April 2020 Portfolio Update

An almost total reversal here from March with optimism buoying the markets upwards. I find that quite remarkable but I guess that investors are looking forwards (really looking forwards in fact!) to a sharp recovery once the lock-down is over. Personally I see B2B outfits as being in a better place than B2C for quite some time. Social distancing is set to continue, even when the government eases up, therefore group activities will remain subdued in the short and medium-term. So any places, especially indoor, where people are in close proximity will suffer (pubs, public events etc) as visitor numbers will be down even when the venues are re-opened. In addition most forms of travel will suffer due to ongoing restrictions and the possibility of testing/quarantine at the destination. If quick and accurate tests become widely available then travel volumes will increase but there's still the risk of catching Covid-19 while away. Sounds like a good argument for a staycation.

On the flip-side I think that some, but by no means all, of the current social changes will stick and lead to a permanent shift in behaviour. Businesses will become ever more distributed pushing IT and communications investment even higher. Consumers are likely to maintain their level of online spending as anyone previously avoiding this channel has been forced to embrace its quirks and challenges. With luck people who've spent time walking and cycling in their local area will continue to do so and the government will put in place infrastructure that supports this change. We have an opportunity here to change how we travel, reduce omnipresent pollution and improve people's health and it would be a shame to let it go. On a darker note we will learn to live with increased surveillance and contact tracing with these changes never being fully rolled back. There's also a good chance of lock-downs being re-imposed locally if relaxation measures create a spike in infection. This is going to make re-opening difficult for any business if there's a risk of having to close again at short notice without financial support. This could kill some small businesses just as customer demand is recovering. Tricky times that'll only ease when we have improved treatments and fast response tests.

Still I'm not going to complain about investor confidence given that I'm up 21.0% for the month and now down just 7.9% for the year. This is quite extraordinary volatility and I suppose that it is likely to persist (both up and down). There's no doubt that I'd be a lot more comfortable if I'd gone to cash at the start of this crisis but that boat has sailed. Now I'm buckled in for the ride and right now the decision not to panic in March has been a good one. That was a crazy time. Looking at the portfolio there have been some huge bounces from these lows with recoveries of 10%, 20%, 30% and 40% or more in over half of my holdings. I can't say that most of these companies have done anything to deserve this except for GAN perhaps. These guys have a solid internet-gaming platform that's active in several US states and they're planning to move to NASDAQ in May. I suspect that US investors will welcome the business with open arms and, with luck, will bid up these tightly-held shares. That would be nice but, as ever, I have no idea of the surprises coming in May. All I can do is stick to the plan and try to find decent companies at a sensible price.

Here are the numbers for completeness:

Risers: GAN 68%, RFX 43%, GAW 39%, AFX 34%, GAMA 34%, PPH 30%, DRV 29%, MGP 23%, BUR 22%, VLX 19%, JDG 18%, RWS 17%, HAT 17%, AVAP 16%, LIO 14%, GRG 14%, FRAN 13%, SPSY 12%, SDI 11%, PLUS 9%, BOWL 9%, SCT 9%, SLP 9%, FUTR 3%, CCC 2%, FDM 1%, IGR 1%

Fallers: III -1%, TM17 -1%


Plus500 Bought at 1176p and 1280p - April 20

In a time of high volatility it turns out that spread betting and CFD companies become money making machines. Who could of guessed? Anyhow Q1 was exceptional with close to a year's worth of revenues being earned in just three months. At the same time the cost of finding new users fell dramatically and cash balances ballooned. This, by itself, was enough to make me double my holding. Then, just three weeks later, the company revealed that heightened trading activity was continuing with existing users trading actively alongside a stream of new customers. Eventually the markets will calm down but this process will take months, rather than weeks, and so short-term trades will remain prominent for quite some time. Hence I added to my position again on this latest positive news.

