Sage Group - New Purchase

Many people will be familiar with this leading accounts and payroll software company. Sage was founded by a Newcastle University graduate, Dave Goldman in 1981. In 1989, the company floated on the London Stock Exchange and expanded rapidly to become a global operation. Sage entered the FTSE 100 in 1999 riding the crest of the dotcom boom.

Unlike most tech companies which fizzled out as quickly as they rose, Sage has continued to grow its business both organically and via acquisitions and currently has over 6 million customers worldwide and a market cap of £4.1bn. Sage operates in many European countries, North America, South Africa, some N African and Middle East countries, Australia, New Zealand, Malaysia, Singapore and most recently Brazil.

Results

Last week the Company announced final results for the year to 30th September 2013 (link via Investegate). Underlying revenues increased 4% to £1.26bn, earnings were up 12% at 22.27p and adjusted dividend is up 6% at 11.32p (rebased).  The dividend for the year is covered 2x by underlying earnings per share. Also, last June, the Company paid out a further 17p per share special dividend.
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Sage announced a strong acceleration in adoption of Sage One - their cloud solution for smaller businesses - with over 21,000 paying subscribers in the UK & Ireland, an increase of more than three-fold in the past 12 months

Commenting on the results Guy Berruyer, Chief Executive, said: "I am pleased to report a strong set of results, with good growth across all regions and our strategic initiatives progressing well.  These results highlight the strong appeal of our offering to SMEs, great execution in delivering on our plans and the benefit of a clear strategy, which focuses on our most significant growth opportunities. The strategy is working and growth is accelerating.  We remain confident of achieving our target of 6% organic revenue growth in 2015, and anticipate further progress during the year ahead."

A feature of the year has been successful execution driving good results across all regions.  North America reported organic revenue growth of 6% for the year, a significant acceleration from the 2% reported in 2012. Highlights included good growth from premium support and the success of Sage ERP X3.

Europe achieved organic revenue growth of 2% for the year, a positive performance given the macroeconomic environment and an improvement on growth of 1% in 2012.  The highlight was the UK & Ireland, with organic revenue growth of 5% for the year, although it was encouraging to see France and Germany return to growth in H2 and for Spain to exit the year with modest growth.

AAMEA delivered good organic revenue growth of 9% (2012: 12%), with a very strong performance in South Africa offset by a weaker Australian performance.  Highlights for South Africa included a strong mid-market performance and strong growth in the rest of Africa.  Whilst Brazil is not included in organic growth until 2014, the business delivered good growth notwithstanding the slowdown in the economy.

Approximately 15% of Group revenues are now generated from attractive growth markets in AAMEA and Brazil.

Sage has demonstrated its ability to expand its operation and achieve good levels of growth. The Company have doubled revenue growth from 2% to 4% over the past 12 months and say they are confident of delivering their target of 6% revenue growth in the coming year.

I have now added it to my ISA portfolio at the initial price of 369p and yield of 3%.

As always, please DYOR.

Plastics Capital - New Purchase

I first became aware of this AIM-listed company via John Rosier’s blog JIC

Plastics Capital (PLA) is a specialist plastics products manufacturer focused on proprietary products for niche markets. The Group has four factories in the UK, one in Thailand and sales offices in the USA, Japan, India and China.

The Company was established by Faisal Rahmatallah and Arun Nagwaney and was incorporated in December 2002.  Since then the company has grown mainly through acquisitions and was listed on the AIM market in London in December 2007.

Currently approximately 60 per cent of sales are exported to over 80 countries worldwide and production is concentrated in the UK where significant engineering know-how and automation underpins the Group's competitiveness.  The Group has approximately 300 employees within the four key operating subsidiaries: BNL in Knaresborough (North Yorkshire), C&T Matrix in Wellingborough (Northamptonshire), Palagan in Dunstable (Bedfordshire) and Bell Plastics in Poole (Dorset).

The defining characteristics of Plastics Capital’s businesses are:

• Leaders in their niche industrial markets ­in many cases with no direct or limited competition
• Long established (25 years or more) with long term customer relationships and high retention rates
• "Mission critical” to customers with our products frequently representing a low fraction of customers’ costs
• Highly automated with bespoke manufacturing processes that have been perfected over many years and are hence very difficult to replicate

Bell Plastics is the global leader in manufacturing highly specialised plastic mandrels used predominantly by the manufacturers of hydraulic and other industrial hoses in their own manufacturing processes.  Hose mandrels are long, high-specification rods around which reinforced industrial rubber hoses are formed and the mandrel a critical consumable in the global rubber hose industry.

BNL is a market leading specialist designer and manufacturer of innovative plastic bearings products as well as plastic gears, shafts and bushes.  Using in-house expertise, BNL works in long term partnership with its customers, designing and developing customised solutions for major multi-national OEMs.

C& T Matrix manufactures creasing matrix, a consumable product which is an integral part of the manufacture of cardboard boxes, cards, point of sale material and the like.  Creasing matrix enables folds to be made in cardboard and facilitates accurate high quality creasing prior to folding, enabling cardboard to be creased automatically and accurately by high speed box making and printing machines.

Palagan manufactures blown polyethylene films used in high performance industrial packaging.  Palagan focuses on small and medium-sized UK and European customers with bespoke needs in terms of film strength, tear resistance, printing, surface finish and the like.

