Forgive me dear readers, it has been a month since my last update. I have been distracted by family matters (including my daughter’s wedding and the return of our son and daughter-in-law from a two-year stint in China) and enjoying the British summer. As far as markets are concerned, I have not switched off completely – still keeping an eye on macro events and company news flow but not conducting any new research or analysis, beyond my weekly totting up.
Fortunately, my time away from the market has been kind and my portfolio (PFAS) has behaved itself – perhaps I should switch off more often. PFAS has risen by exactly 6% during the month, just over 1% of which is attributable to dividends (the largest dividend month of the year by some distance), taking YTD performance as at end of July to 32.05% which is very pleasing. Moreover, news flow from the nine holdings below has been broadly positive which provides me with confidence going forwards.
Spectra Systems (SPSY) – New lottery security contract in the US early in July followed this week with news of a banknote supply agreement with a large global supplier of Biaxially Oriented Polypropylene (“BOPP”) for use as a highly covert banknote substrate. A subsequent update from the house broker suggests this is very good news long-term. Almost as curious as the exact nature of SPSY’s covert business opportunities is the reason why the share buyback programme announced in April has so far only seen 1,000 shares purchased.
Anglo Asian Mining (AAZ) – Q2/H1 Production and operations update, paving the way for positive interim results in September.
GlaxoSmithKline (GSK) – Q2 results in July were ahead of market consensus and this week, confirmation that the joint venture with Pfizer’s consumer healthcare business has now completed. This joint venture, majority owned by GSK and chaired by Emma Walmsley, is due to be spun out as a separate listing within three years.
City of London Investment Group (CLIG) – Pre-close trading update signalling AuM up by 6% year-on-year, a decline in earnings per share but the final dividend maintained at 18p per share. I will comment further once I have had the chance to study the results in more detail but I suspect my conclusion will be to hold for the reliable dividend and modest upside underpinned by a share buyback programme.
Strix Group (KETL) – “The Group has delivered a solid performance for the period and the Board confirms that it expects to report results in line with market expectations for the financial year. Given the Group’s performance in H1 2019 and the Board’s confidence in the continued strength of its cash generation, the Board re-confirms its intention to pay total dividends of 7.7p per share in respect of the 2019 financial year, an increase of 10% on the previous year.” That’s good enough for me to hold with confidence leading into the results in September.
Paypoint (PAY) – Q1 trading update with revenue growth of 3.6% year-on-year. That’s a good start and the update does a good job of showing how things are going in relation to various strategic KPIs. This approach is a bit 1990s but still, from my perspective PAY is a defensive holding with a secure, quarterly dividend – if the new CEO can find some growth as well, then all to the good.
3i Group (III) – Q1 Update showing an increase in NAV of 6.2% from the previous quarter. There is also an update on various investments which is always a good read. Of most interest is Action where a liquidity event will occur later in the year, underpinning management’s valuation of the asset – hopefully.
Games Workshop (GAW) – Full year results which I thought were excellent and ahead of market expectations, along with a further dividend declaration. The share price has been up a bit, down a bit, up a bit more on these results. Que sera, sera, GAW remains a comfortable hold for me and is my third largest position.
Spirent Communications (SPT) – Interim results which show a year-on-year increase in all the key metrics, including a 4% rise in revenues, a 14% rise in earnings per share and a 10% increase in the interim dividend. Guidance from the company is that they are on track to meet market expectations for the full year, although we have the dreaded second half weighted comment, as in previous years. This is much more of a problem to me when a company are having to play catch up which SPT are not and therefore, I continue to hold.
I have the advantage of writing this after the Fed have cut rates by 0.25% and finished their quantitative tightening program two months earlier than planned and yet, guiding that no further cuts are currently planned. I believe it is this last bit that sent US equities and the gold price down following the announcement. We shall have to see where things settle but I remain a gold bull. The US-China trade war continues to cast a cloud over the global economy, several central banks now have negative interest rates and a hard deal Brexit looms at the end of October, currently reflected in weak sterling.
I note that several private investors who I respect have moved to an increased cash weighting until these storm clouds have passed. That might turn out to be a prudent step. For my part, I remain fully invested with a bias towards non-UK earnings (although I have started to build a couple of UK oriented holdings in readiness for a future Brexit bounce), c25% exposure to gold via AAZ, a 60-40 split between Value/Income and Quality/Growth strategies and sufficient dividend income to support our living requirements for the foreseeable.
I have made a few minor trades during the past month which I shall briefly capture the rationale for…
The main move has been to exit Legal & General (LGEN) this week. As a pure dividend play, the company will probably be fine. However, I have had some reservations for a couple of months now about the high level of market exposure this holding has along with a strategy to acquire final salary pension schemes in a low interest rate environment and the prospect of continued sterling weakness, I see more downside risk than upside potential. If in doubt, sell out.
The theme for all the buys this month is to continue diversifying my income streams. This includes new holding SEDY, an iShares ETF focused on Emerging Markets which should benefit from a falling dollar (if indeed, the dollar does fall) over the next several months. It yields over 6% which is its main role in the portfolio. I have also added to three existing holdings, all yielding over 6% along with the potential for share price appreciation; Central Asia Metals (CAML), Belvoir Group (BLV) and Paypoint (PAY).
It is the Ashes, why I am I still writing? Expect only sporadic updates and interaction from me while the cricket is ongoing.
Disclosure – At the time of writing, I own shares in SPSY, AAZ, GSK, CLIG, KETL, PAY, III, GAW, SPT, SEDY, CAML, BLV which were mentioned in this article. For the avoidance of doubt, I no longer own shares in LGEN which was also mentioned in this article.