Avacta Bought at 70p - April 20

There should be no doubt that biotechnology and medical research companies are way outside my circle of knowledge. In general my experience of this sector is that directors are relentlessly optimistic and that most products fail to achieve enduring success in the marketplace. What I do know, however, is that widespread Covid-19 testing is our ticket out of the pandemic lock-down. To be useful such tests need to be fast, cheap, reliable and capable of high volume production. Many companies are chasing this goal and it's reasonable to say that Avacta are in a good position. Within a month they have developed reagents that selectively bind to the spike proteins of the SARS-COV-2 virus and are now developing a laboratory test. Their partner, Cytiva, will look to implement these reagents into a point-of-care test strip that can provide a result within minutes. If successful this will allow individuals to self-check, repeatedly, that they are not infected and thus able to go back to work. For many reasons I'd like to see this investment work out and I expect the news-flow here to be strong over the next few weeks.

Burford Capital Bought at 479p - April 20

This is very much a Marmite stock and I totally understand why some people hate it. As revealed in the short attack last summer Burford is an opaque company with lumpy earnings and significant scope to manipulate its earnings by marking up the value of investment cases. It's corporate governance was pretty poor as well and it's still not great. On the other hand the board have gone to great lengths to explain the underlying business and how the various moving parts work together. If it's all a fraud then they're putting in a lot of effort to perpetuate the illusion that's for sure. At the same time a US listing is being pursued and, if successful, this should lead to more frequent reporting and perhaps greater scrutiny of the accounts. Now assuming that all is above board then the current P/E of 3-4 suggests that Burford is something of a bargain; this is the kind of rating given to companies about to go bust. Looking at the just published results this is demonstrably not the case with a decent number of cases closing and strong cash generation. Technically speaking the share price responded well to these results with trading volume being the highest its been since the crash last August. It's almost as if there's no one left who wants to sell and just a bit of positive news is enough to get people interested. That's my story anyway and this is my first Burford trade, in either direction, since Muddy Waters came out swinging.


Haynes Publishing Sold at 700p - April 20 - 121.2% gain

For many investors this was the takeover which came too soon. In recent years the board had made great strides in turning Haynes into a digital, data-driven hub with fingers in many pies. This turnaround was starting to gain significant traction when the news emerged that the company was up for sale. With a dominant shareholder the writing was on the wall when a decent offer arrived. Clearly I'm very happy with the end result, and it has provided a useful quantity of cash, but Haynes could have been worth so much more. Still no point complaining too much.

Somero Enterprises Sold at 200p - April 20 - 30.0% loss

I really like Somero as a business and have held shares here, on and off, for a number of years. However it's exquisitely sensitive to the vicissitudes of the global economy and the volumes of non-residential construction activity. When companies are building factories, warehouses and high-rise blocks they are happy to splash out on an expensive concrete-levelling machine but when construction heads south Somero sees its sales fall towards zero. This is all known and Somero is in a financially stable position with a substantial $24m cash position. There's absolutely no doubt in my mind that management know how to deal with market cycles and will get through the current down-turn in decent shape. But it's likely to be a turbulent ride and with this being a small position there doesn't seem to be much point taking the exposure. In addition the head honcho, John Cooney, is getting on a bit at 72 years old and he can't stay at his post forever. So there's an inevitable risk from a changing of the guard at a point when the company is fighting hard for every sale. Again I'm sure that this is all under control but right now I'm inclined to favour cash and so Somero is out.


