October 2021 Portfolio Update

Another busy month for news and activity so it's a little disappointing to realise that if I'd sold everything in May, and done nothing in the meantime, then I'd be ahead of where I am now. Beyond the self-inflicted wounds it's been a case of one step forward and two steps back for many months now. Perhaps we'll get a banging Santa Rally and perhaps not. It would be nice to get some sort of return on all of the effort expended at the very least!

Anyway I was happy to be asked to be part of the Mello BASH team on 11th October where I talked about Robert Walters and Cerillion. As noted below I topped up my holdings in both companies this month and I think that they have a lot more in the tank. I also hosted the sixth StockSlam of the year where nine intrepid investors came together to talk about their current ideas. I pitched Driver Group on the back of a trading update which indicates that business momentum picked up sharply in Q4 which bodes well for the coming year.

In the portfolio it was a more balanced month at last with risers and fallers evenly balanced. As a result my portfolio made +0.8% this month taking me to +5.3% for the year so far. This so-so result hides a more dramatic story which is that in the first two weeks almost all of my gains for the year evaporated. A very sinking feeling. Fortunately this was a correction, rather than a new bear market, and I bounced back almost 5% in the last fortnight. You really do need a strong stomach to invest directly in shares.

Pleasingly my biggest winner was Driver Group with Calnex a close second as investors digested their excellent trading statement. The rest of the risers seem to have been blessed with investors buying back after the sharp falls of September and early October. Sadly no one is taking a chance on Boohoo and its share price is below the depths plumbed in March 2020. No wonder it has a Momentum Rank of 1 with the rolling over of analyst forecasts really twisting the knife. Unhappy times for fast fashion. I think that UP Global Sourcing and DX have also dropped on concerns around shipping, transit costs and wage inflation in the transport industry. We'll know pretty soon whether the concerns are over-blown as both are due to report in November. Hopefully decent management will be able to alleviate these pressures.

Risers: DRV 28%, CLX 22%, SLP 18%, LUCE 16%, RWA 12%, GMR 11%, CAML 11%, BLV 6%, KNOS 5%, AFX 5%, VLX 3%, STAF 3%, CMCL 3%, TEP 3%, BOTB 1%

Fallers: GAMA -1%, CCC -1%, SPSY -2%, CLG -2%, MNZS -4%, SCT -4%, G4M -4%, FXPO -5%, GAN -5%, GAW -6%, TM17 -7%, SDG -8%, DX. -8%, UPGS -12%, BOO -16%


Robert Walters Bought at 776p

Following my initial purchase last month I was happy to see an excellent Q3 update this month. There's not much to say except that the share price is now knocking on the door of its ATH and that this could be the catalyst for a break-out. Operationally I'm very happy with the business and its high exposure to the Asia Pacific region. It's fair to say that other recruiters are also benefiting from the buoyant market and that there's an argument for buying them instead. That's true but I've invested in Robert Walters before and have found the management (including the eponymous founder) to be transparent and trustworthy. These are qualities that I value and they make up for a valuation that is predicated on the economic recovery continuing.

Cerillion Bought at 799p

These guys have been flying over the last six months with some very large contracts being won. This has delivered a sequence of positive trading updates along with a record back order book. Management are pretty conservative and so it's reasonable to assume that these orders will turn into sales in due course. The shares aren't cheap on current forecasts for 2022 and 2023 but these don't look right given that they have sales rising and profits falling. This seems at odds with the order momentum as customers invest heavily in the 5G upgrade and expanding their fibre networks - along with the fact that term licence sales are driving higher rather than lower margins. So Cerillion is now a median holding in my portfolio.

