Readers, I am sorry I have been remiss for the last quarter
– with nil updates on my activity on this project. There have been further purchases, as per my
model, as well as some thinking (informed by a couple of writers) on my overall
approach, on which I should update you.
Firstly, the purchases.
In mid-October De La Rue experienced a significant price drop – which I
treated as a buying opportunity. A nice,
boring company with a decent yield in a set of markets I understand. The market was racing up at the time, such
that I didn’t jump in with too much money. Since the purchase there has been an
increase in the nominal value of the shares – although as anyone who knows
about De La Rue’s position vis a vis the new plastic banknotes will know, a
contract for UK money printing is about to be lost to (as I understand it) an
Australian ‘polymer’ (aka plastic) bank note printer.
In early December I completed the second of the quarter’s
purchases based, on a technical analysis – which had been pushed out by a
couple of months due to significant price drops in shares I already held / had
been watching. I threw caution to the
wind with the output of the technical analysis – Games Workshop Group was the
clear winner after analysis of the dividend level, cover, cash flows etc. I have been cautious on this stock because of
its historic volatility (the directors caused a share price slump during the
last decade by cancelling the dividend), as well as the headwinds I think the
business is likely to face due to 3D printing – which offers both opportunity
for counterfeiting of its toys, as well as low-cost challengers to enter the space. I would like to see the business diversify
away from the traditional ‘bricks and mortar with an online shop tagged on’
model, although forays into computer games in the past have yielded poor
results. I would hope the directors
address this again, as well as (if it does not already exist) build / publish a
credible strategy for how they will cope with 3D printing. The model in my head would involve 3D
printing of toys in shops (rather than centrally), as well as an online
distribution platform that enables gamers to design / customise / print their
own miniatures at home. An interesting opportunity
for a third party with the right nous, I suspect.
So those are the purchases – now on to the annual review of
my holdings!
“The Headline” –
Capital Appreciation / Depreciation
Overall my share portfolio’s capital value has increased by
2.29% - which in poor in light of the FTSE All Share value change over the
period my experiment has been running.
However, as you will see (and I am swiftly learning), asset allocation
has been a significant factor in this overall performance.
The scores on the doors, ranked by capital appreciation
change, is as follows:
Caretech
Holdings 65.61%
Aviva Plc 51.57%
XP Power 39.74%
Vodafone
Group 34.38%
IG Group 30.50%
Smith
& Nephew 27.55%
Carnival
Plc 23.29%
Sainsbury
(J) Plc 21.99%
Energias
de Portugal 7.22%
Games
Workshop 5.51%
Unilever
Plc 4.18%
Dee
Valley Group 1.49%
Tesco Plc -6.52%
Greggs -8.39%
De La Rue -9.88%
Jardine
Matheson ADR -23.66%
EFTS
Physical Swiss Gold -34.60%
Gold
Resource Corporation -38.63%
African
Barrick Gold -52.76%
That’s right – this year I was well and truly punished by
the first gold price drop in 14 odd years.
In fact, if one was to ignore the commodity performance in my portfolio
(gold, gold miners, Energias de Portugal) the overall performance would have
been +19.00% (which is pretty much in line with market performance – good to
know!).
So let’s now look at individual stocks, before coming back
to the wider asset allocation point that 2013 has highlighted.
Caretech Holdings
I’d like to posit that the distinct differences between this
care home operator and Southern Cross has become obvious to the market over the
last 24 months. Southern Cross, up to
its eyeballs in debt and renting its buildings from third parties, is a very
different proposition to this specialist provider. Yes, it only operates in the UK and is
exposed to the vagaries of local government funding – but it seems well run by
the directors, who themselves are significant shareholders.
It has a dividend cover of 3.99 (i.e. it could afford to pay
just shy of 4x the current dividend from existing profits) and has a dividend
growth rate of c10% (last and next year’s predicted; significantly above
inflation).
I bought this share because I had a decent understanding of
the business, and I would certainly consider buying more shares in it in
future. Not adjusting for inflation the
shares have yielded 5.39%.
