March 2020 Portfolio Update

Well that was a month from hell for so many reasons. It quite took me back to 2008 and my disbelief that the market could keep falling day after day. Back then my portfolio was a lot smaller and so the absolute impact this time around is substantially greater. The one thing which hasn't changed is my belief that personally I'm best served by not panicking when things go pear-shaped. Generally speaking this means that I stayed invested through the post-Brexit vote fall in 2016 and the painful pullback in Q4 of 2018 - where the market bounced back both times. Sometimes however this leaves me exposed to a bear market which is where we appear to be right now and for good reason. Company earnings across the board will crater in this financial year and many companies will go to the wall. Things will look bleak. At the same time this is, if you like, an intentional recession with the global economy shut down by government mandate. At some point this will end, probably in stages, and firms will be free to begin their recovery. With luck a combination of the unprecedented global stimulus and the simple desire of humanity to get on with life will enable us to avoid a global depression. If that's the case then markets should recover somewhat in 2020.

Anyhow for the month of March my portfolio shrank a remarkable -19.2% leaving me at -23.0% for the year so far. As mentioned it was a heck of a first quarter. With so many of my shares falling it's hard to point the finger at any of them but foreign exchange has taken its toll. On one hand Ramsdens slumped because of its dependence on happy holidaymakers (who no longer exist) while AFX halved when its largest client defaulted on a margin call with the amount of money owed being more than a year of revenue. Falling almost as far were GAW, BOWL and PPH with all three dependent on leisure and disposable income - along with a public allowed to move and mingle freely. Tough times. At the other end of the scale Team17 utterly shrugged off the impact of Covid-19 which makes sense as it supplies computer games and that's one of the few entertainment activities which remain open for business. With luck next month won't be quite so bloody but what do I know?

Here are the numbers for completeness:

Risers: TM17 24%, GAN 7%, CRW 1%

Fallers: HYNS -1%, SCT -2%, VLX -3%, RWS -13%, CCC -13%, FUTR -13%, JDG -14%, FDM -14%, LIO -15%, GAMA -17%, SLP -18%, HAT -19%, MGP -21%, SOM -21%, III -21%, BUR -22%, SDI -22%, GRG -23%, FRAN -23%, DRV -25%, IGR -29%, GAW -31%, BOWL -38%, PPH -45%, RFX -47%, AFX -52%


Avation Bought at 265p - March 20

I've known about Avation for almost 5 years now and wrote about them after a ShareSoc seminar in 2017. Over that period the share price roughly doubled but I never invested despite knowing that the board was doing everything that it said it would. I suppose that I was put off by the low return on capital and lack of free cash-flow as the company invested in growing its fleet of planes. However at the beginning of the year Avation announced a strategic review following an approach by an interested third-party. This rapidly boosted the shares by almost 25% up towards the book value and I remained on the sidelines. However this rise has now been more than reversed, following market disruption in February, and I think that there's an opportunity here. Several parties are in talks with Avation and the company has used recent interim results to present itself in a positive light. So I think that we're likely to see an announcement sooner rather than later and hopefully the outcome will be a positive one.

Plus500 Bought at 795p - March 20

I've held Plus500 before, with mixed yet profitable results, but it's really not my favourite company. For a start its profits are volatile as a consequence of high sensitivity to market dynamics while the dead-hand of the regulator steps in on a regular basis to crush the latest, most egregious behaviour by CFD operators. Personally I support the regulators in this endeavour as many, if not most, CFD firms work hard to separate traders (punters really) from their cash before recruiting a fresh batch of innocent customers. Over the years there have been many, many examples of these companies acting in a less than moral manner and I don't think that this does any favours for investors generally. Still these platforms can make super-normal profits when the markets are excited and there's no doubt that Plus500 is doing very well right now. The trigger for me was their mid-March update pointing out that they expected the FY to be "substantially ahead of current consensus expectations" despite having just started! With the share price having been weirdly weak over the previous week I saw this as a golden opportunity to take something positive out of the recent market falls. It won't be a long-term position but for now all of the signs are positive.