Results

Last week, the Company issued results for the half-year to 30th September 2013. Revenues increased 4.1% to £16.3m. Mandrel increased sales by 56% compared to the same period last year.

Excluding the one-off realized foreign exchange gain in H1 2012-13, profits increased by 4.4% and earnings were up 7%. Net debt was reduced by £0.5m to £8.1m.

PLA has increased the interim dividend over 50% to 1.0p payable 30th December (ex div 11th December) and offers a prospective yield of 2.4% this year. The projection is for 4.0p - 3.2% next year and 5.0p - 4%  in 2 years.

Commenting on these results, Faisal Rahmatallah, Executive Chairman, said: “I am pleased to report that growth in sales and in underlying profitability have both resumed. In the half year, demand from Europe has improved, new business has contributed to growth across the Group, additional sales and marketing investment has continued and new capacity has been added for both industrial films and machined bearings. We have also recently announced the acquisition of Shengli, the leading Chinese producer of creasing matrix, which is a major step forward in this region. The Board expects the Group to trade in line with expectations for the rest of the year.” 

This appears to be a well-run operation and PLA offers exciting opportunities for growth, particularly with its new base in Shanghai. I made an initial purchase today at 124p.

As ever, slow & steady steps…..

Dialight - Re-Purchase

A couple of months back I decided to sell my holding in Dialight following a second warning on profits - here's the link.

Since the sale the share price has retreated nearly £3 and my alert was triggered last week when the price fell below 900p. Last month, Dialight issued an interim management statement saying that essentially expectations of underlying profit for 2013 were in line with the previous year.

I think there may well be further price weakness, however, I believe the long term prospects are positive and I have repurchased today at 880p which is the lowest the sp has traded over the past 12 months. Fingers crossed for some positive news on orders in the new year.

Personal Assets Trust - Half Year Results

I added this to my portfolio of investment trusts earlier this year - here’s a link to the post. Its investment policy is to protect and increase (in that order) the value of shareholders' funds per share over the long term.

Yesterday, they issued results for the half-year to 31st October 2013.

Over the six months period, NAV per share  fell by 4.9% to £334.75 compared to a rise of 5.8% in its comparator, the FTSE All-Share Index. PNL's share price fell by £20.40 to £336.60 over the same period, being a premium of 0.6% to the Company's NAV at that date.

6m Comparison PNL -v- FTSE All Share
(click to enlarge)

As the markets have risen quite a bit over the past year or so, I thought it would be a good plan to park some of the gains from a couple of share sales in a safe haven. I was not expecting a great share price surge from my holding but I must admit to being disappointed to be down around 3.5% since purchase.

 In my earlier post I said "I also like the concept of not losing money. I am reminded of legendary investor Warren Buffett’s investing rules - Rule 1, never lose money. Rule 2, Never forget Rule 1"  mmm….

Of course, four months is too soon to reach a judgment but I note from the report that the 3 year performance has not been too good  -  "Over the three years to 31 October 2013 the NAV rose by 10.5% compared to the FTSE All-Share Index's rise of 22.1%. This underperformance of 9.5% is equivalent to 3.3% per annum over the three year period".

I will be looking to see some signs of the share price making progress over the coming months.

easyJet - New Purchase

This FTSE 100 firm has not appeared on my radar until this weeks final results caught my attention.

Pre-tax profits for the year came in at £478 million, up over 50% on last year. The company are proposing a final dividend of 33.5p (last year 21.5p) based on its existing policy of paying out one third of annual profit after tax.
In addition they will also be paying a special dividend of 44.1p representing a return to shareholders of £175m. Payment will be made on 21st March 2014.

Commenting on results CEO, Carolyn McCall said:

"easyJet has delivered a strong full year performance and made significant progress against executing its strategic priorities.  The results reflect easyJet's continued structural advantage in the European short-haul market against both the legacy and low cost competition.   

Our disciplined approach to capacity allocation has resulted in a meaningful growth in earnings, profit margin and return on capital employed and we have ended the year with a strong balance sheet and a low level of gearing. As evidence of our continued confidence in the future prospects of the business the Board has recommended to return £308 million to shareholders through the combination of an ordinary and special dividend.  

We will continue to deliver our strategy of offering our customers low fares to great destinations with friendly service so that we can continue to win in a more competitive market. This means we are well placed to continue to deliver sustainable returns and growth for our shareholders."

The company has further strengthened its capital position - as at 30 September 2013, easyJet had cash and money market deposits of £1.2bn, an increase of £354m on the previous year and net cash of £558m against net debt of £74 million at the same period last year.

easyJet 12m price chart

The share price has performed strongly over the past year and since the results were announced, it is up over 100p so I would not be surprised to see some pull back in the coming weeks. On a current p/e of 14, I believe the shares are still reasonable value and I have therefore made my usual ‘half’ purchase today at 1409p giving a prospective yield of 5.5% subject to approval of shareholders at the AGM next February.

As ever, please DYOR.

Centrica - New Purchase

Last Friday my alert for a possible purchase below 340p was triggered. This has been on my watch list for some time.


What it Does
Centrica owns British Gas, the "downstream" business providing gas and electricity to consumers. British Gas is the UK's leading energy supplier, and serves around 12 million homes in Britain – nearly half of the country's homes – as well as providing energy to one million UK businesses.

