STOCKS | FUNDS | INVESTMENT TRUSTS | PENSIONS AND SAVINGS

VOL 18 / ISSUE 10 / 16 MARCH 2017 / £4.49 SHARES WE MAKE INVESTING EASIER DIVIDEND REINVESTMENT £ SPECIAL POWER

HOW TO OWN MORE SHARES WITHOUT PUTTING YOUR HAND IN YOUR POCKET

SHOULD YOU NATIONAL GRID ‘SET ACCEPT OR REJECT TO GIVE’ INVESTORS A TAKEOVER BID? £4 BILLION REWARD

M&A BACK WITH A BANG: BOVIS HOMES, AMEC Taking out the Juncker?

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*Best Online Trading Platform, Shares Awards 2016. EDITOR’S VIEW Searching for ideas with stock screens How to get a headstart with your investment strategy using financial websites

’ve been having a play with some less than 1,000 basis points. They must of the pre-populated stock screens also have matched or outperformed the I on financial website Stockopedia, FTSE 100 over the past year. in the hope of finding some ideas O’Shaughnessy’s strategy had a real for companies to research for future average annual return of nearly 19% articles in Shares. One screen, in between 1951 and 2004, although particular, caught my attention as it there were periods of high volatility, flags some interesting names in the claims Stockopedia. small cap space. Stockopedia’s Tiny Titans screen has Stockopedia has a screen called ‘Tiny 25 qualifying names which are then Titans’ which has outperformed the equally weighted in a portfolio and FTSE 100 over the past six, 12 and 24 rebalanced every three months. This months. This screen is a small cap momentum portfolio is up 32.1% over the past year and 57.1% investing strategy based on a system by US fund ahead over the past two years. manager James O’Shaughnessy. Stock screeners can be useful ways to filter WHO IS IN THE PORTFOLIO? the market. They apply a series of rules to find Five stocks are in the mining sector, eight are specific types of stocks, similar to the way smart industrial stocks. The rest are spread across a beta exchange-traded funds use rules to find range of sectors including utilities, technology companies that might be sustainable dividend and healthcare. Two examples are Shanta Gold payers, for example. (SHG:AIM) and Swallowfield (SWL:AIM). Many ETFs will give you an overview of their Shanta is a Tanzania-based gold producer. rules but don’t explicitly state the exact criteria for Its shares are up 32% over the past year. The finding stocks. In contrast, Stockopedia publishes miner published a very good bit of news last its rules line by line, enabling you to understand week in the form of maiden drill results from a how it goes about finding stocks. This also gives satellite deposit 12 kilometres from its New Luika you information on which to make any personal operating mine. adjustments, such as if you want to widen the net The drill results showed high grades of gold fairly to include bigger market cap sizes. close to surface, which bodes well for having a new The downside to portfolios that appear on source of ore and extending the life of processing stock screeners is the need to buy each company operations at New Luika. individually, thus racking up large trading fees. Swallowfield makes beauty products and its In comparison, an ETF is a ready-made basket of shares are up just shy of 100% over the past 12 stocks. You only pay a single transaction cost and months. Half year results in February 2017 were an ongoing annual management fee which is likely ahead of expectations and shareholders were to be fairly low. treated to a 112% increase in the first half dividend. We’d love to hear from readers who regularly use WHAT IS THE CRITERIA TO BE A ‘TINY TITAN’? stock screeners to support their investing. Why not The Tiny Titans screen looks for companies valued drop us a line at [email protected] between £15m and £150m. Qualifying companies and tell us your favourite screens and the type of need to trade on less than 1.0 times price to sales results you’ve enjoyed. We may do a feature on and be fairly liquid; the bid/offer spread needs to be screens if we have enough interesting ideas. (DC)

16 March 2017 | SHARES | 3 INTERACTIVE Contents PAGES CLICK ON PAGE NUMBERS TO JUMP 16 March 2017 TO THE RELEVANT STORY 03 Searching for ideas 12 PZ Cussons has with stock screens heritage and growth potential 13 Three reasons why you need shares in 14 We update our views on Burford Capital and 06 Where next for Bovis Stock Spirits 27 Investment trusts Homes after that pay more and marriage proposals? 16 Should you accept or more dividends reject a takeover£ bid? every year 06 Who should you buy in oil services after 18 Results, trading 33 Understanding new Amec merger? updates, AGMs and pension and dividend more over the coming rules 07 Segro hopes for week Heathrow boost 34 We like zero dividend preference shares. So 07 Sturgeon fires should you starting gun on Scots independence push 36 National Grid is about to give £4bn away 08 Gold miner eyes profit even at low metal 38 There is plenty of life prices 20 Power up: How to left in Dignity own more shares 10 ’ 500 tonnes without putting your 39 Valuation anomaly of wonky veg and hand in your pocket puts spotlight on other stories in Metal Tiger numbers this week 24 How to find the right shares if you want to 42 Funds in turnaround reinvest dividends mode

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.

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Job No: 331571 Client: GAIN Capital Campaign: City Index Proof No: 01 Publication: Shores Insertion Date: 17.03.17 Spec: RGB BIG NEWS Where next for Bovis after marriage proposals? Big housebuilders do not need to get hitched

on’t be tempted to chase Bovis Homes (BVS) shares higher after a surge on takeover Dinterest (13 Mar) to 900p. For the really big housebuilders, organic expansion through land acquisition is already delivering strong returns and this removes the rationale for any deal. Unsolicited merger offers from mid-cap operators Galliford Try (GFRD) and Redrow (RDW) have both been rejected by the board of 814p per Bovis share based on Redrow’s share embattled Bovis. price of 499p or in other words a slight discount Galliford Try proposed an all share merger that of 2%. would split the combined entity 52.25% to Galliford Talks with Galliford are ongoing and Redrow still Try shareholders and 47.75% to Bovis shareholders, holds out hope of reviving a deal but we think it implying a valuation of 0.56 Galliford shares for would be risky to hold out for a hefty premium. each Bovis share. Separate from the M&A situation, Bovis has a UBS calculates that, as of 10 March, the proposal significant job on its hands to rectify the problems valued Bovis at £1.2bn or 886p or a 7% premium to which led to two profit warnings around the the previous trading day’s closing price. turn of the year, the departure of chief executive Redrow has proposed £1.25 in cash and 1.32 David Ritchie in January, and a £7m compensation new Redrow shares in exchange for each Bovis payment to customers for defects in their new share, in addition to 30p dividend. This represented homes. (TS)

at less than the $3.1bn it paid for Who should you buy in oil Foster Wheeler in January 2014. services after Amec merger? OWNERSHIP SPLIT If the Amec deal is successful then We’ve spotted an interesting stock that looks Wood would own two thirds of the very cheap at present combined entity. The transaction is expected to achieve at least £110m INVESTORS LOOKING FOR other conditions are improving and we worth of annual cost savings. undervalued opportunities in the oil would expect a similarly positive News of the transaction services sector after Amec Foster message alongside full year results overshadowed a full year trading Wheeler (AMFW) agreed to a $2.7bn on 28 March to be well received. The update from Amec. It reported an merger with Wood Group (WG.) shares at 69.81p trade at 5.5 times 8% decline in revenue on a like- (13 Mar) could consider forecast earnings for 2018. for-like basis to £5.4bn, reflecting maintenance vessel provider Gulf Wood’s offer comes only a few continuing struggles in oil and gas. Marine Services (GMS). days after we flagged Amec’s shares A £500m rights issue planned to A discounted valuation reflects a in last week’s issue of Shares as accompany full year results on 21 stretched balance sheet. A January being too cheap. In dollar terms the March has been suspended in the trading update suggests market deal values Amec Foster Wheeler wake of Wood’s offer.

6 | SHARES | 16 March 2017 BIGBIG NEWSNEWS Segro hopes for Heathrow boost Rights issue looks opportunistic as company plans for more than airport deal ecent events at industrial properties behind the move. The investment offers an initial landlord Segro (SGRO) are a double-edged yield of 3.6% but the go-ahead for a third runway Rsword for investors. at Heathrow announced in October 2016 is likely to The full takeover of a portfolio of properties lead to increased demand. which includes cargo facilities at Heathrow airport The £175m left over from the rights issue will be looks a sensible move. However, a £556m one-for- used to fund existing developments and invest in five rights issue provides more than Segro needs its land bank. for the airport assets at a heavy discount of 345p Morgan Stanley is positive on the medium- (the shares currently trade at 454.5p). term prospects for the business, reiterating its Investors are entitled to be somewhat miffed ‘overweight position’ with a 510p price target and given the real estate investment trust tapped commenting: ‘Owners of well-located logistics and shareholders for £325m in an equity placing only industrial property should see further improvement seven months ago. in pricing power.’ Segro is now paying £365m to Aviva Investors to acquire the 50% of the Airport Property Partnership SHARES SAYS:  vehicle it does not already own. The transaction We agree with Morgan Stanley’s assessment and are comprises £216m in cash and a property swap positive on the investment case. (TS) involving four London properties and a recently completed manufacturing facility in Portsmouth. BROKER SAYS 397 The price paid looks high but there is logic

SCOTTISH FINANCIALS HIT Sturgeon fires starting gun on ON 13 MARCH Aberdeen Asset Management -2.1% Scots independence push (ADN) Investors face new uncertainty over future of the Union Royal Bank of Scotland (RBS) -1.5% alongside EU exit Standard Life (SL.) -2.2% Source: Sharepad INVESTORS HAVE EVEN more to May’s Brexit bill. Sterling hit an think about at the macro level eight-week low in the wake of WHAT COULD HAPPEN WHEN? as Scottish first minister Nicola Sturgeon’s move, boosting the value Sturgeon has announced (13 Mar) of companies’ overseas earnings. End March 2017 – Article 50 her intention to seek a second As we write the FTSE 100, made up to be triggered independence vote in 2018 or 2019. of firms with largely international The move appears to have delayed horizons, is back within touching Autumn 2018 to Spring 2019 – the triggering of Article 50 – distance of record highs. Sturgeon’s targeted timeframe formerly starting the Brexit process We recently flagged companies for second independence vote – until the end of March. which could be affected by IndyRef2 Earlier reports had suggested in Shares. Financial stocks seemed March 2019 – Implied end of Article 50 would be triggered this worse affected in the wake of week as MPs approved Theresa Sturgeon’s latest speech. (TS) Brexit process

