May Week 3- Crypto Schadenfreude, Scham dich!!

Crypto Schadenfreude - Scham dich!! 

Portfolio Review

Another volatile week - seems like a euphamism for down, but there we are. Portfolio was pretty much in line with the benchmark.

Top risers were a result of transactions and in terms of return, BOTB again was a detractor with a large impact given size of holding. It was added to in the week - was just too tempting to pass up.

On the results front, of the risers AAZ provided full year results & GAW provided a trading update. Next week will be far busier with a fair chunk of the portfolio reporting.

Cursory Market/Macro Observations

Again a very volatile week where the markets seemed to have a strong start to the week and then took a pasting to recover again.

I think miners seem to have had another poor week and oh my word has been a volatile week for Bitcoin - of course volatile being a euphamism for down.

The potential concern from this is that the crypto volatility did seem to have an (at least transitory) impact on markets - I expect people dialing down the leverage.

I stand by perma bear outlook - there is so much leverage sloshing around the system and what I believe is an incredible amount of reliance on momentum factors, that little things can have outsize impacts (whether that be Gamestop, Archegos, Bitcoin).

The market mantra is cheap (or cheap relative to), there are pockets of excess, and the usual Fed blah, inflation blah, cyclical blah, fiscal blah, structural blah - stay along for the ride in short & of my foursy with the barbell approach.

Credit markets are tightening while the govt yield are moving marginally higher (from what little information I get about credit markets)

On the Bitcoin losses, it is not nice to see 10/20/30% losses on a holding in a single day, but it has happened to me more times than I want (or want to admit). I would go publicly on the record & state that it was wrong for so many experienced investors to what it seemed to me, was take pleasure in other people's losses, touting the virtues of long term investing and the such like.

Bitcoiners have kicked my (and many FINTWIT) worthless A$$€$ over the long term & the schadenfreude was unnecessary and unbecoming of #FINTWIT.

Leaving behind the tales of the crypt, seems to be a case of stock selection being the name of the game and M&A appetite also remains - that said, companies not responding well to results seem to be a recurring theme of this market lately, especially where the results are ahead - seems like we are in a stage where the markets expectations are ahead of the market expectations.

 

What I find quite interesting is that the buy out groups seem to be going for more of the infrastructure / real estate / warehouses (inflation linked real assets) while the spate of offerings tends to be in the technology (hotter sectors)

In fact, you might want to look further into this observation to see whether thesis stacks up.

Lessons:

Generally, I think markets are getting far too easy and there is an element of getting angry with stocks you were wrong about / ex-holding where you didn't have cojones to see through that have rallied (and chasing - SBUX for Greggs), Strong updates/statements where you did not act and watched them rally (NEW Holding) and over-confidence/risk management failures (BOTB).

To some extent your view is we are in a crazy bubble and it is a time for caution, but holding cash is extremely difficult to do and as a result your cash balance in the portfolio has ended up at some of the lowest levels you ever keep it at.

On this basis, you need to reduce some holdings - on the chopping block would be Japan ETF (and then have reason to start investing some of wife's cash in SIPP), SBUX & ELCO (on LIFO Basis). Other factors are position size & valuation

Transactions

Sell BBB 

A big reason for the purchase was the funding development opportunity from Quickline, although I was never comfortable with the minority interest / related party in Quickline.

I find it ironic that it has been sold so early, after a series of transactions where the BBB's interest in Quickline was reduced.

When attending the investor presentation, for me the kicker was that Mgt were going to receive some 60% of the M/Cap back in cash but didn't have much if any idea of how that was going to be used.

I think I may regret it given the valuation/cheapness but it was part of the implementation of freeing up cash & some portfolio/tax optimisation. 

Add IXI

The contract wins and momentum hear are strong and it has responded technically in a very strong fashion to the profit warning. Indeed, I believe there is some resistance that has created the pullback given it was at or close to the pre profit warning price.

Since my first purchase (on an excellent update) there  have been a number of small contract wins with existing customers and the business momentum is strong.

