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VOL 20 / ISSUE 23 / 14 JUNE 2018 / £4.49 SHARES WE MAKE INVESTING EASIER CREATE A PORTFOLIO IN A FLASH CHOOSE FROM 11 TOP FUNDS FOR EXPOSURE TO IMPORTANT INVESTMENT THEMES
ALSO INSIDE: AUTO TRADER, INMARSAT, WH SMITH, RIGHTMOVE, QUIZ, PLAYTECH & MORE
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Orbis Investments (U.K.) Limited is authorised and regulated by the Financial Conduct Authority EDITOR’S VIEW Beer seller Fuller’s has no choice but to innovate Sales of its own-brewed products have stalled amid rising competition
any people associate ‘We stock products people want. innovation with using But if you are a beer producer, there is M technology to develop new no doubt we’re in a more competitive products and services. What’s often environment,’ says the CEO. overlooked is the need for more Fuller’s response to shifting traditional businesses to innovate customer habits has been to crank up in order to stay competitive and not product innovation – introduce more necessarily rely on technology to own-brewed beers to engage with achieve this goal. customers. For example, new Fuller’s There is a phrase in the world of products using Australian and American business which says companies often hops now compete for pump space in thrive if they ‘stick to what they do best’. Yet its pubs alongside its classics. this arguably fails to take into account the need But does it now offer too many products? for innovation. Sometimes companies have to Emeny doesn’t think so. In fact, he says ‘today’s change so their proposition is relevant in today’s customer wants variety and innovation’. That market, even if their core products are already comes at a cost. top notch. Fuller’s main brewery in Chiswick, West London, The reason I’m discussing innovation this week has a minimum run of 160 barrels per product is the result of a conversation with Simon Emeny, which works out at just over 46,000 pints. That chief executive of pubs-to-beer seller Fuller, Smith raises the risk of a lot of wastage if the new & Turner (FSTA). The company’s latest full year products are a flop with customers. results showed zero growth in total beer and cider In response it is going to build a pilot brewery sales volumes. That refers to products brewed by so that it can do shorter runs on new products, Fuller’s rather than all the beer and cider including thereby enabling it to experiment more and third party products it sells in its pubs. reduce wastage. While that gives the Fuller’s has a core portfolio of excellent company more flexibility, Emeny admits beer including London Pride and ESB. We simply it will be harder to make money Unfortunately for the company, this way. ‘We simply have to stay drinkers today want to experiment have to stay innovating to compete,’ he concedes. by continuously trying new products, Fuller’s is a classic example of a a trend spawned by the rise of craft innovating company that has fine-tuned its beer and many micro-breweries to compete business and got its core proposition in the UK and beyond. That means spot on – the pubs are fitted out nicely, some of the classics like London Pride the food is great quality and its classic are getting side-lined (perhaps a temporary beer range is very tasty. phenomenon?). I do get the feeling that some of Fuller’s Emeny argues that Fuller’s ‘Managed Pubs innovation is borne out of necessity rather than and Hotels’ division accounts for 75% of group a desire to keep trying new things. However, operating profit and so it isn’t disastrous that the need to innovate also stops management Fuller’s own-brewed products haven’t seen any becoming too complacent. It helps to challenge sales volume growth. He says the important factor and to invigorate new ideas which ultimately keep is for the pubs to be growing sales overall. the energy flowing around a business. (DC)
14 June 2018 | SHARES | 3 USING THE Contents PDF VERSION? CLICK ON PAGE NUMBERS TO JUMP 14 June 2018 TO THE RELEVANT STORY
EDITOR’S VIEW 03 Beer seller Fuller’s has no choice but to 20 innovate
BIG NEWS 06 This week’s most important macro stories
BIG NEWS 06 P rofit margin fears dog housebuilders
BIG NEWS 07 Predator may be GREAT IDEAS GREAT IDEAS first of many to circle 12 Buy WH Smith for its 14 Buy into Meggitt’s Inmarsat underappreciated upwards share price retail strengths momentum BIG NEWS 08 Jurassic-sized GREAT IDEAS UPDATES expectations for 16 We update on Frontier 10 Ramsdens, Sopheon, Developments Auto Trader and Impax Asset BIG NEWS Management 08 W indows upgrade boon for MAIN FEATURE Computacentre 20 Create a portfolio in a flash STORY IN NUMBERS 10 Joules and TALKING POINT other stories in 28 Can Rightmove be numbers unseated?
securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor DISCLAIMER agrees that the reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, IMPORTANT self-select pension funds, self select ISAs and PEPs and nominee accounts are included in such interests. Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. 2. Reporters will inform the editor on any occasion that they transact shares, Comments published in Shares must not be relied upon by readers when they derivatives or spread betting positions. This will overcome situations when the make their investment decisions. Investors who require advice should consult a interests they are considering might conflict with reports by other writers in the properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited magazine. This notification should be confirmed by e-mail. do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions. 3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor. Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it 4. A reporter should not have made a transaction of shares, derivatives or spread will be disclosed. Shares adheres to a strict code of conduct for reporters, as betting positions for seven working days before the publication of an article that set out below. mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within seven working days after the 1. In keeping with the existing practice, reporters who intend to write about any on-sale date of the magazine.
4 | SHARES | 14 June 2018 Contents
FEATURE 30 Understanding the different types 34 of stock market announcements
MONEY MATTERS 34 The popular ways for grandparents to invest for their grandchildren
MONEY MATTERS AEQUITAS SMALLER COMPANIES 36 High-earners face last 40 Why the G7 and global 45 Experts believe you chance to net £40,000 trade talks really do could make 25% in a annual allowance matter year with Quiz shares
INVESTMENT TRUSTS UNDER THE BONNET SMALLER COMPANIES 38 The story behind this 42 SimplyBiz looks 46 W ealth manager small cap investment fascinating on Frenkel Topping in trust’s consistent paper... but is it a investing for growth outperformance good investment? INDEX 48 Ind ex of companies 42 and funds in this issue 45
WHO WE ARE BROKER RATINGS EXPLAINED: EDITOR: DEPUTY NEWS Daniel EDITOR: EDITOR: We use traffic light symbols in the magazine to illustrate Coatsworth Tom Sieber Steven Frazer broker views on stocks. @SharesMagDan @SharesMagTom @SharesMagSteve FUNDS AND REPORTER: REPORTER: CONTRIBUTORS Green means buy, Orange means hold, Red means sell. INVESTMENT TRUSTS David Stevenson Lisa-Marie Janes Holly Black EDITOR: @SharesMagDavid @SharesMagLisaMJ Russ Mould James Crux Tom Selby The numbers refer to how many different brokers have @SharesMagJames that rating.
MANAGING DIRECTOR PRODUCTION ADVERTISING Eg: 4 2 1 means four brokers have buy ratings, Mike Boydell Head of Design Senior Sales Executive Rebecca Bodi Nick Frankland two brokers have hold ratings and one broker has a sell 020 7378 4592 rating. CONTACT US: Designer [email protected] [email protected] Darren Rapley The traffic light system gives an illustration of market views Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, but isn’t always a fully comprehensive list of ratings as some 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852. banks/stockbrokers don’t publicly release this information. All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.
14 June 2018 | SHARES | 5 BIG NEWS This week’s most important macro stories The latest on Trump, world trade and the UK economy
here is plenty of macro news to digest at Trump’s next stopping point was Singapore for present; much of it centred around US a summit with North Korean leader Kim Jong-Un Tpresident Donald Trump. which optically at least seems to have reduced For now, the markets seem relaxed about the some of the tensions between the two countries. battles being fought with the US and its traditional Closer to home, two key releases revealed allies over trade, despite Trump rejecting a some worrying signs for the UK economy. The communique previously agreed at the G7 summit in Office for National Statistics reported the biggest Canada on 8 and 9 June. monthly fall in output for the UK manufacturing We discuss these issues in more depth in in sector for five years and a widely-followed survey this week’s Aequitas column but the World Trade from recruitment firm ManPower showed hiring Outlook Indicator, an index compiled by the intentions for UK firms were at their lowest level World Trade Organisation, implied some softening since 2012. momentum in the second quarter. Resulting pressure on sterling is good news for A reading of 101.8 was down from 102.3 for the the overseas focused FTSE 100 but more negative first three months of the year. The third quarter for the FTSE 250 mid cap index which has a greater update is out in August. domestic focus. (TS)
Profit margin fears dog housebuilders Some companies continue to report pressure on earnings
UPDATES FROM Bellway (BWY) top end of the market. In its is expanding in the attractive and Crest Nicholson (CRST) on latest trading update Bellway build to rent space. (TS) 12 June are reinforcing concerns mentioned offering incentives about the margin performance on premium priced properties of the housebuilding sector. while Crest Nicholson has a As AJ Bell investment director higher average selling price than UPCOMING RELEASES Russ Mould observes: ‘The its peers. FROM THE SECTOR industry has enjoyed a bumper The housing market is clearly period, supported by rising interconnected and margin Berkeley 20 June house prices, low interest rates issues could start to filter down (full year results) and Government support in the property chain. This is a key Persimmon 5 July the form of the Help to Buy issue to monitor in forthcoming (trading update) scheme but there are increasing updates from the industry. Barratt Developments 11 July signs this sunny backdrop is We continue to favour (trading update) clouding over.’ Telford Homes (TEF:AIM) which Taylor Wimpey 31 July For the time being these operates at the more affordable (first half results) issues are concentrated at the end of the London market and
6 | SHARES | 14 June 2018 BIGBIG NEWSNEWS Predator may be first of many to circle Inmarsat Vulnerable satellites firm is facing possible battle for independence
he first shot has been fired in what could Providing communications to shipping is where become a long and protracted takeover Inmarsat makes much of its profit. It recently lost T battle for satellite network operator exclusivity in supplying distress signal network Inmarsat (ISAT). operations to sea-going vessels. Inmarsat’s share price rallied around Satellite Analysts believe that satellite rivals, 25% to 525p after the company rivals could such as ViaSat, SES and Eutelsat, confirmed a preliminary approach could emerge with bids of their own, from NASDAQ-listed peer Echostar emerge with although striking a deal may prove Corporation. The US firm was given bids of their complex because of the steep decline short shrift with Inmarsat quickly own in Inmarsat’s share price in recent years. rejecting the proposal stating it ‘very The stock traded at £11.40 just two significantly undervalued Inmarsat and its and a half years ago, a fact that is likely to see standalone prospects’. management demand a far larger bid premium Inmarsat has regularly been mooted in the than the typical 30% to 35%. past as a possible takeover target. Echostar SHARES SAYS: appears to be attempting to take advantage of Existing shareholders should use bid talk share price several challenging years for the UK business strength to manage an exit from the stock. (SF) thanks largely to difficult maritime markets. Why Playtech’s acquisition of Snaitech is a potential game-changer Owning the Italian gaming operator gives Playtech a strong position in a market with considerable online growth potential
GAMBLING SOFTWARE has hiked his earnings before These forecasts assume supplier Playtech’s (PTEC) interest, tax, depreciation and no contribution from €846m acquisition of Italian amortisation (EBITDA) forecasts Malaysia, which used to gaming operator Snaitech is for Playtech by 12% to €400.1m be a source of high-margin a game-changer according to for the year to 31 December revenue for Playtech until broker Numis. 2018 and by 34% to €532.9m regulatory crackdowns The company says Snaitech in 2019. caused the company to will help it establish a strong Stuber is confident Playtech’s issue a profit warning presence in Italy, which is acquisition will nearly double last November. Europe’s largest and growing group sales and boost regulated Other catalysts for Playtech gaming market with an market exposure to over besides a recovery in underdeveloped online 80% of revenue, as well as Malaysia include the potential presence. reduce dependency on Asia to demerger of financial division Numis analyst Richard Stuber approximately 17%. TradeTech. (LMJ)
14 June 2018 | SHARES | 7 BIG NEWS Jurassic-sized expectations for Frontier Developments There is a lot riding on the company’s latest game being a big hit
igh-flying video games creator Frontier be a big hit. Failure to meet expectations could be Developments (FDEV:AIM)’s news that devastating for the share price. Hrevenue and earnings for the year to May Last summer, Chinese internet-to-interactive 2018 beat market expectations has helped to entertainment titan Tencent invested £17.7m revive the share price after recent weakness, in Frontier in return for a 9% stake, to enable lifting it 2.8% to £16.60. the business to not only attack the gargantuan However, we note that stockbroker FinnCap Chinese market but also to scale-up by increasing didn’t upgrade its earnings forecasts for the the frequency of major releases. current financial year, saying it first needed In addition to producing its own games, Frontier evidence for how well Frontier’s newest game is now says it will also consider third party publishing selling before revisiting its numbers. to accelerate its growth plan, namely controlling The company launched its hotly-anticipated the promotion and distribution of other new title Jurassic World Evolution on 12 June developers’ games. (JC) to coincide with the cinema release of Jurassic World: Fallen Kingdom. It will also release another game, Elite Dangerous: Beyond – Chapter 2, on 28 June. The shares trade on a very rich 51 times forecast earnings for the year to May 2019 hence there are high expectations for the Jurassic World game to
Windows upgrade boon for Computacenter Organisations set to switch to latest operating system as support for older versions closed down
ANALYSTS BELIEVE we UK and across Europe. particularly Windows 7. are entering a two year Analysts at investment bank Computacenter, which trades Windows software upgrade Stifel believe many organisations on a forward price-to-earnings cycle that could act as a have been slow to update IT multiple of 19.4 at £14.20, has boon for IT services supplier systems to Microsoft’s latest a reputation as a total returns Computacenter (CCC). Windows 10 version as they try investment story, including The FTSE 250 company to milk best value from existing the use of surplus cash to pay supplies and manages PCs, systems. This is likely to change special dividends. Its last special laptops and IT applications for as the US software giant turns payout of 83p per share was hundreds of businesses in the off support for older versions, actioned in January 2018. (SF)
8 | SHARES | 14 June 2018 We strive to explore further.
