No. of Recommendations: 76
Following Carmensfella's earlier posts, I thought it would be worthwhile to submit my holdings. I have found this to have been a useful exercise as it has provided me with an overview of my portfolio and has prompted me to wonder whether I have too much in certain shares and not enough in others.

It has also made me review my sums and logic for my shares, just to ensure I am actually still invested for the right reasons.

I would encourage everyone to have a go at this exercise, although you can stick with your top ten. It is your hard-earned money after all at stake and trying to explain to others why you are invested may unearth some dodgy logic and suspect sums of your own.

Anyway, there was a Fool article two years ago that covered my then top ten holdings:

Helpfully, Maynard has summed this up in eight succinct points:
1. Small
2. Simple
3. Trustworthy management with high insider ownership
4. Asset-flush balance sheet with conservative financing
5. Decent track record
6. Single-digit P/E, useful income
7. Reasonable prospects
8. The right nomenclature

With points 5 and 7, Maynard is prepared to accept more of a haphazard or shorter track record if the value is very low and/or the upside potential is much greater.

My basic 8-point strategy is generally the same but I have started to dabble in resources shares as they have become out of favour while the wider market (especially small-caps) has risen.

My trackers almost all went at the start of 2013 to supply funds for individual shares, and almost all the cash I had two years ago has since been invested. I have been able to extend my brain capacity, too, and currently have 15 shares rather than my limit of 10 from two years ago.

At 31 Oct 2013, I was 78% in my top 10 shares, 97% in my 15 shares, 1% in trackers and 2% in cash.

Here are my top 15. I have not calculated my gains as i) I prefer to look forward not back, ii) I have always found that when I boast about gains, they quickly evaporate, and; iii) my performance is not as good as Carmensfella's.

Nonetheless, I have put in my average cost for reference. Everything has been held for less than three years due to reasons beyond the scope of this post. Of course my sums and logic and theories could all be wrong so do your own research. I have put the percentage of my portfolio in each header with a recent share price and mkt cap. Stated P/Es and yields are based on the share price in the header.

1) City of London Investment (CLIG), 11%, 255p, £67m

CLIG is an emerging-market/natural resources fund manager with an attractive management culture -- the founder/boss has a low-expense mindset and has even pre-announced personal share disposals to the market.

The business has lost a few clients during the last year or so, and the investment performance has not been great either, which has hit profits and made my 281p average buy price look a little embarrassing of late. But the firm has maintained the dividend at 24p, therefore providing a healthy near-10% yield for present buyers, and there are signs things maybe picking up with the clients and the stock-picking. Certainly rising markets ought to help the business.

CLIG helpfully provides an earnings model in its annual report, and if you plug in the last reported client fund level and today's £1:$1.6 exchange rate, it suggests earnings may be running at 17p/share, so not enough to cover that 24p dividend.

But cash in the bank is £14m or 54p/share and CLIG currently pays commission to a third party (almost £3m this year), the agreement for which has been terminated and is in run off. CLIG has projected £11m could be paid to this third party between now and 2021, the NPV of which I guess may be £9m. Assuming CLIG could pay off this third party with its cash pile, current earnings without the commission could be 25p per share and cover the dividend and put the shares on a P/E of about 10.

2) French Connection (FCCN), 9%, 40p, £38m

FCCN is a fashion retailer that has seen far better days, but I hope could become a multibagger if the business ever gets back onto its feet. Main problem is flagging UK sales from a chain bogged down by pricey long-term shop leases.

Company is currently loss-making, but expects to breakeven in the year ending January 2015. Cash position of £22m is flattered by favourable working capital but that, and lack of debt, help to support the possible turnaround.

Last reported NAV of £58m or 60p/share shows superficial value but FCCN has entered obligations to lease stores for a total of £194m, and this 'off balance sheet' entry would need to looked at by any asset liquidator.

At least these total lease obligations have been falling over the years, from £306m to £266m to £259m to £217m to £194m since 2009. My spreadsheet for FCCN suggests the average lease based on these obligations has 7.3 years more to run going on the current P&L lease charge. Slowly but surely the expensive shops are being ditched.

Plus, annual sales are still £190m or so, wholesale still makes a profit and there is license income as well, so the business is not a complete basketcase. The founder of 40 years ago still runs the show and has a 41% shareholding, and I do recall reading the FCCN RNS archives and discovering him saving the firm in the early 90s recession by providing an emergency loan when the shares were 1p.

