private Capital at Lloyds earnings in dividends, with Helios’ model exploits a unique window as private capital evolves analysts estimating a 50% payout ratio within a couple B P C C of years, which would make it an attractive stock for income investors too.

olichole los ket ees 220 HEIOS UNERWRIIN okes n of cit c500c oeholes £27bn of Underwriting Capital 180

Helios 0 ees 140 of cit

100

2020 2021 Source: Lloyd’s & Members’ Agents Website

12 | SHARES | 18 February 2021 TIME FOR VALUE? Temple Bar Investment Trust Plc is a well-established investment company, with a new portfolio management team at the helm. RWC’s UK Equity Income team, was appointed to manage the trust in November 2020. Led by Nick Purves and Ian Lance, the team employs a disciplined, value-oriented investment approach.

Value investing has a very long history of outperformance, but it has struggled in the growth-dominated markets of the last decade. Recent market behaviour suggests this may be beginning to change.

The Temple Bar Investment Trust is well placed to benefit should this rotation into UK value stocks continue.

For further information, please visit templebarinvestments.co.uk

“In my 30-year career as a fund manager, there have been two occasions in which a market dislocation has created an opportunity for investors to potentially make very attractive, outsized returns. The 2000 dotcom boom, and in 2009 following the global financial crisis. I believe we are now witnessing a third.” Ian Lance, Portfolio Manager

No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Investments can go up and down in value and you may not get back the full amount invested. RWC Asset Management LLP is the appointed portfolio manager to the Temple Bar Investment Trust Plc and this is issued by RWC Partners Limited. Both firms are authorised and regulated by the Financial Conduct Authority. RWS TOP BHP TOP (RWS:AIM) 619p STOCKS (BHP) £22.71 STOCKS FOR FOR Gain to date: 15.9% 2021 Gain to date: 14.5% 2021 Original entry point: Original entry point: Buy at 534p, 23 December 2020 Buy at £19.83, 23 December 2020

LANGUAGE TRANSLATION AS EXPECTED mining giant BHP (BHP) has felt technology firm RWS the benefit of soaring iron ore prices and has (RWS:AIM) signaled to the decided to reward shareholders with a record market this month that $5.1 billion, or $1.01 per share, first half dividend trading in its core business in – a 55% year-on-year hike. the first quarter to the end BHP makes half its money from iron ore of December had been ‘excellent’, with pre-tax currently, and the world’s largest miner has been profit up by double digits. a big beneficiary of an upswing in prices, which At the same time, in its first two months as have risen 85% in the past year and peaked at part of the group, new acquisition SDL delivered $185 per tonne in December, mainly due to results in line with the previous year and the demand from China, the world’s biggest iron integration process is well on track, with new ore consumer. management already in place and ‘significant To put the impact into context, miners, synergies already starting to be realised’. including rivals like Anglo American (AAL) and The firm held off from raising its full year Rio Tinto (RIO), can dig iron ore out of the ground forecasts and instead flagged the strength of profitably at prices around $15 per tonne. sterling against the US dollar as providing ‘an In its half-year results to 31 December, BHP unwelcome headwind’, but the strong start reported a 16% jump in underlying attributable suggests there could be broker upgrades in profit – the measure used by analysts and the pipeline. investors – to just over $6 billion on revenue of Moreover, given RWS has no net debt, $25.7 billion. Net debt, also closely watched, chairman Andrew Brode hinted at more deals to dropped 7% to $11.8 billion. come, calling the firm ‘well-positioned to take If iron ore and copper prices – another key advantage of further acquisition opportunities in commodity for BHP – remain at current levels in a rapidly consolidating market segment’. the first half of the year analysts think it can cut Numis sees the stock as ‘good value’ given the net debt significantly, which could pave the way encouraging trading update and especially the for another big shareholder payout. potential for higher than expected synergies to come from the SDL acquisition. 2400

800 RWS 1800

650 1200 BHP

500 2020 2021

2020 2021 SHARES SAYS:  There’s increasing talk we’re in for a commodities SHARES SAYS:  super-cycle this decade. BHP would be a big Keep buying. [IC] beneficiary. [YF]

14 | SHARES | 18 February 2021 ADVERTISING FEATURE

SEARCHING FOR INNOVATIVE HEALTHCARE INVESTING? THAT’S WHAT WE DO.

BBH Total Return % (assuming reinvestment of dividends in security) Period ending 31.01.2021 1 Year 3 Years Since launch BBH Share Price +30.2 +70.6 +102.6 BBH NAV +33.1 +76.0 +100.9 MSCI World Heathcare Index (GBP) +12.6 +44.3 +66.9 Source Bloomberg/Bellevue Asset Management

More details are available via the Trust’s prospectus, factsheets and videos that can be found on our website: www.bbhealthcaretrust.com

BB Healthcare Trust PLC (the “Company”) is a UK investment trust listed on LSE. Launched 02.12.2016. Past performance is not a guide to future performance. The value of an investment and income from it may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. This document is for information purposes only and does not constitute an offer or invitation to purchase shares in the Company and has not been prepared in connection with any such offer or invitation. This communication has been prepared by Bellevue Asset Management (UK) Ltd., which is authorised and regulated by the FCA in UK. The views expressed herein do not constitute investment or any other advice and are subject to change. Moonpig shares: not cheap but a very interesting business We think they are worth buying for the clear growth opportunity and clever techniques to drive sales

hares in £1.4 billion company Moonpig S (MOON) have flown 21% higher to 423.8p since the online greeting cards retailer joined the stock market on 2 February at 350p. While its valuation is certainly not cheap, we’re inclined to believe the share price has further to rise. Analysts think the company has been overly conservative with earnings guidance in order mean people are far more likely This habit could stick once not to disappoint in its first year to order a card online than lockdown restrictions ease, as a listed business. bother going to one of the few particularly when people Ongoing lockdown conditions shops open. experience the ability to put someone’s name inside a card design, which is nice personalised touch, and not have the added hassle of buying stamps. Being able to do everything from your phone or computer is so much more convenient. While online greeting cards retail is a competitive space, Moonpig is one of the best- known brands and widespread media coverage of its successful IPO (initial public offering) will FORECASTS - £m work in its favour in terms of Years to Adj PBT further raising brand awareness. Sales (£m) EPS (p) PE April (£m) 2020 173.1 31.8 9 47.1 CLEVER MOVE 2021 300.1 55.5 13.7 30.9 We note that Moonpig was only 2022 284.5 38.1 9 47.1 taking orders via its app rather than the website in the run up 2023 316.4 53.6 12.6 33.6 to Valentine’s Day, citing high Source: Peel Hunt, Moonpig, PE based on 423.8p share price demand. This may or may not

16 | SHARES | 18 February 2021 be a savvy ploy to get people Attachment rate of gifts to cards is high in the wider market to download the app so that its brand is front of mind the next time they need to send a card or a gift. Once the app is on a >95% >95% >95% customer’s phone, push 90% notifications act as a powerful way to increase order frequency and average order value through 72% nudges and personalised recommendations. All very clever. Moonpig’s management team, led by chief executive Nickyl Raithatha and finance director Andy MacKinnon and with former WH Smith (SMWH) chief executive Kate Swann in 16% the chair, has sold Moonpig Moonpig Total Birthdays Valentine’s Father’s Mother’s to investors as a technology UK card Day Day Day play rather than as a plain market vanilla retailer. The company uses customer Source: Moonpig data data and predictive technology to remind people of key events the UK online greetings cards It says approximately 70% and suggest add-on gifts. market. That is four times bigger of cards are ultimately sent Getting people to buy more than the number two player, with a present (which is likely than just a card is key to the Funky Pigeon which is owned by to have been bought from growth story because gifting WH Smith. another retailer), yet only 16% of is 10 times the size of the Broker Peel Hunt describes Moonpig’s transactions involve cards market. For example, for Moonpig as ‘a very impressive, an add-on product and only a Valentine’s Day, Moongpig’s ground-breaking business’, with small proportion of customers website was plastered with a strong position in an online come to Moonpig solely for a bundles such as a card with market that is growing. gift, so there is significant scope flowers or a big balloon. Visitors to grow this part of the business. were also being incentivised ‘Moonpig may have a large to set up reminders for future share of the online card market, card-giving dates with money- but its share of the cards sent in off deals. the UK and Holland can grow. At last count, it had 12 million active ‘A very impressive, ground- NOT JUST ABOUT THE UK breaking business, with a customers out of a potential pool The company trades as Moonpig strong position in an online of 53 million. Those customers in the UK and under the Greetz market that is growing.’ use Moonpig for three of their brand in the Netherlands, having Peel Hunt 23 annual cards: that can rise made Holland’s market leader its too,’ it adds, arguing that the first acquisition in 2019. group’s customer relationship The web-based business management and data crunching boasts a powerful market abilities are ‘game changers’. position with a 60% share of

18 February 2021 | SHARES | 17 HALLMARKS OF QUALITY In the documents accompanying its stock market debut, Moonpig insisted it is a highly cash generative business due to its high margins, negative working capital profile and relatively low capital expenditure requirements. For the six months to October 2020, revenue grew 135% to £155.9 million, with £120.8 million contributed by the core Moonpig business and the balance by Greetz, where margins have expanded under Moonpig’s ownership. Peel Hunt’s retail experts believe the Moonpig model pandemic, the broker forecasts normalises. Peel Hunt forecasts can be exported internationally 75% jump in adjusted pre-tax a surge back to £53.6 million on too. The shift towards gifting profit to £55.5 million on £300.1 £316.4 million of sales in 2023. solutions should help the million of sales. These estimates Based on the broker’s 2023 company to grow on the could prove conservative earnings estimate of 12.6p, continent, where Europeans if, as is likely with brick and Moonpig’s shares trade on 33.6 tend to send less cards than mortar stores shut, Moonpig times earnings. That is similar the Brits. Moonpig already has enjoys bumper business to what ASOS (ASC:AIM) trades a small operation in the US too around the major card-sending on for the next 12 months’ and Peel Hunt says it would events of Valentine’s Day and expected earnings. not be surprised if this became Mother’s Day. ‘(Moonpig’s) growth rate, more material in time, either Pre-tax profits of £38.1 million the “category killer” nature, the organically or via acquisitions. are on the cards for 2022 on opportunity to move into the For the financial year to April £284.5 million of revenues gifting market, and the extremely 2021, with a tailwind from the as the boost from lockdowns compelling data on customer retention, make this a highly prized asset, and we would be surprised if the valuation did not ultimately reflect that,’ concludes Peel Hunt.