Calnex Solutions Bought at 123p

Another company benefiting from telecoms investment, along with hyper-scale data centres, is Calnex. They had a bit of a wobble earlier in the year when they said that last year's results were boosted by sales being brought forward. The implication being that the current year would be comparably softer. However now the board believe that sales and profits will be materially ahead of previous expectations; possibly an easy target to beat given the available forecast but still welcome news. More intriguingly the CEO Tommy Cook notes that this year will exceed the results of the prior record year which, possibly, is not yet reflected in the broker forecasts. It's possible that he is adjusting for the "bought forward" sales in making this statement but maybe he isn't. Either way Calnex is doing well and it's also now a full holding.

Capital Limited Bought at 81p

I have a smattering of holdings in the mining sector, with exposure to the gold price through Caledonia Mining, but I don't own a "picks & shovels" outfit. It's not essential to own one but from what I've read elsewhere (see Private Punter and Small Caps Live) Capital is a solid operator in this space. They provide support services, principally drilling, over the entire mine life-cycle with a side-line in laboratory analysis. They have long-established clients around the globe but have a particular focus on West Africa and the gold mining operations in that region. With the gold price remaining high companies are generating a lot of free-cashflow that they are reinvesting in development and exploration. This means that demand for Capital's services is growing and should continue to grow as miners expand their exploration efforts - which is particularly beneficial as their exploration rigs are currently under-utilised. So why buy now? Well the company put out a Q3 update a few weeks ago containing a raft of good news and lifting revenue guidance for the year. The shares reacted well before falling back into the 77p-84p trading range seen since May. This seems strange given the continued positive news flow and upside on offer as fleet utilisation improves.

Sanderson Design Group Bought at 169p

Lately I've been trying to be more active in cutting back shares where I have concerns and recycling these funds into more attractive opportunities. Sanderson Design falls into the latter camp as both the shares and the company have performed very well this year. The new management have a detailed and sensible strategic plan to refresh the business which is benefiting from a tailwind as customers move away from the minimalist aesthetic. The recent H1 results confirmed that trading is in-line with expectations with some cost and supply chain issues (which is the same for all manufacturers). Despite this the share price has been weak with a retracement back to levels seen before their previous update in July. Given that this announcement raised expectations I believe that this 25%+ fall from the September high of 233p has gone far enough and that we now have an excellent opportunity to top-up. With October and November key selling months for Sanderson's we'll soon know whether this optimism is well placed.


RWS Holdings Sold at 603p - 11.3% loss
Burford Capital Sold at 789p - 25.1% loss

I've been steadily reducing these non-performing holdings over time to the point at which they became less than a 1% positions. As things stand sentiment is against these companies and they are hardly blowing the doors off with their results. In the long run I'm sure that they will do well but right now I have a better use for these funds. So both shares have now exited my portfolio.

Tandem Group Sold at 592p - 11.2% gain

There's a lot to like about Tandem. It's cheap, growing and has an engaged management team. At the same time it's subject to price inflation, supply chain pressures and post-lockdown behaviour changes. I remain positive that Tandem will do well in the long-term but it's one of the few shares that I own which is directly exposed to these issues and could struggle to convert its order book into sales. So I've taken advantage of the resilient share price to sell my position and put Tandem back on the watch-list.

Best of the Best Sold at 622p - 61.7% loss

I could write an entire post about how I've fucked up this particular investment and maybe I will. Possibly some good will come from throwing away a year's salary. In short I made two key errors and in combination they've proved toxic. The first is that I believed that management were competent and that other investors were over-pessimistic about the post-lockdown challenges facing the company. As a result I believed that trading would bounce back more strongly than forecast. Now that it's becoming clear that privacy changes have fundamentally altered the Facebook model, lifting the CAC for new customers dramatically, this seems much less likely. In retrospect it seems that the board were just very lucky last year. Secondly none of this would have mattered if I'd top-sliced my position as the price rose dramatically and it became over-weight. This would have locked in some of the gains when they were available but I never pulled the trigger. Anyway why sell half of my holding now? Well it's never too late to sell and if BOTB turns out better than expected I can always buy back in. Painful lesson though.

