May 2021 Portfolio Update

One of the truisms in investing is that you should sell in May and go away (if you want to avoid the summer doldrums). I certainly felt like this was good advice with high market volatility pushing my portfolio all over the place. If it wasn't inflation fears crushing my more highly rated holdings then ongoing lockdown uncertainty along with a rotation to value was on hand to molest the rest of my positions. In other words May was a rough month with many of my larger exposures falling materially. As a result I ended the month down by -2.7% with a YTD return trimmed back to 13.2%. It's hardly the end of the world but still a bit annoying.

Luckily I was kept usefully distracted by the constant flow of updates along with two appearances on Mello Monday. The first of these covered Staffline as a charity pledge with my argument being that these would be a great recovery play once their finances were in order. At the time I didn't realise just how imminent the fundraising was going to be but with that in the bag I'm positive about the prospects going forward. A little later in the month I talked about Calnex right before they released their results. Here I had a bit more time and I tried to convey how Calnex occupies a slim but profitable niche with exposure to long-term growth drivers. Sadly the near-term outlook is a touch subdued, compared to a bumper pandemic year, but I can see Calnex doing very well in the longer term if it sticks to its core strengths.

Actually while I'm on the topic of presentations the next virtual StockSlam will be taking place on June 23rd. It will be our last event before the summer break and you can register here. If you have never attended before it's a totally free event that I host with piworld and Stockopedia and it's a great way to pick up some new investing ideas.

Glancing at how my holdings moved around in the month it's clear that volatility was high with Sanderson Group up 36% and Staffline down 27%. The former is another recovery play that's gaining real traction with investors while the latter is just a reflection of the placing discount (which was definitely higher than I'd have liked). Elsewhere my gaming related shares (BOTB, GMR, GAN) took a bit of a dive on various concerns around regulation and over-excitement in the sector but I'm comfortable with my exposure given how it's deregulation that is driving growth in the US. On a positive note UPGS has re-rated nicely as growth continues unabated while Cerillion has risen sharply as investors appreciate its step-change in prospects on the back of some large contract wins.

Risers: SDG 36%, UPGS 33%, CER 23%, K3C 15%, BLV 14%, DX. 13%, CLG 11%, GAW 10%, GAMA 10%, SUMO 8%, LUCE 7%, CMCL 7%, SLP 6%, FXPO 2%

Fallers: TND -3%, G4M -4%, SCT -4%, BOO -6%, AFX -6%, KNOS -7%, RWS -7%, CLX -7%, GAN -9%, SPSY -10%, BUR -11%, FNX -12%, TM17 -13%, GMR -19%, BOTB -23%, STAF -27%


Softcat Bought at 1872p

The last update for Softcat came with its half-year results at the end of March. These revealed that the FY results would be significantly ahead of previous expectations. A fantastic update and I almost increased my position on the day but hesitated at the last minute in the hope that the price would fall back intra-day. That didn't happen of course and the share price ended 15% up by the end of the day. Stung by my failure to act I didn't take advantage of the following few days of consolidation either. Anyway the price hit almost £20 a few weeks ago and seems to have found support around 1900p. With analysts raising their forecasts by 10% in the last month I still want to add to my holding, despite the price rise, and have done so at the support level.

Central Asia Metals Bought at 284p

If you don't know that we're about to enter a commodity supercycle then you've done well to ignore the increasing pitch of the jungle drums. I certainly don't claim to have any insight to whether the predictions will come to pass but the arguments for ever-rising demand for copper make sense to me. So while I'm wary of becoming too exposed to the commodity sector, as I've suffered here in the past, it seems sensible to add a copper producer to my existing positions. At the moment I have exposure via Ferrexpo (iron ore), Sylvania Platinum (precious metals) and Caledonia Mining (gold) so CAML fits the bill in that it produces copper, zinc and lead in a fairly low risk manner. The share price has been very strong over the last six months but has had difficulty breaking through resistance at 285p. I think that it's just a matter of time with volume on up days being consistently higher than volume on down-days.

Menzies (John) Bought at 330p

I decided to pick up a few shares in Menzies on the back of its recent fundraise. The thesis here is trading so far this year has been encouraging with profitability now ahead of previous management expectations. This is no easy task with passenger flight volumes still materially reduced from 2019 but the management team have successfully reduced costs to make MNZS a much more efficient operation. At the same time new contract wins continue to arrive in the cargo handling space. This makes Menzies a clear recovery play, as the share price is still just half of where it was four years ago, and you can see why Small Company Share Watch is very positive on future prospects. Fortunately it's not just the tip-sheet recommendation that attracts me to Menzies; the directors put over £4m of their own money into the recent placing which tells me that they are very confident in the direction of travel. In this case I'm happy to follow the money.