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Earnings upgrade joy TREES, TREES AND MORE TREES FOR for retailer Joules TAKEOVER TARGET SMURFIT KAPPA
12% DID YOU know that Europe’s into the headlines recently largest paper and packaging after twice rebuffing takeover firmSmurfit Kappa (SKG) owns approaches from International more than 100,000 hectares of Paper, the world’s largest paper specially planted forest? That’s and packaging supplier. equivalent to 139,000 Wembley pitches, or 70,000 Lord’s Cricket Grounds. Those millions of trees are spread across forests in Colombia, LIBERUM CAPITAL’S year Venezuela, Spain to May 2018 pre-tax profit and France, acting forecast for British lifestyle as a supersized brand Joules (JOUL:AIM) source of raw is now 12% higher than a material. year ago. That is impressive Dublin- given the inclement market headquartered conditions for most clothing and London-listed retailers. Smurfit shot Differentiated brand Joules is in an upgrades cycle. Following another year of double digit growth, it said on 7 June that pre-tax profit would be WHY UK CONSTRUCTION FIGURES ‘marginally ahead’ of analyst expectations, hence why ARE NOT AS GOOD AS THEY LOOK Liberum has lifted its 2018 estimates by 3.3% to £12.8m THE MAY purchasing implies contraction. and nudged up its 2019 managers’ index (PMI) IHS Sam Teague, economist forecast by 1.6% to £14.8m. Markit survey on the UK at IHS Markit, notes activity ‘Joules has a strong brand, construction sector showed was buoyed by firms playing heritage, low fashion risk a reading of 52.5 against catch up after unusually poor and wide appeal,’ it says. ‘It expectations for 52, yet the weather in March and the is gaining share in the fast- commentary accompanying recovery could therefore growing premium lifestyle this headline did not present ‘prove short-lived’. sector where multiple such a positive picture. It is also worth noting that growth levers exist including Any figure above 50 the 52.5 result posted was stores, online, wholesale implies expansion and only in line with the figure and international. Joules is anything below this level recorded for April. relatively immature versus key peers leaving space for growth.’
10 | SHARES | 14 June 2018 Janus Henderson financial goals. your long-term exists tohelp you achieve Henderson Investors includes HGIGroup Limited, HendersonGlobal Investors (BrandManagement) SarlandJanusInternational HoldingLLC. Conduct Authority to provide investment products and services. Telephone calls may be recorded and monitored. © 2017, Janus Henderson Investors. The name Janus incorporated andregistered inEngland andWales withregistered officeat201Bishopsgate, London EC2M3AE) are authorisedand regulated bytheFinancial AlphaGen CapitalLimited (reg. no. 962757), Henderson EquityPartners Limited(reg. no. 2606646), Gartmore Investment Limited(reg. no. 1508030), (each Global Investors Limited(reg. no. 906355), HendersonInvestment Funds Limited(reg. no. 2678531), HendersonInvestment ManagementLimited(reg. no. 1795354), Issued intheUKby JanusHenderson Investors. JanusHendersonInvestors isthenameunder whichJanusCapitalInternationalLimited(reg no. 3594615), Henderson For promotional purposes
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GREAT IDEAS Buy WH Smith for its underappreciated retail strengths The company is far healthier than you think and has richly rewarded shareholders over the years
H Smith’s (SMWH) ability to keep growing XXXXWH SMITH BUY BUY its travel arm despite (xxx)(SMWH) xxxp £20.20 W Stop loss: £16.16xxp tough retail conditions begs the question whether the stock has Market value:cap: £2.24bn xxx been incorrectly priced. We think it should command a high equity rating and are confident the share price has much further to rise. The travel arm accounts for 61% of group profit and This rare position means it franchise agreements. encompasses its stores in railway is able to charge more for its Investors have flocked to own stations, airports, hospitals and products in the travel arm and shares in SSP since it joined the motorway service stations. exploit the captive audience. stock market in 2014 to capitalise These sites benefit from having a on its market advantage. Its captive audience, namely people SOUNDS FAMILIAR? shares now trade on 25.4 times who don’t have the luxury of This situation is very similar forecast earnings for the year being able to shop around for a to SSP (SSPG), a multinational to September 2019. In contrast, better price. company which operates WH Smith trades on a 32% If you’re waiting to get a train, branded catering and discount with a forward you may only have a few minutes retail units at airports PE of 17.3 for the year to quickly buy a few snacks, a and railway stations 2.6% to August 2019. magazine or book and potentially around the world. prospective The question to ask something for your children, SSP is responsible dividend is whether WH Smith and so you may not grumble for many of the should command a about the price. And with a food and drink units yield rating more in line with motorway service station there at these sites including SSP? Let’s consider this isn’t anywhere else to go to buy some operating under third situation. First of all, WH Smith the products sold by WH Smith party brands such as M&S does deserve to have some so you either spend money in its Simply Food, Starbucks and discount to reflect the challenges shop or go away empty handed. Leon which it runs as under of having high street stores. WH SMITH EARNINGS PROFILE 2017 2018 2019 Revenue £1.23bn £1.25bn £1.28bn Pre-tax profit £140m £146m £153m
Source: Reuters (analyst consensus view). 2017 is actual, 2018/2019 forecast. 31 August year end.
12 | SHARES | 14 June 2018 GREAT IDEAS
Approximately 39% of group WH SMITH VS SSP The travel arm has certainly profit comes from the high street played an important role in where like-for-like sales have WH SMITH WH Smith’s underappreciated fallen at a 10-year compound PE (YEAR TO AUG 2019): 17.3 success. It commands 15.4% annual growth rate of 4%, says margins and has enjoyed 10% Mirabaud analyst Jonathan Fyfe. SSP compound annual growth However, a shift in the type of PE (YEAR TO SEP 2019): 25.4 in operating profit over the products being sold and various SOURCE: REUTERS past decade. cost savings initiatives have led Just over one quarter of the divisional margins to double travel stores are located outside even as revenue has fallen. A move away from DVD and the UK, typically in airports. There ‘Through cost action and CDs in favour of higher margin is competition from incumbents evolution of their offering, products like stationery is proving but it does have a pipeline of 40 divisional margins have increased to be a successful strategy. And new concessions that have been from 4.6% in 2007 to 10.2% in adding Post Office counters won and which are not yet open. 2017,’ says Fyfe. ‘Management to its stores is helping to keep Other growth opportunities have already identified a the business relevant to local include a new format that pipeline of £18m of additional communities, even if it means combines retail with a coffee cost savings. Management are given up some selling space. bar. This should enable it to also investing to keep their The plan for the high street open stores in smaller regional stores relevant.’ division is to deliver sustainable rail stations which were The latter comment is profit growth. As such, we traditionally too small to justify a particularly important. WH Smith don’t believe the market should standalone shop. has developed a bad reputation impose a 32% valuation discount WH Smith has plenty of for having shabby stores so versus SSP because of the high initiatives underway to drive spending money to improve street exposure. earnings and while previous their look could be a significant efforts haven’t all been successful earnings driver. DESERVES A HIGHER RATING – specialist card shops didn’t We believe WH Smith should amount to much – the exit costs EVIDENCE OF CHANGE trade more towards 20 times have never been material, says We note comical Twitter account earnings given its superior track stockbroker Numis. @WHS_Carpet recently posted record in both cash generation So the next time you go on pictures of refurbished stores and rewarding shareholders. a plane, train or car journey which show a clean, Anyone investing in its and bemoan WH Smith’s high modern retail outlet. 5 YEAR shares five years prices, why not turn the tables That’s a far cry TOTAL RETURN: ago would have and invest in the company in from its usual BEATING THE made more than order to benefit from its strong pictures of WH BLUE CHIPS four times as profits. (DC) Smith stores much compared with gaffer tape WH Smith: +200% to a FTSE 100 to hold the FTSE 100: +48% tracker in the BROKER SAYS: 244 carpet together same period, if and messy Source: SharePad. all dividends were WH SMITH FTSE ALL SHARE displays. Data to 11 June 2018. reinvested. 2400 2300 WH Smith said in Over the past 2200 its latest trading update (6 10 years the group has 2100 June) that it continues in invest returned £860m of cash to 2000 1900 in new store format trials and its shareholders and reduced the 1800 eleventh standalone bookshop outstanding number of shares by 1700 1600 Source: Thomson Reuters Datastream has just opened. circa 40%. 2017 2018
14 June 2018 | SHARES | 13 GREAT IDEAS Buy into Meggitt’s upwards share price momentum Two of its addressable markets are going great guns
erospace and defence reason to be alarmed. Earnings engineering company MEGGITT BUY forecasts were reset to factor in a Meggitt (MGGT) is seeing (MGGT) 501.2p new accounting standard called A Stop loss: 400p an uptick in demand for its IFRS 15 which affects the way various specialist components, companies recognise revenue Market cap: £3.9bn so buy into the current upwards from long-term contracts. share price momentum. The company is trading on a However, we must stress this is to 4%. This was reiterated during discount to its peer group in the a high risk investment as Meggitt the first quarter update when aerospace and defence sector has a history of profit warnings Meggitt revealed it had achieved according to data from Reuters amid unpredictable end markets. organic revenue growth of 6%, which has Meggitt trading on Nonetheless, the current which bodes well for meeting its 15.1 times forward earnings. This situation looks promising. The full year target. compares favourably to the peer civil aviation market is doing The company has been average of 20-times. (DS) well and Meggitt recently signed streamlining by disposing of a $50m deal with airline Wizz non-core assets in order to Air (WIZZ) to supply its Airbus focus on businesses of scale in 321neo fleet with wheels attractive markets. and brakes. Andrew Follan, analyst at Meggitt has also enjoyed the investment bank Berenberg, benefits of increased US military says ‘the long-term growth spend. In February it received outlook for Meggitt is positive, a $26m contract to provide with more than 50% of revenues thermal management systems for in the growth civil aerospace the US army’s M1 Abrams tanks. market and 35% in the improving The company’s global appeal defence sector. In addition, more was shown in April when it than 40% of sales are derived secured a multi-million dollar from high-margin recurring contract with Korea Aerospace aftermarket activities. Industries to supply wheels and ‘However, earnings and cash high performance carbon brakes progression are still constrained for the KF-X multirole fighter jet. in the short term by ongoing This jet programme is a product investment and mix BROKER SAYS: 387 partnership between South Korea headwinds in civil aerospace and and Indonesia with more than still some softness in energy- MEGGITT 150 jets being delivered to the related markets. Over time, 540 FTSE ALL SHARE 520 countries from the mid 2020’s. these trading headwinds will 500 On release of its 2017 full year ease and profit growth and cash 480 results in February this year, generation will improve.’ 460 Meggitt chief executive Tony Analysts recently pushed 440 420
Wood said he expected organic through fairly large earnings Source: Thomson Reuters Datastream 400 growth in 2018 of between 2% downgrades although there is no 2017 2018
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Discrete annual 31 May 31 May 31 May 31 May 31 May performance (%) 2018 2017 2016 2015 2014
Trust share price 3.8 22.8 5.6 10.0 10.8
Trust NAV 3.3 21.9 -0.4 10.2 7.5
Benchmark4 7.9 3.4 3.6 3.6 3.5
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1Current yield: the yield calculation is based on the latest quarterly dividend, annualised, compared against the month end share price.