16 March 2017 | SHARES | 7 BIG NEWS Gold miner eyes profit even at low metal prices Hummingbird is optimistic as its mine nears development halfway point

ummingbird Resources (HUM:AIM) is That equates to 50% to 60% of its current market confident it can make a decent profit even value ($100m or £82m). It starts to repay the bulk of Hif gold falls to $1,100 per ounce, as was debt used to build the mine from September 2018. threatened in late 2016. The miner estimates its all- The miner expects to produce 132,000 ounces in costs for running the Yanfolila gold mine in Mali of gold in the first year and have 107,000 ounces will be in the region of $695 for every ounce of gold average annual production over the seven-year life it produces. of the mine. The gold price fell by nearly 20% between August and December 2016 to a low of $1,126 per ounce HOW CAN IT MINE FOR LONGER? – effectively wiping out all the gains made earlier Hummingbird’s challenge is to find more gold to that year. extend the mine life. It cannot afford to do more Although gold has since recovered exploration drilling until Yanfolila starts generating to approximately $1,200, investors are cash from operations. Once it reaches this understandably nervous about backing gold miners milestone, the miner plans to recommence if they can only make a small profit. drilling at a satellite deposit 5km from Yanfolila Investors need to ensure they are being fully called Gonka. compensated for the risks involved with putting The miner tells Shares that Gonka could money in the mining sector. potentially contribute an additional 30,000 ounces a year of gold-rich material to be processed at WHEN WILL HUMMINGBIRD START MINING? Yanfolila. ‘If we started drilling in Q1 or Q2 next Hummingbird is approaching the halfway mark year, within 18 months we could be processing this with development of Yanfolila. It hopes to be in material,’ it says. production by the end of 2017. Interestingly, Gonka has higher grade gold than It is expects to start pre-production mining in Yanfolila’s main deposit once you go deeper into August to build up a stockpile of material; start the ground. testing the processing equipment in the fourth Theoretically Hummingbird could produce even quarter of the year; and reach commercial more than 107,000 ounces a year (on average) production levels in March 2018. if the processing plant is being fed higher grade It could potentially generate $50m to $60m in material, as there would be more gold contained cash in the first full year of commercial production. within the rock. (DC)

Gold Bullion LBM U$/Troy Ounce 1400 1350 Gold Bullion LBM U$/Troy Ounce 2000 1300 1900 1250 1800 1200 1700 1150 1100 1600 2016 2017 1500 1400 1300 1200 1100 Source: Thomson Reuters Datastream 1000 2010 2011 2012 2013 2014 2015 2016

8 | SHARES | 16 March 2017 THE SLEEPING FOX CATCHES NO POULTRY

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7827_Witan_ISA_Fox_TheWeek_210x297_AW.indd 1 06/03/2017 12:46 STORY IN NUMBERS

PERCENTAGE OF MONEY GOING INTO EUROPEAN TECH FIRMS BY 76% US AND ASIAN INVESTORS AROUND THREE quarters of money pumped into late stage tech firms in Europe over the past year has come from the US or Asia, according to investment bank Magister Advisors. This large ESCAPES proportion of overseas capital is partially down to the lack of EU investment funds versus demand OGDEN DAMAGE from European tech firms. Magister Advisors THIS IS THE total adjustment predicts overseas investment will rise to 80% in to profit insurer Esure (ESUR) the next few years. made in its 2016 results after the gear-shift in the Ogden rate which led to significant write- downs at several of its peers. The Government recently RAMSDENS ON THE RISE went further than expected THIS IS THE percentage increase in the share price in reducing the rate, used to of jewellery retailer-to-pawnbroker Ramsdens determine compensation for (RFX:AIM) since it floated on AIM last month victims of car accidents, from (15 Feb), having ticked up from an 86p issue 2.5% to -0.75%. price to 107.45p at the time of writing. While Direct Line (DLG), Middlesbrough-headquartered for example, reported a Ramsdens is also involved in foreign £217m hit to profit from the currency exchange and its name adorns change, Esure says its low risk 25% the shirts of the struggling top flight approach to underwriting football team. and conservative reinsurance The company floated on the stock market programme mitigated much to leverage its strong brand and balance sheet of its exposure to the updated as a means of further growing the business, both rate. organically and through acquisitions.

MORRISONS IS 500 TONNES IN GOOD SHAPE RECOVERING GROCER WM Morrison Supermarkets (MRW) is now selling over 500 tonnes of ‘wonky veg’ on average each week to half a million-plus customers across stores and online. This is in response to a growing consumer clamour for mis-shaped or out of specification produce, which Morrisons processes then sells to customers at a cheaper price. Doing its bit for corporate responsibility, the supermarket’s strong full year results (9 Mar) revealed pre-tax profit of £337m, the first year of growth since 2011/12 and like-for-like sales positive in all four quarters.

10 | SHARES | 16 March 2017 STORY IN NUMBERS

Aurora Investment Trust (ARR) is taking a hefty bet that the market is too 7.9% 3-MONTH LOW pessimistic with regards to INVESTMENT OIL SLIPS AS US ACTIVITY Sports Direct TRUST’S BIG BET ON (SPD). The SPORTS DIRECT RAMPS UP troubled retailer OIL PRICES HAVE hit a three-month low as rising now accounts for inventories and increasing activity in the US knocks nearly 8% of Aurora’s OPEC’s attempts to shift the balance of the market portfolio and is its off course. fourth largest holding. The Despite two months of reduced output from the trust is run by Phoenix Asset Management producers’ cartel, there are signs North America is which likes to go big when it sees an stepping in to fill the gap. investment opportunity. ‘Phoenix’s contrarian As we write European benchmark Brent is just value approach is reflected in the fact that a over $51 per barrel and its US counterpart WTI is stock will never be purchased at a price above below $50. Data from US oil services business Baker the team’s estimate of the company’s intrinsic Hughes shows US producers added more oil rigs for value under the worst feasible outcome,’ says an eighth consecutive week. financial services group Winterflood.

BEST PERFORMING UK PHARMA & AIM STOCKS RANKED BY LARGEST BIOTECH STOCKS SO FAR THIS YEAR FORECAST PRE-TAX PROFIT FOR CURRENT FINANCIAL YEAR Name EPIC Year to date share price Name EPIC Forecast pre- gain (%) tax profit (£m) Synairgen SNG 98.2 Datatec DTC 103.2 Maxcyte MXCT 89.1 Dart Group DTG 90.7 Faron Pharmaceuticals FARN 69.8 ASOS ASC 80.1 Oxford Pharmascience OXP 66.7 Highland Gold Mining HGM 70.7 Summit Therapeutics SUMM 44.6 Burford Capital BUR 66.7 Premaitha Health NIPT 40.3 Breedon BREE 66.0 Ergomed ERGO 39.7 Abcam ABC 61.4 Animalcare ANCR 31.2 Clinigen CLIN 61.3 Allergy Therapeutics AGY 29.3 Origin Enterprises OGN 58.7 Bioventix BVXP 27.2 Impellam IPEL 58.2 Source: SharePad. 13 March 2017 Source: SharePad. 13 March 2017

16 March 2017 | SHARES | 11 GREAT IDEAS PZ Cussons has heritage and growth potential Time to turn positive on the soap, self-tan and baby food maker

uy into a rebound at PZ Cussons the flexibility to PZ Cussons (PZC), the PZ CUSSONS  BUY invest in a significant new consumer products giant (PZC) 326.90p product pipeline – numerous B Stop loss: 261.52p behind Imperial Leather soap, product launches and relaunches St. Tropez Morning Fresh tan, Market value: £1.39bn are underway in the second half dishwasher liquid and Rafferty’s – as well as acquisitions. Garden baby food brands. has a 394p price We believe PZ Cussons’ strong target suggesting 20.5% near- balance sheet and brands will term upside. For the year to 31 help it weather macro and May 2017, the broker forecasts currency risks. Major product lower pre-tax profits of £100m launches and progress on debt (2016: £103m), although half- reduction offer catalysts for the year net debt of £191m should share price. reduce to £150m. Pre-tax profits are forecast BRAND CHAMPION to recover to £107m and then A bold but unsuccessful tilt £113m in the years to May 2018 at Unilever (ULVR) from Kraft and 2019 respectively. This year, Heinz demonstrates the allure . The company faces the dividend is expected to of consumer goods groups with £12m of foreign exchange losses grow once again to 8.4p (2016: fantastic heritage and brands, in the African powerhouse due 8.1p), twice covered by forecast enjoying deeply entrenched to sharp naira devaluation. earnings of 16.9p. operations in emerging markets. Encouragingly, PZ Cussons Based on Investec’s 14.2p free -headquartered still reported improved profits cash flow per share estimate, PZ Cussons ticks many of the from thanks to Nigerian rising to 17.7p in 2018, PZ same boxes, making and selling price increases and also Cussons looks a good value personal and home care, maintained profits in Europe, recovery play, trading on a free electrical, beauty and food and although the ultra-competitive cash flow yield of 4.3%-5.4%. nutrition brands across Africa, Australian market was a drag The approximate 30% Zochonis Asia and Europe. Significantly, on performance. With a 43- family stake is an obstacle to a the company offers highly prized year track record of consecutive takeover. (JC) exposure to the populous Nigeria dividend increases, PZ Cussons and Indonesia, challenged-yet- upped the first half payout by BROKER SAYS: 041 attractive markets on a long- 2.3% to 2.67p. PZ CUSSONS term view. FTSE ALL SHARE 380 Rebased to first INNOVATIVE PIPELINE 370 360 SHELTER FROM THE STORMS The Nigerian consumer is 350 Half year results (24 Jan) were under inflationary pressure but 340 330 solid, sterling pre-tax profits only we think PZ Cussons should 320 310 slightly lower at £40.2m (2015: continue to benefit from its 300 £42.1m). This was despite tough trusted local brands. 290 280 Source: Thomson Reuters Datastream conditions in largest market A strong balance sheet gives 2016 2017

12 | SHARES | 16 March 2017 GREAT IDEAS Three reasons why you need shares in Cineworld Leisure company is more resilient than the critics would have you believe

very strong 2017 film COMPETITION FROM release schedule, rising CINEWORLD  BUY STREAMING SERVICES spend per customer and (CINE) 632p Another factor troubling UBS is A Stop loss: 443p progressive earnings underpin a the rise of home entertainment very attractive investment case at Market value: £1.7bn services like Netflix which Cineworld (CINE). continues to enjoy rapid growth This is a fantastic business in customer numbers. with high quality earnings. Cohen argues that people It generates lots of cash to will still want to get out of self-fund expansion and pay the house to enjoy leisure more dividends every year to activities and that cinema shareholders. Adjusted pre-tax remains an affordable form of profit increased by 12.5% in 2016 entertainment. to £111.4m and the dividend He also notes that cinema- went up by 8.6%. goers are spending more in We are enthused by the film Cineworld’s cinemas as a result release slate which includes of greater numbers of tickets new films in such blockbuster being bought via the internet. franchises as Star Wars, Fast & ‘They now don’t need to queue The Furious, Despicable Me and up for tickets, which gives them Guardians of the Galaxy. more free time to buy a hot dog Cinema is very resilient, in our cinema, which risks eroding the and a Coke,’ he says. view, and is in demand in both profitability of UK cinema chains,’ ‘We’ve also introduced positive and negative economic says the bank. Starbucks areas in our cinemas conditions. In response, Cineworld’s chief which are very popular and you financial officer Nisan Cohen can even get a full meal at our GROWTH AGENDA says: ‘A lot of old cinemas will VIP sites.’ Cineworld plans to open 13 new be closed in the coming years Investec forecasts 10% cinemas in 2017, roughly half and they will be replaced by pre-tax profit growth in 2017 in the UK and the rest in other new cinemas with modern to £122.6m, rising to £132.1m parts of the world. Investment technology. As for other parts in 2018. (DC) bank UBS is worried about of the world, immature markets over-supply of cinema screens like Romania still need regular BROKER SAYS: 129 in the UK. It says the pace of multiplexes built.’ CINEWORLD GROUP new screens being added to You need to consider the FTSE ALL SHARE 660 Rebased to first the UK cinema market is faster UK only represents half of 640 620 than historical levels and claims Cineworld’s estate (118 sites, 600 admissions per screen have 1,042 screens). It also has 108 580 560 been falling since 2009. cinemas with 1,073 screens in 540 520 ‘We believe further screen other countries such as Poland, 500 480 growth will lead to a reduction Israel, Hungary, Czech Republic 460 Source: Thomson Reuters Datastream in admissions per mature and Bulgaria. 2016 2017

