Feb Week 4 - Mar Week 2: If I had a Nickel ....
Public Service and another little rant
Feb Week 4 & March Week 1: Vladimir - What did you do to my portfolio??
March Week 2: Back to Normal - BTFD
Transactions:
Buy #MONY #GRG
Add #FNX #SOM
Sell #EMIS #GSK #SUPR
Updates: #BNZL #CLX #SOM #SRC #AAZ #GRG #FCAP
Before I open, I should apologise for my tardiness (You're only hurting yourself as my Mum would say) and the ranting nature.
Excuses out of the way for the tardiness - catch up week - things to catch up on - then it becomes multiweek and the write up itself becomes less enjoyable and much harder to put together.
As a result, you say - Oh - Ok - will do next week and include the current week as well - then you have another week - compounding works both ways!!
And for the ranty nature - more in public service!
I don't know anyone in Ukraine / Russia and really have no dog in the fight - maybe a recurring moan about media coverage - at least listening to the unconsidered opinions of a panel and audience (Question Time) made me turn of the TV and start offering unconsidered opinions of my own!
Public Service
I stand by my Monster BS blog post on 23rd Feb - Ukraine/Russia is not a subject I know much about.
I see people are outraged by the events in Ukraine and rightly so, but the events in Ukraine are not new - they started in 2014 and Ukraine has been led on by NATO.
It reminds me of 2016 when the image of a child washed up on a beach prompted public outrage while the previous 5 years of civil war were .....
It is hitting the headlines - images are powerful after all - and surely this is something we can all get behind - including the response or lack thereof of the West.
What happens when the new cycle moves on - more serious than Partygate but what happened to that?
FWIW, I think the West as far as sanctions are concerned has gone as far as most would have considered reasonable - my wife is making a very vociferous argument for Bitcoin - she gets it now!
And while we are talking one sided coverage - can we have a moment for ordinary Russian folk - again no real insight into their economy but from what I imagine they are getting crushed (not dissimilar to ordinary German people getting crushed in the 1920s) - this really seems to be getting very little airtime.
I do not know if these stories are true but I read about Russian language schools / cultural events being closed / cancelled - really don't think that is right - Where would we be without The Sound of Music?
But the exit of businesses - no McDonalds for people - seriously - what cruel Guantanamo Bay style Japanese water torture is this?
Now I am fairly cynical at the best of times but is it a new brand of corporate ethics or companies battling with supply chains / shortages that welcome the opportunity to reduce capital allocated to a lower margin region.
They wouldn't inadvertently want to sell a Big Mac to Roman Abramovic - lest it get them into a sanctions mess.
If this really is the way forward, I can say with some confidence that if my portfolio only did business with democracies, it would be worth a whole lot less!
Should the sanctions go further - well it is easy to say from my laptop:
Yeah - lets do a No Fly Zone - we need to knock that Vladklat out.
No more oil & gas from Russia - until factories (or people) are told to stop using energy - how do people feel about not being allowed to go to the pub (non essential energy) for 6 weeks while we get to grips with the shortages?
In the meantime, I see Ukrainian flags a plenty on Twitter - had an exchange with a flagged profile - was happy to take a punt on Evraz while demonstrating solidarity with Ukraine.
Financial markets are a strange beast - if Betfair offered odds on who would win between Ukraine & Russia - I expect it would fall foul of ESG!
But who am I to judge given I was talking about buying Russia in my most recent posts.
Fortunately I was on holiday & they were suspended before I could do anything stupid (would have bought them in my wife's account if I had done!!)
Anyway - that's the ranting over with - in my last post I closed with
Ignoring market effects, I sincerely hope that the situation is resolved without significant costs to anyone, especially the people who are in the eye of the storm.
A little late for that.
Cursory Market / Macro Observations:
When I left for my holiday,
Oil was at $102 -
I came back 10 days later and it was at $126
GBP & EUR vs USD were at 1.341 & 1.126 - came back 1.314 & 1.08
Portfolio was at X - came back 0.929X
All Share TR was at 8,354 - came back 7,755
Portfolio was at X - came back 0.929X
All Share TR was at 8,354 - came back 7,755
Expensive holiday!
