October 2020 Portfolio Update

Well that was a month that I'm happy to forget. Many of my larger holdings decided to put in double-digit declines as the market concerned itself with further lockdowns, the US Presidential election and a plausible no-deal Brexit as the can-kicking headed towards the end of the road. With this weakness in mind I made quite a few purchases and dumped some holdings that hadn't made any progress since March. Some of these worked out well with both Volex and Boohoo putting in strong moves upwards. With the latter the auditor difficulty is a distraction but it has little bearing on trading - which I expect to be buoyant. Other purchases, such as Burford and Luceco, were made as their prices appeared to be decisively breaking out but the momentum could not be maintained. Still they're both trading well and should recover the lost ground.

Elsewhere in the portfolio Codemasters finally managed to react to its excellent trading news while Spectra Systems slowly grinds upwards on the back of intermittent but positive updates. Unfortunately all of these gains were offset by heavy losses in GAN, Best of the Best and (oddly) the rental franchise owners Belvoir and The Property Franchise Group. I can understand some heat coming out of gaming companies, as they've enjoyed an excellent year, but I can't see any problems in the rental market. In fact this did very well in the lockdown and the property market as a whole is on a tear. Perhaps some marginal holders got bored and relatively low liquidity led to a large drop in prices? Overall I was down 2.9% for the month with my YTD return slipping back to +9.6%. Good enough given all of the doom and gloom but a touch disappointing.

Risers: VLX 28%, CDM 14%, SPSY 6%, TAM 5%, IGR 3%, LOOP 2%, TSTL 2%, TM17 2%, SONC 2%, SLP 2%, K3C 2%, SDL 1%, SDI 1%, GAMA 1%, BUR 1%, SPR 1%, LIO 1%

Fallers: RWS -1%, FDM -2%, AFX -2%, III -4%, CCC -4%, PLUS -6%, CMCL -6%, SCT -7%, AJB -7%, FRAN -11%, TPFG -11%, MGP -12%, BLV -14%, GAN -15%, BOTB -16%, DRV -21%, BOO -24%


Caledonia Mining Bought at 1390p - October 20

In the last week Caledonia Mining has released excellent updates that have dispelled some concerns that lingered. On one hand the quarterly dividend has been increased and we learned that the Central Shaft is on-track to be completed by the end of Q4 and commissioned by the end of Q1 2021. I had been concerned that travel restrictions in South Africa might cause further delays but it appears that the company have worked around these issues. This is very positive because the fall in capex means that other opportunities can be explored along with a dividend increase. Then the company announced strong production for Q3, up 11.1% year-on-year, along with a rise in guidance for the year. This is an excellent result, given the difficulties of the year, since increased production feeds directly into increased sales and profits. I'm surprised that the shares haven't bounced more strongly but I'm sure that they will given how cheap the company is at the current share price.

Volex Bought at 190p - October 20

I'm impressed at how well Volex has navigated the pandemic and it's clear that Nat Rothschild remains a fan (based on him spending almost £1m buying shares this year). The interim results will be out in November and with the share price breaking out to new highs it seems to me that investors feel pretty positive about the company. It's hard to say if this is misguided given that we've had no news since the end of July. At the time consumer electronics and the data centre business was resilient with electric vehicle demand recovering to pre-crisis levels. I would think that this situation remains unchanged or perhaps somewhat improved. We'll know soon enough and this top-up is driven as much by the charts, with good volume taking out the 52-week high, as it is by the fundamentals.

DX Group Bought at 16.8p - October 20

I've seen the new management at DX present a couple of times now and every time I've come away impressed. These guys know how to run a distribution company and, more importantly, how to turn one around. They've done it before and they are absolutely committed to making DX profitable and sustainable. And let's face it the company needs something special having been floated at 130p in 2014 before rapidly collapsing into five straight years of losses. Fortunately the issues at DX are fixable because many were self-inflicted and down to management trying to centralise operations with no understanding of local business conditions. Anyway new management are in place and they've been continuously buying shares for the last three years with no sales. So they are fully aligned with other shareholders and this year it looks like DX will become profitable again. This is largely down to losses being reduced in the freight division while profits have remained steady in the secure delivery division. There's a clear roadmap in place to return freight to profitability and from there things should really start to motor.