Centrica Energy's portfolio of both on and offshore wind farms is capable of producing enough electricity to meet the needs of over 400,000 homes. Their 270MW Lincs offshore wind farm achieved first power last year and became fully operational in September 2013.

Centrica operate a fleet of six Combined Cycle Gas Turbine (CCGT) power stations across the UK. The latest, completed in 2010, is at Langage in Devon. Rated at 895MW, it is one of the most efficient generators of its type in the world.

 In 2009 they completed a deal with EDF to acquire a 20% equity interest in EDF Energy Nuclear Generation , the operator of eight existing nuclear power stations in the UK. This was, in part, funded by the sale to EDF of Centrica's 51% equity stake in the Belgian business SPE.

Direct Energy, its US business, is one of the largest providers of electricity, natural gas and related services operating in 10 Canadian provinces and 46 U.S. states plus the District of Columbia., servicing the energy needs of 6 million customers. It owns and operates 4,550 natural gas wells in Alberta, Canada, and has three gas-fired power plants and power purchase agreements totaling 813 megawatts of wind power, in Texas.

Centrica's LNG announcement in March places it at the heart of a global shift where North American resources will play a larger role in the energy supply market, this means they are in a position to help customers manage the pricing and use of energy to their advantage.

Recent Problems

As we all know, the big 6 energy companies have been in the spotlight in recent weeks. Firstly, Labour are promising to freeze energy prices if they get elected in 2015. Secondly, all have recently announced above-inflation energy price rises for the coming year.

Centrica delivered a slew of bad news last week as it issued a profits warning and said the political row over energy prices meant it was now less likely to invest in new UK power plants to keep the lights on and despite implementing a 9.2% price rise, profits would most likely be the same as last year, not the 4% increase previously forecast.

As a result the share price has tumbled from a recent high point of over 400p to an 11 month low of 336p on Friday morning.

3 yr price chart (click to enlarge)

Although the share price weakness could continue for some time, I believe the long-term outlook is not as bleak as is currently being painted. Centrica is a large diversified energy company with a market cap. over £17bn. I am hoping that all the bad news has been factored into the reduced share price - but expect price volatility for quite some time - and I have therefore decided to add CNA to my ISA portfolio at the purchase price of 337p.

Digital Look forecast profits of £2.53bn and a dividend of 17.3p for the coming year giving a forward yield of just over 5% and cover of 1.6x earnings.

They are due to release Preliminary Results for the year ending 31st December on 20th February 2014.

As always, please DYOR.

Nationwide BS - Interim Results

In late 2008 when deposit account interest rates started to decline from the heady heights of 6%, I started to look around for alternative ways to generate income. I looked at some of the permanent interest bearing shares (PIBS) offered by the likes of the Coventry and Nationwide and liked what I saw and so bought some to add to my fixed interest portfolio.

The Nationwide PIBS I selected were their 7.971% (NABA) which is due to be called (redeemed) in March 2015. If this is not called, the reset rate is the prevailing gilt rate + 4.45%.

The second one I selected was their 6% (NANW) - call date December 2016. The purchase price of both was significantly lower than their current prices and I have enjoyed a handy 8% average income.

Of course, to achieve a higher income, I have moved up the risk ladder - the higher income (as well as capital) is only as good as the institution issuing the security. PIBS holders rank behind all other lenders and depositors in the queue for repayment should the institution fail. They are also non-cumulative, so any unpaid coupons do not have to be made up later.

Nationwide is the UKs largest mutual building society and Britain‘s 3rd biggest mortgage lender.

The Society has recently issued results for the 6 months to end September 2013. Looks like the year is off to a strong start with income up 25% to £1.39bn, statutory profits up162% at £270m and core tier 1 ratio (a measure of financial strength) up from 12.3% to 14.2%.(The Coventry BS is the highest at 22.5%, Barclays Bank is currently 11.3% and Lloyds Bank 9.6%).

Commenting on the results CEO Graham Beale said:

"We have continued to play a leading role in the financing of the housing market, consistent with our role as the UK's largest mutual building society: our gross mortgage lending is up 37% at £14.0 billion, a market share of 15.4%, and our net lending is up 75% at £5.6 billion. This represents our highest six month lending period for five years.

We have placed a particular emphasis on supporting first time buyers, helping 30,400 into a home of their own, representing support for more than one in five first time buyers. We have balanced our mortgage growth with an inflow of retail savings and we have increased our deposit balances by £5.4 billion, with a primary focus on rewarding customer loyalty".

I feel reassured with these results following all the problems this year with the other mutually owned bank - Co-operative (less said the better).

Henderson Far East - Final Results

I last posted on HFEL back in April following the half-year results. They have today issued full year results to end August 2013.

HFEL seeks to provide a high level of dividends, as well as capital appreciation over the long term, from a diversified portfolio of investments - currently around 60 - traded on the Pacific, Australasian, and Indian stock markets.

Building on last years total return of 8.8%, the Company have reported a share price total return increase of 11.9% compared to the benchmark index increase of 9.9%.

The results are very similar to SOI which issue full year results for the same period last week - here's the write-up. The share price performance of HFEL over the past year is slightly ahead despite the higher yield -(however SOI is ahead over the longer period.)

