9 January 2018 Page 1

Issue 2019/01 www.trendwatch.co.uk 9 January 2019

The worst December for major stockmarkets since 1931

IRST THINGS first. A slightly belated happy and a lot more besides. During 2018, global stockmar- Stock market sectors New Year to all our readers. I hope you had a kets haemorrhaged $12 trillion in value, the biggest F ☺ uptrends great Christmas break and that you’re eager to loss since 2008 and the second largest on record. make more money from your investing this year. US stocks had their worst Christmas Eve ever, and NONE I hear cries of “you cannot be serious!” and “pull the their worst December since the Great Depression in other one!”. But I am serious. As you read through 1931. (It’s what that pathological liar Donald Trump Stock market sectors this issue, you’ll see that the described as “a little glitch”). As  downtrends TrendWatch portfolio, as well as FTSE 100 recently as October, Apple shares TAM 2 and TGF, have done re- stood proudly at more than * Gas, water & multiutilities -8 markably well. 7,750 $230, making it the most valua- Automobiles & parts -69 We won’t be sorry to see the 7,500 ble company in America at over Electricity -114 back of 2018; but 2019 is the 7,250 $1 trillion. In just three months, Equity inv. instruments -62 year when the fog of uncertainty the shares have fallen around Food & drug retailers -83 surrounding Brexit will start to 7,000 30%. Food producers -18 clear. We don’t know whether 6,750 Here are some more examples FTSE AIM -62 Mrs May will get her way and 6,500 of how bad stockmarket falls FTSE Fledgling ex Inv Co -82 force her Brexit deal through F M AM J J A SO N D J F M AM J J A SO N D J have been in 2018 (the losses re- FTSE SmallCp ex Inv Co -119 Parliament, or whether we’ll fin- lates the to period counting back ish up with a no-deal Brexit (which would probably be one year from last Friday – which therefore includes General retailers -104 the best outcome, no matter what the doomsters lead- Friday’s substantial rebound): Health care eq. & serv. -62 ing Project Fear may say). But either way, by March, Household goods -59 chances are we’ll be shot of the EU and standing on 1-year 1-year Industrial engineering -62 Market change Market change our own two feet. I suspect that our departure will Industrial transportation -160 hurt the EU far worse than it will hurt us. China (Shanghai Com.) -25.4% Singapore (Straits T) -11.7% Life assurance -68 But first, let’s turn our faces back to see the hazard- Media -63 S. Korea (Kospi) -19.2% UK (FTSE 100) -11.1% ous road investors had to travel since the last issue. Nonlife -48 No question about it: December was a truly awful Hong Kong (Hang Seng) -16.2% US (S&P 500) -7.2% Oil eq. & services -38 month – not just for stocks but for almost all financial Real estate inv. & serv. -121 assets (cocoa was one of the few exceptions, due to ad- Japan (Nikkei 225) -12.6% US (Nasdaq) -5.1% verse weather in West Africa). Tobacco -76 Let’s take the Footsie as an example. If you assume Europe (FTSE Eurofirst) -12.5% India (Sensex) +5.6% Travel & Leisure -102 that shares will always rise in the long term… think Canada (S&P/TSX) -12.2% Brazil (São Paulo) +17.2% again. The Footsie actually started the year promising- ly, at an all-time high of around 7,780. Then almost Trend analysis is our raison d’etre, so what does our immediately, it plunged to 6,922 in March. Then it analysis tell us about the state of the London stock- surged back up to another all-time high of 7,877 in market? Is the worst now over? May. But it was downhill all the way from there. By As ever, the answer to this question is encapsulated last Friday the benchmark had sank to 6,,837… that’s in our TrendWatch Barometer (bottom left). lower than it was in early 2000. You can see that things were pretty grim five weeks It was much the same story around the world, with ago; but there has been a further deterioration since nearly all stockmarkets losing all the gains for the year then. There is an even lower percentage of shares in TrendWatch uptrend – just 2.7% in the case of the Official list – Barometer and even higher percentage of shares in downtrend – London-listed shares as much as 38.3% in the case of AIM shares. % of total no. of % change Can it get any worse? Certainly it could. The number 30-Nov 04-Jan of shares in uptrend cannot increase until the number shares monitored on fortnight of shares in downtrend starts to reduce. That isn’t OFFICIAL LIST: happening yet. Uptrends 7.90% 2.71% -5.19% However, looking at share price charts at random, Indeterminate 67.24% 66.54% -0.70% there are some hints that things are looking up. Some Downtrends 24.86% 30.75% +5.89% shares seemed to be off the bottom and not that far off returning to uptrend. Dead cat bounce? Maybe. But AIM-LISTED: history teaches us that long-term bear markets are ra- Uptrends 6.60% 4.22% -2.38% re, and that the faster markets fall, the sooner they Indeterminate 55.62% 57.49% +1.87% bottom out and the stronger the rebound. Downtrends 37.78% 38.29% +0.51% I’m hopeful that better times are just around the corner, once the Brexit mists clear. ❑ INVESTMENT TRUSTS: Uptrends 4.08% 3.13% -0.95% SHARE SELECTIONS IN THIS ISSUE Indeterminate 78.99% 62.07% -16.92% Downtrends 16.93% 34.80% +17.87% Avation (AVAP) 3 EXCHANGE TRADED FUNDS: Marshalls (MSLH) 4 Uptrends 6.98% 10.59% +3.61% Morses Club (MCL) 5 Indeterminate 81.97% 52.94% -29.03% Downtrends 11.05% 36.47% +25.42% Chaarat Resources (CGH) 6 9 January 2018 Page 2

Despite market mayhem, our portfolio still outperforms

The TrendWatch portfolio: Valuation as at 7 January 2019 Date Buy price Price now gain/ F/c gross Mkt. gain/ Outperf. STOP- Share (and EPIC code) bought (p) * (p) loss (%) yield (%) loss (%) (%) LOSS **

4imprint (FOUR) 13/09/18 2070.00 1885.00 -8.9 3.1 -8.9 -0.1 1615 AFH Financial Group (AFHP) AIM 20/08/15 161.50 343.00 112.4 2.5 4.2 103.9 332 Arena Events Group (ARE) AIM 21/06/18 65.00 58.00 -10.8 4.3 -12.1 1.6 56 B.P. Marsh & Partners (BPM) AIM 21/06/18 289.00 283.00 -2.1 1.7 -12.1 11.5 250 BATM Advanced Comm. (BVC) 29/03/18 27.65 48.80 76.5 - -6.0 87.8 39 Bioventix (BVXP) 06/12/18 3215.00 3075.00 -4.4 2.6 -0.1 -4.3 2656 Cake Box Holdings (CBOX) 06/12/18 174.00 161.00 -7.5 0.0 -0.1 -7.4 143 CentralNic Group (CNIC) 08/11/18 53.50 52.00 -2.8 - -6.6 4.0 43 Clarke (T) (CTO) 08/01/18 85.70 87.00 1.5 4.5 -13.6 17.5 73 Colefax Group (CFX) AIM 18/07/13 252.50 540.00 113.9 1.0 3.6 106.5 480 Creightons (CRL) 06/12/18 31.00 30.50 -1.6 1.3 -0.1 -1.5 24 Future (FUTR) 06/12/18 538.00 469.00 -12.8 0.2 -0.1 -12.7 451 Georgia Capital (CGEO) 12/10/18 1157.80 1012.00 -12.6 - -4.8 -8.2 944 Gordon Dadds Group (GOR) AIM 19/07/18 176.50 189.00 7.1 4.4 -13.4 23.6 152 (JLG) 16/08/18 287.20 332.00 15.6 2.9 -11.8 31.1 267 Oxford Metrics (OMG) AIM 09/11/17 62.25 71.50 14.9 2.5 -11.0 29.0 63 Patisserie Holdings (CAKE) AIM 25/05/17 365.75 429.50 17.4 - -11.3 32.4 390 Petra Diamonds (PDL) 08/11/18 42.70 42.90 0.5 - -6.6 7.5 34 President Energy (PPC) 06/12/18 9.75 9.15 -6.2 - -0.1 -6.1 8 Proactis Holdings (PHD) AIM 08/11/18 139.50 142.00 1.8 1.1 -6.6 8.9 114 RWS Holdings (RWS) AIM 19/07/18 448.50 458.50 2.2 1.9 -13.4 18.0 409 Serica Energy (SQZ) AIM 08/11/18 131.50 121.00 -8.0 - -6.6 -1.5 106 Sigma Capital Group (SGM) AIM 12/10/18 132.50 132.50 0.0 - -4.8 5.0 106 Speedy Hire (SDY) 12/10/18 63.80 59.10 -7.4 3.5 -4.8 -2.7 49 Synectics (SNX) AIM 08/11/18 217.00 197.50 -9.0 3.0 -6.6 -2.6 173 Venture Life (VLG) AIM 16/08/18 48.00 44.00 -8.3 - -11.8 3.9 40 VP (VP.) 07/12/17 900.00 940.00 4.4 3.4 -9.1 15.0 938 Zegona Communications (ZEG) 06/12/18 123.50 119.00 -3.6 3.3 -0.1 -3.6 101