SHARES SAYS: Though the high valuation means the company is priced for perfection, Moonpig 43 has a clear growth path as part of a structural shift in its part of 4 the retail sector. Buy at 423.8p.

3 By James Crux MOONPI 34 Funds and Investment 2 3 4 E 8 2 Trusts Editor

18 | SHARES | 18 February 2021 THIS IS AN ADVERTORIAL

Why Japan is well placed to perform in a global recovery

with already high standards. We also look for companies that are implementing real change and improving their governance. This is particularly relevant in the mid/small- cap space where third party coverage is limited and simple Nicholas Price disclosure, especially in English, is often limited. When the Fidelity Japan Trust PLC efforts of these companies are recognised by the market, AS THE VACCINE rollout begins in earnest and economic share prices may rise. data starts tentatively to improve, positioning for recovery is Recently, we engaged with a diversified chemicals becoming a priority for many investors. As a cyclical market company that we hold in the trust. The quality of its dependent on global growth, Japan should be well-placed business and products was not fully reflected in its share to perform in the post-pandemic environment. It also brings price due to ESG-related issues. We discussed this with opportunities in long-term growth trends such as digital the management team, who accepted that this stemmed transformation and environmental efficiency. primarily from poor disclosure on chemical safety and The Covid-19 pandemic clearly still poses risks, as new carbon emissions, as well as their reluctance to engage with variants of the virus and rising infection rates across the shareholders. globe push governments to reimpose or extend restrictions. The company committed to dealing with these issues However, the gradual roll out of vaccines and continued in line with best practice, setting medium-term financial monetary and fiscal policy stimulus are positive for the targets, producing an integrated report and a detailed global growth outlook and should be supportive of ESG data book. It implemented a reduction plan for CO2 Japanese equities. emissions and established of a procurement policy that Within this broadly supportive environment, a number encompasses environmental and human rights issues. This of themes present themselves. Clean energy and has since been reflected in share price performance. environmental efficiency are areas where Japan has competitive companies that can supply solutions globally. Future growth Covid-19 has also accelerated trends in e-commerce and With the Fidelity Japan Trust PLC, we look for companies digital transformation. As profits recover, companies with a long runway of growth and competitive advantages will prioritise those areas. Both these trends are well- in a growing addressable market. With this in mind, fertile represented in the portfolio. hunting grounds include energy efficiency solutions, However, we are also widening the net and looking for medical technology, Asian consumption and digital companies with recovery potential in areas such as leisure transformation providers. There are also a lot of exciting and travel. As we start to see better performance, there will under-researched mid-cap companies in Japan that are be an opportunity to pick up companies that are returning creating new markets. Being on the ground in Japan means to growth. that we see these ideas first-hand, meeting with pre-IPO companies to identify the most attractive opportunities. The ESG opportunity We continue to look for early-stage ideas and nascent High standards of corporate responsibility make good disruptors, particularly among fast-growing services and business sense and at Fidelity, ESG (environmental, social internet-based companies, as well as innovative med-tech and governance) analysis is integral to our investment names. Japan offers many compelling options to benefit decisions. However, it’s not just about buying companies from the building economic recovery.

Important information The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Changes in currency exchange rates may affect the value of an investment in overseas markets. The shares in this investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser. The latest annual reports, key information document (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. Fidelity Investment Trusts are managed by FIL Investments International. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0221/33162/CSO10291/0821. 1 YEAR SINCE THE MARKET CRASH

By Ian Conway Senior reporter

What’s changed and are there any bargain stocks left?

espite all the upheaval of the past year, In the UK the FTSE 100 and FTSE 250 are still in anyone glancing at the financial markets negative territory since February 2020 although the today might find it hard to believe losses aren’t nearly as extreme as they were when Dinvestors were in the throes of despair the pandemic first took hold. 12 months ago. Markets have been fuelled by support from Following the global markets crash in February central bank and government stimulus measures, 2020, the recovery has been spectacular. The US low interest rates and optimism over the pace Nasdaq 100 and S&P 500 indices are at all-time of economic recovery thanks to the creation of highs, Japan’s Nikkei index is at a multi-decade Covid vaccines. high, China’s Shanghai index is at a multi-year high Risk appetite is alive and well as shown by and the MSCI All Countries World Index is at a the surge in crypto currencies, the volume of record high. investment grade bonds now trading with negative

20 | SHARES | 18 February 2021 Change in major indices since 2020 market crash looking to downsize while those which were planning to expand have realised they can increase Index Change their staff numbers while staying in the same office NASDAQ Composite (US) 44.8% and rotating their teams. CSI 300 (China) 43.1% Those with several smaller regional offices Nikkei 225 (Japan) 29.7% may look to do away with them altogether and concentrate on making the working from home S&P BSE 100 (India) 28.0% experience more fulfilling for their staff. S&P 500 (US) 16.8% Bus and rail firms, which will have budgeted for Hang Seng (Hong Kong) 9.6% a given level of revenue before the pandemic, now DAX Xetra (Germany) 3.1% have to go back to the drawing board and rethink FTSE 250 (UK) -1.2% their plans, not least for capital spending, given CAC 40 (France) -4.5% they are likely to see far fewer passengers using FTSE 100 (UK) -8.5% their services in the future. Source: Sharepad, Google Finance, Shares Date range: 18 Feb 2020 market close to 15 Feb 2021 market close (12 Feb 2021 for US indices, 11 Feb 2021 for CSI 300) PERSONAL FINANCIAL yields (bond yields fall when prices rise), herd behaviour on social networks regarding stocks, HABITS HAVE CHANGED the deluge of cash shells to acquire businesses, the warm reception for new stock market listings The pandemic has brought behavioural changes, and the race by private equity firms to deploy their too. Ian Mattioli, co-founder and chief executive mountains of cash through acquisitions. of wealth manager Mattioli Woods (MTW:AIM), Later in this article we look for cheap stocks says his firm has found that many people who, that have still to play catch-up. prior to last year, thought nothing of spending their First, we explore what’s changed in terms of disposable income on two or three holidays a how companies do business and how we manage year, are now saving the bulk of their surplus our money. wages to give themselves a buffer in case they lose their jobs. Recent announcements by holiday companies STRUCTURAL CHANGES such as TUI (TUI) confirm that holidaymakers are being more selective. The ‘return to normal’ has It almost seems as though nothing has changed; failed to happen so far, with TUI reporting a 44% in fact, everything has changed. Much of what reduction in summer bookings compared with might be called ‘new’ isn’t new at all – many of pre-pandemic (2019) levels, well short of its earlier the biggest trends to emerge in 2020 had been expectation for a 20% drop. waiting in the wings for several years, the pandemic just brought them centre stage much earlier than expected. The greatest change has been the shift to remote working (see When will we return to the office - if at all?), which had always existed on the fringe but had never been considered viable on a large scale. The surprise for many business owners was how off-the-shelf technology enabled them to quickly move to remote working without a hitch. Moreover, remote working has brought benefits to many firms including cost savings, and it has improved the work/life balance for their employees. The flip side is that it is bad news for owners of city centre offices, transport companies and anyone who relies on either – or worse, both. Companies with large central offices are mostly

18 February 2021 | SHARES | 21 We are also becoming more discerning when it comes to shopping online for fashion. Gone it WHEN WILL WE RETURN seems is the habit of picking six dresses for an TO THE OFFICE (IF AT ALL)? event and sending five back, with retailers such as ASOS (ASC:AIM) noting a steady decline in the THE LATEST ALPHAWISE survey from volume of returns throughout the past year. investment bank Morgan Stanley makes sobering reading for those hoping for a reopening of the economy by Easter. According to the bank’s monthly telephone survey of 12,500 European office workers, despite the rollout of vaccines since its previous survey, employees’ expectations of when they can return to work have slipped from April to June. As the survey says, ‘Clearly, this will not only impact office utilisation in 2021, but also leisure and retail property that depends upon the If we aren’t getting dressed up and going out, or return to normal commuting patterns.’ planning several trips to foreign climes, what are Across Europe, 73% of office workers have we spending our money on? been working remotely compared with half that The latest Barclaycard study shows overall proportion pre-Covid. Of these, 80% would like UK consumer spending fell 16% between to work from home more in the future, with 25 December and 22 January. Spending on 51% happy to work out of the office one or two essentials was up roughly 4%, with supermarket days a week, 29% three to four days a week and spending up 17% and online grocery spending up 14% every day of the week. 127%, which is positive news for companies such as Ocado (OCDO). Spending on non-essentials fell almost 25%, with health and beauty sales down 27% and clothing sales down 25%. With restaurants closed, takeaway and delivery sales jumped 33%, the highest growth on record for the category. Total online spending was up 73% on the same period a year earlier and now accounts for a remarkable 55% of all retail sales, a genuine paradigm shift for the retail sector which has struggled to keep up with changing demand. Moreover, most consumers believe they will Chris Herd, founder and chief executive stick with online shopping once vaccinations are of remote infrastructure firm Firstbase, commonplace as they now prefer the experience says remote work is ‘the biggest workplace of ordering via their phone or computer and having revolution in history, and nothing will deliver their items delivered rather than schlepping to the a higher quality of life increase in the next shops in all weathers. decade than this’. Herd believes new companies will be ‘remote first’, without the need for a corporate A SHRINKING headquarters. Aside from the obvious cost savings, this allows them to hire the best people HIGH STREET wherever they are in the world, not just within a certain radius. At the same time, companies Sadly, the flip side of this shift to online shopping which want to retain their staff will have to offer is the high street as we knew it becoming a thing remote working as an option or risk losing them. of the past. Footfall in January 2021 was down a staggering 77%, according to the British Retail

22 | SHARES | 18 February 2021 Consortium, and the outlook for February is not JD Wetherspoon (JDW), Marks & Spencer (MKS), particularly encouraging. Next (NXT), Primark-owner Associated British Few chains look to have the right financial Foods (ABF), Sports Direct-owner Fraser (FRAS) strength and proposition to sustain a town centre and WH Smith (SMWH). presence long-term, with the list of likely survivors And, where previously an empty shop might (among companies whose shares trade on the have been turned into a café, bar or restaurant, the UK market) more or less measurable in single decimation of the hospitality industry means there figures, principally (GRG), JD Sports (JD.), are few players with the financial wherewithal to step in and take up the space, especially if footfall is permanently reduced. According to the Coffer Peach Business Tracker survey, turnover for the hospitality industry was down 54% last year from £133.5 billion to just £61.7 billion. If anything, the fourth quarter trend was worse than the annual average, down 57% from £33 billion to just £14.3 billion. All of this bodes poorly for commercial property companies for the next few years. Strong retailers will have their pick of the best sites and will likely demand low rents with much of the responsibility for upkeep passed onto the property owners.