I would expect a positive set of results and outlook statement to drive the share price further.

Add BNZL

Adding to existing holding to deploy new monies added into the LISA. Note, again you added this the day before the ex dividend date (although it was a planned transaction). Given market activity you probably got lucky but stop letting the ex-dividend date influence your decision!!!

ADD BOTB

The company continues to be held back on the in line update. As much as the position is getting toppy, it has based on my current reckoning almost too good to be true.

It was very pleasing to see @miserlyinvestor come on board - as much as other people shouldn't matter, they do and as far as people coming on board, he is a great one.

BUT THIS IS GETTING A RATHER OUTSIZED POSITION NOW - REALLY CONSIDER REDUCING

Portfolio Risers

AAZ up 10.2%

• 35m$ cash, 35m$ profit on revenue of $102m. No debt. Dividend 3.5 cents, M/Cap 210m$, EV 180m$
• A strong set of results with some very interesting noises about new exploration work and pipeline development activity / new exploration sites. 
• Production will be flat to down next year, so any growth reliant on gold price but doesn’t include any new mines/exploration activity which they talk about
• Hopefully some good news to come from the company over coming weeks/months.
• Positives of cheap, gold, mgt backed need to be balanced with Azerbaijan & lack of understanding of sector. 
• Clean (no derivatives nonsense) - seem shareholder friendly / focussed - clear capital allocation and positve noises around exploration & valuation backed by current reserves 
• One to think about given size of holding / circle of competence, although maybe one to use to learn more about the sector.

UPGS up 10.1%

• No news but think it is continuing the momentum from last week and maybe some hoo haa from breaking above £2.
• Remember your comment on the May Week 1 review - I wonder what price you will end up coming back in at.

BMY up 8.8%

• No news other than potentially some excitement about breakout above £3, but basically someone was buying it on Friday.

GROW up 5%

• Noise - it did fall below book value, which did start to look mildly attractive but the book value is somewhat bubbilicious.

Portfolio Fallers

BOTB down -8.5%

• Continuing its weakness from the previous week and looking very good value (assuming growth can be sustained - watch that competition & growth)
• Miserlyinvestor came on board & did feel like there was some purchasing happening holding it down, worth nothing but it is comforting that he buy same time as I add.
• EXECUTION FAIL - Comment from last week:  Very tempted to add but this is already giving you a little trepidation with position size and when you last purchased, your note said "ENOUGH NOW"

FNX down 6.2%

• No news - likely consolidating after a strong run up

IXI down 6.1%

• Two contract renewals/wins with existing customers announced in the week, not especially material.
• If I was guessing, I think it is the people who bought in the days prior to the profit warning, who now have the stock back at the price they paid so exiting.
• Results next week will hopefully show continued progress in order book.

HAT down 5.7%

• No news, maybe just post dividend selling - falling on no news is dangerous for this one given the risk around S166 on high cost credit.

Updates & Results

Inspiration Healthcare 17 May 2021 - neutral to +ve

• 1.25m order from China for SLE, doesn’t say if it was for SLE6000, but mentions following approval of the SLE 6000 and the 225k order at approval.
• No impact on the outlook for the full year but a positive sign that new product is gaining traction & strengthens general development.
• Usual China caveats, which for some reason don't apply outside China as if they are intrinsically worse than the west - how sustainable / will they get paid

GlaxoSmithKline 17 May 2021 - neutral to +ve

• Phase 2 positive for COVid vaccine - sounds a bit late, but better for ongoing management.
• Expect in this scenario, given the number of effective vaccines from many producers, CoVid vaccine will not be the normal high margin blockbuster innovation.
• Company itself is hideously cheap on Sum of Parts basis, and have made some big investments to improve research function / pipeline but debt is a concern.
• Know nothing about it in the grand scheme of things but does the job as a bond proxy & a balance sheet that will benefit from inflation

React 18 May 2021 - Neutral to +ve 

• One contract renewal worth 270k and three contracts for Fidelis - 320k over three years, 100k per year
• 3% of revenues, not material but a good sign that renewals/new wins happening.
• As per previous week: 
• think there is a lot to like but am already breaking rules on min M/Cap requirement and given that don't want it to become a large position. 
• Indeed rally in short time & director sale (but small in grand scheme) is making me a little comfortable, although if it keeps going, it will start meeting minimum M/Cap requirements!

