UK INVESTOR MONEY // SHARES // INTERVIEWS
NIGEL WRAY
He enjoyed presenting at the UK Investor Show so much that his family bought the company Blood, toil, tears, Twitter: Saving Winston Churchill’s reputation in the modern age Six buy tips (and three sells) The battle between greed and fear
UK Investor Magazine — 1 — January 2018
ISSUE 29 // JANUARY 2018
Intro
From The Editor INSIDE 3 Nigel Wray headlines the UK Investor Show 4 Who is outraged about Rochdale Tom Winnifrith 5 Drink up Greene King Chris Bailey 6 Three resource shares to buy for January Gary Newman 8 Shoe Zone is a shoo in Steve Moore 9 Churchill does not require a revision Tom Winnifrith 11 Engineer a buy for this share Chris Bailey 12 Three shares to sell in January Tom Winnifrith 14 The House View: The battle between greed and fear
contact us UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: info@ukinvestorshow.com W: www.UKInvestorShow.com EDITORIAL Tom Winnifrith Editor
Welcome to the January edition of UK Investor show magazine and we set a new record for tardiness, appearing - as we do - on the last6 day of the month. Fear not, after April you will have a new Editor and production team who will be far more punctual. As ever, this issue serves up shares to buy and shares to sell as well as an eclectic mix of opinions which are always strong but, I hope, well reasoned. I hope that you find something to enjoy in this issue. Frankly the minds of most of the team here are focussed on our big day in the sun, The Global Group UK Investor Show, now owned by the family of Britain’s Buffett, Nigel Wray. It takes place on April 21 at the QE2 Centre in Westminster London and if we are late with this magazine it is because so much work is going into this event. You can grab your complimentary (i.e. FREE) £12 ticket for the show by following the details on page xx of this magazine. One thing I can say without doubt is that the main stage speaker line-up is easily the strongest we have ever put on. The day will start with myself chatting to secret millionaire and the man once described as the enfant terrible of the property world Nick Leslau about the state of the UK economy, the threats from Brexit and Corbyn, commercial real estate and the residential property bubble and the outlook for business in the real economy. It ends with Mark Slater, the UK’s top fund manager over the past ten years on his macro and sector thoughts plus what shares he is buying and selling right now. Truly that is a once a year lesson from a master investor. In between there is something for everything. I won’t be missing Nigel Wray with the 2 Paul’s (Scott & Jourdan) on value investing or Vin Murria the Queen of tech as she is always inspiration and no holds barred. My own contribution? In a new bonus session I shall take apart Britain’s highest profile fund manager Neil Woodford exposing all that he wishes to hide. That will truly be no holds barred stuff! Check out all the details for yourself at www.UKInvestorShow. com and grab your ticket. It will be an amazing day and not a show to miss. Best wishes Tom Winnifrith Editor www.ShareProphets.com www.UKInvestorShow.com www.TomWinnifrith.com UK Investor Magazine — 2 — January 2018
Why would any serious value investor miss Britain’s Buffett vs Paul Scott at UK Investor? Writes Tom Winnifrith
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igel Wray is the man known as Britain’s Buffett. He does not punt on resources stocks or high risk biotech wheezes. Instead he makes his millions buying shares in smaller growth companies that make profits, pay dividends and generate cash. That is value Nigel Wray investing. He was one of the early investors in Domino’s and made tens of millions from Telecom Plus as well. There was property giant Burford, just an £8 million capitalised penny share when he got involved and the list of winners goes on and on Wray does not always get it right but his value investing style means that the winners massively outweigh the losers. Wray speaks at just one investment event each year, the UK Investor Show. After all, it is owned by his family and run by his daughter! On April 21 2018 in Westminster, Nigel will discuss his approach to investing with top share blogger Paul Scott and will explain exactly what he is investing in now and why. This is a once a year opportunity to follow Wray’s ideas and as a reader of this magazine you should have some idea of how illuminating he can be and also how on the ball is Paul Scott. To make sure you get to hear Wray in conversation with Paul Scott we have another 50 free tickets to give away today. Simply go to www. UKInvestorshow.com/tickets and book an investor class ticket using promotional code JANUKI to guarantee