Burford Capital Bought at 750p - October 20

I've held Burford for a good few years and all of the way through the shorting attack of last summer. It's been a bumpy ride and the complexity of the Burford business model hasn't exactly endeared itself to investors despite management's best efforts to provide transparency. With the recent interim results being well received it appears that people are waking up to the fact that Burford is pretty cheap and it really does provide uncorrelated returns. Well mostly. The lockdown in H1 did diminish new business flows, as law firms battened down the hatches, but the litigation is still out there to be picked up. So I expect Burford to do pretty well out of the pandemic in the medium to long term. In the short term I suspect that the share price will receive a boost when the US listing completes shortly. Some holders may choose to simply transfer their holdings to New York but many others will never have invested in Burford and now is their opportunity. In this light, and with the current tailwind, I figure that now is a good time to up my holding by a quarter.

Driver Group Bought at 49p - October 20

This is an archetypal out of favour, value stock that's in the middle of a turnaround with not a lot of growth to excite the masses. That's why the share price hasn't really gone anywhere for the last five years except for brief intervals of excitement. The thing is that much of the hard work involved in rationalising the business has already been done and a new CEO, promoted from within the company, is in place to return the company to growth. At the same time this is a company that should benefit from the lockdown as they consult on disputes in the engineering and construction industries. There are sure to be plenty of these appearing in the coming months. In fact with a trading update due in mid-October we'll soon have a clearer picture of how the business is performing. The only fly in the ointment for me is that the directors have very small holdings and haven't bought any shares despite the weak share price. On the other hand the new Buffettology fund could well be a buyer of Driver Group shares, when it launches, as the company was only dropped as a holding because it was too small to make a difference. In a fund aimed at small and micro-cap shares that wouldn't be a problem. Hence I've picked up a few more shares while the liquidity is available and plan to hold them indefinitely as the business continues to recover.

Boohoo Group Bought at 225p - October 20

I've been picked up bits and pieces of Boohoo ever since that shorting dossier came out in July. The latest catalyst for adding to my position was the news that Boohoo is changing auditor. Under normal circumstances this would be a non-event but the newspapers are saying that none of the big auditors want to bid for the work and it is unusual to switch auditors so soon after the annual results. Anyway this news was poorly received by the market and spooked investors sold the shares down heavily. Fortunately for me my cheeky limit order got filled not long before some of the directors piled in with purchases of their own. A useful short-term trade then with the backdrop that lockdown part two is only going to drive more business online. So I can easily see Boohoo outperforming the already high expectations for 2021 if Christmas isn't a damp squib for everyone.

Luceco Bought at 248p - October 20

This manufacturer and distributor of high quality and innovative lighting and power products has been a real winner this year. The real kicker has been high demand from online/multi-channel customers and DIY markets as people decided to spend money on their homes. I can see this continuing as we make our way through the winter/lockdown season. In addition the professional channel has continued to recover with wiring accessories off-setting lower sales in the LED channel. Remarkable they've done enough to make up all of the lost H1 sales in H2 and expect revenue to at least equal the £172m of 2019. In summary Luceco is trading ahead of previous expectations with adjusted operating profit likely to be £28-30m compared to the previously guided £23m (giving EPS of 13.5-15p). This is an excellent result and when you combine such growth with high quality metrics, falling debt and a moderate P/E of ~17 you're looking at a potential winner. Obviously anyone buying earlier in the year has already profited handsomely but if the price can break out above 260p, the previous all-time high from 2018, then I can see share price momentum continuing up to 300p.


ScS Group Sold at 198p - October 20 - 16.2% gain

This was a pretty short-lived holding but I can explain. I took a position on the back of a strong trading update in September where growth appeared to be exceeding management expectations. Very bullish and the stock moved upwards sharply. However there's an adage which is that sometimes it's better to travel than arrive. Well in this case the FY results at the end of September were received with a shrug and it would have been better to have sold the day before. Personally I thought that the results were as expected and that the next financial year looks decent and may even be outstanding. However the board are cautious and investor appetite for the shares has waned. So I figure that it's better to take an easy profit rather than stick with a retailer during a difficult winter.

