UK INVESTOR MONEY // SHARES // INTERVIEWS
ISSUE 19 // FEBRUARY 2017
Stocks to fall in love with forever Sorry, you can’t invest in Cheryl Cole yet
Plus Seven new cracking tips Midfid 2: Who watches the watchers? Donald Trump and the Doomsday Clock UK Investor Magazine — 1 — February 2017
From The Editor INSIDE 3 Attend the UK Investor Show Tom Winnifrith 5 “Independent” equity research Richard Jennings 7 Donald Trump and the Doomsday Clock Tom Winnifrith 8 Three resources shares to buy for February Gary Newman 10 A lesson in Greekeconomics Tom Winnifrith 11 Company profile: Shoe Zone Steve Moore 12 Stocks to fall in love with forever The ShareProphets team 14 Three stocks to sell Tom Winnifrith 16 The House View
CONTACT US UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: firstname.lastname@example.org W: www.UKInvestorShow.com EDITORIAL Tom Winnifrith Editor
Welcome to the February edition of UK Investor Show magazine which is far less late than usual. Work is now underway on the March and April editions which will be even more prompt - the latter will be out on April 1, the day of the UK Investor show. And that is what we are working on very hard, the highlight of our year. As you may know this will be the 16th show I have staged but the 15th with Nigel Wray involved so it is very much a birthday show. The one year Britain’s Buffet could not attend was down to some rugger match in France but this year Saracens has its home game on a Sunday so Nigel will be around all day at the show and will be making himself available to meet as many attendees as possible. In part this is because we have turned a 20 year friendship into a family partnership. The show is now half owned by my family and half by MBN the events business run by Lucy Wray. Gosh, Lucy and her whole team - including her younger brother Joe - do know what they are doing and so this birthday show will be a bumper event as you can see on the page opposite. Doing business this way is actually quite fun. Trusting your partners, working with folks who are efficient and driven, getting things done and not having to compromise on principle is so different from being involved the public company world. We already have 114 of the 121 PLC stands booked but I know that if we had written less beastly things on ShareProphets about certain PLCs we’d be sold out already. When you explain that taking a stand is an opportunity to meet investors not a guarantee of soft coverage some PLCs walk away. Good riddance say I! And the Wray family agree with this approach. It is just a pleasure to be working with such a team and you will see the amazing results if you are serious about making money from shares and pitch up at the QE2 Centre on April 1. So be there for the birthday party! Pro tem I hope that you find something of interest in this magazine. We have a guest writer in Richard Jennings, a man who is wrong on certain matters and our disagreements are public. But he can also be bang on the money and as a free speech believer I am happy to give him a platform on page 5. Plus there are the usual selection of buy and sell ideas from the ShareProphets team, Chris Bailey showing signs of a mid life crisis (page 12) and of course the hero of we deplorables, Mr Donald Trump, makes another appearance. What a novelty it is seeing someone elected and then actually doing what he said in the campaign. No wonder the establishment hates him so much. I hope that you enjoy this issue of he magazine and now make sure you book your tickets for April 1 and the birthday party UK Investor Show. Tom Winnifrith Editor
UK Investor Magazine — 2 — February 2017
150 reasons to attend the 15th birthday party at UK Investor Show on April 1 By Tom Winnifrith
o kidding April 1 really is the date for the UK Investor Show which is now the 15th time that Nigel Wray, aka Britain’s Buffett, and I have been involved in staging such an event. So it is a birthday party as well. And with MBN, the incredibly well regarded events management firm owned by Nigel’s daughter Lucy, now in charge this will be a knockout event. Indeed here are 150 reasons why anyone serious about making money from shares must be there! We have 20 free tickets to hand out to our readers today. Just go to www.UKInvestorShow.com/tickets and use the promotional code PARTYUK and we will send you a ticket to the event next week. So book now! Here are the 150 reasons why: • 121 stands. These are not filled with rubbish companies from Nasdaq or which cannot even gain a listing on AIM. These are nearly all high quality AIM or main market PLCs with stands manned at CEO level who want to talk to you. Think Sirrius Minerals, Optibiotix, Alliance Pharma, Kefi Minerals, Premaitha, ICAP, Big Sofa, Metal Tiger, Rare Earth Minerals and the list goes on an on. Most of the PLCs will also be doing a 20 minute presentation on the day. • 17 big name speakers on the main stage: Nigel Wray himself with Paul Scott and the UK’s oldest find manager Paul Mumford, gold gurus Dom Frisby, Ross Norman of Sharps Pixley and Peter Hambro, me, Steve & Gary Newman, tech queen Vin Murria, by video Mark Slater, Evil, Lucian Miers, Gabiel Grego the Globo Destroyer and more • 2 golden share tips. Nigel Wray and I will give £5,000 and £3,000 respectively to Woodlarks and