12m comparison HFEL -v- SOI

HFEL is the highest yielder of my 3 Asia-focussed investment trusts. Over the year, dividends (paid quarterly) have been lifted by 6.3% from 16p to 17p giving a yield of 5.2% at the current price of 328p. The dividend was comfortably covered by revenue income of 18.05p per share and the surplus has further strengthened reserves which currently stand at 96% of dividends paid in the past year.

Welcome news on charges - Henderson have agreed to take a reduction in their annual management fee from 1.0% to 0.9% of the total value of the fund's net assets - there is no performance fee. Fees and expenses for the past year were £4.5m - just under 1.4% of NAV.

As ever, slow & steady steps...

Edinburgh IT - Interim Results

I hold this investment trust in both my ISA and SIPP Drawdown portfolios and recently topped up my holding following a dip in the share price after news that the manager Neil Woodford was to leave Invesco (here’s the link). Over recent weeks the price has been slowly recovering and today is 583p.

They have today issued half-year results for the period to 30th September 2013. Share price total return has advanced by 7.2% compared to the FTSE All Share benchmark index gain of 3.8%.

The Board has declared an unchanged first interim dividend of 5.0p which will be paid on 29 November 2013 to shareholders on the register on 22 November 2013. The current yield is 3.9%. Revenue return is up 7.1% over the past 6m at 12.1p per share - not quite covering the 12.8p paid in dividends.

2013 year to date performance -v- benchmark index
(click to enlarge)

Performance Fee

A performance fee is payable in respect of each three year rolling period in which the Company outperforms its benchmark index plus a hurdle of 1.25%p.a. This fee is capped at 1% of the period end net assets, before deduction of the fee.

As the Company has performed strongly in the two and a half years to 30 September 2013 in comparison to the Index, the trust are liable for payment of a chunky capped fee of £11.7m. As I have said in relation to other trusts, I am no fan of these fees - I think it would be more acceptable if the fees could be clawed back during periods of any under performance. Having said that, I knew the charging structure before purchasing so I am not complaining.

Manager

The board have had discussions with Invesco but are still to make a decision regarding the future management of the trust. Should they decide to stick with Neil Woodford they will need to give 3 months notice to terminate the current arrangements. The other option would be to stay with Invesco and hand over the lead management to the likes of Mark Barnett who will be taking over as manager of Woodfords funds when he departs next April.

Turning to the managers report, Woodford is clearly no supporter of Labours proposed price freeze for the big 6 energy companies
“The holdings in Centrica and SSE fell in value towards the end of the period, on the back of the 20 month utility bill price freeze proposed by the Labour Party should they win the next general election. This policy would clearly be popular with the electorate but the economics of it are in our view absurd. We believe it is irrational for any privately-owned company to sell its products or services at a loss and we would encourage any company that was forced to do so to simply stop supplying. Furthermore, energy bills have been increasing in recent years due to higher commodity prices and as a result of policies designed to increase the UK's sourcing of energy from renewables. Prices have not increased through company profiteering - there have been 20 separate inquiries into the energy market since 2001, none of which have found evidence”. The trust holds SSE and British Gas owner Centrica.

Concluding his outlook, Woodford cautioned that "returns over the next three years are likely to be somewhat lower than over the last three years, purely as a consequence of the higher valuations that we now see in our market."

I would like to see the uncertainty over the management of the trust resolved as soon as possible. The outcome I would prefer would be to stay with Neil Woodford at his new fund management set-up combined with the dropping of any performance fees. We shall see...

Sainsbury - Interim Results

Sainsbury have today announced half-year results for the 6m to end September 2013. Sales and profits continue to impress and have been boosted by growth in own-brand food which is moving ahead at twice the rate of branded goods, and even faster growth in their range of non-food goods such as general merchandise and clothing.

Profit before tax is up 9.1% to £433m (2012/13: £397m) whilst basic earnings per share is up 8.5% to 17.9p (2012/13: 16.5p) aided by a reduced corporation tax levy.

The Board has proposed an interim dividend of 5.0p (2012/13: 4.8p), up 4.2% year-on-year. This is in line with their policy of paying 30% of the prior year's full-year dividend as an interim dividend.

In addition, online grocery sales have increased some 15% with annualised sales now exceeding £1bn. Online customer total spend is more than double the average supermarket-only shopper

Commenting on these results CEO Justin King, said,
"Our share of the grocery market is the highest for a decade at 16.8 per cent following 35 consecutive quarters of like-for-like sales growth. We are helping customers Live Well for Less through high-quality, affordable own-brand products, Brand Match, Nectar and targeted coupon-at-till promotions.

"Whilst customers' budgets remain tight and any recovery in the economy may take time to take effect, our consistent strategy and strong values-driven culture mean we are well placed to continue to deliver for customers, colleagues and shareholders."

On the new business front, they recently launched a new mobile phone network - Mobile by Sainsbury's - a joint venture with Vodafone, offering high-quality, value-for-money mobile phone tariffs and handsets. SIM cards are now available in all stores, with 300 stores also offering a range of handsets.

The results have been well received by the market and in morning trading the share price was up 4% at 415p. I have a figure of 17.6p pencilled in for the full-year dividend which would give a forward yield of 4.2%.

More on this one following the Christmas trading update in early January, but happy to continue holding.

As always, please DYOR.

Shares Portfolio Update

In a previous post back in May, the portfolio was showing a return of just 8% compared with the FTSE 100 being up around 15% and my investment trust portfolio returning 16%.