your place.. Wray & Scott are just one attraction..... The line-up of big name speakers for the Global Group UK Investor Show on April 21 is more impressive than ever before in our 17 years of putting on such shows. To make sure that you get to meet and hear men and women who really know about making money from shares read on and bag a complimentary ticket today. The Line-Up is now complete and includes the UK’s top fund manager Mark Slater, Tech Queen Vin Murria, , legendary entrepreneur and Sunday Times Columnist Luke Johnson, Stockopedia’s Ed Croft, David Lenigas, Adam Reynolds, Mr Property Nick Leslau, bear raiders Lucian Miers and Matt Earl, China investor Johnny Hon, investigative journalists Tom Winnifrith & Nigel Somerville,
comedian and bitcoin guru Dom Frisby, top gold expert Ross Norman, Amati’s Dr Paul Jourdan, the list goes on and on We hope you have put the date in your diary April 21 2018. To make sure you get to hear our array of star speakers we have another 50 free tickets to give away to reader4s of this magazine. Simply go to www.UKInvestorshow.com/tickets and book an investor class ticket using promotional code JANUKI to guarantee your place.. What makes the Global Group UK Investor Show easily the top one day conference for those who want to make money from shares? Two things. As well as our fantastic speakers, a real reason to go is to meet the men and women behind some of the most
Paul Scott
interesting companies on AIM. In 2018 we have our biggest and best speaker line-up yet but we will also have more PLCs than ever attending and presenting. Up from 123 last year it will be 133 on April 21 2018 and, as of today, 118 stands are already booked in. And the quality and range of companies attending is better than ever. Among the PLCs booked into attend are ( in no particular order): ICAP, Obtala, Optibiotix, Skinbiotherapeutics, Alliance Pharma, Metal Tiger, Wishbone Gold, Sosandar, Columbus Energy, Premaitha, Powerhouse Energy, Victoria Oil & Gas, Vox Markets, Papua Gold, Altyn, Plastics Capital, Kibo Mining, BMR, TekCapital, Doriemus, Premier African Minerals, Solo Oil, Tiger Resources, Xtract Resources, Highland Natural Resources, Ascent Resources, Fox Marble, ValiRx, Tern, Georgian Mining, Cadence Minerals, Eurasia Mining, Falanx, FairFX, Minoan, Amryt Pharma, Jubilee Platinum, Big Sofa and the list goes on and on and on. To make sure you meet the men and women behind some of the most exciting stocks on AIM and the main market we have another 50 free tickets to give away today. Simply go to www. UKInvestorshow.com/tickets and book an investor class ticket using the promotional code JANUKI to guarantee your place.. The Global Group UK Investor Show is now universally accepted as the dominant one day event for those who want to make money from shares. And with our new big name speakers and huge PLC attendance it just got better still. We hope the date (April 21) is in your diary already so to get these free 50 tickets book now. It will be good to see you in three months time.
UK Investor Magazine — 3 — January 2018
The Presidents Club vs the Rochdale scandal - outrage compared Writes Tom Winnifrith
I
used to hate black tie City dinners and would do my utmost to escape them in my days as a crony capitalist. They were utterly boring with some prat like William Hague being paid £20,000 to tell the same tired old jokes as he did the year before, and with a lot of smug men congratulating each other after another high paid year of shuffling paper and creating no value for anyone but themselves. There were some women guests but they were usually just as boring and smug as the men. It is a joy not to have to make excuses about not attending such evenings these days as I enjoy my hermit like existence in Greece and Bristol. The idea of these dinners being men only seems all the more odd. I had thought that the only folks engaging in such evenings these days were freemasons or homosexuals but then we learned of the awful Presidents Club dinner at which pretty young women hostesses were sexually harassed. The whole affair sounds tedious and ghastly and the behaviour of some guests was clearly worse than unacceptable. If some guests groped the hostesses, yes, they should be reported to the Old Bill. If the organisers tried to gag the women with NDAs then rightly they should be vilified. But the air of sanctimony and noisy self righteousness makes me think back to the industrial scale rape of young women and girls in Rochdale, Bradford and elsewhere. At the Presidents Club the offenders were rich, largely white, largely Tory, old men. And they were businessmen and in today’s climate being a capitalist is seen my large sections of the population as only marginally better than being a nonce. The victims were women who by accepting such unpleasant work showed some degree of self confidence. Many appear to have been well educated, students and post grads, earning a bit of spare cash. So the victims were often middle class and they were certainly not the most vulnerable in society. They were sexually harassed - largely it seems in the form of relatively mid groping. That is not to say this is okay, it is clearly not but to put it in context.... In Rochdale and elsewhere the victims were what are often referred to as white trash, ill