Averaged gains (%): 9.4 2.5 -6.2 16.6

TrendWatch portfolio's percentage profit: 9.37% Change since last full TW: -2.85% Market's percentage profit (tracker fund)†: -6.23% TrendWatch has outperformed market by: 16.63%

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

9 January 2018 Page 3

tallised, easily offsetting the losses. 4-week GAINERS % gain Reason As for the past 5 weeks, we have only two double-digit losses to report and no corresponding gains, as shown in the tables (left). NONE Other news in brief: There wasn’t much news in the run-up to the Christmas holidays. BATM Advanced Communications (up 4-week LOSERS % loss Reason 0.5%) has announced that Telco Systems, a wholly-owned high-end software development and design business, has advanced its strate- Future -12.8% Adverse market conditions. gic partnership with Arm (the former British company now owned AFH Financial -10.4% Adverse market conditions. It has by telecoms giant SoftBank of Japan), the industry's leading supplier also made the third acquisition of its of semiconductor intellectual property. Arm recently launched its financial year: CTL Three, for a Neoverse ecosystem, a new and transformative cloud infrastructure maximum of £10m. All three acquisi- designed to support the demands of a trillion intelligent devices. Arm tions have been in the north-east of has selected Telco’s NFVTime operating system to provides virtuali- England. sation software that can turn any Arm or Intel x86-based ‘whitebox’ device into a high performance device, running any virtual network THE PAST five weeks have given no respite to our portfolio. But it function. This does away with the need for specially-designed com- certainly wasn’t a disaster. It shrank in value by just 2.85% and is munications hardware, which should greatly speed the deployment still in profit by 9.4%, representing an outperformance of the FTSE of the communications networks of the future. All Share index of 16.6%. Finally, last Wednesday saw the lifting of the suspension from There were of course more stop-outs (see back page). But rather trading of the shares of legal firm Gordon Dadds (up 6.2%), the than focusing on the value of the current portfolio, it’s important to company having completed the takeover of Ince & Co for an estimat- understand what has been happening over the past few months. Our ed £27.3m payable in cash over four years. Patisserie Holdings portfolio previously built up big gains, many of more than 100%. As remains suspended following last year’s discovery of director fraud. the market fell and shares got stopped out, these big gains were crys- ❑

(p) BATM Advanced Communications (p) F ut ure (p) AFH Financial Group 50 600 400 45 500 40 350 400 35 300 30 300 250 25 200 20 200 15 100 150 F M A M J J A S O N D J F M A M J J A S O N D J FM AM J J A S O N D J F M AM J J A SO N D J FM AM J J A S O N D J F M AM J J A SO N D J

(p) Gordon Dadds Group (p) Sigma Capital Group (p) Synectics 190 140 275 180 120 250 170 100 225 160

150 80 200

140 60 175 A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J

The hidden value in Avation’s accounts: an undervalued fleet PROLOGUE: Given the awful market conditions we’re going issue that satisfy our demanding requirements, the first time this has through, you may find it odd that we’re making any share recommen- happened. So for this issue – and hopefully only for this issue – it’s dations at all in this issue. Almost everything is in downtrend. You not “Six of the Best”; it’s “Four of the Best”. only have to look at pages 8 and 9 to see how anorexic the uptrend lists are. AVATION (AVAP) That’s the wrong way to look at it. For a start, the faster shares fall in price, the closer we are to the bottom. You do want to buy low and Business description: Avation PLC is a commercial passenger sell high, don’t you? This is your big opportunity. aircraft leasing group managing a fleet of 41 aircraft, with 3 more on Second, don’t forget that we don’t recommend any share that isn’t order. The Group’s fleet includes Airbus A220, A320 and A321 nar- actually in uptrend. The fact that there are such shares bucking the row-body jets, Boeing 777- 300ER and Airbus A330-300 twin-aisle overall market trend, few though they may be, indicates that there’s jets, ATR 72 twin engine turboprop aircraft and five older Fokker 100 something special about at least a few of them. It’s our job to find jets. The average age of the fleet is 3.6 years and the average remain- those special ones. ing lease term is 7.3 years. Its fleet is now valued at around $1 billion. Rest assured that we will never recommend six shares if we can’t Avation's customers comprise 14 airlines in 11 countries. actually find six shares worthy of your attention. In the extreme, we Those customers include Virgin Australia, Thomas Cook, Fiji Air- wouldn’t recommend any shares. This is not one of those occasions. ways, Mandarin Airlines, Air India Regional, Flybe, Air France, However, market conditions have been so dire in December, and the easyJet, Vietjet Air, EVA Air, Philippine Airlines, and airBaltic. uptrend lists are so short, that we can only find four shares for this Avation operates from its headquarters in Singapore, where it is tax 9 January 2018 Page 4