Spectra Systems Bought at 105p - March 20

As mentioned below Spectra Systems benefits from a very stable revenue stream along with a number of high-impact products currently in development. These are the core reasons behind my decision to invest in the first place. Even so the share price has been knocked back recently, in common with pretty much every other company, and in some cases this will provide an opportunity. With Spectra Systems it's fair to say that they are relatively shielded from Covid-19 except for a moderate delay in some production trials and in attending upcoming conferences. Apart from this their customers, such as central banks and tobacco companies, are operating much as normal. In addition the company has been cash positive for a number of years with some of these funds held back while dealing with an Asian central bank. Improved clarity means that the board are in a position to release some of this capital back to shareholders as a special dividend - in contrast to so many other companies which are cancelling already declared dividends. Thus I see the current share price as offering a decent entry point and have added to my position.


PPHE Hotel Sold at 1700p - March 20 - 194.3% gain

PPHE Hotel Group has been a wonderful investment over the last five years and management have done an excellent job of building up their portfolio of hotels. With the last set of results, just a few weeks ago, nothing has changed on this front. In fact with a £300m development pipeline of properties in place the board are doubling down on their expansion plans. In the long run I expect this to work out very well for investors but in the short-term I think that there will be material disruption from the Coronavirus pandemic. Anecdotally people that I know are changing their travel arrangements and I expect the tourist trade in Europe to be pretty decimated over the summer months. So I've cut my holding here by a third to reduce my exposure to these problems while releasing some cash for alternative investment opportunities.

Quartix Holdings Sold at 370p - March 20 - 31.7% gain

I originally bought into Quartix on the basis of it being a high-quality company in the middle of a successful turn-around. Both of these things remain true as the business moves away from short-term insurance sales towards more sticky fleet tracking revenue. As such total sales have been flat for a few years and aren't expected to grow much in the short-term. Nevertheless the bottom-line profit has been growing due to margins improving as the lower-margin insurance telematics side falls away. So I was somewhat surprised, with the recent 2019 results, to find EPS dropping 23% as a direct consequence of the operating margin sliding from 32% to 25%. In addition current analyst forecasts point to flat earnings in 2020 with a modest return to growth in 2021. This doesn't sit well with a P/E of ~25 so I've taken my cash elsewhere.

NewRiver REIT Sold at 162p - March 20 - 30.3% loss

I rate the management of NewRiver very highly, particularly Allan Lockhart, which is why I remained invested in the company for many years. However with the UK economy poised to enter lock-down I couldn't ignore the fact that the retail headwind was about to become a roaring gale. With all of their assets focused on the retail and leisure sectors there's no doubt that they will take a hit in both rental income and NAV. This is particularly hard for NewRiver as they've been sailing pretty close to the wind in recent years by maintaining an uncovered dividend while shifting from low-yield to high-yield assets (which bring with them a higher-risk profile). Up until now I've remained fairly comfortable with the board's various schemes to boost income but there's no point ignoring the present reality. Shareholders are very likely to suffer some pain this year if the company refinances and I'm sure that there will be plenty of time to get back on board if they manage to turn things around.



Last year results were impacted by contract signing delays and this year the loss of a large customer has impacted on the renewal rate. So it feels as though Craneware are becoming a little accident prone. Still, at this HY point, the board are confident that they can hit an expected rise of 11% in earnings for the year and believe that they have a strong current sales pipeline. Given that previous indigestion seems to have been caused by migrating customers to the new cloud-based Trisus platform, and levels of sales here are growing, it's plausible that management have regained control of the business. If so this is very positive as sales and contract renewals are recognised over future periods which provides good revenue visibility. On a broader scale Craneware have been working in the value-based care space for 20 years and demand from US hospitals is only set to increase as legislation around pricing visibility arrives in 2021 and insurance companies force hospitals to justify their fees. So I tend to feel that the company is set for future growth even if the high (>30) P/E rating given to the business has magnified the impact of recent issues. So I can't say that it's enjoyable holding these shares at the moment but I believe that this is the right choice. (Results)