Bunzl 18 May 2021 - Neutral

• Acquisition of Medical distribution business (New Zealand - 51m, GBP27m Revenues)
• Completely immaterial - in line with strategy, stregnthens Australasia business - good region in event of commodities super cycle

Warehouse REIT 18 May 2021 - Neutral to -ve

• 20m acquisition - industrial estate plus development land - near Cambridge - Oxford Cambridge Arc
• 4.15% initial yield (that is certainly on the low side) and also moving into the development
• This is in income / no sell type portfolio but have exposure to space given holdings in Shed / BBOX (and potentially if open in EBOX). 
• The net initial yield on new developments is trending down and the whole warehouse/logistics space seems to be getting somewhat crowded

Sigmaroc 19 May 2021 - Neutral

• Revenue in Q1 at 36m, April ahead of March & significantly ahead of last year (Obviously!!!).
• Q1 12% LFL growth 
• Acquisition integration in progress - going well & have managed to increse efficiency of acquired sites, margins and cash generation also holding up. 
• Significant interest in GreenBloc product.
• Inflation protection & cyclical recovery - definitely doing something for the portfolio given current holdings

Ixico 20 May 2021 & 19 May 2021 - Neutral to +ve

• Contract win from existing client - imaging services for Phase 3 trial - 0.5m over 4 years (Immaterial)
• Another contract win - 1m over 5 years - expansion contract with existing client for Phase 2 alzheimers trial - 200k per year
• PY revenue of 9.5m, forecast 2021 onwards 10m, 11.2m, 12.8m
• I am not sure if I like the regularity of the announcements but then do like the business momentum.
• Very interesting company and given the growth in order book (seems like reaching a step change), maybe the stupid multiple is justified
• Was a very small position but after adding in week, it is full size.

Games Workshop 20 May 2021 - Neutral

• GAW - dividend of 50p to be paid - nice
• Revenue not less than 350m(270m) & PBT not less than 150m (89m), Royalties are 15m (down from 17m PY)
• In line on revenue, slight beat on profits. 12m paid to employees as part of profit share bonus (PY 2m)
• Pretty substantial increase on PY (but lockdowns) and slowing down compared to H1 (which benefitted from re-opening I guess) and impact of bonus - treating employees well.
• Mgt are usually somewhat understated when they say at least - so potential for some positive surprise
• Looking at approaching £4 in EPS NTM, 3.65 CY
• A solid update - happy hold - monitor what is happening internationally & in supply chain.

Anglo Asian Mining 20 May 2021 - Positive

• 35m$ cash, 35m$ profit on revenue of $102m. No debt. Dividend 3.5 cents, M/Cap 210m$, EV 180m$
• A strong set of results with some very interesting noises about new exploration work and pipeline development activity / new exploration sites. 
• Production will be flat to down next year, so any growth reliant on gold price but doesn’t include any new mines/exploration activity which they talk about
• Hopefully some good news to come from the company over coming weeks/months.
• Positives: cheap, gold, mgt ownership, Clean (no derivatives nonsense) - seem shareholder friendly / focussed - clear capital allocation and positve noises around exploration & valuation backed by current reserves 
• Negatives - Azerbaijan & lack of understanding of sector. 
• One to think about given size of holding / circle of competence, although maybe one to use to learn more about the sector.

Quartix 21 May 2021 - Neutral

• Trading in line - consistent with meeting market expectations - No info, but tbf they provided update anticipated to 31 March on 23rd March
• Announcement was more to do with the appointment of CFO (as per planned Mgt Changes)