I was more or less decided to give up on the shares and transfer to investment trusts. In subsequent weeks and months I disposed of Aberdeen Asset, DS Smith, Greggs, Dialight, Pearson and RPC Group. Looking back, I now regret having disposed of DS Smith and RPC Group - they are still on my watch list with a view to possible re-purchase at some point. Dialight has had a bumpy ride and is currently down nearly 20% at 950p - I have an alert to consider buying back in should the price dip under 900p.

The proceeds were recycled into a number of ITs - Aberdeen Asian Income IT, Finsbury Growth & Income Trust, Vanguard All World High Yield ETF and Personal Assets Trust.

Of course, as soon as I am more or less decided on one course of action, I start to think I will miss the individual shares portfolio and in recent weeks I have purchased shares in AIM-listed drinks maker Nichols and retailer Next.

Overtrading


My fellow investments blogger Miserly Investor set out some common mistakes

"You get into the office, boot up your computer and think ‘I’ll just have a quick look how the portfolio is getting on this morning’…… and then proceed to have a quick look every hour after that. Such an obsession with share prices will do more harm than good as it is likely to either induce you into trading too much or convince you that the market is right and there’s some bad news waiting around the corner for a share which you had convinced yourself was in perfect health. Forget about share price fluctuations, speculation and other noise and keep focused on fundamentals."

Of course, individual shares are more volatile than collective investment vehicles like investment trusts and exchange traded funds. They are also widely covered by analysts and media pundits and there is often a great deal of conflicting opinion on discussion boards and blogs! All this additional information can contribute to uncertainty and result in making rash decisions.

Maybe writing regular posts for this blog is not conducive to making sensible investment decisions!

Portfolio

Here’s the portfolio showing current valuations and including dividends accumulated since January. The disposals are indicated (S) and their ‘current price/value’ represents the net sale proceeds not the value of the shares at current prices.

portfolio 8th November 2013
(click to enlarge)

Total return on the FTSE 100 is up around 15.5% since the start of 2013 at 6,708 (incl. dividends), so the portfolio is still a little short of the returns I may have received in a basic FTSE 100 tracker but certainly a big improvement on May.

As ever, slow & steady steps…..

Schroder Oriental Inc. - Full Year Results

This is one of my long-standing income trusts providing exposure to the Far East and Australian markets. I last updated on SOI after the half-year results in May.

Yesterday, they issued results for the full year to end August 2013. Following on from last years return of 12.3%, net asset value total return for 2013 has increased by 15.6%, well ahead of the benchmark index of 11.3%.

The dividend has been increased by 9.5% from 6.8p to 7.45p. A final dividend of 3p will be paid 29th November. Based on the current share price of 188p, the yield is 3.9%.

Net asset per share have increased 10% from 165p to 181.4p.

Over the past year the trust has continued to issue a total of 14.9m new shares at a slight premium to NAV (2012 - 9.5m). Furthermore, in June, the Company successfully completed a "C" share issue and 50.85m shares were issued, raising a total of £50.8m. The "C" shares were subsequently converted into 27.2m ordinary shares on 1st July 2013.

As a result, the net assets of SOI have increased some 36% from £290m to £396m. Of course, management fees correspond to the value of net assets and these have risen from £3.5m (2012) to £5.1m this year including a chunky performance fee of  £2.4m. Ongoing charges are around 1.6% which is probably the going rate for this sector but at the top end of what I like to pay. I am not a big supporter of performance fees and many trusts are opting to remove them from their charging structure.

The basic fee is 0.75% of the net assets. The Manager is also be entitled to a performance fee of 10% of the amount by which the adjusted net asset value at the end of the relevant calculation period exceeds a hurdle of 107% of the adjusted net asset value at the end of the previous period multiplied by the time weighted average of the number of shares in issue during the year.

The portfolio is spread far and wide - the main areas for investment are Australia 25%, Singapore 18%, Hong Kong 16.5%, Taiwan 13%, Thailand 9.3% and China 9.2%.

The outlook for the coming year is cautious following the economic slowdown over recent months. The investment manager says:

"There are some big questions facing Asia, as is usual in the wake of a significant correction in the regional markets. There are doubts surrounding growth and some of the regional currencies, but the most significant is the pace and extent of a US led tightening in credit conditions. A stronger US dollar and perception of tighter money are never good for Asian asset values, and it is difficult to paint a positive near-term picture. The concern over tapering may have been overdone in the short-term, but to an extent the genie is out of the bottle and will not be easily put back in. We are in an uneasy market phase where the best of liquidity is behind us, but earnings growth support is unclear. However, one should not lose sight of the fact that if higher US treasury yields are a harbinger of economic spring for the global economy, then plenty of Asian companies and markets stand to benefit."

I am happy to continue holding for now, especially if they maintain the above-inflation growth in dividends but will keep a close eye on charges.

It will be interesting to compare the performance with Henderson Far East Trust which is expected to report its results in the next week or so.

                            ____________________________________________________

Finally, a special Happy Birthday wishes to Eddie xx

Imperial Tobacco - Full Year Results

I finally managed to quit smoking for a second time in 2007. Over the past few years, I have therefore saved quite a bit of money - maybe around £4,000 as a result - and last year I thought it may be a good idea to invest some of these savings in IMT - I guess I harbour a sense of perverse satisfaction in receiving an income from something that would otherwise shorten my life expectancy!

