July 2020 Portfolio Update

This month has been incredibly busy for me with something like 20 trades. A drop in the ocean compared to many investors but a blur of activity from where I'm sitting. Much of this has been news-flow driven as a number of holdings have enjoyed a much more positive lock-down than previously expected. In some cases management really kitchen-sinked their expectations back in March and now they're in a position to surprise to the upside. It's definitely a case of winners and losers though as leisure and travel shares continue to lag as their chances of recovery falter. On the whole I'm glad I cut my exposure to these sectors a few months ago although my decision to sell Games Workshop doesn't look so clever now!

A second driver of trading this month was my reaction to reading The Art of Execution by Lee Freeman-Shor. It's been recommended to me many times and I would urge any serious investor to pick up a copy. This isn't one of those books which pushes a particular style of trading or numbs your brain with yet another table of financial results. Instead it's all about psychology and how to behave whether you're winning or losing. I intend to write a more considered piece on the book but suffice to say I have already modified my investment approach. In a nutshell I've decided to be more decisive with any holdings that are down by 20% or so. Where this is the case I must either cut the position, add to it or have a specific trigger (usually an expected trading update) which will allow me to take action. It's too easy to let losers drift and I've been guilty of this oversight many times over the years. No more!

Ironically my portfolio rose just 0.1% this month, despite all of my efforts, with a YTD return of 8.0%. However this average obscures the fact that my largest holding GAN fell back a hefty 28% this month. There's no news from the company that explains this drop so I see this pull-back as simple market volatility with investors locking in recent profits. What this does mean is that all of my other positions have had to work hard, with double-digit gains, to offset this decline. In general most of these rises have been from positive news-flow as trading has either been better, or much better, than expected. The only exception is Avacta which, unusually, didn't put out any material announcements this month. Even so investors warmed up to the story once again and the shares rose almost 50%. I'm certainly not complaining but I do expect August to be a more relaxed month as I sun myself in the Caribbean. Ha ha, if only that were true!

Risers: AVCT 46%, GAMA 27%, SLP 25%, CCC 24%, DRV 17%, SCT 16%, BUR 15%, AJB 12%, AFX 12%, TM17 12%, III 7%, MGP 6%, IGR 4%, SDI 3%, FDM 3%, SPSY 2%, JDG 1%, RWS 1%

Fallers: HAT -2%, CRW -4%, PLUS -9%, LIO -9%, VLX -11%, FRAN -13%, GAN -28%


Codemasters Group Bought at 346p and 384p - July 20

I've been stalking Codemasters for a while now as video game developers are in an industry with a bright future. Unfortunately the secret is out as most developers have a P/E rating high enough to require many years of future growth. Codemasters is something of an anomaly with a forward P/E of just 20 although that does assume an 87% rise in earnings during 2021. Perhaps not such an outlier. Anyway they've had a very good lock-down with real-life Formula 1 drivers competing on their platform which is the kind of advertising that you just can't buy. They also have a decent roster of other driving and racing games with a number of releases due out over the next 12 months. Even if some of these aren't smash hits it's clear that they will create a lot of buzz around the company. Usefully the board have just released their FY results for 2020 and I heartily recommend watching this presentation on PI World to get a full picture of where they've come from and where the company is going. Anyway the price has tried to break through 350p several times in the last month and with volatility contracting I believe that a break-out is just a matter of time. Hence I've initiated a position to keep my eye on the ball!

Manolete Partners Bought at 539p - July 20

As mentioned, at length, over the last few years I have a decent holding in Burford Capital. What I like about their business is that it's mostly uncorrelated with economic activity as legal cases have a life and duration all of their own. Sadly this doesn't mean that the share prices of legal companies oscillate independently of the market but eventually a share price has to bear some relation to underlying profits. Anyway I've been aware of Manolete, since their IPO in late 2018, but never invested as I like a bit more of a track record. However just a few days ago the board released their second set of FY results and the aspect which attracts me is their rapid acceleration in business level. In the first quarter of FY21 Manolete have made 47 new case investments (up 124%) and completed 23 cases (up from 4 in 2020). New case enquiries are also at record levels with the rate roughly doubling year-on-year. Given the fact that Manolete invest in insolvency-related claims, which are bound to mushroom this year, I suspect that the board will have no problem sourcing work. In fact the biggest issue may come from scaling up the company to deal with the additional workload although this has been a focus for the board since listing. Right now there are 11 in-house lawyers and it's estimated that each can supervise 25 live cases - giving a current capacity of 275 cases. Right now 200 cases are live so headroom is available although I imagine that the board are busy recruiting! Anyway with the share price moribund for the last year and a likely boost from the lock-down I feel that this is a solid counter-cyclical opportunity.