I was away in Egypt on a boat Scuba diving - hardly any internet - if there was anything else of note in the markets - I was not aware of it.
Guess it was most definitely a case of war on war off during the period or if my portfolio and markets were anything to go by, War On & Risk Off.
I came back and looked at the damage - Ouchies!!
Commodities went cray cray and nobody had a nickel or dime as to what was happening.
The London Metal Exchange cancelled some trades (I am sure there was a very good reason).
In case Brexit bashing begins - just need to make clear that The London Metal Exchange is owned by the Hong Kong Exchange - sine June 2012 - well before all the intelligentsia who read international treaties & manifestos before any vote, voted in the Conservative party (who in their manifesto promised a referendum).
Clearly I still hold a grudge on the conversations from Q3 2016 to Q4 2019!
I was looking at a number of my own holdings / watchlist and just stocks in general and thought - wow there is some serious value on offer (and not just in entities at risk of being suspended).
Clearly other people felt that way too - I did some buying but was a net seller by the end of the week.
Put some of the cash in the wife's portfolio to work - mainly buying beaten up Investment Trusts at what I thought were (and at least over a week) proven to be substantial discounts.
Obviously I am a permabear but as far as the market is concerned and one I struggled with (similar to March/April/May 2020 as it turns out) - yes valuations are cheaper and on a relative basis cheap versus their own history in the last 3-5 yrs even.
But are they cheap given a macro environment of high single digit inflation & rising interest rates - they are certainly not 1976 valuations.
In bull market exuberance, I relaxed the requisite free cashflow yield requirement to 3% for amazing quality growth (Microsoft) - does that not need to double in the new world order?
In case you are wondering in 2020 - yes they are cheap but are they the world is going to hell in a handbasket cheap?
At the same time, I am very confused - as I said War On War Off gives the talking heads an oven ready explanation for markets being up or down - this valuation retreat started a while ago - January wasn't exactly pleasant and the carnage has been going on since February 2021.
I think I need to take some stock as to the best course - as I said on my 2022 outlook - I am struggling to make macro calls this time round compared to Jan 2022 - pretty sure that job got a lot harder.
Who'd be a central banker - but that is for March Week 3!!
Portfolio Review(s)
Will not be covering movers and shakers here - way too many & way too repetitive!
Feb Week 4
I guess during this week, it was a case of will they won't they - certainly the naivety of my comments on how things might end supports that view but small caps were victims of the risk off feel the market was starting to develop.
In terms of transactions, Moneysupermarket entered (re-entered) the portfolio and EMIS left the portfolio.
Moneysupermarket - I had sold from the income portfolio in January 2021 - reduce the number of holdings and so on. Fortuitous sale as it turns out - and I have been keeping my eye on it - I think it has gotten too cheap.
It is a beneficiary of inflation (money saving), higher interest rates (money shopping), guided no revenue in energy (which is as conservative as one could ask for) and hopefully be a beneficiary of the travel recovery.
Cash generative, rock solid balance sheet - may well be a value trap but it seems pretty squarely in the spot for PE to be looking at engineering their way to returns.
EMIS was sold mainly because of the nothing sort of position size - felt I'd need a substantial drop before I was willing to add. At the same time, I was going away and getting jitters about the impact Ukraine/Russia could have on the market and this is one of my higher valuation holdings.
Pretty sure one I will prove to regret (especially having read their results today) and was silly.
The one I actually wanted to sell was GSK (since sold and now I am completely unintentionally underweight healthcare).
During the two week dramas, EMIS offered better quote defense than GSK did!
Arcontech was the only company that reported in the period & I really only did a cursory flick through the results - same old story - struggling to make the sales but very strong pipeline - in the meantime new hires seem to be sat around picking their noses.
Pipelines are cheap but so is the company to be honest.