that cash will be invested in two shares, the ones Britain’s Buffett and I reckon are the best bets in London. You have to be at the show to find out what these shares are. • 5 Dragon’s Den Sessions - Nigel, Gary, Steve and I are the Dragons and in each session we will each invest £1,000 of real money in one of the five companies doing a 1 minute pitch. • 2 breakout sessions chaired by Big Dave Lenigas - one on UK onshore oil and one on making money in Africa. • 1 gift worth £18 for each delegate attending • 3 chances to win £150 in a free quiz organised by FairFX • 1 whole day of free giveaways at the stand of Chapel Down, the maker of the UK’s best wines and finest lager, Curious Brew. As you have no doubt worked out that is 154 in total. I could have gone on. There is a free draw with a chance to win a 2 week stay at the Greek Hovel I own which will be a palace when rebuilt by summer 2018 and many other prizes. It is a day when you will get great share tips and short calls, learn from real master investors, meet CEOs in a way you can do nowhere else and above all have fun. We have 20 free tickets to hand out to our readers today. Just go to www.UKInvestorShow.com/tickets and use the promotional code PARTYUK and we will send you a ticket to the event next week. So book now! Nigel & I look forward to seeing you all at the 15th anniversary party at UK Investor Show on April 1.
UK Investor Magazine — 3 — February 2017
UK Investor Magazine — 4 — February 2017
Mifid 2 and its likely impact on “independent” equity research By Richard Jennings
lmost without exception, where there is a research note produced there is some type of potential conflict.
Either the research provider is touting for the brokerage/nomadship from the company in question or the note is created with a view to generating commissions from the fund manager recipients. Additionally, almost all research these days is produced with institutional investors in mind and is usually held behind a firewall. That being said, two relatively new start ups – Research Tree and Research Pool are democratising this access through allowing so called “retail” investors to view the reports but still, many of these reports cost the reader hard dollars. Enter Mifid 2 – a new EU directive to add to the mounds and mounds of existing financial markets legislation and which, amongst its many components, in part is looking to address the way that research is paid for. In the bureaucrat’s infinite wisdom, the segregation of commissions paid by fund managers for said research (so called “unbundling”) is expected to result in addressing one element of the conflicts of interest as detailed above – that being the generation of trading commissions will no longer be allowed to offset the receipt of research. What will have to happen is that an institution/ fund manager will have to pay the research provider directly for the reports received. If there is no discernible impact upon commission rates and trading volume, net effect is that this is an increased charge to the fund manager and where will this charge go? That’s right, direct to the underlying fund holders. Another example of regulation increasing cost burdens on the end beneficiary and, in this instance, in all likelihood having no real benefit to them! The reason I believe the end result of this directive will (a) result in increased costs for the fund holders and (b) have no beneficial effect, in fact likely the opposite, is linked back to the first conflict of interest I highlighted above. With the material downwards pressure on trading commissions over the last decade, combined with this new directive, the economics of having a research department churning out unbiased reports pretty much disappears. Truly independent research will thus reduce dramatically. A scant look at the results
of the quoted brokers in recent years (which remember comes against the backdrop of an equity bull market) does not make pretty reading. Asking fund managers to pay directly for this research will be a hard ask. The real wider market impact will be , in the first instance, an increase in so called “paid for research” (where the company pays a research house to get their “story” out there) and in the second instance, the spoils of the equity market going to the better resourced fund managers who will likely house their own in house research teams where they can control costs. For both smaller fund managers and at the lower end of the market capitalisation spectrum in particular, getting hold of worthwhile research will become all but impossible with the only reports out there being from a company’s own broker or the paid for research majors like Edison. Now, ask yourself, are either of these elements of the industry likely to put out a note with negative spin on a paying client? I think we all know the answer to that... Align Research was created in part to address Mifid 2 and, most importantly, to only cover companies we feel are (a) undervalued and (b) either devoid of coverage whereby the message is not getting out to the wider market or we have spotted a new angle that is under appreciated by investors. By its very nature this approach typically leads us towards companies that could be described as small or micro cap and, since our inception, as a consequence of the savage bear market that ended at the start of 2016 – to concentrate on the resources sector. Our remuneration does not come from receiving the brokership to a company or from the generation of commissions. It does not even come from the requesting of subscription proceeds either. Our remuneration comes from approaching only those companies that we believe in and our offering to “get under the hood” of the company in question with capable and well qualified analysts in exchange for equity compensation. So yes, we are of the “paid for research” variety but the way we operate our company is such that we do not have large HQ costs and embedded analyst costs and so have the luxury to only take on those companies that we believe in – an approach unlike almost all our competitors.