resident and, since 17 April 2014, a beneficiary of the Singapore Air- • It is still cash flow-negative. craft Leasing Scheme tax incentive. The company aims to grow its fleet and continue to diversify its Year to June: 2014 2015 2016 2017 2018 2019** 2020** customer base. Currently, the group has six ATR 72-600 aircraft on order from the manufacturer and holds options for a further Revenue ($m) 48.7 56.9 71.2 94.2 109.1 118.9 125 30 aircraft. It may also acquire further new and second-hand jet Pre-tax profit ($m) 13.3 13.0 18.3 21.3 20.0 20.4 25.2 aircraft on an ad-hoc basis. Older aircraft are sold Normalised eps ($)* 0.23 0.25 0.31 0.27 0.39 0.33 0.36 when opportunities arise in order to maintain a low average fleet Norm. eps growth rate (%) -2.9 12.6 23.4 -14.8 45.7 -16.0 11.0 age. Prospective price/earnings (p/e) ratio: 10.5 19.5 Bull points: Prospective p/e:earnings growth (PEG) ratio: 0.95 1.34 • The company has guided investors to expect a 39% increase Forecast dividend yield (%): 2.33 2.60 in lease rentals for the half-year to December 2018. This *Normalised earnings per share takes into account any unusual or one-off items **Forecast means that it should be on track to deliver record half-year profits when it announces its interim results on or about 13 Summary: A cursory look at the track record table above does not February. immediately suggest that this is the type of growth company that is • There is hidden value in the company. Its fleet is in the balance the backbone of our investment strategy. Revenue is growing nicely sheet at book value, but this greatly undervalued the fleet, but profits and earnings growth don’t immediately impress. since the sale value is much greater. For example, the company To understand aircraft leasing companies such as Avation, you recently disposed of one of its eight Airbus A321-200 aircraft need to have a broad understanding of how their business model for a price exceeding its book value of $48.7m by more than works. 10%. This will add around $5m to its 2019 profits, a significant Before you can get the leasing income from airlines, which is what sum relative to its forecast core 2019 leasing profit of $23.8m. ultimately generates your profit, you first have to acquire aircraft to lease. This is hugely expensive. A wide-bodied jet costs upwards of • As well as the undervaluation of its actual fleet, it also has op- $100 million. Once you have the aircraft (usually 75% financed by tions and purchase rights over 25 ATR72-600 aircraft, which debt at 5% p.a.), you can then lease them out. They will generate are on the balance sheet at nil cost, but lease income of around 13% of the aircraft’s could easily be worth $45m on the open (p) Avation book value per year… for years. Aircraft have a market. Once these aircraft are delivered, typical working life of 25 years. When the lease its NAV will get a further boost. 260 expires or is terminated, you get the aircraft • Brokers’ consensus target price is 339p, a back, having depreciated it at around 5% a year. premium of more than 20% to Avation’s 240 You can then lease it to another airline or sell it last reported NAV and a 26% premium to 220 on the second-hand market. Because the avia- the current share price. tion industry is continually expanding, second- 200 • Avation started life leasing $20m twin hand aircraft are much in demand, so they can turboprops. It then graduated to leasing 180 often be sold at a premium to book value. narrow-bodied jets such as Boeing 737s F M A M J J A S O N D J F M A M J J A S O N D J Because aircraft are so expensive to buy, the and Airbus 320s worth around $50m. company carries a huge amount of debt: more Now it has taken delivery of its first wide-bodied jet worth than $800 million in Avation’s case. But of course banks are happy around $100m. Thus it’s now close to a position where it can to lend to such companies because the debt can be secured against satisfy airlines’ needs for small, medium and large aircraft, all the value of its aircraft. of which are in demand. As leasing companies go, Avation is still a tiddler. But it’s growing fast. Just the kind of company you should have in a growth portfolio. Risk factors: BUY (272p; yield: 2.5%; market capitalisation: £174.1 million; initial • When interest rates rise, that will make it much more expen- stop-loss: 217p; EPIC: AVAP; sector: Aerospace & defence; classifica- sive to service its debt. tion: Official List [non-index]; website: www.avation.net). ❑ Marshalls’ full-year results will beat market expectations MARSHALLS (MSLH) (bollards, planters and seats – all certified and approved to PAS 68), street furniture (seats, benches, bollards, litter bins, trash recepta- Business description: For the avoidance of doubt, this is NOT cles, lighting, cycle racks, bike shelters, post and rail systems made the automotive retail and leasing company Marshall Motor Holdings. from a variety of materials including steel, stainless steel, alumini- Marshalls is the UK’s leading hard landscaping manufacturer, um, cast iron, concrete, plastic and Ferrocast – a revolutionary engi- supplying superior natural stone and innovative concrete products to neering grade polyurethane), water management systems (slot the construction, home improvement and landscape markets since drains, drainage channels, combined kerb and drainage systems, the 1890s. It floated on the London stockmarket in 1964. As a market sustainable drainage solutions and permeable paving) and a vast leader in its sector, the Group operates manufacturing sites and array other landscape products, including – but not limited to – pav- quarries throughout the UK. ing, walling, interlocking concrete blocks, kerbs and so on. In the commercial construction sector, Marshalls is the leading Its customers include local authorities, commercial architects, supplier of hard land- specifiers, contractors, housebuilders and builders merchants. scaping solutions, with (p) Marshalls The company also sells its products to domestic customers, ranging a focus on developing 480 from DIY enthusiasts to professional landscapers, driveway installers new and innovative and garden designers. Sales are driven through the Marshalls Regis- 440 products. These prod- ter of Accredited Landscapers and Driveway Installers. ucts help architects, 400 Bull points: local authorities and 360 contractors to create • Last month, it said in a trading statement that it expects to better spaces, whether 320 exceed full-year expectations, thanks to strong recent trading. it’s street furniture, 280 • It is widely regarded by the construction industry as a leader in natural stone paving for F M A M J J A S O N D J F M A M J J A S O N D J its field. the internal or external • It has a great track record of sustained growth. Its 5 year environment, concrete block paving, counter terrorism solutions 9 January 2018 Page 5

CAGR growth in pre-tax profit is 41 per cent. Year: 2013 2014 2015 2016 2017 2018** 2019** • It has consistently invested in the business, developing Revenue (£m) 307.4 358.5 386.2 396.9 430.2 494.9 536.1 innovative new products and manufacturing capabili- ties. Capital expenditure in 2017 was £22.5m. Pre-tax profit (£m) 14.1 19.9 28.1 37.4 42.5 49.6 53.4 • It recently acquired CPM, a pre-cast concrete manufac- Normalised eps (p)* 6.92 10.8 14.0 18.6 21.8 25.1 27.1 turer specialising in underground water management Norm. eps growth rate (%) +290.3 +56.1 +30.1 +32.2 +17.6 +15.1 +8.03 solutions. The acquisition will enable Marshalls to offer Prospective price/earnings (p/e) ratio: 19.0 17.6 a broader product choice that complements its existing Prospective p/e:earnings growth (PEG) ratio: 2.37 2.37 water management offering and is a significant step towards providing a full water management capability. Forecast dividend yield (%): 3.10 3.11 *Normalised earnings per share takes into account any unusual or one-off items **Forecast • Brokers have been raising their earnings forecasts. growth – if you average its growth for 2018 and 2019. But its PEG Risk factors: ratios are higher than I would normally wish. • The construction industry can be – and indeed has been – In most other respects, Marshalls is an attractive investment, which affected by adverse weather for weeks or even months at a is why its shares are in uptrend amid a sea of red. As mentioned un- time. der Bull points above, it stated last month that its full-year results • About 40% of its revenue comes from housebuilders. Some would exceed expectations. That fact may not yet have been factored investors worry about the impact that Brexit might have on in to brokers’ forecasts, in which case the forward p/e and PEG ratios house prices. I’m not one of them. There is an acute shortage for 2018 will be lower than in the above table. of new homes in the UK – and in any case, Marshalls is a The shares have been range-bound for the past 15 months. That building materials supplier, not a housebuilder. could be regarded as a negative – but share prices don’t stay range- • Debt has been increasing; but its balance sheet is hardly look- bound for ever. The price is currently at the top of the range. When ing stretched. Its cash generation is robust. the Brexit uncertainty finally clears, we could see a substantial breakout on the upside. BUY (486p; yield: 3.1%; market capitalisa- Summary: To be honest, if the uptrend lists were of a more normal tion: £956 million; initial stop-loss: 389p; EPIC: MSLH; sector: Con- size, chances are I would have passed over Marshalls in favour of a struction materials; classification: FTSE 250; website: competing contender. So I admit that the investment case for Mar- www.marshalls.co.uk). ❑ shalls is slightly marginal. It does have double-digit forecast earnings The sub-prime lender with a 95%-plus satisfaction rating MORSES CLUB (MCL) from strength to strength, rising to 27,000 as it its last inter- ims, compared to 11,000 a year earlier. Business description: Morses Club is a consumer finance busi- • There are 400 smaller competitors in this space, covering ness focused on the 0.5m customers. Many of these will be forced out due to tight- home-collected credit (p) Morses Club er regulation and rising administration costs resulting from market, otherwise the requirement to set up digital platforms to handle back known as ‘doorstep 160 office functions. Such companies will make tasty acquisition lending’. Agents visit targets for Morses. customers’ homes to 140 collect payments. They • Provident Financial is scaling back its home collection activi- ties, giving Morses the potential to pick up more customers. receive commission on 120 the money they collect. Risk factors: Operating under the 100 F M A M J J A S O N D J F M A M J J A S O N D J • In the event of a post-Brexit recession, customers may find it Morses Club brand, it more difficult to repay. But then again, a recession may expand provides unsecured its customer base. loans to customers over 20-78 week periods, which are re- payable on a weekly basis. It provides a range of loan prod- Year to February: 2014 2015 2016 2017 2018 2019** 2020** ucts through a combination of traditional and online market- Revenue (£m) 21.1 89.9 90.6 99.6 116.6 119.8 127.5 ing channels. The average customer balance is £570 and the average loan duration is 41 weeks. Pre-tax profit (£m) 2.73 58.9 7.92 8.60 13.1 17.5 19.6 Morses is the second biggest business in this sector, the Normalised eps (p)* 2.11 19.4 6.32 8.23 10.6 13.4 15.3 largest being Provident Financial. Norm. eps growth rate (%) +822.4 -67.5 +30.2 29.0 +26.7 13.7 It was originally part of the niche lender London Scottish Prospective price/earnings (p/e) ratio: 11.8 10.3 Bank, which was forced into administration by the FSA dur- ing the banking crisis in 2009 due to inadequate capital re- Prospective p/e:earnings growth (PEG) ratio: 0.86 1.37 serves. Private equity interests bought the still-profitable Forecast dividend yield (%): 4.9 5.6 Morses Club business from the administrators in August *Normalised earnings per share takes into account any unusual or one-off items **Forecast