educated, poor, white working class girls who were clearly very vulnerable indeed. These girls were not groped but were raped, often gang raped and often on many occasions. Most were underage. The culprits here were overwhelmingly, but not exclusively, Muslim Asian men. I compare the howls of outrage from folks, especially on the left, and calls for immediate and drastic action about the Presidents Club with the stony silence from many of the same folk on the issues relating to Rochdale and other scandals even as events started to be reported on a national stage. The crimes committed are clearly far worse in the case of the Rochdale and other similar scandals yet the media and Westminster elite seem more immediately aggravated by events at the Presidents Club. Is that because of who the culprits are or who the victims are or both? Let me be clear there was wrongdoing in BOTH scandals and, proportionate, punishment is due for both sets of culprits but one is far, far, worse yet the outrage of the liberal elites seems disproportionate and weighted heavily towards the other scandal. No doubt this statement of the obvious will offend some folks but offending people seems impossible not to do these days.
This article first appeared in my Tom’s weekly Tomograph Newsletter. To have that mailed to you at no charge register HERE
UK Investor Magazine — 4 — January 2018
Greene King: be patient — your pint is coming! By Chris Bailey
I
laid out my updated positive view on pub operator Greene King (GNK) in early December HERE, since when the share has hardly been rampant despite a little bit of early New Year bid hope. On the latter, I think I have used up all my luck on that front with GKN year-to-date but frankly at the current valuation anything is possible. The Post Christmas trading update was workable but I already told you in the above linked piece of a couple of months ago that the real story for this one are the easy comps and the beer swilling capabilities of the World Cupwatching fraternity in the summer. But as the market looks forward...you should be looking at it now. Anyhow, back to yesterday’s update. The better news is that there was no warning. The less good news is that Pub Company sales for the first 37 weeks of their fiscal year were down 1.4% due to food sales being shabby. Well...at least it wasn’t that the beer was warm (own-brewed volume was down a touch but noticeably better than overall ‘weak ale market’. We know various casual restaurants are currently under pressure so this probably wasn’t the biggest surprise (and did you
see this industry-wide supplier scandal? Ouch.). It also is not a complete disaster. Christmas trading was good but ‘either side of the two Christmas weeks sales were slower’. Throw in the important observation that cost cutting is carry on apace aided and abetted by the Spirit Pub purchase and integration of last year, overall there is both good and bad. And this is just like the Greene King share price. As regular readers will have worked out by now, I have almost zero capability (or interest) in technical analysis but a quick glance at the share price tells you that all the above debate is writ large in the shares. But as I note above it is all about where they are going. I would agree with the company’s trading statement update finale observation that ‘Greene King has industry-leading brands, a strong and flexible balance sheet, and a sustainable dividend, leaving us well placed given the challenging market conditions’. It is not great out there...but this is a survivor. And if you believe in at least one of a sensibly warm summer and that there is some correlation between football and beer drinking I think you can put a ‘6’ or a ‘7’ in front of this share quite easily. You just need to be a bit patient.
Chris Bailey puiblishes Financial Orbit. This article first appeared on ShareProphets.com
UK Investor Magazine — 5 — January 2018
Three resource shares to buy for January By Gary Newman
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t is all too easy to get caught up in chasing huge rises on the popular AIM shares, especially in the resource sector.