UK Investor Magazine — 5 — February 2017
Importantly therefore, we are completely aligned with existing investors, management and any new investors that acts upon our research. If we are right we benefit in hard cash. If we are wrong, we lose unlike the likes of Edison & Equity Development that almost always take their fee in cash. Additionally, Align also locks itself into a company for a minimum of 6 months. What our unique approach does of course is concentrate our minds to ensure, as far as possible, that we are correct in our analysis and also that the re-rating potential stands the test of a minimum of 6 months, ie there is longevity to the basis of investment. If we are correct then we make money. If we are wrong, we lose money. There is no cleaner or clearer scorecard. And the cost to Align’s followers for this research? Zip, nada, not a cent aside from their time in reading our research. And so, as we complete our first year of operation, we present below the tally of our recommendations in illustrating that when it comes to research, following those that “eat their own cooking” is perhaps the best way forward under a new Mifid 2 regime. Blended rate returns reflect a simple equal weighted arithmetic average assuming each position was incepted with the same capital amount.
5 model portfolios: Growth Income Gold Recovery Penny Shares
newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 6 — February 2017
Donald Trump and the Doomsday Clock: The liberal media laps up fake news “the man will kill us all” Writes Tom Winnifrith
ince 1947 The Bulletin of Atomic Scientists have once a year re-calibrated an imaginary Doomsday Clock tracking how close we are to midnight, the point at which man destroys the planet. To mark the election of Donald Trump the clock was pushed forward 30 seconds to two and a half minutes to midnight. How the Guardian, Channel 4 and the BBC loved it “He’s going to kill us all”. Did any of these screaming hysterical liberals watch the last episode of the current series of Endeavour? It started in 1962 and the radio is playing coverage of the Cuban missile crisis. The Russian foreign minister has just announced that if Soviet ships sailing to Cuba are intercepted by the Americans - as JFK had pledged to do - this will start a global thermonuclear war. Folks who were alive in 1962 tell me that they felt terrified. As a boy when Russia invaded Afghanistan and Reagan and Thatcher stood up to the original Evil Empire I felt scared. The Government distributed leaflets to every British household “Protect & Survive” showing how in a manner of which Blue Peter would have been proud we could all make our own bomb shelters if the sirens went off. Demand for proper bomb shelters went through the roof. That was scary. Donald Trump says he wants to work with Russia and get along with President Putin. The Ideological divide ended with the fall of the Berlin wall. These days Russia and America have far more in common and, unlike Obama, Trump recognises that and wants Jaw Jaw not (cold) War War? So why is he a threat? The Bulletin states that: “the United States and Russia, are currently at odds in a variety of
theaters, from Syria to Ukraine to the borders of NATO”. On Syria it seems that Obama was at odds, backing Al Qaeda supporting rebels, with Russia which did not back terrorists. It seems as if Mr Trump wants to join Russia in clearing terrorists from Syria. It was the former US regime that racked up tensions in the Ukraine encouraging a revolution to oust a democratically elected President and replace him with a regime which within 24 hours had made ethnic Russians feel like second class citizens, by ceasing to recognise Russia as a language. Go back to WW2 and what happened in the Ukraine for a history lesson. Did President Obama know on whose side the grandfathers of many of those he is backing fought? And what atrocities they committed. Trump wants to talk to Putin to find a solution. The logic of the Atomic scientists is flawed, the clock should be nowhere near midnight and under Trump it should be moving backwards not forwards. Aha, but these “peer group selected scientists” have another agenda. Back in 1947 this clock was about nukes. Today the report also cites “the lack of immediate progress in fighting climate change”. Aha Trump is a denier. So what if the arctic icecaps are getting bigger and global land temperatures are falling at a record pace this winter, Trump does not believe in global warming and so the world is going to burn up soon. There is no room to debate those who believe in this false religion for they act in a post fact era. Meanwhile for the liberal media establishment it was a day to celebrate. Report the headline but do not ask is the world really so close to wipeout and so much closer than in 1962 or 1983? Of course it is not but when you pedal fake news every day what do you care about facts?
