Over the past week I have published various portfolios; Focused Income, Compound Growth and Special Situations which combined, make up my overall equity portfolio. I have also launched an ISA portfolio to reflect and track how I invested this years’ allowance. The main reasons for dividing my overall holdings into different strategies were outlined in my recent article Towards a Balanced Portfolio but in short, it helps me to clarify my thinking around each investment, focus on realistic goals, monitor the level of success and refine my investment approach.
In this series of follow-on articles, I provide a commentary on each of my portfolio holdings, this final one being those that I refer to as Special Situations. This is the higher risk portion of my portfolio – calculated gambles in many respects.
I’ll deal with the elephant in the room first. IOF has gone from being a ten bagger for me to being a complete train wreck. IOF is now in a precarious position with $17m of convertible loans due for settlement just over a year from now. While there is a profitable chemical derivatives business, the iodine production business has suffered from multiple challenges. Against a background of a low iodine prices, a strong dollar and a company is cash preservation mode, it is difficult to see when or even if, fortunes will turn for Iofina shareholders. I have thought about selling my IOF stake and moving on and I am certainly not considering an increase to my holding while there is so much uncertainty. I am holding on for the time being but will be looking for opportunities to reduce my exposure in IOF over the months ahead.
GVC Holdings (GVC.L)
This is a company I have watched for a while now and was really tempted to buy in previously due to their generous dividend. The reason that held me back was that I have an in-built bias against the gaming sector. However, I decided the time has come to accept some exposure to this cash generating industry within the context of a balanced portfolio. GVC management have proven competent at acquisitions in the past and I am banking on them doing so again with their latest one. The Bwin.pty acquisition means there will be a dividend holiday throughout 2016 but against this, the enlarged group should formally enter the FTSE 250 later in the year which will bring a lot of new institutional shareholders and I believe, a higher rating. Over the next year I am anticipating up to 50% capital appreciation and will reassess my holding once they return to dividend payments, hopefully in 2017.
Software Radio Technology (SRT.L)
This is a company I have held shares in a couple of times previously but they did not have the predictability of revenue to give me the confidence to hold. However, that is now beginning to change with the large MDM System Supply Agreement I wrote about here back in March. This has given me the confidence to build a stake in SRT and I see plenty of scope for 50%+ share price appreciation over the next 12-18 months. There are risks of course but if similar MDM deals are won, I believe the current share price will prove to be a bargain and even if not, the value of the current deal will show through in revenue and profit growth over the next three years.
The final component of this Special Situations portfolio is Petards (PEG.L) which I covered in part two of my commentary as a metrics based punt.
Disclosure – At the time of writing, I hold long positions in all of the shares discussed in this article. Please DYOR