2009. It floated on AIM in June 2016.

Bull points: Summary: I always feel a little squeamish recommending compa- • This is a well-run, FCA-regulated business, which does not nies like this. Because of the high interest rates charged – the APR is charge fees or extra interest for late payments. This means typically more than 400% – such companies seem to be exploit the that customers are not at risk from the dreaded ‘debt spiral’, financially disadvantaged, including those on benefits. This is a silly for which typical ‘payday lenders’ are justly castigated. Conse- attitude on my part. I have keep reminding myself that the main- quently, customer satisfaction is very high at 95% or above. stream banks want nothing to do with such people. Without compa- More than 90% of its customers are repeat customers. nies such as Morses, people experiencing an unexpected financial setback would be up the creek without a paddle, exposed to the ten- • It has managed to grow the loan book without any sizeable der mercies of the unscrupulous, unregulated loan sharks. uptick in the impairment rate (which typically accompanies Morses Club has an excellent reputation, as evidenced by its very new customer growth, given they are more likely to default on high level of customer satisfaction. It also meets our criteria for a fast loans), which has remained within management's guidance -growing business. BUY (157p; yield: 5.5%; market capitalisation: range of between 22% and 27%. £207.7 million; initial stop-loss: 125p; EPIC: MCL; sector: Banking • The Morses Club card, introduced in April 2016, has gone services; classification: AIM; website: www.morsesclubplc.com). ❑ 9 January 2018 Page 6

At a stroke, ambitious Chaarat becomes a gold producer CHAARAT RESOURCES (CGH)

Business description: Registered in the British Virgin Islands, Chaarat Resources is developing the Chaarat Gold Project in the Kyrgyz Republic, also known as Kyrgyzstan. The Chaarat prospect is approximately 10 kilometres long at the centre of the Sandalash li- cense area, which consists of three identified prospects: Chaarat, Kashkasu and Minteke. Chaarat’s management believes that the Chaarat Project has the potential to sustain production of 0.3m-o.4m ounces of gold a year for many years. Chaarat also has a number of other exploration licences in the Kyr- gyz Republic. This includes Tulkubash, where it recently released encouraging drilling results (see below). In October last year, it announced the $55m acquisition from Polymetal International of the Kapan Mining and Processing Compa- ny, which owns a medium-sized mine in the Republic of Armenia plus two other mines. At a stroke, this reverse takeover transforms Chaarat from a mine developer to a producer of around 65,000 that’s a bit annoying. I always believe that we should have a gold ounces of gold a year. Completion of this transaction is expected share in the portfolio for just such an eventuality. Unfortunately, towards the end of this month. every time we bought one, we got stopped out (p) Chaarat Gold as the gold price continued to languish. Bull points: 30 Now, despite the paucity of uptrends, we find • Thanks to the Kapan acquisition, Chaar- there are five in the uptrend lists: Polymetal at is set to be cash flow-positive and 25 International, Shanta Gold, Ariana Resources, profitable, enabling it to fund its ambi- Scotgold Resources and Chaarat. tious growth plans. 20 In certain respects, Chaarat Gold is the weak- • The Krygyz Republic is predominantly a 15 est of the bunch, not least because it currently mining nation. The people there are has no revenues, and is therefore loss-making. supportive of mining activities because 10 But all of that is set to change, and change they know it brings employment to the F M A M J J A S O N D J F M A M J J A S O N D J fast. The company is aggressively expansionist, people and enhances the nation’s with the lofty ambition of acting as a consolida- wealth. tor of gold mining in the former Soviet Union, where valuations are • In the past few days, it announced a significant increase in severely depressed because investors fear the impact of possible fu- gold resource at its Tulkubash project, observing that ture American economic sanctions. As an illustration of its ambitions, back in early 2018, Chaarat “discovery costs per ounce and ounces discovered per metre drilled are outstanding and continue to validate our belief made an audacious C$2 billion (£1.18 billion) bid for the Kumtor mine, owned by the Canadian giant Centerra Gold. Bear in mind that that Tulkubash will continue to grow into a world-class gold Chaarat is only capitalised at £106m. Chaarat argued that, given the deposit.” fact that Centerra’s share were trading at only half of its NAV, this • Chaarat is run by senior, experienced mining industry execu- deal would have unlocked shareholder values for all parties – Chaar- tives with extensive experience in the Central Asia region, at, Centerra and the both on a corpo- Kyrgyz government. rate and opera- But Centerra de- tional level. clined to enter into a

dialogue with Chaarat. Risk factors: Chaarat later improved • The current its offer, even after revival in the Chaarat’s shares de- gold price may clined by 30%! reverse. How is it possible for • There are the such a small company usual caveats to propose such a big about mining transaction. Chaarat companies, argues that if the deal including envi- is attractive enough, ronmental fac- finance for leveraged tors, regulatory buyouts is not a prob- approvals, ad- lem, provided the deals verse weather, are friendly ones, not the risk of cost hostile. It seems that overruns and so Chaarat has at least on. two major sources of finance. It won’t say Summary: who they are but the You may have no- company hints that ticed that, with all the they may be from the turmoil on global mar- Middle East, including kets, the gold price is sovereign wealth on the move upwards, funds, so we’re proba- after disappointing I’m guessing you’d be hard pressed to put a pin in a map to show where Kyrgyzstan is locat- bly talking about the gold bulls for years. ed – let alone spell it correctly! So here’s a map of the region. Even then, you have to look almost bottomless pit From our point of view, closely to find it. of petrodollars. Chaar- 9 January 2018 Page 7

at is also said to have big backers in Hong Kong. tion. To illustrate its point about ease of financing for attractive deals, it By virtue of its soaring ambition to become a consolidator of gold points across the Atlantic, to where Barrick and Randgold have just mining in the former Soviet Union, and the proven ability of its man- merged, with Barrick paying 8.7 times EBITDA for Randgold. Chaarat is paying just 2 times EBITDA for Year: 2013 2014 2015 2016 2017 2018** 2019** Kapan. Future deals will probably be at a similar low Revenue (£m) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 multiple because mines in its region are much more at- Pre-tax profit (£m) (14.4) (13.6) (4.6) (4.45) (18.1) (4.78) (3.65) tractively priced. Normalised eps (p)* (0.041) (0.034) (0.017) (0.015) (0.023) (0.01) (0.009) Chaarat has identified 25-30 other targets in the former Soviet Union and is already in negotiation concerning Norm. eps growth rate (%) three deals that are likely to be consummated this year. Prospective price/earnings (p/e) ratio n/a n/a Meanwhile, Chaarat has already closed one transforma- Prospective p/e:earnings growth (PEG) ratio n/a n/a tional deal with the acquisition of Kapan, as mentioned Forecast dividend yield (%) above. At a stroke, this transforms Chaarat from a devel- *Normalised earnings per share takes into account any unusual or one-off items **Forecast opment company with no production into a large gold producer, helping it to finance its ambitions. agement to cut audacious deals to further those ambitions, this is my So there you have it. Very soon, Chaarat will bear little resemblance pick of the bunch from this issue’s four recommendations. BUY to what is now. For what it’s worth, the track record chart gives you (27.8p; yield: nil; market capitalisation: £106.3 million; initial stop- an idea of its past history – but you can completely ignore the fore- loss: 22p; EPIC: CGH; sector: Metals & mining; classification: AIM; casts since they don’t even include the impact of the Kapan acquisi- website: www.chaarat.com). ❑

HERE AT Trendwatch, everything we do is based on technical analysis (TA). TAM 2 is a combination of technical and funda- mental analysis; while TGF is pure technical analysis. I’m sure you would agree that, in both cases, TA gets results.