Medica Group

Medica is directly in the cross-hairs of the coronavirus pandemic as the NHS remains almost totally focused on dealing with Covid-19 patients. The problem is that non-urgent medical appointments are just not taking place and even people with serious ailments are staying away from A&E departments. Thus both NightHawk and Routine case volumes have fallen significantly. Fortunately reporters are only paid when they actually examine an image (with this being 2/3 of the cost base) but this is a minor consolation. What's really disappointing is that up to this point the company was doing well with revenue up almost 20% and adjusted profit up 6% - with margin compression the reason for such a difference in growth rate. Essentially Medica is suffering from increased competition in the teleradiology space, and some push-back from NHS clients, but the board appear to be investing to meet this challenge. In retrospect the departures of the CEO last year, and the CFO this year, appear rather well timed as perhaps they saw historic growth rates coming to a shuddering halt. Still the new executives have solid CVs and perhaps they are the new blood which the group requires? What's certain is that the new team are about to spend £5-6m on capex over the next few years. In part this will upgrade systems that date back to pre-IPO days while some is going towards system improvements and ensuring that the business can scale up efficiently. This makes sense to me as one day this crisis will abate and the unaddressed volume of cases will have to be dealt with alongside the underlying growth in scan volume. This is a medium-term story though as in the short-term Medica is at the mercy of events which are out of its control. (Results)


As a commercial passenger aircraft leasing company Avation has customers that are materially impacted by the Covid-19 pandemic but what does that mean for Avation? Well they've had to become a lot more financially accommodating by offering short-term financing to clients. This should help to ensure that these don't become ex-clients with the leased planes simply being handed back. On this basis the business believes that it can continue to operate for more than a year. Given the enormous blow suffered by international air travel I can see Avation requiring all of this operational buffer. The only upside is that many of their ATR aircraft are used on regional routes and I would expect governments to preferentially support domestic air travel as an essential part of the transport infrastructure (and such travel won't be impacted by cross-border quarantine restrictions). Essentially the company is in a holding pattern and won't be allowed to land for quite a while. Let's hope that they don't run out of fuel while airborne. (Update)


I bought back into Plus500 last month on the back of a strong trading update. This month it's not a great surprise to find that Q1 revenues have been exceptional with significantly increased levels of customer trading. In numerical terms this equates to a rise of 487% with this first quarter delivering 89% of the revenue earned in the whole of 2019. There's absolutely no doubt that this level is unsustainable but I do expect market volatility to remain elevated for the remainder of the year. This will push the cash balance in the business even higher, having already jumped from $292.9m to $515.6m, with a substantial proportion of this cash then being distributed to shareholders. That's the key benefit of such a low capex, high cash-conversion type of operation. It's also a relief to own something which isn't closed for business and losing money every day. (Update)

RWS Holdings

On the whole RWS is relatively insulated from the impact of Covid-19 through being a technology company that functions largely on-line. The main problem for RWS is that customers, particularly in the travel sector, are reducing or cancelling translation projects. Set against this the company is seeing increased demand in the Life Sciences and Morovia divisions as other customers scale-up to handle the pandemic. Overall I see the impact in H1 being limited with perhaps a 10% drop at the bottom-line (analyst forecasts have dropped by 6% since this update which feels about right). What is interesting is that Q2 was already looking weak, prior to the lock-down, as new clients took longer to on-board and some new projects ended up being deferred. The impact of this was for H1 (up to 31st March) sales to come in at £169.2m compared to £173.2m in 2019. Ordinarily this outcome would have hit the share price but clearly investors are relieved that trading is holding up. The other bright spot is that the UK Government isn't going to sign up to the EU Unitary Patent and so this initiative is probably dead in the water - which removes one long-term concern for the business. A decent enough result then given the circumstances. (Update)

Driver Group

Over the last few years management have significantly improved business performance at this small engineering consultancy. Despite this the business remains cheap and relatively unloved which makes it a potential takeover target. If this doesn't happen, given the economic environment, then the hope until a few months ago was that self-help measures would lead to a continuation in improved trading. This seems to have been the case in H1 with PBT expected to be broadly in line with internal forecasts for the period and significantly ahead of the same period last year. However forward visibility is limited and the board are prudently maximising liquidity in the business by postponing all non-essential capex and reducing all board member salaries by 20% for the foreseeable future. During this time staff are able to continue providing consultancy services for clients who require their expertise. Sensible management actions then and with luck all of the hard work done in recent times won't be undone in the next few months. (Update)