I have written this off - I will continue to follow it because the holding is tiny - see if there are any signs of the pipeline taking effect but at single digit million market cap - it is officially no longer part of the investment universe (not that I have anyone monitoring my investments against mandate)
March Week 1
I guess if February Week 4 was where people were worried that an invasion would happen and the West would shake their finger and do nothing.
Well, the rhetorical and economic response was swift and sharp - as I said well beyond what I thought they would do - especially in the early stages.
Guess the first war with a Hashtag will force politicians to get their act together, especially if there are elections coming up.
I was around for most of Feb Week 4 but I was pretty much clueless on March Week 1 - I saw the defence sectors were doing well - Germany/Europe going to increase defence exposure.
Did have a couple I was looking at in this space - none of the big players - more picks & shovels - should have bought when I was doing my buying in March Week 2 - but so illiquid it is ridiculous!
I know people say it is so nice to detach and not have the internet and all that nonsense.
Well I was in the Red Sea - it was beautiful & relaxing - only thing that was stressing me out - the lack of bloody internet!
Fortunately, the internet lasted long enough to list all my losers > 5%.
That being said, probably a good thing - with internet I would have felt obliged to not just sit there and do something.
One thing I will say - the portfolio held up better than the carnage - and that is something I like to see in my portfolio. As it turns out, it entered the carnage substantially behind the chosen benchmark, so whatever!!
There were no transactions - don't like paying the phone fee for trades - most definitely not going to do that while roaming!
I am virtually certain I missed some announcements around the impact of Russia - but fortunately there were only two announcements pertaining to trading updates and results.
Calnex upgraded guidance again - materially ahead in year to 2023 - 2022 will be in line if they can fulfil orders but struggling with components - they say they tried to manage it but demand is ahead of what they had anticipated.
Might be indicating for a miss in the current year (but we should not punish them for it) - when do those lock ups expire?
I really like this company and thought about adding in the mayhem in March Week 3 but the valuation, it already being reasonably large position and the newness of the IPO make me reticent in adding.
The results might change that view - I noted that a 2022 miss might create a buying opportunity.
Bunzl reported results which were decent overall and upgraded their guidance. Think my thesis that low gross margin pass through entities benefit from inflation and whilst I did not do a word count, the word inflation appeared multiple times and unlike others, in a positive way.
9% increase in revenues & very healthy on a two year basis - base business recovering offsetting a reduction in CoVid demand - very strong recovery in US and nature of agreements costs can be passed through (as can reductions in costs) - 50% of operating profit provides some stability in the form of American exceptionalism.
Nothing to worry about in the results but as we can see Europe & UK vs US - this is a business that is levered to the business / industry cycle. The other risk is does this work in a world of de-globalisation - I would hope the distributed operating subsidiaries may offer some resilience.
By the time I reviewed these results, we were in March Week 2 and the market was going cray cray and so my conclusion became Hold to Sell - Sell only because I thought there were better opportunities, in particular Cranswick which is held in the same account.
Some personal growth - I had the cash so thought I can just buy CWK in another account & there was no reason to sell Bunzl and I did not.
Some personal shrinkage - I didn't add to CWK - which in the short term is proving to be a mistake (including if I'd sold BNZL & bought CWK)
March Week 2
Well it most certainly was not looking pretty as the week started but as we have all learned over the past 10-15 years - Real Gangsta A$$ ****** BTFD!!
And why shouldn't they - after all the last time Russia defaulted in 1998 - there was a bail out & we had a period of some spectacular returns - before my time but think that was what ended in common parlance as the dotcom bubble.
Some of the heaviest fallers in the previous weeks Sanderson (less luxury shopping?) - not sure how much purchasing is done by the Oligarchy - their results talked about US being the best region.
Anyway, this was my first week back with internet and there was a lot of catch up required while the market was bouncing around like Tigger - think we are supposed to be like Winnie the Pooh.
As I am a Real (Gangsta) A$$ - I was like wow this is starting to look like real value - I was very tempted to concentrate the portfolio and add to a number of holdings but that would have involved doing things I am not entirely comfortable with.