So would you like to learn more about TA? If so, we’d love to teach you.

Unfortunately, we can’t. We just don’t have the time or the resources.

Fortunately, we know someone who does. His name is Robert Newgrosh. Long-standing subscribers to TrendWatch may re- call that we’ve had a relationship with Robert’s company going back years. So we’re very pleased to be renewing the relation- ship.

Founded in 1993, New Skills is the UK’s leading stockmarket training company, delivering innovative, quality courses for private and professional inves- tors. The company provides comprehensive, cost-effective and cohesive training in Technical Analysis, Trading Strategy and Market Psychology. New Skills managing director Robert Newgrosh is the UK’s most experienced writer and presenter of stockmarket courses, having run more than 500 seminars. He holds a distinction from the Society of Technical Analysts. The company’s commitment to quality and value was officially acknowledged when New Skills won Shares Magazine Best UK Investor Training Company award. Robert now offers one-to-one tuition based on the award-winning seminars, and has trained many TrendWatch subscribers since 2006.

For further details, please call 0161 428 1069 or email [email protected].

(p) Beazley Group (p) Entertainment One (p) Gym Gro up 450 350 600 325 400 300 550 350 275

500 300 250 225 450 250 200 400 200 175 F M A M J J A S O N D J F M A M J J A S O N D J FM AM J J A S O N D J F M AM J J A SO N D J FM AM J J A S O N D J FM A M J J A S O N D J

(p) Group (p) A ving t rans (p) Boohoo Group 320 250 250

295 230 225 200 270 210 175 245 190 150 220 170 125 FM AM J J A S O N D J F M AM J J A SO N D J FM AM J J A S O N D J F M A M J J A S O N D J FM AM J J A S O N D J FM A M J J A S O N D J 9 January 2018 Page 8

Technical Notes Given the carnage in the markets, TAM 2 and TGF TREND DEFINITION have performed pretty well. The analytical criteria that Taking TAM 2 first, it suf- we use to identify uptrends fered a moderately severe and downtrends are tightly fall in October. Yet for the defined. Our criteria are rest of the quarter, the gain designed to filter out data since inception has hardly series which are technically changed, largely insulated in uptrend or downtrend, but by some big movements in the VIX. which are in reality only In these adverse market drifting sideways. conditions, the portfolio has Here is a full list of the worked the way that was criteria we require for a data always designed to work. series to be formally Quite a few shares got identified as an uptrend: stopped out, many crystallis- • The actual value must ing a good profit; meaning lead the 25-day moving that the portfolio became average; progressively less and less exposed to market falls. • the 25-day moving We’ve held off new equity average must lead the 65- purchases for a while now day moving average; but we expect to resume • the 25-day moving buying very soon. average must have been Meanwhile, TGF had a rising for at least 5 days; decent December initially, • the 65-day moving rising to its highest for al- average must have been most a year. Some of the rising for at least 1 day; gloss was taken off it in late December, due mainly to a reversal of energy trades. • to filter out passive If you’re not yet a Trendwatch investor and you’re looking for exceptional investment returns, please visit uptrends, the data must www.trendwatchAM.com show a rise of at least The charts accurately reflect the performance of the TAM 2 time adjustment of the multipliers on client accounts each time 2.5% on the month. master account from its inception on 1/10/2012, and TGF from a trade is placed on the master account. The effect of this will The analytical criteria for its inception on 1/10/2015.. be that, other things being equal, a profitable client account will However, even investors who invested at inception will see show a bigger NAV gain than the master account gain. a downtrend are exactly an appreciably different performance from the master account, Clients investing after this date of inception may see a very the converse of the above for two reasons. different performance profile, as with any other investment. criteria. First, the master account does not include client charges. Remember too that these are historic figures. While they give Second, the trade sizes on the master account are fixed, an indication of the skill of the investment managers, past per- Any data series not whereas the trade sizes on client accounts will grow as the formance is not a guide to future performance. conforming to either set of NAV of these accounts grow. This is achieved through a real- criteria we describe as having an indeterminate trend They are not listed. Note that it is quite normal for a data series to alternate * Anglo American 1 Anglesey Mining 26 Marshalls 15 PPHE Hotel Gp. 179 57 between determinate and * Hollywood Bowl 5 Avation 91 Ocean Wilsons 37 Raven Property 21 Zotefoams 44 * St Modwen Prop. 7 Connect Group 13 Polymetal Intl. 58 Stock Spirits 22 indeterminate trends from time to time, but not for it to jump directly from an uptrend to downtrend, or vice versa without an * Cathay Intl. -10 Babcock Intl. -119 ConvaTec -57 Goodwin -11 Kingfisher -103 Mountview Est. -98 interval of several days. * Georgia Hlthc. -10 Beazley -62 Countrywide -138 Grainger -88 LB-Shell -13 -19 The percentage figures * Lon.& Assd. Pr. -5 Bonmarche -76 Cranswick -63 Gresham Tech. -130 Lloyds Banking -164 NMC Health -66 * Moneysupermkt. -2 Boot (Henry) -29 Dail Mail 'A' -69 Gulf Marine -48 Low and Bonar -172 Norcros -25 which appear in the title box * National Grid -4 Braemar Shipp. -59 Dairy Crest -21 GVC Holdings -77 LSL Prop.Serv. -45 Nostrum Oil & G. -44 of each section represent -24 Brit Am. Tobac. -76 De La Rue -20 Gym Group -30 Luceco -31 PageGroup -63 the percentage of securities AA PLC -120 British Land -122 Devro Intl. -59 Halfords -42 Macau Prop. O. -109 Parity -74 in uptrend or downtrend AFI Develop. -218 Brown (N) -128 DFS Furniture -28 Haynes Publish. -123 Macfarlane -69 Pendragon -35 relative to all securities that Air Partner -63 Burberry -75 Dignity -37 Hays -62 Marks & Spencer -23 Photo-Me Intl. -46 we monitor in that section. Altyn -11 Caffyns -54 Diploma -30 Headlam -30 Marston's -14 -132 These figures correspond Alumasc -20 Cap. & Regional -142 -34 -13 McColl's Retail -35 Porvair -36 with the latest uptrend and Arix Bioscience -30 Capital & Count. -14 Domino's Pizza -34 -60 Medica Group -38 Premier Veterin. -25 downtrend percentages Arrow Global -69 Carnival -56 -22 Hunting -62 Mediclinic Intl. -149 Prudential -66 shown in the various ASA Intl. -19 Charles Stanley -79 Electrocompon. -63 Ind. News & Med -92 -62 PureCircle -19 TrendWatch barometers. ❑ Ashley (Laura) -64 Chemring -74 Entertain. One -20 Informa -89 Metro Bank -112 PZ Cussons -29 Assd. Brit. Foods -18 Cineworld -34 Eurocell -78 Inmarsat -62 Microgen -49 Rainbow Rare E -135 PRICE CHART KEY:

Atlas Mara -173 Circassia Phar. -131 Euromoney -24 Interserve -146 Group -23 REA Holdings -104 ———– 65-day moving Auctus Growth -39 City of Lon. Inv. -15 Exillon Energy -24 Intl. Cons.Airlines -84 Morgan Adv.Mat. -62 Realm Therap. -101 average. Aviva -125 Clipper Logistics -37 FDM Group -68 ITV -89 Morgan Sindall -87 Reckitt Benckiser -20 -29 Cobham -85 Filtronic -17 Jupiter Fund M. -118 Morrison (W) -63 Renewi -105 ———– 25-day moving B&M Eur. Val. -37 -85 Georgia Capital -13 Keller Group -64 Moss Bros. -132 Renold -27 average. 9 January 2018 Page 9