Liontrust Asset Management

A very solid update here with AUM up 27%, over the year, to £16.1bn and solid net inflows during both the last quarter and the last week up to this announcement (in mid-April). At the same time most of the Liontrust funds are in the first quartile of their sector over 1, 3 and 5-year timescales. This doesn't, of course, mean that the funds have avoided serious drops in recent weeks but relative to everyone else they're still doing well. From a business perspective almost everyone in the company is working from home and it seems that management have smoothly handled the transition. In fact Liontrust is looking to be one of the businesses least effected by the pandemic in that their operations are continuing as normal and there remains demand for their services. There aren't any numbers in this update to indicate the state of the bottom-line but if they hit their forecast of 57.4p in earnings for 2020 then the shares are looking pretty good value on a P/E ~19. A tempting proposition. (Update)

PPHE Hotel Group

Any company owning hotels and resorts is going to be hurting right now and PPH is no exception. In January and February trading was in-line but since then every hotel has either been closed or substantially scaled back. As a consequence total revenue in March dropped 60.2% with occupancy a remarkable 29.6%. I very much doubt that the numbers for April will look any better and pretty much expect occupancy to be roughly zero in April and May. In response the company has slashed its payroll costs by putting staff on furlough, halting contract labour and reducing salaries for all executives. With these measures in place government schemes are covering around 60% of the reduced monthly payroll costs. With the development pipeline paused and £150m of cash available to the group I'd say that PPHE is in a decent position to weather the storm. What we don't know is just how long these measures will have to remain in place and how people will respond once they're allowed to move around more freely. Will the tourist trade really get a chance to pick up in the summer? Will hotels and restaurants have to offer discounts just to attract the few travellers who remain? There's a lot of uncertainty here but at least PPHE management have a strong track record and are aligned with other shareholders due to their exposure through Euro Plaza Holdings. (Update)


In the early days of the pandemic, when it was confined to China, the worry for Volex was whether it would be able to re-open its factories after the Chinese New Year. How naive it feels now to worry about such a supply-side problem. As it happens all Volex sites are operational as they have been deemed essential manufacturing locations. The problem is now on the demand-side with customer capex falling globally and the automotive industry, in particular, in the doldrums. On the upside the complex assemblies division, where the margins are higher, makes around 2/3 of its sales in the medical device and data-centre sectors which are pretty defensive. As a result management remain confident, despite the economic backdrop, that Volex will progress during the year ahead. From a financial perspective the business is in great shape with net cash of $31.7m (up from $7.9m) and access to further debt facilities. As a result the board are confirming an increased dividend of 2p for the year which is in marked contrast to so many other companies. Remarkably then the company is in decent shape and I feel pretty confident that they'll get through this crisis without too much pain for shareholders. (Update)


This is an interesting situation as in the medium-term Computacenter should benefit from companies enabling remote-working and investing more in their infrastructure. However in the short-term companies are cutting back on capex and certain customers, particularly in the industrial sector, remain entirely closed. Even so trading in Q1 has been more resilient than expected with a surge in demand from some customers. As a result roughly 10% of employees have been placed on furlough in order that they can be bought back on-line once demand recovers. An additional drain on the company is that some customers are asking for extended payment terms, as their cash-flow suffers, which will shift the cash-flow burden to Computacenter as working capital is sucked into funding a higher current debtor figure. With luck this will unwind in time but it should be expected that some of these invoices will turn into bad debts (a systemic problem for all companies). As such it's reasonable for analyst forecasts to have come down by ~7% to 85.8p (which is roughly where they were last September). Overall this is another outfit which should ride out the pandemic profitably but trading will be a bit choppy over the rest of the year. (Update)