From previous trading updates it was clear that 2019 was lining up to be an outstanding year for the company and so it turned out. Total sales rose 13.5%, which is great, but pre-tax profits rose an amazing 27.2%. Quite something for a £2bn outfit selling baked goods. To my mind Greggs is benefiting from being a vertically integrated operation that has been strategically investing to reinvent itself over a number of years. In other words the board have earned their remuneration by considering the long-term health of the company. As part of this they paid a bonus to all staff, which I support, while still having the discipline to close 41 stores that didn't make the grade. In fact reading through the narrative of these FY results there's a refreshing lack of spin or buzzwords; in a very good way I'm reminded of the style with which Next lay out their reports as I see them setting the gold standard. Looking forwards there remain uncertainties to navigate (Brexit, Coronavirus, inflation) but management have dealt with similar issues in the past and I expect them to use their experience to deal with these issues in the future. On the positive side Greggs are planning to grow to more than 2500 shops while adding routes by which customers might access products - such as the link up with Just Eat. So it's curious that analysts are forecasting zero profit growth for the year. I don't expect 2020 to replicate the success of 2019 but there's no doubt that Greggs is only part-way through its transformation and there's a lot more to come just yet. (Results)

IG Design Group

With Christmas being the key trading period for IG Design it's good to hear that the results will be in-line with expectations. That said the bar is set pretty low with just 3-7% growth anticipated for the year before rising 12-15% in 2021. The reason for the range is that profits are generally adjusted to some degree and the Impact acquisition skewed the share count calculations. More usefully adjusted profits were up 15-20% at the HY point and it seems that this should hold true for the full year. With a strong track-record and a current P/E of just over 20 I think that the shares are fairly priced. (Update)

Franchise Brands

After a bumpy start to life as a listed company Franchise Brands was looking to knock it out of the park in 2019 with earnings growth of 40% or more. In reality adjusted EPS came in at 4.34p, a few percent ahead of forecasts, with management reckoning that this was a 29% increase. With sales up a lower 24% clearly costs are under control and margins remain solid. However, as seen elsewhere, the adjusting items are both material and not wholly reasonable. Ignoring intangible amortisation is fine but excluding acquisition costs and share-based payments seems unreasonable to me given that the group is set up to buy and integrate other franchises. Be that as it may operationally the board are growing Metro Rod fast and the purchase of Willow Pumps seems to fit very well with the existing drainage business. Apparently the year has started well with job intake up and franchisee recruitment strong in the B2C (ChipsAway, Ovenclean and Barking Mad) division. Given that some stale franchisees have been encouraged to move on, to be replaced by more ambitious individuals, I can well believe that sustainable momentum is building across the group. Given that fees from selling new franchise territories make up a reasonable, but not excessive, fraction of income there's always a risk that sales could dry up and reduce profits. However I don't see this to be a problem while the various brands are all growing - especially if the group manages to expand by the 30-40% that analysts are predicting for 2020. (Results)

Team17 Group

These are some excellent FY results with both top-line and bottom-line figures turning out better than expected. At the revenue line growth amounted to 43% but further down operational gearing kicked in with costs increasing at a lower rate - to the extent that basic EPS jumped 111% to 12.9p while adjusted EPS rose 68% to 13.6p. Remarkably both of these values are higher than the 12.1-12.3p that was the consensus. For next year growth is expected to moderate to 7-8% and this ties in with the fact that Team17 are launching more new IP games in 2020 than ever before. These could all markedly boost profits but one never knows with new content and so the board are taking a cautious line on revenue forecasts (especially in terms of H1/H2 weighting). Still the back catalogue provided 71% of all sales in 2019 and the depth of this catalogue is only increasing - which de-risks potential earnings substantially so long as the group continue to manage their brands effectively. Frankly I see no sign that management are about to take their eye off the ball. In contrast they seem very pleased with their first 30 years of growth and remain motivated to continue this success. (Results)

H&T Group

Another company reporting excellent results is H&T with EPS of 43.8p over 7% ahead of expectations and a mighty 48% higher than earnings in 2018. Driving this, to some extent, were the acquisitions of 64 Money Shop stores and the entire Albermarle & Bond pledge book but that's not the whole story. Elsewhere foreign currency exchange grew 44%, personal loan revenue grew 54% and the high gold price boosted precious-metal scrappage returns. In other words all areas of the business are being managed effectively and you can get all of this for a P/E of ~8 while pulling in a yield of nearly 4%. From reading the narrative it's clear that this diversification away from pawnbroking and lending is entirely intentional and serves to increase the resilience of the group. At the same time demand for small-sum, short-term cash loans remains strong and I don't see this community need vanishing any time soon (even if society is increasingly cash-less). So while some may view H&T as a predatory operator I believe that it serves a valuable purpose with a certain level of integrity. Still this probably means that the stores will always attract a low valuation, despite growing profitability, which is perhaps where the opportunity lies. (Results)