16 March 2017 | SHARES | 13 GREAT IDEAS UPDATES

BURFORD CAPITAL STOCK SPIRITS (BUR:AIM) 782p (STCK) 179.75p

Gain to date: 6.5% Gain to date: 10.3% Original entry point: Original entry point: 734p, 9 March 2017 Buy at 163p, 18 August 2016 OUR POSITIVE CALL on litigation finance provider A BOLD CALL on the turnaround afoot at Central Burford Capital (BUR:AIM) is off to a good start as and Eastern European branded spirits and the company reports an extremely strong set of liqueurs producer Stock Spirits (STCK) is 10.3% in 2016 results (14 Mar 2017). the money. Not everyone is impressed with the Revenue is up nearly 60% to $162.9m and progress to date though. adjusted earnings per share gains 78% to 56c. The In-line full year results (8 Mar) served up by new dividend is hiked 14% to 9.15c but this translates CEO Mirek Stachowicz showed growth in volume into a 38% increase in sterling terms. and strong cash generation. Stock Spirits says it Alongside the results themselves Burford is pressing ahead with cost cutting initiatives and announces a further sale of its interest in the becoming more competitive in its key market Petersen V Argentina case – litigation involving Poland. Price cuts for key brand Zoladkowa de Luxe Spanish investment group Petersen which faced are helping to regain customer support. insolvency after the Argentine government However Luis Amaral, the Portuguese summarily renationalised oil company YPF. businessman and biggest independent shareholder, The company has now sold 10% of its interest takes a different view. He argues ‘costs have not in the case for $40m, which implies a total market fallen at all’ and ‘shareholders simply do not value for its investment of $400m or 20 times what understand why the company insists on keeping its it initially put in. expensive head office in the UK.’

The transaction leads N+1 Singer to upgrade STOCK SPIRITS GROUP Amaral also 2017 earnings per share expectations by 43% to FTSE ALL SHARE contends: 185 Rebased to first 180

BURFORD CAPITAL 63.3 cents. ‘All the many FTSE ALL SHARE This implies a 175 changes the 800 Rebased to first 170 700 forward price- 165 company has 160 600 to-earnings 155 made in the 500 ratio of 15 150 last 12 months 145 400 times which 140 Source: Thomson Reuters Datastream seem to have 2016 2017 300 does not had no impact

200 Source: Thomson Reuters Datastream seem overly on what is important to investors: an improvement 2016 2017 expensive for in the core market of Poland; and a reduction in such a unique business. bloated costs. Further radical change is required to The big upgrade from Singer reflects the inherent address this downward spiral.’ unpredictability of earnings which is an ongoing risk investors need to consider. SHARES SAYS:  Amaral’s comments could be the precursor to a more substantial overhaul of the strategy and we stay SHARES SAYS:  bullish. (JC) We remain comfortable with our bullish stance. Keep buying at 782p. (TS) BROKER SAYS: 2 2 1

BROKER SAYS: 4 0 0

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nvestors put money into stocks with the hope of Imaking a profit in the future. You’d therefore expect corporate takeovers to be good news, particularly if they are priced at a premium to the market price. In reality not everyone accepts them with open arms. Some people don’t like the thought of their investments being taken away against their will; they can become angry at missing out on the opportunity to make more money in the future. Other investors become £ irate when companies reject takeovers, seeing it as a missed opportunity to lock in gains as further growth may be harder to achieve. With those scenarios in mind, we now take a look at a few topical takeover situations.

ACCEPT THE BID; IT’S THE BEST OFFER YOU’LL GET

Shareholders in gambling group NetPlay TV (NPT:AIM) will soon tough period should it remain as geographically. It doesn’t have be asked to vote on a 9p cash an independent entity. the money to make investments per share takeover offer from NetPlay has been hammered to stay competitive. As such, we Betsson. by tougher taxes in the gambling believe investors need to accept We’ve heard rumblings from sector over the past few years and that the share price is highly private investors that many the situation will only get worse. unlikely to return to its 20p+ shareholders aren’t happy with An additional tax comes into force dizzy heights seen in 2014. the price, saying it is less than half later this year on ‘free bet’ offers We see little chance of the level at which the company which will eat into another large someone else making a higher traded three years ago. chunk of its earnings. offer. NetPlay talked to various We believe shareholders The company lacks sufficient third parties in the second half should accept the bid as the scale in our view and has failed of 2016 and didn’t attract a business faces an extremely in its attempts to diversify single bid.

16 | SHARES | 16 March 2017 TALKING POINT

the second rejected bid at higher than the current 42.25p WAS RIGHT NOT TO HAVE 744.75p. FinnCap believes the share price, suggesting Premier ACCEPTED THE BID shares are worth 835p on a sum Foods should have bitten the US of the parts basis. spice giant’s hands off. Palm oil producer MP Evans Rather than surrendering (MPE:AIM) did the right thing in to McCormick, not accepting a 640p takeover SHOULD HAVE ACCEPTED inked a collaboration deal with late last year from Asian group THE BID Nissin. Since then, shares in KLK, saying that price undervalued the Mr Kipling cakes-to-Bisto the business, its unique position One takeover attempt collapsed; gravy maker crashed following and its future growth potential. It let’s hope another bid comes a warning (18 Jan 2017) that full even resisted an upgraded offer for Premier Foods (PFD) so year profits would be around of 740p per share. shareholders don’t have to put 10% lower than previous The bid helped to put a up with yet more profit warnings. expectations; its second earnings spotlight on certain assets According to a recent report alert in less than four months. previously ignored by the in The Sunday Times, a leading The company pointed to market. For example, its property investor in Premier Foods is changing promotional strategies assets are worth more than pressing Nissin Foods to make by supermarket customers and people thought, based on an an offer or clear the way for a ‘significant input cost inflation’ independent valuation report. rival bid. driven by sterling depreciation. In December when the shares It regards the Japanese instant Criticised by hedge fund firm were trading at 655p, the noodle leader’s near-20% holding and shareholder Paulson & Co, market was effectively valuing as a blocking stake preventing a Premier Foods is also under the company’s majority-owned sale of struggling Premier Foods. pressure from activist Oasis plantation assets at $10,000 per Its £525m net debt is a key reason Management. Now its second hectare. Quoted peers traded at for our continuing negative view largest shareholder, Oasis has an average $18,600 per hectare, on the stock. taken a seat on the board and is said stockbroker FinnCap, Premier Foods spurned an working with the food producer ‘clearly highlighting the value in offer last year from McCormick to unlock value from a brand the shares’. & Co. Its third and final offer portfolio we still view as rather MP Evans now trades above was pitched at 65p in cash, 54% tired. (DC/JC)

16 March 2017 | SHARES | 17 WEEK AHEAD

FRIDAY 17 MARCH FINALS REACT GROUP REAT INTERIMS INVESTEC INVP AGMS CHEMRING CHG PREMIER AFRICAN MINERALS PREM KIER GROUP (KIE) NEXT (NXT) SPITFIRE OIL SRO Half year results on 23 March Expectations are subdued ahead TORO TORO from builder and civil engineering of hard-pressed clothing retailer MONDAY 20 MARCH business Kier Group (KIE) are likely Next’s (NXT) full year results (23 FINALS to be scanned for an update on Mar). Commentary on the recent JOHN LAING INFRASTRUCTURE JLIF conditions in the UK construction performance of the retail and FUND market. A January trading update directory businesses, as well as the MAXCYTE MXCT ahead of these numbers highlighted outlook for costs, will be closely ONE MEDIA IP OMIP ‘good underlying organic growth’ scrutinised by analysts. Next kicked SATELLITE SOLUTIONS SAT with a £9bn order book. off the festive retail reporting WORLDWIDE season with a worse-than-expected TAPTICA TAP IQE IQE fourth quarter update (4 Jan), CEO INTERIMS JUDGES SCIENTIFIC JDG Simon Wolfson downgrading profit DIURNAL DNL NAHL GROUP NAH forecasts again and warning the VOLUTION FAN SAFECHARGE SCH cyclical slowdown in clothing and FINSBURY FOOD FIF SMART METERING SMS footwear spend would continue into ECONOMICS SYSTEMS 2017. UK VECTURA VEC RIGHTMOVE HPI INTERIMS NEXT NXT CBI INDUSTRIAL ORDER EXPECTATIONS BWY SOCO INTERNATIONAL SIA SCIENCE IN SPORT SIS TUESDAY 21 MARCH EARTHPORT EPO TRADING STATEMENTS INTERIMS FINALS IG GROUP IGG KIER KIE 888 888 AGMS TRADING STATEMENTS AMEC FOSTER WHEELER AMFW ELECTRONIC DATA EDP HALMA HLMA AUGEAN AUG PROCESSING AGMS EKF DIAGNOSTICS EKF ONE MEDIA IP OMPI CONYGAR CIC ENQUEST ENQ BLUE PRISM PRSM EX-DIVIDEND FEVERTREE DRINKS FEVR RIVER & MERCANTILE BLACKROCK LATIN BRLA $0.09 HANSTEEN HOLDINGS HSTN UK MICRO CAP AMERICA INVESTMENT COMPANY RMMC BOVIS HOMES BVS 30P ECONOMICS DUNELM DNLM 6.5P UK GALLIFORD TRY GFRD 32P PPI HEAVITREE BREWERY HVT 3.75P CPI MGGT 10.3P RPI NWF GROUP NWF 1P EU OCTOPUS SECOND OSEC 2P FLASH SERVICES PMI AIM VCT PRIVATE & COMMERCIAL PCF 0.1P ENQUEST (ENQ) FLASH MANUFACTURING PMI FINANCE GROUP The Kraken development project is WEDNESDAY 22 MARCH REDROW RDW 6P likely to be in focus when North Sea FINALS SEGRO SGRO 11.2P oil producer EnQuest (ENQ) reports KINGFISHER KGF TRISTEL TSTL 1.4P its full year results on 21 March. QUIXANT QXT ECONOMICS Previous production guidance XAAR XAR UK of 45,000 to 51,000 barrels of INTERIMS BBA MORTGAGE APPROVALS oil equivalent per day in 2017 is SCT RETAIL SALES dependent on first oil from the THURSDAY 23 MARCH US field being delivered in the second FINALS UNEMPLOYMENT CLAIMS quarter of the year. CURTIS BANKS CBP FUTURA MEDICAL FUM For complete diary go to www.moneyam.com/forward-diary

