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VOL 19 / ISSUE 27 / 13 JULY 2017 / £4.49 SHARES WE MAKE INVESTING EASIER

TIME TO BUY THE BANKS? Why the market is taking a fresh look at Lloyds, HSBC and more KRAFT TO MAKE ANOTHER BID FOR UNILEVER?

WHAT TO EXPECT IN YOUR INVESTORS SWOOP TO FIRST YEAR OF INVESTING SUPPORT UK TECH SPACE

TEN YEARS SINCE THE CREDIT CRUNCH MARKET SELL-OFF EDITOR’S VIEW Ten years since the credit crunch market sell-off Lessons learned from the stock market crash in 2007/2008

uch has been written of authorities stepped in to help American late about investor-related lenders, Fannie Mae and Freddie Mac. M anniversaries. It’s been just Soon after Lehman Brothers filed for over a year since the Brexit vote- bankruptcy protection. The rest is history. induced stock market crash (24 June Investors lost a considerable amount 2016) and 5 July 2017 marked 10 years of money in 2007 and 2008 amid a sharp since UK interest rates last went up. decline in the value of shares, funds The one event that doesn’t seem to and even property. But what’s often not have got as much attention is the 10 year remembered is the rapid pace at which anniversary of the global financial crisis- markets rebounded. led stock market crash. Many people Most markets were in an upwards think the global financial crisis was a 2008 event, yet trend by early 2009, which is a fairly swift change the cracks were very obvious the year before. in fortunes given the severity of the global financial The stock market is inherently forward looking crisis. Many people at time would have no doubt in nature and pointed to major problems when it assumed the markets would stay depressed for started to fall in the summer of 2007. In July and numerous years. August that year banks began to stop lending to each other due to market fears regarding exposure HOW DID THE MARKETS PERFORM? to potential losses on high-risk US mortgages. The FTSE All-Share fell by 45% in value between Admittedly, I’m about a month too late to mark 15 June 2007 and 21 November 2008, according to the anniversary of the FTSE All-Share beginning its our calculations using data from Thomson Reuters. rapid descent (the market peak was 15 June 2007). The index subsequently increased by two thirds in However, the US markets didn’t start to tumble value over the two-and-a-half years to April 2011. until October 2007. The index saw a 17% pullback in the four months to 19 August 2011 and then began a lengthy NORTHERN ROCK WAS A TURNING POINT bull run, peaking at 4,130.15 on 26 May 2017 – In the UK, Northern Rock’s collapse was considered representing a 58% gain over that six year period. one of the key events that signalled major The US stock markets started and finished their problems with the banking sector. Customers raced global financial crisis-related decline later than the to withdraw cash from the bank in September 2007 UK. For example, the S&P 500 index fell by 56% from in fear the bank was about to collapse. its peak on 8 October 2007 to a low on 9 March In February 2008 the Government said it would 2009. It then started a major recovery rally and now nationalise Northern Rock. By July 2008, financial trades more than three-and-a-half times higher. FTSE ALL SHARE Investors who had the confidence to keep S&P 500 COMPOSITE putting money in the stock markets during the 6000 Rebased to first 5500 tougher times between 2007 and 2009 would have 5000 been rewarded for their actions, thanks to the 4500 4000 rapid market rebound. 3500 The speed of the market recovery ultimately 3000 underlines the importance of drip feeding money 2500 2000 into the markets in both good and bad times in 1500 Source: Thomson Reuters Datastream 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 order to remain constantly invested. (DC)

2 | SHARES | 13 July 2017 BROADER EXPERTISE BRIGHTER INVESTMENT IDEAS

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The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Issued in the UK by Janus Henderson Investors. Janus Henderson Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), Gartmore Investment Limited (reg. no. 1508030), (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE) are authorised and regulated by the Financial Conduct Authority to provide investment products and services. Contents INTERACTIVE PAGES CLICK ON PAGE NUMBERS TO JUMP 13 July 2017 TO THE RELEVANT STORY

EDITOR’S VIEW 02 Ten years since the credit crunch market sell-off

BIG NEWS 06 Investors swoop GREAT IDEAS to support UK 12 Housebuilders’ tech space strength is good for services firm Nexus BIG NEWS 07 Kraft to make another GREAT IDEAS bid for Unilever? 13 Time to pounce on Cairn while the shares BIG NEWS are cheap 07 Best UK picks for cloudy outlook GREAT IDEAS UPDATES 14 We update our view on UDG Healthcare

10 WEAK AHEAD 18 16 Financial results and ex-dividends over BIG NEWS the coming week 08 Can GoCompare’s momentum continue? TALKING POINT 18 Global noose loosens STORY IN NUMBERS on capital spending 10 Surge in the price of butter, Australia’s MONEY MATTERS commodity earnings 20 The auto-enrolment blow and other pension savings gap stories in numbers

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 | 13 July 2017 Contents

MAIN FEATURE 29 Time to buy 29 the banks?

LARGER COMPANIES 36 Equiniti is an essential portfolio pick

SMALLER COMPANIES 38 Strong trading at EKF triggers earnings upgrades

SMALLER COMPANIES 39 Applegreen sips on Brandi acquisition

MR MARKET 40 How to spot the best opportunities with unlisted companies MONEY MATTERS 22 Investing in funds: FEATURE what’s the difference 24 41 What to expect between a unit trust in your first year and OEIC? of investing

INVESTMENT TRUSTS INDEX 24 Staying focused amid 44 Index of companies, market noise is key to funds and investment Bankers’ success trusts in this issue

FUNDS 26 Does a fund need more than one person to run it?

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: JUNIOR REPORTER: CONTRIBUTERS Green means buy, Orange means hold, Red means sell. INVESTMENT TRUSTS David Stevenson Lisa-Marie Janes Emily Perryman EDITOR: @SharesMagDavid @SharesMagLisaMJ Tom Selby James Crux Holly Black The numbers refer to how many different brokers have @SharesMagJames that rating.

PRODUCTION ADVERTISING MANAGING DIRECTOR Eg: 4 2 1 means four brokers have buy ratings, Head of Design Senior Sales Executive Mike Boydell Rebecca Bodi Nick Frankland two brokers have hold ratings and one broker has a sell 020 7378 4592 rating. Designer [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.

13 July 2017 | SHARES | 5 BIG NEWS Investors swoop to support UK tech space Firm backing for growth funding and acquisitions

K-quoted US-based spend Market indices average of 22.6% technology management during the period to 5 July. Ubusinesses £500m solutions provider This relative success for are seeing sustained raised by UK Perfect Commerce. technology markets may come popularity with ‘The sizeable and as a surprise given the political investors willing to tech firms in oversubscribed shocks during the past 12 back several fresh 2017 placing to fund months or so. These include funding rounds Proactis’ deal the UK’s decision to leave the designed to bolster supports improving EU, Donald Trump’s presidential growth. sentiment within the capital victory and Theresa May’s This positive market markets,’ says Rob Warensjo, surprise general election result. sentiment towards the an analyst at IT consultant Notably, that is also ‘robustly sector is being backed up by Megabuyte. ahead of the 22% average return positive share price returns, These cash call figures do of the Nasdaq Composite and with UK technology indices not include the 1 June IPO the S&P 500,’ reveals Stockdale outperforming wider stock of Alfa Financial (ALFA), the Securities technology analyst market equivalents over the asset management software Brendan D’Souza. past three and 12 month supplier that raised ‘In our opinion, no periods. no new money. technology sector So far in 2017 about £54.5m It floated with a 34.6% performance is of new cash has been raised £975m market cap, average 12 complete without from investors through initial a valuation that month return comparing it to the public offerings (IPOs), according has since soared to for UK tech happenings in the to London Stock Exchange data. close on £1.4bn. US market,’ states But nearly £500m of fresh indices D’Souza. funding has been found to back IMPRESSIVE Acording to the acquisitions through secondary PERFORMANCE analyst’s data, the technology- share placings, including the Over the past 12 months the heavy Nasdaq Composite and £70m raised on 7 July by digital UK tech indices averaged a the S&P 500 posted an average buying platform business 34.6% return, according to return of 11.5% since the start of Proactis (PHD:AIM) to pay for data supplied by FactSet. That 2017, outperforming the UK tech its rough £99m merger with is solidly ahead of the UK Main indices’ average of 10%. (SF) uk tech versus the rest INDEX YEAR TO DATE* §§ 1 YEAR UK tech indices average 10.0% 34.6% UK Main Market indices average 7.4% 22.6% Nasdaq Composite and S&P 500 average 11.5% 22.0% Source: Factset, Stockdale Securities *Data to 5 July 2017

6 | SHARES | 13 July 2017 BIGBIG NEWSNEWS Kraft to make another bid for Unilever? Analyst sees 75% chance or higher of a new approach from August onwards

S consumer goods giant Kraft subsequently revealed a shift in Heinz could make another Unilever strategy involving cost cutting, share takeover bid for Anglo-Dutch buybacks and fresh acquisition activity U could rival Unilever (ULVR) very soon, of its own. according to a US analyst. command a These actions, combined with a UK takeover rules prevent Kraft $200bn price tailwind from the weaker pound, from tabling a new offer until mid- tag have helped lift Unilever’s share price August, being a six month window above £40. since its previous $143bn bid. Zuanic believes Unilever would now Pablo Zuanic, an analyst at trading firm cost close to $200bn to buy given the increase Susquehanna, thinks a hostile takeover approach in its share price and the likely need for a 20% from Kraft Heinz is more than 75% likely to premium to entice shareholders to sell. happen. He notes the company has made no ‘A 20% premium to the current Unilever share moves on M&A since its aborted pursuit of price would imply around 50% gains year-to-date Unilever, implying that the FTSE 100 member for Unilever shareholders (i.e., we think they remains its prime aquisition target. would fold),’ he adds. Unilever successfully brushed off Kraft’s Zuanic thinks the deal could be partially funded previous offer in February 2017. It has by Kraft selling some of its own assets. (TS)

In this context, its team of Best UK picks for cloudy outlook analysts reckon internationally exposed sectors such as UBS reveals investment suggestions for more pharmaceuticals and telecoms difficult times are best placed to prosper. Despite this preference for n what do you UBS cautions ‘macro overseas exposure, UBS sees invest when More momentum, earnings the weaker economic picture Ithe economic downgrades momentum as being priced in to certain outlook is weak? than upgrades and, arguably, domestic stocks. Investment bank to UK the political The bank’s favoured FTSE UBS thinks it has backdrop are 100 names include Burberry the answer. companies’ all deteriorating (BRBY), Lloyds (LLOY), Royal The UK earnings in relative to Europe’. Dutch Shell (RDSB), Vodafone economic picture June It also notes (VOD) and WPP (WPP). is becoming more earnings momentum Its least favoured FTSE 100 uncertain with business turned negative in June stocks are InterContinental output falling to a four-year with UK companies now seeing Hotels (IHG), Johnson Matthey low, according to the latest BDO more earnings downgrades than (JMAT), Legal & General Output Index (10 Jul). upgrades. (LGEN) and Sage (SGE). (TS)