K3 Capital Sold at 339p - 126.1% gain

This was unfortunately a forced sale which is always a risk when you're fully invested. The problem was that I bought these shares through the PrimaryBid placing last year. This turned out to be a great decision but you can't use ISA or SIPP funds with PrimaryBid - you can only use money outside of a tax shelter. This meant that the shares ended up in a trading account that I don't use for any other purpose and rarely look at. Anyhow with some holiday related bills falling due I decided to liquidate this position. I hope to buy back into K3 Capital but with results due out next week I'm going to wait to see how they are received. Ironically I'd like the outlook to be rather cautious even though I have high hopes for K3 Capital in the long run.



Following on from the £4.3m contract extension announced last week this update tells us that strong trading has continued throughout H2. In this period two of the largest ever contracts were secured and both orders and the order book are at record levels. As a result turnover will be slightly higher than expected while adjusted PBT should be significantly higher than market expectations. This is excellent news as the strong share price, and high P/E rating, is predicated on the company doing better than expected. Apparently the company is well positioned for the new year and we'll learn more when the results come out in November. (Update)

Robert Walters

As mentioned with my maiden purchase last month it seemed to me that the market wasn't recognising the strong trading at Robert Walters. The recruitment market is red-hot at the moment and the group had put out a string of positive trading updates with little impact on the share price. This update continues the trend with FY profits now expected to be comfortably ahead of the HY results guidance. The big driver here is Asia Pacific with net fee income up a remarkable 54% despite continuing lockdowns in the region. This segment now accounts for almost half of the total group gross profit and there's no sign of growth slowing. Elsewhere Europe and the UK are both growing at double-digit rates, with client demand high, while the Americas and Middle East still look a bit sick. With a bit of luck this update will propel the shares through the psychological barrier at £8 and we'll be away. (Update)

Central Asia Metals

One of the highlights from the interim results last month was that Central Asia Metals planned to accelerate its debt repayments. This is happening and the corporate debt facility should be reduced to zero by next August (while I think that right now net debt is effectively zero). This is testament to the high cash-flows being generated as a result of high metal prices. In this quarter copper production was an excellent 4,146 tonnes which is a big improvement over previous quarters. At this rate they will hit the top-end of guidance (13,500 tonnes) and may even exceed it. Unfortunately the Sasa mine wasn't so fortunate and it looks like lead production will fall short by ~5% from previous guidance. This is a bit of a pain but the operational issues appear temporary rather than anything more serious. The real key to future growth is to find a solid acquisition opportunity and the balance sheet will certainly support a purchase if the board can locate a decent target. (Update)

Spectra Systems

This one has been a slow burner in my portfolio for a good few years now. Over that period it's continued to progress steadily but investors have really lost interest in the last two years. So it's pleasing to see one of their long-time central bank customers place another large order. In a sense these banks provide the recurring revenues for Spectra although with limited visibility. That much is clear from the fact that this order means that the company will beat market expectations for the year. That said the CEO is very conservative and only includes definite revenues in his forecasting which means that earnings surprises are almost all to the upside. Given that the shares have barely reacted to this news there's probably a buying opportunity here. (Update)

Calnex Solutions

Earlier in the year there was some concern that customers had pulled forward their orders and that this financial year would suffer as a consequence. Well this update assuages such concerns. Strong trading has continued in H1 and it seems that this trend will persist in H2. That's great news as now sales and profits will be materially ahead of expectations. That said these forecasts had profits dropping 20-30% from the peak last year so in a sense they were primed to be exceeded. Even now, with the brokers moving from 3.8p to 4.9p of earnings, this is still a drop from last year's 5.6p. Still customers have returned to their pre-pandemic spending patterns and Calnex haven't been impacted by the global semiconductor shortage. This is important as Calnex really needs to ship their top-end hardware to hit their targets. On this front the company has bought forward their investment in the team, which bodes well, and later in the update the CEO states that sales and profits will exceed the prior year. This is quite a statement as last year was knockout with earnings more than doubling. Interesting. (Update)

