May 2020 Portfolio Update

While this was a fairly quiet month for corporate news it was anything but dull for investors. Despite further stock-market volatility the relentless bounce-back continued as lock-down restrictions eased. This is excellent news, both personally and financially, but I have been taken aback by the speed with which shares in general have recovered since March. There's no doubt that businesses are re-opening, and that global trade is recovering, but it's like the shut-down never happened. In reality many companies have lost a full quarter of sales while still covering a reduced cost base. This can only lead to less cash, more debt and a heightened sense of fragility. I understand the argument that things are different this time and that an economy frozen by legislation can be thawed in the same way. It's also true that massive government support has actually put money into people's pockets and kept them off the street. So there's probably a lot of pent-up demand out there which will drive a mini-boom in sales as we exit the lock-down. I really hope that this is the case and that we avoid a prolonged recession.

The problem with this rosy scenario is that the world has changed in other ways. The vast hordes of office workers who once roamed the transit system, and bought skinny lattes by the tap of a card, are not going to return in their previous numbers. Mass daily migration is a thing of the past and all of the businesses dependent on this ecosystem are going to suffer. It will take time for the impact of this to appear in financial statements but I suspect that companies will close previously marginal operations and face squeezed margins in the short-term. As the months pass we will return to a new normality and learn to live with the threat of Covid-19 (as we do with so many other diseases) but it will take time. If we're lucky a decent vaccine will emerge, that provides extended immunity, but even this won't provide overnight salvation. In some ways this feels like the polio epidemics that ravaged the world up until vaccines emerged 60-70 years ago. Until then people lived in fear of this deadly virus but they still lived. This pandemic has bought fear back into people's lives, which has been a rude shock, but we'll learn to live with this fear.

Anyway I've been pretty active this month in looking for companies benefiting from the current situation while dumping those that, in my opinion, face more risks than opportunities. As a result of this lively trading there have been marked changes in both my largest (Games Workshop) and smallest (Avation) portfolio holdings. In cutting a number of under-water positions I now have more than a quarter of my portfolio in cash (as compared to normally being 90% invested). My feeling is that stock markets will begin to struggle as we move into the summer months and the gulf between winning and losing companies becomes more evident. In addition there are other risks stacked up in the second half of 2020 (US elections, Brexit and Chinese relations to name just three) which are likely to generate volatility. So my strategy remains largely unchanged in that I'm looking to buy companies announcing better than expected results, to keep buying them as this trend continues and to hold intact any large positions as they benefit from this newsflow. I think that I've cut all of my holdings that I'm likely to cut, unless one comes out with a spectacular profit warning, since I have more than enough cash at hand. The trick will be to avoid FOMO and to re-invest my cash buffer in a fairly measured manner over the next six months. A useful problem to have.

As for May my portfolio was up 17.6% for the month and is now up 8.2% for the year. Quite remarkable and I suppose that these market conditions really reward the active stock picker. Back in 2007-08 I was much less proactive and pretty much stuck with the same shares through the fall and back up the other side. Psychologically this was rather painful and not much of a strategy when you're putting in the effort to make your own investments. I could have done just as badly with a FTSE tracker. Still I must have learned something as it's my recent positions, Avacta and GAN, that have driven returns this month. The former is all about the potential of making Covid-19 tests available to the public while the latter has recently moved over to NASDAQ and US investors are showing a healthy appetite for internet-gaming stocks. A really remarkable appetite in fact but then GAN is very well placed as the gaming market opens up in various states. On the downside the falls are all unremarkable although it's clear that Burford remains unloved. As a share that really, truly has earnings uncorrelated to economic activity it's a bit perverse that investors remain unconvinced by Burford's charms but that's what makes a market. I believe that Burford will once again have its moment in the sun and am prepared to wait it out!