13 July 2017 | SHARES | 7 BIG NEWS Can Gocompare’s momentum continue? Comparison site looking for balance between revenue growth and margin

omparison site although that had positive Gocompare.com (GOCO) is implications for profitability with C enjoying a strong start to life Shares up operating profit up 22% year-on- as a public company after being 77% since we year. In response Canaccord Genuity spun out of insurance firm Esure has upped its 2017 earnings per (ESUR) in November 2016. said to buy share forecast by 10% to 6.4p. An 11 July 2017 trading update eight months signals a robust first half, with ago GETTING THE BALANCE RIGHT stronger-than-expected margin Canaccord analyst Simon Davies, performance driving earnings who has a ‘hold’ recommendation upgrades and pushing the shares to on the stock, says: ‘The challenge a new high of 110p. is getting the right balance between revenue We highlighted an opportunity to buy the growth and margin, and while it is encouraging shares in our Great Ideas section shortly after its that earnings forecasts are going up, there must be demerger when they slipped from an initial price of modest concerns at the delivery of just 4% revenue 76p to 62p (24 Nov 2016). growth at a time when insurance premiums are We noted at the time the company traded rising rapidly, which should drive switching activity at a very substantial discount to its peer (and Gocompare generates 92% of its revenue Moneysupermarket.com (MONY) but that is from insurance).’ no longer the case. Gocompare now trades The company is moving beyond its core focus. on 18.1 times 2017 forecast earnings against In June, it acquired a minority stake in digital Moneysupermarket on 20 times. mortgage robo adviser Mortgage Gym. The first half numbers will be published in full on 1 August. LOWER QUALITY EARNINGS GOCOMPARE COM Comparison sites typically operate across FTSE ALL SHARE - PRICE INDEX several ‘verticals’ like insurance, utilities and financial products. 110 Rebased to first Gocompare is heavily concentrated in a highly 100 competitive insurance vertical. Its earnings 90 are therefore lower quality than those of 80 Moneysupermarket’s which has a more even 70 spread across different verticals. 60

50 Source: Thomson Reuters Datastream Investors therefore need to be very confident in NOV DEC JAN FEB MAR APR MAY JUN its growth potential in order to continue holding the shares. SHARES SAYS:  Revenue in the first six months of the year We think it could be prudent to book some profit actually came in south of expectations, up just 4% ahead of the interim results as the shares now look year-on-year at £75.8m and short of the high single fully valued. Sell at 110p. (TS) digit growth guidance for 2017 as a whole. This reflected reduced marketing expenditure, BROKER SAYS 3 1 1

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ODD SHARE PRICE ACTIVITY AHEAD OF 14.1% 19% UK TAKEOVERS IN 2016 SURGE IN BUTTER UNUSUAL SHARE PRICE trades were found to have happened on the PRICE POINTS TO eve of 19% of all takeover announcements for UK-listed companies in 2016, according to the Financial Conduct Authority (FCA). LOOMING SUPPLY It says the activity does not necessarily show the level of insider SHORTAGE trading, which is when someone buys or sells on the back of information that has yet to become public knowledge. THE PRICE OF butter rocketed The FCA says other factors could trigger unusual share price by 14.1% in June, according trades including comment from analysts or the media correctly to the Food & Agriculture assessing companies which are likely takeover targets. Organization of the United Nations (FAO). Cheese and skim milk power prices also rose by significant amount. Australia cuts export earnings The spike has been forecast by A$13bn attributed by the FAO to limited export availability of AUSTRALIA HAS SLASHED Overall resource and energy dairy products in all major A$13bn from its expected export earnings have been producing countries. export earnings in the current revised down by 6% to A$202bn In an interview with the BBC, fiscal year as a result of lower for the 2017/2018 fiscal year. dairy group Arla believes the commodity prices. Approximately Expected earnings are even lower UK could face a butter and half of this downgrade is down for the following year at A$200bn. cream shortage this Christmas. to iron ore where the country All the figures have come from has reduced its forecast export Australia’s Department of earnings by A$7.2bn to Industry, Science and $65bn. Innovation.

BRAND ARCHITEKTS 25% DOES THE BUSINESS This has materially boosted ‘was double the level we the shave products-to-eye assumed when the deal THIS IS THE stellar year-on- pencils play’s owned brand was announced’ and year growth generated by portfolio. In a positive note included a strong second Brand Architekts, the beauty elaborating on Swallowfield’s half performance in the and personal care outfit strong full year update (6 face of tough comparatives acquired by Swallowfield Jul), N+1 Singer’s Matthew and a difficult retail (SWL:AIM) in June 2016. McEachran says this growth backdrop.

10 | SHARES | 13 July 2017 STORY IN NUMBERS

3,142% SOARING£500M DEMAND FOR GAIN MADE ON DOMINO’S CYBER COVERAGE QUICK EATS CHAIN Domino’s Pizza (DOM) has FIGHTING OFF HACKING attacks like the been a stunning success for investors over the recent WannaCry ransomware raid that shut years, returning 3,142% on its original IPO. That down parts of the NHS is leading to a boom took place in late 1999, in the middle of the in cyber insurance. Paul Bantick, who leads a dotcom boom, at 50p per share. That equates to specialist team at Lloyd’s of London underwriter 8.38p today, once you adjust for share splits. A Beazley (BEZ), reckons it is one of the industry’s mere £500 stake invested in the IPO would now fastest-growing segments, worth £500m of be worth £16,210, enough to buy you a 12-inch premiums income to 65 Lloyd’s syndicates. American Hot pizza (£16.99) every night for the Forecasts predict massive growth going next 2.6 years. forward, with global gross premiums of $2.5bn in 2015 expected to more than double by 2020 to $5.25bn.

BEST PERFORMING ENGINEERS WORST PERFORMING ENGINEERS ON UK STOCK MARKET IN PAST YEAR ON UK STOCK MARKET IN PAST YEAR Company Share price gain Company Share price loss/gain Molins 143% Associated British Engineering -63% Chamberlin 136% HC Slingsby -62% Tricorn 125% Hayward Tyler -44% Modern Water 113% Amiad Water Systems -22% Fenner 107% Goodwin -18% Vitec 102% Pressure Technologies 1% Somero Enterprises 88% Castings 7% 600 Group 86% Rotork 11% Xeros Technology 82% Braime 16% MayAir 76% Bailey 18% Source: SharePad. Data to 10 July 2017 Source: SharePad. Data to 10 July 2017

13 July 2017 | SHARES | 11 GREAT IDEAS Housebuilders’ strength is good for service firm Nexus Roads, drains and utility connections firm has robust growth and 4.5% yield

resilient housebuilding introducing new services such as market bodes well for XXXXNEXUS  BUY it has recently done with electric engineering services INFRASTRUCTURE(xxx) xxxp vehicle charging points. He adds Agroup Nexus Infrastructure Stop BUY loss: xxp that Nexus is well advanced with (NEXS:AIM) which counts Market(NEXS:AIM) value: 191.5p xxx trying to make an acquisition on Countryside Properties (CSP), Stop loss: 130p the utilities side. Taylor Wimpey (TW.) and CF Livingbridge UK Micro Cap Redrow (RDW) as customers. Market value: £72m (GB00B55S9X98) is among the Nexus owns Tamdown investment funds to have taken which builds roads, undertakes a stake in Nexus at the IPO. Its earthworks, creates drainage fund manager Ken Wotton says systems and constructs the utilities connection arm is reinforced concrete frames the exciting bit of Nexus. ‘It has for housebuilders, mostly in better quality earnings than the south east of England and the infrastructure services London. division and the customers and routes to market are quite FAST GROWING BUSINESS similar,’ he says. It also has a fast-growing utilities business called TriConnex which HITTING ITS DEADLINES designs, installs and connects ‘The utilities services industry is gas, electricity, water and fibre very bad at doing stuff on time, networks on residential and so one of Nexus’ selling points commercial developments. is that it is good at completing Nexus is profitable and connections to deadlines. That’s pays dividends with a yield very attractive if you’re a property in the region of 4.5%. It gets developer,’ adds Wotton. paid monthly by Tamdown (initial public offering); instead, Investors should be aware of clients and most payments for directors and staff sold £35m some risks to the investment TriConnex are made before worth of shares to provide case. It is reliant on a small the commencement of work, liquidity in the market. number of clients. Its top 10 so it has low working capital The majority of these shares clients accounted for 75% of requirements. were owned by chief executive revenue in 2016. Nexus’ fortunes Tamdown made an Mike Morris and director Keith are heavily tied to the housing 8.4% operating profit margin Breen who still hold a combined market. Furthermore, it operates in the year to 30 September 43.1% stake. They have promised in a competitive market. 2016 versus 12.1% margin at not to sell any more shares for at That said; its contract win rate TriConnex over the same period. least one year. is very impressive. Tamdown Nexus is new to the stock Morris says earnings won one out of every 2.1 market, having only floated growth will come from Nexus contract bids in 2016; TriConnex on AIM on 10 July. No new winning more work, expanding won one in every 3.4 bids in the money was raised at the IPO geographical coverage and same year. (DC)