Calnex Solutions Bought at 115p

As mentioned above I presented on Calnex at Mello Monday and perhaps over-convinced myself of the company's virtues. That is always a risk when you deep-dive into the background of any enterprise and expose yourself to the story being told by any board. It was in this frame of mind that I parsed the excellent post-IPO results and formed an opinion on the outlook statement - which was that much of the caution was around timing as opposed to any issues with customer demand. Hence I decided to top-up my starter position. In retrospect I was a touch hasty, as other investors have proven to be less sanguine, but I remain confident in the medium-term prospects here. The fact remains that Calnex is a successful specialist which operates in a price-insensitive niche that demands gold standard testing equipment. The board will have to try quite hard to mess up this opportunity and their steady track-record over the last fifteen years suggests that this is unlikely.


Plus500 Sold at 1500p - 38.0% gain

I've disposed of my remaining position in Plus500 as it's one of my few holdings that I'm happy to reduce at the current time. It's possible that Plus500 may surprise us all but it can never be a long-term holding for me due to the ever-present regulatory risks. It's a shame, as the dividend payments are extraordinary, but I'm happy to invest the proceeds of this sale elsewhere.

B&M European Sold at 576p - 1.5% gain

I decided to liquidate my small position in BME because I wasn't convinced enough in the company to add to my holding and felt that the funds could be used elsewhere. For once my timing was good since recently the company announced bumper results for the year and indicated that this performance was unlikely to be repeated. This is a common theme with those companies that profited during the lockdown and it's not too surprising to see buoyant share prices become becalmed as a consequence.


Boohoo Group

Investors seem pretty disappointed with these FY results as the share price has slipped lower to support at 315p. This seems perverse to me given that Boohoo is a £4bn business growing at 40% year-on-year with barely any year in the last five reporting growth of less than 30%. Despite this the shares trade on a forward P/E of ~30 which is simply incorrect, given forecast growth in FY22 and FY23, and materially below the rating given to the business historically. I can understand that some investors have ethical concerns but the board are putting huge amounts of time and energy into fixing labour concerns, improving sustainability and raising corporate governance standards. In time I believe that this effort will leave competitors scrambling to catch up. Despite this investment 41% sales growth last year still led to PBT rising by 35% as margin levels were maintained. The standout territory driving this performance was the USA with sales up 65% to £435m making this the most exciting market for Boohoo outside the UK (which itself grew 39% with new brands adding to organic growth). This is really something and I can see the many newly acquired brands adding significantly to growth in the coming years as Boohoo expands its target customer range. There remain reputational risks to the business but I don't see competitors making much headway against the juggernaut that is Boohoo as it sweeps up brands and applies its test and repeat model across the board. If the price weakens further I'll be looking to add to my position. (Results)

Caledonia Mining Corporation

A steady first quarter for Caledonia in Zimbabwe. On one hand issues with flooding and lower grade ore led to a fall in production to 13,197 ounces compared to 14,233 ounces in 2020. Both of these issues have now been resolved and April production bounced back to 5,470 ounces with May also strong so far. As a result management retain their 2021 guidance of 61,000 - 67,000 ounces. On the upside the realised gold price improved, which offset the 7.3% drop in gold mined to some degree, but not enough to prevent a 10% drop in earnings as fixed costs rose. All of this is to be expected with a working mine though and management have shown high operational ability in the past which allows me to trust their guidance. Looking forwards the Central Shaft is soon to be connected to producing areas, exploration activities are taking place at a measured pace elsewhere and the solar project is expected to be operational within 12 months. So progress is being made in all of the ways that management have previously highlighted. (Update)

DX Group

Sometimes it's nice to wake up to an excellent trading update and this is one of those days. In short the board anticipates that DX will significantly exceed existing market expectations for adjusted profit before tax for the year. The driving force here is sales growth in DX Freight with this likely to be £10m more than anticipated. It's hard to believe that this division used to be the problem child but management always believed that they could turn the business around. Full marks deserved. At the same time DX Express is trading in-line and hopefully self-help actions taken here will provide a boost during the year. On the back of improved confidence the board are accelerating their depot expansion plans and who can blame them. It's easy to see why directors have been such heavy buyers of shares with this magnitude of turnaround success. (Update)

Best of the Best

On the very same day BOTB came out with an in-line update and investors totally lost their shit. Forgetting that earnings growth will be over 200% for the year these people rushed for the exit en masse to the extent that the share price dropped somewhere around 15% at its worst. I can only shake my head in wonder at this mass panic. Anyway the FY results will be out in a month and we'll learn more then. Personally I think that management remain cautious but optimistic due to the amount of skin that they have in the game. They're not about to act rashly in the pursuit of higher growth but neither are they sitting back and counting their millions. That sort of attitude works for me. (Update)