SDI Group

The year-end for SDI is 30th April so the Covid-19 impact is going to be fairly muted. Nevertheless it's pleasing to note that they should meet expectations with earnings rising a hefty 47% to 3.6p (valuing the company at a P/E ~14). Looking forward the picture is more murky. On the positive side all factories are in operation and at least four production units are providing their customers with components for medical and scientific products used in the fight against Covid-19. At the same time other orders have slowed down and there is some disruption to supplies coming in to group facilities. As a result 19% of group staff have been furloughed and the board have taken a 33% pay cut for the next three months. When trading conditions improve I'd expect SDI to be able to resume operations quickly, depending on suppliers, as most of its facilities are pretty small scale. The difficulty is in knowing when this will happen. Overall the directors sound confident and the company has around £4.5m in cash available to keep the lights on (although they are in a net debt position). Still it's interesting to note that analyst forecasts for 2020 haven't changed, either up or down, since last August which suggests to me that SDI has little analyst coverage. Hence it's important to be able to trust the director commentary here and having followed SDI for many years I feel pretty sure that they're giving us honest guidance about trading as they see it. Worth keeping an eye on for a pick-up in orders. (Update)


Some exciting news for my portfolio this month is that this internet gaming operator will be moving entirely to a US listing in May and cancelling its UK listing. The move makes perfect sense as the majority of their customers are based in the US and it's this region which has driven huge revenue growth over the last year. In this period total sales more than doubled to $30m and net profit moved from a $7.7m loss to a $1.8m profit with the promise of more growth to come. For 2020 the first quarter has started strongly with sales of $7.5-8m, EBITDA of $1.8-2.2m and total cash at around $6m. Somewhat remarkably internet sports betting revenue has held up better than expected (despite there being no sporting events) while internet casino gambling is up 279% year-on-year. These are big numbers, and it's important not to get carried away, but GAN is clearly more of a gainer than a loser when it comes to the current lock-down. For the whole year management believe that sales will be in the $37-39m range which equates to ~£30m (just a little above analyst forecasts). Whether they'll manage to materially exceed this finger-in-the-air estimate remains to be seen but I wouldn't want to bet against GAN enjoying another successful year in 2020. (Update)

Games Workshop

With all operations having been closed since 24th March it's no surprise that financial performance has been impacted (having previously been in-line with expectations). As a result the board believe that PBT for the year ending 31st May will be no less than £70m. Previously analysts had reckoned on £80m PBT for the year so that's around a 15% drop which suggests that Q4 is largely a write-off. I would guess that any sales made in the first 3 weeks of the quarter have been mostly reversed by costs incurred during the lock-down so the numbers make sense. On the positive side the warehouse is now open for trade sales and on-line orders with a very small number of shops also open for business. No guidance is given for 2021 but I imagine that it'll be a slow process re-opening the retail estate but that some of the losses here will be recouped by customers ordering directly. This is definitely one of the retailers that will survive the lock-down but they're not in the most comfortable sector right now. (Update)


At the start of the month management were sensibly cautious about Q2 being as ridiculously strong as Q1. A few weeks later it's clear that their customers remain as active as ever with significant numbers of new customers still signing up. As a result performance remains strong by all measures and the board see revenue and profitability for the full year as being substantially ahead of current consensus expectations (which were upgraded on 7th April). Given that these are already indicating a 50% rise in profits, putting the company on a P/E below 8, I reckon that we could be looking at another 20% on top of this rise. If so this would give us 240p of EPS and a P/E not much above 5 which seems ridiculously low even for such an "exciting" operator as Plus500. Interesting times. (Update)

