February Week 2 & Week 3: Portfolio Review

⭐#AAZ #TATE #TPFG #BMY

💩#SDG

Transactions: Add #SOM Add #FNX Add #SDG

Updates: #TATE #GSK #SHED #ULVR #BATS #UPGS #CLIG

Portfolio Review Feb Week 2:

Portfolio Review Feb Week 3:

Excuse the change in format - just how I have the data and re-formatting to get the two week look is not worth it.

A few transactions over the period - in part due to good trading updates but also because of the Air Partner takeover - by the time this completes, it will be April/May when cash is high due to fresh subscriptions - do not want to be in the same position as last year with excess cash burning a whole (although the market is a lot less FOMO inducing this time round!)

If I may very briefly rant on Ukraine: 

EU lighting up a building in solidity with Ukraine (versus everything else they could (maybe should) have done) - it is pathetic & in my view insulting. They should be hanging their heads in shame!

I see John Authers is back with the daily (and I am glad for it). 

I read that traders were being insensitive (and inaccurate) dicks - Beyond pathetic! 

This is why people hate bankers and a wonderful reminder as to why I am grateful to no longer be in the industry. 

I hope the stock exchange issues an apology.

And as a small piece of public service - I understand complicated threads are coming up on SWIFT -  fancy talk for WhatsApp for Banks!

Transactions

Add SOM

• Add in pullback - maybe a tad rash and annoyed at missing out in Jan dip but valuation is still there, operational performance is still there
• Momentum is still there - is classed as ADD in the portfolio (and has been a long time!).
• HOLD

Add SDG

• Adding on the back of a positive update and also an announcement re Morris & Co opening a concession store in Harrods  and launch paint (Expect getting into Harrods is a pretty tough ask!)
• some decent operational momentum here - feel late to the party but given valuation I would rate this an Add
• Technically looking like a cup & handle on 5 year resistance, pretty high quality especially if licensing income is sustained - if not kaput!
• ADD to HOLD

Add FNX

• Most recent update addressed concerns re EBIT (investing for growth at expense of new shareholders)
• Margin compression - GP outperforming TPV & sustainability of growth - international in tact (to be proven)
• Income, growth, capital light - lots to like - happy for it to be a bigger position - given the addressing of concerns it should be bigger position. 
• HOLD

Portfolio Risers > 5%

AAZ 6.91%, TATE 5.53%, TPFG 5.61%, BMY 7.07%

• AAZ - seems to be benefitting from the rally in the gold price or it could be anything. Would have thought geography might trump Gold but WDIK
• BMY - A delayed reaction to the trading update from the previous week - market was a lot less grumpy especially in Week 2!
• TPFG - I would put it down to similar reasons as Bloomsbury - I see Premier Miton have bought a decent chunk of TPFG

Tate up 5.53%

• Continuing operations slightly ahead, overall in line - New Products up 54% is not too shabby at all
• Pricing & Volume growth (Sucralose all volume 7%, Total 8%), Solutions 6% Volume, 18% Total - Impressive
• Double digit growth on 230m Profit - 250m minimum - 2.7bn M/Cap after special dividend, 2.2bn ex commodities, Rock solid balance sheet
• Already a top 5 holding but may well be an add given pullback - feels cheap but my expectations are way up on forecasts, although I get there in 2023
• Feel it is going through something of a transformation & not being valued for it - am I missing something
• Hold to ADD - 10% move, guess I am not missing something - still not expensive & looks like a breakout!

Portfolio Fallers > 5%

SDG -5.75%

• Incredibly frustrating that one of the stocks I added in the previous week was the only stock to make the >5% decliners the following week.
• Even more frustrating that I have no idea why - maybe some of their customers are going to get sanctioned & will be spending less?
• Of the above, the only one with any news was Somero - the rest I am putting down to market wobbles / illiquidity.
• AAZ announced the completion of their investment in Liberto Copper (which based on Liberto Copper share price appears underwater)
• Specifically, I did think Supreme reached a false price - why I didn't sell/reduce into the false price - think that might be a reverse of the selling post reminder lesson.
• Bit of a shame, because there were plenty more updates during the two weeks, so would have been nice to have covered some of them here.

Additional Updates & Results

As I mentioned, I went from straight up overwhelmed to downright underwhelmed and this probably reflects that.

ULVR

• Highest growth in 9 years - 4.5% - mainly coming from price increases over volume - significant inflationary pressures - 2022 margins down by 10%
• Basically saying there will be gradual price rises in the hope that pressures will abate in H2 & not impact future years - 3bn buyback
• Pretty poor results on the margin front & reducing marketing spend (while remaining competitive) and using for buyback - Wonder whether management are focused on the business or trying to deliver an EPS number with declining margins!!
• Earnings not matching inflation organically - management said they won't do anything stupid but seems they are out of ideas - pending activism
• If you believe margins come back on track & look through short term margins post buyback this will start looking very good value & 4% paid to wait
• A nothing holding - alternative to cash - although it seems to be depreciating faster than cash at the moment - better alternatives in sector from capital allocation perspective. 
• HOLD to SELL - Been through the ringer completely & peak to trough total return -20% - Strong & Stable - I miss Teresa May!