Somero Enterprises

It's been clear for some time, since this unwelcome trading update last July, that the 2019 results wouldn't be great. This slowdown was blamed on extreme rainfall in the US and management hoped that momentum would rebuild. At the time I wasn't sure if this was the only problem or if international sales were also under pressure and so I sold my position. Later, with the HY results, it turned out that trading in Europe and the Middle East had also fallen behind the prior year and that financials were "broadly" in-line with guidance. Pretty uninspiring and the share price fell hard. Then, curiously, in early December the shares started rising strongly and kept going all the way to this strong update in January. Coincidence? Anyway sales came in 5% down at $89.3m while profits fell only 3% to 37c which points to margins being more than maintained as the US recovered strongly. Sadly non-US markets didn't do so well as their revenue contribution dipped from 31% to 27% and they remain a mixed bag going forwards. The key then, as ever, is for North America to remain vibrant and get interested in putting flat-floors into high-rise buildings. I trust the board to follow this path competently and transparently but this will always be a cheap, high-yielding but cyclical investment opportunity. (Results)

FDM Group

Since flotation in 2014 FDM has been a beautifully consistent investment with earnings rising at double-digit rates while maintaining both high margins and high FCF conversion. However despite the high quality of these earnings the share price has gone nowhere for almost three years as growth rates have slowed at both the top and bottom line. Last year was no exception to this trend with EPS up 9% to 37.3p (or 38.8p if you exclude the cost of the Performance Share Plan). Looking forwards management believe that they are positioned to benefit from strong levels of client activity despite the impact of Coronavirus. The latter is proving a challenge with regard to remote working and attendance at client sites. Nevertheless I believe that the continuing transformation of the group from dependence on contractors to having its own self-trained force of "Mounties" remains a key driver for growth and profitability. Geographic expansion here (EMEA +48%, APAC +29% and initial mobilisation in the Netherlands) suggests that customers are keen to use their IT/business consultants and I don't expect this demand to slacken as IT remains central to many organisations. So while 2020 may be a challenging year it's clear that FDM has the financial resilience to endure and come out of the other side in good shape. (Results)


Last year was very positive for Computacenter with two "ahead of expectations" trading updates leading the group to one of its most successful years ever. Considering the backdrop of a subdued UK market, the industrial slow-down in Germany and the US acquisition of FusionStorm that was more volatile than expected this is a very respectable result. I particularly like the fact that earnings rose over 22% to 92.5p (or 89.0p unadjusted) on revenue growth of 16% which points towards margin improvement (partially because two large, margin-diluting deals did not re-occur and partially through a shift to higher-margin Data Center, Networking and Security products). Reading through these results a clear strength for Computacenter is its diversified client base. Geographically ~2/3 of sales are made in the UK and Germany but within these regions there's a decent split between public and private-sector clients. In the latter the group services different sectors such as Finance, Pharmaceuticals, Utilities and Oil & Gas with a further split between Technology Sourcing and Services. In my view this wide spread de-risks the sales mix and should allow for cross-selling opportunities within new and existing clients. In addition if the current pandemic creates a permanent shift towards remote-working then I suspect that Computacenter's services will be in more demand than ever. (Results)

Softcat plc

In these turbulent times it might be expected that Softcat, a provider of IT infrastructure products and services, would do well as everyone who can works from home. However these interim results only go up the end of January and in this period the company achieved 20% growth all of the way from the top to the bottom line. This is an excellent outcome achieved without recourse to adjustments. To put this into context the 16.7p earned so far is 45% of the 2020 forecast for 36.9p while last year H1 contributed just 40% of the total. Now it's quite likely that the second half won't grow as strongly as expected but with ~9500 customers on the books, on average contributing £24.1k of gross profit each, I believe that Softcat are well insulted from individual client failures. These customers are also spread across SMB, enterprise and public sector organisations which further de-risks sales going forwards. In addition the company has no bank debt and just under £50m of cash on the books so the balance sheet is robust (even more so with the cancellation of the interim dividend which would have absorbed £10.7m). As such I see Softcat as surviving, and perhaps benefiting, from the current lock-down as companies rely ever more heavily on IT infrastructure but this customer spending is likely to be cut back to survival capex only so it's hard to forecast the end result. Either way Softcat is worth watching. (Results)