FDM Group

I have say that FDM has performed with remarkable consistency over the last 5 years with profits rising strongly every year while retaining high margins and FCF conversion. However FDM remains an IT company providing contract staff to other companies and thus the Covid-19 pandemic is offering up managements's sternest test to date. The reality is that some Mounties have had their placements terminated early with new deal flow weakening and existing clients taking longer to on-board new placements. Even so the board haven't furloughed any staff, or reduced pay, which suggests that they're confident of trading profitably through the downturn. I'm sure that having £44.3m of cash and no debt is proving a great comfort to the board at the current time and I'm sure that this is the other reason for their confidence. Overall I'm impressed by this statement and it's plausible that the company's focus on IT professional services may act to insulate FDM from some of the down-turn. The reason for believing this is that IT may be one of the areas where spend actually increases as a result of systems being put under increased strain during the lock-down. A quality company worth keeping in the portfolio. (Update)

Burford Capital

This is either one of the greatest bargains currently available on the LSE, with a forecast P/E of 4, or it's a decade long scam which has handily rewarded insiders. Obviously I lean towards the former, given that I have a holding here, but I'm sensible enough to realise that the jury is still out on this one. It's possible that the jury may never return, given the inherent complexity of the business, but if Burford keeps grinding out profits then the share price will eventually climb. That this is a complex beast can hardly be in doubt and the 160 page annual report is testament to this fact. Overall 2019 was not a vintage year with profits down 31% as both lower revenue and higher costs took their cut despite the investment portfolio being larger than ever. This is quite some reversal of previously unbroken growth and is it down to the impact of short-seller scrutiny? One of their key criticisms concerned the Petersen case and its out-size contribution to published returns. This remains the case if you look at those super-profitable deployments producing a ROIC of 200% or greater. Here Petersen accounts for 51% of the profit from just 7% of the deployed funds (and 39% of total profit for all cases). Since this tremendous contribution arises from fair-value returns based upon public sales from the Petersen asset then you really have to believe in this valuation (and that the Petersen litigation will succeed). It's a tricky one. Burford will survive if Petersen fails but the profit write-off at that point would be huge despite a negligible cash impact. On the flip-side the past 5 years has seen a dramatic ramp-up in funded cases and the majority of these assets have yet to conclude - which supplies the potential for large returns over the next 5 years if these cases realise in-line with historic success rates. It's this delayed pay-out, which isn't reflected in the current share price, that attracts me to Burford as an investment. (Results)

Sylvania Platinum

These Q3 results are, on the face of it, rather excellent with net profit increasing 123% (to $25.4m) on the back of a 56% increase in sales (to $43.6m). From this result it's clear that Sylvania is a high-margin business with a lot of operational gearing. When times are good this is a rewarding combination and right now the board are using this windfall to amass cash and buy back shares. Sadly the business has its challenges with power interruptions, a weakening of the South African Rand and retrenchments of certain host mines due to the depressed chrome market. So Sylvania is not without risk and that's before we get on to the national lock-down which started on the 26th of March. That said dump operations are able to restart more rapidly than normal mines and the company is in a strong financial position. So they should be able to ride out the pandemic and get back to producing PGM concentrate. Clearly Q4 production won't be anything special but management seem to have a good handle on keeping everything on track (which primarily seems to involve securing a long-term stream of material for dump processing). There will definitely be some volatility along the way but Sylvania is hardly expensive given its cash generative qualities. (Results)

IG Design Group

This full-year update, to 31st March, is decent with sales up around 10%. On the positive side distribution and manufacturing facilities are all operating albeit at reduced capacities. The balance sheet is also in good shape with net cash of £42m and access to banking facilities in excess of £220m. However it is likely that sales in 2021 will fall below analyst expectations while still remaining ahead of 2020 (through the added revenue from newly acquired CSS Industries). It's also likely that exceptional costs will rise significantly due to provisions around inventory and outstanding debtors along with some restructuring costs. So it's not a perfect outcome for the group, due to its ultimate exposure to the retail customer, but management at IG Design have steered the company nimbly in recent years and I doubt that they've lost their touch. What is more doubtful is whether the 2020 dividend will survive, and I expect it to be cut, but the board sound positive about the future going into 2022. Hopefully they're not being over optimistic. (Update)

Disclaimer: the author holds, or used to hold, all of the shares discussed here

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