12 | SHARES | 13 July 2017 GREAT IDEAS Time to pounce on Cairn while the shares are cheap The oil producer is chasing barrels in Senegal and the North Sea

combination of lower oil resource volumes’ from Senegal prices and a rumbling CAIRN ENERGY  BUY when the company reports its tax dispute in India have (CNE) 167.9p first half results on 21 August. A Stop loss: 134.3p conspired to drag Cairn Energy The company was sitting on (CNE) to 52-week lows. We think Market value: £995m net cash of $254m at the last this represents an opportunity to count although it would need to buy the shares at a cheap price. use debt to bring its Senegalese The £995m cap continues to discoveries on stream. make progress offshore Senegal Macquarie thinks the company and production is ramping up at may look to sell some of its its two key UK projects. interest ahead of development. The wider exploration and production (E&P) sector has NORTH SEA DEVELOPMENTS been hard hit by the fall in oil Much closer to home, the Kraken prices which currently sit below heavy oil field in the North Sea $50 per barrel, having traded delivered first oil in June 2017 comfortably above this threshold and should yield 15,000 barrels in the first quarter of 2017. of oil per day (bopd) net to Cairn Although we are not confident when it hits peak output of in forecasting the future 50,000 bopd. direction of oil prices in the The Catcher development, short term, we think the market which will eventually deliver has priced in a scenario where net production to the company prices remain depressed for an of 10,000 bopd, is expected indefinite period. to commence production in Equally the share price has December 2017. been discounted for an Indian Price targets of 270p from tax dispute which has effectively Macquarie and 275p from seen Cairn’s assets in the country will be commercial to develop Canaccord Genuity imply frozen since 2014. Cairn is alongside a discovery made upside of 60.1% and 63.7% seeking $1bn in damages from 30 kilometres away at the initial respectively. (TS) an arbitration case and expects FAN well in 2014. a judgement in January 2018. The Stena DrillMAX drill ship BROKER SAYS: 17 6 1 is next set to drill the SNE North CAIRN ENERGY SENEGAL SUCCESS STORY exploration prospect targeting FTSE ALL SHARE 250 Rebased to first Cairn announced on 11 July that 80m barrels of oil equivalent. 240 230 the latest well to be drilled off The joint venture in Senegal, in 220 Senegal, FAN South-1, struck oil which Cairn has a 40% working 210 after being completed ahead of interest, has now drilled 10 200 190 schedule and under budget. wells in three years. Analysts at 180 170

The company will now do investment bank Macquarie say Source: Thomson Reuters Datastream 160 further work to determine if it they are ‘hopeful for an uplift to 2016 2017

13 July 2017 | SHARES | 13 GREAT IDEAS UPDATES

UDG HEALTHCARE (UDG) 835p

Gain to date: 45% Original entry point: Buy at 575p, 28 July 2016 HEALTHCARE SERVICES PROVIDER UDG Healthcare (UDG) plans to take advantage of the fragmented healthcare communications sector. emerging trends and pursue further acquisitions In October 2016, the firm acquired STEM in higher margin services to boost growth. Marketing for £84m (€94.8m) to help Chief financial officer Alan Ralph anticipates pharmaceutical companies communicate the strong organic growth, particularly in the Sharp benefits of their drugs for clinical trials. packaging division which is benefiting from good This week (12 July 2017) UDG announced demand in the US for serialisation services. the acquisition of US management consultant Shares in the firm have rallied by 25% this year Vynamic in a deal worth up to $32m. and by 45% since we said to buy just under a year Liberum analyst Graham Doyle said in May this ago. We think the stock has further to run. year that UDG should beat its full year earnings per UDG is capitalising on rising drug sales in the share guidance of 15% to 18% growth in the year developed world and further outsourcing of service to 30 September 2017. work by larger Doyle has a 930p price target for the stock.

UDG HEALTHCARE FTSE ALL SHARE companies. 900 Rebased to first Its United Drug SHARES SAYS:  850 800 division was sold By diversifying and expanding its services both 750 for €407.5m in organically and through acquisitions, UDG is 700 2015, providing positioning itself for further growth. Keep buying 650 funds to make at 835p. (LMJ) 600

550 Source: Thomson Reuters Datastream acquisitions, 2016 2017 particularly in BROKER SAYS: 5 5 0

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FRIDAY 14 JULY TRADING STATEMENTS ASHMORE ASHM FIRSTGROUP FGP HAYS HAS NEWRIVER RETAIL NRR AGMs ZCCM INVESTMENTS ZCC Will EasyJet (EZJ) be able to MONDAY 17 JULY bounce back from the weak TRADING STATEMENTS performance flagged in May? RIO TINTO RIO This is the question that investors should focus on when AGMs FTSE 250 merchant bank Close the budget airline reports on RENEWI RWI Brothers (CBG) is releasing a trading on 20 July. ECONOMICS trading update on 21 July and On 16 May EasyJet released RIGHTMOVE HPI investors will be hoping it can first half results which showed match the momentum on show in TUESDAY 18 JULY higher fuel costs, weaker sterling first half results to January 2017. FINALS and a delayed Easter break These numbers included IDEAGEN IDEA weighed on performance and key takeaways such as a 21% IG GROUP IGG resulted in a £212m pre-tax loss. NCC NCC increase in adjusted operating TRADING STATEMENTS profit and a 5% hike in dividend EASYJET EZJ BHP BILLITON BLT per share. As the company lends to small businesses its trading PREMIER FOODS PFD WEDNESDAY 19 JULY offers a barometer for the UK SSE SSE INTERIMS economy. ECONOMICS DRAX DRX UK TRADING STATEMENTS RETAIL SALES EVRAZ EVR AGMs RPC RPC ASHMORE GLOBAL SEVERN TRENT SVT OPPORTUNITIES AGOL TALKTALK TALK BIG YELLOW GROUP BYG WIZZ AIR WIZZ HARBOURVEST GLOBAL AGMs PRIVATE EQUITY HVPE BIFFA BIFF ROYAL MAIL RMG BP MARSH & PARTNERS BPM EX-DIVIDEND RENOLD RNO GB GROUP GBG 2.35P THE PEOPLE’S OPERATOR TPOP IMMUNODIAGNOSTICS WEISS KOREA SYSTEMS IDH 4P OPPORTUNITY FUND WKOF Full year figures from NCC (NCC) MARTIN CURRIE on 18 July could be ugly. Expect THURSDAY 20 JULY PACIFIC TRUST MCP 13.68P a slump in pre-tax profit (to PRIME PEOPLE PRP 3.25P Finals about £26.6m) and a sizeable SPORTS DIRECT SPD SCAPA SCPA 2P hike in net debt thanks to lost SHOE ZONE SHOE 3.4P INTERIMS contracts, write-downs and two HOWDEN JOINERY HWDN U AND I GROUP UAI 3.5P profit warnings. There should UNICORN AIM VCT UAV 3P MONEYSUPERMARKET.COM MONY be an update on the internal NICHOLS NCL VEDANTA RESOURCES VED $0.35 strategic review, designed to get WALTER GREENBANK WGB 3.06P UNILEVER ULVR the cyber security consultancy TRADING STATEMENTS back on track. ANGLO AMERICAN AAL Click here for complete diary

16 | SHARES | 13 July 2017 THIS IS AN ADVERTISING PROMOTION

It’s also encouraging that we started to see reflationary trends emerge in the third quarter of 2016. The term ‘reflation’ is used to describe the first NEW PHASE phase of economic recovery after a period of contraction. Reflationary policies can include increasing FOR COMMODITIES? government spending, reducing taxes, changing the money supply and lowering interest rates. Could reduced supply and greater demand make natural resources more interesting If you look back over the past 40 years (1970- 2016), commodities as an asset class has typically performed well in to investors? Tom Holl, co-manager of environments of higher inflation. So if history repeats itself and BlackRock’s Commodities Income Investment we do see a rise in inflation over the next few years, then that is typically a good environment for commodities compared with other Trust, assesses the sector. asset classesv.

Following a number of challenging years, 2016 was an improvement Please remember that past performance is not a guide to future for the natural resources sector, driven by improved performance performance and the value of an investment and the income from it can within the energy and mining sectors. fall as well as rise. Furthermore, these statements should not be relied upon as a forecast or investment advice – nor as a recommendation to In terms of energy, oil prices have come under pressure in 2017 – and adopt any investment strategy. Also, these opinions are as at July 2017 we expect the sector’s performance to remain volatile – but we see and subject to change as economic conditions develop. the outlook as positive. We expect prices to move upwards following reductions in global inventories and as meaningful declines emerge in non-OPEC (excluding the US) oil production. To find out what the BlackRock Commodities Income Investment Trust has to offer, click here. This complements OPEC’s production restraint, which is helpful in our view as it accelerates the rebalancing of the oil market and we i International Energy Agency Monthly Report, June 2017 ii  continue to expect producers to adhere to the OPEC guidelines more Blackrock, Datastream as at end of December 2016. iii https://tradingeconomics.com/china/gdp closely than they have in historic cuts. So far, the countries involved iv Credit Suisse energy analysis, Dec 16. Jefferies mining analysis, December 2016 have adhered to the agreed supply cutsi. In this environment, we v Datastream, 1970 – 2016. Global equities represented by the MSCI World Index, US equities by the S&P 500 Index, global bonds by the BofA ML Global Government Bond Index, US bonds by the US continue to believe that exploration and production companies with benchmark 10 Year Datastream Government Bond Index, and real estate by the US S&P/Case-Shiller low-cost assets and strong balance sheets will prove to be positioned National Home Price Index. the most advantageously. Trust specific risks: Overseas investment will be affected by movements With regards to mining, the coking coal price increased 227% for in currency exchange rates. Emerging market investments are usually the year to December 2016, while the iron ore price increased 83%ii. associated with higher investment risk than developed market investments. We are optimistic about the levels of free cash flow that many mining Therefore the value of these investments may be unpredictable and subject companies are generating – the amount of cash a company has left to greater variation. Mining shares typically experience above average over once it has paid all expenses such as buildings and equipment – volatility when compared to other investments. Trends which occur within the general equity market may not be mirrored within mining securities. as a result of the improved mined commodity prices in 2016. Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall. China remains the key risk for mining. The past three to four years have seen a slowdown in the rate of China’s economic growth, but This material is not intended to be relied upon as a forecast, research or we’re still talking about a country that is growing at more than 6.5% a investment advice, and is not a recommendation, offer or solicitation to buy yeariii, which is substantially higher than many other countries. or sell any securities or financial product or to adopt any investment strategy. The opinions expressed are as at July 2017 and may change as subsequent The wider economic environment also points to a ‘stable to conditions vary. improving’ demand picture, while the underinvestment of recent years is constraining the supply side of the equation for many BlackRock has not considered the suitability of this investment against your commoditiesiv. Mining shares typically experience above average individual needs and risk tolerance. To ensure you understand whether volatility when compared to other investments. All financial our product is suitable, please read the Key Features document and the investments involve an element of risk. Therefore, the value of your Annual and Half Yearly Reports for more information where you can find a full explanation of these types of investment techniques and more information investment and the income from it will vary and your initial investment about the risk profile of the investment. We recommend you seek independent amount cannot be guaranteed. professional advice prior to investing.

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: 020 7743 3000. Registered in England No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited.

The BlackRock Investment Trusts ISA and BlackRock Investment Trusts Savings Plan are managed by BlackRock Investment Management (UK) Limited. All the trusts are traded on the London Stock Exchange and dealing may only be through a member of the Exchange. The Trust has appointed BlackRock Investment Management (UK) Limited as Investment Manager. It will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

The Company currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the FCA’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the FCA’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.