Caledonia Mining

This is an excellent operational update that bodes well for the full-year. In Q3 a record 18,965 ounces of gold were produced which is up 25% on Q3 2020 and a significant increase on all quarters since then. This is exactly the step-change that we've been looking for since the new Central Shaft enabled increased production capacity. As a result FY guidance has been narrowed to 65-67,000 ounces and with 48,872 ounces already mined it's plausible that the company will beat this target. Additionally the gold price has now stabilised at around £1300/oz which means that Caledonia is generating a lot of cash with few opportunities to spend it. On this front the company has acquired the Maligreen project in Zimbabwe for $4m which offers them a substantial brownfield exploration opportunity. It's going to take a few years to determine the potential opportunity but this board surely knows how to exploit a mine like this in Zimbabwe. (Update)


The board at Gear4music have played a blinder by consistently and accurately stating that sales in FY21 H1 were supernormal as a result of the initial lockdown. This has set investors expectations appropriately and allowed the company to indicate the longer-term trend. That said total sales were only down 8% with the UK remaining robust and Europe suffering as a result of post-Brexit challenges. These tariff changes have clearly made Gear4music less competitive which is why they've opened two European distribution centres. These are now operational and will greatly improve their delivery proposition within Europe. At the same time gross margins remain strong and inventory levels have been beefed up ready for the peak trading period. This is an excellent example of a company making all of the right decisions and accurately communicating the state of the business to shareholders. Given the headwinds facing Gear4music I remain impressed by how well the management continue to navigate these challenges. (Update)

Sanderson Design Group

Sanderson's was very badly impacted by the initial pandemic lockdown but over the past year trading has continued to improve. Last Autumn, a key selling period, was strong and since then we have had a sequence of "ahead of expectations" updates. As a result the share price has roughly doubled as the group has lived up to its "recovery stock" label. These H1 results support this conclusion with sales back to pre-pandemic levels and profits much improved due to efficiency and inventory savings. This process is set to continue with further reductions in product range (dropping the dead wood) and investment in a new digital printer at one of the manufacturing locations. These initiatives have reduced overhead costs although a rise in distribution costs has offset some of the gains (although these have stabilised in recent months). In fact cost pressures cast a shadow over the outlook statement with this being merely in-line due to supply chain and other issues. This is a change to the recent trend but if the key selling weeks of October and November prove buoyant then the next update could be more positive. The fact that the manufacturing order book is at record levels could be a leading indicator here. From a strategic perspective I think that management are pulling the right levers with a focus on growth, optimisation and improving brand recognition. They have key milestones out until 2024 with the USA as a core growth market, marketing focused on strong digital branding and the means to bump up licensing income (which goes straight to the bottom line). So I can see why the share price has dropped 25% from its September peak, as people lock in profits, but I think that the recovery trajectory is clear. The business has been financially fixed and has a wonderful store of IP to work with in the future. Right now looks like a buying opportunity. Note this results webcast is worth watching. (Results)

K3 Capital Group

This is a slightly understated RNS as it includes an update on previous and current trading. It seems that revenue and adjusted EBITDA will be ahead of the figures given in the June update. We're not looking at a material beat but it's still positive news. In the current year momentum remains strong and the group is trading in-line with the market consensus. This currently has sales and profits increasing by more than 20% which makes the shares look good value at their current rating. NB this recent interview with the boss is worth watching. (Update)

Driver Group

While this is just an in-line update, that mentions a healthy cash position, the sub-text is perhaps more significant. The business has really struggled with lockdowns around the globe but activity levels have materially improved in Q4. This suggests that contractors are finally getting to grips with the repercussions of the pandemic which means more work for Driver's fee earners. In addition the troublesome Middle East and APAC regions have returned to profitability which means that they're not acting as an anchor for the wider group. To gain a better appreciation of the changes taking place I recommend watching this investor presentation. With all of the regional heads presenting and taking questions it's a great example of investor engagement. (Update)