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HOW TO OWN MORE SHARES WITHOUT PUTTING YOUR HAND IN YOUR POCKET

20 | SHARES | 16 March 2017 f you’re a long-term investor one of the simplest DIVIDEND REINVESTMENT IN ACTION ways to boost your returns is to reinvest You have three main options when your dividends. You end up owning more shares investment pays a dividend: or units in a fund without putting your hand • Take the cash. in your pocket for more cash beyond the original • Accept payment in stock rather than cash, Iinvestment. known as a scrip dividend. Very few companies Let’s say you own £10,000 worth of shares in offer this option these days. Company X. This pays 5% dividend each year, equal • Reinvest your dividend. to £500 on your £10,000 investment. If you reinvest that £500 in more Company If you want to reinvest, you can set up automatic X shares, you will have an investment worth dividend reinvestment online via your investment £10,500. Fast forward one year and your 5% platform and they will ensure the monies received yield on the bigger-sized investment equals are used to acquire more shares in the same dividends worth £525 – so £25 more than you quoted company. got last time. £ If you reinvest that £525 in more Company X > HOW MUCH DOES IT COST TO shares, your overall pot will be worth £11,025. REINVEST? A 5% yield a year later on that pot equates to Dividend reinvestment won’t be free via your ISA £551.25. That’s £51.25 extra money from dividends or SIPP (self-invested personal pension) provider. versus what you received two years earlier. You will have to pay a charge, although it is You can see how your dividend keeps getting normally much cheaper than the normal fees to POWER bigger each year, so too the size of your overall buy and sell shares. investment – and that’s without assuming any On average, platforms charge a flat fee of £1.50 share price appreciation. or a percentage-based fee of 1% of the dividend If you keep recycling your dividends into buying value (subject to a minimum of £1.50 and a more shares or fund units, in time you can really maximum of £9.95). The fee will be levied on every power up the value of your portfolio. reinvestment deal the platform carries out. You will also have to pay stamp duty. > HOW DO I REINVEST? In the vast majority of cases it’s likely the Historically, the only way for investors to fees levied for dividend reinvestment will be far automatically reinvest dividends was to join each lower than if you received the dividend and then individual company’s dividend reinvestment bought more shares via a standard trade. At AJ plan, also known as DRIP. These plans, which are Bell Youinvest, for example, the standard dealing operated by the company’s registrar, are usually charge is £9.95 unless you made 10 or more trades only provided by the largest companies on the the previous month, in which case it is £4.95. Its stock exchange. dividend reinvestment fees can be as low as £1.50. HOW TO OWN MORE Sadly the number of companies offering scrip ‘Dividend reinvestment schemes are more cost- dividend schemes has fallen rapidly over the past effective and efficient than buying shares through a SHARES WITHOUT decade to around 25 blue-chip stocks. normal trade at a broker,’ comments Jon Wingent, Thanks to technological advances at investment head of portfolio specialists at Lloyds Wealth PUTTING YOUR HAND platforms, it’s now possible to get nearly all your Investment Office. dividends reinvested via a different route – that IN YOUR POCKET applies to stocks, exchange-traded funds (ETFs) or > WHAT’S THE MINIMUM AMOUNT investment trusts. I CAN REINVEST? Dividend reinvestment isn’t suitable for In order for a dividend to be reinvested it must everyone so it’s important to assess your individual meet the platform’s specified minimum amount, circumstances before jumping on board. which is usually £10. It also needs to be sufficient

16 March 2017 | SHARES | 21 to buy at least one share in the company. “WITH DIVIDEND REINVESTMENT You can choose whether to reinvest individual dividend payments or to reinvest all the dividends YOU’RE BUILDING UP YOUR for all the investments you have now and will have in the future. CAPITAL WITHOUT HAVING TO You will need to instruct your broker for each BUY MORE SHARES OR DO MUCH account you hold with them – so if you have an ISA and a SIPP you’ll have to make an election for AT ALL” each one. means dividend reinvestment is better for those Most platforms enable you to reinvest dividends who have a long-term time horizon. from a wide range of shares, investment trusts, Russ Mould, investment director at AJ Bell trackers and ETFs. Some restrict their service to FTSE Youinvest, gives the example of an investor who 350 stocks, or at the very least UK-listed companies. invests the 2016/17 ISA allowance of £15,240 and It is possible to apply automatic dividend then makes no further contributions. His working reinvestment to funds at some brokers, but this example assumes the FTSE All-Share generates a isn’t the most cost-effective approach. If you want compound annual growth rate of 6.8% and pays a to reinvest the income received from a unit trust dividend yield of 3.8%. or OEIC fund it’s better to buy the accumulation After subtracting 1% a year for platform (‘acc’) version of the fund rather than the income administration and dealing fees, the initial £15,240 (‘inc’) version. will be worth £26,610 after 10 years, £46,464 after The ‘acc’ version will automatically reinvest 20 years and £81,129 after 30 years. You would dividends so you don’t even have to use your have also banked £1,011, £1,765 and £3,082 broker’s reinvestment service to arrange for that respectively in cash dividends as well. trade to be made. These are attractive figures, but they are far lower than those received by an investor who > SHOW ME MORE EVIDENCE THAT banks the same capital return and reinvests REINVESTING IS WORTHWHILE dividends. In this case, the initial £15,240 By reinvesting dividends, you have mathematics on investment becomes £37,747 over 10 years, your side because you get to harness the power of £93,496 over 20 years and £231,577 over 30 years. compounding. ‘This is a simplistic example, as returns will ‘With dividend reinvestment you’re building up not come in straight lines. However, it shows the your capital without having to buy more shares or potential offered by compounding and how stock do much at all,’ says Wingent. market investing can be a way to get rich slowly. The effects of compounding will be more ‘It requires to you to work to a long-term time pronounced the longer you remain invested, which horizon, be able to identify stocks or funds where THE POWER OF DIVIDEND REINVESTMENT 6.8% compound annual Dividends paid in Investment value + 6.8% compound annual capital return capital return only cash (3.8% yield) cash dividends PLUS 3.8% dividend yield reinvested Initial investment £15,240 - - £15,240 After 5 years £20,138 £765.2 £20,903.2 £23,985 After 10 years £26,610 £1,011.2 £27,621.2 £37,747 After 15 years £35,163 £1,336.2 £36,499.2 £59,407 After 20 years £46,464 £1,765.6 £48,229.6 £93,496 After 25 years £61,397 £2,333.1 £63,730.1 £147,144 After 30 years £81,129 £3,082.9 £84,211.9 £231,577 After 40 years £141,659 £5,383.0 £147,042.0 £573,585 After 50 years £247,347 £9,399.2 £256,746.2 £1,420,696 Source: AJ Bell Youinvest / Shares

22 | SHARES | 16 March 2017 the dividend payments are safe and reliable, and withstand the inevitable bear markets that will follow the bull ones along the way,’ says Mould. > WHEN SHOULDN’T I REINVEST DIVIDENDS? There are some instances when dividend reinvestment won’t be suitable, so it’s important to think about your overall investment strategy, target returns, time horizon and appetite for risk. ‘If you are in drawdown in retirement, for £ example, you may wish to start banking dividends. If you are much younger and still building your savings pot then you may prefer to reinvest them and try to get the power of compounding to work in your favour,’ Mould says. Even if you’re young and have a high risk appetite, you might want to consider keeping a residual portion of your portfolio in cash. ‘The liquidity can help in case of unexpected emergencies, meet any fees and also provide a buffer so that you have some cash around when you need it and are not forced to sell holdings at what could be an inconvenient time, such as during a bear market when prices could be depressed,’ Mould explains. > KEEP AN EYE ON YOUR PORTFOLIO If you have a portfolio comprised of dividend and non-dividend paying stocks, your portfolio could become unbalanced if you opt for dividend reinvestment. This is because reinvesting dividends increases your holding in these stocks. You might need to adjust your portfolio in order to ensure your exposure to certain stocks, sectors and geographies continues to match your risk profile. Furthermore, it’s important not to let the availability of dividend reinvestment schemes cloud your judgement when choosing which investments to buy. Wingent says if a stock has a very high dividend it could be a sign the company is not of a high quality and dividend payouts might not be sustainable. To help you on your investment journey, this week’s issue of Shares includes two articles that discuss stocks and investment trusts which might interest anyone seeking ideas to support a dividend reinvestment strategy. You will find them straight after this article. (EP)

16 March 2017 | SHARES | 23 HOW TO FIND THE RIGHT SHARES IF YOU WANT TO REINVEST DIVIDENDS FREE CASH FLOW IS A GOOD INDICATOR DIVIDEND AS TO HOW MUCH MONEY CAN BE PAID REINVESTMENT OUT TO SHAREHOLDERS SPECIAL ould you like some help in spotting business for areas like individual companies that could be new equipment – also interesting candidates for a dividend known as capital expenditure W reinvestment strategy? This article or capex. discusses a way to find stocks that are highly cash Here’s how you calculate free cash flow. Find generative and so have the potential to pay more net cash from operations in a company’s results and more dividends each year. statement, add dividends received from joint We also run through some stocks that have been venture companies (if there are any), take away suggested by stock screening systems, based on capex, interest paid to lenders, dividends paid to criteria meant to find good dividend growth stories. any preferred or minority shareholders and add More on that later. back any income from interest payments. To work out a per share number, take the free WHERE DO I START? cash flow and divide it by the number of shares in The combination of dividend growth and dividend issue – which you can find in recent stock market reinvestment can be very powerful in terms of announcements or the latest set of financial results powering up the value of your portfolio. (it will be buried in the numbers near the end). A quick and straightforward way of checking a company’s ability to grow the dividend and provide HOW CAN I TELL IF A DIVIDEND IS plenty of income that you can reinvest is to look at SUSTAINABLE? how many times the dividend per share is covered Dividing free cash flow per share by the dividend by earnings per share. per share would help determine the sustainability However, to be really sure you need to go further of a payout. Any figure less than one would imply as dividends are not paid out of earnings but from the company is funding its dividend through debt a company’s free cash flow. Essentially this is all or retained earnings. the cash left after a company has paid tax, the For example, BP’s (BP.) free cash flow per cost of borrowing and put money back into the share of 8.7 cents in 2016 failed to come close to

THE DOWNSIDE OF DIVIDENDS A DIVIDEND PAYMENT can way to keep people interested in smart acquisitions or to pay be seen as a company telling is by paying a dividend. down any excessive borrowings. investors ‘I don’t know what The ideal situation is for Depending on the share price to do with this cash, so you the dividend to be paid from it could also make sense for a have it’. It could also be an genuinely surplus cash rather company to conduct a share admission the investment case than money which could be buyback, given this is more tax has gone stale and the only used to invest for future growth, efficient for shareholders.

24 | SHARES | 16 March 2017 covering a full year dividend of 40 cents. The makes Bunzl very interesting from a dividend stock currently yields 6.8%. A high yield generally reinvestment perspective. in excess of 5% can be a signal from the The company says its dividend has gone up every market that a dividend is risky and potentially year for the past 24 years, at a rate of more than unsustainable. 10% compound annual growth. On the other side of the coin, Bunzl’s (BNZL) By putting money into an investment that free cash flow per share of 93.8p in 2016 delivers a consistent return – and then reinvesting comfortably covers a dividend per share of 42p. that cash in to buying more shares – you capture A prospective yield of 1.5% may look pretty the future returns on your reinvested profits as well skinny but the consistent growth in the dividend as from your original investment. DIVIDEND REINVESTMENT CANDIDATES STOCKOPEDIA HAS A system that identifies ECO ANIMAL HEALTH (EAH:AIM) 510P stocks which could potentially fit a dividend reinvestment strategy. VETERINARY DRUGMAKER Eco Animal Health Let’s now look at seven stocks that appear in (EAH:AIM) is enjoying strong demand for its pig Stockopedia’s screener alongside an exchange- and poultry antibiotic Aivlosin. Early in 2017 the traded fund which may interest someone who company received approval for the use of water wants a more diversified investment. soluble Aivlosin in chickens laying eggs for human consumption in Mexico. This was an important step BROOKS MACDONALD (BRK:AIM) £19.85 as Mexico is one of the five largest egg producing countries in the world. THE WEALTH MANAGER specialises in a profitable The company is in the process of submitting niche, serving clients with investable assets regulatory between £100,000 and £1m. It continues to benefit filings in from industry changes designed to rid the finance other key egg industry of controversial practices which have producing historically seen investors receive bad advice and markets. House poor value for money. broker N+1 Singer Among the first to comments: ‘We structure its service continue to expect around fee-based advice Aivlosin to generate strong rather than commissions, growth in multiple geographies, Brooks was well with additional formulations, positioned before new indications, geographies and regulations tightened up species providing further growth the industry in 2013. potential.’