Here are the numbers for completeness:

Risers: AVCT 105%, GAN 83%, RWS 21%, FDM 20%, SLP 15%, LIO 14%, JDG 13%, CCC 12%, IGR 10%, AFX 7%, PLUS 6%, SPSY 5%, III 5%, VLX 5%, SCT 1%, SDI 1%

Fallers: TM17 -2%, DRV -2%, HAT -2%, CRW -3%, MGP -4%, GAMA -8%, BUR -11%


Team17 Bought at 560p - May 20

After a slow start to life on the stock market Team17 has blazed away this year with the share price up 66% YTD at one point. There's an aspect of investors playing catch-up as management have proved themselves with a business that is robust in a locked-down world. At the end of April their biggest investor (after Debbie Bestwick), LDC Limited, placed over 5% of the company at a moderately discounted 575p. The fact that the market was happy to soak up these shares suggests to me that investor appetite remains strong despite the recent re-rating. That said analyst forecasts for both 2020 and 2021 have risen almost 40% over the past year so the re-rating isn't as abrupt or unfounded as it might seem on first glance. On this basis I put in an order to top-up at any level below the placing price and this was rapidly filled as investor nervousness took the price down to 510p. In retrospect I would have done well to have waited but sadly I'm not that good at predicting the future.

Avacta Bought at 109p - May 20

I first bought into Avacta just last month as a play on its ability to facilitate a rapid Covid-19 test for home use. Since then the news has been relentlessly positive with each pull-back in share price being rapidly filled creating a sequence of higher lows. This is pretty remarkable given that the share price was just 14p two months ago but clearly investors aren't looking to cash out just yet. Faced with such momentum but little liquidity I figured that leaving a buy order with my broker (up to 110p) was the way to go. Fortunately they were successful as just a day or two later Avacta announced that some of their affirmers actually neutralise the Covid-19 virus and might work therapeutically. I have no idea how viable such a therapy might be but the company is looking for a partner on this front and really anything could happen.

Computacenter Bought at 1482p - May 20

As mentioned below it's clear that Computacenter is in a prime position to benefit as private/public organisations handle the transition to an online, digital world. It's curious then that analysts have dropped their 2020 forecast by 7% (92.38p to 85.82p) in the last month. They probably weren't expecting management to put out a statement indicating that trading is currently substantially ahead of last year. Perhaps they'll take another look at their spreadsheet now? Either way I see this update as the catalyst that will take Computacenter out if its recent trading range at 1400-1500p. Hence I was happy to put in a limit order up to 1500p this morning in order to double my holding here.

AJ Bell Bought at 386p - May 20

In many ways this is the share which got away in that I was eligible to buy into it at IPO and failed to do so. I was pretty busy at the time but nevertheless a costly oversight. My current purchase isn't a case of (almost) buyer's remorse though. Instead I see this as taking advantage of a market over-reaction to invest in a business that's largely immune to the impact of Covid-19. The market movement has come about through the company's largest shareholder (Invesco) placing almost their entire position at 400p. That's quite a change and the discount required to shift this volume was pretty high at just over 10%. However for the share price to drop 17% in early trading, and finish 15% down, feels too pessimistic to me. The reason I say this is that AJB published their interim results, to 31st March, on the same day and they are notably strong with PBT up 28% on a 22% sales increase (which points to solid margin improvement). Driving this seems to have been a record 30K rise in customer numbers bringing in a £2.5bn flow of funds. It's a terrific trading performance and quite at odds with the analyst forecasts falling 12% over the same period. Clearly recent market volatility has lifted customer activity and AJ Bell is in a position to benefit from this activity now and in the future. Hence I expect to see the FY forecasts starting to rise as analysts factor in this business resilience.