Boohoo Group Bought at 294p and 199p - July 20

Up until the beginning of July it seemed as though Boohoo had enjoyed the fruits of lock-down in full. From the March low point the shares had almost doubled, to 305p, by the time the FY results up to 29th February emerged. These showed a remarkable 40% jump in sales and earnings with net cash growing to £240m. Even the publication of a short report in late May failed to do any damage and the board responded by acquiring the remaining 34% minority stake in prettylittlething (PLT). While the price of purchase looks high, at ~£300m, this is much lower than the amount speculated in the short report. Finally a mid-June trading update revealed impressively strong trading with total sales up 45% (and USA being up a remarkable 92%) along with improved gross and EBITDA profit margins. With this expectation-beating announcement the shares moved up again to 415p. So a remarkable period for the group. Then it emerged that Leicester was facing a new lock-down, as infection rates spiked, and the press came out with damaging reports of cut-price labour being employed in clothing factories under unsafe conditions. A real combination of knock-out punches and the share price hit the deck as ethically sensitive institutions bailed out. Now this is all pretty damning and the Boohoo board need to work hard to deal with these allegations. At the same time I don't believe that this news will stop customers buying their cheap clothes and the business will continue more or less as before (especially with half of sales originating outside of the UK). So I've taken advantage of the situation to invest in this group of fast growing brands. There will be turbulence ahead but I see this as already being yesterday's news and soon largely forgotten.

Liontrust Asset Management Bought at 1403p - July 20

As discussed below I think that the recent FY results, and trading update, from Liontrust were strong and indicative of a company that has more than prospered during the lock-down. The fact that the majority of fees arise from management of assets means that volatility is low. It also means that revenue rises along with AUM and right now the Liontrust AUM is rising via a combination of strong equity markets, high customer inflows and assets acquired from smaller players. All of these factors, along with funds that are almost all first-quartile compared to their peer-group, means that Liontrust should continue to prosper as it has done for many years. Sadly other investors don't seem to share my enthusiasm with the price falling back by almost 10% to a pre-lockdown level around 1300p. Personally I see this as being some fairly ordinary volatility and that any company which is able to raise its dividend by 22%, when so many others are cancelling or deferring shareholder payments, is doing something right. So I'll live with the risk of another market downturn reducing AUM (and profits) in the belief that Liontrust remains a quality operation with its eye on the long-term success of the business.

Springfield Properties Bought at 93p - July 20

I've been stalking Springfield for a while since noticing that it was a high-quality, cautiously-run business which hadn't recovered much since March. Quite understandable given that this is a house-builder in Scotland where all building sites were closed by Scottish government mandate. My plan was to wait for an update announcing that they had re-opened and this duly appeared in early July. Curiously the impact on the share price was muted, given that they had their best ever week for reservations on reopening, but then again the news that sales and profits would be substantially down for 2019/20 didn't help. What has happened is that completions anticipated for Q4 have now moved into Q1 which will boost the figures for 2020/21. At the same time Springfield build both affordable housing, which is always in demand, and private houses with the space that people are looking for if they're going to continue working from home. Finally it's clear that the UK government will do whatever it takes to maintain the health of the housing market and this is likely to bring forward even more sales. I see Springfield as a cheap, quality vehicle for benefiting from these factors and have invested accordingly.

Tatton Asset Management Bought at 291p - July 20

I've had my eye on TAM ever since seeing the CEO, Paul Hogarth, present back in February. This is another business which derives income from assets under management although these are sourced from IFAs rather than retail clients. A big selling point is that their fees are substantially lower than those of competitors and they offer additional services such as back-office operations support and access to mortgage offers. This niche is growing, as IFAs look to reduce risk and growth so far has been pretty much organic. Obviously much has changed in the world since this presentation but at least the FY results up to 31st March were in-line with expectations. A particular positive is that over £1bn of net inflows came in during the year giving a closing AUM of £6.6bn (including the impact of a 14.3% drop right at the end of March). Since then I expect that the AUM has rebounded materially which will continue to drive recurring revenue within the business (~85% of sales are recurring). At this early stage in the new financial year the board are being sensibly cautious in their outlook but they claim to be well positioned and I agree with this statement. The company has almost £13m in cash, no debt, high cash conversion and a recently raised dividend. It is likely that the group won't achieve the growth which might otherwise have been achievable in 2021 but management have a long-term strategy that they are adhering to without taking undue risk. As such I've bought into TAM as a quality proposition which has plenty of scope to improve profits as costs rise more slowly then revenue. (Note this FY results presentation is well worth watching: https://www.youtube.com/watch?v=SS09PBjdcfg)