© 2017 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. ID: 220742 TALKING POINT Our views on topical issues End to global squeeze on capital spending? UK manufacturers are increasingly upbeat on demand drivers

nvestors have been waiting for the turn in global capital I expenditure for years. There are now signs of sustained improvement for the first time in a decade. Analysis shows this is starting to filter through to better trading, increased merger and acquisition action and positive share price performance for many UK manufacturers. manufacturer Renishaw (RSW) FTSE 250 companies such as are up 45% year to date thanks thermal technology designers to strong underlying growth. Bodycote (BOY) and Spirax-Sarco TT Electronics (TTG:AIM), (SPX), plus Vesuvius (VSVS), which supplies components which provides equipment to to the automotive, aerospace metal smelting foundries, have and medical device industries, seen double-digit increases to has seen its share price rise earnings forecasts thanks to 20% thanks to firm trading at positive trading, growth inspired its Advanced Components arm, acquisitions and streamlined while polymer engineering operational costs, according to solutions business Fenner (FENR) Numis Securities. has jumped 44% in 2017 thanks Share prices across the UK to forecast-busting trading. engineering and electronics sectors have rallied strongly POUND POWER PLAY through 2017. Shares in Almost all such companies are metrology equipment also benefiting from exports, where the weakened pound GLOBAL NON-FINANCIAL CAPEX (2003 – 2017F) is making the equipment l Eu S l Eu 000 20 and services they supply 300 200 less expensive for overseas customers. 3000 10 Organisations are starting 200 100 to invest in technology areas 2000 0 capable of widening and 100 00 improving their routes to 1000 0 market while streamlining 00 100 their own operating models. 0 10 This includes things like better 2003 200 29007 2100 2301 201 2701 201 communications infrastructure, SRE S AS SAE Note: Figures are rounded to the nearest whole number automation systems and robotic

18 | SHARES | 13 July 2017 TALKING POINT

6 KEY INFRASTRUCTURE SECTORS

1 Extraction 2 Utilities 3 Manufacturing 4 Transport 5 Telecoms 6 Social

Oil and gas Electricity Petroleum Rail Physical Education - generation refining - infrastructure/ - Roads Other inc - - hardware Health Gas distribution Chemicals - coal, metals, - - Airports minerals - Water Heavy metals Ports

technologies. These investment finance, rising output costs and programmes are running poor return of capital for many alongside things like healthcare, projects. certain scientific research COMPANIES ARE STARTING programmes and aerospace NEW CATALYSTS spending where budgets have TO THINK ABOUT THE While these challenges have held up better for longer. FUTURE AND THE IMPACT not gone away, stimulus has ‘A healthy 88% of companies NEW TECHNOLOGY AND appeared to counter-balance are confident they can the economic arguments. demonstrate the value that their “SOCIOECONOMIC FACTORS ‘Companies are starting to capital investment projects bring WILL HAVE ON THEIR think about the future and the to the wider business,’ states the impact new technology and Industrial Capital Expenditure CAPITAL INVESTMENTS TO socioeconomic factors will have Survey 2017 compiled by REMAIN COMPETITIVE on their capital investments to researchers at Arcadis. remain competitive,’ explains the Improved flexibility and agility, Arcadis report. and supplier integration and ‘Committing effort to communications rank as other engaging their business partners important measures when it throughout the planning, design comes to decision making on Oxford Economics for business and construction process can capital projects, the study funds. consultancy giant PwC. help manufacturers achieve an Hints of faster growing capital integrated value chain, where SUSTAINABLE INVESTMENT expenditure have appeared” all parties are focused on Importantly, infrastructure before, only to peter out. The getting the most innovative and spending has begun to rebound most obvious example of this competitive product to market,’ from the global financial crisis and came in 2010, in response to explain study authors Tjerk is expected to grow significantly the clampdown through the van der Meer, Paul Fielden and over the coming decade. That financial crisis of 2008 and Martijn Karrenbeld. is the main finding of Capital 2009. Ultimately, the bounce ‘This agile, data rich, high Project and Infrastructure back proved short-lived, with engagement style of capital Spending Outlook to 2025, an investment spending ebbing delivery is what consumer in-depth analysis of 49 countries away through 2011 and 2012. demands are now driving, and that account for 90% of global Industry challenges that have many industrial manufacturers economic output. The report was kept a lid on business investment are well on their way to put together by researchers at in the past include access to achieving.’ (SF)

13 July 2017 | SHARES | 19 MONEY MATTERS Helping you with personal finance issues The auto-enrolment pension savings gap Retirement saving contributions are set to increase for people with a workplace pension... but will they be enough?

ou might have heard about automatic Most people would Y enrolment, the Government programme probably assume a introduced in 2012 to boost pension worth £218,791 retirement saving in the UK. would be enough to The premise of the reforms provide them with a is simple – by ‘nudging’ people into a workplace pension scheme comfortable retirement and mandating employers match income. However, the contributions up to a certain reality is far from this... level, policymakers hope to arrest declining savings rates. The policy has to date been pension outgoings leap from or even a period of negative successful, with around nine £169 to £879. investment performance would in 10 of those auto-enrolled The longer-term reality, dramatically reduce the income remaining in their scheme. however, is that for many people potential of the fund. But how much will you even this jump in the minimum eventually be required to put contributions will not be enough. REALITY CHECK into your auto-enrolment Let’s take a 25 year old earning Most people would probably pension? And what could you £27,000 today who saves at the assume a pension worth end up with if you pay in the minimum for 40 years. Assuming £218,791 would be enough to minimum throughout your 4% annual growth after charges provide them with a comfortable working life? and annual wage growth of 2%, retirement income. However, they could have a total private the reality is far from this and a PERSONAL CONTRIBUTIONS pension pot worth £218,791 at generation of savers risk being SET TO INCREASE FIVE-FOLD age 65. hit with a brutal pensions shock From April 2019 all employers While this might sound like a unless they pay in more than the will be required to offer lot of money, it would only buy a minimum. employees a workplace pension, single-life inflation-linked annuity This isn’t just about pensions. with rules prescribing a minimum – which provides a guaranteed Many people will choose to invest total contribution, including tax income for life – worth £4,966 a in ISAs, lifetime ISAs and other relief, of 8%. year after 25% tax-free cash has assets such as property as part of For anyone being auto- been taken*. their retirement income mix. enrolled at the lowest level, the Using income drawdown with jump from the current minimum the same pot of money after Tom Selby, employee contribution of 0.8% tax-free cash has been taken; Senior Analyst, AJ Bell to 4% could feel severe. an income of £10,000 could be In fact, someone earning withdrawn in order for the fund *Source: Money Advice Service an average salary of £27,000 to last until age 90. However, calculator quote for a healthy 65 could see their annual any drop in investment returns year old. Correct as of 04/07/2017

20 | SHARES | 13 July 2017 THIS IS AN ADVERTISING PROMOTION

Witan’s CEO Andrew Bell introduces the Trust’s multi manager strategy

PLAY VIDEO

or over 12 years, the Witan and a growing real income from global Investment Trust has used a multi- equity investments, we aim to help you Fmanager approach. By carefully realise your financial ambitions. selecting fund managers to run different parts of the portfolio, we can play to their Watch the video to hear CEO Andrew individual strengths and avoid undue Bell provide a summary of this reliance on a single manager. This method approach and his investment outlook has served our shareholders well, and for 2017/18. the multi-manager strategy has continued to evolve, with others adopting a similar approach too. If you seek capital growth www.witan.com

DISCLAIMER Witan Investment Trust is an equity investments. Please remember that past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise as a result of currency and market fluctuations and you may not get back the amount originally invested. MONEY MATTERS Helping you with personal finance issues Investing in funds: what’s the difference between a unit trust and OEIC? The essential guide to the structure and pricing of open-ended funds

re you aware there WHAT IS AN OEIC? the direction of travel for the are different types of In 1997, laws were introduced asset management industry,’ A investment funds? allowing the creation of says Ryan Hughes, head of fund We’re not talking about ones OEICs, which are also open- selection at AJ Bell Youinvest. that invest in different sectors or ended. Over the last decade geographies; instead, we mean OEICs have become a lot WHAT’S THE DIFFERENCE the structure of the funds. more common and many unit BETWEEN THEM? You may think the underlying trusts have converted to the In many respects unit trusts and assets inside a fund are the only OEIC structure. OEICs are the same. They’re things that matter. In reality, open-ended and the price there’s a bit more to it. Stick with of each unit depends on the us and we’ll explain why. net asset value of the fund’s Two of the most common investment portfolio. types of fund are unit trusts BOTH FUND VEHICLES You can generally choose and open-ended investment CAN INVEST IN A WIDE to have dividends paid to you companies (OEICs). They share as income or reinvested in many traits but they also have RANGE OF ASSET CLASSES, the fund. some important differences. GEOGRAPHIES AND SECTORS Both fund vehicles can invest in a wide range of asset classes, WHAT IS A UNIT TRUST? “ geographies and sectors. Unit trusts are a form of ‘open- A subtle difference is a unit ended’ investment fund in the trust is governed by trust law, UK. They’re termed open-ended This is due to the relative whereas an OEIC is governed by because the fund manager simplicity of OEICs and the company law. can create new units (similar fact they can be sold into ‘Technically, this means to shares) in the fund to meet different countries across investors in a unit trust are investor demand. These units Europe. not owners of the underlying can be bought or sold at any ‘Just about all new” funds assets, unlike investors in an time. that are launched are OEIC. In reality, this makes little This differs from a closed- structured as OEICs, indicating difference to investors,’ says ended fund, which issues a fixed Hughes. number of non-redeemable If you invest in a unit trust you shares. Investment trusts are buy units whereas if you invest closed-ended funds. in an OEIC you buy shares.