Aviva
An interesting year for this company, it has been happily
boosting cash by ditching underperforming units. No doubt there is significant concern about
its exposure to Europe, and yes the massive dividend was not maintained (do I remember
‘we hope we can maintain the dividend’? Hope is not a strategy) – but the market has
seen it as a less stinky share than it was two years ago, and if the board’s
plan for the company can be fulfilled it will no doubt trade in line with its
peers again (except, hopefully, with RSA which is in a bad place).
I doubt I will buy more Aviva in the near term, as I think I
have hugely benefitted from both timing (i.e. buying when it looked knackered)
as well as market sentiment – remember, it is still not really profitable.
Aviva has yielded me 10.71% in dividends since purchase i.e.
not annualised!
XP Power
It was one of those tipsters stocks when I bought it –
listed in London, and operating out of Singapore, I liked the niche it seems to
fill. The share price is up massively,
and the business could yet drive profits as it brings its own production
facilities online (I remember something about a factory in Vietnam).
XP Power scores well for dividend growth (17.91% this and
next year average); it has paid back 3.46% of its purchase price in dividends
since the two tranches of shares were purchased.
Vodafone
I am not convinced many people could have predicted the year
Vodafone has had – it had been on the cards for years, but I suspect tax was a
big issue holding things back – but Vodafone is finally set free of its 45%
stake in Verizon Wireless.
‘Set free’?! You must be insane – it generated so much
cash! Yes, Verizon Wireless did chuck
off cash, but:
- Verizon wasn’t paying it out and it controlled
the company through the 55% stake
- The Americans massively overpay for mobile
access, so I suspect price competition will increase over the coming years –
making Verizon Wireless less of the cash cow it once was
Vodafone are now on the warpath in Europe, India, and Sub-Saharan
Africa – all markets of interest (contrarian, huge, and high growth,
respectively). A German company bought
up, and now possibly Sky in the UK on the menu – all to stave off possibly
being bought by an American company? It
all sounds like good news for me.
There’s a share buyback in progress, which is pushing up the
nominal value of the shares, and the yield was always decent with all the
question marks over the company’s European position. It has paid back 9.43% of the share purchase
price in dividends since I got involved.
IG Group
My wife never liked IG Group as she sees it as the real spiv
and gambly end of the London market. I
ignored her and bought two slugs of shares anyway. It has been pretty quiet over the last year –
nothing really jumps out of the back of my mind as big news on the company (so
perhaps I should do some more reading on it to get up to date!). The key stats are all at steady-eddy
middle-of-the-portfolio levels, with the exception of markets exposed to
(89!).
Since purchase it has returned 7.22% of its purchase value
as dividends, which is not to be sniffed at.
Smith & Nephew
This share to me is a real ‘safe haven’, with fantastic long-term
growth potential. The company
specialises in joint replacements, as well as wound management. As the world’s population ages, the types of
product in which Smith & Nephew specialises will be increasingly
needed.
After Caretech, Smith & Nephew have the highest dividend
cover in my portfolio – standing at 3.5x averaged over this and next year’s
(predicted) profits. The dividend itself
is low, but I am willing to sacrifice a low pay-out (1.76%) for a good opportunity
to grow – as it has, with a likely average of 28% growth over this and next
year.
Since purchase, Smith and Nephew has returned 2.54% of its
purchase price as dividends.
Carnival Plc
Remember Costa Concordia?
Something like £8bn wiped off the market value of the company because a
few hundred millions of pounds worth of boat ended on its side, half
submerged. Costa Concordia is now back
upright, and probably going to be scrapped – and the company is still in
business and achieving bookings. I said
at the time I couldn’t see the world’s pensioners suddenly finding something
better to do than go on cruises, and unsurprisingly they haven’t. It isn’t the highest yielding company, but it
exists in a market with massive barriers to entry (anyone out there want to buy
a boat and try to recreate the distribution channels required? I think Stelios
tried and I have no idea if it worked with that
orange)
Carnival has returned 5.41% of its purchase value across the
two tranches as dividends since I bought them.
