Share Sleuth: annualised returns of 12% since 2013, but now I am selling

Richard Beddard explains why it’s time to dispose of one of the portfolios holdings despite healthy returns.

News that Science has acquired 9% of Frontier Smart Technologies has sealed the former company’s fate as far as the Share Sleuth portfolio is concerned. On 28 May, I liquidated the shareholding.

As I reported last month, a strategic review at Science has opened the door to large acquisitions, potentially unrelated to the company’s existing scientific consultancy business. As Science’s executive chairman and majority shareholder has a reputation for turning businesses around, the chances were that the review would involve the company using money raised by mortgaging properties it owns to buy struggling companies. Then it would set about improving their performance.

Frontier is the first of Science’s targets to come to our attention because, around the time it acquired the shareholding, Science also made and then withdrew an off er to buy the company. Frontier, which is in debt and losing money, rejected Science’s off er, claiming it was not in shareholders’ interests. Science disagrees.

A frontier too far

I have not considered the merits of this deal, or the possibility that something will come of it. As a public company, Frontier has not made a profit, so it is not the kind of business I am comfortable evaluating. It is also headquartered in the Cayman Islands, a tax haven that shelters Frontier from regulation. The putative deal confirms what I feared, that as it absorbs companies like Frontier, Science will also slip beyond my ken.

On 28 May, I ‘sold’ the portfolio’s entire holding at a price of 198.4p, the actual price quoted by a stockbroker. After deducting £10 in lieu of broker’s fees, the trade added £5,267 to the Share Sleuth cash balance.

I first added Science in 2013 at a price of 100p and added more shares at 115p in 2014. While the investment turned out to be one to buy and hold for five or six years rather than forever, it brought me some joy. Including dividends, Science earned the Share Sleuth portfolio an annualised return of 12% according to SharePad, the software I use to track performance. Science worked for a fee, developing sometimes unproven technologies for other companies. It was a low-risk way to invest in progress. Now it’s buying technology companies, the risk has risen.

While the portfolio has nearly £6,000 in cash to burn, more than enough to fund a new addition, I mainly have sales on my mind. Portmeirion could be the next share on the block.

The potter, famous for highly stylised classic British tableware designs such as Portmeirion Botanic Garden, issued a profit warning in May. The reason for the warning was an unquantified but calamitous slump in sales in South Korea. Not long ago, South Korea was the biggest market for Botanic Garden, Portmeirion’s most popular design, but in the financial year ending in December 2018, before the recent collapse, sales in South Korea were 45% lower than their peak in 2014. South Korea is no longer vying with the UK and North America to be Portmeirion’s biggest market.

Small dip on an upward path

A graph showing the performance of the Share Sleuth portfolio (June 2019)

 

Strategic drift

Although sales have grown outside Portmeirion’s three biggest markets and compensated for the decline in South Korea, I had thought the huge popularity of Botanic Garden was evidence that Portmeirion’s designs can be enduringly popular in the Far East as they have been here and in North America. Now I am worried they are a bit of a fad.

These fears are exacerbated by Portmeirion’s strategic drift. Once focused on tableware, the company branched out into scented candles with the acquisition of Wax Lyrical in 2016. Portmeirion expects to repeat its export success, but I am doubtful scented candles are as distinctive or as enduring as the tableware designs – some popular for centuries.

Selling science

Portfolio     Cost (£) Value (£) Return (%)
Cash       5,900  
Shares       118,004  
Since 9 September 2009     30,000 123,904 313%
           
Company   Shares Cost (£) Value (£) Return (%)
ALU Alumasc 938 999 1,022 2
AVON Avon Rubber 192 2,510 2,523 1
CFX Colefax 434 943 2,322 146
CGS Castings 1,109 3,110 4,680 50
CHH Churchill China 341 3,751 5,371 43
CHRT Cohort 1,600 3,747 6,640 77
DTG Dart 456 250 4,072 1,529
DWHT Dewhurst 735 2,244 8,269 268
GAW Games Workshop 198 568 8,732 1,438
GDWN Goodwin 266 6,646 8,140 22
HWDN Howden Joinery 748 3,228 3,740 16
JDG Judges Scientific 252 5,989 7,787 30
NXT Next 45 2,199 2,582 17
PMP Portmeirion 349 3,212 3,560 11
QTX Quartix 1,085 2,798 2,864 2
RM. RM 1,275 3,038 3,086 2
RSW Renishaw 92 1,739 3,581 106
SOLI Solid State 1,546 4,523 7,544 67
SYS1 System1 463 1,793 1,097 -39
TET Treatt 1,222 1,734 5,572 221
TFW Thorpe (F W) 2,000 2,207 6,320 186
TRI Trifast 2,261 3,357 5,336 59
TSTL Tristel 750 268 2,325 767
VCT Victrex 150 2,253 3,009 34
XPP XP Power 339 6,287 7,831 25


Notes: No new additions. Transaction costs include £10 broker fee, and 0.5% stamp duty where appropriate. Cash earns no interest. Dividends and sale proceeds are credited to the cash balance. £30,000 invested on 9 September 2009 would be worth £123,904 today. £30,000 invested in FTSE All-Share index tracker accumulation units would be worth £63,089 today. Objective: To beat the index tracker handsomely over five-year periods. Source: SharePad, 4 June 2019.

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