22 | SHARES | 13 July 2017 Helping you with personal finance issues MONEY MATTERS

THE KEY DIFFERENCE The fund can artificially reduce IS PRICING its net asset value to account for The major difference between the extra portfolio trading costs unit trusts and OEICs is the way created by significant buying or they’re priced. Unit trusts quote selling activity. a bid price and an offer price; OEICs only quote one price. CAN A UNIT TRUST FUND With unit trusts, the bid price BECOME AN OEIC? is the per-unit price you’ll receive TECHNICALLY, INVESTORS Several unit trusts have if you sell your units back to the IN A UNIT TRUST ARE converted to the more modern fund company. It’s usually based OEIC structure over the past on the bid price of the underlying NOT OWNERS OF THE decade and this trend is securities held by the fund. UNDERLYING ASSETS, expected to continue. The offer price is the per-unit UNLIKE INVESTORS IN AN Janus Henderson, for example, price you will pay to purchase “ converted its UK property unit units in the fund. OEIC. IN REALITY, THIS trust into an OEIC structure so The difference between the MAKES LITTLE DIFFERENCE it could then move towards two prices is called the bid- PAIF (property authorised offer spread. The spread aims TO INVESTORS investment fund) status, which to ensure new or redeeming – RYAN HUGHES, HEAD OF is more tax-efficient. investors don’t dilute the value It is possible for an OEIC to of existing investors’ units. FUND SELECTION AT AJ convert to a unit trust but this Jonathan Miller, UK director BELL YOUINVEST is very rare. In 2003, New Star of manager research at converted the Aberdeen Equity Morningstar, says fund managers Income OEIC sub-fund into a unit can avoid transaction costs trust (named New Star Equity when investors buy and sell Income Unit Trust) in order to units on the same day because bring the fund in-house and they’re essentially matched assume ownership. The unit trust off against each other. was subsequently acquired by Unfortunately, these savings New Star Investment Fund OEIC. aren’t put back into the fund. ” Instead of carrying out a ‘Instead they create what’s HOW ARE OEICS PRICED? fund conversion, Jupiter has known as a box profit, with the OEICs publish a single price announced that in 2018 its unit common procedure being that each day, making it easier for trusts will move to single pricing it trickles down to the fund investors to understand the for buying and selling fund units. company’s bottom line. We cost of investing. OEICs have a A Jupiter spokesperson says believe this is to the detriment mechanism called ‘swing pricing’ this aims to ensure transparency of investors and is an opaque to protect existing investors and value for clients and align structure,’ Miller says. when there’s an imbalance its products with the common The Financial Conduct between buyers and sellers. pricing approach in the industry. Authority is currently seeking to Box profits, which totalled ban the box profits practice and £12.8m in 2016, will be removed ensure that any benefits accrue from Jupiter’s future income to the fund, not the firm. stream. (EP)

13 July 2017 | SHARES | 23 INVESTMENT TRUSTS Staying focused amid market noise is key to Bankers’ success Fund manager explains why it can pay not to be distracted by politics

eing a successful fund manager typically means Btaking a different viewpoint from the market in order to outperform a benchmark. It requires skill in knowing when to buy and sell and doing so at an advantageous price. The fund manager needs to question everything that’s going on in the markets and have the ability to take a view on what might happen in the future. Alex Crooke has demonstrated those skills through his success at running Bankers Investment Trust (BNKR) since 2003. Part of Janus Henderson Investors’ portfolio of investment in the wake of major votes in the trusts, Bankers has delivered a UK, US and France. 141.8% total return over the Some fund managers past decade versus 71.4% repositioned their portfolios in from the FTSE All-Share index, THE FUND MANAGER response to the election results according to figures from the and how they feel government asset manager. NEEDS TO QUESTION policies will play out for industry. EVERYTHING THAT’S GOING The team at Bankers have STAYING FOCUSED chosen to put politics to one Crooke and his team appear ON IN THE MARKETS AND side. For example, writing in the to have an edge in their ability HAVE THE ABILITY TO TAKE trust’s recent annual report, they not to be distracted by market “ discussed the impact of Donald A VIEW ON WHAT MIGHT noise and politics; and instead Trump becoming US president on look at themes, data, valuation HAPPEN IN THE FUTURE the markets. and financial strength in order ‘Many market participants to make informed investment will be drawn into attempts to decisions. forecast the short term course Having a clear head and of the US economy under the remaining focused has been a new presidential administration,’ challenge for many investors over writes Ian Warmerdam, who the past year or so, particularly manages the North American

24 | SHARES | 13 July 2017 ” INVESTMENT TRUSTS

part of the Bankers portfolio. BANKERS INV.TRUST FTSE ALL SHARE ‘We do not try to predict 000'S political events nor do we 90 Rebased to first / Total return index attempt to second guess the 80 market’s reaction when the 70 unexpected unfolds. ‘While we don’t wish to be 60 naïve about the implications, we 50 believe there are much more predictable trends to be studied 40 in the quieter domain of the long 30 term investor.’ 20

Crooke’s view is that central Source: Thomson Reuters Datastream 10 bank interest rate policy is 03 04 05 06 07 08 09 10 11 12 13 14 15 16 ultimately more influential on stock markets than politics. and improving margins will ‘Some people have been WHILE INVESTORS SHOULD ultimately drive up shares in depressed that Trump has yet to know many of the big Europe,’ he adds. achieve his promised tax cuts in companies in Bankers’ the US. Yet in three years’ time, portfolio including Apple, SEEKING SPECIFIC TYPES we could look back and realise Amazon and British American OF COMPANIES that all along the most important Tobacco (BATS), there are a The fund manager seeks to action is what the Federal few less familiar names. For invest in companies which are Reserve did and does,’ he says. example, it invests in Cooper able to generate free cash flow Cos which is a contact lens over and above the cost of SHARE PRICE GAINS specialist. ‘The shares aren’t running the business. AND DIVIDENDS cheap but this is a good long- ‘That status should mean a Bankers has a broad strategy term holding,’ says Crooke. company can pay dividends; whereby it can invest in The portfolio also includes and, if they have debt, they can companies around the world a stake in America Tower reduce borrowings so the equity with the goal of delivering capital which owns mobile phone becomes a larger proportion gains and a steady stream of mast towers in the US. ‘They of their enterprise value and income for shareholders. manage the masts which are so their share price should go It has investments in various very good income-generating up. That free cash also gives a markets including the UK, North assets. There is lots of growth company the ability to make America, Europe, Pacific region in the industry, particularly the acquisitions and reinvest in (including China), Japan and a advent of 5G which will require their business.’ small bit in emerging markets. a lot more masts.’ Crooke believes income is an Crooke has recently been important part of shareholders’ selling down positions in the total return. Bankers Investment US and reinvesting the cash in 1997 to 2007, so something Trust has grown its dividend Europe where valuations are changed in the 2007 to 2011 every year for the past 50 years cheaper. ‘European market period to dent European growth. and yields 2.17%. earnings are 24% below their ‘I would argue it was the He reckons the investment peak before the global financial state of the European banking trust is ideal for someone crisis, whereas US earnings are sector. The US bailed out and wanting to invest pre-retirement about 30% above their peak,’ recapitalised its banks, in Europe and has time on their side where he comments. they are still undertaking capital they can reinvest that growing ‘The US and Europe were neck recaps (i.e. Spain and Italy). I stream of dividends to enjoy and neck through the period believe accelerating earnings compounding benefits. (DC)

13 July 2017 | SHARES | 25 FUNDS Does a fund need more than one person to run it? We talk to the experts for their views on whether funds need co-managers or large support teams

wo heads are better than no team who has a great process Hughes says: ‘It’s important one, the old adage goes and does very well, or a huge to understand who is making T – but when it comes to team with a bad process and it the decisions to understand key investing in funds, it could be will do badly.’ man risk. more of a case of ‘too many ‘At Fundsmith, for example, cooks spoil the broth’ in terms WHO IS MAKING Terry Smith’s individual thinking of the people looking after THE DECISIONS? is integral to the process; if you your money. Evaluating how decisions are take him out of the equation it’s There are more than 2,000 made within a fund can be not the same. If he left the fund funds available for UK investors difficult. Some investors are you would most likely sell that to put their money into and genuine lone wolves – Terry same day.’ each has a different approach Smith, for example, who set up Some duos also spark to investing. his own investment house so the same reaction. Hughes While some fund managers he could manage his own fund recently removed Schroder UK choose to go it alone, others are according to his own philosophy. Dynamic Smaller Companies supported by a co-manager or That’s Fundsmith Equity (GB0007219818) from his use a team of analysts to help (GB00B41YBW71). favourite funds list after them decide what makes it into Some star managers, such managers Paul Marriage and the fund. But does the number as Anthony Bolton formerly of John Warren left to set up their of people involved in running Fidelity, are often thought of in own company. portfolios have any bearing on isolation but will have had a large He says: ‘Who has the success of the fund? network of support to do a lot of responsibility for pulling the Ryan Hughes, head of fund the groundwork. trigger on the fund – whether selection at AJ Bell, says: ‘The Other managers may appear it’s an individual, team, duo key thing for me when choosing to be part of a duo or team but or algorithm – is an important a fund is the process and the may be more independent when question but it is only part of investment philosophy. You can it comes to having the final say the jigsaw. And there is no real have an individual manager with on investments. way of evaluating which is the best approach.’

‘I DO NOT INVEST IN ANY FUNDS WITH JOINT WHEN THERE IS MORE THAN ONE MANAGER MANAGERS’ IN CHARGE YOU RISK MANAGEMENT BY David Lewis, of the Jupiter Merlin multi-manager team, avoids any COMMITTEE AND GROUPTHINK RATHER THAN fund where there is more than INDIVIDUALS BEING EMPOWERED TO TAKE one person making the decisions. RESPONSIBILITY He says: ‘We are fundamental “ believers in funds with one trigger-puller. I do not invest in any funds with joint managers. 26 | SHARES | 13 July 2017 ” FUNDS

It’s about getting away from the ground in various countries. Leaders (GB00B57S0V20) groupthink or situations where But Hughes disagrees; he fund to David Gait we had to investments make it into points to the Jupiter Emerging assess his track record and how portfolios because it’s easier.’ Markets team which is based successful we thought he would He is concerned that in large in London. He says: ‘That be; not how the fund had fared teams with an overseeing manager is doing great work and under his predecessor.’ manager, the number of holdings producing good performance When Stuart Parks left in the fund goes up while without having a team spread Invesco Perpetual Asian conviction in those holdings is around the world, which shows (GB00BJ04DT45) and when lower and performance suffers. it’s about the process and James Harries left Newton The funds in which he invests the ideas.’ Global Income (GB00B84QJT19), may use broker research or Hughes kept the funds on his the help of analysts, but the SOMETIMES YOU NEED favourites list because the final decision has to be made A BIG TEAM successors had been gradually by a single manager to get his One asset where more pairs of taking control and meeting backing. He does consider funds hands can be helpful, concedes investors over a period of time. where there are two managers, Hughes, is in fixed interest where Hughes says: ‘When such as Evenlode Income thousands of individual bonds all there is more than one (GB00B40SMR25), as long as require in-depth analysis. manager in charge you risk there is a clear leader. Succession planning can also management by committee ‘We don’t mind how they be a grey area, where a lead and groupthink rather than go about it, but we want the manager is slowly handing over individuals being empowered judgement to come down to the reins to his replacement. to take responsibility, to an individual. We want people This could spark a sell-off if understand their own who trust their own judgement,’ the process is changing as a strengths and weaknesses and he adds. result, but where there is a to be accountable for their It may seem logical that some smooth transition the shift may own decisions.’ (HB) funds naturally require a larger be acceptable. team – specialist sectors or Lewis comments: ‘When DISCLAIMER: Daniel Coatsworth, who emerging markets, for example, Angus Tulloch passed the edited this article, has a personal where a fund may want boots on Stewart Investors Asia Pacific investment in Fundsmith Equity

13 July 2017 | SHARES | 27 VIDEOS WATCH THE LATEST SHARES VIDEOS

SAMPLE Elizabeth Gooch, MBE, CEO of VIDEOS Neil Ritson, Executive Chairman of Solo Oil (SOLO) eg solutions (EGS) CLICK TO PLAY

Stephen Stamp, CFO of Ergomed (ERGO) Dave Mutton, Chief Operating Officer of PrimaryBid

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www.sharesmagazine.co.uk/videos TIME TO BUY THE BANKS? BY DAVID STEVENSON

anks were put through the ringer in the aftermath of the global financial crisis of 2008. Not only did the main players’ share prices collapse, a seemingly constant flurry of alleged rate fixing and misselling of products began. Bank bashing became a national pastime. B Almost a decade on, there are signs that this once dominant sector of the FTSE 100 is back with a vengeance. Is it time to invest in the UK banking sector again? We think the answer is ‘yes’ on a selective basis. Our preferred banks are Lloyds Banking (LLOY) and HSBC (HSBA) both as a result of their generous dividend payments.