2Seneca Investment Managers Ltd defi nes a typical investment cycle as one which spans 5-10 years, and in which returns from various asset classes are generally in line with their very long term averages. There is no guarantee that a positive return will be achieved over this or any other period.
3Annualised volatility of returns over fi ve years versus FTSE World ex-UK and FTSE All Share.
4 Benchmark: CPI plus 6% from 06.07.17. Previously LIBOR GBP 3 Months plus 3%, all after costs for the period ending 31.05.2018 a forecast CPI is used.
* The Trust has outperformed its benchmark over the last fi ve years and has grown its dividends in excess of infl ation over each of the last fi ve fi nanicial years. It has delivered these returns with materially lower volatility than equity markets over the last fi ve years.
** There is no guarantee that dividends will continue to increase or grow ahead of CPI.
Performance and dividend data sources: Seneca Investment Managers Ltd, Bloomberg & Morningstar. Share prices calculated on a total return basis with net dividends reinvested. NAV returns based on NAVs excluding income and with debt valued at par. Returns do not include current year revenue.
Past performance should not be seen as an indication of future performance. The information in this article is as at 31.05.2018 unless otherwise stated. The value of investments and any income from them will fl uctuate, and investors may not get back the full amount invested. Seneca Investment Managers Ltd does not off er advice to retail investors. If you are unsure of the suitability of this investment, take independent advice. Before investing you should refer to the Key Information Document (KID) for details of the principle risks and information on the trust’s fees and expenses. Net Asset Value (NAV) performance may not be linked to share price performance, and shareholders could realise returns that are lower or higher in performance. The annual investment management charge and other charges are deducted from income and capital. The KID, Investor Disclosure Document and latest Annual Report are available in English at www.senecaim.com Seneca Investment Managers Limited is the Investment Manager of the Trust (0151 906 2450) and is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered offi ce at Tenth Floor, Horton House, Exchange Flags, Liverpool, L2 3YL
All calls are recorded. FP18-174 GREAT IDEAS UPDATES
AUTO TRADER IMPAX ASSET (AUTO) 426.1p MANAGEMENT (IPX:AIM) 201.5p Gain to date: 12.8% Original entry point: Gain to date: 59.2% Buy at 377.1p, 17 May 2018 Original entry point: Buy at 126.6p, 21 September 2017 AN IMPRESSIVE set of full year results helps get our positive call on online car listings site Auto OUR CONFIDENCE in this asset manager has paid Trader (AUTO) off to a very decent start. off again with a share price rally following half year The numbers on 7 June were slightly ahead of results to 31 March which were released on 7 June. expectations with earnings per share in the 12 The company had already alerted the market month period to 31 March up 15% to 17.76p. to a 51% increase in assets under management to ARPR shows how much the business makes £11bn and further good news followed. each month on average from the car retailers Impax more than doubled pre-tax profit year- which use its services. on-year to £5.5m. This was from revenue that had Although there was no explicit guidance on this risen by almost 85% to £25.7m. alongside the results, the takeaway for at least It hiked its interim dividend by 57% to 1.1p per some analysts was that ARPR could be higher than share and also declared a special dividend of 2.6p previously expected. per share due to the performance of its second In March Auto Trader spooked investors by private equity infrastructure fund. guiding that used car stock would be down with Chief executive Ian Simm says asset owners negative implications for ARPR. around the world are now seeking higher levels of When outlining the investment case for exposure to ‘companes leading the transition to IMPAX ASSET MANAGEMENT GROUP 220the businessFTSE ALL in SHARE our original article we argued a more sustainable economy’ and his company is 200that the company had other levers to pull to well placed for ‘further profitable growth’. 180boost ARPR beyond just having more cars on 160 IMPAX ASSET MANAGEMENT GROUP its site. 220 FTSE ALL SHARE 140 Therefore we are encouraged that a new dealer 200 120 Rebased to first finance product, allowing car retailers to display 180 100
Source: Thomson Reuters Datastream 160 monthly80 finance offers on their ads, has enjoyed a strong start.2017 2018 140 120 Rebased to first 100
AUTO TRADER GROUP Source: Thomson Reuters Datastream 80 440 FTSE ALL SHARE 2017 2018 420 400 SHARES SAYS: AUTO TRADER GROUP 380 Impax is in a market sweet spot given increasing 440 FTSE ALL SHARE 360 focus on sustainability and we remain fans of the 420 340 business. (DS) 400 320 Rebased to first Source: Thomson Reuters Datastream 380 300 2017 2018 360BROKER SAYS: 002 340 320 RAMSDENS HOLDINGS Rebased to first SHARES SAYS: If you want to know more about Impax, comeSource: Thomson Reuters Datastream 220 FTSE ALL SHARE 300to our 20 June investor evening in London 210These numbers offer early vindication of our bullish 2017 2018 200view of Auto Trader. Keep buying. (TS) where the company will be presenting 190 alongside three other UK-listed stocks. Tickets 180 RAMSDENS HOLDINGS 170 12 35 220a re f reeFTSE b u t ALL a d vaSHARE n ce regi strati o n i s req u i red : BROKER SAYS: 210 160 Rebased to first www.sharesmagazine.co.uk/events 150 200 140 190 130 Source: Thomson Reuters Datastream 180 16 | SHARES | 142017 June 2018 2018 170 160 Rebased to first 150 SOPHEON 140
1100 Source: Thomson Reuters Datastream FTSE ALL SHARE 130 1000 2017 2018 900 800 700 1100 SOPHEON FTSE ALL SHARE 600 1000 500 Rebased to first 900 400 800
300 Source: Thomson Reuters Datastream 700 2017 2018 600 500 Rebased to first 400
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Follow this link www.sharesmagazine.co.uk/events for full details and to register for your complimentary ticket. Tom Sieber Deputy editor – Shares Magazine Event details Registration contact Tom will be presenting on how Registrations 18:00 Corinne Bailey income can help unlock the Presentations start at 18:30 [email protected] wealth generating potential of Complimentary drinks and buffet 020 7378 4406 the markets. available after the presentations GREAT IDEAS UPDATES
RAMSDENS SOPHEON (RFX:AIM) 199.5p (SPE:AIM) 880p Gain to date: 40.5% Gain to date: 167% Original entry point: Original entry point:
Buy at 142p, 15 June 2017 Buy at 330p,IMPAX 22 ASSET June MANAGEMENT 2017 GROUP 220 FTSE ALL SHARE 200 RAMSDEN DIVERSIFYING away from its historically IT180 IS ALMOST a year since we first flagged the core pawnbroking operations is one of the key transformation160 we felt Sopheon (SPE:AIM) was factors behind its success according to its chief embarking140 on. executive Peter Kenyon. 120The company has a diverse offering,Rebased from to first This was evident in the company’s results for the process100 automation products to innovation 80 Source: Thomson Reuters Datastream 12 months to 31 March 2018. Released this month, management solutions2017 that help enterprises2018 they show Ramsdens makes most of its money manage all aspects of their new product through its high street foreign currency exchange development lifecycle. AUTO TRADER GROUP arm. Gross profit from this segment hit £11.3m The Surrey-basedFTSE ALL SHARE outfit is about as good an compared to £7m from pawnbroking. example440 we can think of where a management IMPAX ASSET MANAGEMENT GROUP 420 220 FTSE ALL SHARE The results show a company growing at a fair team400 has taken a good hard look at its product 200 click on practically all fronts. Revenue grew by 16% suite380 and operating model and moulded it to fit 180 to £39.9m with underlying pre-tax profit up 60% to with360 what customers want. 160 340 £6.5m.140 The total dividend per share proposed is, at This has led to more recurring revenues that 320 6.6p,120 a huge increase on 2017’s 1.3p per share. help evenRebased out to firsta sometimes lumpy licence cycle, Rebased to first Source: Thomson Reuters Datastream 300 100The company is also growing by number of stores, plus entry into2017 new exciting markets2018 beyond its which80 with this type of business is crucial to growingSource: Thomson Reuters Datastream industrial engineering backyard, such as consumer 2017 2018 the bottom line. The medium term goal is to grow goods, food/drinkRAMSDENS and HOLDINGS technology. by 12 stores a year which if it can be maintained, 220In May theFTSE share ALL SHARE price pushed beyond £10.00 should underpinAUTO TRADER growth GROUP in earnings and cash flow. for210 the first time, and while the stock has come 440 FTSE ALL SHARE 200 Of the 800,000 customers Ramsdens served back190 a bit since, it has still performed far beyond throughout420 its financial year, the vast majority were the180 620p we originally said might be possible. 400 170 buying380 money for their holidays, 687,000. 160The shares are still not overly expensive,Rebased to first 360With less reliance on pawnbroking and precious given150 implied growth. The full year 2019 price 140 metal340 sales, the company is not as reliant on a to130 earnings multiple stands at 21.5 versus 24%Source: Thomson Reuters Datastream 320 2017 2018 strong Rebasedgold price. to first The fact that gold has held up forecast earnings growth next year. 300 Source: Thomson Reuters Datastream quite well during2017 the time is therefore2018 merely an added bonus. 1100 SOPHEON FTSE ALL SHARE 1000 RAMSDENS HOLDINGS 900 220 FTSE ALL SHARE 210 800 200 700 190 600 180 500 Rebased to first 170 400 160 Rebased to first 300 Source: Thomson Reuters Datastream 150 140 2017 2018 130 Source: Thomson Reuters Datastream 2017 2018 SHARES SAYS: SHARES SAYS: Profit taking will be very tempting but we still see a 1100Keep buyingSOPHEON the shares. (DS) FTSE ALL SHARE bright future for Sopheon and its share price. (SF) 1000 BROKER900 SAYS: 1 0 0 1 0 0 800 BROKER SAYS: 700 600 500 Rebased to first 18 400| SHARES | 14 June 2018
300 Source: Thomson Reuters Datastream 2017 2018 Investing in the future needn’t be rocket science
But it could be. From space travel, to property, to Emerging Markets, the AJ Bell Global Growth fund makes investing for growth easy.
