News

As expected, January has been a relatively busy month with 10 of 18 portfolio holdings reporting meaningful regulatory news, a summary of which follows:

Impax Asset Management (IPX) – reported a first quarter increase in Assets under Management (AuM) of 4.6% which breaks down as a £2.7bn increase due to market movements, forex and investment performance but with net outflows of £988m. I have owned IPX since 2017 when AuM was around £10bn versus the current £39bn and it is the only asset manager that I currently own. That said, I would very much like to see those outflows reverse to dispel the notion that ESG investing is in terminal decline and to get my investment thesis back on track.   

Games Worskhop (GAW) – solid interim results from a company that I have also held since 2017. Overall revenue increased from £226m to £247m despite a decline in the licensing revenue (which is lumpy) and a currency headwind. Profit before tax up from £83m to £95m and earnings per share up from 202p to 216p. It’s just a great company. The hobby continues to grow. The company continues to execute. And there is a licensing deal with Amazon Studios lurking in the background. Expensive? Perhaps but it remains a very high conviction holding in my portfolio, although I am mindful that the tenure of the current CEO, who in my opinion has transformed the commercial success of GAW, will not last forever.

Property Franchise Group (TPFG) – announced an all-share merger with former holding Belvoir (BLV) which once tried to buy TPFG. If this deal goes through the management team of the enlarged group will be predominantly TPFG except for the financial services arm which is more advanced at BLV. On reflection, this has to be seen as a good deal for TPFG shareholders so long as the two entities can be successfully merged operationally. That said, I do have a niggling doubt why the BLV leadership have agreed to this deal, so let’s see how it all pans out.

Warpaint London (W7L) – last year’s top performing holding delivered a further trading update for the full year, upgrading expectations from the last one in November. With sales now expected to be at least £89.5m (2022: £64.1m) and profit before tax of not less than £18m (2022: £7.7m), both the high growth and operational gearing are clear to see. I have not top sliced W7L since first building a position at the back end of 2022 and I have no immediate plans to do so even though it is now my largest individual holding.   

Gamma Communications (GAMA) – a scheduled trading update has confirmed that the company is on track to meet current consensus forecasts which would mean around 25% increase in earnings per share compared to 2022. Given this, it is hard to see why the share price has derated to the extent that it has over the past couple of years. Full year results will be published at the end of March which we are told will also include an update on the company’s approach to capital allocation. Perhaps this means shareholders will receive a special dividend or perhaps an increased pay-out ratio, given that recent acquisitions seem to be less material than they once were.    

Fonix Mobile (FNX) – a half year trading update confirming trading is marginally ahead of expectations with over 17% increase in both gross profit and adjusted EBITDA. With high levels of repeating income supporting this growth, the icing on the cake is international expansion and we are told to expect further announcements relating to this later in the year. Sometimes it pays to buy into IPOs and I am fortunate to have picked this one which remains a comfortable hold in my portfolio.

PayPoint (PAY) – quite a detailed quarterly trading update tells us that trading is essentially in line with consensus expectations. The legacy parts of the business continue to decline and this is offset by positive trading in the growth parts of the business. Over the past few years PAY has been something of a value trap and while that might continue to be the case, a well-covered near 8% dividend yield and the prospect of further growth beyond the acquisition of Appreciate Group gives me the confidence to continue holding for the time being.  

JP Morgan Global Growth & Income (JGGI) – this premium rated investment trust has announced an all-share merger with the much smaller multi-asset trust (MATE) from the same stable. This makes sense and is broadly good news for JGGI, albeit relatively insignificant in relation to my own investment thesis. JGGI continues to be my largest overall holding. 

Ingenta (ING) – a full year trading update from this microcap software company has revenue slightly below forecast at £10.8m (+3% YoY) and earnings per share comfortably above forecast at 13.6p (+51% YoY). This is indicative of cost efficiencies and a reducing share count rather than any significant growth. Cash generation remains strong and an increased final dividend is promised (+16% YoY). I would like to see more top line growth to underpin my investment thesis and at this stage I see the company as an acquisition target with the EV/EBITDA ratio in single digits which has to be seen as cheap for a debt free and cash generative SaaS company.

Oxford Metrics (OMG) – a brief AGM trading update confirming that four months into their financial year, trading is in line with expectations with decent earnings visibility now that customer buying behaviour has normalised. They also announced a Capital Markets Day will be held on 18th April. The investment thesis here relies on how well they deploy their significant cash pile and on that note, the jury is still out.

Dividends

3 holdings paid dividends during the month:

JP Morgan Global Growth & Income (JGGI)
Ultimate Products (ULTP)
CT Private Equity (CTPE)

Portfolio Changes

I made one portfolio change during the month, exiting GlobalData (DATA) and taking a new position in Puretech Health (PRTC). DATA was a starter position and a nudge from a Fintwit colleague (thank you Damian) prompted me to have a closer look at a couple of aspects of this company (it should be noted that current trading is fine and within the range of market expectations). This coincided with my research into PRTC which is very different from my usual modus operandi.

On the surface, PRTC is a loss-making biotech focused on drug development. However, digging a little deeper, I found it to be a fascinating company with a compelling investment thesis. The company develops orphan drugs via a hub and spoke model. The aim is that these orphan drug candidates qualify for fast-track approval and once they reach a critical point in the internal development process (the hub) they are moved into a separate subsidiary or founded entity (the spoke) that continues with the development using external capital which is non-dilutive to PRTC shareholders. One such founded entity is Karuna which is currently subject to a bid from Bristol Myers Squibb for $14bn.

Once this transaction completes PRTC will have cash that is roughly equivalent to their current market capitalisation meaning that shareholders get the remainder of PRTC (the early-stage internal developments and the later stage founded entity projects) effectively for free.  I saw that as sufficiently compelling to invest and I have taken a full position in the company. In particular, the recently founded entity Seaport is perhaps the most exciting prospect and one which the CEO recently described as Karuna on steroids. Bring it on!     

Looking ahead to February

I am expecting full year results from Me International (MEGP) and Moneysupermarket (MONY) along with interim results from Wilmington (WIL) and a quarterly update from CT Private Equity (CTPE).

Disclosure – At the time of writing my portfolio holdings/weightings are as per the graphic below: