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?
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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: Elementis / 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.
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*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, United Kingdom. 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 Bra il 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 London 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 E E EN IS 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.