CI C IC I 21 Feb: Global stock 00 CI C IC I 00 market crash begins

550 550 23 Mar: Fed reveals economic support 500 23 Jan: Wuhan measures, market 500 quarantined crash bottoms

50 50 17 Jan: Hong Kong stocks start to fall

00 00 11 Jan: China reports first known virus death

350 350 2020

00 CI C IC I 00 CI C IC I

50 50 18 May: Positive trial update on 00 Moderna Coronavirus vaccine 00

550 550 8 Dec: First person 500 in UK receives 500 Pfizer vaccine 50 50

00 9 Nov: Pfizer/BioNTech 00 say their vaccine has 350 90% efficacy 350 2020 202 2020 202

18 February 2021 | SHARES | 23 STOCK MARKET WINNERS AND LOSERS

When sifting through what worked and what didn’t and defence, banks, fixed-line telecommunications, work over the past year in stock market terms, we oil and gas producers, and oil and gas equipment have looked at both the broader FTSE 350 sector and services, the last two despite a sharp rally in indices and individual stocks. crude oil prices since the start of 2021. Best performing FTSE 350 sector indices since 2020 market crash STOCK-LEVEL ANALYSIS Sector Index Change It won’t be a surprise to investors that companies Industrial Metals 52.6% which were either already largely online or shifted Industrial Transportation 51.6% their business model to online were among the Leisure Goods 50.8% biggest winners. The top performing FTSE 350 stock Mining 31.2% since the start of the Covid sell-off is Industrial Engineering 21.8% AO World (AO.), up 307%. The online retailer of Source: Sharepad, Shares unglamorous items such as freezers, microwaves Date range: 18 Feb 2020 market close to 11 Feb 2021 market close and washing machines became a stock market darling as domestic appliances became hot Worst performing FTSE 350 sector indices property during lockdown. since 2020 market crash Best performing FTSE 350 stocks Sector Index Change since 2020 market crash Oil & Gas Producers -36.2% Company Share price gain Aerospace & Defence -34.6% AO World 307% Oil Equipment, Services & -33.9% Distribution 281% Banks -26.2% 157% Fixed-Line Telecommunications -20.9% CMC Markets 156% Source: Sharepad, Shares Royal Mail 151% Date range: 18 Feb 2020 market close to 11 Feb 2021 market close 888 139% Ocado 126% Unusually, industrial metals, mining, industrial 108% transportation and industrial engineering have Antofagasta 82% been the leaders in terms of performance, even though the global economy took an enormous hit 80% Source: Sharepad, Shares during the pandemic and by most estimates it will Date range: 18 Feb 2020 market close to 11 Feb 2021 market close take three to five years for world output to return to ‘trend’. Spread betting firms like CMC Markets (CMCX) On the other hand, considering the devastation and (PLUS) as well as gambling firms like wrought on the hospitality industry, it’s somewhat 888 (888) and Flutter (FLTR) posted exceptional surprising travel and leisure or pubs, restaurants gains thanks to a surge in new account openings and hotels weren’t among the worst FTSE 350 as those cooped up at home found new ways to sector performers. entertain themselves by betting. Instead, the worst sectors have been aerospace Savvy investors played the strong performance of

24 | SHARES | 18 February 2021 Worst performing FTSE 350 stocks Asia-focused trusts also found favour with since 2020 market crash Fidelity China Special Situations (FCSS) almost doubling and JPMorgan Japanese (JFJ) rising by Company Share price loss two thirds. -79% Interestingly, less than half the constituents of -74% the FTSE 350 index trade above their February Petrofac -68% highs today, and a third are still lagging the benchmark with losses of more than 10%. International Consolidated -65% Airlines The list of big losers is littered with travel and TUI -62% leisure, aerospace, financial and industrial stocks, along with real estate investment trusts (REITs). Rank -60% Curiously, many of the housebuilders are still Rolls-Royce -60% heavily in negative territory with losses of 30% or -58% more despite the continued strength of demand SSP -58% in the housing market – as shown by their recent Carnival -58% results – and a clutch of technology stocks are also Source: Sharepad, Shares nursing heavy losses which seems counter-intuitive. Date range: 18 Feb 2020 market close to 11 Feb 2021 market close It is worth noting that since 9 November when overseas markets through collective investments, Covid-19 vaccines started to be confirmed, especially those with a US/technology bias, with recovery plays have been in fashion, with travel Baillie Gifford US Growth Trust (USA)and and leisure stocks such as Cineworld (CINE) picking Scottish Mortgage (SMT) clocking up gains of up, and more defensives such as Unilever (ULVR) more than 100%. lagging the wider UK indices. 3 STOCKS TO BUY NOW

We have chosen three stocks which we think What excites us is the 15% increase in have been overlooked, with varying degrees of renewal rates as the insurance market tightened risk attached. conditions in response to the pandemic. Chief executive Andrew Horton described himself as THE ‘SAFE’ ONE ‘very positive about the year ahead’, as having raised capital in May the firm is well placed to Beazley (BEZ) 350p capture the strong rate tailwind. With its strong underwriting discipline and Market cap: £2.2 billion focus on capital returns, Beazley can cover the same risks this year with a much greater profit 12-month forward PE: 11.7 margin which should lead to earnings upgrades and a sharp rerating of the shares.

Shares in Lloyd’s market insurer Beazley (BEZ) 00 are trading 38% below their pre-pandemic levels, 550 which seems to us as though the market is 500 driving with the rear-view mirror. 50 The firm may have posted a $50m loss for 00 350 last year due to claims for cancelled events and 300 other Covid effects, but this was half the amount 250 analysts were expecting. 2020 2021

18 February 2021 | SHARES | 25 It also pointed to full year completions of THE ‘CHEAP’ ONE 9,800 homes, an increase of 30%, and an improvement in its underlying operating profit (BWY) £28.84 margin of ‘at least 200 basis points’ (2%) over last year’s 14.5% margin. Market cap: £3.6 billion Given how much brighter the outlook appears, it seems odd that the shares are still some 30% 12-month forward PE: 9.2 below their February 2020 level. Moreover, the valuation gap between Bellway and the rest of Trailing 12-month price to book value: 1.2 the sector seems abnormally wide. We can only assume that investors are worried the end of Help to Buy and/or the Mid-market stamp duty holiday will lead to disappointment, housebuilder Bellway yet the valuation offers a healthy margin of (BWY) posted a record safety in our view. build volume for the six months to the end 500 of January, and what it 000 called a robust forward 3500 sales book with orders 3000 for almost 5,900 new 2500 homes or 28% more 2000

than the same period a 1500 year earlier. 2020 2021

forced it to grasp the nettle and cut down on THE ‘RACY’ ONE unnecessary spending while focusing on key areas of opportunity. (MCRO) 466p The firm’s new guidance is for revenues to stabilise in the 2023 financial year, while its Market cap: £1.6 billion in-house IT infrastructure plan starting this year will generate further operational improvements 12-month forward PE: 4.5 and efficiencies. For us, with the shares down 40% since last February, it’s a binary bet. Either the firm does Infrastructure software what it promised which means the shares supplier Micro Focus rerate, or it keeps disappointing and gets taken (MCRO) divides opinion over by a private equity firm. This is a high-risk like few other stocks. investment and investors should only get involved ‘Cheap for a reason’ if they have money they can afford to lose. is a typical response, which given its debt 00 800 level and a surprise IC C $2.8 billion writedown 00 of goodwill in the 00 2020 results doesn’t 500 seem unjustified. 00 The firm began its three-year turnaround 300 200 plan in January last year, which was unfortunate 2020 2021 timing, but if anything, the pandemic has

26 | SHARES | 18 February 2021 ADVERTISING FEATURE

A NEW MOOD IN MARKETS: POSITIONING FOR RECOVERY

The narrow focus of markets 2020, investors were narrow in uncertainty, investors have in 2020 may have left investors their focus, concentrating on a started to appreciate the robust positioned for yesterday’s handful of consumer staples and prospects and inherent value in crisis rather than tomorrow’s technology companies that could many unloved and unfashionable recovery, says Thomas Moore, deliver strong earnings even as UK stocks. We believe investors manager of the Aberdeen economies shut down. However, should take note. Standard Equity Income Trust. in recent months investors have We are still in the foothills of started to broaden their horizons. this rotation and many investors • A rotation in stock markets is Given our focus on identifying may be unprepared for what is to being driven by the prospect under-appreciated UK income come. The strong performance of of economic recovery stocks with the potential for a handful of growth stocks has left as vaccinations allow stock-specific change, the highly- global equity markets unbalanced, economies to reopen charged macro environment with many investors reluctant to • Stock markets are likely to that prevailed in 2020 was a shift away from the companies move ahead of the economic difficult one for the Aberdeen that have served them well data Standard Equity Income Trust. through the crisis. However, it may • There is a window of Style analysis shows that there be time to switch gears and think opportunity to benefit from was general antipathy towards about recovery rather than crisis. low valuations as the wall of income stocks globally, with worry is set to be climbed UK income stocks performing POSITIONING FOR ECONOMIC particularly badly on fears of a no- GROWTH In potentially delivering a route out deal Brexit. However, as vaccines While there are risks to the of the pandemic, vaccines have pave the way for economic vaccine rollout and the potential also brought a notably different recovery and an eleventh-hour for resistant mutations of the mood to markets. For much of EU-UK trade deal reduces political virus, there are also reasons ADVERTISING FEATURE