With four months of H1 in the bag things are looking good for Luceco. Strong momentum has continued into the year with robust demand more than off-setting higher raw material and freight costs. As a result the half-year should see revenues of around £105m with adjusted operating profit of approximately £18m. This is double the operating profit of H1 2020 (which improved on 2019) on much lower revenue growth which highlights the continuing improvement in margins. This, along with sales growth in both retail and commercial segments, has been the big driver behind rapidly increasing earnings since 2018. There's nothing to suggest that Luceco's vertically integrated manufacturing model won't continue to deliver through the rest of the year and beyond from this update. With a forecast P/E of ~19 these shares are looking modestly valued for the growth on offer. (Update)


Remarkably Cerillion shares have doubled in price in just two months which suggests that investor sentiment has turned highly positive. This is with good reason as these interim results indicate. In H1 new orders grew 148% to the record level of £23.6m with the largest ever contract win, for $18.4m, signed in the period. At the same time adjusted earnings grew over 100% to 11.5p on sales growth of 26%. This suggests a high level of operational gearing which is what you'd expect for a software solutions provider. Current forecasts are for 18p of earnings in the full-year, with this rising to 24p in 2022, which feels a touch light. The reason for this is that the house broker is being very cautious with its forecasts, assuming that the pipeline doesn't convert, while an independent broker is much more bullish about future prospects. The average of these two positions is the estimate shown on Stockopedia and SharePad. Clearly I also see the future as bright for Cerillion with the 5G transition stimulating capex spending and upgrading from telecoms customers. In my view this, and a growing reputation, is driving growth in both deal size and volume with a major channel partner providing further growth options. The nice thing about Cerillion is that once a customer is on the platform then they tend to be sticky because changing your CRM and billing provider is a big deal - which partly explains why annualised recurring revenue grew 43% in H1. All in all there has been a step-change in prospects for Cerillion and I would like to add on any weakness. (Results)

Sanderson Design Group

In an ordinary year a fall of 14-15% in revenue and earnings wouldn't extend the positive re-rating of a share but then again 2020 was no ordinary year. The key to this divergence is the split in H1:H2 performance. In the first half sales fell over 30% with the business barely being break-even despite taking £3.2m of furlough grants. It was a rough six months for a new board trying to implement a strategy of cost-cutting and rationalisation. Fortunately trading in the Autumn period was stronger than expected and this strength continued across the Christmas period. This performance must, to some degree, be due to locked-down home-owners splashing out on decorative upgrades but equally the board have worked hard to tidy up the Sanderson brands and make the products more accessible. Much of this change has been digital, with the launch of new websites and design books, but efforts have been made to sign up partners and put in place licensing agreements. This seems eminently sensible given that Sanderson rely on other people to specify and sell their high-end products. This is just one element of the new strategy though with other elements focusing on core products (wallpaper, fabric and paint) and core geographies (UK, Northern Europe and the US). In many ways it's this stripping back the business to its essential strengths that really excites me about Sanderson. It has a unique back-catalogue just waiting to be exploited but the business was previously mis-managed with sales and profits taken for granted. Now that a new team is in place I think that we're on the cusp of a real transformation in fortunes. (Results)

Games Workshop

After a number of positive trading statements this update further refines what will be an excellent year for the company. At the very least sales will be up 30% leading to PBT growth of 68% or more at a profit margin of 43%. These are astounding figures and it's worth taking a moment to appreciate them. In this light I have no problem at all with £12m of profit-share bonuses being shared with all staff. In a difficult year they have really delivered. It's amusing (if that's the right word) to note that analysts are forecasting single-digit growth in both 2022 and 2023. It's possible that growth will subside massively but with the volume of releases and licensing deals taking place at the moment I will be incredibly surprised if these estimates aren't raised multiple times in the next twelve months. (Update)

Gamma Communications

Here we have one of my favourite companies with its solid 5-year track-record of 20%+ profit growth in each of those years. It seems that this achievement will continue into 2021 with this update indicating that revenue and profits will be at the higher end of the range of market forecasts. Usefully these ranges are included and amount to revenue £442.4m - £461.3m and adjusted EPS 54.9p - 63.1p. Right now the analysts covering Gamma have not re-visited their spreadsheets and the forecast average EPS still remains at 59p when we now know that it will be circa 61-63p. The story behind this is that growth has continued into Q1 with key products being launched into the core UK market. These broaden the scope of the UCaaS and CCaaS solutions available to customers and should lead to increased sales per customer. Along similar lines Gamma acquired Mission Labs in March to bring in their contact centre and digital channel products that are a good fit to the existing product line. It all looks pretty good and hopefully I'll learn more from the Capital Markets event in June. (Update)