13 July 2017 | SHARES | 29 A FEW POINTS TO THINK ABOUT GROWING CREDIT CONCERNS You must first consider a few issues that could Finally, you must consider the impact of rising impact the sector. After the Brexit result, banks inflation and growing consumer dependence on may have grave trouble exporting their financial credit to fund lifestyles. That is a very important services throughout Europe, one of the largest issue, although some experts believe the market single markets in the world. might be overly pessimistic. Conversely, another distraction from investing ‘UK domestic banks have underperformed since in UK banks is the tsunami of regulation coming the Brexit referendum, in part because investors from the EU which can lead to higher costs of worry about the risk of bad debt write-offs on UK doing business. consumer credit loans as rising inflation erodes Against this backdrop, any investment into real incomes,’ says Morgan Stanley. the banking sector needs to come with decent ‘We think these fears may be too bearish and rewards to mitigate the risks. It’s no wonder banks the market is likely to be positively surprised by are like marmite for many people; you either love the asset quality of major UK banks.’ It backs up them or hate them. this statement with four key points: Another point to remember is that legacy claims for mis-selling products like mortgage-backed securities and payment protection insurance are still in play. Many banks have already shelled out Employment is still likely to grow and so the billions of pounds in fines and there could still be a unemployment rate increases should be final wave of payments to make. moderate Furthermore, banks are intrinsically linked to the health of the economy. Paul Jackson, head 1 of multi-asset at exchange traded funds provider Source ETF, says the performance of banks ‘is Interest rates are likely to remain low and affordability metrics are benign usually not good when the economy and property markets weaken’. 2 Tighter credit standards than pre-crisis give 3banks some protection from risk A considerable proportion of consumer debt 4is sitting outside the major banks

Indeed, the Bank of England’s regulatory body (the PRA) is putting pressure on banks with regards to lending. That could take the heat of consumer credit growth, leading to higher profit margins and cushion the banks from rising impairment charges, says Morgan Stanley. Banks have been asked to review their underwriting standards and provide information by September so the PRA can decide if further steps are needed to rein in risky lending.

30 | SHARES | 13 July 2017 TOTAL RETURN OVER PAST 12 MONTHS 120 110 RBS HSBC 100 BARCLAYS 90 LLOYDS 120 80 110 70 100 60 90 120 J A S O N D J F M A M J 80 160110 RBS has been the stock market winner over the past year 70 140100 60 12090 120 TOTAL RETURN OVER PAST 2 YEARS 100 16080 110 HSBC 80 14070 100 60 12060 90 40 100 16080 LLOYDS 80 BARCLAYS 14012070 RBS 11060 12010060 40 10090 16080 J A S O N D J F M A M J J A S O N D J F M A M J 8070 120 14060 110 HSBC is significantly ahead versus the peer group over the past 2 years 6050 120100 40 4090 30 10080 20 70 TOTAL RETURN OVER PAST 5 YEARS 12080 60 110 6050 500100 40 45090 4030 LLOYDS 40080 20 35070 HSBC 30012060 250 BARCLAYS 50011050 200 RBS 45010040 150 4003090 100 3502080 50 30070 0 2012 2013 2014 2015 2016 2017 25060 500 20050 450 Lloyds has provided the greatest total return for shareholders since July 2012 15040 400 10030 350 5020 300 0 250 TOTAL RETURN OVER PAST 10 YEARS 200500 150450 HSBC 100400 35050 3000 250 200 150 BARCLAYS 100 LLOYDS 50 0 RBS 2008 2009 2010 2011 2012 2013 2014 2015 2016 HSBC is the only one to have generated a positive total return for shareholders on a 10-year view

ALL CHARTS REBASED TO FIRST. SOURCE: THOMSON REUTERS DATASTREAM

13 July 2017 | SHARES | 31 LLOYDS BANKING GROUP (LLOY) 66.56P

BULL CASE impairment charges (in banking terms Lloyds reinstated its dividend policy in 2014 and usually a loan default) around 30% below the the level of payment has been growing ever since. consensus view. It even announced an extra dividend payment in They view Lloyds’ valuation as ‘appealing’ February this year after reporting its largest profit as its stock trades on a price-to-earnings ratio in a decade. of 8.7-times, a 25% discount to the European It paid 3.05p per share for the 2016 financial banking sector. year, including the recent 0.5p special dividend. Lloyds recently bought MBNA’s credit card That equates to a 4.6% historic dividend yield business for £1.9bn. The deal will increase its net based on the current share price. interest margin (NIM), the difference between The bank is forecast to pay 4.5p for the 2017 income from lending and the cost of funding. It is a financial year, taking the yield to a prospective key indicator of a bank’s profitability. 6.8%. The dividend is then forecast to pay 5p in Before the deal it stood at a respectable 2.8%, 2018, implying a 7.5% yield. following the acquisition the figure is set to increase Lloyds has a healthy common equity tier to 2.9%. one (CET1) ratio of 13%, well above the level set by regulators to prevent a repeat of the BEAR CASE financial crisis. Jamie Clark, co-manager of the Liontrust Macro The tier one ratio is a measure of a bank’s Equity Fund (GB00B8H9GB86), thinks Lloyds core equity capital compared with its total risk- is ‘under pressure in a fiercely competitive UK weighted assets. mortgage market, overly geared to a UK consumer In plain English, it is the size of a bank’s cash that is feeling the pinch of inflation and static real reserves against its loans, adjusted to account wages, and its dividends may disappoint’. for the riskier assets in the portfolio such as A note by Morgan Stanley shows that since Lloyds unsecured lending. It is a cushion that should bought MBNA it has the highest amount of UK protect against potential losses should there be consumer credit at £42.8bn. another serious economic downturn. Investment bank Berenberg also says Lloyds had Rob James, who co-manages the Old Mutual one of the highest loss rates in each UK lending Global Investors UK Alpha Fund (GB0032544065), category in the Bank of England’s 2016 stress tests. says Lloyds is a simple story. ‘It started paying dividends then special dividends,’ he explains. SHARES SAYS:  Analysts at Morgan Stanley are particularly Lloyds is a great stock for those seeking income. bullish on Lloyds, with their forecast 2018 Buy.

DIVIDEND YIELDS: UK-QUOTED BANKS BANK SHARE PRICE (p) §§ PROSPECTIVE DIVIDEND YIELD*

Lloyds 66.56p 6.8% HSBC 725.4p 5.8% OneSavings Bank 372.4p 3.7% Virgin Money 291.6p 2.0% Aldermore 220.8p 1.8% Barclays 206.9p 1.4% Royal Bank of Scotland 259.1p None Source: Shares, various analyst forecasts *Refers to expected dividend for current financial year and yield based on latest share price

32 | SHARES | 13 July 2017 HSBC (HSBA) 725.4P

BULL CASE Old Mutual’s James says HSBC puts its surplus Two years ago there were worries whether HSBC cash into two-year US treasuries that currently could maintain its dividend. These fears have yield around 0.5%. If the Federal Reserve raises dissipated and the bank continues to pay attract interest rates to 1% that would in turn increase cash sums to its shareholders. the bank’s profitability. James is among the The dividend yield is currently 5.8% based on experts who believe the bank will return any historic and forecast data. Analysts expect HSBC’s surplus cash in the form of dividends. dividend payment to stay flat for the foreseeable future. However, some analysts believe the BEAR CASE company could generate significant amount of Investec analyst Ian Gordon says the bank has surplus cash over the next three years, raising the seen a sharp decline in its NIM over the last potential for special dividends down the line. 10 years, moving from 3.1% to 1.6%. ‘That’s Liontrust’s Clark says: ‘This March we bought a function of a run-off of high margin low into HSBC, marking the first time we had owned quality business such as household in the US shares in one of the big UK incumbent high street coupled with the low interest rate environment,’ banks for five years.’ he explains. He says HSBC has engaged in a series of non- The analyst believes returns have been core asset disposals, which have boosted its structurally weak and below a 10% return on regulatory capital and raises the prospect of equity target which he doesn’t expect the bank to higher dividends. reach before 2020. The disposal of its loss-making Brazilian Given HSBC’s Asia exposure, it could be hurt by operations alone reduced its risk weighted assets any economic slowdown in China. by $37bn and boosted its CET1 ratio by around The bank trades on a premium price-to-book 0.65%. It now stands at around 13.6%. ratio of 1.3-times so some investors may consider HSBC’s global reach also aids the bank and not the stock to be fully valued. just by reducing its exposure to Brexit related fallout. With US interest rates on the rise, HSBC’s SHARES SAYS:  operations in that location are set to benefit from The dividend is very attractive, so buy the shares for income. a higher NIM.