SHED

• 100% rent collection & 39.5m in acquisitions with blended NIY at 5% (manageable) - 110 assets & one disposal
• 2.26% for 7 year debt - pretty cheap & well positioned for inflation I imagine, Disposal Exit NIY 4.9% (below acquisitions) & 10% above book value
• Feel overexposed to overvalued REITS, although cut quite a lot with this and SUPR remaining - might need to add a REIT or two - not replaced following PHP / BBOX sales - PHP looking better after pull back
• HOLD

BATS

• 30% operating cash margin, U/L revenue growth 7% & New Categories 50% (now 10% of revenues - re-iterate 5yr target - buyback - what took you so long!
• Combustibles up 4% - 4.3% coming from pricing - quite the pricing power!! - 40% margins at the cash & operating profit level - Debt at 3x EBITDA - high (for me) but manageable no liquidity issues (for now)
• Estimate $40bn in free cash over the next 5 years  - call it £8bn (75% of EBITDA!) - puts it on 13x EV to Free Cash - still cheap given the growth!
• 2022 outlook - volumes down 2.5% but expect similar mid single digit growth at CC for EPS & low single digit on revenue
• Some very good operational performance in the New products - Vuse global market leader & carbon neutral (YAY!) - seems to have similar pricing power & also beyond Nicotine (very blue sky at Mo)
• And then 8 pages later - to find out about 88% of revenues - value share is going in the right direction but volume share is not (Price sensitivity?) - albeit some moving around between brands
• Cost savings on track - increased savings target by 500m to £1.5bn - which is a reasonable chunk of operating costs (approx 15bn)
• Regionals - developed world volumes down but price increases, Emerging - volume and pricing - albeit picture is spoiled by Australia being in the emerging world reporting
• Capital allocation mirrors that - New categories being pushed harder than in EM - interesting to see that the products are getting some traction from the healthcare lobby - I'm young enough to read about Medical influencers telling you smoking is good for you
• Did say previously, if I had the cojones, I'd sell a number of my large caps and buy BATS (GSK specifically I think) - I didn't have the cojones unfortunately.
• That said, there are no contingent liabilities recognised & they could be sizeable & also the quote risk for when there is another lawsuit.
• On the re-rating front - found it interesting that a fund manager in an IC podcast spoke of BATS as a good company & call me a cynic but I thing fund managers find it easier to have principles when the share price is not rising (Eg RDSB changes from dirty fossil fuel planet destroyer to a key cog in the climate transition
• I appreciate a number of people will not buy this on ethical grounds and I certainly understand that point of view. FWIW, I think investing in a company that sells a product where people knowingly & choose to damage themselves is preferable to Kelloggs which encouraged a bowl of sugar as part of a nutritious & balanced breakfast.
• And I could give you a very very long list of similar hypocrisies.
• HOLD - Coming up to the 10 year anniversary!

CLIG

• AUM at $11bn (flat to down), Fee income 29.8m (22m) - KIM £10.9m & PBT 15.5m (Underlying) & 13.6m actual (annualised would be some 12-13x), less if you deduct 24m cash & 6m seed -paying special of £12m
• EPS 21.3p (24p U/L) Inteirm dividend flat, special paid - 22.5p total - interim held due to uncertainty in the market. Net fee margin at 74 bps (Flat to down - quite resilient TBF)
• CLIM AUM $11.1bn, CLIG 7bn - China down 23% in the 6 months - impacting the EM strategy ($4.8bn), international continues to get inflows up 14% to $2.1bn - outperforming vs benchmarks
• KIM flat (-1%) -year end redemptions, up on prior year, strong performance - Arbitraging SPACs is interesting (and probably not one that will repeat) - from what I see, it is pre-merger SPACs where they focus
• KIM flat (-1%) -year end redemptions, up on prior year, strong performance - Arbitraging SPACs is interesting (and probably not one that will repeat) - from what I see, it is pre-merger SPACs where they focus
• International now 30% of AUM - EM suffering from outflows & performance - diversification seems to be working now & does increase capacity & flows improving in quarter with 2021 performance to assist 2022 marketing
• 10% from largest customer is a potential risk but stand by that this fund manager has some counter cyclical effects and that is borne out in relative strength & probably a function of valuation
• The big risk re continuous outflows & inability to grow AUM seems to be abating somewhat
• HOLD - Has been an add for the special dividend & director purchases, but late now - Given changes on valuation - not quite the sector standout from a valuation perspective but looks like they will grow AUM, while others might be losing AUM?

GSK

• Decent results but because of soft comps - guidance not great - seems OK enough - very little interest, just have it
• And don't want to sell because of holding period - TBF cheap for what it is & quite a few catalysts for 2022 & pretty sleep easy
• Hold to Sell - Hold because of regret minimisation - selling before the turnaround - have sufficient cash/better cash alternative

UPGS

• Revenues up 13.7% to 85.7m (75.4m) (162m forecast, PY136m) - very healthy & ahead of PY growth, trading in line, Salter in line (significantly earnings enhancing in H2?)
• Supermarkets largest channel from discounters, Salter & organic growth (seems like a 10% reversal - slowdown in discounters??)
• New distribution centre in Netherlands - online capability in Europe - part of 30% target - supply chain challenges heightened but think past the worse
• HOLD - Long term this is a solid business to own, short term challenges abating & seem as good as any in dealing with, Cyclical / BF demand / Consumer squeeze also maybe?
• Will be an add once this concern abates by which time it might be too late!

And Finally

The internet here sucks, which led to a debate with the wife as to what is more important, internet or clean water. 

I chose the internet on the basis that I could use Google to find water or learn how to clean dirty water.

Adieu