But the reality is that most of those that suddenly see a vertical rise in their share price, fall back to earth just as quickly. Often the rises are based on little more than private investors being whipped up into a frenzy on a piece of news which they haven’t even looked into in detail, and these shares behave very much like a pyramid scheme, with the latecomers being the ones left holding the baby when it all comes crashing down. I don’t cover that type of company – other than as being something to avoid – as they aren’t an investment, and in this monthly piece I am always looking for ones which at least have some potential, even if that may be very speculative in some cases. For me to write about a company here, there has to be decent risk versus reward at the current share price.
lukewarm reaction to the deal as it did look as though it had been acquired at pretty much the going rate, but since then the share price has been very strong and it now trades at around 320p, up circa 50% from when I first suggested that it was a good investment. Tempting as it may be to grab some profit, in this case I would definitely go with letting run for now, as metals prices have been strong lately – copper in particular performed very well throughout 2017 and into the start of this year, and the same is also true for zinc and lead. It remains to be seen what savings have been made by integrating the two businesses, but tat the end of 2017 the company still had $46 million in the bank and will be adding to that significantly on a monthly basis. Forecasts are for revenue, EBITDA and earnings per share to pretty much double during 2018 – to $210 million, $138 million and around 38p respectively. Whilst it may no longer be cheap, this is a company which I can see being listed on the FTSE250 in the coming years, and it has always had a reputation for returning cash to shareholders, and I don’t see that changing. The only time I would consider cashing in is if commodity prices started to drop and showed signs of a prolonged downtrend.
Next up is a company which I like on the basis of giving some leverage on the price of silver, that being Hochschild Mining (HOC).
A good example, and one which I have covered here a couple of times in the past as a long term buy, is Central Asia Metals (CAML), where I hold shares myself and have done for some time now. A lot has changed since I last wrote about this Kazakhstan focussed copper producer, and in the meantime it has carried out a $402.5 million acquisition of Lynx Resources to secure it zinc and lead assets in Macedonia. Initially the market seemed to give a fairly
I think that silver could perform well in the coming years, and Hochschild gives good exposure via its operations in South America – currently Peru and Argentina. The recent operational update for the quarter up until December 31 2017 showed that it had performed well once again, and these results put it ahead of guidance in terms of production – 38 million ounces of silver equivalent compared to an expected 37 million ounces – and also on target to meet expected all in sustaining costs per ounce of silver equivalent, in the $12.2/oz to $12.7/oz range.
UK Investor Magazine — 6 — January 2018
The resource figures are large enough to be attractive for a company valued at just over £7 million at a share price around 10.5p, with 2C contingent resources of 274Bcf and possible further upside. Plus drilling is fairly cheap – a new well costs up to $350,000 to drill and complete, and recovery could be as high as 750mmscf from a single well. The infrastructure is now in place, with the previous operator having spent $37 million on the project, and a pipeline is already in place to connect into the regional hub, with just 15m of that left to complete. The company has just announced that it has completed the workovers on five existing wells, and tests are underway to determine the commercial This company just seems to keep on getting better and it was another record year, resulting in $256 million cash in the bank at the end of it and a substantial reduction in net debt, down to $97 million from $183 million at the end of 2016. Guidance for the coming year expects to see production staying pretty much at the same level, and costs may be slightly higher, but that will still lead to a strong financial performance again – even more so if the strong start to the year which we have seen for both gold and silver continues. In addition, the company is still actively exploring to expand existing projects and to bring new veins into production, such as the Pablo discovery at Pallancata. The company is valued at around £1.25 billion, but as a long term investment I can still see plenty of growth potential and upside from the current share price of 244p.
At the other end of the scale, I quite like the look of a small outfit which is a relative newcomer to AIM – Curzon Energy (CZN) and its operations at the Coos Bay field in Oregon, USA. Now generally I tend to avoid companies in the oil and gas game which have cheaply acquired assets which have been around for a number of years, yet not a lot has been done with them. But in this case it is a bit different as Coos Bay is coal bed methane, and production from this only really got going in the early 1980s and a lot of developments have been made in the meantime with this type of play. We also need to consider that when gas was first discovered and flow tested here, there wasn’t much in the way of infrastructure and that certainly contributed to the project going no further.
viability of the project. But if all does go to plan, then production is expected to commence during Q2 of this year. Initially the figures won’t be hugely interesting and I wouldn’t expect the company to even cover its running costs from this operational profit – unless test rates are better than anticipated. But this is really all about proving the concept, and once proven commercially viable, then operations would be stepped up and a lot more wells drilled – Phase 2 would include 58 wells for instance, and 400 for Phase 3. Now obviously that isn’t all going to happen overnight and is also going to cost a lot of money – so there is a fairly high risk of large dilution for anyone in at this stage – but if the results are good, then I can see additional funds being raised at a higher share price. Typically, debt funding has always been easier to obtain in the US as well for this type of project. I certainly am not suggesting that you risk a large amount here, but if you do like to put a bit of money into something highly speculative that could yield a big return a number of years down the line, then Curzon is at least worth a look.