LoopUp Group Bought at 161p and 179p - July 20

I first heard about LoopUp all of the way back in late 2017 when Steve Flavell, co-CEO, explained the USP of the business. Essentially they provide a platform which allows for reliable, audible conference calling without all of the bells and whistles. At the time I liked the idea but the shares looked expensive and were not long listed. Now, in the funky video world of Zoom and Microsoft Teams, it's possible to view LoopUp as somewhat old-fashioned. They've stuck to their strategy and have slowly but surely built up both sales and profits to the point where the shares are no longer arguably over-priced. Which is not to say that the management team have been standing still. They have added video functionality to the core SaaS product and launched 'Event by LoopUp' in 2019 as a value-added service to ensure the smooth running of premium conference calls. Both of these initiatives left LoopUp in a position to benefit from the lock-down and by early May it was clear that both existing and new user call volumes was generating a material increase in revenue. Notably much of this rise came from video and event usage on the platform. The HY update really bought home the impact of this usage with a 43% increase in sales causing a 249% increase in adjusted EBITDA (even if this is a bullshit number). More concretely high cash generation has more than halved net debt from £11.5m to £5.4m and that change I can appreciate. As a result the company should exceed market expectations for the year and I expect that at least some of the law firms, accountants and other large professional enterprises that have begun using the platform will continue to do so as their working practices normalise. After all if just one person on a call is WFH then you're looking at a conference call rather than a room booking in your office.

Belvoir Group Bought at 118p and 149p - July 20

In early July I had the pleasure of chatting at length with Dorian Gonsalves, CEO of Belvoir, at Mello Virtual. In fact I turned up early to the Q&A session and had his undivided attention for quite a while. The reason for my interest was that Belvoir looked like a GARP candidate with notably excellent quality metrics and cash generation. In spite of this the share price had barely recovered from its March lows and this is where I saw the opportunity. In the session Dorian reiterated (from the May trading update) that they had suffered minimal impact from Covid-19 with arrears up marginally from 2% to <5% which is far below their worst-case scenario of ~20% arrears. Back in March the board cut forecasts massively, as a conservative measure, but trading has been much stronger than expected. As a result I expect forecasts to rise with a reinstated dividend in the short-term. One of the factors behind this resilience is that franchisees are highly motivated to be successful. Most franchisees have a single office and they work hard to grow their business - which can then be sold for a material amount in the future. This entrepreneurial spirit also extended to the financial advisers with many using existing client lists to drive new sales during the lock-down. While this may have provided a one-off benefit it's likely that such activity will become a recurring theme going forwards. Finally the business has a real tailwind with increasing regulation pushing landlords towards the agency solution. Right now Belvoir's share of market is small (there is lots of fragmentation with ~10,000 small agents in the UK) which gives them plenty of room to acquire and grow organically. All in all this is a business with a reliable recurring revenue stream from residential letting that looks too cheap given its double-digit growth rate. An easy purchase.

Gamma Communications Bought at 1483p - July 20

While reading the "ahead of consensus" update from Gamma Communications it struck me that investors don't just need to have a plan for dealing with losing investments. They should also consider what to do when an investment goes well and whether it's a candidate for additional investment. With regard to Gamma I initiated a position here in 2018 and have done nothing with it as the share price has climbed in-line with increasing sales and profits. During that time the quality of these earnings has remained high with ROCE materially above 20% and consistently strong cash generation leading to a multi-million pound cash pile. So I had plenty of opportunity to increase my exposure to this quietly successful company and yet sat on my hands because Gamma was never a holding that I had to worry about it. Anyhow since reading The Art of Execution I've realised that money management is a key skill and that I should water the flowers while they're blooming. In that light Gamma is enjoying a well-deserved moment in the sun, as businesses in the UK and Europe beef up their communications infrastructure, and I don't believe that demand will slacken all that much even as more people return to the office. Hence I've doubled my position.

K3 Capital Bought at 150p - July 20

This is my second purchase via PrimaryBid and once again the process was very slick - even if the capital raise has been poorly received. For my sins I previously held K3C in 2019 and managed to make a loss by selling just before they massively spiked up following the election. A bit of a pain but my loss was much reduced by my averaging down efforts during the year. Since then the Covid-19 lock-down has bought the share price back down to its long-term base of 140-150p as the market for business sales and corporate finance has frozen solid. However a proposed fund raising in late June, apropos the acquisition of randd uk ltd, rather caught my eye. This private company specialises in securing R&D tax credits for clients, has high levels of recurring revenue and is expected to be immediately earnings enhancing. Given that the IP for K3C revolves around its company database and connections to these companies I can see the synergy of this acquisition. Beyond randd the board are actively looking at a number of targets in the corporate recovery and insolvency market with a view to bolting-on another company at a reasonable price. This explains why the board have raised just over £30m. It's a war chest. From a current trading perspective new client mandates have slowed down, since due diligence is almost impossible, but some existing deals are still taking place. In response the board have slashed monthly overheads by ~70% and the company has an unlevered balance sheet. So while it will take time for group sales to rebound I think that the risk:reward balance is decent at the 150p level.