Sainsbury’s
Tesco’s has been stuffed by inept expansion plans; Waitrose
is growing aggressively; Morrison’s has given up on building its own online platform
and has partnered with Ocado; Lidl and Aldi are attacking the low end of the
market (successfully). And Sainsbury’s?
It seems to be surviving somewhere in the middle of the market – but for how
long, I don’t know.
I like Sainsbury’s – I wouldn’t have bought into it if I didn’t. I see it as a decent UK-focussed company that
will probably eventually either expand overseas or get bought by a bigger
player. It’s not got the risk that Tesco
carries, and I think it can successfully compete against Waitrose, Morrison’s,
and ASDA, because it’s a good strong British brand.
It pays a decent 4%+ dividend that’s covered by 1.5x by
profits – and it has a low variance in its EPS growth (i.e. it’s a steady
eddy). It has also returned 9.43% of its
purchase value since I bought in, although that in part is a function of how
early I bought it. I don’t see myself
buying any more of it, but I am quite happy of where it sits in the portfolio.
Energias de Portugal
My ‘distressed Southern Europe’ purchase, I liked EDP
because it had a high trailing yield at the time I bought it, it is a
significant shareholder in EDP Renovais (global top 3 wind farm builder /
operator), and Portugal was not in favour with investors in general.
EDP is also well exposed in South and North America, which
can be forgotten as it is associated mainly with Portugal. The Chinese Three Gorges
company bought the Portuguese government’s stake in 2012, which also bodes well
for the company as it should help access the massive Chinese energy market.
I like EDP, and I expect I will buy more shares in it in the
future.
Since purchase, it has returned 4.89% of the value via
dividends.
Games Workshop Group
I was a big fan of Games Workshopping when I was a
youngster, and my gut tells me that the ‘worlds’ the company has created will
remain popular with children and young adults well into the future. At the start of this post I outlined my
concerns with the business, so all that remains is to say it has returned 6.32%
of the purchase cost via dividends.
Unilever
Unilever’s a great company, isn’t it? I can’t imagine it going anywhere in the long
time, and whether a subsidiary of a larger corporate or standalone, I suspect
Unilever and its brands will outlive me.
And that’s what’s important in my portfolio – this is my pension, after
all!
The dividend is well covered (>1.5x), regular, and decent
(>3.5%). The company is exposed to
all the growth markets of the Far East, and it has recently taken majority control
of its Indian subsidiary Hindustan Unilever – a country where there is a strong
cultural affinity for British goods.
I also know the company is very committed to sustainability
(and not the green wash type!) through my own day to day business – which is
something that sits close to my heart and my wife’s heart.
Unilever has returned 5.12% of the purchase cost to me via
dividends.
Dee Valley Group
The UK water industry is fairly consolidated, and if any
company was to be acquired by a larger player it is likely to be Dee Valley –
the smallest listed player in the market.
Utilities like Dee Valley are real widows and orphans type
shares – low volatility, regular dividends, with management teams unlikely /
unable to run them into the ground. I’d
say that they fit well in to Peter Lynch’s investment criteria:
“Go for a business that any idiot
can run – because sooner or later, any idiot is probably going to run it."
I have bought into Dee Valley Water once, and can see myself
doing so again. Since I bought in, the
share price has gone pretty much sideways … but the shares have returned 7.17%
of their purchase price.
Tesco
Poor Tesco shareholders – the last chief executive seems to
have got out at the right time, leaving it for the current chief executive to
pick up the pieces of the good sound bite / bad business decisions that were
made before him.
And it’s not just Philip Clarke who has been burned –
Buffett piled in in a big way and saw the share price drop subsequently.
But let’s get real.
Forget ‘Tesco’ – just read these facts:
- 30% UK market share
- Chinese joint venture
- Already learned the ‘US lesson’ (the US is not
the best place to try and go when going international!)