This article first appeared on www.TomWinnifrith.com UK Investor Magazine — 7 — February 2017
Three resource shares to buy for February Writes Gary Newman
ommodities in general have been having a great run recently and it is becoming harder to pick ones where there is still plenty of obvious value and upside, based on the fundamentals rather than looking for those that may have short-term sentiment driven spikes. Copper in particular has been performing very well recently, but there are also some metals which I think have the potential for a similar recovery, and those include nickel – especially during the last week or so following an announcement by the Philippine Government that it is shutting down a number of mines on environmental grounds. That decision should ultimately help AIM listed Asa Resource Group (ASA), and although I am still somewhat cautious as a result of an ongoing legal dispute over one of its assets, I can still see plenty of potential upside. Currently a big chunk of its revenue and profit comes from the Freda Rebecca gold mine in Zimbabwe, and there is currently a court case lodged against the company that it has failed to comply with indigenisation laws – basically these restrict overseas ownership to 49%, as compared to the 85% that Asa currently owns, but until now has never been enforced by the government, with the law actually dating back to 2008. This is obviously of concern to some investors, but I believe that a resolution will be found, and even if ultimately the company does have to comply with that law, the asset would still be valuable, and especially so with gold also having performed well recently. It also has a 75.4% interest in Bindura Nickel Corp, which is listed on the Zimbabwean stock exchange, and although that has had its share of problems recently it still generated a net profit of around $1.2 million for the last six month period. With costs reducing at the operation and at the same time nickel prices rising, it has plenty of potential. Aside from its interests in Zimbabwe, the company also has the Zani Kodo gold licence in the Democratic Republic of Congo, which is ready to start producing as soon as a licence is issued and
has reserves of 3Moz. This company is very much reliant on commodity prices staying buoyant, and despite the court case I can see value longer term the current price of around 1.85p to buy, and a market cap of circa £30 million, given that it made a net profit of $3.1 million for the last six month period reported. Although whilst the court case is still in the background it is unlikely to rise as well as it might otherwise do. For something a little more speculative in the nickel mining sector, based upon the fact that it is yet to start production, Brazilian-focused Horizonte Mining (HZM) is well worth a look if you want a company to invest in over a number of years.
The company owns 100% of the Araguaia project in Brazil, and although production is unlikely to get underway until 2019, once it does the project is expected to have a mine life of 28 years, and it is in the process of carrying out a definitive feasibility study on the project. The fairly recent pre-feasibility study was very positive, with cash cost coming in at around $7,000/t, and proven and probable reserves totalling over 26 million tons, with an actual achieved grade of 1.77% as compared to the 1.28% cut-off. It is also expected to be developed in a way that won’t require huge amounts of capital in the early stages, centering around open pit mining, and revenue will be ploughed back into advancing the project further. Initially it is expected to produce around 14,500 tons per annum, with an NPV(8) value of some $328 million – that is based upon nickel prices of $12,000/t. Currently the nickel price is close to the $10,400/t area, but has been strengthening, and I expect it to continue doing so. The company raised £9 million in the latter part of 2016, mostly via institutional investors, but will need further funding to reach production, but by that stage I would expect the share price to be higher as it will have completed the DFS.
UK Investor Magazine — 8 — February 2017
Currently the share price is around 2.7p to buy, with a market cap of £30 million, and this is one to buy and tuck away for the future. Finally, I would consider looking at Ovoca Gold (OVG), which is a bit different to most of the companies that I tend to focus on, in that its own operations aren’t all that exciting at the moment! The development of it’s Stakhanovsky gold project in Russia was put on hold as a result of falling gold prices at the time and hasn’t yet been resurrected, but given the renewed strength that gold has been showing recently, that could change if it continues on a bull run. I would estimate that it currently has a little under €7 million in the bank, and is burning through cash at a rate of around €110,000 per month, so you could argue that the current market cap of £7.4 million, and a share price of 9.25p to buy, is more than fair. But taking a closer look, you will find that the company also owns 1,405,000 shares in FTSE250 listed miner Polymetal International (POLY), relating to the sale of the Goltsovoye silver mine back in 2008.