SDI Group Bought at 58p - July 20

The recent final results from SDI were very positive with recent acquisitions playing a part in driving growth. The board strategy of buying small companies within the digital imaging and control application space makes sense to me and I don't believe that management buy any business for vanity reasons. In fact I find the management team to be justifiably cautious and very hands-on when it comes to integrating and managing any business that they do acquire. These characteristics were very much to the fore in the recent results presentation with the CEO and CFO explaining how some parts of the business prospered during the lock-down (Astles, Atik and MPB) while others furloughed staff and looked for efficiency savings. Both sides of this divide were fully supported at the group level with bank facilities being fully drawn down as a precautionary measure. With the impact being much less than expected this debt is now being materially reduced and the board are tentatively exploring three or four potential acquisitions. These are likely to be small, if they happen at all, as the board isn't intending to stretch the balance sheet much beyond 1x leverage. What really impresses though is the fact that the business dealt with sales falling ~20% in March and April and expects profits in 2021 to be at least in-line with 2020. Given current circumstances this is a confident statement and enough for me to make SDI a full holding in the portfolio.

Computacenter Bought at 1886p - July 20

I like a strong trading update and Computacenter haven't disappointed on this score. Analyst forecasts for both 2020 and 2021 have been gently rising over the last 12 months, by over 10%, but even so the business is set to materially exceed these figures. Given strong demand for IT hardware and software over the last 4 months this is no surprise but it's great to see Computacenter rising to the challenge. What is interesting is that the shares aren't highly rated, on a P/E < 20, while ROCE has remained consistently above 20% with strong cash generation. So I see Computacenter as a very strong business that generates substantial excess cash which is used to both pay a rising dividend and reduce the share count. It's also fair to say that the share price looks poised to break out to a new ATH and this update could be the catalyst. Given that I want to increase my exposure to companies that are trading well I've increased my holding of Computacenter by just over 50%.

Tristel Bought at 418p - July 20

I've watched Tristel with a certain amount of fascination over the years. It's always seemed to be doing well with its infection prevention products but equally the shares have always reflected the hope that the company was about to break into the American market. This hope still remains but right now submission to the FDA is on-hold while travel restrictions and other social distancing measures remain in place. Fortunately, if I can put it that way, Covid-19 has boosted demand for the surface disinfection products that Tristel provides (the Cache Collection). This is rather fortuitous as these are fairly new products and outside of the primary product portfolio. The result has been that Tristel were able to ramp up their manufacturing capability to meet demand and Cache products have enjoyed a greatly accelerated introduction to hospitals around the globe. From peak demand in April a more normal sales split is starting to assert itself as hospitals restart ordinary diagnostic procedures and devices require decontamination. This balance has been remarkably beneficial for the company and FY results will be ahead of market expectations. Looking forwards the board are cautious as to the rate at which hospitals will return to normal service levels but hopefully surface disinfection will continue to offset any shortfalls. With the shares having lost some of the exuberance that took them over 500p in May I think that current levels offer a decent buying opportunity. For more information I heartily recommend the videos available on their Open Day website: https://tristelopenday.com/

Sylvania Platinum Bought at 48.8p - July 20

It's fair to say that Sylvania wasn't one of my most effectively timed purchases back in February. On the back of excellent results the share price looked to be breaking, out on heavy volume, and I took a small position. The momentum wasn't sustained though and the share price slipped back slowly, and then quickly, as we headed into pandemic season. If I was a trader then a stop-loss would have taken me out with only a little pain but I've come to realise that I'm not built to be a trader. As a consequence I've been waiting to see how the company fared during lock-down and how it's recovered since then. This meant waiting for the Q4 update which came out this week as the Q3 update in April largely referred to a pre-Covid world. This means that I've missed buying more shares at various low points but I'd rather pay more with certain information as opposed to getting in earlier and gambling on what might or might not happen. Fortunately robust PGM prices mean that Sylvania remained profitable, despite the total shut-down, and management are continuing self-help measures to navigate the tricky situation in South Africa. Looking forward the business remains strikingly cheap and cash-generative with plenty of opportunity to expand operations and optimise those in place. This puts the risk:reward balance in our favour I believe.


Manolete Partners Sold at 405p - July 20 - 25.2% loss

It's possible that Manolete has just taken the record as the share that I've held for the shortest time. The problem is that within days of my purchase a short report emerged which rather shook the market. It wasn't a particularly professional report, with many spelling errors, but it did the job. More significantly the report raised a few interesting points that I hadn't previously considered. One of these is that while case durations are fairly short this isn't the end of the matter - it's just the point at which Manolete have won the case. From then on they have to actually collect the judgement, in order to convert a fair value gain into cash, and this can be a lengthy and difficult process. A consequence of this delay is that the debtor day value has been trending higher for the last five financial years. This sucks in working capital and leaves the business exposed to bad debts getting written down long after they've been booked as a profit. An additional issue, which works against my thesis that insolvencies will rise this year to the benefit of Manolete, is that the government are apparently preparing new legislation on this topic. One possible outcome is that directors might be protected even if they run a company that trades while insolvent. This may act to save firms that would otherwise fall into liquidation but it'll also deprive Manolete of insolvency cases. Finally a similar law firm has recently started up in direct competition with, they say, lower fees and a simpler process. All of these issues may have little impact on Manolete but my philosophy these days, when faced by a 20-30% loss, is that I must act to either close the position or increase it. In this case I don't feel confident enough to buy more Manolete and so it's had to go.