UK Investor Magazine — 7 — January 2018
company profile Shoe Zone A ‘shoe-in’ for an Income portfolio? By Steve Moore
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esults this month for its year ended 30th September 2017 from Shoe Zone plc (SHOE) saw the Chief Executive’s report commence “2017 was a historic year for Shoe Zone as the group celebrated its centenary as a shoe retailer. Over its 100 years in retailing, the business has evolved into the leading specialist value footwear retailer in the UK. The strength of the business model combined with the retail expertise of our colleagues has meant that despite the current challenging economic environment, Shoe Zone continues to deliver positive results”… The UK and Republic of Ireland retailer closed the year operating from 496 stores having opened 21 and closed 35 during the period. This is with an average lease length of only 2.3 years aiding a strategy to close loss-making stores and reduced rents and the Government’s review of business rates aiding new openings – with a focus here on larger stores; the results statement including “following a successful trial of the Big Box concept during 2017, we are now targeting 10 new Big Box stores per year in the medium term”. The ‘Big Box’ concept is significantly larger stores stocking the full Shoe Zone range alongside some of the best-known footwear brands with a new store design. The results also included “we have continued to increase our direct sourcing and as a result, footwear orders placed directly with overseas factories increased to 84.7% (2016: 72.2%) of total footwear orders. Working closely with our source of manufacture has helped maintain gross product margins”. Meanwhile, e-commerce revenue increased by 34% to £8.3 million and “non-footwear ranges including handbags, school bags, lunch boxes, purses
and accessories continue to grow with sales from non-footwear up 14.5% on the previous year, now delivering revenue of £8m”. Overall, noting “reflecting the continued planned closure of loss making stores”, revenue was 1.3% lower at £157.8 million. However, pretax profit (at £9.5 million) and earnings per share, at 15.8p v. a prior year 16.9p, were also lower – it stated “primarily due to the adverse impact of Continued on page 13
Management CEO Nick Davis joined Shoe Zone in 2003 as Management Accountant from PKF where he had been a Senior Business Advisor in Audit and Assurance. He joined the board as Finance Director in 2006 and was appointed into his current role in 2016. CFO Jonathan Fearn joined in July 2016 and has significant experience in strategic and commercial finance having worked for Celesio Group (UK) (formally LloydsPharmacy) since 2002 in a number of roles including Financial Controller - Pharmacy, Head of Strategic Analysis, Head of Strategic Finance, Head of Healthcare Services & Commercial Finance and UK Integration Lead. Chairman Anthony Smith joined Shoe Zone in 1993 as Marketing Manager and held various roles within Marketing and Retail divisions before becoming CEO in 1997 and Chairman in 2016.