The FCUK phase took the shares to 500p and surely any reasonable uplift in trading, the slightest prospect of the UK retail chain reducing its losses -- or even moving towards a profit -- ought to send these shares much higher. Eg, a 5% margin on sales of £190m = £9.5m op profit versus a £38m market cap. I am in at 31p.

3) Abbey Protection (ABB), 9%, 115p, £115m

ABB is a niche insurer, supplying policies that payout in event of a HMRC investigation. No need to go into great detail here as the business has agreed to an 115p per share cash offer and the substantial executive holdings and the reliable bidder make this a done deal… or does it?

The 115p offer was below the then prevailing 120p price and 6% investor Hargreave Hale is apparently not happy. Market makers have confirmed buy trades going through at 114p of late, presumably by punters gambling on another bidder. Completion is due in January, so I'm in line for a useful wedge of cash for 2014 bargain hunting. I was in at 80p and will miss the divvies.

4) Burford Capital (BUR), 8%, 129p, £262m

BUR is a litigation financing group -- it supplies cash to parties involved in US court cases and collects a slice of the damages if they win. Seems to be a growing sector with little correlation to markets and economies, although the practice is not liked by all and is not legal in all US states, which is something to consider.

I preferred BUR to Juridica, the other player in this area, as BUR was the larger of the two, had less cavalier accounting, retained more cash for reinvestment and growth, and now has managers much more aligned to shareholders (they swapped performance fees for a substantial shareholding last year and have agreed to work for BUR only).

BUR does have a decent investment record to date. As at June, it had completed 25 cases and made a $40m profit from a total $88m invested. However, the first half of 2013 did see 7 cases complete for a $5m profit on a total $30m investment, which was a bit disappointing. Indications suggest the second half of 2013 should have improved returns. I have written some further comment on BUR on a thread in another place.

This is possibly the most complicated share I own and I must admit to not entirely understanding the group's UK legal operations, which is different to the legal financing in the States. Anyway, tangible book value of c£1/share matches my average buy price so I am happy for now but I may be open to trim my holding if anything else pops up.

5) Soco International (SIA), 7%, 400p, £1,328m

Former tinpot oil company with its main operations in Vietnam. Not my usual type of investment, but low P/E rating and large net cash balance was tempting at 359p. Plus, directors had decent stakes and are near to standard retirement ages I recall, so underpinning protracted bulletin-board talk of a trade sale.

My rough sums indicate annual trailing earnings in the 50p/share region, and 28p/share of cash, so giving P/E of c7. SIA has also paid out a special 40p/share 'return of value' and has proposed 50% of annual free cash flow to fund further 'returns of value', so perhaps 20-25p per share could be distributed every year. Not bad at 400p. Recent drilling seemed positive and I'd like to think a reserves upgrade could be on the cards soon.

6) Mountview Estates (MTVW), 7%, £67, £261m

MTVW buys properties subjected to regulated tenancies, sits on them until the tenant dies or leaves, then sells. Regulated or sitting tenants have a right to live in certain properties at knock-down rents, so MTVW can buy at well below market value and sell at market value when the property becomes vacant. Firm has an illustrious long-term history, with long-time family management steering NAV and the dividend higher over the decades and sailing through the banking crash.

MTVW's properties are accounted for at cost (current NAV £63/share), which hides their true value as and when the regulated tenancy ends. Over the years, MTVW has sold properties for an average 160% premium or so, so if the tenants all die and all the properties are all sold tomorrow at a 160% premium, and the tax is paid on the gains and other investments are sold at book and all debts are paid off… I think the NAV could be £100/share. Share price now is about 1.1 times stated NAV, which is around the long-term average.

One interesting aside is that the founding family's 53% 'concert party' recently altered their agreement about the "terms of conduct" with the company. The RNS mentioned "including the event of an offer being made for the Company", which raised my eyebrows. The chief exec is I think the last family member in the senior ranks now and I would not be surprised if the wider family are contemplating taking advantage of the current housing buoyancy and want out. I am in at £41.