Gamma Communications

In a similar vein to the previous company Gamma provides communication services to businesses in the UK and the Netherlands. In other words a critical service that cannot easily be slashed. This partly explains how Gamma has been able to grow at 20%+ levels for the last 5 years with 2019 adding another 20% rise in fully diluted EPS to 36.1p (or a rise of 35% in adjusted EPS to 40.8p). A terrific result on sales up 15% which indicates that profit margins improved year on year. For 2020 analysts are pencilling in another hefty increase to 46p of earnings. This is pre-virus lock-down though and it's likely that sales will be knocked back due to forced delays in conducting on-site installations and issues meeting and securing new customers. Longer term though Gamma provides a communication platform suitable for SME, public sector and enterprise markets and should prosper as they recognise the benefits of outsourcing infrastructure competence. From a financial stability perspective the company has no debt with the end of year cash balance standing at £54m. Combine this with high recurring revenue (although with no figure being put on this statement) and you're looking at another company that will survive the pandemic. (Results)

Alpha FX

This has been a real success story over the past 5 years with a sustained growth rate above 30% per annum. Partly this is down to the corporate FX market being ripe for challenge but equally important, in my view, is the culture of the company with this being driven by Morgan Tilbrook, CEO. Last year was no exception with revenue up 51% to £35.4m and profits up 33% to 30.1p. The gap in growth rates implies that costs have risen faster then sales and this is not too surprising as the company is investing in staff (head count grew 51% from 82 to 124), technology and premises (with a new office in Paddington). It's known that new staff minimally contribute in their first year but history guides that further along the learning curve these employees can keep increasing their client portfolios year after year. Obviously it's not ideal that this expansion has run directly into the Coronavirus headwind. As global trading activity has declined hugely in the past few weeks then client FX needs have also fallen in step and, as a result, the group now believes (hopes!) that the 2020 results will be broadly in-line with 2019. In addition just over a third of clients have been hit by recent high FX volatility and have had to provide additional margin to Alpha FX. Unfortunately their largest client, a Norwegian food producer, was unable to do this and has defaulted. As a result they owe Alpha FX a hefty £30.2m (a year's worth of sales!) which will be repaid over the next 2 years. It's quite some blow but the customer is not bust and Alpha FX has enough cash and liquidity to see it through the crisis. None of this is ideal but in the medium to long-term I see Alpha FX prospering as the global economy recovers. (Results)

Judges Scientific

Last year proved excellent for this group of scientific instrument businesses with earnings up ~20% on sales growth of 5.9%. There is, however, rather a spread between the basic EPS of 183.1p and the adjusted figure of 222.5p as is often the case with acquisitive organisations. Some of these adjustments, such as amortisation of acquired intangible assets, I can live with while others, namely acquisition-related costs and share based payments, are a normal aspect of running the business. With these two figures translating into P/E values of 23 and 19 respectively I'd say the Judges is fairly priced at the current 4265p level. That said the Covid-19 crisis will impact orders and sales while staff are unable to attend scientific conventions or visit clients. So far analysts have sharply reduced 2020 forecasts by ~28% to 155p and this seems eminently reasonable given the likelihood that customers will be slow to get back on their feet when they're back in the office. Fortunately the group is conservatively run and has minimal net debt - although paying out that £2 special dividend last December was perhaps untimely. Nevertheless the long-term trends in the scientific instrument market are very positive and Judges generally benefits from Sterling weakness (as the majority of sales are in the Euro or Dollar). Both of these provide a tailwind which is unlikely to diminish in the near-term and I expect the group to bounce-back when their clients return to normal operations. (Results)

Ramsdens Holdings

For any business with a non-essential High Street presence the current crisis is an existential threat. As such Ramsdens has closed all of its stores with immediate effect. To some degree I find this a surprise given that pawnbrokers provide essential financial liquidity to some of the hardest hit members of society. Either way the company is closed and will have to rely on the ~£10m in cash that they have along with an undrawn £10m revolving credit facility. As expected the directors are exploring other support measures put in place by the UK Government. My expectation is that the business will survive the crisis well enough, since they're hardly holding any perishable stock, but that this year will be a write-off. It seems that analysts agree with 2021 forecasts being slashed by 70% from 21.1p to just 6.3p. Nothing will change until the stores re-open but it will be interesting to see how quickly trade picks up from that point. (Update)