STOCKOPEDIA’S DIVIDEND ACHIEVERS – CANDIDATES FOR DIVIDEND REINVESTMENT Company EPIC Dividend growth EPS 5 year Current ratio DPS growth Dividend yield streak (years) CAGR % Brooks Macdonald BRK 9 14.2 1.86 14.8% 1.8% Eco Animal Health EAH 6 26.3 4.01 28.6% 1.3% FOUR 7 39.5 1.63 31.7% 2.6% Howden Joinery HWDN 5 17.4 2.33 8.1% 2.5% James Latham LTHM 7 12.1 3.26 15.6% 1.7% Nichols NICL 9 12.6 3.27 14.5% 1.6% Photo-Me International PHTM 6 15.7 1.66 24.6% 3.8% Source: Stockopedia

16 March 2017 | SHARES | 25 4IMPRINT (FOUR) £16.52 NICHOLS (NICL:AIM) £18.56

PROMOTIONAL PRODUCTS BUSINESS 4imprint THE COMPANY OWNS a range of highly profitable (FOUR) is the market leader, although there is still niche soft drink brands which are sold across plenty of room to grow as it only has a 2% share of the globe. Key brands Vimto, Levi Roots, Sunkist a $24bn addressable market in the US. and Panda are consumer favourites in some key The company is inherently cash generative with geographies. limited requirements for working capital or capital Recent additions to the portfolio include the expenditure. Now that action has been taken to purchase of premium juices outfit Feel Good and address the company’s pension liabilities (76% iced drinks specialist the Noisy Drinks Co. Its long of which are now insured), the company should standing position as a reliable dividend payer is be able to deliver more generous dividends to underpined by a strong balance sheet. shareholders.

HOWDEN JOINERY (HWDN) 426.1P

KITCHENS SELLER HOWDEN Joinery (HWDN) has a strong balance sheet and a good track record of managing costs during downturns to preserve profitability. It sells to trade customers through a network of more than 600 depots in the UK. In 2015 it supplied in excess of 400,000 kitchens, 2.4m doors and 750,000 appliances to UK homes. If it delivers the forecast 11.2p per share payout in 2017, Howden will have served up a 30.1% PHOTO-ME INTERNATIONAL (PHTM) 167P compound annual dividend growth over five years. PHOTOBOOTH AND LAUNDRY machine operator Photo-Me International (PHTM) has been beset by one-off setbacks in the last 12 months including delays to a Japanese ID programme last summer and the UK Home Office considering if photos taken on mobile phones can be used for passports. Long-term growth is likely to come from the introduction of 3D photo and e-signature technology in photo booths and the roll-out of Photo-Me’s laundry machine division. The company is highly cash generative and this has supported double-digit growth in the ordinary dividend alongside a number of special payouts.

SOURCE FTSE RAFI UK EQUITY INCOME JAMES LATHAM (LTHM:AIM) 897P PHYSICAL (DVUK) £10.23

THE TIMBER MERCHANT was founded at the LAUNCHED IN MARCH 2016, this exchange-traded dawn of the 20th century and has been profitable fund tracks UK-listed stocks that have the potential through any number of stock market cycles. to offer a high, sustainable income. It has a total Improving revenue and prudent cost control expense ratio of 0.35%. is having a positive impact on operating results A large chunk of the fund (22.8%) is in the for the business. The company has net cash on financial sector. Top holdings include bank the balance sheet and the first half dividend was Standard Chartered (STAN), miner Rio Tinto covered 6.9 times by earnings. That implies plenty (RIO), oil major BP and pharmaceuticals business of scope for further dividend increases. GlaxoSmithKline (GSK). (TS)

26 | SHARES | 16 March 2017 DIVIDEND INVESTMENT TRUSTS REINVESTMENT THAT PAY MORE AND SPECIAL MORE DIVIDENDS EVERY YEAR INVESTMENT TRUST DIVIDEND HEROES Sector Number of consecutive years of dividend growth City of London UK Equity 50 Investment Trust Income Global 50 Global 50 Global 49 F&C Global Smaller Global 46 Companies 20 funds that have Foreign & Colonial Global 46 Investment Trust consistently grown Brunner Investment Trust Global 45 JPMorgan Claverhouse UK Equity 44 their payouts for more Investment Trust Income than 20 years Murray Income UK Equity 43 Income nvestment trusts can be ideal products for Witan Investment Trust Global 42 anyone seeking to enjoy compounding benefits Scottish American Global Equity 37 from reinvesting dividends. Income They are allowed to stash away up to 15% Merchants Trust UK Equity 34 Iof income every year in a pot called ‘revenue Income reserves’. This rainy-day money can help them to Scottish Mortgage Global 33 keep paying dividends even if market conditions Investment Trust are bleak and there is temporarily a lower income Scottish Investment Trust Global 33 from their underlying holdings. Temple Bar UK Equity 33 Twenty investment trusts have raised their Income dividend every year for at least the past 20 years in Value & Income UK Equity 29 a row, according to the Association of Investment Income Companies (AIC) which labels them as ‘dividend F&C Capital & Income UK Equity 23 heroes’. Income Don’t be put off by many of these trusts only British & American UK Equity 21 having dividend yields in the region of 2% to 3%. Income The real attraction is their dividend growth, in our Schroder Income Growth UK Equity 21 view. Income Let’s now take a look at seven investment trusts Northern Investors Private Equity 20 on the AIC’s dividend heroes list. Company* *Northern Investors Company is winding up. Source: AIC

16 March 2017 | SHARES | 27 Bankers Investment Trust Brunner Investment Trust (BNKR) 768p (BUT) 671p Discount to net asset value: 4.8% Discount to net asset value: 14.5% Number of consecutive years of dividend growth: 50 Number of consecutive years of dividend growth: 45

BANKERS INV.TRUST - TOT RETURN IND BRUNNER INV.TST. - TOT RETURN IND Bankers’ fund FTSE ALL SHARE - TOT RETURN IND Allianz-managed FTSE ALL SHARE - TOT RETURN IND manager Alex 000'S dividend 000'S 90 50 Crooke says a 80 hero Brunner 45 careful focus 70 Investment Trust 40 60 35 on investing 50 is a concentrated 30 in companies 40 global equity 25 capable of 30 portfolio with 20 20 15 Source: Thomson Reuters Datastream growing their 10 Source: Thomson Reuters Datastream a focus on 10 dividends over 2008 2010 2012 2014 2016 high quality 2008 2010 2012 2014 2016 time has meant that even through the market growth and attractive valuations. Manager Lucy crash in 2008, Bankers Investment Trust has Macdonald has reduced the trust’s UK exposure to avoided regularly dipping into reserves to keep have a greater portion of income derived overseas. growing its own dividends to shareholders. ‘I look for a company with good growth potential, ‘Over the last 10 years Bankers has only had favourable industry structure and profitability, to dip into reserves once, in 2011, when it was management with proven ability to allocate capital decided to increase investment into Japanese effectively and, preferably, a valuation opportunity,’ equities,’ says Crooke. ‘It was judged that the says Macdonald. potential total return meant a short term reduction ‘The technology sector has growth and an in dividends would be offset by higher capital increasing willingness to distribute via dividends, returns. A year later dividends were once again such as Microsoft and Apple. The financial sector, covered by earnings.’ after a period of enforced restraint by regulators One of Crooke’s favourite stocks is Cranswick post financial crisis, is now a recovering source of (CWK), a supplier of pork and meat products to UK income, particularly in the US,’ she adds. food retailers. ‘They have increased their dividend ‘Geographically Europe, Asia and emerging every year since 1991 and have a great record of markets have good yield potential. We have using internally generated cash to fund growth and exposure to income from all regions via stocks acquisitions.’ like Schneider, Jiangsu Expressway and Brazilian infrastructure company CCR.’

City of London Investment Trust (CTY) 417.5p Premium to net asset value: 1.4% Number of consecutive years of dividend growth: 50

CITY OF LONDON IT. - TOT RETURN IND Managed by FTSE ALL SHARE - TOT RETURN IND Job Curtis since 000'S 100 1991, the trust 90 has dipped into 80 its revenue 70 60 reserves in seven 50 out of the last 40 30 Source: Thomson Reuters Datastream 25 years to grow 20 the dividend, 2008 2010 2012 2014 2016 demonstrating the advantages of the closed-ended

28 | SHARES | 16 March 2017 structure over open-ended funds in terms of income. (MUT) 771.5p Curtis looks for a combination of an above average yield and growth in his investments. The Discount to net asset value: 8.4% fund manager likes strong balance sheets which he Number of consecutive years of dividend growth: 43 believes are key to ‘avoiding the disasters’ during a downturn. Murray Income focuses on fundamentals such as a Favoured picks include classic defensive British strong business model, experienced management American Tobacco (BATS), the cash-generative, team and conservative balance sheet. ‘It aims to dividend paying tobacco titan being ‘the most invest in good quality companies with attractive successful stock in my career’. The trust has dividend yields that are capable of growing their stakes in such stocks as GlaxoSmithKline (GSK), earnings and dividends over the long term,’ says Royal Dutch Shell (RDSB). Curtis is also keen to manager Charles Luke. highlight the dividend growth prospects for the UK Over the last decade, the trust has accessed its housebuilding sector, owning both Taylor Wimpey revenue reserve only twice. Its favourite source of (TW.) and Persimmon (PSN). income is the MURRAY INCOME - TOT RETURN IND FTSE ALL SHARE - TOT RETURN IND pharmaceutical 000'S sector with 60 55 JPMorgan Claverhouse holdings 50 45 (JCH) 674.5p including 40 GlaxoSmithKline, 35 30 Discount to net asset value: 5.3% AstraZeneca 25 (AZN) and 20 Number of consecutive years of dividend growth: 44 Source: Thomson Reuters Datastream 15 Roche. 2008 2010 2012 2014 2016 Dividend- JPMORGAN CLAVERHOUSE - TOT RETURN IND paying stalwart FTSE ALL SHARE - TOT RETURN IND 000'S JPMorgan 60 55 Claverhouse 50 has a focused 45 40 portfolio of 35 62 stocks and 30 25 looks for value, 20 15 Source: Thomson Reuters Datastream momentum 2008 2010 2012 2014 2016 and quality in the UK equities space. Co-manager William Meadon says the ideal stock would have all three characteristics. ‘It would be cheap, have good momentum of both earnings (profit) and share price, and have a strong balance sheet. There are very few of these stocks, so when we find them we buy a lot.’ He says Ashtead (AHT), (MCRO) and Imperial Brands (IMB) currently meet all three criteria. Meadon cites Fevertree Drinks (FEVR:AIM) as ‘an out and out momentum stock with great share and earnings momentum’. He points to Taylor Wimpey and other quality UK housebuilders having cash rich balance sheets and says insurer Aviva (AV.) looks very cheap.