- Already well entrenched in South Korea,
Thailand, Poland, Hungary, and several other countries
- Well diversified range of ‘upsell’ products that
have market traction alongside its core offering
- Third largest vendor of its type in the world
These facts speak for themselves – this is a serious company
that is going nowhere. Its dividend
cover is 50% higher than Sainsbury’s, and the dividend itself is higher. Yes, there are operational worries, but the
company is certainly no high risk technology investment!
It has also returned 8.26% of the initial investment as
dividends since I made my purchases.
Greggs
Another business you can easily understand – Greggs is the
number one high street baker in the UK.
The year has been difficult – there was a big drop in the share price
when the company predicted that profits would be lower than analysts were expecting,
but was that to be expected? Greggs
holds the honour of being one of the only companies in the FTSE to consistently
increase its dividend every year for more than a decade – who can turn their
noses up at that kind of achievement? I
bought in on the weakness, and I expect that the business will continue to do
well in the long run. My only question
is: how does a very British business like this diversify – either inside the UK
or overseas? A tough question.
Greggs has returned 4.42% of its purchase value to me via
dividends.
De La Rue
I waxed lyrical about De La Rue earlier in the post, so I
will not continue to bore you on this one.
De La Rue has returned 3.65% of the purchase value to me as dividends.
Jardine Matheson
Holdings
I wanted some general Far East exposure, and Jardine
Matheson seemed to fit the bill. In some
ways the company is like Tesco – it has a good name and tries its hand at a lot
of things. Google Finance says Jardines
does:
“engineering and construction,
transport services, insurance broking, property investment and development,
retailing, restaurants, luxury hotels, motor vehicles and related activities,
financial services, heavy equipment, mining and agribusiness”
A pretty impressive mix – shame about the performance of the
ADR this year (down nearly 25%). I am
not particularly worried about this, as I think this is another safe stock like
Unilever – the company has been going for 150 years, and should easily manage
the same again!
Since purchase, Jardines has returned 0.49% of the value to
me as dividends – although the main dividend is paid in March each year (which I
didn’t receive in 2013!)
EFTS Swiss Physical
Gold
What to say? Gold had a horrendous year, and that is
reflected in the next few three shares.
In January 2013 I wrote about the divergence between gold miner share
prices and the gold price … there were two ways this could change – either an
increase in the relative price of the miners, or a gold price plummet. Damn.
And it doesn’t even pay a dividend!
Gold Resource
Corporation
My second miner, some might say it has just had less time to
fall in price that African Barrick.
However, Gold Resource Corporation was an attempt to learn from my
African Barrick Gold ‘mistake’ – look for the miners where the all in
production cost is low so that there’s plenty of room for significant changes
in the underlying commodity price.
What’s interesting about Gold Resource Corporation is that
it is really a silver miner in disguise, pulling a huge amount more silver out
of the ground that it does gold (the two elements occur naturally
together). What’s also interesting is
the company’s commitment to dividends, which are paid monthly – and each month
investors are reminded that the company has returned more to investors in
dividends than its market capitalisation on listing.
Its commitment to dividends remains, although the gold price
has meant that the actual dividend level has dropped twice since I bought in –
down to 1c per month (which should be well covered unless there’s another lurch
downwards).
Gold Resource Corporation has returned 1.60% of what I spent
on its shares to me since purchase.
And it was Gold Resource, African Barrick (coming up :-(), and EFTS Physical
Swiss Gold that got me thinking about asset allocation and portfolio theory … but
more on that shortly.
African Barrick Gold
African Barrick Gold.
The dog. The dead dog. The dead dog of my portfolio. If there’s one thing I regret with this
share, it was not buying in at 97p when I thought ‘oh my god, can it get any
worse?’ If I had, I’d not be sitting on the big loss I am not – but there’s not
point on crying over spilt milk. My
foray into gold miners led me to pick a stock with a high cost of getting gold
out of the ground in a developing country – and I paid for it. Ok, so African Barrick has paid me 2.16% in
dividends against the purchase price – but it has also lost a lot of
value. I suspect I will sit on this loss
for a long time to come.
Would I buy more? Only if my
portfolio balance told me to :-)