13 July 2017 | SHARES | 33 BARCLAYS (BARC) 206.9P

BULL CASE BEAR CASE Despite Barclays cutting its dividend by more than Barclays has taken two reputational hits this half earlier this year, some analysts believe there year alone. Jes Staley attempted to unearth the are still good reasons to invest in the bank. identity of a whistle blower in April which led to a For example, Barclays has largely disposed of regulatory investigation. its Africa business which has boosted its CET1 by The bank is also facing potential charges by the 0.73%, now forecast to be 12.6% for 2017. Serious Fraud Office relating to a 2008 emergency David Smith, who runs Henderson High Income fund raising of £7bn. The bank is potentially Trust (HHI) investment trust, says: ‘Barclays’ retail looking at two charges; conspiring to commit division has good market share and is producing fraud and unlawful financial assistance. good returns. Barclaycard is one of the best Furthermore, Barclays is in a dispute with the returning credit card businesses globally.’ US Department of Justice (DoJ) over mis-selling Barclays is among the cheapest of UK mortgage-backed securities during the financial incumbents, with a price-to-book ratio of just 0.7. crisis. The claim was brought by the DoJ last year This means that you’re paying less than the value and could potentially cost the bank billions of of the assets of the bank (which are plentiful). pounds in fines. The bank is well ahead of its restructuring target to reduce its non-core risk-weighted assets from £110bn identified in 2014. It has already brought these assets down to around £25bn. The investment banking division, long seen SHARES SAYS: as a drag on the business, is showing signs of Barclays’ disposal of its Africa business makes this stock more appealing due to its increase improvement. The hire of chief executive Jes Staley, in regulatory capital. Its retail and Barclaycard former boss of best-in-class JP Morgan’s investment businesses are performing well and its investment bank, is widely viewed as a good move. banking issues are being addressed. However, we Barclays’ dividend is forecast to start growing are uncomfortable with the threat of significant again in the 2018 financial year, putting the yield fines, meaning this is not a stock which we would in the 4% territory. want to own at present. One to watch.

34 | SHARES | 13 July 2017 ROYAL BANK OF SCOTLAND (RBS) 259.1P THE CHALLENGER BANKS

BULL CASE Ian Gordon at Investec believes there is more Berenberg regards Royal Bank of Scotland’s value in the challenger bank section of the strategy of growing lower risk lending and cutting sector rather than the FTSE 100 stalwarts. costs as superior to its rivals. For this reason it He says: ‘challenger banks are materially regards Royal Bank of Scotland’s core earnings as mispriced based on a mistaken view that more sustainable. they are vulnerable to a slowdown where Dividends are forecast to resume in 2018, circa the opposite is true as they have far greater 3% yield. lending buffers and minimal unsecured Its CET1 capital ratio is also forecast to improve exposure’. He adds: ‘As they are small players this year, from 13.4% to 13.9%, according in niche or large markets they can continue to to Investec. grow even as markets slow.’ BEAR CASE Royal Bank of Scotland has been loss making Virgin Money (VM.) 291.6p for nine consecutive years and isn’t expected to One of the larger, more mainstream make a profit until at least 2018. It also currently challenger banks with a market cap in excess doesn’t pay a dividend, unlike its peer group. of £1.3bn. It trades on forecast earnings for Investec’s Gordon says that ‘unresolved conduct 2017 of just 8-times. This is predicted to drop issues continue to dog the bank’. It incurred to what Gordon describes as ‘fairly absurd’ £7.76bn in exceptional items last year. 5.8-times in 2019. RBS is last in the queue to resolve legacy mortgage-backed securities with the DoJ which could potentially hit the bank for billions of Aldermore (ALD) 220.8p pounds in fines. The bank is involved in mainstream activities such as mortgage lending. It has a respectable SHARES SAYS: NIM of 3.5%, bettering some of its FTSE 100 Avoid. Despite its decent core business peers. performance, there are still too many risks when it comes to possible fines that mean the bank may not Shailesh Raikundlia, an analyst at Panmure return to profitability for some time. Gordon, includes Aldermore in his firm’s conviction list for 2017 with a 285p price target. ‘At current valuations we continue to believe Aldermore remains significantly undervalued despite current worries regarding the UK economic outlook,’ he says. The stock currently trades on 7.5 times forecast earnings for 2017.

Onesavings Bank (OSB) 372.4p The bank is a specialist lender and retail savings group with a reputation for being big in buy-to-let. OneSavings had a return on equity figure of 34.6% in 2016. This is expected to drop to 26.7% for 2017, which is still an attractive figure.

13 July 2017 | SHARES | 35 LARGER COMPANIES Equiniti is an essential portfolio pick

Administration specialist counts a large chunk of the FTSE 100 among its client base

quiniti (EQN) is a payments and of its client base provides confidence on its future administration company and offers a variety earnings profile. Eof essential services to its blue chip clients. It And, as many of Equiniti’s services are non- counts 70 of the FTSE 100 among its customer base discretionary, it has some protection from what is which offers an idea of its quality. happening in the wider economy. Net debt is also These FTSE 100 clients use Equiniti to handle their being trimmed, down 4.4% year-on-year in 2016 to dividend payments among other services. £251m. The business was spun out of Lloyds (LLOY) in The company’s house broker Liberum is 2007 and floated in 2015. confident that the sale of one its competitor’s The company has its origins in the creation of divisions will support the investment case. Capita the British Army’s paymaster general in 1836. (CPI) announced the sale of its Capita Asset The army is still a client for its payroll and pension Services (CAS) businesses to Australia’s Link Group administration, as well the NHS, which is the largest at the end of June. pension scheme in Europe. Rahim Karim, analyst at Liberum, says: ‘This The company picked up some more top tier transaction provides an important valuation clients this year. These include household names benchmark for Equiniti, given the operational such as Sainsbury’s (SBRY), House of Fraser and it overlap between the two companies. CAS has also entered into a partnership with Aon Hewitt provides a number of services which compete for public sector pension administration. with Equiniti’s Investment and Pension Solutions In January this year, Equiniti acquired businesses including: Shareholder Solutions Gateway2Finance. This Halifax-based loan (including share registrar services), Pension brokerage is hoped to support Equiniti’s plan to Solutions, and Corporate and Private Client promote loan, mortgage and technology solutions. Services’. Equiniti recently added Nostrum to its list On 12 July, Equiniti revealed plans to buy of acquisitions at the end of June. The firm is WFSS, the third largest share registrar in the US a provider of end-to-end loan management by number of clients. It intends to hold a £122m technology and further bolsters Equiniti’s position in rights issue in September to help fund the £176m the lending sector. acquisition. Existing investors will have the chance to KEEPING UP THE PACE buy new shares at a price to be determined in Equiniti’s share price has increased by 37% since its the near future, most likely at a discount to the full year results were released in March. The profile market price.

SHARES SAYS: 

£ Buy this essential company at 257.5p. With an £ enviable client list, it is diversified and also deleveraging.

BROKER SAYS: 6 0 0

36 | SHARES | 13 July 2017 The opportunity of a Lifetime (ISA)

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AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE SMALLER COMPANIES Strong trading at EKF triggers earnings upgrades Analysts are optimistic on the medical diagnostic company’s prospects

hings are looking up for medical diagnostics product lines, which should help to drive growth specialist EKF Diagnostics (EKF:AIM) as its in the future. Tlatest trading update (6 Jul) triggered a round In particular, she highlights haemoglobin of earnings upgrades, putting the spotlight on measurement device HemoPoint H2, diabetes strong sales and profit growth potential over the monitor Quo-Test and testing reagent for ketosis, next few years. Beta-Hydroxybutyrate (BHB). N+1 Singer analyst Chris Glasper upgraded earnings before interest, tax, depreciation and WHAT’S NEXT FOR EKF? amortisation (EBITDA) forecasts by 10% to £9.6m EKF chief executive Julian Baines says the for 2018. He also hiked EBITDA expectations by 9% company’s recurring revenue model and global to £10.4m in 2019. market focus has driven its momentum over the last 18 months. WHAT DOES EKF DO? The medical diagnostics company derives 50% The company develops, makes and distributes of its sales from the US and also does significant chemical reagents and analysers that measure business in Saudi Arabia and Eastern Europe. glucose, lactate and haemoglobins among With £4m in cash, Baines says the priority for others. Its in-vitro diagnostic EKF is to continually invest in the (IVD) products are used in GP business and undertake share surgeries, pharmacies, blood buybacks. He has ruled out any banks, clinics, hospitals and acquisitions. laboratories. EKF currently trades at 23 times In the year to 31 December forecast earnings per share for the 2016, adjusted EBITDA was year to 31 December 2017. While £6.1m, up from a loss of £0.3m that is a rich rating, the company is in 2015 helped by a 16% uplift poised for high earnings, sales and from currency movements. profit growth in the future. (LMJ) The positive trend has continued. EKF says sales were ‘notably strong’ in June 2017 and this was driven by incremental EKF DIAGNOSTICS organic growth rather than major one-off tenders. As a result, FTSE ALL SHARE - PRICE INDEX 35 2017 EBITDA will be ‘comfortably Rebased to first ahead’ of expectations, it says. 30 Panmure Gordon analyst 25 Julie Simmonds has upgraded 20 EBITDA forecasts by 8% to 15 £8.6m for 2017. The analyst 10

flags improved margins thanks 5 Source: Thomson Reuters Datastream to an increased focus on core 2014 2015 2016 2017

38 | SHARES | 13 July 2017 SMALLER COMPANIES Applegreen sips on Brandi acquisition Food-to-go forecourt operator pumps up US presence

rish food and petrol forecourt operator Applegreen now has a strong position from which Applegreen (APGN:AIM) has pumped up its to accelerate US growth. It already has six self- Igrowth potential with a major US acquisition. owned sites on Long Island and seven stores in The $75.5m purchase (6 Jul) of forecourt retailer New England operating under a tie-up with Cross Brandi, in partnership with a US institutional real America Partners. estate investor, provides the Dublin-headquartered For 2017 and 2018, Shore Capital currently concern with a platform for growth along America’s forecasts pre-tax profit of €22.1m (£19.6m) and East Coast. earnings of 22.9 cent (20.3p), rising to €26.2m and We admire Applegreen’s cash generative 27.1 cent respectively. However, there is significant business model and exposure to food-to-go and scope for upgrades thanks to the Brandi deal and convenience trends. It is paying $5.4m towards the Applegreen’s impending €15.7m acquisition of a earnings enhancing acquisition of Brandi, which has 50% share in the Joint Fuels Terminal (JFT) in Dublin 42 sites in or close to Columbia, South Carolina’s port from Topaz Energy. state capital. Most of Brandi’s sites are petrol filling stations SHARES SAYS:  Applegreen’s prospective price/earnings (PE) ratio including Burger King restaurants and Subway and of 22.7 is demanding but justified by its strong cash Blimpie outlets, though Brandi also operates eight generation and US growth opportunity. Keep buying standalone Burger King sites. at 460p. (JC) Already a major player in the Republic of Ireland and operating 74 petrol filling stations in the UK, BROKER SAYS: 3 0 0