This gold and silver miner is valued at over £4.2 billion and the share price has been performing very well recently, and will continue to do so if these commodities stay strong – silver has been on a bit of bull run lately having recovered from a low of well below the $16 level, and is now around the $18 mark. It is currently trading at 990p to sell, meaning that the shares that Ovoca holds are worth £13.9 million, and given the size and liquidity of Polymetal it wouldn’t be all that hard to sell them if it ever needed to. Polymetal also pays out a decent dividend, and although the final dividend is yet to be agreed for the current year, if we were to assume that it is line with recent times – the increased interim dividend compared to last year would suggest that this is a fair assumption – then it would be in the region of $0.37 per share. That would mean total income of close to €500,000 for Ovoca, and would cover close to 40% of the annual running costs of the company, thus reducing the rate at which it burns through its cash in the bank. So I can see plenty of potential value here at the current share price, it is just a case of if and when the market wakes up to that as it isn’t a popular share by any means and is very illiquid.
ROCKETS Stocks Ready to take off hotstockrockets.com UK Investor Magazine — 9 — February 2017
A lesson in Greekeconomics - the second ticket collector on the buses Writes Tom Winnifrith
hen you get on a Greek bus, either the driver or a ticket collector who sits with him at the front, checks your ticket. You cannot board without one. It is simple enough. But then it gets complicated. In the middle of nowhere suddenly another chap joins the bus and walks down the aisle checking each ticket and sometimes running a red pen across it. Since each ticket has an allocated seat on an allocated journey it cannot be reused and since only those with a ticket can board the bus to start with you may ask what is the point? But before you can try to work that out, collector two has asked the driver to stop and he gets off, again in the middle of nowhere, and waits to flag down another bus. You will by now have established that collector two has achieved absolutely nothing in the war
against fare dodging and has added not a cent to the revenue of the bus company. He has added two or three minutes to your journey time with the two additional stops and that is it. But you are not Greek and thus do not realise that this is job creation: the bus company has taken someone off the dole by creating a job, albeit one that is completely pointless. And that is Greekeconomics. Across the private sector but, on a far larger scale, in the bloated public sector, fake jobs are created on an enormous scale and whatever the IMF or EU tries to do these jobs have not been eliminated. Thus the Government runs an unsustainable deficit and the private sector is less efficient, less profitable and thus able to create fewer real jobs. What could possibly go wrong?
First published on TomWinnifrith.com UK Investor Magazine â€” 10 â€” February 2017
company profile Shoe Zone Treading a path to income value? By Steve Moore
aving been consistently 170p+, shares in footwear retailer Shoe Zone (SHOE) slid to 140p in October before a reassuring trading update sparked a recovery. January then saw the announcement of results for the company’s year ended 1st October 2016… The company is the UK’s largest specialist value footwear retailer, closing its year operating from 510 stores across the UK and the Republic of Ireland. The October update included that it maintains its pricing via high volumes ordered, direct sourcing from factories and a low product line count and that it sells approximately 20 million pairs of shoes per annum with an average retail price per pair of £10.09. The January-announced results showed a pre-tax profit of £10.3 million on revenue of £159.8 million, generating earnings per share of 16.90p, up from a prior year 16.20p. Even after particularly £2 million of income taxes and £7.9 million of dividends paid, cash (net) increased by £0.8 million to £15 million. A dividend per share of 6.8p will take the ordinary dividend per share for the year to 10.1p (2015: 9.7p). However, the company also states that “£11m is currently deemed to be the maximum cash the business requires to operate effectively” and thus a special dividend per share of 8p (2015: 6p) is also recommended. Both have an ex-dividend date of 23rd February and are set to be paid on 15th March. Looking ahead, the company notes that “the outlook for consumer spending looks challenging” but believes it is “well positioned given our strong value proposition” and expects to “broadly maintain” gross margin percentages, helped by increased direct sourcing. It should also be helped by a flexible store portfolio, “with an average lease length of only 2.6 years” enabling it to “continue to optimise
our store portfolio and close loss making stores to drive profitability”. This outlook and the dividends on offer see me continue to consider this an attractive income play.
Management 2016 was ‘all change’ in the boardroom as Anthony Smith who had led the company for 20 years through a series of acquisitions and its IPO in 2014 moved from CEO to Executive Chairman. This saw then CFO Nick Davis become CEO, he having been with the business for 13 years. The Finance Director is now Jonathan Fearn who joined with extensive recent experience from working for Celesio UK (formally LloydsPharmacy) since 2002, this including a ‘Head of Region’ role where he was responsible for retail operations of 235 stores, with Procter & Gamble, she was appointed Finance Director in January 2014.