Imperial are world leaders in high margin premium Cuban cigars and fine-cut tobacco. Some well known brands include Gauloises Blondes, JPS, Lambert & Butler, Golden Virginia and Drum and Rizla papers.

IMT have today released full year results for the 12 months to 30th September 2013. It is no secret that the Company has been struggling during the past few years. Indeed, a combination of razor-thin profit margins from Imperial's European logistics operation and falling cigarette sales have pressured the company's bottom line.

Annual tobacco revenue fell 1% from £28.5m to £28.2m  as volumes declined by 7%. However, pre-tax profit were marginally up at £2.64m compared to the previous year’s £2.62m as net finance costs dropped and earnings per share rose to 210.7p from 201.0p

Alison Cooper, Chief Executive, said:

"Our focus on driving quality growth and transitioning the business has delivered another year of earnings growth and further strengthened our sustainability.

Market conditions remain tough. We remain focused on maximising our long-term growth potential and in 2014 our priority is to continue transitioning the business: increasing investment behind our key brands and markets to drive quality growth; delivering our cost optimisation programme; and implementing our stock optimisation programme. A reasonable working assumption for 2014 therefore is modest growth in earnings per share at constant currency, with another strong dividend increase of at least 10%.

Our actions in 2013 and over the coming year will provide us with a strong platform for growth in 2015 and beyond."

They have not disappointed on shareholder return and propose to lift the full-year dividend by 10% to 116.4p. The results appear to have been well received and in morning trade the share price was up over 2% at 2360p giving a yield of 4.9% and cover of 1.8x adjusted earnings. The promise of a further 10% rise for the coming year would give a figure of around 128p and forward yield of 5.4%.

I need to take care not to become too overweight with this share as it is widely held in several of my investment trusts e.g. City of London and Edinburgh which I have recently topped up.

New City High Yield - Final Results

NCYF invests in high-yield fixed-interest securities and has produced positive NAV total returns in each of the past four years.

They have recently issued full year results (not sure why it takes four months?) to end June 2013. Net assets have increased 19% from £124m to £147.8m. It has also grown its dividend from 3.57p in 2007/08 to currently 4.1p for the year to the end of June 2013, to a give a yield of  6.4%, paid quarterly. It should also be of note that the dividends are paid entirely out of income received by the Company with no element of capital included.

The Company's net asset value per share rose by 7.4% to 60.53p during the year; when this capital measure is adjusted for the payment of dividends of 4.1p, the net asset value total return was 14.9 per cent.

Dividends have been more than covered by earnings of 5.42p per share and revenue reserves have increased to the equivalent of 16 months current dividend distribution.

As in previous years, the trust continues to trade at a premium to net assets and the management have raised £15m via the issue of new shares - equivalent to 10% of the Company’s share capital and this has helped to reduce the percentage of ongoing charges for the year from 1.21% to 1.18%. This is, of course a percentage of net assets and in real terms, total expenses increased from £1.5m to £1.74m.

one year price chart

The trust has a widely diversified portfolio, including some high-yielding convertibles and equities, with useful exposure to floating-rate notes to guard against inflation.

I have held this trust in my SIPP for the past 3 years and it forms part of my bonds and fixed income allocation along side my Coventry Building Society PIBS. The charges are a little on the high side but the returns are satisfactory and it provides an element of diversification.

As ever, slow & steady steps...

NEXT - 3rd Quarter Trading Update

My recent purchase of NEXT is off to a good start after today’s 3rd quarter trading update.

For the full year to January 2014, the company now estimates that pre-tax profit will grow between 4.6%-9.4%, up from a previous forecast range of 2.2%-8.6% growth.

Online catalogue sales via NEXT Directory increased by 10.7% over the quarter whilst store retail sales remained fairly flat.

Basic EPS growth has been lifted to a range of 15%-21% from the previous estimate of 12%-19% growth. Earnings will be enhanced by share buy-backs. They have so far purchased £295m and say they may purchase up to £50m more shares depending on the prevailing price. A further boost to eps will come from lower corporation tax rates this year.

Mr. Market seems to like the figures and the share price is up over 4% in morning trading @ £54.25.

The company will report on their important Christmas trading figures on 3rd January.

AMEC

Originally a construction company focused on the UK, AMEC has during the last decade transformed itself into one of the world's leading engineering, project management and consultancy groups. Clients include BP and National Grid , and projects include building oil pipelines, constructing mines and designing power stations.



Major accomplishments include :

• Working on the world’s first oil sands mine in the 1960s 
• Working on the restart of reactors one and two at Bruce A Power Station in Ontario, the largest nuclear project in North America 
• Thirty five years of successful working in the North Sea, providing asset support and maintenance on more than half of the UK North Sea’s producing fields 
• Engineering, procurement and construction management of Canada’s first diamond mine, Ekati 
• Numerous retrofits and expansions of the world’s largest lead-zinc mine, 120 km north of the Arctic Circle in Alaska, US 
• Installing the first automated phone system in South America 
• Construction of the Beauharnois Hydroelectric Station, with the largest number of generators of any hydro station in the world. 

Beauharnois Dam, Quebec

Its goal is to deliver profitable, safe and sustainable projects and services for their customers in the oil and gas, mining, clean energy, environment and infrastructure markets, including sectors that play a vital role in the global and national economies and in people’s everyday lives.