UK Investor Magazine — 8 — January 2018
The Darkest Hour - wrong about Churchill in so many ways but not as the Independent says as it brands him racist Writes Tom Winnifrith
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he Independent newspaper, a little read beacon of the London liberal elitists, hopes that we enjoy the film “The Darkest Hour” but urges its few readers to remember that its lead figure, Winston Churchill, was a racist with a string of unacceptable views. Otherwise it loves the film. Where to start? My grandfather was actually in Churchill’s war rooms although only, at the time, as a relatively middle ranking civil servant. But he reported to Bridges the head of the Civil Service who appears in this movie which was enjoyable enough. What the Independent should have been alerting its readers to is the fact that it is not very historically accurate. Since most folks will not bother reading any source material the lies of this film will now become accepted as truths, as part of history. It is not history, this film is fiction based on some facts. The movie makes great play of how the Labour opposition was united in supporting Churchill when he took over from a discredited Chamberlain. That is largely true. But the film suggests that the Tories were united in disliking Winnie either through personal animosity or because they were
appeasers like Chamberlain, Men of Munich as they were then known, or in a few cases folks who wanted to cut a deal with Hitler as they thought he was not all bad. That is simply not the case. By the time Churchill was in charge Chamberlain was discredited and also dying and so carried very little weight. Moreover there was always a sizeable faction within the Tory/National Liberal Government that agreed with Churchill from the outset. The film suggests that only Eden was a loyalist and in his case a timid one but that is just not the case. By the time Churchill gives his “we shall fight them” speech in Parliament even most of the Men of Munich were already onside. So the film is just factually wrong although one can imagine that the liberal luvvies who made it can’t have objected to heroic socialists standing with Churchill against the Nazis while the Tories en masse equivocated or worse. There is also a major, and clearly utterly fictional, scene in the film where Churchill goes into a tube carriage to do a sort of impromptu focus group on how the ordinary folks thought. They were naturally, as one, wanting to fight on the beaches
UK Investor Magazine — 9 — January 2018
although, even by 1940, that is not how all Britons felt. So awful were the memories of World War 1 that some folks wanted to avoid a second such conflict at all costs. But Churchill’s bogus focus group was united. Message to audience: Gosh, even then those fucking Tory bastards were just so out of touch with ordinary folks. Nothing changes does it? Natch, to reflect the London of today it also had a prominent Afro-Caribbean figure with his white girlfriend. That might just have been possible but it is extraordinarily unlikely. In 1940 there were fewer than 20,000 black folks in Britain. That is one in 25,000 of the population. And as for mixed relationships? My wife is of colour and today noone bats an eye-lid as we walk down the street but in the 1930s it just did not happen. That is except in films made in 2017 by liberal luvvies imposing today’s values and reality on yesterday. Sure go ahead and do that but then do not have the cheek to term this a historical drama. It is fiction. And that brings us to the Indy. Churchill was a man of his time. We all are. So that meant Churchill taking part in cavalry charges against folk in Africa, thinking we should fight all out wars against the Boers (who did capture him & intern him you may remember?) etc etc. So he had attitudes of his time. It would have been extraordinary if he did not and was instead demanding equal rights for trans folks and that the BEF be offered Gluten free rations as a basic civil right. The Indy talks of Boer “concentration camps” which makes you think of
Auschwitz. They were tented camps with barbed wire on the outside. It is not quite the same thing. So the paper rewrites history and slams Churchill for holding the same views as everyone else. Churchill may not have been PC in today’s terms but even the Indy might agree that Hitler was far, far worse. That Adolf did not prevail is, at least, partially down to Churchill and surely that is they key point here? I say partly because one matter this very week in terms of fact, film overlooks, in the name of drama, is that Britain should have lost despite the efforts of Churchill. Had the German armies pushed on into Dunkirk instead of stopping to allow the Luftwaffe to “finish the job” the British Expeditionary Force (BEF), our professional army, would not have escaped at all. Instead 330,000 men made it back to Blighty. Had the Luftwaffe pushed on against RAF’s fighter command for a few more days instead of turning to bombing London it would have won control of the skies. By Christmas 1940 it would almost certainly have been all over. And I might not be here. Recording my father’s memoirs on Monday we touched many times on what would have happened to his father had Germany invaded. Simple: because of where he worked he was on a list of those to be shot. It is far from certain that his family would have been spared.
This article first appeared on TomWinnifrith.com. To have that mailed to you at no charge register HERE
Hot Stock
ROCKETS Stocks Ready to take off hotstockrockets.com UK Investor Magazine — 10 — January 2018
GKN — a January bid for a ‘tip of the year’! By Chris Bailey
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ell, well, well. Just when you thought that you have seen it all...the stock market can continue to surprise.
