The L&G UK Alpha Trust has won Money Observer's Best UK Growth Fund award two years running, and returned 27.7 per cent in the past year.
Fund manager Richard Penny reveals which shares he is buying, holding and selling.
Buy: Trinity Exploration (TRIN)
When mining exploration company Bayfield Resources got into trouble and needed refinancing, venture capitalist Bruce Dingwall stepped in and Trinity Exploration was born. Dingwall has had previous success in the field, having run Venture Production, a North Sea-based oil company he went on to sell to Centrica for around £1.3 billion.
Bayfield, says Penny, had good assets but poor management, and was short of cash; its share price plummeted. In a reverse takeover, institutional investors gave the business $90 million (£58 million) and new shares were issued to Dingwall.
Penny has been buying into the Trinidad-based oil company since the second quarter of the year. He likes the fact that it does ‘low-risk drilling’, which should see current production increase from 4,000 to 5,000 barrels of oil a day by the end of the year. Moreover, Trinity Exploration now has around $102 million in cash and just $21 million of debt, so is looking much more healthy. And Trinidad remains the biggest oil and gas producing country in the Caribbean.
Currently trading at around 110p, the share price could easily reach 170p to 180p says Penny, and if riskier projects are taken into account it could reach 240p.
Hold: eServe Global (ESG)
Listed on the Alternative Investment Market (Aim), eServe makes software for so-called mobile wallets. These, explains Penny, are virtual wallets that allow people to access their funds via their mobiles, to make secure payments on a number of websites. The idea is being introduced as an alternative to using credit or debit cards online, and Penny says it’s being increasingly embraced as smartphones become more prevalent.
While that part of the business is growing, it is the other arm of the business that excites Penny even more. eServe owns 50 per cent of a company called Home Sent. This is another mobile payment service, but it focuses on those looking to send international payments. Four major mobile providers, including Vodafone, have signed up already and Penny is confident that revenues should soon start to build.
The reason eServe came to be involved in the business is because it owned the patent for a roaming mobile payment system, which is needed to operate the transactions.
‘It is a bit more speculative than some companies, but that is where the returns are,’ says Penny. He adds that eServe has been ‘quite good’ in the couple of years he has owned it: the share price has increased from around 16p to almost 27p and he expects Home Sent to continue to drive that growth.
Sell: Iomart (IOM)
Penny is not completely selling out of his position in cloud computing company Iomart, but he is taking profits from his holding. ‘It’s a good business and I do think it will grow further from here, but I’m not sure when,’ he explains, pointing out that the shares he initially bought at 45p in 2007 have grown more than sixfold to 290p.
Iomart operates data centres, so it’s another tech play, a sector Penny says he has done well with historically. A data centre is basically a large array of networked computers that store data, known as servers. For some businesses that use a lot of data, it is easier for them to pay a company such as Iomart to host and maintain these services, rather than take on the expense of building and looking after their own system.
‘With more and more devices connecting to the internet and more web pages being created, we need more storage all the time. Everything that is being sent and loaded and used is getting bigger, and there needs to be somewhere to store that data,’ explains Penny. He still rates Iomart as a good business but says the upside in the share price is now limited.