They design, deliver and maintain strategic assets, offering services which extend from environmental and front-end engineering design before the start of a project to decommissioning at the end of an asset’s life. Customers, in both the private and public sector, are among the world’s biggest and best in their fields - BP, Shell, EDF, National Grid and U.S. Navy to name just a few. 

Amec are truly international, with major operations centers based in the UK and Americas and offices and projects in around 40 countries worldwide. 

Half Year Results

Last year they served up a tasty 20% dividend hike to 36.5p per share following the company's strong cash generation and future growth potential. 

For the six months to 30th June, the company were trading inline with expectations - earnings per share are up 16% at 40.4p and the interim dividend has been lifted by 15% to 13.5p. They expect earning to exceed 100p over the coming year.

In September, Amec walked away from a proposed takeover of FTSE 250 oil services and engineering company Kentz and, in the absence of another acquisition, the board will consider the option of an additional cash return to shareholders before the end of the year.

The share price received a boost over the past week on news that the Hinkley Point C nuclear power station would go ahead after a deal with French concern EDF. Deutsche Bank suggested that Amec is line for at least £500m of engineering work and could compete for further business to take that total to more than £1bn.

The broker does not expect any material impact in the current year, but it is a boost for sentiment, which, as nuclear accounts for about 15% of Amecs group earnings, is an important part of the investment case.

At the current price of 1160p the shares trade on a forward p/e of 12 and yield of 3.2%.

More on Amec following the full year results next February

B/Rock N. American Income Trust - Portfolio Sale

Over the past few days I have been taking a closer look at BRNA. Here's my post earlier this year following the half-year results.

I do not closely monitor the US markets but I am aware that the Dow Jones has risen from around 13,000 to almost 15,500 this past year - just under 20%. When I looked at BRNA it is up less than 10% over the same period.

BRNA v S&P 500

I fully accept the trust has delivered the 4p dividend as promised so no complaints there - what concerns me is the lack of progress with NAV and share price.

Whilst I invest primarily for income, I do not want this to compromise capital appreciation and total return. There may be more explanations for the NAV underperformance when the final results are published for the full year to the end October.

It has been a close call but for now I have decided to offload and sold at the price of 112.5p.

Having regard to the recent price fall following the uncertainty of Neil Woodfords position, I have recycled the proceeds into a top-up of Edinburgh IT @ 569p.

"The DIY Investor" - New Book Review

Well, my complimentary review copy of The DIY Investor - (How to take control of your investments and plan for a financially secure future) arrived this week. I spent a wet midweek afternoon curled up on the sofa digesting, cover to cover - its an easy read, well written, clearly laid out and presented and has an unpretentious style.

Author, Andy Bell is a DIY investment pioneer. He co-founded A J Bell in 1995 since when it has grown into one of the largest providers of low-cost investment and stockbroker services in the UK. Many DIY investors will already know who he is and may wish to benefit from his experience and expertise. Andy and his business have been recognized with a number of entrepreneurial and business awards over recent years, including winning the Ernst & Young Business Consumer Entrepreneur of the Year 2009.

Essentially, the target audience are aspiring new investors who are seeking ways to learn how to take control of their own investments. In the words of the author ‘it is aimed at people who want to invest for their future and then get on with the rest of their lives, not those who want to be part-time or full-time investors’.

Having said that, there is plenty of substance for the more experienced investor as well as practical guides - I particularly enjoyed the chapter on building a risk-adjusted portfolio.

The basic question to be answered by the reader is ‘Am I a DIY investor’?

The first part of the book looks at important areas such as setting investment objectives - short term, medium and longer term such as pension planning for example. It also covers ways to remove emotions from rational investing.

Part 2 looks at the products available to the diy investor to try to achieve those objectives e.g. ISAs, Dealing Account and SIPP - the latter in some detail with separate chapters covering what SIPPs can invest in and also taking benefits from a SIPP. Plenty of great content from an industry pioneering leader.

The next part of the book covers the various types of investments - funds, trackers and investment trusts as well as the importance of balancing equities with gilts, corporate bonds, gilts, cash and PIBS.

The final few chapters are called putting it all together - developing a good strategy, building a portfolio,  looking at risk, as well as various aspects of taxation such as capital gains, inheritance etc.

By the end of this book, the reader should know with some degree of certainty whether they are (or are not) a diy investor.

Many people would not undertake building their own house or repairing the car’s engine - they would pay a builder or garage mechanic. Yet when it comes to taking some of life’s most important financial decisions such as pensions or long-term investments, more and more people are opting to dispense with a financial adviser and go DIY. Armed with ‘The DIY Investor’, I am sure many more people could get along very well adopting a diy approach.

So, if you are thinking of starting out on the road to diy investing, or are already part-way along the road, I can heartily recommend this book and I have added it to my list of books and have included a link to Amazon for those who may want to 'Look Inside' (see tab above).

Leave a comment and let others know what you think of the book if you read it.

Edinburgh Investment Trust

The share price of EDIN fell sharply this afternoon following the announcement that star fund manager Neil Woodford will be leaving Invesco Perpetual next April to start up his own fund management company.

At the time of posting, the shares are down around 5% at 572p.

The board of Edinburgh issued a statement saying they are reviewing future arrangements and will make a further announcement in due course.