Avacta Group Sold at 150p - July 20 - 67.0% gain

After reading the "Art of Execution" I've become increasingly aware of which type of shares I'm comfortable investing in and which ones I am not. It's fair to say that Avacta belongs in the second group. For all that their affirmer technology shows tremendous potential it has been impossible, so far, to convert that potential into profits. As a former research scientist I find myself overlooking this shortcoming, as I believe that I have a decent understanding of the underlying mechanisms, and that's very dangerous. The reality is that Avacta will have an uphill struggle getting their Covid-19 test to market let alone being in a position to scale-up manufacturing to cope with likely demand. As an investor this means that volatility in the share price will continue to be high and the chances of being disappointed are high. So I've decided to cut back my exposure to Avacta while the going is good. I still have the shares that I picked up in the recent placing, and I won't have a problem buying more if news-flow is positive, but any bad news from here on won't be too painful either. Hopefully this is sensible money management.



With market volatility persisting Plus500 continues to deliver astonishing growth in customer numbers. For H1 almost 200,000 new customers signed up (compared to just under 50,000 in 2019) with 115,000 of these customers joining in the second quarter. As a result total revenue climbed 280% to $564m over the period with a roughly equal split between quarters. Now much is made of the fact that Plus500 don't hedge positions and so benefit when clients lose (in other words they take the other side of the trade). This is both true and not true. It's correct that they don't hedge positions but they don't do this selectively which means that they lose when clients win. Overall the board claim that these gains/losses from customer trading even out and that has been the case in 2020. Over the entire first half the benefit to Plus500 from trading gaines/losses was just $7.3m but that hides the fact that customers lost $83.1m in Q1 and won $75.8m in Q2. Curiously the share price has fallen since this update despite forecasts predicting just $574m in sales for the whole year (leading to 252c in earnings). Since Plus500 will generate far more than $10m in sales over H2 I'd say that an "ahead of expectations" update is a certainty when the company releases its results in early August.

Liontrust Asset Management

Solid FY results from this asset management group with revenues up 26% to £107m and adjusted PBT up 26% to £38.1m. This represents a net profit margin of 35.6% which is really rather attractive. Driving this increase was a 27% rise in assets under management, to £16.1bn at 30th March, with these assets now up to £19.3bn at 30th June. As a rough and ready estimate this implies that Liontrust earned ~0.66% of its AUM as revenue (actually more given that AUM increased during the year) which gives you £128m of sales for 2021. This is just above the consensus forecast of £124m with this leading to a 66% rise in EPS to just under 60p. Given that the forward P/E is just 21.6 and that management have just increased the dividend by 22%, to 33p, I'd say that this is a growing business at a reasonable price. Still it's worth not getting too carried away with that forecast growth rate as it's comparing a basic EPS number to an adjusted forecast EPS number. In reality these results put forward an adjusted EPS of ~57p, compared to 47p in 2019, which means that the forecast growth rate is more like 5% (although without the benefit of future acquisitions). Still if markets remain in decent shape, and inflows hold up, then the management fee income will continue to grow and forecasts will have to rise in tandem. A solid hold then. (Results)

Liontrust Asset Management

It's unusual to release a trading update alongside FY results but perhaps management want to reassure investors that their AUM has bounced back? That's probably not a bad idea given that their year-end coincided with the stock markets going belly-up. Anyway in the first quarter AUM increased 20%, to £19.3bn, with net inflows of £971m. This is apparently a record quarter and suggests something of a flight to quality by clients. In addition the acquisition of Architas will bring another £5.6bn of assets into the business which is a material uplift. While the stock market seems unimpressed by this performance I believe that Liontrust remains a quality outfit that'll reward shareholders in the long term. (Update)


Despite being a highly profitable company, with ~85% recurring revenue, Craneware has halved in value over the last two years. Part of this was self-inflicted, as they rolled out a new system to customers, and part is down to the impact of Covid-19. As a result the last quarter reversed all of the growth created up until that point which means that total revenue for FY20 will simply match that of FY19 (at $71.4m). With growth flat-lining the shares have massively de-rated from a P/E high of ~60 to around 30 now. This is still high but Craneware has a great track-record with ROCE being sustainably over 25. The question now is whether growth will pick up as the pandemic eases? There's no doubt that over the last few months customers have had plenty to occupy them, making deferral of any new systems almost mandatory, but there are early signs of the sales cycle normalising. It's likely that H1 will be a bit of a slog but I suspect that the benefits of installing the Craneware platform will win out in the end. (Update)