UK Investor Magazine — 11 — February 2017
The St Valentine’s Day Portfolio - stocks to fall in love with forever By The ShareProphets Team
ow did you celebrate St Valentine’s Day? Many of us dismiss it as just another commercial spendfest. Others take it as an opportunity to remind the one you love with a small gift for putting up with us for another year. With 1 in 3 marriages now ending in divorce perhaps the idea of falling in love forever is somewhat passe? Certainly you should never fall in love with a share, become blind to its imperfections or overvaluation and so find yourself unable to sell. But if you did fall in love with one share what would it be? GARY NEWMAN says This was a difficult one to decide on, as it would be easy to pick a boring dividend paying stock that provides an income for the foreseeable future, whereas I’m really looking for one with growth potential in the coming years. Currently that company would have to be Serica Energy (SQZ), where I currently hold shares, as it has been performing very well recently and looks like it can continue to do so as long as the oil price stays strong, which I would certainly expect it to over a period of years. Even at an oil price in the $50-60 range the company is making good levels of profit, and with little in the way of capital expenditure currently – aside from two further payments to BP of $2.775 million each, ending in July 2018, for the 18% share of the Erskine field that it bought – the level of cash build is very impressive, with $3.5 million for December alone. There have been problems recently, but the Lomond facility is now allowing Erskine to produce at full capacity, resulting in around 3,800boepd net to Serica, and operating costs of well below $20 per barrel. Erskine does have a limited lifespan remaining, although it is possible that could be extended for longer than initially anticipated, and that is where the Columbus field comes in, with 6.2 million boe of contingent P50 resources.
Sercia already has around $20 million in the bank (including December payments), and if cash build continues at the current rate it will certainly go a long way towards developing Columbus – Dana Petroleum is already leading a project to develop that field, along with several others, as part of a plan by the Oil and Gas Authority. As long as Columbus is developed as expected, and there are no problems with Erskine, then I can see plenty of potential for growth moving forwards and a chance for Serica to become a mid-sized player in the UK oil and gas sector, at which point I would expect the market cap to be a lot higher than the £64 million it is currently, even if that is a few years down the line. CHRIS BAILEY OF FINANCIAL ORBIT thinks he is Tony Hadley. Maybe that is a mid life crisis sort of thing and so sings: ‘Gold Always believe in your soul You’ve got the power to know You’re indestructible’ Whatever, returning to his senses the City whizz kid writes: This love affair started around ten years ago. Back in 2007 I was a callow youth unschooled in the power and low correlations of the yellow metal, optimising any multi-asset class portfolio with an unsophisticated mixture of equities, bonds and cash. My head was turned on the first meeting where the exotic talk of Africa, undiscovered metal in the hills and building cash generative mines with an assumption of a US$1000 ounce gold prices and not the ever higher estimates of the American, Australian and Canadian fillies. After our second date I succumbed and introduced you into my portfolio life. You sported an £18 share price and I was heckled or
UK Investor Magazine — 12 — February 2017
ignored by a range of peers citing a high P/E ratio and the strange fluctuations of West Africa. This continued for a number of years as your share price was volatile but ultimately crept higher and my faith and adoration only grew. By the start of this decade you were my number one holding, my preferred go to for wellmanaged, value-adding, cash generative growth with a defensive and protective edge. There were plenty of bumps along the road – coups, electricity outages and an unsupportive gold price – which shook the faith of many…but not me. It was only at the heights above £80 a share last year that I dared sell any. I know it hurt you and you feel into a slump, falling to around £55 a share. This brought me around to my senses though and I reinstated you at the top of my portfolio and my share affections a few months ago. I still feel a bliss which continued through the results from early February which made you shine even more brightly than I – a long-term adherent – could have ever imagined. Of course you know who I talk of. The only share I own worthy of an accolade as worthy as ‘One share I could fall in love with and hold forever’: Randgold Resources (RRS). May we grow older and wealthier together. TOM WINNIFRITH asks “how can I follow that?” My number one investment i a 1945 Wisden. It is not the most valuable Wisden in my set- far from ot. I bought it the other day for £100 and I reckon that it is worth c£130. However it brings back happy memories of a trip with my Mrs and son Joshua to Hay on Wye and that is worth something. It is an exceptionally interesting Wisden with obituaries of some amazing fellows and also a superb rant about one day cricket. So it gives me pleasure owning it in a way that even Chris Bailey cannot get as he reads his Randgold share certificates and whispers “my precious” and cackles. There is also a dual financial reason for holding this forever. There is a limited supply of old Wisdens and a growing demand. So I reckon the long run growth rate in Wisden prices will increase from c7% ( the same as the stockmarket) to c10%. If that happens my £130 will be £1040 in 21 years time as I hit 70. If I can also purchase 1939-1944 ( actually I already own them as well as a second 1945) then the war set together has a greater than the sum of the parts value. But you want me to talk about one share to fall in love with. Cripes. As it happens I have been thinking about this with regard to my small - but rapidly growing - pension pot. Pro tem it is invested in a few shares which I admit are speculative but will - I believe - offer short term gains to help get the pot to a size where I can afford to be sensible as retirement looms. Okay what you ask: Wishbone Gold (WSBN), Anglo