Craneware Sold at 1480p - October 20 - 39.0% loss

I bought Craneware a couple of times last year, either side of a hefty profit warning. At the time I viewed Craneware as a high quality company with high recurring revenues and excellent cash generation. These aspects remain true but a combination of self-inflicted issues and the Covid-19 pandemic have left Craneware struggling to regain its previous momentum. At the same time the shares have de-rated as investors have lost confidence in the recovery and elected to cut their losses. Last weekend I reviewed my investment and came to the conclusion that I should hold until the AGM statement due in early November. The reason for this is that the CEO bought £188,000 of shares in mid-August and currently owns 12.7% of company. So he's very aligned with other investors. In the results he also expressed a cautiously optimistic outlook with the US healthcare market returning to some form of normality. However I decided that I wanted to add to my Burford position, before they list on the NYSE in just over a week, and this was the top holding in the firing line. My sale has crystallised a nasty loss but in the context of the portfolio it's of no particular relevance.

H&T Sold at 241p - October 20 - 31.4% loss

I've held and topped up in H&T for a few years now and in that time it has remained a cheap but decent quality share. There have been a few ups and downs during that time but I've always seen management as being decent operators. However back in March/April, when I was dumping any shares which seemed exposed to the pandemic, I decided that H&T would be a beneficiary of the lockdown. My reasoning was that people would still need access to ready money and that the buoyant gold price would boost their profit when disposing of scrap jewellery. However it seems that the furlough scheme gave people sufficient money to survive and the opportunity to save with most spending options closed down. So the share price has been very weak with a recent fall through support at around 250p. Disappointingly there hasn't been much in the way of director buying at these levels although the CEO does own 2.8% of the company. With the next trading update not due until January there doesn't seem much point continuing to hold H&T when the sentiment is so poor - especially with any FX earnings being essentially zero for the foreseeable future. I've cut my losses so that I can put the remaining funds to better use.


Alpha FX

This FX business has enjoyed a difficult lockdown but management have stayed focused on keeping the business going. As a result trading has been able to recover in July, August and now September. In fact growth has been so strong that the board have raised their expectations to estimate that earnings will be at least in-line with 2019. This is a remarkable result and it's no surprise that the shares have responded strongly. If trading continues to recover I think that there's a good chance of earnings actually beating last year's result. Few would have predicted this outcome in March/April. (Update)

Burford Capital

These are some complicated interim results and Burford really doesn't guide analysts on what to expect. But they look positive with realisations and cash generation both rising. In addition the Argentinian YPF case plays no part in this performance and that's a big positive considering the unrealised gains already taken against this matter. Another reassuring fact is that cases did continue to be heard, or negotiated, during the lockdown and realisations continued to occur. So from that perspective Burford is quite counter-cyclical. However new case numbers fell significantly in this period as client firms became disrupted and obtaining litigation finance became less important. Fortunately these potential cases haven't gone away - they've just been deferred to a later date. Looking forwards these cases should mostly turn up for consideration by Burford and there are likely to be a raft of new cases related to the impact of the pandemic on various companies. From a shareholder perspective these results have been the long-awaited trigger for selling pressure to fall away as new investors see the attractions of the business. In addition Burford will complete its US listing this month and I expect that to drive significant demand for the shares from US investors. It could be a good October for Burford. (Results)

FDM Group

With Q3 in the bag the group continues to trade comfortably in-line with expectations. It should be noted that these are pointing to an almost 20% drop in earnings so this isn't a perfect outcome - but it is pretty good for a professional services company that relies on clients being busy. Market conditions are returning to normality and the number of Mounties on the bench is reducing. Throughout the pandemic cash generation has remained strong and the balance sheet is bullet-proof. This has allowed the business to look after its employees and continue training new hires. It might take a little while for FDM to return to full utilisation but I have no concerns about the company getting to this place. (Update)