With a 0.5% capped annual charge and no custody charge until January 2019, the costs aren’t out of this world either. youinvest.co.uk/future
We don’t offer advice about the suitability of our products or any investments held within them, if you require fi nancial advice you should consult a suitably qualifi ed fi nancial adviser. The value of investments can go down as well as up and you may get back less than you originally invested. CREATE A PORTFOLIO IN A FLASH
CHOOSE FROM 11 TOP FUNDS FOR EXPOSURE TO IMPORTANT INVESTMENT THEMES
any people get stuck in their quest to FUND COSTS invest because they don’t know where The beauty of investing in funds is that you get to deploy their money. This article aims broad exposure to lots of different companies or M to give individuals in this situation a other asset classes like bonds and property. head start with five funds that provide diverse Certain types of funds – namely unit trusts exposure to important geographic territories and Oeics – are relatively cheap to buy with and sectors. dealing fees rarely more than £1.50, although We also highlight a few more funds that are you are likely to incur a small annual custody popular with investment experts and retail charge which can vary depending on the value of investors, and/or are rated highly by financial your portfolio. data providers, just to give you a broader Investment trusts and ETFs (exchange-traded selection to research should you not find our funds) will cost you the same as buying individual core five picks to your taste. company shares, typically £9.95, but some
20 | SHARES | 14 June 2018 platform providers won’t charge you a custody risk appetites including a ‘cautious’ one. The fee for this type of investment. latter fund – VT AJ Bell Passive Cautious (GB00BYW8RV97) – invests mainly in assets like ACTIVE VS PASSIVE FUNDS cash and bonds, and sparingly in shares which There are two main types of funds; active and are deemed higher risk. passive. Active funds are run by a professional fund manager who selects what goes in the OUR FUND SELECTIONS IN THIS ARTICLE portfolio. The aim is to beat a benchmark index We’re taking a more hands-on approach and and outperform the market, meaning investors have broken the investment universe into five in the fund should hopefully get better returns, key themes – global growth, income, UK equities, although ongoing charges will be higher. emerging markets and high growth technology. Alternatively, you can invest in passive funds, We’ve then selected a fund for each theme often called tracker or index funds. These aim to based on our knowledge of the investment mirror the performance of a key benchmark or space, the experience of individual fund index, such as the FTSE 100 or FTSE All-Share. managers and performance track records. They do this by investing their cash to match We would suggest putting a bit more cash the make-up of the benchmark they are tracking. in global growth and income and a little less in These types of funds are relatively low-cost, emerging markets and technology as the former although potential returns are highly unlikely to are dominant themes in investing and the latter exceed the index they are tracking by a are higher risk areas. large margin. There are literally hundreds of funds available THIS IS HOW WE SUGGEST YOU to UK retail investors. Some have a wide-ranging WEIGHT YOUR INVESTMENT ACROSS OUR FIVE FUND CATEGORIES investment remit, such as targeting returns that roughly match global growth. 10% Others are far more specific. They may target a particular geographic market, such as the UK, 10% 35% US, Europe or emerging markets. Or they might 15% focus on particular industries such as technology, infrastructure or renewable energy. 30% Alternatively, there are funds that focus on certain investment styles such as value shares or companies which pay healthy dividends so they 35% Global growth 10% Emerging in turn can generate a good income for investors. 30% Income markets OUR FOCUS IN THIS FEATURE 15% UK equity 10% Technology In this feature we have largely left multi-asset funds to one side and concentrated mainly on For example, a £10,000 investment could be equity funds because history shows this is where split into £3,500 in a global growth fund; £3,000 the best returns come from in the long-run. Our in an income fund (buying the ‘acc’ accumulation article is aimed at someone who has at least 10 version so dividends are essentially reinvested); years to invest before they need to access the £1,500 in UK equity; and £1,000 each in an money and someone who can take risks. The emerging markets fund and a technology fund. selections may not entirely suit someone with a Hopefully, this article provides a useful guide low risk appetite. that helps you create an instant portfolio capable If you’re looking to build a lower-risk of striking the right balance to cover you come portfolio in a flash, we suggest you look at rain or shine over the long-run. multi-asset funds or consider some of the This is not a definitive list as there are other ready-made portfolios offered by investment good funds on the market. Yet it does provide a platform providers. good starting point, one to which you can add For example, AJ Bell Youinvest has a series of your own selections as time goes by and you low-cost passive funds split into five different become more savvy and experienced.
14 June 2018 | SHARES | 21 1. GLOBAL GROWTH
OUR FUND PICK:
Lindsell Train Global Equity (IE00B3NS4D25)
5 years annualised return: Fund: 20.4% / Benchmark: 13.2%
THIS FUND HOLDS a concentrated portfolio of typically between 25 to 35 high quality companies with strong, repeatable cash flow generation. It typically avoids more cyclical businesses whose earnings are highly sensitive to economic swings and roundabouts. The portfolio includes global brands such as PG Tips-to-Persil owner Unilever (ULVR) and drinks giant Diageo (DGE), which owns Guinness, OTHER FUNDS POPULAR WITH INVESTORS Johnny Walker and Gordon’s Gin. AND EXPERTS Importantly, the fund’s wide investment remit means it can concentrate on finding the best Scottish Mortgage Trust (SMT) businesses regardless of where they are listed, hence stakes in an eclectic mix of overseas 5 years annualised return: companies, including Heineken, gaming giant Fund: 27.4% Nintendo and Japanese cosmetics firm Shiseido. The fund management team including THIS INVESTMENT TRUST is very popular Nick Train focus on the longer-term, ignoring with retail investors and is one of Winterflood short term market noise to get under the skin Securities’ top picks for 2018. Fund manager of their investments’ potential for delivering James Anderson looks for companies that he attractive returns. expects to grow rapidly and sustainably in the future. Global internet businesses like Amazon, Lindsell Train Global Equity Alibaba and Netflix are big names in the portfolio, as well as sports cars brand Ferrari. Top 10 holdings
Unilever 8.52% Newton Global Income Fund (GB00B7S9KM94) Diageo 7.54% Heineken 7.08% 5 years annualised return: Fund: 11.7% / Benchmark: 10.1% London Stock Exchange 5.41% Shiseido 5.30% FUND MANAGER NICK Clay scans the globe for good companies paying attractive and Nintendo 5.27% sustainable dividends on top of an ability to Intuit 5.24% create capital growth. Kao 4.84% The fund has a 2.9% historic yield and nearly half of its investments are in the US, with UK PayPal 4.81% and select European companies also popular. Mondelez 4.80% It is rated as a five-star fund by data specialist Morningstar. Source: Lindsell Train
22 | SHARES | 14 June 2018 2. INCOME OTHER FUNDS POPULAR WITH INVESTORS AND EXPERTS
Ardevora UK Income (IE00B4MKXW82) OUR FUND PICK: 5 years annualised return: TB Evenlode Income Acc (GB00BD0B7C49) Fund: 8.6% / Benchmark: 8.4%
5 years annualised return: ANOTHER FUND THAT invests in companies Fund: 12.8% / Benchmark: 8.4% that pay big dividends, Ardevora UK Income is run by Jeremy Lang and William Pattisson who ACADEMIC STUDIES SHOW time and again are experienced managers and founders of the that compounding dividends generate most asset management group. They both own hefty long-term investment returns, a point not lost on personal stakes. managers Hugh Yarrow and Ben Peters. The fund can invest in a mixture of small and Don’t be put off by a historic yield only being large companies and it yields around 3.5%. 2.4%. Evenlode likes to buy asset-light businesses and companies capable of growing dividends year after year. Therefore you should expect TB Evenlode Income decent dividend growth from the fund. We’ve selected the Acc version of the fund Top 10 holdings so your dividend is rolled up to increase your Unilever 8.02% ownership of the fund rather than collect income as cash. Diageo 7.70% The portfolio is heavily concentrated on UK- RELX 5.57% listed companies, where Unilever, Diageo and education publisher RELX (REL) are currently Sage 4.60% its top three holdings. Nearly 9% of the fund is Compass 4.38% invested in US-listed stocks. Smiths Group 3.97% Reckitt Benckiser 3.31% Smith & Nephew 3.20% GlaxoSmithKline 3.17% AstraZeneca 3.16%
Source: Trustnet
14 June 2018 | SHARES | 23 3. UK EQUITY Liontrust Special Situations Top 10 holdings
OUR FUND PICK: BP 4.05% Liontrust Special Situations (GB00B57H4F11) Royal Dutch Shell 4.03% GlaxoSmithKline 3.95% 5 years annualised return: Fund: 13.0% / Benchmark: 8.4% Compass 3.92% Diageo 3.90% THIS FUND INVESTS in British companies of all Unilever 3.81% sizes and looks in particular for those unloved by the wider market. That might be because they RELX 3.70% are operating in a particularly tough industry at Rotork 3.37% the moment or are perhaps dealing with short- term operating challenges. Fidessa 3.22% The key point is that managers Anthony Cross Reckitt Benckiser 3.13% and Julian Fosh are confident these blips can be put behind their investee companies in time and Source: Trustnet spark substantial share price returns. Current political uncertainties and fairly gloomy economic forecasts for Britain mean OTHER FUNDS POPULAR WITH INVESTORS the fund managers are not short of investment AND EXPERTS options at present. The portfolio includes positions in oil giant BP iShares UK Equity Index (GB00B7C44X99) (BP.), pharma firm GlaxoSmithKline (GSK) and consumer products giant Reckitt Benckiser (RB.). 5 years annualised return: Fund: 8.5% / Benchmark: 8.4%
THIS IS A LOW-COST tracker fund designed to largely match UK-wide stock market returns. It tracks the FTSE All-Share index of about 700 businesses, giving investors a no-fuss way to get a slice of a diverse selection of London-listed companies. Morningstar says it is a worthwhile investment proposition for anyone seeking broad exposure to the UK equity market.
24 | SHARES | 14 June 2018 4. EMERGING MARKETS Around 20% of the fund is invested in Chinese companies; another 10% each in South Africa and Hong Kong; and 8% or 9% in India, Russia OUR FUND PICK: and South Korea. Price’s biggest sector bets are on financials, Fidelity Emerging Markets (GB00B9SMK778) consumer products and technology, with internet firms Naspers and Alibaba big bets, as 5 years annualised return: are insurers and banks. Fund: 10.7% / Benchmark: 8.6% That spread is encouraging because emerging markets can be fairly volatile places to invest INVESTING IN EMERGING MARKETS like China, because they are particularly sensitive to India and others come in and out of investing international capital investment flows. fashion, and they’re currently being shunned by many people. Yet the long-term story is compelling, OTHER FUNDS POPULAR WITH INVESTORS representing a large part of the world’s 7bn- AND EXPERTS odd people and many of them with more disposable cash to spend on luxuries and other JP Morgan Emerging Markets life improvements. Investment Trust (JMG) The Fidelity Emerging Markets fund, run by Nick Price, is a very good option to gain relevant 5 years annualised return: exposure. Fund: 9.0%
INVESTMENT BANK STIFEL says JP Morgan fund Fidelity Emerging Markets manager Austin Forey is the ‘last of the emerging markets trust pioneers’ still at the helm and it Top 10 holdings has a ‘Positive’ rating on the trust. Naspers 5.66% ‘The manager has stayed true to his investment philosophy of creating a high Sberbank of Russia 5.66% conviction portfolio of companies with durable AIA 5.64% competitive advantages allowing them to compound capital over the long term,’ Taiwan Semiconductor 5.05% comments Stifel. HDFC Bank 4.78% The investment trust is particularly bullish on India and has notable exposure to banks and Samsung Electronics 3.17% tech consultants in the country. Housing Development 3.13% Finance Alibaba 2.68% Glencore 2.43% SK Hynix 2.28%
Source: Trustnet
14 June 2018 | SHARES | 25 5. TECHNOLOGY OTHER FUNDS POPULAR WITH INVESTORS AND EXPERTS Neptune Global Technology (GB00BYXZ5N79) MAIN IDEA: 5 years annualised return: Polar Capital Global Technology (IE00B42W4J83) Fund: n/a
5 years annualised return: THIS FUND LAUNCHED in December 2015 with Fund: 25.9% / Benchmark: 23.6% a simple premise to give retail investors access to a focused portfolio of technology stocks driving MANAGERS BEN ROGOFF and Nick Evans have the digital future of global economics. experience and expertise in abundance, and it Led by manager Alastair Unwin, the fund shows in the performance. The pair’s real gift is invests in the biggest, best and most disruptive an ability to spot long-run technology themes innovative companies. Returns have been that are really changing the way the world works impressive in its short run. (SF) with astute company analysis. This saw the fund buy Apple before the iPhone boom really took off. It was also early to spot the online advertising land grab of Facebook, and explains why Amazon has been among its largest holdings for years. Rogoff and Evans also took early positions in Chinese internet winners Alibaba and Tencent, both of which remain high up in the fund’s top 10 stakes. Cloud computing, automation/robotics and artificial intelligence are just some of the big emerging disruptor technologies that Polar Capital Global Technology is betting on big, and investors should rightly feel confident in the fund’s direction.
Polar Capital Global Technology
Top 10 holdings
Microsoft 7.33% Alphabet 7.06% Facebook 4.37% Apple 3.25% Tencent 2.74% Alibaba 2.59% Amazon 2.52% Zendesk 2.27% Dolby Laboratories 2.10% Reckitt Benckiser 3.13% DISCLAIMER: Editor Daniel Coatsworth has a personal investment in Evenlode Income referenced in this article Source: Trustnet
26 | SHARES | 14 June 2018 We're investing in ugly ducklings...