Medica Group

This teleradiology services group has been badly impacted by Covid-19 as hospitals focused all of their resources on dealing with the pandemic. Fortunately the company was in a strong financial position and hasn't required any form of government funding. Still with revenues down 22% compared to last year there's a fair amount of ground to be made up in H2. On this front the out-of-hours service, NightHawk, has recovered to 95% of prior levels and it should be remembered that this is the most profitable service. This bodes well for margins if not for the absolute level of sales. In contrast routine reporting has only recovered to 10% of its previous level although there is no doubt that this will recover in coming months. In fact the accrued backlog of elective procedures may mean that Medica receives more business than usual as hospitals will be unable to deal with the excess demand. Ultimately Medica may benefit as radiologists recognise the benefits of home working but it could be a moderately slow recovery. (Update)

Alpha FX

The share price recovery at Alpha FX has been muted after they revealed that their largest customer had defaulted on their agreement. Fortunately all cash payments have been received from their Norwegian client so far although the plan extends for another two years. The bad debt provision for all other clients during H1 is just £0.2m so this appears to be an isolated problem. Over the period client numbers increased by 28 to 671 and revenue increased 16% to £18.0m (compared to H1 2019). It is, however, lower than the £19.8m of sales for H2 2019 and in every other six-month period there has been sequential growth. Still it has been a difficult time and AFX only needs another £19.1m of sales to hit its FY forecast of £37.1m which seems very achievable. The key to this will be continued growth in newer business divisions, and other markets, since many UK clients are delaying or reducing FX activity until the outlook improves. As such double-digit growth is unlikely to return until 2021 which is in-line with current analyst forecasts. Worth holding though as an innovative and growing business. (Update)

LoopUp Group

This is the kind of update that I like to see in the morning as it includes the phrase "we expect to exceed market expectations for the current financial year". This is not too unexpected, given that the company provides remote meeting infrastructure, but it's nice to gain confirmation. This update covers H1 and margins look remarkably strong with revenue up 43%, gross profit up 52% and adjusted EBITDA up 249%. Cash generation has also been strong with cash more than doubling to £8.2m and net debt more than halving to £5.4m. Clearly the business has prospered during the lock-down and its infrastructure has coped with a much higher volume of traffic. One of the reasons for the stronger margins in H1 is particularly strong growth in the premium offerings of LoopUp Meetings and Event by LoopUp. It's hard to know whether usage levels will remain high as the lock-down eases. One point to consider is that if just one team-mate is WFH then you've pretty much got to have a remote meeting which is a positive. Right now then the company is in a sweet spot and the onus is on them to capitalise on the opportunity. (Update)

Gamma Communications

A positive update to start the week with management expecting EBITDA and EPS for the full year to be ahead of consensus (and we're only at the HY point). As hoped robust communication services have proved popular during the lock-down with new multi-year contracts and minimal cancellation levels. This stability leads to 93% of revenue being recurred and billed monthly. As a result cash generation is strong and the company hasn't needed to use the furlough scheme or defer any tax payments. They also expect to propose an interim dividend in-line with past payments. On the growth front the company has made a number of acquisitions in Europe as they seek to roll out their proven strategy across the continent. At the same time they made the remarkably timely acquisition of a Microsoft Teams specialist back in February and have been adding new customers at a rate of knots since then. This remains an expanding market and their ability to integrate Teams with the trunking service is definitely a win-win for the business. On the whole I feel very encouraged by this statement as Gamma continues to grow profitably. (Update)

Judges Scientific

Since listing 15 years ago Judges Scientific has been an astonishingly successful company with reinvestment of internally generated cash driving very high sales and profit growth. It's been a pretty good ride for investors too with a 50x return on your money over that period. However the last six months have been rough with order intake until 30th June down by 17.3% year-on-year. The big problem is that it's hard to generate sales when universities are closed, conferences don't take place and you can't travel anywhere. Organic sales were also 12% down over that period as some customers delayed delivery and certain equipment installations couldn't be completed. Even so the group remained profitable and cash-flow positive in each month. Looking forwards encouraging signs exist but the board are not in a position to make any sort of forecast. All they can really say is that they are in a robust position to weather the downturn and their balance sheet supports this assertion. The problem is that the shares remain priced to perfection, at a forward P/E of ~30, and it's not clear how profits are going to rise to bring this valuation down to a more realistic level. (Update)