Codemasters Group

Computer gaming has been very popular during the lockdown and Codemasters have definitely benefited. For H1 sales have more than doubled to £80.5m with adjusted EBITDA also increasing markedly to ~£21m. With higher-margin digital sales now up to 73% of total sales the business is in a great place and looking set to crush the FY estimates (which have sales at just £114m). Cash generation has also been excellent with net cash rising to almost £50m (as compared to ~£100m of new debt a few years ago). With additional releases coming up, along with a new generation of consoles, I expect Codemasters to trade very strongly in the coming months. Expect upgrades from analysts as the momentum continues. (Update)

Liontrust Asset Management

This is a solid update with new inflows of £1.75bn and positive investment performance, since the end of March, taking AUM up to £20.6bn. Shortly this will materially rise to over £26bn with the acquisition of the Architas UK Investment Business at the end of October. Since AUM drives fees for Liontrust, and AUM will have increased 65% once the takeover is complete, it's pretty clear that the analyst forecasts of EPS rising 71% for 2021 are in the right ball-park. With earnings rising to ~64p the forward P/E rating on the shares is just ~20 which is on the low side historically and pretty mean for a business increasing profits at a double-digit rate in most years. Whether this performance will continue is impossible to say but most of the Liontrust funds are ranked in the top quartile and management have steered the company very ably for a number of years. From a technical perspective the share price has been range-bound for the last four months with multiple failed attempts to break out above 1450p. There's decent support at 1200p and this is a key level to watch if the price weakens some more. (Update)


This is an excellent update with trading continuing to improve since the last update at the end of July. As a result revenue and profitability are expected to be above current market expectations for both the HY and FY. We also get some numbers and sales should be at least $200m - which suggests that the FY forecast of $380m needs to be upgraded. The operating profit will also be at least $20m, an increase of 25%, which again is much more than half of the forecast value. Clearly then electric vehicles and consumer electronics are really driving growth here, more than offsetting weakness in the medical sector, and the company have good visibility going forward. It all makes me pretty happy that I doubled my holding recently. (Update)


Really solid results from Tristel here although perhaps to be expected given that they manufacture infection prevention and contamination control products. Still they had to pivot meaningfully during the year from device decontamination to surface disinfectant sales. The latter more than made up for a reduction in the former and it's hard to believe that hospitals are going to do less disinfection for a while. On this point the company has acquired a significant number of hospital disinfection customers and this side of the business is expected to keep growing. In fact these products weren't going to be launched until the end of the year so the pandemic has both accelerated the uptake of these new products and validated the use of them in a hospital environment. At the same time all twelve overseas subsidiaries had record years which lessens the dependence on any single customer and suggests that Tristel products are globally valued. This exposure to foreign markets is important as they are growing more strongly than the UK (32% vs 7%) and this trend is certain to continue. The result of all these moving parts is that sales and profits grew by just over 20% with cash generation remaining strong. Looking forwards analysts have pencilled in sales growth of 9% and EPS growth of 16% but the financial year has just started and there's plenty of scope for Tristel to improve on these figures. That would certainly be a positive as the share is priced for continued success. (Results)

IG Design Group

I've been waiting for this update with some anticipation. Over the course of 2020 IG Design has managed to turn from being one of the stars of my portfolio to becoming a right dog. Unfortunately I didn't see this coming but I probably should have sold along with the CEO back in mid-August. Right now directors basically hold no shares which suggests to me a certain lack of confidence. So what does this half-year update tell us bearing in mind that sales and profits are heavily weighted to the Christmas period? Excluding CSS, the new acquisition, revenues fell 8.3% over the lockdown period. The second quarter showed a strong recovery though which is positive. Cash control was also very strong with new debt down to $23m from $106m in the prior year. Partly this is down to working capital management with both inventory and debtor balances down but I can't blame management for that. Operationally the integration of CSS is going well and all facilities are servicing customer orders. So it's still unclear to me why the share price remains so beaten up when the underlying business is doing pretty well considering its dependence on retail customers. I don't see people cutting back on their wrapping paper and cards this year and they might splash out a bit more if they're stuck at home. Maybe the next update at the end of November will give investors something to cheer about? (Update)