16 March 2017 | SHARES | 29 Scottish American Investment Witan Investment Trust Company (WTAN) 953.5p (SCAM) 342p Discount to net asset value: 4.8% Premium to net asset value: 3.6% Number of consecutive years of dividend growth: 42 Number of consecutive years of dividend growth: 37 WITAN INV.TRUST - TOT RETURN IND Witan FTSE ALL SHARE - TOT RETURN IND SCOTTISH AMERICAN - TOT RETURN IND Baillie Gifford- Investment 000'S FTSE ALL SHARE - TOT RETURN IND 45 managed 000'S Trust uses a 40 26 Scottish 24 multi-manager 35 22 30 American 20 approach to 18 25 Investment 16 deliver long- 20 14 15 Company – 12 term growth 10 10 also known as 8 in income 5 Source: Thomson Reuters Datastream

6 Source: Thomson Reuters Datastream 2008 2010 2012 2014 2016 ‘SAINTS’ – aims 4 and capital to grow the 2008 2010 2012 2014 2016 for shareholders. Chief executive Andrew Bell dividend at a faster rate than inflation. comments: ‘Over the past 25 years, we have only Global equities are its focus, although twice paid dividends that were higher than the investments are also made in bonds, property and earnings for that year. other asset types. ‘The first was 1999, when the dividend was 7.6p ‘We focus on identifying exceptional companies and revenue earnings 7.54p. The second was 2010, which will persistently deliver both robust cash flow when the dividend was 10.9p and revenue earnings growth and dependable dividends,’ says manager 9.6p. That was the year when BP (BP.) cut its Dominic Neary. dividend and a number of manager changes meant Neary’s favoured stocks include TSMC, ‘the we were less fully invested than normal. Taiwanese semiconductor manufacturer, which has ‘Since 1974, the dividend has risen from 0.38p built up the leading position in making chips for a to 19p in 2016, an annual growth rate of 9.8% over huge range of end-markets. the 42 years, during which UK consumer prices ‘We can see demand for silicon rising rose by 5.7% per annum, so our dividend has on enormously over the next five to 10 years as the average risen 4% faster than inflation.’ (JC/LMJ) number of devices proliferates – and TSMC is now one of the only businesses who have the scale and skills to meet this growth in demand.’ A recent portfolio addition is cash-generative dividend payer Kering, a luxury goods business which owns Gucci and many other brands. ‘We see two big drivers of growth; an improvement in the performance of Gucci and Puma under revitalised creative teams, and continued growth from the collection of smaller luxury brands the group has incubated over many years.’

30 | SHARES | 16 March 2017 VIDEOS WATCH THE LATEST SHARES VIDEOS

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Richard Wolanski, Finance Director Ian Harebottle, CEO of of Avation (AVAP) Gemfields (GEM) Visit the Shares website for the latest company presentations, market commentary, fund manager interviews and explore our extensive video archive

www.sharesmagazine.co.uk/videos KEEP READING THIS CLICK ON THE BOXES TO JUMP WEEK’S SHARES AND TO A STORY DISCOVER: WE LIKE ZERO NATIONAL GRID IS THERE IS PLENTY DIVIDEND PREFERENCE ABOUT TO GIVE OF LIFE LEFT IN SHARES. SO SHOULD £4 BILLION AWAY DIGNITY YOU. PAGE 34 PAGE 36 PAGE 38

FUNDS IN TURNAROUND MODE PAGE 42

VALUATION ANOMALY PUTS SPOT- LIGHT ON METAL TIGER PAGE 39

WHO WE ARE BROKER RATINGS EXPLAINED: EDITOR: DEPUTY NEWS FUNDS AND Daniel EDITOR: EDITOR: INVESTMENT TRUSTS We use traffic light symbols in the magazine to illustrate Coatsworth Tom Sieber Steven Frazer EDITOR: broker views on stocks. @SharesMagDan @SharesMagTom @SharesMagSteve James Crux @SharesMagJames JUNIOR REPORTER: CONTRIBUTERS Green means buy, Orange means hold, Red means sell. Lisa-Marie Janes Emily Perryman @SharesMagLisaMJ Tom Selby The numbers refer to how many different brokers have that Nick Sudbury rating. PRODUCTION ADVERTISING MANAGING DIRECTOR Head of Production Sales Executive Mike Boydell Eg: 4 2 1 means four brokers have buy ratings, Michael Duncan Nick Frankland 020 7378 4592 two brokers have hold ratings and one broker has a sell Designer [email protected] rating. Rebecca Bodi Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, The traffic light system gives an illustration of market views 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852. but isn’t always a fully comprehensive list of ratings as some All Shares material is copyright. Reproduction­ in whole or part is not permitted without written banks/stockbrokers don’t publicly release this information. permission from the editor. MONEY MATTERS Dealing with new pension and dividend rules How to manage your finances and reduce nasty tax bills

hancellor Philip Hammond allowance for those who have the £5,000 dividend income has earned the moniker taken income from their pension allowance was far too generous C‘spreadsheet Phil’ for his flexibly – known as the Money and announced a whopping 60% reportedly waspish attention to Purchase Annual Allowance – cut to just £2,000, kicking in from detail. However, his first Budget from £10,000 to just £4,000 from April 2018. has been mired in controversy April 2017. This is a hugely important amid accusations a manifesto This is different from the change with potentially pledge to not increase National annual allowance taper, which significant implications for Insurance contributions was gradually reduces the annual anyone who holds dividend flagrantly broken. allowance for those with an paying investments outside a Away from this furore two big income of more than £150,000. tax wrapper. announcements could have a significant impact on retirement WHAT ARE MY OPTIONS? WHAT ARE MY OPTIONS? investors. Here, I break down You can still take up to 25% tax- You should review where your those changes and how you free from your pension from age dividend paying investments can limit their impact on your 55 and retain the £40,000 annual are held to ensure you don’t retirement plans. allowance provided you don’t end up being hit by a nasty take anything else. So you should tax charge. MONEY PURCHASE ANNUAL consider spending this before If you hold your dividend ALLOWANCE SLASHED drawing down an income or paying investments in an ISA No news is usually good news taking a taxable lump sum from or SIPP, for example, you won’t when it comes to pension your pot. pay any tax on the income you tax relief. Savers should be If you do trigger the MPAA, receive. If you do go down this delighted to see the Chancellor all is not lost – alongside route, consider prioritising those resist the temptation to your £4,000 pension savings investments that are likely to pay follow in the footsteps of his allowance, you still have a the highest dividend (and thus be predecessor, George Osborne, £20,000 annual ISA limit from hit with a tax charge post-April by hacking back the main annual 6 April 2017. next year) as ones to switch into and lifetime allowances. an ISA or SIPP first. However, the Government DIVIDEND ALLOWANCE is continuing full steam ahead Less than a year after it was TOM SELBY, with plans to reduce the annual conceived, Hammond decided senior analyst, AJ Bell

16 March 2017 | SHARES | 33 MONEY MATTERS Helping you with personal finance issues We like zero dividend preference shares Lower taxes and predictable payouts are the reward for patient investors

ero dividend preference shares (ZDPs) are a niche Z yet overlooked form of investment that can offer fixed and relatively low risk returns. ZDPs are issued by split capital investment trusts, which are similar to other investment companies in that they own and manage a portfolio of investments. The difference is they have more than one type of share – in addition to ZDPs, they offer income shares and capital shares. Split-caps were embroiled in a big mis-selling scandal in the early 2000s when they became overleveraged and suffered huge losses during the market Instead of paying regular downturn. Many split-caps income during their lifetime, invested in each other which zero dividend preference made the damage even worse. shares have a predetermined As part of a split capital The split-cap market is vastly value which is paid to investment trust, ZDPs are listed smaller than it used to be, but shareholders on a specific and traded on the stock exchange this shouldn’t put investors off. redemption date in the future which, in theory, means you can Tim Cockerill, investment director when the trust is wound up. buy and sell them at any time. at Rowan Dartington, says ZDPs ZDPs publish a ‘promised Some trusts are relatively represent a secure, safe and yield’, which is the effective illiquid so it might be difficult to predictable form of investment. annual yield you’ll get if sell the shares when you want They are first in the queue of you hold the shares until to. They are designed as buy and share classes in the event of the maturity and the trust hold investments. trust failing, although they do still doesn’t go bust. These yields rank behind debt. currently range from around TAX BENEFITS 2% up to around 5%. Zeros are helpful from a tax The predictable nature of planning perspective because ZDPs makes them a popular the return is taxed as a capital tool for school fees planning. gain rather than income. They can also be useful if you ‘This tax treatment is generally need returns delivered at advantageous for UK resident specific times in retirement. taxpayers as the current top rate of capital gains tax (CGT) is

34 | SHARES | 16 March 2017 MONEY MATTERS

28%, compared to top rates on income tax of 40% and 45%. It is also normally easier to reduce CGT liabilities using personal allowances and by offsetting capital losses,’ explains Mick Gilligan, partner and head of fund research at Killik. Ranger Direct Lending (RDLZ), in ZDPs via a specialist fund such The fact that the returns are which invests in a portfolio of as Smith & Williamson Multi predictable means you can figure debt obligations, and Taliesin Manager Cautious Growth out what your likely CGT bill will Property (TPFZ), which invests in (IE00B7SMSG88). be when the zero matures. ‘If residential property in Germany. Hughes at AJ Bell says you invested in a portfolio of Ranger Direct Lending offers investors should look beneath zeros with differing maturity one of the highest yields at 4.5% the bonnet of these funds dates, you may be able to but Cockerill says this is because because they may be different generate a succession of returns direct lending is a higher risk, to how they first appear. that do not generate any CGT relatively new concept. Because the universe of zeros liability,’ says Ryan Hughes, head NB Private Equity Partners is very small, the funds often of fund selection at AJ Bell. (NBPP) has a 3.2% yield. The diversify into other investments You can shelter ZDPs from company’s cover – the number of like structured products and more capital gains tax by holding them times it could pay off its ZDPs at generalist investment trusts. in an ISA or SIPP (self-invested redemption – is a healthy 10.44. ‘While investing in a fund will personal pension). It also has a good hurdle rate give you exposure to a broad of -32.1%; this means that if its spread of different zeros, you will UNDERLYING INVESTMENTS net asset value fell by 32.1% a lose the natural use of your CGT Split-caps invest in a range of year until wind-up, it could still allowance unless you redeem underlying assets. You can get afford to redeem its ZDPs. units in the fund. mainstream ones like Acorn A negative hurdle ‘You should also Income Fund (AIFZ), which rate shows a trust’s ZERO remember that the invests in UK small and mid-cap underlying can fall DIVIDEND fund route will be companies such as Conviviality and your returns PREFERENCE more expensive (CVR:AIM), Safestyle UK can still be paid. SHARES given the additional (SFE:AIM) and Secure Trust HAVE TAX operating costs Bank (STB). THE FUND ROUTE a fund incurs,’ he There are esoteric options like It is possible to invest BENEFITS concludes. (EP)

ZERO DIVIDEND PREFERENCE SHARES Trust Redemption date Price Redemption Promised Hurdle Cover price yield Acorn Income Fund (AIFZ) 28 Feb 2022 144.3p 167.2p 3.0% -17.1% 2.63 Chelverton Small Companies (SDVZ) 8 Jan 2018 134.5p 136.7p 1.9% -77.9% 3.83 JPMorgan Income & Capital (JPIZ) 28 Feb 2018 187.8p 192.1p 2.3% -37.3% 1.61 JZ Capital Partners (JZCZ) 1 Oct 2022 415.5p 483.7p 2.7% -26.3% 10.71 NB Private Equity Partners (NBPP) 30 Sept 2022 106.4p 126.7p 3.2% -32.1% 10.44 Premier Energy and Water (PEZ) 30 Nov 2020 113p 125.7p 2.9% -14.8% 1.85 Ranger Direct Lending (RDLZ) 31 July 2021 105p 127.6p 4.5% -24.0% 3.40 Taliesin Property (TPFZ) 30 Sept 2018 136.3p 144.3p 3.6% -40.1% 7.14 UIL (UTLF) 31 Oct 2022 110p 147p 5.2% -14.5% 7.08 Source: Morningstar, 20 February 2017. Shares with a 2017 redemption date have been omitted.