Technical notes

Ricardo -122 Sanne -75 Smith (DS) -117 Superdry -70 U and I Group -31 Wood (John) -33 OUR SHARE SELECTION River & Mercant. -40 Schroder N/V -19 Smith (WH) -32 -61 -68 Workspace -111 PROCESS Royal Mail -158 Senior -61 -20 TalkTalk Telec. -23 Vesuvius -59 Worldsec -96 RPS Group -127 Seplat Pet. Dev. -59 Sports Direct -109 Tomco Energy -29 -60 Our strategy for selecting SAGA -48 Shaftesbury -27 Stagecoach Gp. -17 Triad Group -62 Weir Group -125 the 6 shares recommended in Sainsbury (J) -67 Shefa Yamim -116 Stobart Group -55 Trifast -137 Widecells -232 each issue is systematic, easy to understand, transparent – and very effective. Our starting point is the uptrend list. Note that each * Amerisur Res. 6 * Chamberlin 9 * Phoenix Glob. R. 3 Augean 117 Frontier IP 24 SalvaRx Group 16 share in our uptrend and * Amryt Pharma 8 * Earthport 6 * San Leon Energy 2 Avacta 17 GBGI 41 Scotgold Res. 51 downtrend lists carries a * Anglo African O. 6 * Ergomed 9 * Shanta Gold 8 Brave Bison 11 Infrastrata 22 Slingsby (HC) 36 numeric suffix. This number * Arcontech 2 * Helios Underwr. 8 * SIMEC Atlantis E. 9 Cambium Global 104 OPG Power Vent. 25 Spectra Systems 49 represents the number of * Big Sofa Tech. 2 * James Halstead 6 * Synnovia 5 Cambria Automo. 12 Regal Petroleum 111 Walker Gr’nbank 32 days that the 65-day moving * Chaarat Gold 9 * Morses Club 10 Ariana Res. 23 Forbidden Tech. 104 Safestyle UK 66 average has been in uptrend or downtrend. For uptrend lists, this number is always positive. For downtrend lists, it * Accrol Group -4 Belvoir Lettings -67 Empresaria -51 John Lewis of H -116 Orosur Mining. -14 Springfield Prop. -30 is always negative. * Agriterra -5 Best of the Best -94 Energiser Inv. -17 K3 Business T. -29 Osirium Tech. -33 Statpro -115 All new uptrends (or down- * Base Resources -3 Beximco Phar. -32 Enteq Upstream -109 Karelian Diam. -34 Ovoca Bio -92 Steppe Cement -14 trends) are collected together * Begbies Trayn. -10 Bezant Res. -188 Epwin Group -15 Katoro Gold -93 Parkmead -15 Stirling Indust. -128 at the beginning of the lists, * CentralNic -10 Bilby -85 Equatorial Palm -251 Kingswood H. -47 Peel Hotels -47 Sutton Harbour -35 prefixed by an asterisk. New * Cohort -10 Boku -32 Escape Hunt -93 Koovs -105 Petrel Resources -29 Swallowfield -47 uptrends are those that have * Eckoh -6 boohoo.com -12 eServGlobal -133 Landore Res. -63 Phoenix Glob. M. -13 Symphony Env. -132 occurred since the last issue. * FFI Holdings -10 Borders & Sthn. -62 E-Therapeutics -38 Learning Tech. -32 PhotonStar LED -111 Synairgen -68 Note that the numeric suffix * Griffin Mining -3 BPC -93 Europa Metals -15 Lekoil -101 Physiomics -19 Tanfield -209 will always be 10 or less, * Hutchison China -8 Braveheart Inv. -36 Eve Sleep -26 LIDCO Group -99 Pires Invest. -15 Taptica Intl. -32 because 10 is the number of * Keystone Law -6 Brighton Pier -191 Falanx Group -23 Lighthouse -74 Plant Health C. -122 Tatton Asset M. -37 business days since the last * Lansdowne Oil -7 Brooks MacDon. -35 Falcon Oil -133 Limitless Earth -31 Plutus PowerG. -254 Tax Systems -22 issue of TrendWatch. * New Trend Life. -8 C4X Discovery -75 Faron Pharma. -41 LoopUp -99 Premier African -36 Tekmar Group -59 New uptrends are the ones * Providence Res. -9 Cadence Miner. -441 Fastjet -68 LPA Group -29 Premier Asset M. -87 Telford Homes -62 of most interest to investors * Volga Gas -8 Cambridge Cog. -109 Feedback -114 M & C Saatchi -60 Primorus Inv. -21 Telit Comm. -42 because it is desirable to get 1Spatial Holdings -31 CareTech -31 Finsbury Food -51 Maestrano -85 ProPhotonix -103 Tertiary Miner. -138 into the trend early. 4D pharma -74 Caribbean Inv. -49 Fletcher King -54 Maintel -87 Proteome Scien. -37 Thalassa Energy -36 Having identified the new 600 Group -56 CEPS -258 Franchise Brands -49 Majestic Wine -104 Provexis -71 Thor Mining -55 uptrends (those prefixed with 7digital -66 Cerillion -61 Frontier Smart T. -22 Malvern Intl. -71 QUIZ -87 Time Out -80 an asterisk), our next step is Abbey -62 Christie -104 Fulcrum Utility -29 Management R. -49 RA International -57 Tissue Regenix -115 to perform limited fundamental Active Energy -154 Churchill China -20 Galileo Res. -109 Manx Financial -93 reach4entertain. -117 Tiziana Life Sc. -32 analysis on them to classify Actual Experien. -120 City Pub Group -64 GAN -60 Mayan Energy -153 REACT Group -141 TLA Worldwide -87 them as a ‘Hit’, ‘Maybe’ or Adept Telecom -18 Clinigen -69 Gattaca -41 Medaphor -90 Real Good F’d -238 Totally -61 Adv. Medical Sol. -65 Cloudbuy -159 Genedrive -117 Mercia Tech. -27 Red Rock Res. -165 TransGlobe En. -58 ‘Miss’. We give our reasoning ADVFN -47 Collagen Sol. -43 Georgian Mining -65 Mereo BioPhar. -131 Redhall Group -127 Tribal Group -48 so that you can judge for AFH Financial -20 Columbus En.R. -122 Getech Group -100 Metal Tiger -81 RedT Energy -35 Tricorn -85 yourself whether, in your view, African Battery -88 Concepta -157 Gfinity -102 Michelmersh -48 Regency Mines -80 TT Electronics -61 our reasoning is sound. Aggreg.Micro P. -16 Concurrent Tech. -91 Global Petroleum -31 Microsaic Sys. -203 Remote Monitor. -33 Tungsten Corp. -65 Finally, we do in-depth Alexander Mining -81 Connemara M. -243 Globalworth -108 Midatech Pharma -75 ReNeuron -75 Two Shields In. -124 fundamental research on the Alien Metals -101 Cora Gold -83 Gooch & House. -31 Midwich Group -32 Restore -63 -62 shares in the ‘Hit’ list. The six All Asia Ass. C -261 CPPGroup -41 Grafenia -78 Mi-Pay Group -47 Rockfire Res. -30 ULS Tech. -160 shares that, in our view, are Allergy Therap. -86 Cradle Arc -131 GRC Intl. -93 Mirriad Advertis. -182 Rosenblatt -85 United Carpets -66 the best of the bunch become Altona Energy -95 Craneware -20 GYG -124 Mobile Streams -111 Rosslyn Data T. -18 Universe -122 our six formal share recom- Altus Strategies -178 Crimson Tide -35 Hargreaves Serv. -76 Mobile Tornado -33 SafeCharge Intl. -82 Urban Exposure -59 mendations. Amiad Water S. -31 Croma Security -21 Harwood Wealth -86 Modern Water -31 Safeland -186 ValiRx -125 As described in the previous Amino Tech. -62 Cropper (James) -76 Heath (Samuel) -72 Mountfield -40 Safestay -104 Van Elle -47 Technical Note (Trend Defini- Angle -94 CSF Group -75 Heavitree Brew. -82 MPAC Group -19 Sareum -80 Vast Resources -48 tion), the 65-day moving Angling Direct -31 DeepMatter -79 Holders Tech. -48 Mulberry -145 Savannah Res. -92 Vela Tech. -207 average is our prime moving Animalcare -34 Defenx -38 Hotel Chocolat -122 Murgitroyd Group -40 Science Group -59 Velocity Compos. -88 average. Remember that, for Anpario -61 DekelOil -187 i3 Energy -80 MyCelx Tech. -14 Science in Sport -36 Venn Life Scien. -104 a share to get into the list, all APC Technology -12 Deltex Medical -20 IDE Group -353 Mysale Group -207 Scientific Digital -59 Venture Life -25 other criteria as set out in the Arbuthnot -89 Dewhurst -60 Ideagen -23 Nektan -18 Secure Trust B. -131 Verditek -50 above Technical Note have to Arden Partners -93 Dewhurst 'A' -27 IDOX -34 Netcall -78 Seeing Machines -86 Verona Pharma -134 be satisfied. If they are not, Arena Events -30 Diurnal -78 IMImobile -59 NetScientific -234 Sensyne Health -19 Warpaint London -61 the share will disappear from Armadale Cap. -52 dotDigital -54 Immunodiag. -115 Next Fifteen -51 Share -21 Water Intelligence -61 the list. If all criteria are sub- Ascent Res. -44 DP Poland -59 Independent O. -34 Nichols -27 Shield Therap. -13 Wey Education -59 sequently satisfied and the 65 Ashley House -65 Driver -31 i-nexus Global -58 Northbridge Ind. -22 Shore Capital -34 XLMedia -159 -day MA was not affected, the ASOS -105 Eagle Eye Sol. -125 Ingenta -64 Northern Bear -19 Silence Therap. -72 Xtract Res. -249 share will reappear in the list AssetCo -87 easyHotel -120 Inspiration H’lth. -12 Numis Corp. -73 SimiGon -37 YouGov -67 as a mature (non-asterisked) Avingtrans -21 Eco (Atlantic) O. -17 Inspired Energy -47 Octagonal -85 SkinBioTherap. -49 Young & Co 'A' -59 trend. If the setback was such Bacanora Lith. -138 Eco Animal H’lth -31 Instem Life Sci. -46 Omega Diagnost. -22 Smart Metering -125 Yu Group -67 that the 65-day MA suffered a Bagir Group -31 ECSC Group -28 iomart -37 One Media iP -92 Smartspace Soft. -64 Zytronic -62 reversal, the recovery will see Bailey (C H) -94 Eddie Stobart L. -119 IronRidge Res. -35 OnTheMarket -85 Solid State -19 the share reappearing in the Bango -70 Eight Peaks -111 Jadestone En. -19 Oracle Coalf’lds -289 Spaceandpeop. -125 list as a new (asterisked) Baron Oil -43 Elecosoft -61 Jangada Mines -92 Origo Partners -23 Spitfire Oil -35 trend. ❑ 9 January 2018 Page 10