for optimism. For example, we see household finances as a powerful catalyst. For 12 months, many people have curbed their spending: holidays have been cancelled, commuting costs have disappeared and few have felt the need to update their wardrobe. A recent Bank of survey showed around 28% of households had accumulated additional savings, mostly among wealthier and older people. Household savings ratios are at multi-year highs, hitting 16.9% in September 2020. We expect some of these savings to find their way into the economy once people have a little more certainty about the future. At the same time, governments are likely to continue spending, particularly in the UK. As the architect of Brexit, the incumbent government will be keen to prove its success, which could see lower taxes and deregulation. The EU- UK free trade deal is not perfect, were unfashionable. The market as this is when investors are at but it is a baseline. Subsequent has ignored many businesses their most uncertain despite the free trade deals are likely to boost whose operations have held up burgeoning growth that lies ahead. sentiment, highlighting that the superbly well during the crisis. We are particularly excited about UK remains open to the world. The divergence in valuation financial services companies which Gradually, this may start to unwind multiples within the UK market have weathered the downturn the Brexit discount that has been has increased as investors follow successfully and now look set to placed on the UK market. simple rules of thumb that reap the benefits of the up-phase The UK has undoubtedly have worked very well during a of the cycle. For example, emerging been held back by the sector prolonged period of falling bond markets fund management group composition of its stock market yields, but which may come into Ashmore turned out to be far more as global growth was slowing. question should the external robust than the market anticipated, It has a higher weight in more environment ever change. The with a strong balance sheet economically-sensitive areas result is that investors could be supporting an attractive dividend such as energy and financials. over-valuing the earnings stream of and investment in growth. Just as this held the UK market certain businesses and significantly back during a time of uncertainty, undervaluing the earnings stream DIVIDENDS it should be supportive as the of others. Covid-19 had a major impact on UK economy recovers and capital The scale of the valuation dividends and this has resulted in rotates into these unloved areas. opportunity is such that investors our portfolio income slipping back, can position for recovery without requiring us to dip into reserves to CHEAPER GROWTH taking on a huge amount of risk. support the payout to shareholders It is worth noting that many of the We see many robust companies this year. We still have considerable companies in our portfolio have offering a combination of attractive reserves, but as a newly anointed been out of favour not because yield and growth. Our experience AIC ‘dividend hero’, we are working of underlying weakness in their tells us that the start of a new cycle hard to restore our portfolio business, but simply because they offers the greatest opportunities, income as soon as we can. Given ADVERTISING FEATURE

the number of attractive income economic growth and low bond recovery that lies ahead or the stocks available, we believe we can yields has conditioned investors crisis that has just happened. do so while remaining consistent to believe that there is only one Company selected for illustrative in the investment process that we formula that works. This has purposes only to demonstrate the have set out. As well as adding to resulted in many well managed investment management style our holdings in attractively valued companies being left behind. described herein and not as an resilient income stocks, we are While there are early signs of a investment recommendation or expecting around one fifth of our shift in tone, we believe there is indication of future performance. portfolio to reinstate dividends a very long way to go. Investors Find out more by registering in 2021. need to consider whether they for updates or by following us on The long period of sluggish are positioned for the economic Twitter or LinkedIn.

2016 2017 2018 2019 2020 Dividend yield (5) 3.73 3.72 4.06 5.37 8.17

Past performance is not a guide to future results.

Important information certain investors may be subject to further tax Risk factors you should consider prior to on dividends. investing: • The Company may charge expenses to capital • The value of investments and the income from which may erode the capital value of the them can fall and investors may get back less investment. than the amount invested. • The Alternative Investment Market (AIM) is • Past performance is not a guide to future a flexible, international market that offers results. small and growing companies the benefits of • Investment in the Company may not be trading on a world-class public market within appropriate for investors who plan to a regulatory environment designed specifically withdraw their money within 5 years. for them. AIM is owned and operated by the • There is no guarantee that the market price London Stock Exchange. Companies that trade of the Company’s shares will fully reflect their on AIM may be harder to buy and sell than underlying Net Asset Value. larger companies and their share prices may • As with all stock exchange investments the move up and down very sharply because they value of the Trust shares purchased will have lower trading volumes and also because immediately fall by the difference between the of the nature of the companies themselves. In buying and selling prices, the bid-offer spread. times of economic difficulty, companies listed If trading volumes fall, the bid-offer spread can on AIM could fail altogether and you could lose widen. all your money. • The Company may borrow to finance further • The Company invests in the securities of investment (gearing). The use of gearing is smaller companies which are likely to carry a likely to lead to volatility in the Net Asset Value higher degree of risk than larger companies. (NAV) meaning that any movement in the value of the company’s assets will result in a Other important information: magnified movement in the NAV. Issued by Aberdeen Asset Managers Limited which is • The Company may accumulate investment authorised and regulated by the Financial Conduct positions which represent more than normal Authority in the United Kingdom. Registered Office: trading volumes which may make it difficult to 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered • realise investments and may lead to volatility in Scotland No. 108419. An investment trust should in the market price of the Company’s shares. be considered only as part of a balanced portfolio. • Yields are estimated figures and may fluctuate, Under no circumstances should this information there are no guarantees that future dividends be considered as an offer or solicitation to deal will match or exceed historic dividends and in investments. RUSS MOULD AJ Bell Investment Director Blame game won’t stop the next Gamestop

Why regulation can’t necessarily stop bubbles from forming

oday’s (18 February) Congressional hearing speculation Devil Take the Hindmost: ‘Although in Washington into what happened with short-sellers are invariably blamed for the collapse Tshares in Gamestop should make for of stock markets, the problem is really caused by fascinating listening. long-only buyers during the preceding bull market, A host of luminaries – including Vlad Tenev who push stocks to unsustainable levels. No from Robinhood, Ken Griffin from Citadel, Steve government has yet seen fit to ban stock purchases Huffmann from Reddit, high-profile retail trader during a stock market bubble.’ Keith Gill (‘Roaring Kitty’) and Gabe Plotkin of Melvin Capital, the hedge fund pummelled by EYE OF THE BEHOLDER Gamestop’s meteoric, if short-lived, surge – will all The tricky bit is defining a bubble. Former US testify on Capitol Hill. Meanwhile, the American Federal Reserve chairman Alan Greenspan went markets’ key regulator, the Securities and Exchange on the record as saying bubbles could only be Commission, is planning to produce a report to see spotted after the fact, after they have burst – by what lessons can be learned. which time it was too late. Several current Fed officials, including chair Jay Powell, are now Gamestop appears to have hit vigorously rebutting arguments that fresh bubbles the buffers – at least for now are sprouting up everywhere, from Gamestop to 400 Special Purpose Acquisition Companies (SPACs), to 350 Gamestop ($) 300 new company flotations and beyond. 250 200 Bitcoin keeps barrelling higher 150 100 Bitcoin 60,000 50 0 50,000 2016 2017 2018 2019 2020 2021 40,000 Source: Refinitiv data 30,000 20,000 This column’s suspicion is that tighter regulation 10,000 will follow – but not yet. History suggests that will 2016 2017 2018 2019 2020 2021 only come after a deeper, longer, bear market across equities more generally that inflicts pain on Source: Refinitiv data a far greater number of investors and traders than the shenanigans involving Gamestop. One person’s bubble is another’s bull market That is when the real hunt for scapegoats and and profit opportunity (as owners of bitcoin the apportionment of blame will begin, with hedge will tell you). One way to judge whether are in funds probably top of the list – even if, as Edward a bubble (or not) is to follow the classic cycle of Chancellor writes in his excellent history of financial bubbles outlined by Charles P. Kindleberger in his

30 | SHARES | 18 February 2021 RUSS MOULD AJ Bell Investment Director magisterial history of financial mayhem, Manias, Panics and Crashes. The details of each episode may change but human behaviour clearly does not and the running order is consistent. Investors can therefore decide where in this cycle we might be right now. That takes us back to whether regulation is the The starting points are cheap credit and only answer. This above potted history of every 1 the prospect of a fabulous, new investment bubble from Dutch tulips in the 1620s through opportunity that offers the prospect of big gains to American housing in 2007 would suggest not. (anything from tulip bulbs to railroads to Japanese Every meltdown has prompted regulation of some property to technology stocks will do if the mood kind – from Sir John Banham’s Act in 1734 in the is right). UK through to Dodd-Frank Act in 2010 in America – but to no ultimate avail. Initial price rises then catch the attention of 2 newcomers, as ‘fear of missing out’ (FOMO) ACTION REPLAY starts to gather steam. This is because human behaviour does not change (and the memory of prior disasters ultimately Investment profits go into orbit and fresh fades). As Warren Buffett once tartly put it: ‘People 3 money is attracted, often in the form of start being interested in something because it’s borrowed cash. going up, not because they understand it, or anything else. But the guy next door, who they Copy-cats and imitators appear and more know is dumber than they are, is getting rich 4 credit becomes available as asset prices and they aren’t. And their spouse is saying, can’t keep rising. you figure it out, too? It is so contagious. It’s a permanent part of the system.’ Trouble starts. Insiders start to lock in their Everyone will have their own views on whether 5 profits by selling at elevated prices. This we are in bubble territory or not and if so, in leaves the last investors to get in holding the which asset classes. But if we are in a bubble, then bag. Prices initially correct but then rally as loyal investors face an invidious choice: either to be supporters ‘buy on the dips’. wrong by taking profits too early or to be wrong by trying to get out too late. A new offering goes wrong and the queue How investors go about addressing that 6 of copy-cat flotations and management challenge will be a matter of personal taste, teams looking to sell their stock on a secondary financial circumstance and risk appetite but basis lengthens. The supply of paper begins to industry professionals will generally take the outstrip demand and asset prices fail to reach their latter option (at least based upon this column’s previous peaks. experiences as an equity analyst at a leading investment bank for 12 years). Then comes a scandal, in the form of a fraud It is less obvious that you have erred (and less 7 or bankruptcy. Investors realise they have career-threatening) if you go over the cliff with been had and their money has gone. everyone else, instead of standing aside as asset prices surge higher. Plus, even if a forecast of F ear and revulsion replace greed, asset prices imminent doom is right, no thanks are offered, 8 collapse as investors scramble to cut their only blame to the Cassandras who sowed the first losses and the blame game begins. seeds of doubt.