Investors in Luceco have endured a turbulent few months as the potential for supply-chain issues took centre stage. Fortunately this Q3 update steadies the ship with growth remaining strong compared to 2020 and 2019. The absolute level has declined somewhat compared to abnormally high demand following the initial lockdown but it's still solid growth. Multiple cost pressures remain unfortunately with shipping rates up along with supplier lead times. This means that margin compression will continue into the next half-year before prices rises take effect in H2 2022. So the environment is tough but the management team is keeping focused on overhead control while delivering good customer service. In the longer term Luceco will continue to prosper with their vertically-integrated model but the next six months could be volatile. From an investment perspective I don't think I need to rush any top-ups right now but at least the shares seem to have formed a base. (Update)

Sylvania Platinum

This is a so-so start to the year for Sylvania Platinum. Operations at Lesedi remain suspended after issues arose with the tailings dam during August 2021. You definitely don't want a dam failure and, with a new tailings disposal facility expected to be commissioned by the end of the year, production was halted with the expectation of a resumption by the end of September. This date has now been pushed back to the end of Q2 which is a bit disappointing. At the same time PGM prices have fallen back which has additionally knocked back net revenues. This came in at $29.8m which is rather less than the $41.5m of last year but comparable to the $31.2m earned the year before. Since production is down 12% and 24% respectively clearly high PGM prices are still a tailwind which has helped cash balances to reach $132.7m. This is almost £100m which is a third of the capitalisation of the entire company and a good reason to expect another special dividend. On the upside PGM prices are recovering and management still believe that they'll hit their 70,000oz production target for the year. This is a plausible outcome given improvements being made elsewhere but it'll be a challenge. Still this new research note from Edison is very positive on the basis that demand for Rhodium will soon bounce back and that Sylvania will be able to produce at current levels for many years to come. If they're right then Sylvania shares are very, very cheap. (Update)


Another solid set of results from this provider of IT infrastructure products and services. On 17% growth in gross invoiced income profits rose an excellent 27% with strong cash conversion allowing for a hefty special dividend. With analysts forecasting an EPS of 47.2p this is a slight beat with 48.4p being reported (including no adjustments). There's no need to get too excited though as a drop in travel and events costs boosted the bottom-line last year and will act as something of a headwind in the current year. This doesn't concern me since more business travel means more client meetings while a resumption of events will help to maintain staff morale. Outside of this effect the company is also hiring more staff (headcount is up 11%) which will pay dividends in the long run even if costs are incurred before sales increase. All in all this means that operating profits are likely to remain flat in 2022 even as gross profit grows at a double-digit rate. On the other hand Softcat is successfully squeezing more money out of existing clients (average gross profit per customer is up 14.6%) and this is part of the process that has delivered sixty-four consecutive quarters (i.e. 16 years) of organic growth. This is one heck of a record and helps to explain why the shares are on such a high rating. In reading the results narrative the reason for this continued success is clear. Softcat aim to understand market drivers, such as a move to the cloud and a need to beef up security, and to leverage this knowledge when providing the best possible solutions for clients. This is why customers use an intermediary, rather than trying to source hardware/software themselves, and why 95% of the gross profit came from existing customers. This culture is the moat for Softcat and while this remains the business will be successful. That works for me. (Results)


A nice Q3 update which finished marginally above board expectations. This is not enough to raise those expectations yet but the board is very comfortable with its current expectations for the full year. This should deliver record revenues and profits with a pretty good chance of Q4 being strong enough to beat analyst forecasts. Supply shortages are not a big problem but they are delaying the completion of some orders and encouraging other customers to order in advance. This will all come out in the wash but I've no idea what the impact will be in the short-term. However consider this: on both 10th December 2019 and 2020 Computacenter released an unscheduled trading update raising expectations for the year. There are no guarantees, of course, but historically the days after this update have provided a good entry point. (Update)

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

comments powered by Disqus