Technical notes

BENCHMARKING DB Physical Gold ETC ($) 37 ETFS Physical Gold (£) 35 ETFS Physical Silver 21 Accurate monitoring of our DB X-trackers DJ Euro STOXX 50 Short 64 ETFS Physical Gold 37 ETFS Precious Metals DJ-AIGCI 35 DB X-trackers S&P 500 Short 34 ETFS Physical Palladium 76 ETFS Short Crude 44 investment performance is of DB X-trackers ShortDAX 64 ETFS Phys. Precious Metals Basket (£) 58 ETFS Silver 21 critical importance, both for ETFS Gold (£) 34 ETFS Physical precious metals basket 58 iShares US Treasury 10yr Term 19 you and for us. It is not ETFS Gold 42 ETFS Physical Silver (£) 22 Lyxor Gold Bullion GBP 35 enough to simply monitor the profit (or loss) on our selec- tions. You are entitled to know how we have done relative to the market as a whole. It is no use us boast- ing of a 20% profit if the mar- * ETFS Coffee -9 ETFS DAX 2x Long Fund € -66 iShares FTSE 250 -90 ket as a whole has risen * ETFS Copper -10 ETFS Energy -30 iShares FTSE Eurofirst 80 -64 DB X-track. DJ Euro STOXX 50 Ind. (£) -64 ETFS Heating Oil -32 iShares FTSEEurofirst 100 -64 30%. DB X-tr. DJ Euro STOXX Select Div. 30 -68 ETFS Industrial Metals -53 iShares MSCI Em. Markets Islamic ($) -62 We therefore monitor each DB X-tr. DJ STOXX Glob. Sel. Div 100 -62 ETFS Oil Brent -34 iShares MSCI Europe -63 of our recommendations DB X-trackers EURO STOXX 50 1C -64 ETFS Petroleum -47 iShares MSCI Europe ex-UK -62 against a benchmark index. DB X-trackers FTSE 250 -88 ETFS Short Gold -37 iShares MSCI Japan -59 Ours is the FT All-share In- DB X-trackers FTSE Vietnam $ -55 ETFS West Texas -47 iShares MSCI Japan SmallCap $ -62 dex (exc. investment compa- DB X-trackers LPX@ MM Private Eq. -62 ETFS WTI 1 Year Future -34 iShares MSCI Japan SmallCap £ -62 nies). DB X-trackers MSCI Europe -62 ETFS WTI 2 month (£) -47 iShares MSCI North America -59 Whenever we recommend DB X-trackers MSCI Japan -59 ETFS WTI 2 Year Future -33 iShares MSCI USA Islamic ($) -34 a share, we record the value DB X-trackers MSCI USA -60 ETFS WTI 3 Year Future -30 iShares MSCI USA Islamic (£) -51 of this index as at the date DB X-trackers S&P/ASX 20 -64 iShares AEX -62 iShares MSCI World -59 the share was bought. When DB X-tr. STOXX Europe 600 H’lth Care -61 iShares Dividend UCITS ETF -113 iShares MSCI World Islamic ($) -59 we do a valuation or when ETFS All Commodities (£) -11 iShares DJ Euro STOXX Growth -62 iShares MSCI World Islamic (£) -59 we sell a share, we record ETFS All Commods. DJ-AIGCI -45 iShares DJ Euro STOXX MidCap -63 iShares S&P 500 -59 the latest value of the index. ETFS Aluminium -51 iShares DJ Euro STOXX Select Div. -64 iShares S&P Global Water -59 We then add the percentage ETFS Brent 1 month (£) -42 iShares DJ Euro STOXX Small Cap -62 iShares S&P Listed Private Equity -60 change in the index to the ETFS Brent 1 year future -34 iShares DJ Euro STOXX Value -64 iShares S&P SmallCap 600 $ -62 cost of buying the share. This ETFS Cotton -95 iShares DJ STOXX 50 -64 iShares S&P SmallCap 600 £ -62 tells us how much our invest- ETFS Crude Oil -47 iShares FTSE 100 -103 ment would have grown had we invested in a market tracker fund rather than in the actual share – the market gain/loss. * Conygar Inv. 9 Aberdeen New India IT 12 Alpha Real Trust 67 Oxford Technology 3 VCT 262 To determine how much * Hygea VCT 10 Albion Tech. & General VCT 70 JPMorgan Brazil IT 30 we have outperformed (or * Murray Intl. Trust 1 Albion VCT 45 JPMorgan Indian 13 under-performed) the market, it is tempting to subtract the tracker gain from the actual gain – but this is mathemati- cally flawed. The industry- standard formula for outper- * Geiger Counter -10 City Nat.Res.High Yield -117 JPMF Smaller Companies -66 Polar Cap. Glob. Financials -62 formance / underperfor- * GLI Finance -10 CVC Cr. Ptnrs. Eur. Opp. € -55 JPMorgan US Smaller Cos. -53 Premier Global Infrastruct. -109 mance is: Aberdeen Japan IT -61 Diverse Income Trust -65 JPMorgan Elect Mgd. Grth. -62 Princess Private Equity -35 ((100 + actual gain) / (100+ Aberdeen Smaller Cos.Inc. -113 Edinburgh Worldwide -62 JPMorgan Elect Mgd. Inc. -105 PRS REIT -74 tracker gain) x 100 – 100 Aberforth Smaller Co's IT -117 Electra Private Equity -93 JPMorgan Eur. Smaller Cos. -64 RDI REIT -29 If we sell a share at a prof- Acorn Income -109 Empiric Student Property -35 JPMorgan Glob. Grth. & Inc. -62 Real Estate Inv. -40 it, but the tracker index for Africa Opportunity Fund -132 EP Global Opportunities -61 Jupiter European Opport. -60 Rights & Issues IT Inc. -61 that share shows an even -62 European IT -65 Jupiter Green IT -79 Riverstone Energy -34 bigger rise, we record it as a Amati AIM VCT -61 F & C Commercial Property -79 Jupiter UK Growth IT -89 Ruffer Investment Co. -64 loss against the market. If we Artemis AIM VCT 2 -65 F&C Investment Trust -62 Jupiter US Smaller Cos. -60 Schroder Income & Growth -65 sell a share at a loss in a Artemis Alpha -101 Fidelity Japan Trust -59 K&C REIT -87 Schroder Japan Growth -51 rising market, we record it as Ashmore Global Opport. £ -83 Fidelity Special Value Trust -62 Corp. -63 Scottish IT -65 an even bigger loss against Aurora IT -63 Gabelli Value Plus+ Trust -59 Local Shopping Reit -18 Secure Property Dev. & Inv. -36 Baillie Gif. Shiin Nip. -59 Global Resources Inv.Trust -180 LXB Retail Properties -114 Securities Trust of Scot. -62 the market. ❑ Baillie Gifford Japan -59 Gresham House IT -15 Majedie Investments -72 Standard Life Private Equity -11 Bankers' Trust -62 Gresham House Strategic -61 Martin Currie Portfolio -61 Standard Life UK Smlr. Cos. -64 Baronsmead VCT 3 -84 Hargreave Hale AIM VCT 1 -62 Marwyn Value -87 SVM UK Emerging Fund -17 Blackrock N. American Inc. -31 Henderson Alt. Strategies -66 Mid Wynd Int. Inv. -60 Town Centre Securities -113 Blue Planet Euro. Fin. -118 Henderson European Focus -63 Monks IT -65 TR European Growth -134 BMO Capital & Income -103 Henderson Eurotrust -64 Montanaro Eur. Smaller Cos -60 TR Property Investments -81 BMO Global Smaller Cos. -62 Henderson High Income IT -104 Montanaro UK Smlr. Cos. -118 Troy Income & Growth -66 BMO Mgd. Portfolio Growth -60 -32 NewRiver Retail -149 Twentyfour Income Fund -38 BMO Mgd. Portfolio Income -61 Highbridge Multi-Strategy -75 North American Income -20 Unicorn AIM -93 Brit. Empire Secs. & Gen. -62 ICG Enterprise Trust -61 North Atlantic Sm. Cos. -51 Value & Income Trust -21 Brunner IT -66 Impax Env. Mkts. -52 Oakley Capital Investments -59 Witan IT -63 Canadian General Inv. -59 JPMF American -44 -24 Witan Pacific -112 Catco Reinsurance Opps. -56 JPMF Japanese IT -62 Pershing Square Holdings -59 Worldwide Healthcare Trust -60 Chelverton Growth Trust -157 JPMF Jap. Smaller Cos. -62 Polar Cap.Glob.H’lthc.G.& I. -18 9 January 2018 Page 11

