January Week 3: Monster Tech, Please save Us!

Thanks to @Stockslam @TamzinPIWorld

Moody markets

⭐#SDG #PFD #CLX #EMIS

💩#ULVR #NRR #SRC #SOM #SDI #IGP

Transactions: Sell #BOTB

Updates: #ULVR #GSK #NRR #EMIS #PFD #SDG #DUKE #CLIG #BOTB

Public Service

If I may (and I don't see why I may not), I would like to share the latest PI World Stockslam, where yours truly was amongst the slammers.

PI World Stockslam

I didn't boast on twitter but my pick is up about 6% in a market that has been decidedly grumpy.

Other pitches were interesting too - one ex holding & one I am looking at.

Congratulations to all the pitchers and many thanks to Damian & Tamzin for letting me pitch.

Cursory Macro/Market Observations

So it was not a good week huh - markets are down, Monster tech is down. Amazon is in a bear market, only Google, Microsoft & Apple to go.

I remember in the 2008 dramas, the banks were going to fail sequentially in accordance with their size.

Yield curves flattening, 10 year coming down while equities & growth are getting culled.

Feels decidedly risk off & not just because I am writing this on Monday - the risk off sectors, staples & utilities were where it was at, with financials & even energy starting to roll over.

I thought falling yields were good for growth stocks - what happens if that narrative breaks.

So there were more bank results & clearly if you want to be a good Bank, you need less casino banking & more utility banking, unless you are Morgan Stanley.

Bodes well for the UK banks, ex Barclays.

Banks, energy & miners have done a lot of heavy lifting for the FTSE from what I can tell & the US for that matter - if that breaks, it could get rather ugly.

There has been some serious carnage in the "growth" / "pandemic" stocks - who would have thought that you would have been better of buying Carnival on 27 March 2020 than Zoom.

Incidentally, if you use free cash flow as your value yardstick - Zoom ends up quite far ahead of Carnival, although Carnival will likely deliver more growth over the next couple of years.

If I was forced to, I'd buy Zoom over Carnival.

Apple & Microsoft report this week - still priced for perfection, but a little less perfection than earlier in 2022 - if they get the Netflix treatment, I think there will be cause for concern!

Maybe the FED will save us - but the bond market is behaving itself which really is the market they ought to care about.

Maybe some soothing words from the FED but I have faith in Monster Tech.

Or 10 trillion was indeed the TOP!

Portfolio Review

To be honest, I was having a week where the portfolio was going quite well & I was feeling pretty smug, then Friday did the damage (and Monday is just downright ugly!)

That YTD is going to look a lot worse this time next week unless dip buyers turn up - I might be one of them.

Lessons:

Again with responding to price action - one from Monday actually - when I start having doubts and the price goes negative, I find it hard to not capitulate.

Miserly Investor's note on selling stocks you are not willing to add to because it demonstrates a lack of confidence is interesting in this regard - although there are several reasons to not add, which shouldn't necessarily equate to a sale.

I think it is a case of would I be a buyer if it fell materially (15-25%) and I sell/reduce if I feel frightened by that prospect (notwithstanding position size)

Transactions

Sell BOTB

• Really, there is no forgiving this one - the phrase fool me once comes to mind - at least the directors did not make lots of money.
• There was a warning, they are a slave to Facebook pricing & the balance sheet looked interesting (I was offered free plays - Sales booked which show up as Cost of Sales once utilised?) and the lack of dividend was telling.
• When I repurchased, I said it was a quality income stock - both of those are in doubt.
• Guess I was trying to make back losses - STUPID STUPID STUPID!

Portfolio Risers > 5%

SDG 13.1%, PFD 6.54%, CLX 6.37%, EMIS 5.82%

• Positive trading updates and obviously my pitch!
• Calnex maybe benefitted from people reading that Mr Lord's free spirit fund had taken a stake.

SDG up 13.1%

• Trading update - slightly ahead on revenue - ahead on PBT by about 10% I reckon - certainly makes it look cheap.
• Growth in all areas & very strong order book in manufacturing (trend to onshoring), licensing deals signed in H2, higher margin & revenue recognition
• 20% growth overall to 112m (93.8m) - 40% in North America, Morris outperforming other brands & manufacturing up 33%. 12m PBT at least & 15.4m net cash
• 120m EV on >12m EBIT - key things to confirm - sustainability of earnings - inventory vs order book - repairs while locked down may well have brought forward demand
• HOLD to ADD - need to see how much is from accelerated revenue recognition on licensing.

PFD up 6.54%

• Ahead of expectations, performing ahead of market - Mr Kipling best ever X-Mas - FY Trading profit upgraded to 145m (3%)
• Sweet Treats up on 1yr & 2yr basis, Grocery down on 1yr basis. Don't disclose international 1 yr sales - 33% over two years
• Brands outperforming non branded in each area, Grocery -  Premiumisation of Bisto & healthier sauces (and instant noodles!)
• Sweets - Kipling & Cadbury (partnerhsip) - reduced sugar - healthier options are 13% vs 11% for overall
• International 33% on 2 yr, 7% lower on one year - Sharwoods & Kipling - US trial starts in Q4
• Improving trend on Q3 vs H1 - Q3 better than YTD - partly normalising - partly returning to normal seasonality
• HOLD to ADD - Q3 conditions in both years should have been similar - guess lockdown vs Omicron but family X-Mas vs alone.