As regular readers know I am the prudent large cap writer on ShareProphets. I stand in awe as you are served up exposes, intrigue, insights and drama from the smaller cap scene by many of the other writers, whilst I just plod along trying to spot a bit of (typically) FTSE-100 large cap value. Elephants may not gallop...but sometimes they can trot a lot faster than you think (and don’t let anyone ever tell you that large caps are efficiently priced). So back in late December no surprises that the two tips of the year that I served up were of a larger cap nature. One of them was GKN (GKN) ...and stone the crows it has been bid for today...by another larger cap name, superior business value creator Melrose (MRO): ‘The Board confirms that on 8 January 2018 it received a preliminary and unsolicited proposal from Melrose to acquire the entire issued and to be issued share capital of GKN at a price of 405 pence per share, comprising 80% in new Melrose shares and 20% in cash (the “Proposal”). Using the closing share price of Melrose of 218 pence as of 5 January (the business day prior to receipt of the Proposal) the Proposal implied an exchange ratio of 1.49 new Melrose shares for each issued and to be issued GKN share (which would result in GKN shareholders holding approximately 57% of the enlarged company and Melrose shareholders holding 43%) plus 81 pence in cash per GKN share’ You can guess what GKN - which also announced that its interim CEO will go permanent, trading is in-line, transformation chat to improve business performance is ongoing (good) and (almost as good as the bid and as requested in my tips piece) it is intending to separate the key business divisions... ‘The Board intends to separate the businesses, recognising the strategic optionality for shareholders in having separate companies with distinct investment profiles and capital allocation policies. The Board will communicate further details on the optimal method of separation in due course. The timing of the separation will be determined by the need to maximise the economic benefits and minimise
the costs associated with separation’ ...said about the Melrose bid: it undervalues the company! It may well be correct there...but there’s also a reason why GKN shares have not pushed above the 400p level in the last 12 years. Melrose’s hard-nosed but sensible management expertise is just what this company needs...and I am sure item one on their agenda would be to look to split the company up. At least GKN’s wounded incumbent management have got that right. It is early days but the reason why GKN stock is trading up 25%, above the flash implied value of the Melrose bid, is that it is now in play...and doing sensible stuff. By all means if you have it take a few profits as nothing is guaranteed but the tip of the year Gods have me locked down for the full twelve months. I am not too worried...it could have been a profit warning instead. Now that would have been embarrassing...
Chris Bailey puiblishes Financial Orbit. This article first appeared on ShareProphets.com
UK Investor Magazine — 11 — January 2018
Three sells for January By Tom Winnifrith
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nce again I write this column noting that it has been a rather tough month for we bears. In the House View on page xx the battle between greed and fear is discussed. I am increasingly bearish about market valuations and so think fear should be in the ascendancy. But right now greed is still ruling the roost. It makes for tough times for we grizzlies. So three shares to sell? First up is the closed end fund run by Neil Woodford, the Woodford Patient Capital Trust (WPCT) at around 83.5p. It is trading not far from NAV but it should be at a stupendous discount. Around 85% of the fund is in utterly illiquid private stocks or other funds that invest in private stocks. That, on its own, should see the shares trading at a discount of 20%. Secondly there have been numerous transactions of shares between this fund and other Woodford funds and it is hard to get ones head around the valuations or the logic behind them. There are so many related or connected party deals in the Woodford stable and with other companies where he invests in them and then they co-invest with him, that it is all hard to follow. That is another red flag and reason why the shares should be trading at a vast discount to NAB, BTW.
profits as well as numerous breaches of planning laws. The real problem is that in order to attract anglers stores must be fully stocked at all times with what is slow moving inventory so this business has huge working capital needs and as it tries to grow cash is always an issue. The company saw its shares zoom from an IPO price of 15p to almost 50p before the rot started to set in. Just seven weeks after publishing bullish interims in September 2017, albeit not strong on the cash generation side, came the first of a string of profits warnings. Inevitably the net result was a bailout placing at 10p raising £1.3 million gross last week. But that still leaves the company with negative net current assets of c MINUS £400,000 and burning cash. At a macro level, as I keep pointing out, UK household savings rates are at their lowest in a lifetime and borrowings are at all time highs. Base rates will go up soon. Surely upgrading your fishing rod is the sort of discretionary purchase folks will defer. And if they do going to eBay is a better bet than going to buy new kit in a store. A bad company facing a perfect storm with a balance sheet that is still a mess and getting worse, Fishing Republic remains a slam dunk sell at 11p.
Finally WPCT finds itself right up against a self imposed limit - no more than 80% of his vehicle can be invested in unquoted stocks. He is one more disaster away from catastrophe. Woodford has backed some real dogs of late and if either the wider market tanks or one of his larger listed holdings takes a bath then that 80% limit will be breached forcing him to offload utterly illiquid private equity somehow. It will not be pretty and such a sale would almost certainly be at a big loss so hitting NAV further. For all sorts of reasons this is the top sell this month.