AND SO we bid a not-so-fond farewell to 2018 – good riddance. Stop-loss sales during 2018 Actually, we closed the year with a bit of a flourish. Date Date Buy price Sell price Gain/ loss Mkt. gain/ Out-perf. Eight shares got stopped out as carnage swept through Share global markets. But the net result was a healthy profit bought sold (p) (p) (%) loss (%) (%) * of 44.3% as shown in the table, hugely outperforming Sales previously reported in Jan.- Nov. (109 shares): 17.01 0.10 16.89 the market by 50%. This was largely thanks to a mas- Sales since last issue: sive 385% gain from insurance underwriter Beazley Avingtrans 19/07/18 21/12/18 223.50 179.50 -19.69 -13.39 -7.27 Group, which has been in the portfolio since February 2009. Sadly, our standardised price chart on page 7 Beazley Group 04/02/09 19/12/18 103.90 505.00 386.04 38.29 251.46 only shows the last two years of this remarkable perfor- Boohoo Group 12/10/18 18/12/18 219.90 163.05 -25.85 -4.96 -21.98 mance. Cineworld 24/05/18 27/12/18 263.00 249.00 -5.32 -15.64 12.23 As you know, we try to identify any specific reason for Elecosoft 13/09/18 07/01/19 81.00 67.50 -16.67 -7.36 -10.05 the triggering of a stop. In most cases, the cause was Entertainment One 14/09/17 07/12/18 260.50 348.80 33.90 -7.65 44.99 simply the market mayhem – except in the case of the Gym Group 16/08/17 07/12/18 210.00 259.60 23.62 -8.79 35.54 two shares in the table below. Inspired Energy 01/02/18 05/12/18 21.25 16.65 -21.65 -11.06 -11.91 Share sale Reason

Beazley Group Initial estimates of the cost of claims Averaged gain / loss (%): 44.30 -3.82 50.03 arising from the 2018 Californian Percentage profit on most recent sales: 44.30% wildfires is $40m (net of reinsurance) Percentage market gain (tracker fund): -3.82% Entertainment One Lacklustre full-year results. Trendwatch has outperformed market by: 50.03% * You can see more charts of shares that breached their stops on page 7. I can now give you our final results for 2018, the * See 'Benchmarking' note [panel, right] to see how this figure is calculated. latest in a series of difficult years, especially those fol- lowing the 2016 Brexit vote. Our performance is benchmarked Note that these are not true annualised gains. Some of the shares against the FTSE All Share index. were in the portfolio for a lot longer than a year. But then again, out of the 115 shares that were sold in 2018, 57 of them (almost exactly CURRENT PORTFOLIO (see page 2) half) were both bought and sold in 2018, and were thus held for a PROFIT as at 4 January 2019: +9.4% Market outperformance: +16.6% lot less time than a year. In our experience, most people are not much interested in annu- SHARES SOLD between 1 Jan. and 31 Dec. 2018 alised figures. They just want to know how much profit they made PROFIT: +19.3% in the year, which is not quite the same thing. Market outperformance: +19.4% Whatever… I think you’ll agree we did pretty well under the diffi- cult circumstances. And now we’re poised to do it all over again. ❑

Date Date Date Date Rank Share % gain Rank Share % gain bought sold bought sold 1 Keywords Studios 06/02/14 - 1,185.4 11 Trafficmaster 12/11/98 05/04/00 407.8 2 ARM Holdings 04/02/99 24/03/00 937.5 12 Psion 21/01/99 31/03/00 394.0 3 Amstrad 25/11/98 31/03/00 879.5 13 Frontier Developments 13/10/16 15/09/17 383.9 4 boohoo.com 20/08/15 01/10/17 642.1 14 Axon Group 22/07/99 06/04/00 349.0 6 Flomerics 20/08/98 18/04/00 489.3 16 easyJet 09/06/11 16/06/14 308.0 7 West China Cement 05/03/09 21/05/10 473.3 17 NMC Health 10/12/15 - 306.8 8 Tanfield 11/05/06 15/08/07 468.6 18 Peter Hambro Mining 03/01/03 10/05/04 302.0 9 Beazley Group 04/02/09 - 451.5 19 Adv'd Computer Software 11/10/10 27/03/15 295.8 10 Alphameric 22/07/99 17/03/00 422.2 20 Burren Energy 01/04/04 18/05/06 294.9 THIS TABLE shows our all-time biggest gainers since TrendWatchwas published. IN THE NEXT ISSUE we'll show our best performers over the past 12 months, including shares still in

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