At the Scottish, we take a contrarian approach to global We have the conviction to back our ideas stock markets. We are patient investors. When we see that positive change is afoot we have the conviction to back our ideas. But we know it can Our philosophy is simple. We recognise that popular stocks become take time for the changes we see to be recognised by investment overvalued while unfashionable stocks are often too cheap. We markets. That’s why we take a long-term view. favour the out-of-favour and look for the signs of change that others overlook - and we aim to exploit this ineffi ciency to deliver long-term Our high conviction contrarian approach means that when the gains for our investors. market reassesses the out-of-favour investments we prefer, our best Exploiting irrational markets ideas really count. By the time everyone realises that a great company is great it may no Stand out from the crowd longer be the best investment. It becomes diffi cult to see the storm Our investment approach is truly differentiated in a world awash on the horizon when everyone is toasting past success. with index trackers. We don’t want to own the overpriced areas of the market so the investment portfolio is constructed without the Similarly, when a company has hit rock bottom, it can be hard to see constraints of a benchmark. This means we expect our performance that there will ever be good times again. to be differentiated too. Investment markets are driven by cycles of emotion, rather than Built for uncertain times dispassionate calculation, and this leads stocks to be priced too When the market mood turns, we believe it is important to have highly in the good times and undervalued when times are bad. a keen eye on risk and reward. That’s particularly pertinent when This ineffi ciency is driven by human nature - people feel comfortable markets have soared through successive highs. The recent wobbles sticking with the crowd. But the herding instinct that ensured human in equity markets hint at a reassessment of the more speculative survival in the past may not serve our best interests in fi nancial areas of the market. markets. We believe it pays to ignore these instincts when it comes In contrast, the out-of-favour areas we prefer are ripe for recognition. to making investment decisions. That’s why we believe it pays to invest in ugly ducklings that can turn By looking for positive signs of change in the out-of-favour areas of into beautiful swans. the market, and avoiding the unsustainable bubbles, we see a better For more information visit www.thescottish.co.uk or follow balance of risk and reward. The Scottish Investment Trust PLC
Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fl uctuations. You may not get back the amount you invest. The Scottish Investment Trust PLC has a long-term policy of borrowing money to invest in equities in the expectation that this will improve returns for shareholders. However, should markets fall these borrowings would magnify any losses on these investments. This may mean you get back nothing at all. Investment trusts are listed on the London Stock Exchange and are not authorised or regulated by the Financial Conduct Authority. Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this promotion should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your fi nancial advisor. This promotion is issued and approved by SIT Savings Ltd, registered in Scotland No: SC91859, registered offi ce: 6 Albyn Place, Edinburgh, EH2 4NL. Authorised and regulated by the Financial Conduct Authority. Telephone: 0131 225 7781 | Email: [email protected] | Website: www.thescottish.co.uk TALKING POINT Our view on topical issues Can Rightmove be unseated from a dominant market position? Estate agent backed challenger OnTheMarket renews battle with leading player
n the last decade or so, the way we buy and sell houses I has been transformed by the internet. Property listings website Rightmove (RMV) has enjoyed spectacular returns thanks to its position as a first mover in Some estate agents this space. However, could the may be approaching company be about to face a a point at which they genuine competitive threat “can no longer afford from estate agent-backed rival OnTheMarket (OTMP:AIM)? Rightmove’s charges Created in 2000 as a joint venture between property agents, Halifax, Countrywide (CWD), Connells and insurer RSA (RSA), Rightmove was first listed on the London Stock Exchange in ” March 2006. In the interim the company has advanced from its issue price of 335p all the way beyond £50 and currently trades at £49.57. as a must-have product for (enterprise value to earnings Its main rival to date, ZPG (ZPG) estate agencies and generates before interest, tax, depreciation owned Zoopla could be set for a significant pricing power when it and amortisation) ratio of 21.9. strategic refresh after its parent comes to securing subscriptions group recently agreed to be taken from agencies. This has enabled REACHING ITS LIMITS over by US private equity firm the company to boost average However, high margins Silver Lake in a £2.2bn deal. revenue per advertiser (ARPA) will typically attract either By establishing a market leading from £684 per month in 2014 to competition or regulation and position early on Rightmove £922 per month in 2017. there are signs Rightmove may be has created a virtuous circle. Its This underpins a margin hitting the limits of its profitability. website has the most listings upwards of 70% and has been Liberum analyst Ian and is therefore the one which rewarded by the market with a Whittaker, a long-running fan of prospective property buyers premium valuation. Based on the stock, recently moved from will go to when looking for their forecasts from Liberum the stock ‘buy’ to ‘hold’, citing limited next home. trades on 27.6 times forecast scope for further upside. ‘We This reinforces its position earnings and on an EV/EBITDA think Rightmove will not want
28 | SHARES | 14 June 2018 TALKING POINT
A FAIR PRICE He suggests some estate agents may be approaching a point at which they can no longer afford Rightmove’s charges. OnTheMarket is offering discounted fees to get agencies on board. Research house Edison recently reduced its forecast ARPA for the financial year to January 2019 from £176 to aggressively push ARPA Spriggett, who founded to £163. increases for fear of attracting PrimeLocation.com in 2000 Spriggett tells Shares the regulatory attention.’ and led its growth until it was company can develop an He also doesn’t think sold in 2006, the company ‘attractive revenue and profit M&A interest will emerge. recently revealed a shift in model’ by offering core listing ‘We see a bid for Rightmove its approach. services at a ‘sensible, fair price’. – as happened with ZPG – While Rightmove has nearly He says: ‘There are two as unlikely.’ total coverage of the market, scenarios. If we’re not able Rightmove’s dominance OnTheMarket has around to break into Rightmove’s has inevitably created some a third, so the priority for dominance, then that’s bad resentment among the the remainder of the year is news for every portal including estate agent community and therefore to build up the stock Zoopla as Rightmove will suck OnTheMarket was an agent- on its site before it launches in every spare pound the agents led attempt to shake up this another marketing push. have but we could develop a market, offering member The company has made credible alternative. agents access to potential some recent progress, adding ‘We need to put estate agents house buyers at a significantly agency branches at a good in a position to contemplate less lower cost than both Rightmove pace; more than 8,500 are now reliance on Rightmove and to and Zoopla. participating, a rise of 3,000 do so we need match as far as Industry group Agents’ since the company joined AIM. possible their market coverage Mutual launched OnTheMarket Traffic to its portal in the and that’s what we’re driving in January 2015 with a rule current financial year starting ourselves towards,’ he adds. which initially allowed agents at the beginning of February to Investors can therefore judge to list on only one other site, end May came to 42.2m visits, OnTheMarket’s progress by its essentially Rightmove or Zoopla compared to 21.9m in the same coverage of the market, while – but not both. period in 2017. Rightmove’s ability to drive Dropping the ‘one other Spriggett says the company further growth will be reflected property portal’ rule, is looking to get agreements in the ARPA figure. Rightmove OnTheMarket joined the stock with estate agents to release is next set to update the market market in February 2018, raising properties to OnTheMarket for with its first half results on just £30m against the targeted an initial exclusive period. 27 July. (TS) £50m for a marketing push. He notes agents are ONTHEMARKET 190 FTSE ALL SHARE After a shaky start the company incentivised to do so both 180 is now trading roughly in line due to their interest in having 170 160 with its AIM IPO price of 165p. greater competition in this area 150 and because many of them are 140 130 FOCUS ON BOOSTING offered shares as part of their 120 PROPERTY INVENTORY partnership agreement so have 110 100 Source: Thomson Reuters Datastream Under chief executive Ian ‘skin in the game’. 2017 2018
14 June 2018 | SHARES | 29 EDUCATION Understanding the different types of stock market announcements Do you know the different types of RNS news and how each one is relevant? mong the benefits of single place. rule of thumb for a ‘significant’ investing in a stock The bulk of the effect on a share price but A market-listed company is announcements will be made the FCA has historically been transparency. All London-listed at 7am which gives investors very clear there is no ‘10% firms are required to report one hour to digest the news rule’. A company will usually important bits of information before the UK stock market consult with its stockbroker to which could have an impact opens. However, further determine whether information on their share price in a timely announcements do trickle out is price sensitive. fashion. throughout the day, albeit you’ll If you’ve ever wondered find that very few of these will what the different types of relate to financial results or A company needs to announcements mean, read on trading updates. ask: would a hypothetical as we’ll explain the importance ‘reasonable investor’, out to of the main ones. WHAT HAS TO BE maximise their economic Most companies communicate DISCLOSED AND WHEN? self-interest, be likely to use with the market through the When, why and how companies the information in making Regulatory News Service (better update the market is governed their investment decision? known as RNS) – a service by a series of rules from the Relevant information owned by the London Stock Financial Conduct Authority, could include: Exchange (LSE). the London Stock Exchange and • Changes to a company’s Close to 300,000 European Union. financial position announcements are processed The central point is a company • A significant improvement by RNS each year and more must notify through an approved or deterioration in trading than 70% of all regulatory and regulatory information service • A major new development potentially price-sensitive UK like RNS any inside information such as a big contract win company announcements relating to the company. • A change in the value of originate from RNS. Alternative For an item of news to be a big asset distributors of regulatory classed as ‘inside information’ it news include PRNewswire, must meet the following criteria: GlobeNewswire and • Be of a precise nature and Information must be released BusinessWire. specific to the company as soon as possible. When news Rather than go to each • Not be generally available is unexpected, say for example a distributor’s own website to • Be likely to have a significant contract has been lost overnight find the announcements, the effect on the price of the or a company has been affected easiest way is to use a specialist shares (be price sensitive) if by a natural disaster, they can financial data website such as it were generally available delay for a short time to establish Sharesmagazine.co.uk (click the These are not always hard and all the facts. ‘Market News’ tab). Here you find fast rules – a 10% movement However, if there is a risk that all the main announcements in a either way has been used as a information leaks to the market
30 | SHARES | 14 Jun 2018 EDUCATION then a holding statement will THE MAIN this situation, investors hope that need to be made with as much TYPES OF RNS positive trading momentum will information as possible. continue. A company can also hold ANNOUNCEMENTS You can find earnings forecasts off if putting news out would on various media or financial prejudice its ‘legitimate TRADING UPDATE data websites such as Reuters, interests’. However, it needs to Stockopedia and SharePad, ensure it has taken steps to keep although some will require a the details confidential. subscription for access. If a company is in financial Some companies don’t like difficulties, for example, and is issuing announcements every negotiating with lenders then time they win a new contract, so it could delay announcing it is trading updates can often be the having these discussions. Yet it perfect time in which to bundle would still need to announce up this information. that it was having financial problems. COMPANIES CAN BE FINED A In theory the rules help ensure LARGE AMOUNT OF MONEY a level playing field for investors FOR INFERIOR DISCLOSURE and prevent unscrupulous individuals from taking There are consequences for advantage of insider knowledge failing to meet the required to trade the shares before reporting standards. Last year, information becomes more FTSE 100 mining firm Rio Tinto widely known. (RIO) was fined £27m for breaching its disclosure and WHAT IS NOT INCLUDED IN RNS transparency rules by failing ANNOUNCEMENTS? to write down the value of its Companies do not have to make Mozambique mines in its half an announcement in response to Trading updates are your year results in 2012. unsubstantiated rumours but if chance to discover the latest speculation hits the mark, then health of a business. They are they need to rapidly consider often short in length but can if inside information should be have a major influence over the released. direction of a share price. Outside of explicit guidance Investors want to know if given on trading in updates and trading is above or below or in half year/full year results, some line with market expectations. companies will give analysts some These events can often guidance in private to help them be triggers for analysts to come up with earnings forecasts. downgrade or upgrade earnings The rules say that just because forecasts which in turn help information is unpublished to influence current market it doesn’t make it inside sentiment. information. Companies can For example, many investors offer a steer to analysts so long like to buy into stocks which as what they’re telling them have had their earnings forecasts wouldn’t be price sensitive upgraded, even if the share price because, for example, it revealed has already moved upwards off a big decline in sales. the back of the trading update. In
14 Jun 2018 | SHARES | 31 EDUCATION
WATCH THE WORDING CLOSELY FINAL / INTERIM RESULTS consolidated balance sheet Trading updates can also be shows a breakdown of assets important lead indicators for Financial results are very into intangibles (like brands), potential future problems. important as they give you a full property, plant and equipment, Watch out if a company says breakdown of how a company deferred taxation assets, trade that trading is ‘broadly’ in line, has earned its money, plus most and other receivables and cash. as this implies it isn’t quite as stocks will give you insightful You will also see a breakdown of good as expected and needs an commentary on how they are equity and liabilities. improvement to hit forecasts for coping with challenges and Other important bits of the full year. embracing opportunities. information include the cash flow The same applies to Yet it is vital that you statement and footnotes which companies which say trading understand the stock market will explain any exceptional items is ‘second-half weighted’. That is forward looking and full year and information on borrowings. means they expect to make more results are the presentation Just in case you didn’t know, money in the second half of of historical information. The final refers to the full year and their financial year than the first. market is MORE interested in interim means half year. Ultimately it raises the risk of a the outlook statement in a set profit warning if the second half of results than the numbers ANNUAL REPORT doesn’t play out as expected. themselves. Finally, it is worth noting That’s not to say the historical Annual reports tend to be that ‘interim management numbers are irrelevant; far from published a few weeks after full statement’ is simply another it. The financial review section year results come out. The stock term for trading update. should give you a breakdown of market announcement is usually Companies also use terms such costs and the key drivers of profit just a link to read the report. as ‘operational update’; or in (or loss) plus commentary on The report itself should the case of mining companies, dividends and debt. provide insight into a company’s ‘production results’. The latter The consolidated income strategy plus provide additional will give you an insight into statement will show you the information not in the full year how much material has been breakdown of revenue, expenses, results such as how much money produced but you have to wait profit, finance costs and tax. The the directors are paid. until full or half year results to get financial information.