Finally there is an old favourite, the IoT company Telit. Founded by a fraudster - Uzi Katz - and now run by a man who sold all his shares the working day after Telit breached its banking covenants (but had not told investors about it ) Yosi Fait, this company is a mess. Maybe the fraudulent bits have been expunged. What is left is one jewel ( the auto division) which is for sale and some detritus where margins are collapsing and which guzzle cash.
Next up is an old favourite Fishing Republic (FISH) a two bit operator of fishing tackle stores. Its IPO document, less than two years ago was as I pointed out then - bursting with red flags including the founder owning most stores and renting them out at sub market rents to flatter
Auto may realise £100-150 million. I’d look to the lower end of that range if indeed it is sold at all. After transaction costs and having cleared bank debt Telit would be left with net cash of £35-85 million. At 162p it is capitalised at £215 million. The non auto businesses are worthless cash guzzlers. Whether auto is sold or not Telit is a stand out bear, its shares can be shorted and should be.
UK Investor Magazine — 12 — January 2018
February – taking the total ordinary dividend for the year to a slightly increased 10.2p (£5.1 million).
Continued from page 8
foreign exchange on imported goods into the UK”. After particularly £3 million of tax, £2.2 million of capex in excess of depreciation and £9.1 million of dividends paid, partially offset by a net £1.7 million working capital inflow, cash (net) reduced by £3.3 million to £11.8 million. It was stated “the board continues to believe the business can operate on an opening/closing cash position of £11m and any excess above this level will be paid out to shareholders unless there is a change in business requirement”. The fullyear dividend per share is maintained at 6.8p – to be paid on 14th March, ex-dividend on 22nd
As well as a “challenging” trading backdrop, it is also stated to “anticipate a small increase in capital expenditure to support store openings, refits, new till systems and head office improvements”. However, the noted rent and business rates dynamics should help mitigate – as should the company’s value retail proposition. This is supported by that “Shoe Zone has made a solid start to the year and trading is in line with expectations. We are making good progress against our strategic objectives and the board remains positive about the outlook for the group for the remainder of the year”. It thus looks reasonable to expect a modest earnings recovery this year and, with the dividend, this suggests a currently attractive valuation. If you’re looking for a value, income buy, I suggest you could do a lot worse.
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newsletters.advfn.com/tomwinnifrith UK Investor Magazine — 13 — January 2018
the house view
The battle between greed and fear At its most exciting times the stockmarket is always an intense battle between greed and fear. We live in such times. This publication has many times over the past two years flagged up the signs of irrational exuberance which are well and truly abroad as we enter 2018. Us markets surge to new record highs almost daily. Who would ever have thought that the Dow would top 26,000? In Europe we lag behind as we should for our economies are growing nowhere near as fast thanks to the dead hand of state interference. But still we flirt with new highs. And upon what is this based? The US economy will be boosted by the big tax cuts pushed through by President Trump, notably slashing corporate tax rates from 35% to 21%, The big winners from this will be small businesses across America and that will add to growth. A growing US is good for the world and so the bulls argue that the world economy will also grow. The bears would probably accept that although there are niggling doubts notably relating to the massive amount of debt on which this economic recovery has been based. The Japanese National debt, for instance, is now more than twice Japan’s GDP. People in Japan seem unphased by this as their leaders tell them that it is nothing to worry about. We may be in a new paradigm and it may “all be different this time” but the bears doubt it. Moreover the bears would point out that the market PE on both sides of the Atlantic can in no way be justified by the earnings growth forecast notwithstanding the Trump tax cuts. That is the fear. The greed however tells you that the bears have either missed out on a major market rally by sitting on the sidelines or worse still have been burned by being short. We humans have short term memories so our actions are driven by near term events. Greed tells us to stay long and strong and repeat the 2017 winnings in 2018. The battle goes on.... We thing the market has to correct markedly. But we just do not know when. The battle between greed and fear still has greed in the ascendancy but it is not over yet.
UK Investor Magazine — 14 — January 2018
Saturday 21st April 2018 | London Save the date!
UK Investor Magazine — 15 — January 2018