SDI Group

These results are up to 30th April and so show limited impact from Covid-19. Last year was a very good one for SDI though with sales up 41% to £25.4m, adjusted PBT up 44% to £4.3m and adjusted EPS up 23% to 3.43p. This puts the group on a historic P/E of ~17 which seems very reasonable for a business that's generated double-digit growth in most of the last 5 years. Of course SDI is a buy-and-build business which means that much of this growth has been acquired. Last year was no exception with organic growth of 4% and inorganic growth of 36%. It would be nice to have more organic growth but I don't believe that management are just buying businesses to keep the gravy-train rolling. Each purchase makes sense within the context of the group, which is focused on digital imaging and sensing applications, and the actions taken to integrate these new firms should reduce costs and allow for some synergies. Looking forward SDI has endured a decent lock-down with some companies facing very high demand for medical products and others looking at a downturn in orders. It's not surprising that the shares have trod water since April but thankfully the board are able to give forward guidance - which is that sales should grow year-on-year while profits will be at least in line with FY20. This is not too much of a surprise, given that FY21 will benefit from a full year of Chell Instruments being in the group, but it does indicate that SDI are in excellent shape to restart their growth trajectory. (Results)


It seems that technology companies are, on the whole, benefiting from the forced move to remote working. On this front Computacenter has seen a rise in demand for IT equipment along with increased demand for the services which Computacenter offer. In other words customers are desperate for help with their IT hardware/software and Computacenter is well placed to assist. As a result profitability in H1 has been substantially ahead of the same period last year and H2 should be much stronger than the board were forecasting. This makes perfect sense and I can see analyst forecasts being materially raised in the near future. (Update)

AJ Bell

It seems that AJ Bell is living up to its premium rating. In the last 12 months customer numbers have grown 26% with 8% growth in Q3 along with a flat quarterly inflow of £1.2bn. Total assets under administration (AUA) are now up to £54.3bn with the fall in March now a distant memory. The key growth driver here is the platform business with this accounting for 95% of all customers. On the platform 40% of customers are advised while the remainder are D2C (which is where the bulk of the growth resides). This year high market volatility has led to record levels of D2C dealing activity which leads directly to higher transactional revenue. The situation has started to normalise but trading levels remain above management expectations. As a result profits for 2020 will be above market expectations - although management is also guiding that expectations for 2021 remain unchanged as activity returns to normal levels. So it's nice to get a 6% boost in earnings this year but this is a one-off bonus. That said analysts are pencilling in a small 5% drop in earnings for 2021 and I doubt that this will come to pass if customer and asset growth continues at the current healthy level. (Update)

Sylvania Platinum

With Sylvania being a mining-related business that operates in South Africa it's hardly a surprise that the last quarter was tough. For just over a month, until 30th March, all operations were suspended with a ramp-up from then to return to full capacity in June. As a result just 9,055 PGM ounces were produced in Q4 compared to 19,968 in Q3. Even so the quarter remained profitable, at a much reduced level, despite the underlying fixed cost base. Cash also continued to flow into the company, as a result of Q3 ounces delivered, which means that the reduced Q4 production will impact cash-flow in Q1 2021. Still the company has $55.9m of cash available which is more than enough to cover all costs while still buying back shares at current levels. At current PGM price levels, over $2000 per ounce compared to an all-in cash cost less than half of this value, I can see the logic of reducing the share count when the rating is so low and the company is generating so much cash. That said the valuation is low because Sylvania isn't quite the master of its own destiny. Ultimately it relies on host mines producing waste material and the depressed chrome market, along with Covid-19, is not encouraging these mines to raise production. There are other options, and management seem pretty on the ball, but it's hard to believe that the company will return to previous levels of production any time soon. (Update)

IG Design Group

After a number of years of growth IG Design ran into trouble with Covid-19 disrupting retail sales around the globe. The bottom-line impact of this is that profits fell 4% to £29.1m while management believe that they could have come in at £32.9m otherwise (an 8% rise). It's not a bad result and the board are confident enough in the financial strength of the group to pay a largely unchanged dividend. Looking forwards Q1 has started strongly when compared to current forecasts - although these are a long way down from the pre-Covid estimates. Essentially sales and profits from the recently acquired CSS are being offset by the lock-down induced slowdown in trading. Still a better sales mix and effective cost management mean that adjusted profit for Q1 is in-line with that achieved in 2019. Looking forward management remain optimistic but I wonder whether 2020 will be a year to forget for IG Design? On the other hand Christmas trading is responsible for a high proportion of sales/profits and it's possible that demand will have rebounded in the run up to the festive season? Drivers here are that the board explicitly aim to work with "winning" customers, such as Walmart, rather than second-tier retailers. This feels like a laudable aim and should reduce the chance of bad debts. In addition the group consistently focus on efficiency and innovative design as a way to control costs while appealing to customers. These are not new initiatives but are instead reflective of the management team's focus on improving the business. I admire this longer term perspective that avoids chasing unprofitable sales to boost the top-line. It's going to be a difficult 12 months from here but IG Design should emerge in good shape. (Results)