32 | SHARES | 14 Jun 2018 EDUCATION
DIRECTOR/PDMR responsibilities’. It is either a remuneration deals and the SHAREHOLDING director or a senior executive current structure of the board. who has regular access to Emergency general meeting These announcements can inside information about the (EGM) announcements are very be a bit complicated to read business. important as they often involve as they are usually in table Trading by connected persons a major shareholder calling for format and contain loads of such as a director’s husband or changes to the board or to vote technical information. wife will also be subject to these against the company’s strategy. In a nutshell they are telling types of announcements to the It tends to be a matter that is too you if a director of a company stock market. serious or urgent to wait until the has bought or sold shares. They next AGM. reveal the price and the number HOLDING(S) IN COMPANY of shares in the transaction. INTENTION TO FLOAT / AIM It is rare to see a reason This tends to appear in a SCHEDULE 1 behind the transaction. Typically table format and shows the the only explanations given name of a company or person These announcements tell you are that the director is selling buying or selling shares in a which companies are set to join shares to pay a tax bill or to buy a stock where they have a holding the UK stock market, either on house. In our experience, it’s also of 3% or more. AIM or London’s Main Market. often down to someone getting These announcements Most companies going to divorced or they’ve simply been provide insight into whether the Main Market will issue an given shares as part of their someone is building a stake in intention to float announcement. bonus payment and want to cash a business, such as an activist They normally issue a out and spend the proceeds on investor who could help to subsequent announcement themselves. realise hidden value in a confirming the float price – or Director dealing stock, or someone who could you’ll perhaps get the indicated announcements are worth potentially make a takeover bid float price range prior to final tracking as a large purchase or down the line. pricing for the largest companies. sale can send a strong signal AIM companies have a mixed to the market. After all, these AGMs / EGMs reputation with issuing intention directors are the ones who to float announcements. A should know a business Annual general meeting (AGM) lot of them will only issue the best and they have the inside announcements often include a the obligatory Schedule 1 track on whether things are trading update so are well worth announcement which is a going well or not. monitoring. The results of AGMs standard form giving scant details The PDMR bit in the are also important to follow on a company intending to carry announcement refers to as you will see if shareholders out an initial public offering ‘person discharging managerial have voted for or against (IPO). (DC/TS)
14 Jun 2018 | SHARES | 33 MONEY MATTERS Helping you with personal finance issues The popular ways for grandparents to invest for their grandchildren Should you go for a Junior ISA, a child’s pension, a bare trust or buy Premium Bonds?
randparents looking to set money aside for Gtheir grandchildren have a wealth of options available to them. From Junior ISAs to children’s pensions and even Premium Bonds, there are a number of ways to help young relatives to start saving. Among the most popular are Junior ISAs, which were introduced in 2011 to replace Child Trust Funds and provide a tax-free place to save for young people. Parents and grandparents can save up to £4,260 a year into these wrappers, choosing either to invest Brian Dennehy, managing the money or keep it in cash. The director at Fund Expert, says: benefit of the latter is that young INVEST THE ‘It’s great to get children into people often have access to better MAXIMUM EACH the savings habit early and it can interest rates – the current best YEAR WITH A be good fun for grandparents rate is 3.5% – but investing the JUNIOR ISA: and children to choose funds money can reap greater rewards and watch their money grow over the long-term based on together.’ historical performance trends. £4,260 For grandparents who want per year from a to save more, a bare trust HOW DOES A child’s birth at has no maximum investment JUNIOR ISA WORK? limit. These are typically set up Only a parent or legal guardian can 6% annual through a financial adviser and open a Junior ISA for a child but, return grandparents and parents are once the account is open, anyone named as trustees of the account can make contributions. = and run its investments, with the If you invested £4,260 each child getting access to the funds year from when your grandchild £135,898 when they reach 18. was born and the money by the time This is the downside of both grew at 6% a year, they would the bare trust and Junior Isa, have nearly £140,000 by their they turn 18 however: at age 18 the child will eighteenth birthday. take over the account and be
34 | SHARES | 14 June 2018 Helping you with personal finance issues MONEY MATTERS able to access the money to do with it what they want. Tom Stephenson, adviser at Courtiers Wealth Management, says at this point a financial Investing into a pension to ensure adviser would normally discuss a better retirement is a comforting with the child their options and prospect but the downside is that it is what their needs and objectives are. ‘We usually find they want likely grandparents won’t get to see their to keep it invested for the long “grandchildren enjoy the investment term,’ he reveals. But this is not always the case and many grandparents may worry their grandchild may be tempted to use the money for market so can choose racier World Index ETF (XWLD). something frivolous rather than funds where the potential gains He says: ‘If you are investing keep it invested or use it as they could be greater. for the long-term then a had originally intended. Dennehy likes Liontrust diversified global equity fund UK Smaller Companies is a good choice, especially if TAKING THE PENSIONS ROUTE (GB00B57TMD12), a fund you are investing regularly.” The While most people won’t start to which focuses on smaller British time horizon of a Junior ISA think about pensions until they businesses such as recruitment means you can ride out the ups are in full-time work, setting one firm Robert Walters (RWA) and downs.’ up for your grandchild can be a and engineering company For those who don’t want to good option for grandparents Renishaw (RSW). invest, Premium Bonds are an who would prefer that the money The fund has returned an alternative option. Grandparents isn’t accessed until much later. impressive 141.1% over the can buy Premiums Bonds for a You can save up to £2,880 a past five years and, if you had grandchild and will look after year into a children’s pension, invested £4,260 in it for the past them until their 16th birthday, which will receive a 20% top up 18 years, it would have grown to receiving notifications for any to £3,600 from the Government. an incredible £409,979. prizes won. You can invest Stephenson adds: ‘Investing Dennehy also likes Schroder between £100 and £50,000 and into a pension to ensure Recovery (GB00B3VVG600), prizes in the monthly draw range a better retirement is a a fund which looks for out- from £25 to £1m. comforting prospect but the of-favour companies that the Savers have a 24,500 to 1 downside is that it is likely managers believe are on the chance of winning for each £1 grandparents won’t get to see brink of a turnaround. Current they have invested. The chance their grandchildren enjoy the investments include banks of scooping the £1m prize jackpot investment.’ Barclays (BARC), Royal Bank of is almost 1 in 36bn – significantly Scotland (RBS) and HSBC (HSBA) worse than the odds of winning INVESTMENT IDEAS as well as mining firm South32 the National Lottery, which are Regardless of the investment (S32). The fund has returned 1 in 14m – but NS&I estimates vehicle, grandparents choosing 60.3% over the past five years. the annual interest achieved on funds with which to grow young Mike Deverell, partner at Premium Bonds is 1.4%. people’s money can afford to adviser firm Equilibrium, says Failure to win a large prize take on more risk than they grandparents who would prefer and only collect a return equal might for themselves. not to actively manage an to 1.4% would ultimately Young savers have a long time investment portfolio should simply mean you are getting less horizon in which to ride out choose a low-cost global tracker than the rate of inflation with any ups and downs in the stock fund such as DB-X Trackers MSCI Premium Bonds. (HB)
14 June 2018 | SHARES | 35 MONEY MATTERS Helping you with personal finance issues High-earners face last chance to net £40,000 annual allowance And discover why the average proportion of income to be paid in tax is falling
t might not feel like it, but the average rate of tax paid in the UK TAX BANDS SINCE 2010 UK is actually falling. I Additional- Personal Basic-rate tax According to the latest Higher-rate tax band rate tax allowance band Government data, the Treasury band is set to inhale a mind-boggling 2010/11 £6,475 £6,475 - £43,875 £43,875 - £150,000 £150,000+ £185bn from income tax receipts in 2018/19, up marginally 2011/12 £7,475 £7,475 - £42,475 £42,475 - £150,000 £150,000+ from the £178bn it collected 2012/13 £8,015 £8,015 - £42,385 £42,385 - £150,000 £150,000+ in 2015/16. 2013/14 £9,440 £9,440 - £41,450 £41,450 - £150,000 £150,000+ But the average proportion of income each of us hands 2014/15 £10,000 £10,000 - £41,865 £41,865 - £150,000 £150,000+ over to the taxman is expected 2015/16 £10,600 £10,600 - £42,385 £42,385 - £150,000 £150,000+ to hit 16.7% in the current tax 2016/17 £11,000 £11,000 - £43,000 £43,000 - £150,000 £150,000+ year – lower than the figure recorded three years ago 2017/18 £11,500 £11,500 - £45,000 £45,000 - £150,000 £150,000+ (2015/16: 17.2%). 2018/19 £11,850 £11,850 - £46,350 £46,350 - £150,000 £150,000+ This trend has been driven by a couple of policy initiatives. tax burden on those in the However, those hit by the Firstly, rapid rises in the 45% additional-rate tax bracket taper will only be able to carry personal tax-free allowance since increase – particularly as the forward with reference to their 2010 mean in 2018/19 no tax ability to ‘carry forward’ the tapered annual allowance. This will be due on the first £11,850 pre-taper £40,000 allowance could be as low as £10,000 you earn this tax year – although shortly disappears. for those with total income of this tapers away for those with £210,000 or more. taxable incomes above £100,000. CARRY FORWARD – THE LAST The current tax year Secondly, the basic rate 20% CHANCE SALOON FOR HIGH (2018/19) therefore represents band has widened in recent EARNERS the last opportunity for those years, lowering the amount Under carry forward, pension affected by the taper to carry of income taxed at the higher savers can utilise unused annual forward up to £40,000 of 40% rate. allowance from up to three annual allowance from 2015/16 Even the country’s highest previous tax years in the current (the year before the taper earners – those with gross tax year. This means someone kicked in). incomes of £150,000 or more – entitled to a £40,000 annual For more on how the have only seen moderate rises in allowance who hasn’t paid annual allowance taper could their tax rates in recent times. into a pension in the last three affect you, read here: www. However, the imposition of years could pay £160,000 into sharesmagazine.co.uk/article/ the annual allowance ‘taper’ a pension this year without beware-the-pension-tax- in 2016/17 will likely see the paying any tax. taper-trap
36 | SHARES | 14 June 2018 Only SHARES magazine subscribers benefi t from an investment INVESTMENTtoolkit that gives them the edge and helps them make the very FACTS.Do you have best investing decisions. WHO CAN YOU TRUST? the SHARES • Live share prices • Customisable live watch list In uncertain times, when the • Portfolio manager economyadvantage? is buffeted by change, • Fund selector and prices it can be hard to know who to • Intraday and historic charts trust when investing. • Latest broker forecasts with alerts • Latest director deals with alerts Shares magazine is produced by our expert editorial team, offering 24/7 coverage and insight into today’s vibrant • Fundamentals and investor tools investment markets. • Online discussion forum A subscription to Shares gives you access to the SHARES • Priority booking for investor digital investment hub and a host of benefits including: events > Your weekly digital magazine brimming full • Educational and company videos of investment ideas • …and of course, the weekly > Market news and company updates digital Shares magazine with the > Exclusive investor tools including live share prices latest news and views from the Shares experts Try it now for just £1 for the 1st month and then just £12 a month*. £
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* The £1 for 1 month and then £12 a month offer is only available to new subscribers. Your fi rst payment will be £1 and thereafter subscriptions will automatically continued, billed at £12 per *month The £1 unless for 1 monthcancelled. and thenSubscriptions £12 a month can offer be cancelled is only available at any time to new by callingsubscribers. 020 7378 Your 4424 first between payment 8am will - be4.30pm £1 and on thereafter Monday tosubscriptions Friday. No refunds will automatically are offered duringcontinued, the cancellationsbilled at £12 per monthperiod unlessbut all cancelled.outstanding Subscriptions issues and services can be cancelled will be fulfi at lled.any time For enquiresby calling contact 0207 378 us 4424 at [email protected] between 8am - 4.30pm on Monday to Friday. No refunds are offered during the cancellations period but all outstanding issues and services will be fulfilled. For enquires contact us at [email protected] INVESTMENT TRUSTS The story behind this small cap investment trust’s consistent outperformance Neil Hermon’s growth at a reasonable price approach is paying dividends for long term shareholders of Henderson Smaller Companies
enderson Smaller 20% increase in the dividend to characteristics and strong Companies Investment 18p for the financial year ended management, but at a valuation HTrust (HSL) is managed 31 May 2017, which marked the level that does not reflect these with aplomb by Janus company’s 14th consecutive year strengths. Likewise, he employs Henderson’s Neil Hermon. He of dividend growth. strong sell disciplines to dispose has outperformed the Numis of stocks that fail to meet Smaller Companies benchmark GROWTH, BUT GARP these criteria. in thirteen of the last fourteen ‘Investing in equities is about financial years. growth,’ says Hermon, turning to THE QUEST FOR QUALITY Boasting £845m of assets the fund’s investment philosophy. Hermon is on a quest to buy under management, the trust ‘It is about the future, but we are quality companies with above- aims to maximise shareholders’ growth with value. I remember average growth potential. total returns by investing in a the tech bubble – you have to ‘We define the quality criteria portfolio of UK-quoted smaller have the bedrock of value.’ by what we call the “4Ms”,’ companies. Hermon defines UK Hermon stresses the trust’s says Hermon. smaller companies as those found investment managers are very He looks at a company’s in the Numis Smaller Companies long-term in their approach, business model; its economic Index, a cohort of companies avoiding unnecessary portfolio franchise, competitive below £1.3bn in market value. turnover and with an average advantage and pricing power. The trust’s latest results, holding period of five years. Secondly, he assesses the covering the half year to ‘And we’re very much driven by management team. Next is November, revealed a 5.8% net meeting management teams,’ money, by which he means the asset value (NAV) total return he continues, estimating that his strength of the balance sheet compared to the 2.2% return team sits down one-to-one with and cash flow. Last is earnings from the benchmark, with around 400 companies per year. momentum – the ability to Henderson Smaller Companies Hermon will add stocks to beat market expectations and also raising the interim dividend the portfolio that have good maintain earnings growth into by 20% to 6p. This built on the growth prospects, sound financial the future.