Avation Sold at 119p - May 20 - 55.6% loss
Future Sold at 917p - May 20 - 36.0% loss
Hollywood Bowl Sold at 1451p - May 20 - 35.0% loss
Ramsdens Holdings Sold at 152p - May 20 - 32.3% loss
Greggs Sold at 1509p - May 20 - 30.1% loss

Since the dramatic market collapse in March I've watched, with some fascination, as the market has handily rebounded from its low point. This remarkable strength has certainly recovered some my paper losses but I do wonder whether investors should be so optimistic. Clearly people are happy that restrictions are being eased, on a global basis, which will act to restart economies. I'm sure that there's a level of pent up demand around as well which will benefit businesses that are able to re-open. However even with a boost it will be impossible to recover losses from the past few months and generally speaking company results for 2020 are going to be dire. Inevitably trading in 2021 will be much stronger but I have a feeling that customer-facing businesses are going to bounce back much more slowly - particularly if they are dependent on crowding people into indoor spaces or need passing commuter trade to return to previous levels. Right now I believe that the public will remain wary of becoming infected and that investors will start to recognise this over the summer. This will weigh on businesses such as the firms that I've culled here. None of these are going to fall into insolvency, I hope, but regaining previous profit levels will be very tough indeed. In that light I foresee share prices remaining under pressure for quite some time to come. As a result I've taken the decision to protect my remaining capital with an eye to re-investing it during the summer lull.

Pphe Hotel Sold at 1230p - May 20 - 103.2% gain

I held Pphe for almost 5 years and for the vast majority of that time they were a terrific investment and one of my larger holdings. Things changed in late February though, well before the lock-down, when it became obvious that the Wuhan epidemic had changed into a global pandemic. As investors became struck by the realisation that the hotel sector was about to take a pasting I had my finger on the sell button and hesitated. Liquidity on the buy side was poor and I couldn't quite believe the price being offered by market-makers. It was a costly mistake and I should have stuck to my sell decision. Anyway I avoided getting caught up in the March market collapse but a few months later I still don't see prospects for PPH being great in the short to medium-term. I'm sure that their hotels will re-open but they need high occupancy and solid room rates to be profitable and frankly there's going to be intense competition for those few tourists who do wish to travel (while the business travel market may never recover to previous levels). Some respite will come from their glamping operations in Croatia, and I know from experience that the management team are extremely able operators, but they are facing tough headwinds. So this time I'm biting the bullet and banking the gain that remains.

Games Workshop Sold at 7202p - May 20 - 231.6% gain

This sale may raise a few eyebrows as I've been a consistent purchaser of these shares over the last three years. In simple terms this has been my best ever trade both in terms of holding size and return over that period. The flip-side of this progress is that Games Workshop grew to almost 20% of my entire portfolio. This is great on the way up but painful on the way down. Which isn't to say that the business is about to falter although they will have some difficulty re-opening their one-man shops. The problem here is that their shops run live promotional events which involve a number of players clustered around a table at close quarters. The antithesis of social distancing. No, the shops will be open again soon I'm sure. Instead I think that the share price has got way ahead of itself in running up to, and way past, its previous ATH of £73.50. Right now the price is heading towards £80 which puts the shares on a P/E rating of over 40x compared to earnings growth of ~10%. A few years ago, when growth hit triple-digits, this heady rating made sense because the company kept beating expectations but that's no longer the case. Perhaps this step-up in performance will happen again, as a result of signing further licensing agreements since these are almost pure profit, but I can't help feeling that investors are being blinded by their desire to acquire quality companies. So, with the sale of Games Workshop, I have further reduced my exposure to retail related enterprises.


Avacta Group

It's fair to say that these results, for the period up to 31st December 2019, really aren't where the action is with Avacta. At this point in time Covid-19 may or may not have been present in Wuhan but everyone was oblivious to the events about to unfold. Back then Avacta was actively pursuing developments in the biotherapeutics and research reagent space and these areas remain exciting. In fact the use of affirmers as part of a chemotherapy platform sounds potentially transformational - but not in the short-term. Instead it's the use of affirmers within diagnostic reagents that is most likely to deliver near-term sales growth and yet, up till now, this has mostly involved evaluations and projects rather than commercial licensing deals. What's really put a rocket under the shares is the creation of multiple Covid-19 specific affirmers and a partnership that aims to embed these within rapid lateral flow tests. If this technology works then it could both funnel cash into the company and demonstrate convincingly that affirmer technology has significant, real world benefits. There is a downside to the pandemic in that some clinical trials are likely to be delayed, and the Animal Health business has slowed down as vets remain closed, but this is all out-weighed by the potential upside. Of course the home-use testing effort may come to nothing but therein lies the opportunity with these shares. Exciting times! (Results)