Tatton Asset Management

An in-line update for the HY with revenue up 12.6% and operating profit up 21.9% to just over £5m. Alongside this AUM increased 17.4% to £7.8bn with just over 2/3 of this growth coming from investment returns while the other 1/3 came from net inflows of £328m. Very much business as usual then and there remains an awful lot to like about this company. If the interim results, due in mid-November, are positive about H2 then I expect the share price to make a sixth attempt to break through the 300p level. At some point this level will be breached, if profits continue to grow, and I can see the share price taking a solid leap out of the 200-300p zone. (Update)

RWS Holdings

Another in-line update with sales to be comparable with those for 2019. Adjusted PBT should also be in-line but there's no figure given in this announcement and the figures on Stockopedia and SharePad don't agree. One suggests that profits will be up by 20% and the other suggests that they'll be down by 5%. This variance will be down to a different treatment of adjustments and I'm not going to try and reverse-engineer the figures. Suffice to say that some divisions were busy with Covid-19 related work while others suffered as clients either cut back on translation or delivered new work more slowly. The bigger news is that the merger of RWS with SDL is proceeding and should, barring anything very unexpected, complete relatively soon. Generally I'm wary of big corporate actions like this but RWS have an excellent acquisition track-record and the merger does make good business sense. One to hold while this all plays out. (Update)


On the whole the 2020 financial year was solid for Softcat rather than spectacular. This is something of a disappointment given that they resell IT infrastructure products and services; exactly those segments which were in high demand during the lockdown. Still sales did rise 8.6%, with EPS up 10.4% and cash conversion a solid 87.8% (although a touch down on the prior year). It's a creditable result although somewhat at odds with the positive narrative that talks of a 3% growth in customer base and an 8% rise in gross profit per customer. My understanding is that clients in the most affected sectors (hospitality, tourism & leisure) cut back spending heavily while natural cost savings during the lockdown only offset 40-50% of the gross profit impact. Fortunately Softcat also has public-sector clients and growth of 26% helped offset the fall in demand elsewhere (public-sector now makes up 39% of gross invoiced income although the margins in this sector are slightly lower). It's also worth noting that all growth was organic and that with almost 10,000 customers there's no dependency risk on any one client. The plan going forward is to acquire more customers and sell more to them. There appears to be a lot of headroom left for growth on this front and the board are also looking at additional verticals like defence, central government and financial services. This anticipated growth is why head-count rose slightly more than sales pushing admin costs up slightly in the short term. The only fly in the ointment is that management are cautious but positive about the future and forecast growth is in the low single-digits as a result. I remain optimistic, having watched the results video, and may top up on share price weakness. (Results)

SDI Group

This is an excellent update with sales and PBT expected to be broadly in-line with forecasts as they were before the pandemic. That's quite something given how dependent it is on new capital orders driven by site visits and scientific conferences. The reason for this result is that Atik Cameras and MPB Industries managed to secure significant contracts related to Covid-19 requirements. These wins offset softness in other areas of the business where there is a return towards normality. That said these were one-off contracts and so forecasts for the following year are unchanged. These currently predict essentially flat sales and profits which feels reasonable at this point in time. (Update)

AJ Bell

This end of year update doesn't include any trading information which is a bit frustrating. Expectations point to a 16% increase in revenue and a 19% rise in EPS for the year. This is pretty good although less than the growth rates achieved in the last three years. Driving this performance will be the 27% increase in total customer numbers, with very high growth in the D2C segment, along with an 8% improvement in total assets despite the difficult market conditions of 2020. With AJ Bell also launching new products, such as their Retirement Investment Account and Cash savings hub, I'd say that they're in the right position to keep attracting new customers and keeping them engaged with the platform. So it's a bit odd that forecasts for 2021 show basically no growth compared to 20% earnings growth when you look at pre-pandemic forecasts. I'd say that analysts are being over-cautious and that they'll have to re-evaluate their position when the FY results come out in early December. (Update)