African Agriculture (AAAP) the new Big Dave Lenigas promote and Concepta (CPT). At a certain point this year the pool will be large enough and I will have my mind on more important things ( working on a building site in Greece) and so I shall switch the lot into.... A fund. Cop out you cry. Okay it is but the fund will be one of the three managed by my old friend Mark Slater. Mark’s funds have had a poor 12 months but Mark is over the long term the best small cap fund manager going if you look at long term records. If there is a bear market the “Slater nose” will sense it and protect us. This is an investment for the long term. I trust my friend as an individual and also as a superb manager of money. If Mark is looking after my pension I can concentrate on things that matter like trying to build walls that do not fall down and where to put the inset bookshelves. STEVE MOORE writes: From around 12p in June 2015 and having consolidated a bit above 20p in early 2016, the share price performance of Berkeley Energia (BKY) has been something for shareholders to love. And I am a shareholder. Paul Atherley you are “da man” June 2015 saw Paul Atherley announced as Managing Director of the company and that July saw it updated that an infill drilling programme at the Zona 7 deposit was well advanced. By the December, the company was able to emphasise that the deposit transformed the economics of its Salamanca uranium project in Spain and that “Salamanca aims to be world’s lowest cost producer”. Further progress has since followed, including the bringing of the project towards production – highlights of the quarterly report to the end of 2016 including $30 million raised in an oversubscribed funding and an off-take agreement concluded, with there also growing demand from US and Asian utilities and “major land acquisitions completed”, “infrastructure development continues to progress” and “main equipment for the crushing circuit ordered”. Also noted was that; “The exploration programme targeting further Zona 7 style deposits will resume during the coming quarter… Last year, the company reported high grade intersections extending to a maximum depth of 271 metres at grades consistent with, or higher than, the average grade of the Zona 7 resource. The discovery of further deposits of this quality has the potential to maintain annual production at over 4 million pounds a year on an ongoing basis.” This potential is why, despite the stellar share price progress, I’ve only taken some profit here and am content to hold some for the very longterm.
UK Investor Magazine — 13 — February 2017
Three shares to sell for February By Tom Winnifrith
hat happens if you charge headfirst into an advancing express train? You get splatted. And thus while the boom in junior resource plays has created rafts of situations where quite hopeless enterprises are now grotesquely overvalued going short in this part of the market is a potential suicide mission. The momentum is so strong against you that it is not a matter of swimming against the tide but of swimming against the tsunami. The day will come when the madness will stop but we are not there yet. And thus I return to an old favourite from outside the mining sector to start this monthâ€™s selection: Avanti Communications (AVN). Its shares now languish at just 19p to sell and to think that they were once almost eight quid. But 19p is too high. By 19p. These shares are worthless and it is not just me saying that . I am still boondoggled by the way that Avanti Communications (AVN) managed to get a refinancing away. You will remember that the cash
guzzling satellites business which misses every operational target going was set to run out of what little cash it had left. Amazingly it persuaded its
bond holders to agree to accept stacks of interest on its bonds in new ( equally worthless) bonds. And it got the institutional mugs to sign up for more bonds. Throwing good money after bad is pretty crazy but at least you would have expected the bind holders to wipe out the equity in return for their support. Heck they held all the aces they could have demanded what they wanted. But that did
UK Investor Magazine â€” 14 â€” February 2017
not happen, shareholders were not diluted at all. Bonkers! Perhaps it was that the largest bond-holder, the clowns at Mast Capital was also a major equity holder. Any more conflict of interest with your tea vicar? So the deal stank to high heaven but it only kicks the can down the road. Margins in this industry are still cratering. Avanti will still fail to hit any targets or generate cash. In due course the shares will just dwindle to zero. That would be 140p less than the supposed bid that fake news outfit the Financial Times invented last Autumn. But look at the bonds my friends for the real story. S&P has just downgraded its rating on the Avanti debt Avanti from CC (Serious risk of default) to D (Effectively in default.) If the bonds are fathoms below the level of sub junk, the shares are truly worthless.