EMIS up 5.82%

• Revenue & adjusted Op Profit ahead of 2020 & slightly ahead of top end of consensus - 166.1 & 41.6m (EPS 53.5, PBT 41.9m)
• EMIS Health - more normalised, less hardware & more software vs 2021 (better margins one would think) - continue to invest in tech roadmap - potential acceleration over next 2 years
• EMIS Enterprise - double digit growth - patient facing services/pharmacies/analytics - Pinnacle software vaccine rollout (extend to all vaccinations?)
• Acquisition of Edenbridge Healthcare - business intelligence tools for GPs, Federations & Commissioners - help EMIS provide data/analytics for efficiency/transformation/workforce planning - 4m now plus 6m deferred - no information on Edenbridge - pretty small 118k Net Assets, no audit/abridged accounts
• 64m Net Cash - 54m after the acquisition. 11m Cash generated in the year - +ve progress - continue to build good momentum for the future - tech investment/bolt on acquisition/customer focused execution
• Hold - 840m M/Cap for 34m earnings - feels a little on the expensive side - strategic developments sound good - One third of business growing double digit (which I may have underappreciated)

Portfolio Fallers > 5%

IGP -8%, SDI -7.49%, ULVR -6.64%, NRR -6.3%, SRC -6.12%, SOM -5.98% 

• IGP, SRC & SOM I will rightly or wrongly put down to a wobbly market with anything illiquid not doing all that well.
• SDI - The market still not taking kindly to the director sales - courtesy to say I have materially reduced my holding on Monday 24th 
• The valuation + director sales immediately after a +ve announcement - market wobbles combined with a loss of confidence did not make a good combination.

ULVR & GSK

• £50bn bid for GSK Consumer healthcare unit - ULVR crashed & GSK bought - not at all surprising.
• As a GSK shareholder, I am a little annoyed with Mgt for not engaging, but ULVR sound desperate so higher bids likely - or not Management discovered they are on a pretty short leach - GOOD that they are not raising the offer - making the offer on the other hand - what's the excuse!
• Wonder if GSK Mgt get compensated for a successful spin off - as for Unilever - it probably should have been chopped
• Feels like a management team out of ideas (or out of shareholder patience) throwing a Hail Mary - odds are against it working
• Both were on the chopping block - both still are - although ULVR valuation - looking like a bid target in its own right - PE probably interested in break-up
• Both SELLS

NRR down 6.3%

• This market reaction surprised me - certainly did not read that badly, but it has had a pretty strong run and people are jittery (myself included).
• New leases - Q3 strongest so far - 2.5mn in new leases, Core shopping centre 20% ahead ERV (interesting), overall 8%, FY 22 10% ahead (Retail Parks rolling over?)
• 96% occupancy, Rent/sqFt up 1% on PY to £11.66, Rent collection 84% for Q4, which seems a little problematic, much better than prior year - Say ahead on point of time basis - speak to good demand for essential items
• 25m in disposals in quarter - premiums to book value but small on overall NAV, 44m under offer/exchange around (avg in line with book value, Sept 2021) & 38m disposal in Oxford to complete Q4
• Sales ahead of book values are positive - maybe people expected more on rent collection - something to watch for sure - With disposals NAV will fall & should be considered in discount
• HOLD - Dividend with capital growth vs melting iceberg

Additional Updates & Results

Only a couple more updates, one that was well received and one that ought to have been well received but wasn't.

CLIG

• FUM $11.1bn (June 21 11.4bn), Sept 21 $10.9bn - Net inflows in International (shade over 20% of AUM), EM & Karpus still getting outflows but some +ve performance
• 59m Net inflows - 265 into International (>10%) offset by EM & Karpus $150 & $50 respectively (apparently rebalancing & tax selling)
• 72bps for CLIG & 76bps for KIM (40% of AUM) & £1.6m fixed costs/month - Run rate Op Profit £3.3m/month - HY 21 £15.5m (9.9m)
• 11p interim (flat) & 13.5p special dividend - 25m in cash & 6m in Seed Investments
• The AUM continue to go in the wrong direction (but do think their strategies are some what countercyclical). A year's fixed costs on Balance Sheet!
• Very good income but concerns around the growth, although international is a positive sign & outflows are smaller than other areas
• HOLD - Think there might be better opportunities in sector but very healthy dividend, bullet proof balance sheet & think operation is somewhat countercyclical - Endowment effect??

DUKE

• Follow on investment, £2.45m in InTec - fund two acquisitions in IT managed services sector & fixed line data/telecoms - Total investment 12.35m
• HOLD - Something, maybe just the share price but something is making me uneasy
• Courtesy to say I have sold this today 
• I was not able to exit the stock which made me nervous about illiquidity. There were a few things that were making me uneasy - namely the FV accounting & the extent of follow on investments that are creating concentration.
• Has been sold for a while on positive announcements + the cratering on Monday - want to reduce risk in the portfolio & free up cash for other opportunities

And Finally

Guess many people are having a pretty tough time today - it really was brutal & I was most certainly unnerved and decided to reduce some risk in the portfolio.

I am not sure I have any sage advice to offer like paper losses are not real losses (they are!) or pictures of smiley old men saying be greedy when others are cautious or that people keep perspective.

Such things are easier said than done.

I try to remember the companies I own are cash generating businesses which as a portfolio are on a reasonable valuation and try and get comfortable with what the max drawdown would be.

I am trying to get comfortable with the risk in my portfolio & managed accordingly. 

Business / valuation / liquidity / market sensitivity.

FWIW, I had only two risers and my holdings have ranged from +7% (ULVR) to -15% (Supreme), the latter was a top 5 holding. 

Maybe I should have reduced but I accepted that 240 was somewhat of a false price - easier to handle the drawdown but being a long term buy & hold investor is hard, especially with hindsight.

On a more positive note, quite the intraday reversal in the US - maybe the saviours will play ball too.

Adieu