Definitely a game of two halves this one. In this update for H1 we learn that trading was in-line with expectations despite some of the larger events in March being deferred (but not cancelled at this juncture). As might be expected digital revenues have remained robust while trading through travel outlets has plummeted. Remarkably this is being partially offset by increased sales through normal outlets and the board believe that they're still tracking previous expectations. At the same time they are pressing ahead with the TI Media acquisition announced last year with the final CMA hurdles being cleared (which involves selling WorldSoccer, Amateur Photographer and the website I can't say whether it's prudent to be spending £140m at this point but the purchase does add a complementary set of brands to the group and is (or was) expected to be materially earnings enhancing in the first year of ownership. The group did also raise just over £100m at 1275p to fund the purchase back in October (great timing in retrospect) so I can see why it's still full-steam ahead. Generally speaking then Future appear to be doing well at the current time and we'll learn more with the interim results in May. (Update)

Medica Group

As a company wholly dependent on the NHS for revenue it's no shock to learn that the Coronavirus pandemic is having a massive impact on Medica. The problem is that they rely on a steady stream of emergency and routine scans from hospitals and, broadly speaking, these have dried up as the NHS has moved onto a war footing. On the upside their entire business model involves radiologists working from home and thus they provide exactly the sort of technology required as people isolate themselves. Thus it's both welcome and prudent for Medica to offer a pro bono 'pass through' service to enable radiologists to report from home. This helps to minimise disruption for hospitals and equally demonstrates how robust and reliable their tele-radiology service can be. Fortunately this has always been a very cash-generative business and net cash currently stands at ~£4.6m. Looking forwards Medica is also partnering with, a global leader in artificial intelligence solutions for radiology, to develop decision support and workflow improvement tools. This is a welcome step forward as I believe that scan analysis in the future will depend on a hybrid of human and automated input. Hence Medica needs to align itself with this change in practice if it is to avoid obsolescence. (Update)

Spectra Systems

As a self-proclaimed "leading provider of advanced technology solutions for banknote and product authentication and gaming security" this company is something of an outlier in my portfolio. The reason behind this is that its sales involve lengthy contracts (5-10 years typically) signed with nation-level organisations (such as central banks) which exploit its unique IP. As a result winning these contracts is difficult but once the ink is dry you're looking at annuity-like revenue. Fortunately sales momentum has been growing over the past 3 years and with these results we have a number of 5-year contract extensions, execution of a 10-year contract and the introduction of their TruBrand product authentication machines into the Chinese tobacco market. So while Spectra Systems isn't immune to the impact Covid-19 (principally through a delay in production trials and conference attendance) its bank-note business provides a huge level of stability - enough for the board to say that they'll exceed market expectations for 2020. Looking forward the company has a mix of short-term (2020-22) and long-term (2023-25) opportunities that could be transformational for earnings. I'm sure that not all of these prospects will pan out but with so many irons in the fire I'm pretty positive about this holding and have recently doubled my position. (Results)


I have a sense that GAN will prove to be an exciting share to own over the rest of the year. This may come as something of a relief for long-term holders after a six-year period where the share price fell almost 90% from its admission price of 135p and barely scrapes in above this level even now. The reason for optimism, after so many losing years, is that internet sports betting is being progressively legalised across the United States and GAN have a significant foot-hold in this growing market. As a result they will make an actual profit for 2019, of ~£1.5m, with strong cash generation leaving the company ~£8m in the bank after so much cash-burn. More significantly profits are forecast to triple in 2020, as current clients mature, with this putting the business on a P/E of 25-35. This doesn't seem excessive and there's good reason to think that these forecasts will be hit, despite the pandemic shuttering sports events, as many gamblers are simply switching into other forms of internet and simulated gaming. In addition, as an online gaming company, GAN has moved seamlessly to the WFH paradigm with no interruption of technical development or support. Finally the board are pressing ahead with moving to a US Nasdaq listing in the near future and it's likely US investors will take full advantage of the growth story. I see plenty here to be optimistic about which is why GAN is my second largest holding. (Update)

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

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