Driver Group

This is a business in transition as new CEO Mark Wheeler pushes forward with his strategic review. He's starting from a good position as the group has already been returned to consistent profitability but there is more work to be done. Much of this revolves around restructuring the Middle East and Asia Pacific operations to deal with weaker trading and target higher margin opportunities. In addition efforts are being made to increase access to the American and African markets which should allow clients to be serviced more easily. Since Driver provides consultancy along the lines of dispute resolution and expert witness testimony these changes are being made at just the right time. As the aftermath of the pandemic plays out there is sure to be an increase in contract disputes as parties try to apportion costs. This will benefit Driver in the coming years even if this one is nothing to write home about. Still the board have coped with the various global lockdowns, PBT should come in at ~£2.5m for the year and net cash is up to £8.2m which is about a quarter of the market cap. Even without considering cash the whole business is being priced on a P/E of just 8 which is historically right at the low end for Driver. So what we have here is a very decent value play which just needs to gather some momentum. (Update)


Another business being priced very cheaply is Plus500 with the forecast 223% increase in earnings this year, to 436c, putting the business on a sub-5 P/E ratio. In this case the valuation isn't entirely crazy as profits will drop next year - although whether they'll drop by 55%, as analysts expect, is anyone's guess. What we do know, from this Q3 update, is that customer income has declined from the record levels seen in Q2 and that the reduction has continued into Q4. Still both revenue and EBITDA were up by more than 90% compared to Q3 2019 and the YTD growth in these metrics is still comfortably over 200%. For now the board are very confident about meeting the analyst consensus figures for the year but I see scope for a further upgrade. The reason for this is that revenue so far is $780m and forecasts are for $859m which implies Plus500 bringing in just $79m in Q4. This seems exceedingly unlikely as that would be just 36% of the Q3 revenue and I can see Q4 coming in at $100-150m when you consider the heightened volatility that we're currently experiencing. Add on the impact of daily share buybacks, a much reduced tax rate in Israel and a cash balance over $700m and I think that investors will be well rewarded going forwards. (Update)

Franchise Brands

This is an interesting example of analyst expectations being behind the curve as a result of there being just one broker making forecasts. From the onset of lockdown the forecast for 2020 remained, incorrectly, at the 6.0p level. This only changed when the interim results came out at the end of July at which point the analyst chopped their forecast down to just 3.9p. Right now the company is confident of meeting this expectation with a sales total of £48.6m (which is in the ball-park of the £50m shown on Stockopedia). The business mix leading to this result is that the B2B division (drainage and pumps) has traded decently with a strong recovery and some weighting towards higher margin work while the B2C division brands have recovered at different speeds. ChipsAway and Ovenclean are trading at pre-pandemic levels while Barking Mad is moribund as dog owners aren't travelling anywhere. New franchisees are continuing to sign up, which is positive, although slightly more have left as they've looked for some other way of making a living. In the long run I think that Franchise Brands will prosper, from a mix of organic and acquisition growth, as the board are both competent and heavily invested. However the business is facing a real headwind at the moment and is unlikely to fully recover while we go in and out of lockdown. (Update)

Sylvania Platinum

Last year Sylvania produced outstanding results (167% growth in EPS) as a result of steady production and a sharp increase in PGM metal prices. The main concern for this year is whether they can repeat the trick due to various pandemic related difficulties in South Africa. It's reassuring then to see Q1 come in with 17,972 PGM ounces declared compared to 9,055 in Q4 and 20,797 in Q1 2020. With cash costs also reducing this production level has bumped up revenue to $41.5m (from $31.2m) and net profit to $21.0m (from $12.5m). Excellent numbers which suggest that the current FY forecasts are very much achievable. There remains an ongoing challenge from host mines reducing their operations but the company has a number of upgrades in progress that will improve processing efficiency and profitability. At the same time the group is debt free and able to generate a lot of free-cash to maintain plants, fund capital expansion and so on. This will all help the company to achieve its production target of 70,000 ounces for the year and if PGM prices hold up then the company will look like a steal with its P/E of ~4. At some point either the share price will rise or profits will fall and I'm putting my money on the former given the way that management have handled themselves during the pandemic. (Update)


No surprises here but the board is very comfortable with expectations for the full-year. Usefully a couple of acquisitions (Pivot Technology and BT Services France) will complete imminently. While they won't have much impact on the 2020 results, at this late stage, they should add significantly to the 2021 numbers. Right now analysts have nothing in their forecasts to reflect this change (in fact they have no growth at all for 2021) and I suspect that they will revisit their spreadsheets shortly. This is a fine business that's on a roll. Well worth holding. (Update)

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

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