Also, with the recovery, it is very easy to say, yeah I should have been more aggressive but the fact is I am still not clear on the impacts - the conflict probably less impactful than CoVid lockdowns but this seems more complex / adaptive - so really struggling to think how / where things will fall out.
I did engage in a bit of dip buying and then as the market recovered also removed certain holdings - which with hindsight was wrong but to be honest these were in the pipeline for a long time.
The sales were done because I felt I had better opportunities in my portfolio but by the time this happened the market really started recovering.
The issue that has now arisen of course is that I have cash (was buying earlier in year) to avoid large build up in April and as it turns out, I will end up with large build up in April.
At the same time, the FOMO is now starting to kick in - as I say I have a couple of items on the watchlist and some of my own holdings where I have room to add.
On the transactions front:
Greggs entered - really really like the company & very rarely does a company claim to double it sales & pretty much tell you how they are doing that.
Being a soft southerner accustomed to paying stupid amounts for sandwiches, I and many of my erstwhile colleagues bemoan the lack of a Greggs in Canary Wharf (came to late for me but I really need to check it out) and invariably when I pass a Greggs there is a queue & they're far busier than the competition.
Forget the doubling in sales - I can see this growing multiple years a la Starbucks (I think it cold travel internationally, but I would think that!!).
Bought it the day before results - results were good but costs impacting and not expecting material profit progression. Marked down 10% - one where one could back the truck - I think it should quite easily have a 4bn M/Cap (at the time near 100% upside) in 3-5 years and I would enjoy owning it.
Was put off by profit warning and not trading on day of results, especially on large moves & now all kinds of price anchoring to deal with but very firmly one to add, especially on weakness.
Fonix mobile was added to - better timing than my earlier add in mid February - just did not see why this was marked down some 20% having guided ahead - again I like the company and felt there was an opportunity pending results. Given the new IPO & so on - probably a little jittery about the position size but then again, I am struggling to find a reason to sell other than that.
Somero was added to - similar to above - better timing than my add in mid February - same reasons as Fonix - guided ahead, already at a cheap valuation and I was pretty sure with the ahead guidance, there would be a pretty large dividend coming. At the time of writing, with the recovery, the position size is making me jittery. However, when the dividend is dealt with, the position will be smaller & cash receipt will make portfolio higher?
Results really were outstanding, notwithstanding that there were soft comps in 2020 and 2019. Management guidance is cautious and obviously what happened in 2021 cannot be repeated. Although what they said this year is remarkably similar to what they said last year.
Positive signs from the new product and hopefully the strength apparent in the recovery in the US, maybe international will follow.
Need to replace revenues from China and Russia & the results were very reliant on the Boom Screed & USA and a lot of cyclicality.
My concerns were allayed by the results call - namely it is not just large Amazon warehouses but also things like data centers - that the constructions projects are big & time consuming. And while there is the cyclicality, if there is an effort to move manufacturing back from the East / Semi conductor Fabs - the cycle may well have a bit more in it.
Like TPFG & BMY (Tate to a lesser extent) - this is topped out - may be a call for a mild reduction, but think letting the dividend take care of that could work.
Supermarket Income REIT & Glaxo left the portfolio.
SUPR - it is trading on a premium to book value and inflation linked income with a cap that does not cover current levels of inflation. Looking at the results and the NIY combined with the premium - I am not sure how the 5% dividend on NAV is achieved, let alone share price given the premium to NAV.
May well be one I prove to regret but it exposes my portfolio to valuation risk, does not meet the required return, I feel I have better opportunities for income elsewhere, not least Tesco.
Also, I was looking at this as inflation protected income - Forterra results said they would raise prices double digit - which is a substantial improvement on the increases SUPR will achieve.
GSK - to be perfectly honest I didn't want to own it - every time they report their results, I die a little death with having to read their results. Would you believe when I first bought it in 2016, I thought 5% yield, safe stock just hold for a really long time and should provide a healthy return.
The dividend has not increased since I bought it (debt has!!) and now is being cut from previous levels. As I said, post spin off & value creation (after all that destruction) will have a business I don't understand desperately overpaying for a pipeline and a leveraged consumer healthcare business which is probably going to refinance into a rising rate environment.