7) Getech (GTC), 7%, 90p, £26m

GTC supplies geo data and studies to oil and gas companies. I was in at 63p following a look at this year's interims and belief that strong growth, high margins, solid cash flow, sizeable cash deposits and appealing chairman nomenology make this quite an attractive operator… and one that could really catch the imagination of the wider market if the business momentum continued.

Results this week were impressive, though anybody could have foreseen the reported operating profit jump had they added the H2 results from last year to the subsequent H1 results. My sums at 90p suggest a P/E of 14 adjusted for about £3m of cash that itself is adjusted for cash paid upfront by clients. Added bonus -- this young tech business claims to have £2.5m/9p a share of freehold property on the books.

8) FW Thorpe (TFW), 6%, 125p, £146m

TFW is a venerable lighting firm that boasts long-time conservative family management, an illustrious dividend record and cash and various investments that represent 34p/share or 27% of the market cap. There are also freeholds of 8p/share, which are in at cost I think and I sense may be undervalued by a wide margin.

Last annual results showed sales flat and profits down 9%, with the main Thorlux division experiencing a dip in orders earlier in the period. While the RNS for the final results said the division had "resumed a healthy upward trend" in the 2013 financial year (July 2013 onwards), the subsequent annual report confirms in the small print that the division's order book is at a "record high". I hope this month's AGM statement may be a little more bullish than some people expect.

25% of sales are now LEDs and a new Tunnel and Road lighting division has been established, which I reckon has decent potential. I have been told by the managers that TFW is a leader in road and tunnel lighting -- and Thorlux's high margins emphasise this -- while the annual report infers a large opportunity to replace old street lights. I calculate the trailing P/E is 13 adjusted for the cash. I am in at 79p.

9) Record (REC), 6%, 35p, £77m

REC is a currency manager that saw its trading strategies thumped by the credit crunch. Profits crumbled as clients fled and the company even attracted the ire of this discussion board following 'payments for failure' to directors.

(Read this post: After what happened to the prices of REC and Inland and even Conygar, I now reckon outrage at board pay on this discussion board is a contrarian buy signal :-) )

Plus points remain founder management with high shareholdings, a large cash pile, very high margins and super cash flow. Recent statements have shown the client exodus reversing slightly and client money under management rising 20% since their low of last year (REC's services include hedging equity portfolios, and fees grow in line with the portfolios, which tend to grow with the markets.)

REC is due to start work on a new $8bn mandate very soon, and factoring that into my sums, I am looking at earnings of £5-6m or 2.5p/share to pay a dividend of 1.5p/share. Net cash is £25m or 11p/share, so I make the underlying P/E about 9 and yield about 4%. I am in at an average of 15p.

10) 3Legs Resources (3LEG), 6%, 26p, £22m

3Legs is fracking for gas in Poland, but I know nothing about fracking or gas or Poland. What I do know is that the funny company name is due to the group's HQ on the Isle of Man. I also know that 3LEG has plenty of cash.

Basic story is that 3LEG has not found much in the way of gas and shareholders have become fed up. So much so that the market cap now trades below the last reported £36m cash pile and a few investors (such as me) are becoming involved for a return of cash rather than hoping for a gas find.

There was an EGM in April that asked to remove the existing directors and appoint new directors that would essentially return the cash to shareholders. The dissident investors were defeated, but the company did appease the rebels by saying it would have £26m of cash at the end of June 2014 after its current drilling programme. If that projection proves accurate, the cash pile is shrinking by 1p/share a month and was about 38p/share at the end of October.

Since the EGM, 3LEG has issued results that suggested there may be more drilling next year than was implied in its defence circular for the EGM. That is annoying, but there is always a risk with these plays that the directors just wish to plough on and keep themselves in a job.

At least there are major dissidents to help ordinary investors on the shareholder register, with Damille (which launched the EGM) and Weiss each owning 15%, and Quantum owning 10%. The EGM voting showed 33 million votes for a cash return, with about 42 million needed for victory. So an extra 9 million votes (cost c£2.5m) is required to stop the drilling and get the cash back. I have done my bit at 26p. I hope to see more than 30p/share returned within the next 12-18 months.

11) Tasty (TAST), 5%, 118p, £56m

TAST is a small restaurant chain that originally started out as a dim-t chain but changed tack the other year and now mostly serves pizza.