Finally as I feel rather devoid of inspiration my third selection comes from my colleague Lucian Miers, the Bard of the Boleyn. Lucian writes:
I resisted the temptation to short Premier Oil (PMO) a year ago, along with Afren, Gulf Keystone and Petroceltic as it was never in the same basket
case league as that lot. I even hitched a brief ride North as it became clear that a wipe out was not going to happen. (In case I come across as arrogant or smug I should declare that I was short Hurricane Energy at the time which more than did for the Premier rise) But as the saying goes: it is better to travel than arrive and Premier has now arrived in that it has avoided a massive debt for equity swap and clearly given its shareholders a chance. The shares hit just shy of a pound recently, a five bagger from the panic-station 20p low of 2016 and have since retreated to 80p to give a market cap of £400 million.
While the hot money heads for mining, pharma junior seem rather sidelined. I have explained before why Eden Research (EDEN) is a fraud, covertly raising money via bogus panama pump transactions. Eden’s most recent news makes it clear that it is rapidly running out of other people’s money and thus, despite some sordid ramping courtesy of the Sunday Times, its shares languish at 12p to sell. It is clearly very much on a countdown to the next bailout placing. After more than 20 years and, having sent £35 million to money heaven, it is still reliant on gullible punters and brokers devoid of an ethical bone in their corpulent bodies, to survive. However, I hear that representations have been made to at least one fund that was dumb enough to back the last placing suggesting that it had not done sufficient due diligence, that is to say it ignored the blatant Terpenetech fraud. If those who backed the last placing will not throw good money after bad then this could get very messy indeed. And meanwhile the clock ticks on when Terpenetech is forced to publish its accounts. At that point this will unravel big time.
The company still carries a whopping £2.8 billion of net debt, and in return for extending its maturity to 2021, has granted to holders “enhanced economies and certain governance controls” meaning warrants over 90 million shares at 42.75p and higher interest payments. (Granted: it could have been a lot worse) Premier says that it will be cashflow positive, after planned capex, with oil over $50 a barrel and will concentrate on shoring up the balance sheet for the next two years. That doesn’t leave much room for disappointment. It would also appear that the company’s next big thing could be the Sea Lion project off the Falkland Islands. This is an area that has impoverished all but the fleetest of foot in the past and comes with massive risks. This means that there are likely to be many bumps in the road for Premier if it is to reach the promised land and I can see its shares drifting quite a bit further in the meantime. For this reason, despite having big respect for the bosses who seem to have done well for their owners, I have gone short with a 100p stop. The right price for me is sub 50p.
UK Investor Magazine — 15 — February 2017
the house view Don’t bet the ranch on hot junior miners If a stockmarket or a sector is red hot it is all too tempting to jump on board. Right now what is hot are the junior mining stocks. No asset of any value? No problem. A management with a cracking record of boardroom greed and value destruction? No problem. No cash and a clear funding crisis? Not only no problem but a bonus as you know that the brokers will be ramping the shares ahead of, yet another, bailout placing. Such is the state of play with junior miners right now. Of course there is a reason to be bullish on metals Donald Trump. He has pledged massive spending on “The Wall” and other infrastructure. That will, if implemented, spike demand for base metals. And such spending as well as promises to re-arm America will debase the dollar as the gargantuan deficit and debt becomes even more gargantuan. That should be good for precious metals. But the winners from this will be the producers not shitty little companies that are nothing more than stockmarket promotes. But in times of mania logic counts for nothing as so the juniors are rocketing. For those invested in good companies in other sectors it can be dispiriting and some have clearly succumbed to the temptation to bail from such stocks and bet on the mining juniors. It may work as a strategy if you get out at the right time. But if you are buying into essentially worthless companies caveat emptor - an awful lot can go wrong. Fraud, bankruptcy and a change in market sentiment could prove severely detrimental to your wealth. For we long term investors the temptation to bet the ranch on crappy juniors should be resisted. Sure, have some exposure to gold but do so via a producer, preferably a leveraged one such as Petropavlovsk - which we do own shares in. But as a long term investor you should be seeking real value in the sectors that are not hot. Try not to be jealous of folks boasting of multibaggers on the juniors. If they stay invested they will come a cropper at some stage. In the end value always outs. And so too does lack of value.
UK Investor Magazine — 16 — February 2017