FDM Group

As a supplier of contract labour it's not surprising that FDM has enjoyed a difficult half-year. As a results profits have fallen heavily, by 25%, despite a 5% rise in turnover. This suggests to me that the business has absorbed all of the lock-down costs itself and, indeed, they haven't furloughed any staff or accessed any government funding. In addition the board took the pragmatic decision to settle a longstanding legal claim for £3.3m, despite believing it without merit, which hit the bottom line. Operationally they have moved to remote recruitment and training while revising the training programme to focus on skills that are now in demand. It's this combination of flexibility and opportunism, along with a healthy cash balance of £58.3m, which leads me to believe that FDM will emerge from the crisis in good shape. In fact while reading through the HY report it became clear to me that FDM is run conservatively by a management looking to treat staff, customers and shareholders fairly. There's very little corporate waffle and where decisions have to made that involve incurring costs then management make the decisions and don't try to adjust away the resulting impact. It's a refreshing approach which I would hope is reflected in the culture of the company at all levels. From an investing perspective the shares are neither cheap nor expensive at current levels. The analyst estimates for a 16% drop in EPS (to 31p) look about right given the 14p earned in H1 and the lack of seasonable bias. Happy to hold. (Results)

Belvoir Group

As mentioned above I gained a very favourable view of Belvoir at Mello Virtual. It felt to me as if the business was trading way ahead of the lock-down influenced estimates and so was primed to rebound dramatically. In this update we learn that growth has continued with both revenue and operating profit to be comfortably ahead of 2019. More significantly net profit will be in-line with pre-Covid expectations. The key point here is that in early March analyst forecasts put the 2020 EPS at 15.2p. This was slashed to 10.85p and just been cut again to 6.1p. I simply cannot understand this reaction as historically there has been no H1:H2 bias to the results. The fact is that while there remains uncertainty in the housing market the rental side of the business is very stable and management are confident of meeting their pre-Covid expectations for the year. They can't put it more plainly than that and the proposed reinstatement of the dividend is a sign of their confidence. This is the kind of update that makes me want to buy more shares in a company. (Update)

Franchise Brands

It's been a challenging lock-down for Franchise Brands with its mix of B2B and B2C businesses. The B2B side, which deals with water and drainage, traded throughout the lock-down with increased activity in June. As a result Metro Rod was down just 3% over H1, compared to 2019, while Metro Plumb and Willow Pumps traded well enough. In contrast the B2C division closed entirely until June with ChipsAway restarting strongly while no one needs their dog looking after (Barking Mad) and not many people want their oven cleaned (OvenClean). Here 85% of the team were furloughed and franchise fees/charges were either reduced or suspended. Still the division traded at break-even during the lock-down which is quite an accomplishment. It will be a slow recovery for the B2C division but ChipsAway did contribute 83% of division income and this is the brand which is recovering most quickly (with recruitment particularly strong). My feeling is that the prompt and sensitive actions of the board during the pandemic, where they've worked hard to support franchisees, will pay dividends in the long run. The fact is that people want to make their own franchise succeed and will work hard to achieve this when the economy permits. From a corporate perspective the raising of £13.6m in April still looks like a sensible move, even if rather dilutive, since the group is now debt free and in a position to finance both working capital and potential acquisitions. This removes any balance sheet risk and leaves the company in a strong position. The only problem that I have is that the analyst forecasts haven't moved since January and the idea that EPS will hit 6p this year is ludicrous. I'll be impressed if Franchise Brands manages more than 3p of earnings this year! (Results)

3i Group

With the last update coming out at the end of March it's not too surprising that the NAV has rebounded by 6.8% to 858p. A big driver here is the strong rise in sales and profits for Action as it has reopened stores in all locations. This discount retailer continues to go from strength to strength with 48 stores newly opened in 2010 with a target of 152 for the year. At the same time the share price of 3i Infrastructure, the second largest holding, has recovered strongly and boosted the NAV. Elsewhere holdings in medical technology, personal care and e-commerce are all experiencing strong demand. Offsetting this Audley Travel has seen a large decline in bookings, hardly a shock, while anything exposed to the automotive industry is experiencing soft demand. What I particularly like about 3i though is that they are active participants in their investments. In April they injected £20m into Hans Anders, a discount optician, and since then sales recovery has been ahead of expectations. In June they invested £17m into Basic-Fit, a discount gym, and since then all gyms have reopened with a strong rebound in the share price. There's a real trend here of customers buying into discount options and 3i are investing into this transition in behaviour. I'm happy to let them manage a part of my portfolio. (Update)


It's useful to get an update to 30th June to see how the business is progressing. At the top-line sales are flat for the quarter at $96m. Operating profit is at a similar level which means that it's slightly down on last year. Underlying this performance is the fact that medical installations remain weak while the electric vehicle sector is recovering. Offsetting this is the existence of resilient demand in the consumer electronics and data centre businesses. Looking at this optimistically it's likely that the latter areas will continue to trade well while the weaker sectors continue to recover. As such I'd say that analyst forecasts for a 14% drop in earnings, to 10p, feel about right. Next year should be much stronger on all fronts and with luck Volex will start to look like a cheap but growing investment once again. (Update)

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

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