18 February 2021 | SHARES | 31 THIS IS AN ADVERTISING PROMOTION Value matters eventually

Nick Brind, co-manager of the Polar Capital Global Financials Trust plc

Trust Highlights • The only UK-listed investment trust focused solely on financials • Historic Yield 3.2%1 • Actively managed and not benchmark-driven • Broad global, multi-cap remit • Managed by a team of 7 sector specialists with market falls, having discounted the bad news over 100 years’ investment experience financials have outperformed almost immediately, whether it was the failure of LTCM in 1998, the TMT bubble in 2000, Iraq war in 2003, the global financial Financials remains one of the cheapest equity crisis, the eurozone crisis or the UK referendum in market sectors. Their prices jumped sharply 2016. This time is no different and history suggests following the positive vaccine news in November, there is much further to go. as the sector is one of the biggest beneficiaries Earnings for the sector are forecast to be up 38.9% of economies opening up. The improving outlook in 2021 and 10% in 2022, led by the recovery in the has driven the rally as confidence in the earnings earnings of bank shares as new accounting rules outlook for the sector over the next couple of years have forced banks to make loan loss provisions much has risen sharply. This should not be a surprise. earlier in the cycle than previously. As a result, these Right now, the sector has discounted a much provisions were set when the outlook in the middle worse downturn than actually happened, thanks of 2020 was much cloudier and will prove to be too to government and central bank actions to reduce conservative. the economic impact of lockdowns and changes in The surprise of this downturn was that last year spending patterns. Looking at previous recessions/ banks’ shares, as illustrated by the chart below,

2 2

2.

1 Source: Polar Capital and Bloomberg as at 29 January 2021. Past performance is not indicative or a guarantee of future results. THIS IS AN ADVERTISING PROMOTION

underperformed by more than they did in the global financial crisis, when banks failed and confidence in the financial system collapsed. Today, bank balance sheets are strong and they have been part of the solution, providing a conduit for government- guaranteed lending to support businesses and allowing individuals and businesses to take payment holidays. Regulators are likely to remove all remaining restrictions on banks paying dividends and buybacks this year. US and Asian regulators took a pragmatic approach in allowing banks to continue to pay dividends last year albeit capping the payout levels. In December, the Fed announced banks could restart buybacks, which will be accretive to earnings. Insurance companies are also benefiting from bought a basket of global technology shares on the the recovery, on the back of an acceleration in eve of the collapse in technology shares in March the increase in insurance rates for commercial 2000 you would still be nursing a loss of over 45% businesses as losses due to business interruption over the same time period because your starting claims and the cancellation or delay of sporting valuation was so high – and still have to wait another events such as the Olympics fall away. Asset three years (16 in total) just to get your money back. managers and stock exchanges are also riding The financials’ sector, despite the recent bounce, the recovery as fees generated from higher has seen a significant derating in its relative turnover from trading or the jump in assets under valuation to global equity markets over recent years. management from higher equity markets boosts Investors rightly focused on growth in recent years profitability. risk missing out on the rotation into those areas of Against this background, share prices of some the market hit hard by lockdowns which have much growth companies are hitting stratospheric more upside. multiples. As interest in stock markets and crypto Global financials have risen 55% over the past five currencies surges the risks of a repeat of 2000 years versus UK financials’ rise of only 17.5%. One come to mind – share prices are jumping on little/ way to get exposure is via the Polar Capital Global no news; companies with little/no revenues have Financials Trust, launched in 2013 to give investors seen multiples on their business that defy logic. a lower-risk way of getting exposure to the sector. Some investors are saying value no longer matters, It has around 50% of its portfolio invested in bank however value always matters eventually. shares predominantly in the US and Asia but also A basket of global financials purchased on the Europe and the UK, along with exposure to other eve of the financial crisis in May 2007 would have subsectors such as insurance, payments and asset returned 60%+ to today. By comparison, if you had managers. Its dividend yield is close to 3%.

Important Information. This document constitutes a financial promotion pursuant to section 21 of the Financial Services and Markets Act 2000 and has been prepared and issued by Polar Capital LLP (“Polar Capital”). Polar Capital is a limited liability partnership with registered number OC314700, which is authorised and regulated by the UK Financial Conduct Authority (“FCA”) and is registered as an investment advisor with the US Securities & Exchange Commission (“SEC”). A list of members is open to inspection at the registered office, 16 Palace Street, London, SW1E 5JD. This document does not constitute, or form part of, any offer or invitation to sell or purchase, or any solicitation of any offer to purchase or subscribe for, any shares in the Company in any jurisdiction nor shall it, or any part of it, or the fact of its distribution, form the basis of or be relied on in connection with or act as any inducement to enter into, any contract therefore. It is for information purposes only and is not designed to contain information material to an investor’s decision to invest in the Company. Polar Capital is not rendering legal or accounting advice through this announcement; viewers should contact their legal and accounting professionals for such information. All opinions and estimates in this announcement constitute the best judgement of Polar Capital as of the date hereof, but are subject to change without notice, and do not necessarily represent the views of Polar Capital. Potential investors should be aware that any investment in the Company is speculative, involves a high degree of risk, and could result in the loss of all or substantially all their investment. Results can be positively or negatively affected by market conditions beyond the control of the Company or any other person. This announcement may include statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. This announcement has not been approved by any competent regulatory or supervisory authority. FEATURE Creating a plan to invest cash saved during lockdown

43-year-old Shaheen already pays into a pension and wants to put more money aside

haheen has been saving money during lockdown Sand now has excess cash he wants to put to work in the markets. The 43-year-old already has shares in the banking firm for whom he works through a SAYE (save as you earn) scheme and has additional exposure to the markets through a defined contribution pension, with money going into a mix of UK, US and emerging market stocks and bonds. He has paid off a significant portion of his mortgage, accumulated a rainy-day savings pot worth three months’ salary membership and meals out. He once lockdown ends. Shaheen in an easy-access Cash ISA, and has put aside 10 months’ worth is confident of having this spare has no significant credit card or of these savings since the first cash every month as he intends bank debt. lockdown restrictions began to cycle to work which not only Shaheen wants to build up a in mid-March 2020, adding up saves money on train fares but nest egg which could potentially to £4,000. also keeps him fit, meaning he help him towards a targeted He wants to use that money can cancel his gym membership. retirement age in his late 50s. to invest now and find a way to He has some knowledge of the Being stuck at home in lockdown keep squirreling away £250 a markets but wouldn’t describe means he is spending £400 a month into stocks or funds (on himself as an expert. Shaheen’s month less on commuting, gym top of his pension contributions) goal is to achieve an annual return of at least 6%.

This is the first part in a regular series in which we will IS THAT A REALISTIC GOAL? provide an investment clinic based on hypothetical scenarios. The first thing to note is that By doing so we aim to provide some insights which can help Shaheen is in a good place to different types of investor from beginners all the way up to start investing more. He’s already experienced market participants. putting money into his pension every month with his employer

34 | SHARES | 18 February 2021 FEATURE also making contributions. He has a decent level of emergency savings and, even in his best-case scenario, he is still more than 10 years away from retiring which provides some time to absorb any short-term market volatility. With interest rates so low, there is a good case for investing spare cash so that the money can work a bit harder. A 6% return feels realistic, particularly once you factor in dividends. On a total return basis (encompassing capital gains and reinvested income) the FTSE All-World index has delivered an annualised 6.8% over the last 10 years. To shelter these returns from capital gains and income tax it Setting up a direct debit to taking the time to read some is worth considering a Stocks fund the ISA is also a good idea annual reports to get a clear idea & Shares ISA. Even having used as it will take the hassle out of of a company’s performance some of the current year’s ISA remembering to transfer funds. and prospects before buying allowance in cash, Shaheen still their shares. has plenty of headroom to the INVESTMENT OPTIONS TO He likes to play games on his generous £20,000 annual limit CONSIDER Nintendo Switch at home, so across the different types of ISA. Given his pension includes a Shaheen might want to look at It’s worth noting that he is too diversified mix of global stocks the computer games sector as old to qualify for a Lifetime ISA. and bonds, Shaheen already has he should know which games In terms of getting started a solid ‘core’ to his investment are popular and the companies it might make sense to put his portfolio. He could therefore that make them. One that might £4,000 lump sum into a Stocks & consider adding some ‘satellite’ appeal is Sumo (SUMO:AIM) Shares ISA and to spread it across holdings to an ISA which are which started life as a ‘work for a variety of investments. Going higher risk in nature. hire’ games developer and has forward and assuming £250 One option is for Shaheen since gone on to develop its own monthly deposits into his ISA, he to buy shares in individual intellectual property. might want to invest £500 in a companies, with an argument 400 single asset every other month. for looking outside the banking SUMO Dealing fees are often charged sector given he already has at a flat rate so, in percentage exposure through owning shares 300 terms, the more you are putting in his financial services industry in the lower your costs. A typical employer. 200 £10 charge to buy shares in To begin with, it might make a company, investment trust sense for Shaheen to look at 100 or exchange-traded fund businesses where he is familiar 2020 2021 would equate to 2% of a £500 with their products or services investment – but a less appealing as it is important to invest in Another option for Shaheen 4% if investing £250 once things you understand. In this is to buy a thematic exchange- a month. situation, it would be worth him traded fund that plays into a

18 February 2021 | SHARES | 35 FEATURE

Worldwide (EWI), according to FE Fundinfo data which shows it has generated 607% total return over 10 years. While strong performance over a long timeframe would suggest the people running Edinburgh Worldwide know what they’re doing, it is important to consider that what’s done well in the past isn’t guaranteed to do well in the future.