Underlying investment attraction here is the Kaye family involvement -- family have served up ASK Central and Prezzo to investors -- both multibaggers -- and I am hoping TAST is the hat-trick. TAST's sales, profits and outlet count is now about where PRZ was in mid-2004, so my theory is TAST's £56m market cap could turn into PRZ's £291m market cap (ie five-bag) in about ten years.

TAST does have to expand its estate at a quicker rate though. Expansion has usually been funded by share placings, and I am hopeful TAST can see its way to a large £5-10m placing next year and kick start the 'next Prezzo' theory. A recent £2.5m placing by TAST increased the share count by 5% but should help the outlet count increased by 15-20%, from 27 to c32. I want more of that and hope TAST can open 10-20 outlets a year to get on the PRZ trajectory, and not remain on the single-digit opening pace.

I am in at 50p.

12) ???

I am going to skip this one as I have been buying and wish to buy more.

13) Electronic Data Processing (EDP), 4%, 73p, £9m

My NFSC selection for 2013. Read this for background:

I do wonder if EDP could experience some 'late tail' benefit from recent housing activity -- it sells software for builders' merchants. Latest results showed minor positive progress.

Anyway, my revised sums are pointing to earnings of about 5p/share, my version of net cash less pensions and deferred income but including surplus property is showing 26p/share, and it all gives a possible underlying P/E of 9. Underlying yield is 3.7%.

EDP paid a 5p/share special dividend this year following a property sale and another property sale is in the pipeline and could easily herald a 10p/share payout. A small US fund management group claiming to follow the principles of Warren Buffett has bought a 17% stake this year. I am hoping we could see some polite shareholder pressure here to realise some extra value. I am in at 55p.

14) Andrew Sykes (ASY), 3%, 330p, £139m

ASY sells and hires out air conditioners, pumps and heaters. Net cash, super margins and a lowly rating attracted me in at 233p. Only wish I'd bought more rather than waited for a pull back that never came.

Track record is a bit haphazard, as the main (90%) shareholder (and chairman) has in the past extracted sizeable dividends when he fancies rather than when business conditions dictate. A large dividend just before the credit crash was not his best decision, which prompted no payout for the following year.

But the dividend has been reinstated and this year we have seen a 7.1p/share and an 8.9p/ declaration, which look reasonable as earnings are at 26p/share and net cash at about 49p/share. My P/E is about 10-11, with the yield perhaps approaching 5% if the chairman becomes more regular with his divvies. Performance this year may not be as great as 2012 due to no Olympic work, but underlying progress seems alright and I do like the fact extreme weather either way does play into ASY's hands.

15) M Winkworth (WINK), 3%, 190p, £24m

WINK is an estate agent franchising business, primarily serving London but with offices in smart towns in the provinces. Company does not employ agents itself, rather it takes a cut of revenue from its branches in exchange for IT, marketing and office support etc. Margins are very high, cash rests on the balance sheet, dividends are paid quarterly and there is family ownership. I am in at 90p.

Must admit this is my weakest hold at present. Business has promised growth in recent years, but nothing really has ignited profits at least up to now. H1 profits for 2013 were the same as H1 2011 and H1 2010. Cash generation has not been the very best I've seen and the current P/E is the highest I have at 18 if trailing op profits can be sustained at £1.5m.

But you cannot ignore this housing market and WINK was even advertising in the Evening Standard earlier this week by saying it had sold 25% more houses in the last four months than it did in the same time last year. The national average is 16% more, at least according to WINK. So there is scope for a profit 'breakout' next year. I have trimmed this holding to buy other shares this year and could trim further.


Phew. That took a bit of time and it has proved useful to me. This time last year my portfolio consisted of ten holdings and were in order of value -- trackers, REC, ABB, CLIG, FCCN, TFW, MTVW, TAST, WINK and EDP. So bar the now-sold trackers, I have all the other shares. In fact I have bought and sold (well it was bought off me) only one share during the last twelve months (Active Risk), which does not show up on either list. I expect my portfolio members will not change too much in the next twelve months. Hope you found it all useful , too.

Print the post  


Paulypilot's Pub has 3 bars:
Macro Topics - wider investment issues.
Share Ideas - company analysis and discussion.
Other Stuff - what it says.

No Politics in the Pub, Please!
But you're welcome to discuss it on the Political Fools board.
Tweets about The Pub

Closure of the UK Discussion Boards
The UK Discussion Boards are now closed to new posts.