Get Busy to join AIM Superyacht Future acquires services group off Centaur’s home ENTERPRISE DATA management solutions supplier Get Busy is to a good start interest division set to join AIM on 4 August. The software-as-a-service business SUPERYACHT REFITTING company TOTAL FILM PUBLISHER Future is not looking for fresh funding. GYG (GYG:AIM) has risen by nearly (FUTR) has agreed to acquire Up to £3m is set to be raised for 15% to 114.5p since joining AIM Centaur Media’s home interest selling shareholders of Reckon, on 5 July. It claims to have half division for £32m on 7 July. The the Australian IT services of the top superyacht owners as company will use the acquisition business from which Get Busy clients. The company paints new to diversify its revenue streams is being spun out. Get Busy has and existing vessels and sells and add ‘significant scale’ in 600,000 small and medium- maintenance materials and spare its events business. Centaur sized enterprise clients across parts mainly to trade customers. Media (CAU) will use some of the UK, US, Australia and New Chief executive Remy Millot says the proceeds to buy marketing Zealand. (SF) he wants to move his business to services business MarketMakers offer additional services such as for £13.4m. (TS) engineering. (DS)

13 July 2017 | SHARES | 39 MR MARKET How to spot the best opportunities with unlisted companies Five key areas to consider when looking for opportunities among unquoted firms

nlisted companies You only want to invest in efficiently. Companies with are the driving force a company that owns the lumpy revenue models often Ubehind the UK economy 2 intellectual property, not struggle with cash flows as and are currently achieving a company that has a right to fortunes ebb and flow. unprecedented levels of survival distribute it. Licence agreements and success. The opportunity can be torn up on a whim. Is there a quality team for investors with a sharp eye to involved? You could achieve tax-efficient, risk related Is it disruptive and 5 probably discount one returns that aren’t subject to the scalable? A lot of people of the above items, so long short-term sentiment driving 3 talk about disruption, as the team is strong and has the main financial markets is but true disruption is not only an excellent track record. This exceptional. something that changes the way includes proof of building up and Obviously, not every business we do things; it must be scalable selling businesses and providing will reach its potential and any as well. It must be something investors with timely returns. If capital invested into anything that appeals to many people or the team is inexperienced, do is at risk. Nevertheless, the serves a unique niche with few they have one or two experienced opportunity to achieve superior competitors. advisors behind them who have returns from being an early done these things? participant in the ones that Does the opportunity succeed is exceptional. offer recurring revenue SAVING YOU TIME 4 streams? Software-as-a- Picking prospects which WAYS TO INVEST service (SaaS) models are ideal as are scalable, have a strong Retail investors can access they provide a constant flow of management team and operate unlisted companies via regular revenue, which enables in sectors where they have equity crowdfunding, venture cash flows to be managed competitive advantage and the capital trusts or various ability to disrupt, is not easy. investment funds. But focusing on these five If you’re going down the things will certainly help you route of investing in individual identify them, and at the very companies, there are five key least save you a lot of time on areas to consider when looking extra due diligence. for the best opportunities. Let’s face it; wouldn’t you have rather invested in Google, when Is the business solving a the founders were operating out genuine problem? of their garage? 1 In other words, it there a true need for the product By Jason Kluver, chief operating or service and can it really be officer at investment platform commercialised? Shadow Foundr

40 | SHARES | 13 July 2017 WHAT TO EXPECT IN YOUR FIRST YEAR OF INVESTING WE CONSIDER THE THOUGHT PROCESS AND HOW TO MONITOR YOUR INVESTMENTS ONCE YOU’VE HANDED OVER THE CASH

onsumers are feeling the FOUR QUESTIONS Patrick Connolly, head of pain from both a rising TO ANSWER communications at financial cost of living as a result of AJ Bell investment research advice firm Chase de Vere, says: higher inflation and low director Russ Mould says that ‘Investing in individual shares Creturns from their savings in the before you start you need is high risk. You can reduce bank. We believe that will result to answer four questions: these risks by investing into a in more people shifting any spare wide range of shares through cash into the stock market in an investment funds. This will effort to earn a higher return be a sensible approach for on their money. WHY most people. This article will help anyone AM I ‘You should look to invest tax new to investing to better INVESTING? efficiently and for most people understand the thought process this will mean using ISA and in terms of selecting investments pension wrappers. and what you might expect to ‘Pensions give initial tax happen in the first year. benefits but are inflexible for WHAT younger people whereas ISAs can also be tax efficient and, with IS MY stocks and shares ISAs, you can TARGET access your money whenever RETURN? you want.’ INVEST ONCE OR IN STAGES? Most investment platforms give you the option of investing with WHAT IS a lump sum or drip feeding MY TIME money into the markets whenever you want. HORIZON? Let’s suppose though you have set your goals and bought some investment funds. What can you expect in the first year of WHAT investing, what common pitfalls IS MY do first-time investors face and how often should you check on APPETITE your performance? FOR RISK? The first point to make is you should not expect too many

13 July 2017 | SHARES | 41 fireworks from your investments mistakes – after all, there’s not a in the first 12 months, if you single investor who can claim to do then something is probably have gotten it right 100% of the HOW TO going wrong. time – but the important thing CALCULATE THE Mould says: ‘When financial is to ensure you know why they markets work well and are used happened. REAL RETURN properly they are get-rich slow For the most part, you FROM YOUR mechanisms, not a slot or fruit should resist the temptation to machine on a pier.’ tinker with your portfolio too INVESTMENTS frequently. DON’T TINKER TOO OFTEN There are two good reasons It is easy to monitor your for this. First, true investing is performance online but Mould about taking a long-term view reckons you should be checking and buying and holding quality Start with the current value your portfolio at most around investments. of your investments once a month in the early days Second, if you trade too and perhaps once a quarter frequently fees, commission Subtract the value at thereafter. Connolly reckons a and other levies like stamp duty the beginning of the period bi-annual check is sufficient. will erode your returns. you’re assessing (such AS If any of your investments 12 months ago) are not performing in line with WATCH OUT FOR FADS your expectations, then you Connolly at Chase De Vere warns Add any income or dividends need to consider why this might against putting too much your paid out in that time, if they have be the case. cash into fashionable stocks not already been included in the You might not be managing and funds. Don’t get swayed by current value them efficiently enough or you investments just because they could be failing to close out are at the top of the performance Subtract any fees, trading loss-making positions before tables. Strong recent performance costs, administration or legal they do real damage to your should be seen as a warning sign charges – this gives you the portfolio. rather than as an opportunity actual return Perhaps you have been too to buy, as investment gains have confident and attempted to already been made and so you Divide the actual return by call the market, leading to an risk jumping in at the top of the the value at the start of the imbalanced portfolio. Most market. period and multiply by 100 – this experts agree there is a strong The end of your first year as an gives you the rate of return as a case for diversifying across investor provides an opportunity percentage industries, geographies and to give your portfolio a health asset classes. check. Deduct the rate of inflation Check the current allocation over the period (for example, REMEMBER THE RISKS of assets in your portfolio and it is currently 2.9%) – this gives Mould adds: ‘Too many ensure it is in line with your you a quick figure close to the inexperienced investors think strategy. If exposure to one asset total real return from the too much about reward but not class has fallen below or risen investment over the period enough about risk. above your targeted threshold, ‘You should spend your time consider buying and selling stress-testing your portfolio picks, accordingly. asking yourself what you could Investing isn’t easy but a bit have got wrong and what the of care and attention can help implications for your portfolio to keep you on the right path. might be if events do take an Ultimately you will need to be unexpected turn.’ patient and not expect instant There is no shame in making gains. (TS)

42 | SHARES | 13 July 2017 INVESTMENT FACTS. WHO CAN YOU TRUST?

In uncertain times, when the economy is buffeted by change, it can be hard to know who to trust when investing.

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The value of investments can go down as well as up and you may get back less than you originally invested. We don’t offer advice about the suitability of our products or any investments held within them, if you require financial advice you should consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change.

AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE

KEY Close Brothers (CBG) 16 Johnson Matthey 7 Royal Dutch Shell 7 (JMAT) (RDSB) • Main Market Countryside 12 • AIM Properties (CSP) Legal & General 7 Sage (SGE) 7 (LGEN) • Fund Domino’s Pizza 11 Sainsbury's (SBRY) 36 • Investment Trust (DOM) Liontrust Macro 32 Schroder UK Dynamic 26 • IPO Coming Soon EasyJet (EZJ) 16 Equity Fund Smaller Companies (GB00B8H9GB86) EKF Diagnostics 38 (GB0007219818) (EKF:AIM) Lloyds Banking 7, 29, Spirax-Sarco (SPX) 18 (LLOY) 32 Equiniti (EQN) 36 Stewart Investors 27 Moneysupermarket. 8 Esure (ESUR) 8 Asia Pacific Leaders com (MONY) (GB00B57S0V20) Aldermore (ALD) 35 Evenlode Income 27 NCC (NCC) 16 Alfa Financial (ALFA) 6 (GB00B40SMR25) Swallowfield 10 Newton 27 (SWL:AIM) Applegreen 39 Fenner (FENR) 18 Global Income (APGN:AIM) Taylor Wimpey (TW.) 12 Fundsmith Equity 26 (GB00B84QJT19) Bankers Investment 24 (GB00B41YBW71) TT Electronics 18 Nexus Infrastructure 12 Trust (BNKR) (TTG:AIM) Future (FUTR) 39 (NEXS:AIM) UDG Healthcare 14 Barclays (BARC) 34 Get Busy 39 Old Mutual 32 (UDG) Beazley (BEZ) 11 Gocompare.com 8 Global Investors Unilever (ULVR) 7 Bodycote (BOY) 18 (GOCO) UK Alpha Fund Vesuvius (VSVS) 18 British American 25 GYG (GYG:AIM) 39 (GB0032544065) Virgin Money (VM.) 35 Tobacco (BATS) Henderson High 34 OneSavings Bank 35 Burberry (BRBY) 7 Income Trust (HHI) (OSB) Vodafone (VOD) 7 Cairn Energy (CNE) 13 HSBC (HSBA) 29, 33 Proactis (PHD:AIM) 6 WPP (WPP) 7 Capita (CPI) 36 InterContinental 7 Redrow (RDW) 12 Centaur Media (CAU) 39 Hotels (IHG) Renishaw (RSW) 18 CF Livingbridge 12 Invesco 27 Royal Bank of 35 UK Micro Cap Perpetual Asian Scotland (RBS) (GB00B55S9X98) (GB00BJ04DT45)

44 | SHARES | 13 July 2017