3i Group

The board label 3i's performance as "resilient" and I'm inclined to agree with NAV coming in at 804p versus 815p in 2019. This leaves the shares trading at around par with NAV, after hitting an almost 50% premium, which seems reasonable given the group's exposure to the travel, retail and automotive sectors. Off-setting this their medical technology, personal care products, e-commerce and other speciality manufacturers are doing very well (as opposed to 2008 when every sector was suffering). Significantly Action, the discount retailer, was disrupted when it was forced to close most stores but is now bouncing back strongly with the lifting of these restrictions. With this being the group's largest holding this company has a disproportionate impact on the asset value (in both directions). Beyond this the 3i Infrastructure Fund is another large position and at it's worst point in March is was down over 50% - although much of this loss has now been recovered. This is all very positive and the company have assessed all of their portfolio companies with regard to Covid-19. At this stage they have modelled a range of scenarios and are in a position to provide financial support as required. This is exactly the type of proactive management action that I expect to see from 3i and in the medium term I'm sure that, broadly speaking, the portfolio will recover. In addition 3i are paying an unchanged FY dividend and that's a marker of some confidence. If, for some reason, the share falls to a 10-20% discount to NAV I think that I'll be a buyer. (Results)


This is a welcome and unanticipated statement. Previously management had indicated that trading was more robust than expected at the start of the lock-down. Since then business has accelerated and the first-half will be considerably ahead of H1 2019. I had some expectation that Computacenter would benefit from the sudden imposition of remote-working but it seems that they are in a prime position to meet the upswing in demand. No guidance is given for H2, and customers might decide to cut back on capex, but I don't see essential technology solutions as being first in line for the chop. (Update)

Sylvania Platinum

The Covid-19 pandemic has hit South Africa with some force and operations at Sylvania Platinum were shuttered in late March. Fortunately restrictions around mining operations have eased somewhat and Sylvania were able to re-start their sites from the start of May. At this point all of their operations are running at a stable if reduced capacity. No guidance is given on the impact to Q4 profits but I expect the company to remain in decent shape given their high cash balance and cash generative nature. (Update)

Medica Group

As we already know Medica has been hit hard by the lock-down even though it's providing a remote medical service. Demand for Routine reporting has fallen through the floor at over 95% down from pre-pandemic levels. The fact is that routine medical care is being delayed irrespective of the human cost. More positively the urgent Nighthawk service has seen activity pick up and it's back to around 2/3 of its normal volume. This is very encouraging, since margins here are much higher, and levels are likely to increase as emergency departments return to normal. At the same time the board are using this down time to focus on their new growth strategy and radiologist recruitment continues as before. It's still early days but Medica is starting to look like a company that'll emerge from the crisis in decent shape with undiminished customer demand. (Update)

Judges Scientific

This is a useful AGM update from the board with a few solid figures - the key one being that organic order intake is down 18.5% compared to last year. This is the impact of universities closing, conferences being cancelled and travel being curtailed. It's also a side-effect of Judges being dependent on capital sales rather than recurring revenue from expendable items. Nevertheless the order book stands at 11.9 weeks and some engineering teams are using their time to pursue R&D projects. In addition each of the first 4 months has been profitable with positive operating cash-flow. So the group is stable even with shrinking sales. What no one can tell at the moment is when business will pick up again even though the use of scientific instruments should be relatively robust despite the pandemic. In that light I'll want to see some green shoots before increasing my position here. (Update)


A pretty short update given the economic backdrop. Still trading has been satisfactory up until the end of April which means there was growth in sales and profits. Cash receipts are broadly in line with normal trends which tells me that some customers are having trouble paying in a timely manner. Hopefully these invoices won't turn into bad debts. I was hoping for a bit more excitement from this update but it's fine. Hopefully the company is taking advantage of our change to a world of working from home. (Update)

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

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