16 March 2017 | SHARES | 35 UNDER THE BONNET We explain what this company does National Grid is about to give £4bn away Powerful income story remains in face of inflation threat

lectricity utility National 2018 could be worth as much as just shy of £36.9bn, sits in Grid (NG.) is to return 130.7p, for a yield of 13.4% at an enviable position. While Ea large chunk of cash to the current 972.9p share price. increasing competition bites shareholders in 2017 after For such a close on across the retail energy field as selling a 61% stake in its gas guaranteed return investors consumers are encouraged to distribution networks. might well wonder why the switch, National Grid owns the The sum will be substantial, group’s share price has not infrastructure through which analysts estimate around £4bn risen more sharply since the gas homes and businesses get their will find its way back into the distribution sale was announced power regardless of supplier. pockets of shareholders through almost three months ago. It’s a business that has a special dividend of something The simple answer is the been performing reasonably close to 85p per share. There will increasing likelihood of a UK well in both the UK and US. also be an accompanying share interest rate rise this year to quell Newish CEO John Pettigrew, consolidation and £1bn share returning inflation. This would who replaced Steve Holliday buyback. act as a brake on all bond proxy- in March 2016, unveiled half That payout alone would type equities, of which National year to 30 September results represent an 8.7% income Grid is one. in November. These showed yield, and that’s before ordinary adjusted operating profit of dividends that come with a UNDERSTANDING NATIONAL £1.85bn, and adjusted pre-tax promise of RPI-linked growth GRID profit of £1.36m. That’s about for the foreseeable future. Total National Grid, the UK’s flat on both counts versus 2015 income next year to 31 March largest listed utility worth first half figures although the

NATIONAL GRID FTSE ALL SHARE 1800 Rebased to first 1600 1400 1200 1000 800 600 400

200 Source: Thomson Reuters Datastream 2008 2009 2010 2011 2012 2013 2014 2015 2016

36 | SHARES | 16 March 2017 UNDER THE BONNET

rough £2.09bn of cash generated early December 2016 the stock KEEP AN EYE ON THE STOCK is plenty to pay the £571m first slumped 19%, neatly tying in As Berenberg’s analysts note, half dividend (15.17p per share) with a rapid jump in the yield of ‘if investors are convinced that commitment and meet the 10 year government bonds (gilts) bond yields will continue to rise, interest payments on its £29.2bn (yields went from about 0.75% to then National Grid is probably of net debt. more than 1.4%). not the stock for them; it is more The consensus of analyst The counter claim is that one to keep a watchful eye on.’ forecasts for the full year to 31 rising costs of living in Britain Selling the gas distribution March 2017 stands at £5.77bn may prove temporary. ‘Our stake made a lot of sense, exiting and £3.04bn operating and pre- economics team sees only a most of a maturing asset to free tax profit respectively, implying 30% risk of an interest rate hike capital investment resources for earnings per share (EPS) of later this year,’ explain analysts stronger growth options in UK about 64p. That implies a price at investment bank Berenberg. transmission and US operational to earnings (PE) multiple of 15.2, They believe that higher input assets. A deal with watchdog or about a 4% or 5% discount to costs due to weaker sterling Ofgem also removes an irritation the wider utilities sector and the may well be a relative flash in over its small UK electricity FTSE All Share index. the pan, and it is highly possible balancing business. that ongoing uncertainties HOW BIG ARE THE THREATS? surrounding the complex issue We have already seen the first of Brexit could restrain the Bank SHARES SAYS:  interest rate rise in the US for of England. Ordinary dividends should yield about a decade. There is a strong Since early February gilts have 4.7% in the year to 31 March anecdotal argument to support softened and this tallies with a 2018, and that RPI-beating a similar move in the UK at some spell of strength for National Grid promise provides some level of point in 2017, mainly due to the stock. Although arguably is not natural hedge if inflation does emergence of marginal inflation fully reflected in a share price hang around. (SF) for the first time in years. which has edged just 6.7% higher BROKER SAYS: 466 Between early October and from 911.7p lows on 1 February.

16 March 2017 | SHARES | 37 LARGER COMPANIES There is plenty of life left in Dignity Sell-off following growth target downgrade seems severe

correction at funeral services provider Dignity (DTY) has created A a buying opportunity in a quality REDUCTION company. We consider the mark-down IN EARNINGS of this defensive, cash-generative GUIDANCE NOT outfit overdone and believe any obituaries to Dignity’s market share CAUSE FOR gain potential are premature. ALARM

NOT AT DEATH’S DOOR Sutton-Coldfield-based Dignity’s shares slumped on full year results (8 Mar), despite the delivery of better-than-expected pre-tax profits of £75.2m and a 10% total dividend hike to 23.59p, as 2016 UK deaths came in at an unexpectedly high 590,000 (2015: 588,000). The £1.27bn cap warned the number of deaths in 2017 ‘could be significantly lower than 2015 and in issue, and three new crematoria are set to open 2016’ as the abnormally high death rate of the last in 2018 and 2019. two years reverts to the mean. Given the size of the group and ‘increasing competition in each of IN RUDE HEALTH our markets’, Dignity also revised its medium-term In any event, Dignity’s new earnings target is still underlying earnings per share (EPS) growth target very healthy for a consumer defensive stock. For from 10% per year to 8%. the years to December 2017 and 2018, Panmure Gordon analyst Michael Donnelly forecasts COMPETITION CONCERNS improved pre-tax profits of £77.4m (2016: £75.2m) Admittedly, Dignity is finding growth harder to and £83.4m respectively, with EPS set to rise to deliver with each strong set of results. A larger 123p (2016: 119.8p) this year ahead of 135.1p funeral market share decline in 2016 than seen next year. before, down from 12.3% to 11.8% of the UK market Panmure sees Dignity, which has an enviable (excluding Northern Ireland) is cause for concern. record of cash returns, increasing the dividend However, guided by CEO Mike McCollum, Dignity from 22.2p to 26p this year. We also note Investec will continue to argue for regulation of the funeral Securities has upgraded its discounted cash flow and pre-arranged funeral industries, which have (DCF)-based price target from £27.95 to £29.40. attracted some unscrupulous players. Any future regulation, combined with Dignity’s SHARES SAYS:  unrelenting focus on customer service, implies the While the earnings target downgrade is unwelcome, opportunity to consolidate a fragmented market Dignity remains a quality company whose resilient remains attractive. earnings and formidably strong cash flow justify Dignity invested £56.3m in acquisitions last year. the high rating. Keep buying at £24.98. Its future funeral revenues are supported by the 404,000 (2015: 374,000) active pre-arranged plans BROKER SAYS: 022

38 | SHARES | 16 March 2017 SMALLER COMPANIES Valuation anomaly puts spotlight on Metal Tiger Miner claims its shares are trading below true value of its assets

mall cap mining group Metal Tiger (MTR:AIM) mineralisation now being worked by MOD when it believes its shares are trading below the value previously drilled the licence area. Sof its investment in -listed MOD MOD continues to drill out decent copper grades Resources. If true, it would mean anyone invested and on 6 March said it had found a new zone in Metal Tiger effectively gets its other assets of copper mineralisation located beneath its T3 for free including interests in and a few Resource area. investments in AIM-quoted resource companies. MINING SPIN-OFF PROJECT STAKE COULD BE WORTH MORE Metal Tiger has a joint venture with several parties THAN INVESTOR’S MARKET CAP in Thailand who hold mining lease applications for Metal Tiger has a 30% stake at the project level in two former-producing silver/lead/zinc mines. MOD’s Kalahari copper project in Botswana, as well It wants to get approval from the government as approximately 5% of MOD at the company level to reopen the mines. A new Minerals Act in the plus 1.5m warrants exercisable at 6c. country comes into force on 30 August 2017. MOD’s share price has risen by 110% so far this The company intends to spin off its Thai assets year to 7.9c off the back of positive exploration into a separately-listed company to be called results at its Botswana copper project and a rising KEMCO Mining. This is expected to float on AIM in copper price. June or July. ‘I’d say 95% of MOD’s market value is its copper Metal Tiger raised £514,500 via the issue of project,’ says Metal Tiger chief executive Michael warrants earlier this month to fund IPO costs and McNeilly, adding that minimal value is being working capital for the Thai operations. attributed to MOD’s gold interests in New Zealand. Failure to admit KEMCO to AIM by 13 October Applying that 95% ratio to MOD’s A$128m 2017 would see the warrants automatically convert (£79m) market valuation at the time of writing into Metal Tiger shares. (DC) equates to its 70% share of the copper project being worth A$121.6m (£75m). Metal Tiger’s 30% stake would therefore be worth approximately £32m – which is higher than Metal Tiger’s £19.9m current valuation. You have to remember Metal Tiger also owns that 5% stake in the business as well. In a previous conversation with Shares earlier this year, McNeilly said he has turned down an offer for Metal Tiger’s shares in MOD, adding that private equity firms had been looking at the Australian-listed firm as a whole. ‘We don’t want to give away any value yet. People should be excited about the asset, as we’ve barely scratched the surface,’ he said. The MOD copper assets used to be owned by former AIM-quoted Discovery Metals. McNeilly says that company missed the copper

16 March 2017 | SHARES | 39 SMALLER COMPANIES Another oil firm plans juicy dividends Newly listed small cap targets low risk production

nglo African Oil & Gas (AAOG:AIM) should lift production to 750 boepd. believe its newly-acquired asset A in the Republic of Congo offers EXPLORATION UPSIDE a combination of low risk production Here’s the interesting bit. The well will growth and high octane exploration. test the Djeno horizon from which, in a The company raised £10m at 20p neighbouring field, French sector giant per share alongside its IPO (initial ENI is producing upwards of 5,500 boepd. public offering) on 6 March to fund the Chief executive Alex MacDonald says acquisition of a 56% stake in the near shore the funds raised at IPO cover this work Tilapia field. programme with future costs met out of cash The immediate priority is to lift output from the flow. There are plans to pay 75% of net free cash current 38 barrels of oil equivalent per day (boepd) flow after capital expenditure as dividends in to 250 boepd through a workover programme on the future. two existing wells, expected to complete by May. MacDonald dismisses fears over security. ‘This is Executive chairman David Sefton tells Shares the nice Congo,’ he says, adding that costs are low this will take the company to breakeven on a cash as the company can drill from onshore. flow basis. The plan is to then drill a new multi-horizon well SHARES SAYS:  through the already-producing R1 and R2 sands Looks interesting at 26.25p. (TS) and an undeveloped discovery called Mengo which

Portmeirion is Mountfield is Quadrise is out unbreakable looking healthier of fuel

GEOGRAPHICALLY DIVERSIFIED SHARES IN CONSTRUCTION FUEL TECHNOLOGY BUSINESS ceramics maker Portmeirion and support services micro cap Quadrise Fuels (QFI:AIM) (PMP:AIM) is showing resilience Mountfield (MOGP:AIM) have once again experiences the in the face of South Korean and started to move upwards as downsides of agreements with Indian struggles. Full year results a trading update reveals it is larger companies as a trial (9 Mar) revealed a 7.5% dividend overcoming previous problems. of its proprietary MSAR fuel hike to 32.25p, continuing Subsidiaries Connaught Flooring faces another delay. Shipping Portmeirion’s record of never (CAF) and Mountfield Building giant Maersk has prematurely cutting or withholding the payout Group (MBG) both traded suspended a trial of MSAR as since its 1988 stock market profitably in 2016. CAF has the relevant vessel is no longer debut. Cantor Fitzgerald has a started the new financial year available. Work is not expected £12 price target for Portmeirion, strongly with two contract wins. to recommence until the fourth currently 960p and with potential MBG is benefiting from a new quarter of 2017 at the earliest. (TS) to develop home fragrances structure and strategy. (TS) brand Wax Lyrical overseas. (JC)

40 | SHARES | 16 March 2017 Shares Investor Evenings are designed to showcase a number of presentations from dynamic companies.

