The British Investor – portfolio update and a vision of the future

 

After returning an impressive 42.7% in 2017 against the 13% of his benchmark, the FTSE All-Share, things started slowly this year for Chriss McGlone Atkinson, aka the British Investor; has he managed to turn things around?

 

‘In summary, portfolio returns year to date have been 3.19% against my benchmark which returned 1.69%; I’ve swung from a 10% negative return to a 3% positive return, and since inception in August 2015 the portfolio has returned 70.55% against 22.30% for the All-Share.  The compound annual return for my portfolio is 20.09% going into my fourth year of investing.  You can view the portfolio here.

 

It’s so much it’s harder to write when returns are so anaemic; I’m struggling to marry the passive element of portfolio investment with writing regularly – I’ve had fewer ideas, and no doubt there is a link between this and the returns most of us have been getting. However, this has been a personal issue as I suffered a period of illness earlier in the year which unfortunately knocked me off-track on the blog front.  However, now well on the road to recovery; I’ll be back!

I made no trades at all in Q2 2018, and I’m pleased about that; most of my holdings have posted reasonable recoveries since the end of March, which hopefully will continue.

A few milestones were hit; small victories, but I enjoyed them.  I am back to break-even on both Next (NXT) and Howden Joinery (HWDN) – inception purchases in August 2015.

I know, anchoring to your buy price is a fools’ errand, but it cheered me up a bit.

But what about opportunity cost? I hear you ask; absolutely right – I could have sold at any point and redeployed those funds elsewhere.  However, for me the attraction of both businesses hasn’t changed – each commands a strong presence in their respective industry, both are cash generative with strong fundamentals.  Next seems to be weathering the retail storm far better than other businesses in recent weeks (see here and here).

 

So, time for a short update on my holdings:

 

AB Dynamics PLC: 178.88%; forward P/E 29.65

AB Dynamics is motoring ahead (see what I did there?) up 35% in Q2; a strong half-year report showed business ticking along nicely now that they’ve opened their new factory and offices.  In June they announced their first sale of the new advanced vehicle driving simulator; let’s hope this is the first of many.

Advanced Medical Solutions PLC:  68.55%; 32.38

Testament to the quality and reliability of this company that they’ve added 20% upside to their share price whilst simultaneously lowering their forward P/E by over six times earnings;  I considered selling purely because its valuation is higher than the average of my portfolio, but I’m not doing it – it’s a quality business, and sometimes quality businesses get expensive.

Apple Inc:  63.42%; 16.29

Apple charges ahead in the race to become the first publicly-listed trillion dollar company; it was a mere 50bn away in June but it’ll get there; I won’t proclaim to have any unique insight on Apple -its quality is plain to see.

Avon Rubber PLC:  36.40%; 18.96

Announced a strong order book half-year report, underpinned by sales to the military and law-enforcement.

Berkeley Group PLC: 19.59%; 11.69

Final results were perfectly satisfactory, although an admission that ‘sites acquired in 2010-13) represent a peak for Berkeley with profitability returning to more normal levels from 2018/19, when profits are anticipated to be around 30% lower’.   BKG success in recent years has been as a result of well-considered investments and I need to have a think about this holding; two housebuilders in my portfolio feels unduly risky.

Creightons PLC:  246.95%; 8.78

A volatile holding that returned over 50% in Q2 to bring my overall gains back to a more reasonable level.  Their preliminary results were very encouraging, mentioning ‘unexpectedly high growth in demand’; impressive management – see what I mean here piworld.co.uk to see what I mean.

Dialog Semiconductor PLC: (- 58.61%); 7.20

DLG’s dependence on Apple has come back to bite them; its share price collapsed after Apple announced they would be cutting orders for its chips.  Why haven’t I sold?  1.  The company is very cheap now, at seven times current earnings.  2.  It has a very strong balance sheet with net cash, and remains free cash flow generative.  3.  It announced its intention to reduce its reliance on Apple with a proposed offer for Synaptics. Read more about it here.

Diploma PLC: 81.18%; 22.18

Its half year report showed high single/low double digit growth; no bells and whistles, one to tuck away and leave to do its thing.

Gilead Sciences Inc: (-14.39%); 10.92

In a bit of a consolidation phase right now; acquisition of Kite Pharma has yet to bear fruit but remains promising that their cancer immunotherapy treatment holds high potential.  In the mean time GILD is trading cheap and throwing off cash.

Howden Joinery PLC: 10.41%; 15.70

Good sales growth – trading update. Revenues up by 14.8% and planned depot openings continuing; they have been buying back shares for quite some time now which has increased per share book value by over 42% since 2015.

Michael Kors Holdings Ltd: 78.21%; 12.07

Routinely beats analyst estimates in the US; the integration of British shoemaker Jimmy Choo seems to have gone very smoothly with the company looking to open further stores of both brands throughout the year.  Another company generating high levels of free cash (seeing a pattern here?) that is also trading cheaply.

Next PLC: (-0.78%); 13.87

The retail environment remains challenging; retail sales down 4.8% in Next’s trading statement, but online sales up 18.1% delivering an overall increase of 6% across the brand.  With a dividend yield of 2.61% and regular share buybacks, I’m happy to continue to hold for the foreseeable future.

Persimmon PLC:  21.53%; 10.70

In a trading update PSN announced sales revenues up 8% on last year; I’m currently thinking I will sell Berkeley and keep Persimmon.

Playtech PLC: (-30.94%); 12.11

Threw a curveball with a profit warning in their trading update; a highly disappointing holding since 2015 and I will be giving serious thought to selling.

Somero Enterprises PLC: 38.46%; 13.91

A very positive trading statement in June; positive growth and further opportunities across almost all geographical trading areas – exciting possibilities ahead.

Taptica PLC: (-19.66%); 9.61

A short trading update announced EBITDA ahead of market expectations.  The integration of Tremor Video DSP is going well.  Taptica got caught in the shockwave of the XLMedia profit warning, which felt unfair as they are rather dissimilar to one another, but they seem to have shaken this off with the share price in recovery.

Wizz Air Holdings PLC: 115.97%; 15.09

Double digit growth in passengers carried, revenues and net income – final results; I am so impressed by this company and its ability to successfully manage growth in what is a highly competitive industry.  WIZZ has one of the youngest and most cost-efficient fleets in the business; it added to its fleet throughout the year and invested in their UK operations at Luton airport.

 

 Looking ahead

 

My current portfolio has an overall forward P/E of 16 times earnings, which in this climate seems pretty reasonable; I’m satisfied to be exceeding my benchmark and contributing to strong compound annual returns.  It’s no 2017 by any means, but then there’s nothing to say it should be.

There’s a mix of cheap, cash generative companies, that are struggling a bit, and more highly valued growth companies managing to continue their strong performance.  Two to consider selling, Berkeley and Playtech and that’s my homework for the week.

 

Read a few new books (although none about investing!) – take a look at my recently read page; The Culture Code was excellent, and I’m thoroughly enjoying Modern Monopolies.

I’m planning to re-read The Intelligent Investor next; every time I feel overwhelmed by EBITDA margins, operating cash flow conversion and discounted cash flow valuations, I go back to Ben Graham’s classic.  It clears my mind.

I wish you all the best for the remainder of 2018.  Remember, there’ll always be someone with higher returns than you.  Don’t fret; as long as you’re satisfied you’re making an adequate return for the amount of risk you’re taking, that’s all that matters.

Don’t let returns drive your investments.  Let your investments drive your returns.

“The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right.” – Benjamin Graham, The Intelligent Investor.

 

Happy Investing!

 

Find me on Twitter @BritishInvestor.