Kainos Group

I have to say that the year ending 31st March 2021 was little other than spectacular for Kainos. Sales increased 31%, which was good and mostly organic, while bottom-line profits jumped a remarkable 120% with or without adjustments. This is no accounting fiction either as cash jumped 98% to £80.9m due to a 112% cash conversion rate. This outcome was largely a result of Kainos supporting digital transformation programmes across the public, healthcare and commercial sectors. Unsurprisingly demand was high for these services. Equally the Workday Practice division grew just as strongly which implies that the business is no one-trick pony. In fact it's well diversified across clients and geographies which takes away concentration risk. Looking forward the directors intend to continue on the same growth path and that makes sense to me; Kainos really delivered benefits to customers last year and I expect these happy customers to come back for more. That said certain costs, such as those around travel, will come back and analysts are clearly cautious with just 15% EPS growth in place for 2022. On the other hand this 2022 estimate has doubled in the last 12 months, from 18.1p to 36.9p, so the trajectory suggests that further upgrades are plausible. With a forward P/E of ~38, which is hardly cheap, this profit progression does need to be maintained but I have at least one good reason for remaining confident. This is that the Kainos board prefer organic growth and are spending time and money developing internally generated ideas. Given that staff, who work closely with customers, are in the right place to identify key problems this feels like an excellent initiative. (Results)

Calnex Solutions

After an excellent start to life as a publicly listed company Calnex have rather disappointed investors with this announcement. It's not that the results are poor; far from it. On a sales increase of 31% adjusted PBT is up a hefty 43% to just over £5m. At the same time cash is up from £3.6m to £12.7m including £4.9m net proceeds from the IPO. The company is financially strong and has been performing well so what's the problem? Well it's all about the dour Scottish outlook. Right now the board are saying that FY22 will be consistent with FY21 when taking into account last year's travel cost savings and the fact that £0.8-1.1m of sales were pulled into FY21 at the expense of FY22. Since travel costs will bounce back as soon as they can, because Calnex want to get themselves in front of clients, and those early sales have been sucked from FY22 then there's already a £1m PBT headwind to be faced in the new year. Hence analyst forecasts are pointing to a 32% drop in earnings this year down to a PBT of £4.4m which is not unreasonable given other moving parts such as reduced finance costs and increased staffing costs. On the latter point Calnex have been recruiting heavily to expand their R&D and Business Development functions. The benefits of this investment will be seen, but not immediately, as it takes a good 6-12 months to develop a new product. The upside is that new products are very much designed to meet pressing, ubiquitous customer needs and so should find a ready market for sales. It is this, and the fact that Calnex continues to benefit from sustained trends in the telecoms sector, that leads me to conclude that this negative sentiment will wash through as the year progresses. There's nothing in these results to suggest that Calnex technology is in anything less than high demand and that the testing market is deflating. Hence current price weakness offers up an opportunity for the medium-term investor. (Results)


A welcome Q3 update from this leading UK provider of IT infrastructure technology and services. Due to year-on-year double-digit growth at both the top and bottom line it seems that FY results will be ahead of expectations. That's great news, of course, but management do moderate expectations for FY22 as certain circumstances have boosted profits in the current year. One effect, as mentioned elsewhere, is that cost savings related to Covid-19 will reverse as travel and events become possible. In addition H1 contained a number of large, one-off deals which will largely not recur. Other deals may be won, of course, but still FY21 has benefitted in a unique way. In total these factors are adding around £12m of EBIT which is about 10% of the forecast for £116m of EBIT in FY21. At the moment the board expect FY22 to be broadly in-line with this figure which means that growth next year looks flat compared to a 23% increase in profits this year. Optically this is disappointing but logically I'd rather have profits now, rather than later, so long as the business is performing well. (Update)

Alpha FX

After a difficult 2020, which still improved on 2019, it's great to hear that 2021 is shaping up to be even better. All aspects of the business are trading strongly with all divisions and geographies reporting growth. As a result the board believe that they are on track to exceed current expectations for the full year. The next update will be in mid-July but I like the way that things are going at Alpha FX. (Update)

Belvoir Group

Here is a business going from strength to strength with several years of double-digit growth and yet the forecast P/E is less than 12. Hard to believe given that the first 4 months of the year have been exceptionally strong and materially ahead of management's expectations. On the back of this statement the one broker has upped their FY21 forecast to 20.6p which is a jump of 42% from 14.5p. Wow. The Group's key underlying income stream is its Management Service Fees and in total this is up 22% (12% from lettings and 81% from sales). The financial services division is also going well with net income up 24% as the adviser network has expanded. No doubt the property market will cool down when the Stamp Duty holiday reduces in June, and ends in September, but you've got to admit that Belvoir are making hay while the sun shines. Hence FY22 won't be as incredibly strong as this year but the shares are hardly on a growth-stock valuation even at current levels; at worst they are fairly valued at the current share price. Great company though. (Update)

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

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