Join us in London on April 6th BOOK YOUR COMPLIMENTARY TICKET REGISTER FREE TODAY

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April 6th Companies presenting Doriemus (DOR) David Lenigas, Executive Chairman Doriemus is a British oil and gas company focussing on the Weald Basin in Southern England, with interests in the Horse Hill licence as well as two producing licences in Brockham and Lidsey.

Burford Capital (BUR) Christopher P. Bogart, CEO Litigation finance treats litigation claims as financeable assets, just like real estate or receivables. Burford’s capital is used by businesses to pay legal expenses, relieve budget and P&L pressure, and monetize legal claims as the valuable assets they are. Litigation finance can also serve as an accounting tool, allowing businesses to litigate claims without impacting corporate balance sheets.

Berkeley Energia (BKY) Paul Atherley, MD Berkeley Energia Limited (BKY AIM/ASX) is a high impact, clean energy company focussed on bringing its wholly owned Salamanca project into production, commencing initial development in mid-2016. The world class uranium project is being developed in an historic mining area in western Spain, about three hours west of Madrid. Following recent ministerial approval, the Company has now received all the European Union and National level approvals required for the initial development. The project will generate measurable social and environmental benefits in the form jobs and skills training in a depressed rural community. It will also make a significant contribution to the security of supply of Europe’s zero carbon energy needs, where Euratom recently rated “lack of investment in new mines” as the number one risk facing European utilities.”

Why attend? Event details The chance to network with other private investors, wealth Location: NEX Exchange (London EC2M) managers, private client brokers, fund managers and financial Presentations to start at: 18:00 institutions. Complimentary drinks and buffet available For any enquiries, please contact: after presentations Roland Spencer, Head of Sales - AJ Bell Media [email protected] | 0207 378 4431

Register free now www.sharesmagazine.co.uk/events FUNDS Funds in turnaround mode What should you do if there is a major change to your fund?

n an ideal world a fund would passing to Aberdeen Asset often as performance is about provide investors with a long- Management. to improve, and switch into top Iterm exposure to the markets performing funds that could be where the manager is able to REVERSAL OF FORTUNE on the verge of going into decline. consistently add value through Patrick Connolly, a certified One fund that is heading in the a clear and transparent strategy. financial planner at Chase de other direction is M&G Recovery Unfortunately, things don’t Vere Independent Financial (GB0031289217). It has been always go according to plan. Advisers, says that virtually managed by Tom Dobell since It’s possible that a fund every investment fund and 2000 and invests in beaten-up could suffer a prolonged period manager will have periods of stocks that look as if they are of poor performance. If things underperformance. ready to recover. get bad enough this could ‘We’ve seen this recently ‘For a number of years the result in a change of manager with renowned manager Neil fund performed well and Dobell and potentially a new strategy Woodford, who set up his was considered one of the top or mandate. own investment company UK managers, but his style went Where an overhaul is and launched his first fund, out of fashion following the necessary it should follow a Woodford Equity Income financial crisis as investors sought well-documented procedure, (GB00BLRZQ737), in June 2014. solid earnings and dividends as was the case with Alliance It has performed well since in better quality stocks and Trust (ATST). The investment launch, although over the past the fund suffered as a result,’ trust announced in May 2016 year it is ranked only 73rd of 79 explains Connolly. that it was going to undertake funds in its sector.’ a strategic review. This It can be difficult for process resulted in the board investors to understand recommending a new multi- why their funds are manager strategy that was underperforming, recently ratified by shareholders which is why some and that has been welcomed people exit at by analysts such as Canaccord the wrong Genuity who have issued a ‘buy’ time, recommendation. The problem is that some funds change things around then run into problems and have to go through it all again. A prime example is the former British Assets Trust that changed its mandate and manager to become BlackRock Income Strategies in February 2015. Unfortunately for investors its new managers failed to deliver and were sacked after less than two years with the responsibility

42 | SHARES | 16 March 2017 FUNDS

M&G Recovery under- get too large for its mandate, performed the FTSE All-Share ‘WHEN such as with a smaller Index in every year from 2011 A NEW companies fund. to 2015, but anyone who ‘If you like the new manager had jumped ship would MANAGER or the new strategy suits your have missed out on the IS APPOINTED, IT IS investment goals you may turnaround with the OFTEN THE CASE THAT consider investing. When fund returning 37% THERE IS A LOT OF it comes to divesting, over the last year as the PORTFOLIO TURNOVER a red flag would be manager’s style came WHERE THEY SELL THE underperformance of back into favour. STOCKS IN THE PORTFOLIO three years or more, or underperformance that the NEW MANAGER THEY DON’T LIKE AND manager can’t explain or that A sustained period of poor REPLACE THEM you wouldn’t expect given the performance will often result WITH THE ONES prevailing market conditions.’ in the replacement of the THEY DO. ’ Stewart Investors Asia Pacific manager. This sort of drastic Leaders (GB0033874214) had intervention could open up the a manager change about 18 potential for some significant resigned in April 2015 to join months ago. The new manager changes to the fund. Polar Capital. Their departure has put their mark on the fund Ryan Hughes, head of fund came straight after the EU by having more sustainable selection at AJ Bell Investments, referendum, which had a investments in the remit, which says that investors need to disastrous effect on their mid- is a relatively small change but be careful when looking at cap orientated fund. one that Chelsea thought was these sorts of turnaround ‘This was a highly popular worth sticking with. opportunities as they need to fund with over £800m in assets, ‘Another example is be fairly certain that the worst but their departure sparked a Jupiter Absolute Return is over. mass exodus with circa £600m (GB00B5129B32). This fund ‘When a new manager is leaving the fund. The new was very good for a while appointed, it is often the case manager Andrew Jackson took but then had a long period that there is a lot of portfolio the helm in June and has now of underperformance and turnover where they sell the repositioned the portfolio,’ eventually the manager stocks in the portfolio they explains Hughes. retired. The new manager don’t like and replace them changed it a lot, making with the ones they do. This CHANGE HAPPENS the investment strategy generates transaction costs Darius McDermott, MD of their own and it is now that can hamper returns in the Chelsea Financial Services, doing very well and short-term.’ says that sometimes a we like it a lot,’ notes If you own a fund that goes major macro event McDermott. (NS) into a turnaround situation, it can impact a is often best to remain patient strategy, or a as otherwise you could end up fund can crystallising your losses at the bottom of the cycle just before a recovery kicks in. A recent example is the Miton UK Value Opportunities (GB00B8QW1M42) fund, where the managers George Godbar and Georgina Hamilton

16 March 2017 | SHARES | 43 INDEX

Deal online and from £4.95 never pay more than £9.95 The value of investments can go up and down and For more details visit you may not get back your original investment www.youinvest.co.uk

KEY Brunner Investment 28 Kier (KIE) 18 Royal Dutch Shell 29 Trust (BUT) (RDSB) • Main Market M&G Recovery 42 Bunzl (BNZL) 25 (GB0031289217) Safestyle UK 35 • AIM (SFE:AIM) Burford Capital 14 Metal Tiger (MTR:AIM) 39 • Fund (BUR:AIM) Scottish American 30 Micro Focus (MCRO) 29 Investment Company • Investment Trust Cineworld (CINE) 13 (SCAM) Miton UK Value 43 • Exchange traded City of London 28 Opportunities Secure Trust Bank 35 fund Investment Trust (CTY) (GB00B8QW1M42) (STB) • Zero Dividend Conviviality (CVR:AIM) 35 Mountfield (MOGP:AIM) 40 Segro (SGRO) 7 Preferences Shares Cranswick (CWK) 28 MP Evans (MPE:AIM) 17 Shanta Gold (SHG:AIM) 3

Dignity (DTY) 38 Murray Income Trust 29 Smith & Williamson 35 (MUT) Multi Manager Direct Line (DLG) 10 Cautious Growth 4imprint (FOUR) 26 National Grid (NG.) 36 Eco Animal Health 25 (IE00B7SMSG88) Acorn Income Fund 35 (EAH:AIM) NB Private Equity 35 Source FTSE RAFI 26 (AIFZ) Partners (NBPP) UK Equity Income Enquest (ENQ) 18 Physical (DVUK) Alliance Trust (ATST) 42 NetPlay TV (NPT:AIM) 16 Esure (ESUR) 10 Sports Direct (SPD) 11 Amec Foster Wheeler 6 Next (NXT) 18 Fevertree Drinks 29 (AMFW) Standard Chartered 26 (FEVR:AIM) Nichols (NICL:AIM) 26 (STAN) Anglo African Oil & 40 Galliford Try (GFRD) 6 Persimmon (PSN) 29 Gas (AAOG:AIM) Stewart Investors 43 GlaxoSmithKline (GSK) 26 Asia Pacific Leaders Ashtead (AHT) 29 Photo-Me 26 International (PHTM) (GB0033874214) Gulf Marine Services 6 AstraZeneca (AZN) 29 (GMS) Portmeirion (PMP:AIM) 40 Stock Spirits (STCK) 14 Aurora Investment 11 Howden Joinery 26 Swallowfield 3 Trust (ARR) Premier Foods (PFD) 17 (HWDN) (SWL:AIM) Aviva (AV.) 29 PZ Cussons (PZC) 12 Hummingbird 8 Taliesin Property 35 (TPFZ) Bankers Investment 28 Resources (HUM:AIM) Quadrise Fuels 40 Trust (BNKR) (QFI:AIM) Imperial Brands (IMB) 29 Taylor Wimpey (TW.) 29 Bovis Homes (BVS) 6 Ramsdens (RFX:AIM) 10 James Latham 26 Unilever (ULVR) 12 BP (BP.) 24, (LTHM:AIM) Ranger Direct Lending 35 (RDLZ) Witan Investment 30 30 JPMorgan 29 Trust (WTAN) Redrow (RDW) 6 British American 29 Claverhouse (JCH) WM Morrison 10 Tobacco (BATS) Supermarkets (MRW) Jupiter 43 Rio Tinto (RIO) 26 Brooks MacDonald 25 Absolute Return Wood Group (WG.) 6 (BRK:AIM) (GB00B5129B32)

44 | SHARES | 16 March 2017