450 EDINBURGH WORLDWIDE

350

FINANCIAL BENEFITS OF LOCKDOWN 250

LOCKDOWN SAVINGS: Shaheen has saved £400 a month 150 since March 2020 as he hasn’t had to incur costs associated with commuting, gym membership or eating out. He wants to 2020 2021 invest that saved money. The investment trust invests in GOAL ONCE LOCKDOWN ENDS: Save £250 a month by cycling companies which it believes to to work and not returning to the gym – and invest that money. offer long-term growth potential. The companies are typically valued at less than $5 billion specific investment theme. cost of buying shares in the ETF at time of initial investment, For example, L&G Healthcare and potentially ongoing custody but Edinburgh Worldwide Breakthrough ETF (DOCG) would fees. The same would apply will often hang on to them as provide Shaheen with exposure when making other investments, they become a lot bigger. That to innovation within healthcare, such as buying shares in explains why you have some very across both developed and individual companies, funds large companies like Tesla in the emerging markets. It has an and bonds. portfolio as well as smaller ones in-built charge of 0.5% a year A third option for Shaheen like engineer Ricardo (RCDO). to cover the costs of running is to buy a fund or investment the product. trust which invests globally in DISCLAIMER. This article is smaller companies. While small based on a fictional situation 1600 L&G HEALTHCARE caps typically come with higher to provide an example of how BREAKTHROUGH ETF risks there can be more room for someone might approach 1300 growth than with larger, more investing. It is not a personal mature firms. recommendation. It is 1000 There are five investment important to do your research trusts in the Association of and understand the risks 700 Investment Companies’ Global before investing. 2020 2021 Smaller Companies sector. The only one to have a consistent top Shaheen would have to pay quartile position for performance By Tom Sieber additional charges on top to his over one, three, five and 10 years Deputy Editor investment provider, such as the is Baillie Gifford-run Edinburgh

36 | SHARES | 18 February 2021 45% EDITA SELLS THYROCARE 2.6BN PERFORMED OF GROWTH SNACKS A YEAR >100M FROM CONSUMERS TESTS IN 2019-20 INDIANS CONSUME MEDIAN 26M DABUR HAJMOLA TABLETS AGE 19 POPULATION GROWTH 2% RATE PER DAY

DR LAL PATHLABS 1.3BN PEOPLE TESTS PROCESSED MORE THAN BRITANNIA 30M SAMPLES IN 2018 PRODUCTS ARE 2.5BN BY 2050 IN MORE THAN HOLDINGS DID ASIAN PAINTS 180m 30.5M CAN PRODUCE HOUSEHOLDS 1.8BN OFFICIAL LANGUAGES LITRES SPOKEN OF PAINT P.A. 22 AST AFRICAN BREWERIES PRODUCE INTEGRATED DIAGNOSTICS INDIA E 108M LITRES OF DRINKS P.A. HINDUSTAN UNILEVER SELLS CLICKS HAS 140M UNITS PER DAY 800M NIGERIANS BY 2100 8.1M 5.9M KM OF ROADS ACTIVE 2 OF THE TOP 10 LOYALTY MEGACITIES LARGEST CARD PATIENTS DIABETIC 73M 2.5BN MILK PRODUCER MEMBERS 54 COUNTRIES

22M AFRICA PASSENGERS CONSUMER SPENDING DAILY WILL REACH OF RAILWAY LINES. 121,407 KM ANNUALLY ARE CONSUMED PORTIONS OF MAGGI NOODLES $2.2TN BY 2030 EVERY 100 VOTES 7 TAXPAYERS FOR

The Fundsmith Emerging Equities Trust Prospective investors are strongly advised to take their own (FEET) research team searches the world to nd legal, investment and tax advice from independent and suitably companies that make their money from a large quali ed advisers. The value of investments may go up as well number of everyday, repeat, predictable transactions as down and be affected by changes in exchange rates. and will bene t from the rise of the consumer Past performance is not a guide to future performance. in developing economies. % Total Return Fundsmith LLP (“Fundsmith”) is authorised and regulated by the Financial Conduct Authority and only acts for the funds 12 months ending January 2021 2020 2019 2018 2017 to whom it provides regulated investment management and Fundsmith Emerging +29.5 -9.3 -3.6 +20.6 +17.4 transaction arrangement services. Fundsmith does not act Equities Trust for or advise potential investors in connection with acquiring AIC Global Emerging +12.0 0.0 -7.2 +19.8 +34.8 shares in Fundsmith Emerging Equities Trust plc and will not Markets Sector be responsible to potential investors for providing them with protections afforded to clients of Fundsmith. Source: Financial Express Analytics

www.feetplc.co.uk Available through your stockbroker

Fundsmith LLP is a limited liability partnership registered in England and Wales with number OC354233. Its registered of ce address is 33 Cavendish Square, London, W1G 0PW Funds, investment trusts and ETFs that pay dividends every month

Weighing up options for people in retirement as they seek ways to pay monthly bills

aving worked hard for decades and H squirrelled away money for later life, once in retirement individuals need to find a way of generating an income to replace the money that used to come from pay packets. The state pension is a useful INCOME FINDER SERVICE source of income but for many To help people find some dividend dates and see how it isn’t enough to pay the bills. of the best dividend-payers out much income they could That puts a lot of emphasis on there and organise payments receive over a year. investments being a key source into a smooth monthly This allows investors to of cash to cover the cost of schedule, investment trust customise their investment heating, electricity, council tax organization the Association trust portfolio to smooth and so on. of Investment Companies monthly income over the Traditionally funds, stocks (AIC) has developed something year, ensuring there are no and bonds pay dividends or called the Income Finder. periods without dividend coupon payments once every It enables investors to create payments, or shape income to three or six months. However, a virtual portfolio of income- meet their needs. funds are increasingly speeding paying investment trusts, For more information on up their payment frequency also known as investment this, head to theaic.co.uk/ to meet demand from retired companies, track their income-finder. individuals who want a monthly inflow of cash to help fund their ‘enhanced income’ funds. of whether the option is monthly outgoings. These funds normally pay a exercised or not. If the stock’s slightly higher yield than a price does not hit the strike price 60 FUNDS ON OFFER standard income fund because by the time the contract expires According to data from they sell options on some of the fund keeps the premium, FE Analytics, there are their holdings. This gives the which is distributed to investors currently around 60 funds purchaser the right, but not an as part of the overall dividend available to UK retail investors obligation, to buy a stock from which also includes some or which pay, or at least in the year the fund at a pre-determined all of the natural income from before the pandemic paid, a ‘strike’ price on a specific the portfolio. monthly dividend. future date. If the strike price is reached Most of the highest yielding For this service, the fund the fund keeps the premium, funds are what’s called receives a premium regardless but it must pay any additional

38 | SHARES | 18 February 2021 increase in the stock’s value Other than that, monthly 3% yield or above. We take a over and above the strike price dividend-paying funds mostly look at monthly dividend paying to the purchaser. That means feature in three main categories funds, investment trusts and the fund’s upside is limited – – bonds, property and multi- exchange-traded funds (ETFs) in hence the investor is giving up asset funds. each asset class and discuss the potential gains in exchange for For this article, we’re going to things you need to know, plus we a higher dividend. focus on funds that pay a decent suggest some funds to buy.

BONDS

MOST BOND FUNDS that offer Monthly dividend paying bond funds a monthly dividend tend to be ones that invest in high yield Name 2020 Yield Type bonds, which are bonds rated Pimco US High Yield Corporate Bond 5.26% ETF below investment grade (bonds BNY Mellon Global High Yield Bond 4.61% Fund that are considered to have a Vanguard USD Emerging Markets Government Bond 4.50% ETF lower risk of default), though JPM USD Emerging Markets Sovereign Bond 4.30% ETF there are some like Baillie Gifford Strategic Bond (0594774) iShares JP Morgan USD EM Bond 4.06% ETF which invest in both investment Threadneedle High Yield Bond 3.79% Fund grade and high yield. Fidelity Global High Yield 3.70% Fund A non-investment grade rating Baillie Gifford Strategic Bond 3.42% Fund is important as it suggests there Royal London Corporate Bond Monthly Income Trust 3.34% Fund is a greater chance of an issuer’s Vanguard USD Corporate Bond 3.03% ETF default, when the company does Source: FE Fundinfo not pay the coupon/interest due on a bond or the principal with strong balance sheets, biggest in France behind Orange), amount due at maturity in a so while there is higher risk, Netflix and energy supplier EDF. timely manner. it’s not exactly like dabbling in Altice is the smallest company Consequently, non-investment cryptocurrencies. among that list, yet still has a grade debt issuers must pay Take monthly dividend payer market value of over £7 billion. a higher interest rate – and in Threadneedle High Yield Bond some cases they must make Fund (B7SGDT8) as an example. SHARES’ TOP PICKS investor-friendly structural The top five bonds it holds come BAILLIE GIFFORD STRATEGIC features to the bond agreement from Japanese tech investment BOND (0594774) – to compensate for bondholder giant Softbank, carmaker Fiat The Baillie Gifford Strategic Bond risk, and to attract the interest of Chrysler, French telecoms fund stands out as a top pick for institutional investors. company Altice (the second someone looking for monthly High yield corporate bonds are invariably risker than others like UK government bonds, also known as gilts, for example, but in the bond market it’s the classic case of the higher the risk, the higher the reward. Plus, most of the bonds in the majority of respectable high yield bonds funds come from large, well-known companies

18 February 2021 | SHARES | 39 income from a bond fund. capital growth are also sought which does in the bond space is It has a good track record subject to prevailing market Vanguard USD Corporate of paying decent dividends conditions. Top holdings include Bond ETF (VUCP). ETFs track with historic yields ranging bonds from Netflix, National the performance of a basket between 3% and 3.5% over Grid (NG.), Virgin Media and of assets, so in this case a basket the past five years, while it also Time Warner Cable. of bonds. They are typically offers potential for good capital It’s worth noting that yields lower cost than an actively growth ahead of inflation with are currently very low across managed fund. a five-year annualised return of the bond market and there is no The Vanguard ETF tracks 6.95%. It is also a lot cheaper guarantee that you’ll get 3% yield the performance of 5,690 than many other bond funds in the near-term. bonds, yielded just over 3% in with an ongoing charge of 0.52% 2020, and offers the potential a year. VANGUARD USD CORPORATE for capital growth as evident by The fund’s stated aim is to BOND ETF (VUCP) its three-year annualised total produce monthly income, There aren’t many ETFs that pay return of 7.13%. It charges though opportunities for a monthly dividend, but one 0.09% a year.