Henderson Smaller Companies Trust recently invested in video games group Team17
38 | SHARES | 14 June 2018 INVESTMENT TRUSTS
A prime example of a classic of cash and we think it will of investments in the portfolio ‘4Ms’ stock is Victrex (VCT), the exceed market expectations,’ and around half of the portfolio high-flying polymer specialist Hermon says. company’s sales go into which Hermon notes ‘I’ve One of 2017’s IPO picks international markets.’ owned since day dot, since I was TI Fluid Systems (TIFS). When Hermon inherited the rocked up here at Henderson Despite being a global leader trust, the dividend amounted in 2002’. A world leader in high in the manufacture of highly to a mere 0.5p a share. ‘Now, performance polymer solutions engineered automotive fluid fifteen years on, it is 19p per focused on the automotive, storage, carrying and delivery share. There’s been a 38-fold aerospace, energy, electronics systems for light vehicles, TI increase in the dividend over that and medical markets, Victrex has Fluid Systems is according to time. It reflects the underlying ‘pricing power with high returns, Hermon ‘under-covered and growth at the companies I is very well invested, has good under-owned, trades on sub- invest in. This is not a yield cash flow characteristics and it 7 times earnings with a 10% stock, but what you do get is also has momentum’ according free cash flow yield and a 4% very fast dividend growth,’ he to Hermon. dividend yield.’ explains. (JC) Scouring the market for quality stocks that are DON’T CATCH FALLING KNIVES reasonably valued on a variety Fervently-focused on quality, TOP TEN HOLDINGS of metrics Hermon believes he Hermon is at pains to point out AS AT 30 APRIL will always be able to unearth ‘we don’t tend to catch falling value and add value among a knives – you get your fingers 3.2% small and mid-cap universe of sliced off’. When the investment Bellway 1,000 stocks. thesis for a stock does change ‘Turnover is relatively low in materially, he’ll ruthlessly eject it 2.5% Intermediate Capital our portfolio,’ he stresses. ‘We from the portfolio. Group have about 100 stocks and we Conviviality, the drinks only add about 20 new stocks distributor which collapsed 2.3% a year. We’ve got time to weed earlier this year, was sold on the Renishaw out these opportunities in first out-of-the-blue earnings 2.3% the market.’ alert. ‘We felt that the profit Melrose Industries warning was so fundamental to PORTFOLIO REPLENISHMENT our investment case that we sold 2.3% Initial public offerings (IPOs) are the shares immediately,’ recalls Paragon Banking a good source of opportunities Hermon. for Henderson Smaller Despite a strong track record, 2.2% Companies Trust, which has the trust trades at a discount to Cineworld bought into seven new issues net asset value. Hermon notes over the past 12 months and this discount is narrowing and 2.1% two so far in 2018. says: ‘Maybe it is the perspective Victrex These include IntegraFin of illiquidity on the investments (IHP), the company behind the or the higher risk of smaller 2.1% Transact investment platform companies.’ Clinigen which ‘has a very good market Also weighing on sentiment position and is very profitable towards smaller company trusts 1.7% John Laing and cash generative’ and are the uncertainties arising Team17 (TM17: AIM), the video from Brexit and the fragile UK 1.7% games label behind the iconic consumer environment, but Dechra Pharmaceuticals Worms franchise. ‘The business Hermon counters ‘we’ve got generates a good amount a pretty broad diversification Source: Janus Henderson Investors
14 June 2018 | SHARES | 39 AEQUITAS Insightful commentary on market issues Why the G7 and global trade talks really do matter Will Trump drain the world of dollar liquidity upon which it is reliant?
hatever investors think of US This is because the Trump plan president Donald Trump, his would drain the world of the very Wtheatrical exit from the G7 dollar liquidity upon which it is reliant. meeting in Quebec and subsequent It is already possible to see the barrage of tweets on trade policy, effects of even a minor decrease in no-one can ignore him. And this is dollar liquidity (due to rising interest because the issue of trade and tariffs rates and a gentle withdrawal of could have profound consequences, quantitative easing in the US), given which in turn will have implications the carnage in emerging market for asset allocation and how investors By Russ Mould, investment currencies and financial markets. need to construct portfolios. director, AJ Bell And that is happening after only a In this column’s view, this is the case mild increase in the dollar’s value and for three reasons: slowdown in supply growth. • First, history suggests that no-one really wins a trade war. The introduction of the MILD INCREASE IN THE DOLLAR HAS ALREADY HIT Smooth-Hawley Act in the US in 1930 is EMERGING MARKETS HARD a good example. America’s move toward protectionism prompted retaliatory measures from Europe and elsewhere. Global trade suffered as a result and a difficult economic (and financial market) environment was made substantially worse than it may have been otherwise. • Second, tariffs and protectionism are inherently inflationary as the result is higher prices for consumers. Looking at this through the narrow prism of portfolios, this must be Source: Thomson Reuters Datastream, Bank of England considered at a time when many investors still fear a downturn, even deflation, or at least seeking dependable income, and have sizeable allocations to bond funds and equity income funds that are packed with so-called ‘bond proxies’ as a result. If inflation really does take hold, they are the sort of asset classes that could do relatively badly, if history proves to be anything like a reliable guide. • Finally – and this is where the economy theory comes in – president Trump’s attempts to put ‘America first,’ run a trade surplus and reverse 47 years of economic history could have some very serious side effects, at least if the so-called ‘Triffin Dilemma’ has any say in it.
40 | SHARES | 14 June 2018 Insightful commentary on market issues AEQUITAS
BIG DILEMMA The current world monetary system was set up in 1971, when then-US president Richard Nixon and Treasury secretary John Connally took America off the gold standard, effectively killing the Bretton Woods system set up toward the end of the WW2. That replaced the pound with the dollar as the globe’s reserve currency, pegging other currencies to the dollar and in turn to gold, for which they could exchange greenbacks. The idea was that America, the world’s economic superpower, could not easily run a cheap dollar policy and export its way to total dominance or be fiscally imprudent at home. A soaring gold price (or tumbling dollar) would be the sign than the US was printing – and devaluing – dollars. Just look at how the US trade and government deficits have mushroomed since Nixon took the hatchet to Bretton Woods. ENTER POTUS This is where President Trump comes in. If he is TWIN US DEFICITS HAVE BALLOONED SINCE THE serious about turning America’s trade deficit into DEATH OF BRETTON WOODS a surplus then we will find out if Professor Triffin was on the money or not as global dollar supply returns to America, boosting the value of the buck and draining liquidity from the world economy and (probably more immediately) its financial markets. If he backs off, America will continue to run huge deficits which will need to be funded – probably with more (and not less) QE, the direct opposite of the current market consensus, with all of its potential implications for the potential value Source: FRED – St. Louis Federal Reserve database of ‘real’ assets (precious metals, commodities, property and shares in cash-generative companies) Source: Thomson Reuters Datastream, Bank of England Amazingly, Professor Robert Triffin foresaw all of rather than ‘paper’ ones (cash, paper promises to this, arguing in a book he wrote in 1960 that the pay coupons on bonds). dollar’s global reserve currency status would come at a cost – either to America or the world. DEMISE OF BRETTON WOODS HAS ALSO ALREADY He argued that to provide the world with enough HAD HUGE IMPLICATIONS FOR US INFLATION (AND dollars, America would always have to run a trade THUS FINANCIAL ASSETS) deficit and import more than it exported, paying out more in dollars than it received, and run an ever-growing budget deficit for good measure. America must therefore be – and remain – a debtor nation. This is all well and good while confidence in the dollar remains, lenders are happy to lend or hold US Treasuries and the US is happy to run a trade deficit. But it becomes a problem if lenders lose faith (as they did briefly in 2008) or America’s trade policy is changed. Source: FRED – St. Louis Federal Reserve database
14 June 2018 | SHARES | 41 UNDER THE BONNET SimplyBiz looks fascinating on paper... but is it a good investment at the current price?
Linking up financial advisers with product suppliers can be a lucrative business
resh from joining the stock market in April 2018, shares Fin SimplyBiz (SBIZ:AIM) are starting to gain traction as more people become aware of its story. The £137m business provides compliance and business support services to over 3,400 UK directly authorised independent financial advisers (IFAs). It is a beneficiary of changing regulation and has a high quality earnings stream with 92% recurring revenue Vitality is an example of a company using SimplyBiz’s services – i.e. sales from the same underlying customers each year REGULATORY DRIVERS the intermediary services for the same services. One of the main challenges division of the business. The There are around 12,000 in the industry is ever company is split into two licensed IFAs practicing at increasing regulation such divisions; the other being its the moment, sitting between as the updated Markets distribution channels business. product manufacturers (such in Financial Instruments While the two segments as asset managers) and the end Directive (MiFID II). This bring in roughly the same customers. The market of IFAs European Commission rule has amount in revenue, it is the is split between those who are brought new responsibilities distribution channels business members of networks and those to both the manufacturers which generates the most who are directly authorised. and the distributers of earnings before interest, tax, SimplyBiz offers help to financial products. depreciation and amortisation advisers looking to become Matt Timmins, co-chief (EBITDA). For its full year 2017, directly authorised as it’s a executive officer of SimplyBiz, the division accounted for 64% complex process involving the says ‘regulation is a real friend of group EBITDA. Financial Conduct Authority, to our business’. Part of his SimplyBiz’s distribution a regulator. Those seeking company’s offering is advising channels division provides accreditation need to provide its clients on regulation. marketing and promotion a five year business plan, cash SimplyBiz offers a manned services to its clients. Timmins flow forecasts as well as a helpdesk that its clients can call gives an example of insurer compliance monitoring plan. if they have any queries over Vitality which uses sensors SimplyBiz has helped over the rules of doing business. that monitor and will adjust 3,000 clients to become directly While regulation is a key insurance policies accordingly authorised to date. driver of SimplyBiz, it sits inside to its users’ health.