Also, as I noted on my comments around EMIS - these two weeks were the environment where GSK should hold its own - it had a 10% move give or take.
In fact the last two years one would argue were the perfect set up for GSK & I am not sure they have much to show for it!
So, it is not doing the job it is supposed to do for the portfolio, I don't think it meets my long term return requirements (sure might get to £18 - then what), it is outside my circle of competence & I don't want to own it! Position size & better opportunities were other factors.
With that list, how can you do anything other than sell when people are telling you we might be in nuclear war.
And there were a few more short updates that didn't really say much but I guess provided some reassurance in a tough week.
Sigmaroc said sales in Russia are de minimis and none in Ukraine - trading is in line with expectations. Forterra results also made me more comfortable too.
FinnCap - revenue will be ahead of previous expectations - previous guidance was cautious to say the least so probably not a surprise. 2022 capital markets will no doubt be challenging but I can see this being a much bigger business and if they start breaking out their data analytics sales - might show a growth business that gets people excited.
Think there are still transactions in the private market / M&A and there must be some talent there if they can convince people to give more money to Parsley Box!!
Anyway, it is illiquid so I am stuck with it and there is absolutely no reason to sell based on current valuations. As far as results are concerned, they did not mention anything about profits / dividends.
One of the big reasons I don't like Banks is that when times are good, returns are made by employees (not shareholders) and when times are bad, they are really f****** bad!
Note - if FOMO gets bad and you find yourself wanting to buy a Bank, buy Close Brothers (or Virgin Money)
Anglo Asian Mining - No impact on operations as a result of the war - clearly all good but unfortunately Geography can often impact Geopolitics.
Guess one of the reasons this hasn't been sold is I am a Goldbug - incidentally my Gold ETF holdings have done substantially better than my gold miner holding.
Not something I would know about, but I dare say this extends to the miners vs the underlying commodity as well - but that would be getting even further outside my circle of competence - equity risk I can understand.
And Finally
For those that don't want my rambles:
If you haven't seen the movie - highly recommend it!
For more rambles:
I was hoping to provide some photos / videos from the scuba diving trip to Egypt.
There was some very pretty stuff and as much as I don't like wreck dives (probably shouldn't have gone for a Reefs & Wrecks itinerary) but SS Thistlegorm was pretty cool.
You can see the motorcycles / trucks / weapons that the ship was carrying - a supply ship for British Army - taken out by German air force near the Gulf of Suez.
Give me dolphins, rays & turtles over the ship any day.
No videos or photos unfortunately - forgot my red filter & tried to come up with workaround but tape & underwater & having to pin with one hand while taking a photo is just awkward, especially since I just couldn't get my diving working on pat - I blame the cold water & 7mm Wetsuit which was screwing up my buoyancy / weights.
Had a very nice time on the trip and many thanks to the people who made it a lot of fun including the crew at Emperor Superior. It must have been a nice group given the WhatsApp group is still active two weeks after the trip! Nobody replies when I open my mouth!
The others on the boat did get some great shots so if they get shared, I might do the same.
Bringing it back to markets and life - when we go to a resort - nice easy diving, we'd be one of the better divers, on a liveaboard, we are usually the worse (and this boat had three dive instructors, one of whom is a technical diver).
So, if you want to feel better about your returns / richer - hang out with people doing worse than you and if you want to feel worse about your returns / poorer - hang out with people doing better than you.
80% of Egyptian wheat comes from Ukraine - they are going to have some serious inflation.
We stayed in an apartment in Egypt for the last couple of days - were able to put back into the local economy / businesses a little bit.
My haircut turned into some painful threading for hair removal and then a facial - it was painful but my skin was shining - pretty sure I didn't look that shiny at my wedding.
Clearly all this stuff makes a difference - mad props to the ladies & metrosexuals who go through this - but to borrow from L'Oreal - I'm / It's not worth it.
But if you haven't been - definitely visit - Egyptian people are super friendly.
Adieu
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