PROPERTY

FUNDS AND INVESTMENT Monthly dividend paying property funds trusts can give investors access to a wide range of properties Name 2020 Yield Type across different sectors and Aegon Property Income 5.23% Fund potentially geographies. Investment Ediston Property Investment Company 4.60% In theory they should be trust able to rely on rental income Investment BMO Commercial Property Trust 3.37% from these properties and trust potentially benefit from any Royal London Corporate Bond Monthly Income Trust 3.34% Fund capital appreciation, which Vanguard USD Corporate Bond 3.03% ETF should translate into solid Source: FE Fundinfo investment returns. It’s important to be aware are harder to buy and sell in way as before, given the shift however that many open-ended short order, because they are to online shopping and working property funds have suspended listed on the stock market and from home. dealing in times of difficulty in the fund managers don’t have the past, meaning investors to factor in redemptions to PROS AND CONS have been unable to withdraw how they invest. However, A good example is FTSE their money. they will typically trade at a 250 investment trust BMO This happened most notably discount to net asset value at Commercial Property Trust straight after the Brexit vote and times of stress. (BCPT) which for a long time paid then more recently during the A lot of property funds, 0.5p per share dividend every market sell-off in March as the particularly ones paying month but had to stop payments UK went into lockdown, with monthly dividends, have for a period amid the height of funds unable to accurately value big exposure to commercial the pandemic. their underlying properties in property. There is a debate Dividends restarted in August fast-moving markets. whether investing in commercial at the lower rate of 0.25p per Investment trusts are often property is still a viable option month and they’ve been paid seen as a better vehicle for less and whether it can be relied every month since. Importantly, liquid assets like property, which upon for income in the same dividends are now starting to go

40 | SHARES | 18 February 2021 up – rising 40% in December to ‘BMO Commercial Property’s performance of underlying 0.35p. On an annualised basis 0.5% increase in net asset for sub-sectors in the portfolio with that equates to a 5.9% yield the three months to December industrial and logistics assets based on a share price of 70.7p. is a positive step for the fund, performing strongly in sharp Although uncertainty following NAV declines in each contrast to the retail assets remains regarding the impact of of the first three quarters of as well as alternative assets continued lockdown restrictions 2020,’ says the investment trust exposed to the leisure sector.’ on the trust’s portfolio and team at Numis. Investors need to weigh up tenants, it expects to continue ‘The modest capital increase whether a 5.9% yield is a good paying dividends at this rate for in portfolio value masks the enough reward for risks around the foreseeable future. continued divergence in rent collection, particularly as the

backdrop for some of its tenants remains unfavourable. This is very important – if you’re relying on your pension or ISA to provide income in BMO Cmmeial e retirement, you must think very carefully about the risks you are taking.

MULTI-ASSET FUNDS

IF THE PROPERTY space investors seek a one-stop shop SHARES’ TOP PICK currently seems like too for their money, with the funds PREMIER MITON CAUTIOUS much of a headache, more having the freedom to invest MONTHLY INCOME (B79QBF9) comfort could be found in wherever they see fit to meet Premier Miton Cautious multi-asset investments. their objectives. Monthly Income invests Multi-asset funds and trusts A lot of funds in this sector across the major asset classes are those that invest in a range have generally held up well including company shares, of different things, most following the March sell-off, government bonds, corporate commonly stocks, bonds and though the diversification they bonds and gold, together with other assets like property or provide while helping limit the a very small amount in cash commodities like gold. downside, also means returns and property. It has a decent They have been growing in aren’t as strong when markets track record of dividend popularity for a while as are rising. payments and capital growth. It has a historic yield of 4.3% Monthly dividend paying multi-asset funds based on payments from 2020 and has delivered a five-year Name 2020 Yield Type annualised return of 6.83%. It Aviva Investors Multi Strategy Target Income 4.31% Fund has a reasonable ongoing cost Premier Miton Cautious Monthly Income 4.31% Fund of 0.81% a year. FP Russell Investments Multi Asset Income 3.95% Fund The fund distributes income Fidelity Multi Asset Income & Growth 3.87% Fund on a monthly basis with 11 equal Fidelity Multi Asset Balanced Income 3.83% Fund payments and whatever’s left in Fidelity Multi Asset Income 3.70% Fund the pot at the end of the year. TB Wise Multi-Asset Income 3.48% Fund Baillie Gifford Multi Asset Income 3.45% Fund By Yoosof Farah Reporter Source: FE Fundinfo

18 February 2021 | SHARES | 41 How will changes to the pension age impact me?

The age at which you can access your retirement savings is set to move up to 57

I am 45 years old and currently the armed forces, firefighters have a SIPP worth around and police will be exempt from £130,000. Will I be able to access the rise and so will still be able this at age 55 or will I have to to access their pension from an wait until I’m 57? earlier age. Andy People in schemes which contain specific provisions Tom Selby allowing them to access their AJ Bell pension before age 57 will also this early therefore needs Senior Analyst says: be able to retain their lower to think carefully about the normal minimum pension age. sustainability of any withdrawals Under current UK retirement This protection is expected to and the impact they might rules, usually people can access cover both existing and future have on their lifestyle as they their pension from age 55. benefits in the scheme. grow older. When the pension freedoms However, for pensions Finally, if you have a defined rules were first announced back without such provisions and benefit (DB) pension the age at in 2014, the Government said new pensions set up from 12 which you can take an income this age – the ‘normal minimum February 2021 the scheduled will be determined by the pension age’ – would rise to increase in the normal minimum ‘normal pension age’ in your 57 from 2028, alongside the pension age to 57 is expected scheme rules. You may, if the increase in the state pension to apply. scheme rules allow, also be able age to 67. In your case, assuming your to access your pension earlier At the time, ‘the Government current scheme doesn’t give you than this at a reduced rate. said this was in order to reflect ‘the right’ to take your benefits trends in longevity and to from age 55, then it is likely the encourage individuals to remain first point you will be able to DO YOU HAVE A in work and to build sufficient access your SIPP will be age 57 QUESTION ON savings for retirement’. (although it’s important to note RETIREMENT ISSUES? In the future the intention is these proposals are subject Send an email to for the normal minimum pension to consultation). [email protected] age to remain ten years below While this increase in the with the words ‘Retirement the state pension age. normal minimum pension question’ in the subject line. age may come as a blow to We’ll do our best to respond in a WORKING THROUGH some people, it is important to future edition of Shares. THE DETAILS remember that just because you Please note, we only provide information and we do not The Government is now working can access your pension doesn’t provide financial advice. If you’re through details of how the mean you should. It’s worth unsure please consult a suitably increase in the normal minimum bearing in mind that someone qualified financial adviser. We pension age to 57, scheduled for in their mid-50s might have cannot comment on individual 6 April 2028, will be applied. another 35 years or more to live. investment portfolios. It has confirmed people in Anyone accessing their fund

42 | SHARES | 18 February 2021 Are annuities still relevant to investors and how much could you get? The idea of a guaranteed income for life will appeal to a lot of people

n 2015, sweeping reforms gave people over 55 I unlimited access to their pension schemes for the first time, and prompted Steve Webb, the pensions minister at the time, to suggest pensioners could blow their cash on Lamborghinis if they wanted. There hasn’t been a noticeable proliferation of supercars on the streets of retirement havens like Eastbourne, but there has In places like Eastbourne, there has been a significant shift in how people draw on their pensions been a significant shift in how people draw on their pensions. annuities weren’t ‘popular’ and drew an income from bonds In particular, sales of pension as such. People bought them and shares instead. annuities, previously the most reluctantly, mainly because the Low interest rates have common way to draw on a alternatives were expensive or also made annuities look pension, have fallen off a cliff. complicated, or both. unattractive. Insurance Many people objected to the companies invest most of the WHAT IS AN ANNUITY? fact that if they die only a few money they get from selling Prior to 2015, the main way you months or years after taking out annuities into government and would draw on your pension an annuity, all the money they corporate bonds, and these was by buying an annuity. In have spent their life building provide the returns annuity exchange for the lump sum you up is gone, at least as far as members effectively share. had built up in your pension, they and their beneficiaries are As interest rates have sunk, insurers would pay you a set concerned. It is a fair point. so have the yields on these amount every year for life. However, pension savers bonds and consequently so have Insurers combine investments probably failed to fully annuity rates. in fixed interest products with appreciate the flip side of the their expertise of mortality coin, that if they were still going HOW MUCH COULD I GET? trends, to calculate how much to strong at age 100, their annuity A standard annuity for a 65-year- pay out to members, plus a little would still be providing them old will now offer you an annual profit for themselves. with a regular income. income of around 4.5%, so for When the pension rules each £100,000 you provide to WHY ARE ANNUITIES NO changed in 2015, the stage was an annuity company, they will LONGER POPULAR? set for annuities to take a back provide you with an income It’s probably fair to say that seat, as people simply drew their stream of £4,500 every year, for even in their heyday, pension pension as cash, or invested it the rest of your life.

18 February 2021 | SHARES | 43 That compares with a rate of pay out a king’s ransom every an uplift to your annuity income around 7% before the global year, but what it does provide of 10%, maybe more, depending financial crisis of 2007/2008 and is guaranteed for the rest of on your circumstances. the introduction of ‘emergency’ your life. interest rates, which were, You do need to be wary of the IS IT WORTH SHOPPING remarkably, higher than they effects of inflation. If you opt AROUND? are today. for a level annuity with a fixed If you do decide to buy an If you compare this with an payment every year, rising prices annuity, make sure you shop investment portfolio, it’s easy will gradually eat into its buying around for the best rate. As with to see why people are taking power, and because an annuity many insurance products, the advantage of the new pension can run for 20 or 30 years, path of least resistance is likely to rules which let people aged 55 possibly more, that effect can be be the costliest, so don’t simply and over access their defined extremely potent. accept the first annuity you’re contribution or money purchase You can buy an annuity which offered by your pension provider. pension pot in whatever way pays out an inflation-linked After all, this is a one-off they want. income, but this will start at transaction which will affect An equity income portfolio a lower level. For example, you for the rest of your life, so will probably deliver a yield currently a 65-year-old could it’s much more important than somewhere in the region of expect about 2.8% from an shopping around for car or home 4%, though unlike an annuity, annuity that rises each year in insurance. investment income is variable, line with the RPI measure of Also bear in mind that you and will go down at some points inflation, compared to 4.5% from don’t have to choose between such as we saw in early 2020. one which simply pays a level an annuity and investing your But unlike an annuity, you also amount for good. pension to provide an income, keep hold of your capital, and You might also consider you can split your pension pot over time, you would expect the buying an annuity if you’ve got and do a bit both. dividends in your portfolio to health issues. Some insurers By mixing and matching, you grow with company earnings. offer enhanced annuities, which can secure a base level of income provide higher levels of income using an annuity and invest SHOULD I BUY AN ANNUITY? for those who have certain health the rest to hopefully provide a At the moment buying an problems that are likely to reduce variable stream of dividends that annuity with your pension their life expectancy. should hopefully grow in the means locking into low interest These don’t have to be life long term. rates, but there are some threatening conditions; you can circumstances in which you apply for an enhanced annuity might wish to do it. if you have high blood pressure, By Laith Khalaf One thing an annuity does diabetes, or are a regular smoker. Financial Analyst offer is certainty. It might not An insurance company might give