14 June 2018 | SHARES | 42 UNDER THE BONNET We explain what this company does
Rather than have Vitality drive around explaining to thousands SIMPLYBIZ: THE ACQUISITION MODEL? of IFAs individually the benefits of its system, SimplyBiz organises Zeus expects future acquisitions to match this criteria: events where companies such • 70%+ recurring revenue as Vitality can present their • c15% EBITDA margin complex products to thousands • EBITDA £0.5m to £2.5m of advisers in one place. • sub-15% cost synergies on full integration Timmins sums up the business • paying up to 8x EBITDA (implies £2.5m-£12.5m deal size) model saying the number of member firms drives the 195brand. MoneyTHE from SIMPLYBIZ IFAs GROUPZeus sees three main drivers business. The more firms, the using SimplyBiz’sFTSE support ALL SHARE of revenue growth: increased more support services they can 190services only accounts for 2% number of members; increased buy and this enhances the value 185of Verbatim’s total invested average subscriptions and fees of its distribution channels arm. money. Fund managers which paid by members; and increased 180manage assets in Verbatim’s use of distribution channels WHO ARE ITS RIVALS? funds include Liontrust, Architas by members. The company’s rivals include 175and Sarasin. Other drivers include pushing businesses owned by large 170 up average revenue per members players such as Standard Life HOW MUCH MONEY COULD and money paid by financial Aberdeen’s (SLA) Threesixty 165IT MAKE? services firms in support of and Aviva’s (AV.) Bankhall According to data from broker accessing SimplyBiz members. subsidiaries. 160Zeus Capital, SimplyBiz had the Adjusted pre-tax profit (i.e. The presence of these FTSE 155largest market share of support excluding one-off items like IPOSource: Thomson Reuters Datastream 100 giants in the market doesn’t services toAPR directly authorised MAYcosts) is forecast to JUNjump from seem to worry Timmins. He IFA firms by revenue in 2016, £6m in 2017 to £10m in 2018 and makes the point that IFAs don’t around 31%. Zeus also views £12.3m in 2019. just want one big provider to that economic risk is low with At 178.99p, the shares offer them all their products; his the company, as its revenues currently trade on 17 times company has the flexibility to are largely uncorrelated to current year’s forecast earnings. offer services from a variety of broader themes such as interest The company floated on 16.3 providers. rates, inflation rates and times earnings and Zeus last There are four companies investment returns. month said you could make more on the UK stock market which The broker adds: ‘Arguably than 20% total return each year have similar sources of revenue an economic slowdown may if the stock continued to trade on and operate on similar EBITDA result in increased need for that valuation multiple. margins to SimplyBiz and could SimplyBiz’s services by both therefore be seen as useful intermediaries and financial benchmarks. The relevant stocks i n s ti t u ti o n s , a s t h e y f o c u s on SHARES SAYS: We think the valuation looks too are Tatton Asset Management being more efficient.’ rich at present given it has so (TAM:AIM) which owns much competition. However, Paradigm, a direct competitor 195 THE SIMPLYBIZ GROUP there are interesting elements to SimplyBiz; Curtis Banks 190 FTSE ALL SHARE to the business and so we will (CBP:AIM), Mattioli Woods 185 watch for a better entry point and (MTW:AIM) and Mortgage 180 reconsider our stance should the Advice Bureau (MAB1:AIM). 175 valuation look more attractive in SimpyBiz has its own asset 170 the future. (DS) management business with 165 160
Source: Thomson Reuters Datastream BROKER SAYS a range of investment funds 155 001 marketed under the Verbatim APR MAY JUN
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www.sharesmagazine.co.uk/videos SMALLER COMPANIES Experts believe you could make 25% in a year with Quiz shares
Brand momentum is building at the occasion and dressy casual wear specialist
rowth-focused investors should keep the faith with fast-fashion brand Quiz (QUIZ:AIM) Gand buy at 173.5p. Broker Panmure Gordon reckons you could make just over 25% profit in the next 12 months with a 219p price target. In a generally gloomy retail sector, we see scope for upgrades at the rapidly expanding occasion-to- dressy casual wear purveyor, whose brand benefits from celebrity collaborations and a marketing boost from social media influencers. Full year results (5 Jun) from Glasgow-based Quiz revealed 30% group revenue growth to £116.4m, driven by strong growth across all channels. Gross margin was north of 60%, underlying pre-tax profit rose 20% to £9.8m and Quiz declared a 0.8p dividend payment. to serve than sales generated through its own Operational highlights included rapid growth in websites. the active online customer base, up 87% to 370,000. April proved a tough month as UK retail sector Online revenue grew by 158% to £30.6m, driven footfall softened, hurting Quiz’s UK stores and by own site sales and ‘exceptional demand’ for the concessions. However the company experienced brand across third party sites including Next (NXT) a strong recovery in May, attesting to the growing and first international online partner Zalando. appeal of the Quiz brand. Quiz is extending the product range online, with Management are also excited about the recent successful examples including the Curve, opportunity in the US, where the brand sells in a Bridal and Quizman ranges. number of stores including New York department The results reveal that Quiz currently operates 71 store Lord and Taylor and a US website has also been standalone stores and 147 concessions in the UK, launched. including concessions in ailing department stores For the year to March 2019, Panmure Gordon Debenhams (DEB) and House of Fraser. forecasts a surge in adjusted pre-tax profit to £12m Yet encouragingly, at a time when many retailers for earnings of 7.4p, ahead of £15.1m and 9.4p for are closing stores, Quiz sees scope for more stores financial year 2020. and is even looking to open slightly bigger outlets to accommodate a broader product range. SHARES SAYS: The business has been investing heavily in Quiz looks attractive versus many quoted re- marketing which partially explains why profit tail companies and we continue to have a ‘buy’ growth hasn’t matched the pace of revenue growth. rating on the stock at 170.25p. (JC) Another reason is higher commission costs as a result of a greater proportion of sales being made BROKER SAYS: 003 through third parties. These have a higher cost
14 June 2018 | SHARES | 45 SMALLER COMPANIES Wealth manager Frenkel Topping is investing for growth
Operating in a market with recurring revenues, this company grows predominately organically
ealth manager Frenkel Topping (FEN:AIM) which will provide portfolio research to the can genuinely be described as niche. Its company through Harwood’s subsidiary Wellian Wclientele includes those who have life Investment Solutions. Again Frenkel believes this changing injuries as well as elderly patients who are is more cost effective than appointing a new chief under the supervision of the court. investment officer. The £34m company provides financial advice and According to the company’s house broker asset management services to personal injury and FinnCap, Frenkel trades on a lower rating to its two clinical negligence victims. closest peers, which it has worked out to trade Its results for 2017 released in April showed on an average 19.9 times forward earnings. Using adjusted pre-tax profit growing by 73% to £2.6m, FinnCap’s forecasts, Frenkel trades on 13.6 times with c80% of its £7.3m revenue in the year classified 2019’s earnings. as recurring. Unlike some of its rivals, notably Harwood Going forward, executive chairman Paul Wealth, Frenkel does not rely on acquisitions for Richardson says he expects the size of the vulnerable growth, preferring instead to go down the organic client market to increase this year and for his route. In October 2017 it established the Frenkel company to at least grow in line with this increase. Topping Training Academy which offers a two-year The company is close to the decision makers who programme of training to support advisers on can impact the fortunes of Frenkel. For instance, future growth. in February last year, the Lord Chancellor got the insurance sector fired up with proposed changes to the Ogden Discount Rate, the rate at which compensation is calculated. Richardson says Frenkel Topping is part of the Association of Personal Injury Lawyers Association working party committee on Ogden. Frenkel Topping is highly cash generative; for 2017 it generated £2.1m of cash from its operations. It
also reported a 32% operating margin, superior to Frenkel relies on organic growth as opposed to acquisistions its peers AFH Financial (AFHP:AIM) and Harwood Wealth (HW.:AIM). Jeremy Grimes, research director at FinnCap, says Although the company is investing in its business ‘this is a highly valuable business and we set a 57p it is also a dab hand at spotting savings. When the price target reflecting a high quality business in an company’s chief investment officer Jason Granite attractive market’. left at the end of 2017, it formed its own investment While there is minimal pre-tax profit growth committee within its renamed Ascencia Investment expected in 2018, as a result of investment plans, Management business to ‘cost effectively fill the the figure is forecast to go from £2.7m in 2018 gap’. to £3.1 in 2019 and £3.7m in 2020, according to Frenkel is also in a deal with Harwood Wealth FinnCap. (DS)
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R b h t er e w CAMBERWELL
BATTERSEA PARK u m e o a l h l N S p ew la R C d INDEX
KEY Curtis Banks 43 Henderson Smaller 38 Reckitt Benckiser 24 (CBP:AIM) Companies (HSL) (RB.) • Main Market • AIM DB-X Trackers MSCI 35 HSBC (HSBA) 35 RELX (REL) 23 World Index ETF • Fund Impax Asset 16 Renishaw (RSW) 35 (XWLD) • Investment Trust Management (IPX:AIM) Rightmove (RMV) 28 Debenhams (DEB) 45 • Exchange-Traded Fund Inmarsat (ISAT) 7 Rio Tinto (RIO) 31 Diageo (DGE) 22 IntegraFin (IHP) 39 Robert Walters (RWA) 35 Fidelity Emerging 25 iShares UK Equity 24 Royal Bank of 35 Markets Index AFH Financial 46 Scotland (RBS) (GB00B9SMK778) (GB00B7C44X99) (AFHP:AIM) RSA (RSA) 28 Frenkel Topping 46 Joules (JOUL:AIM) 10 Ardevora UK Income 23 (FEN:AIM) Schroder Recovery 35 (IE00B4MKXW82) JP Morgan Emerging 25 (GB00B3VVG600) Frontier 8 Markets Investment Auto Trader (AUTO) 16 Scottish Mortgage 22 Developments Trust (JMG) (FDEV:AIM) Trust (SMT) Lindsell Train 22 SimplyBiz (SBIZ:AIM) 42 Global Equity (IE00B3NS4D25) Smurfit Kappa (SKG) 10 Liontrust 24 Sopheon (SPE:AIM) 18 Special Situations South32 (S32) 35 (GB00B57H4F11) SSP (SSPG) 12 Liontrust UK 35 Standard Life 43 Smaller Companies Aberdeen (SLA) Aviva (AV.) 43 (GB00B57TMD12) Tatton Asset 43 Barclays (BARC) 35 London Stock 30 Management Exchange (LSE) Bellway (BWY) 6 (TAM:AIM) Fuller, Smith & 3 Mattioli Woods 43 BP (BP.) 24 TB Evenlode Income 23 Turner (FSTA) (MTW:AIM) Acc (GB00BD0B7C49) Computacenter (CCC) 8 GlaxoSmithKline (GSK) 24 Meggitt (MGGT) 14 Team17 (TM17:AIM) 39 Countrywide (CWD) 28 Harwood Wealth 46 Mortgage Advice 43 Telford Homes 6 Crest Nicholson 6 (HW.:AIM) Bureau (MAB1:AIM) (TEF:AIM) (CRST) Neptune Global 26 TI Fluid Systems 39 Technology (TIFS) (GB00BYXZ5N79) Unilever (ULVR) 22 Newton Global Income 22 Victrex (VCT) 39 ARE YOU LOOKING Fund VT AJ Bell Passive 21 (GB00B7S9KM94) FOR ‘WEEK AHEAD’ Cautious Next (NXT) 45 (GB00BYW8RV97) INFORMATION? OnTheMarket 28 WH Smith (SMWH) 12 (OTMP:AIM) Wizz Air (WIZZ) 14 Full details regarding dates for financial Playtech (PTEC) 7 results, trading updates, AGMs, economic Polar Capital Global 26 announcements and ex-dividends Technology can be found on Shares’ website at (IE00B42W4J83) Quiz (QUIZ:AIM) 45 www.sharesmagazine.co.uk/market-diary Ramsdens (RFX:AIM) 18 ZPG (ZPG) 28
48 | SHARES | 14 June 2018