44 | SHARES | 18 February 2021 MAR 02 2021 Presentations: WEBINAR 18:00 GMT

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Event details Contact Presentations to start Lisa Frankel at 18:00 GMT [email protected] Register for free now www.sharesmagazine.co.uk/events FIRST-TIME INVESTOR More tricks and tips for analysing company financial statements

What you need to know about the balance sheet and cash conversion

he best way to test the theory around the Tanalysis of company accounts is to put that theory into practice using a real-world example. In the second part of our in-depth examination of food producer Cranswick (CWK) we look at the strength of its finances and how effectively it turns revenue into cash flow. We then examine the factors which determine how much money investors might expect to make if historical growth trends with a ratio of 1. which signals a healthy position. are maintained. In addition, Cranswick has a We have highlighted before £200 million unsecured credit that accounts only provide a BALANCE SHEET STRENGTH facility with £100 million of snap-shot of the business and As a reminder there are two headroom which runs until therefore looking at historical types of financial risk that November 2023. Banks always trends is more informative. investors should monitor closely, prefer to lend against collateral In this light, Cranswick has liquidity and solvency. Liquidity (assets) to protect themselves historically run its business with risk refers to short term financing against potential loss. low financial gearing. of day to day operations while So, when you see situations Net debt increased in 2020 solvency risk is more about long where banks are willing to as a result of one-off items; term viability. provide substantial amounts the company recognized Looking first at liquidity risk, of unsecured loans you can lease liabilities of £66 million the tables show that Cranswick’s be assured that the bank under new accounting rules; current assets easily cover isn’t worried about the it acquired Continental foods current liabilities, indicating a creditworthiness of the company. supplier Katsouris Brothers current ratio of 1.7 times. Looking at the solvency risk, for £69 million; the company The more stringent quick the tables show that Cranswick also invested heavily in its ratio, showing the company’s has a low debt to equity ratio of infrastructure and added £97 ability to pay its current liabilities 27% (debt of £168 million and million to the asset base. without needing to sell inventory, equity of £615 million). Cranswick generated indicates it has the necessary Equity finances 62% of the £155.3 million of EBITDA short-term cash and equivalents total assets of the business, (earnings before interest, taxes,

46 | SHARES | 18 February 2021 FIRST-TIME INVESTOR depreciation, and amortisation) longer to convert inventory SHAREHOLDER RETURNS ARE in 2020 while net debt was £147 into cash, from 20 days to 30 LINKED TO PROFITS GROWTH million, resulting in a net debt to days. It has also taken longer to As a reminder, shareholder EBITDA ratio of 0.95 times. collect receivables (outstanding returns are comprised of This a low leverage ratio invoices) which have increased dividends and capital gains and not a concern for lenders from 34 days to 44 days. (rising share prices). Capital or shareholders. Ratios under At the same time payment gains are driven by future three are considered investment terms to suppliers has remained profit and cash flow. This means grade which means the loans are stable around 28 days. This over long periods share prices unlikely to go bad. means the cash conversion follow profits. The company has a defined cycle has widened out and Over the last 50 years earnings pension scheme which has a working capital as a proportion per share for the UK stock small £7 million surplus, which of revenue has doubled to 12% market have grown by roughly means there is no need to adjust (£194 million). 6% a year. the net debt figure. One possible explanation Investors can easily get is that supermarkets, which access to this profit growth by CASH FLOW MANAGEMENT represent the largest channel for purchasing a tracker or exchange The long-term trend in cash Cranswick have been leveraging traded fund (ETF) very cheaply. management shows the their scale advantage and pricing Therefore, for Cranswick company has been taking power to delay payments. to make sense as a long term

Cranswick cash management analysis

2012 2015 2020

Revenues (£m) 821 1,003 1,667 Cost of Goods Sold (£m) 719 879 1,446 Receivables (£m) A 76 104 200 Inventories (£m) B 39 60 117 Payables (£m) C 63 82 123

Days Sales Receivables (Days) 34 38 44 Days Sales Inventory (Days) 20 25 30 Day Sales payables (Days) 28 30 27 Cash Conversion (Days) 26 33 46 Inventory Turnover (Times) 19 15 12

Receivables/ Sales 9% 10% 12% Inventory/Sales 8% 8% 7% Payables/ Sales 5% 6% 7%

Working Capital (£m) (A+B-C) 52 82 194 % of Sales 6% 8% 12%

Source: Refinitv, Stockopedia

18 February 2021 | SHARES | 47 FIRST-TIME INVESTOR

Cranswick balance sheet analysis RATIO ANALYSIS

£m Solvency Ratios Fixed Assets Debt to Assets 17% Plant and Machinery 426 Intangibles 207 Debt to Tangible Assets 21% Current Assets Debt to Equity 27% Inventories 117 Accounts receivable 200 Equity to Total Assets 62% Cash 21.5 Other 25 Liquidity Ratios Total Assets (A) 996.5 Current Ratio 1.7 Long Term debts (Liabilities ) 168 Current Liabilities 123 Quick Ratio (Acid Test) 1.0

Other 91 Source: Stockopedia, Refinitiv Total Liabilities (B) 382 Shareholders' Equity (A-B) 614.5 and is unknowable. Total Liabilities+Equity 996.5 In this context it is wise to

Source: Stockopedia, Refinitiv remember Isaac Newton’s famous quote, ‘I can calculate the movement of stars, but not investment we should expect growth of 25% over the next the madness of men’. its earnings to grow faster than three years which equates In February 2021 Cranswick the market’s. to a CAGR of 7.7% a year. shares traded on 18.4 times Dividends are expected to next year’s earnings according BEING ROUGHLY RIGHT grow 7.2% a year. to Stockopedia data, which was As Warren Buffett said, it’s On balance, the evidence at the lower end of the range better to be roughly right rather suggests that Cranswick is over the previous five years. than precisely wrong. Because capable of growing earnings (High 28.9, low 16.6) the future is unknowable, it is faster than the market. This at least provides some better trying to figure out what is As a proxy for calculating comfort that the rating is nearer probable rather than making an future total return we add profit the bottom end of the range explicit forecast. growth to the dividend yield rather than the top. As we highlighted last week, (7.7%+1.97%) which gives a value Each investor must weigh Cranswick has grown pre-tax of 9.7%. Remember things may their individual risk appetite profit at a CAGR (compound play out very differently in the against the potential rewards annual growth rate) of 17% a future for a variety of reasons on offer before coming to a year and dividends at 10% a year that we failed to predict. decision. Lastly, remember over the last 30 years. that building a diversified However, over the last 10 CAVEATS portfolio is just as important as years the rate of growth has We are making an explicit single stock analysis. slowed to 8.9% a year. As assumption that the multiple companies get larger, their which investors are willing to pay growth rate tends to fall. for future profits remains roughly By Martin Gamble According to Sharepad data, unchanged. Predicting future Senior Reporter analysts expect pre-tax profit multiples is fraught with difficulty

48 | SHARES | 18 February 2021 WEBINAR

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Main Market Next 23 888 24 Plus500 24 KEY ANNOUNCEMENTS Anglo American 14 Restaurant Group 6 AO World 24 Ricardo 36 OVER THE Associated British 23 Rio Tinto 14 NEXT WEEK Foods RIT Capital 7 Beazley 25 Full year results Royal Dutch Shell 7 Bellway 26 19 February: NatWest, Segro, TBC Bank. 22 February: SSP 6 BHP 14 BATM Advanced Communications, RTC. 23 February: Unilever 25 Conduit Holdings, Croda International, HSBC, BP 7 WH Smith 17, 23 InterContinental Hotels. 24 February: Lloyds, Petrofac, Cineworld 25 William Hill. 25 February: Anglo American, BAE Systems, , , Drax, Evraz, Grafton, Hikma Pharmaceuticals, Howden Joinery, Impax Environmental Markets, Inchcape, KAZ Minerals, John Menzies, Mondi, Morgan Sindall, , , , St James’s Place, Standard Chartered, Vistry.

CMC Markets 24 Cranswick 46 AIM Half year results Croda International 10 Begbies Traynor 3 22 February: , Finsbury Elementis 10 FRP Advisory 3 Food, Tristel. 23 February: Clinigen, Diurnal, McBride, Flutter 24 Helios Underwriting 12 Springfield Properties.24 February: Haydale Graphene Frasers 23 RWS 14 Industries, Netcall, Town Centre Securities. 25 Greggs 23 Sumo 35 February: Cap-XX, dotDigital, Genus, Ricardo.

JD Sports 23 Funds JD Wetherspoon 6, 23 Baillie Gifford 39 Trading statements Strategic Bond 22 February: Associated British Foods. Premier Miton Cautious 41 Monthly Income WHO WE ARE Threadneedle High Yield 39 Bond EDITOR: DEPUTY NEWS Daniel EDITOR: EDITOR: IPO coming soon Coatsworth Tom Sieber Steven Frazer @Dan_Coatsworth @SharesMagTom @SharesMagSteve Marston's 6 Coupang 7

Micro Focus 26 Digital 9 Infrastructure 9 FUNDS AND SENIOR REPORTER: REPORTERS: Mitchells and Butlers 6 INVESTMENT TRUSTS Yoosof Farah Investment Trusts EDITOR: Martin Gamble @YoosofShares Moonpig 16 James Crux @Chilligg Baillie Gifford US @SharesMagJames 25 Ian Conway CONTRIBUTORS Growth Trust @SharesMagIan Laith Khalaf Russ Mould BMO Commercial 40 Tom Selby Property Trust Cordiant Digital 9 Infrastructure ADVERTISING PRODUCTION Edinburgh Worldwide 36 Senior Sales Executive Head of Design Designer Nick Frankland Darren Rapley Rebecca Bodi Fidelity China Special 020 7378 4592 25 National Grid 40 Situations [email protected]

JP Morgan Japanese 25 CONTACT US: Shares magazine is published weekly every [email protected] Thursday (50 times per year) by Scottish Mortgage 25 AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. ETFs Company Registration No: 3733852. L&G Healthcare ETF 36 All Shares material is copyright. All chart data sourced by Refinitiv Repro­duction in whole or part is not permitted Vanguard USD Corporate unless otherwise stated 40 without written permission from the editor. Bond ETF

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