The trust is independent of Invesco and it is possible they will be able to negotiate with Woodford for him to stay on as manager. The alternative may be to appoint Mark Barnett who will be taking over from Woodford as manager of the Perpetual Income fund next April.

Barnett currently manages Perpetual Inc. & Growth IT which has a decent track record.

More on this in due course.

Abbey Protection - Takeover

I had been thinking I would transfer AIM-listed Abbey Protection from my trading a/c to my ISA but, it seems following yesterdays announcement, I will not need to bother.

The directors have agreed a sale of the company to US insurer Markel for an agreed price equivalent to 115p per share. This is a 5p discount to the recent market price of 120p. In my experience, it is unusual for the directors to agree a sale of the company for LESS than the current market value so, for me there is probably more to this than is immediately apparent.

Chairman Tony Shearer said ' The board believes the acquisition by Markel gives Abbey an exciting opportunity to build a platform for further growth through Markels scale and financial strength'.

It appears to be a 'done deal' and there is probably nothing small shareholders can do.

I will therefore be looking at possibilities for another purchase or top up when the proceeds are received.

Next - New Purchase

Next (NXT) has been on my watchlist for over 2 years. Like recent acquisition Nichols, I have been patiently awaiting a pull-back in the share price.

Next 2 yr share price chart
(click to enlarge)

As can be seen from the chart, there have been very few significant share price falls so I think the time has come to bite the bullet and purchase my usual ‘half’ with a view to topping up at some future date.

Background
The retail chain was launched in February 1982 and the first store opened with an exclusive coordinated collection of stylish clothes, shoes and accessories for women. Collections for men, children and the home quickly followed. NEXT clothes are styled by its in-house design team to offer great style, quality and value for money with a contemporary fashion edge.

Today NEXT trades from more than 500 stores in the UK and Eire and almost 200 stores in more than 30 countries overseas. Online shopping was introduced in 1999 and the entire book became available to shop from on the internet, page by page – another first in home shopping in the UK. NEXT Directory now also serves customers in around 60 countries outside the UK. The group generate around 70% of sales via stores and 30% online - by way of comparison, M&S online sales are around 7%.

NEXT has made good progress in the first half to July 2013. Sales were 2.2% ahead of last year, driven by a  combination of additional retail selling space and increased online sales through the NEXT Directory.

Financial highlights are as follows:

•  Sales up 2.2% at £1,677m 
•  Operating profit of £285m, up 7.2% 
•  Profit after tax of £217m, up 13.8% 
•  Net cash inflow of £129m before £170m of share buybacks 
•  Earnings per share of 142p, up 19.9% 
•  Interim dividend of 36p, up 16.1% 

The purchase price is £49.45 and I am hoping for a full year dividend of around £1.20 which would give a starting yield of 2.4%. Dividend cover is around 3x adjusted earnings.

More on this following the full year results.

The DIY Investor - New Book

This is a brief post to flag up a new book "The DIY Investor" by Andy Bell who is CEO of A.J.Bell/Sippdeal.

Andy was kind enough to cast an eye over an early draft of my ebook "DIY Pensions" earlier this year and made a few useful suggestions.

I have been offered a review copy so will do a further write up at a later date.

In the meantime, here's a link to the book on Amazon

Keeping Track of Capital

In a recent article, I outlined how I keep track of dividends. In this second part, I will take a look at  ways to keep track of capital performance.

Most investors will want to have some idea of how their portfolio is progressing over the year. I try not to get too complicated - I just want an easily maintained method to give me a reasonably accurate figure for my gains or losses from my investments.

When I make a new purchase of shares or investment trusts, I will make a note of the basics - date of purchase, the purchase price, total cost and number of shares purchased. All of this information is entered into my simple spreadsheet using a separate line for each holding.

I use a simple Microsoft Works spreadsheet package that was installed on my old computer when purchased. Here’s how it  looks using the same sipp portfolio used for the dividend article -

(click to enlarge)

The column headings are fairly self explanatory. I use simple formulas to calculate the total at the foot of the columns e.g. column E is =SUM(E7:E17). For the percentage calculation in F it is =SUM(E7-D7) /D7*100 (copy and paste for the lines following).

This first method is fine so long as your portfolio is fairly well established and you do little trading or regular top ups or top slicing. This is the case with my SIPP portfolio as it is now converted to drawdown.

However, if your portfolio is still in the build phase then most years you will be making regular contributions, and/or lump sum additions or withdrawals. If you have done nothing all year except make a few additions and withdrawals, it's possible that you could estimate what your returns have been with a simple calculation:

Work out the net additions or withdrawals you made during the year.

Add one half of this to the beginning value of your portfolio and deduct half from the end value.

Now divide that adjusted end value by your adjusted beginning value.

Subtract one from your answer and multiply by 100.

So let's say you start the year with a portfolio valued at £10,000, you invest a net £2,000 over the 12 months and by the end of the year your portfolio is valued at £15,000. £15,000 less £1,000 (£14K) divided by £10,000 plus £1,000 (£11K)gives you 1.27. Take one away, multiply by 100 and you get 27%.

A final method of keeping track of portfolio gains is unitisation.

Creating Units

Many investors will be building a portfolio over time, often many years - either by regular monthly additions or by ad hoc lump sum additions. From time to time, capital sums may be withdrawn for various reasons - planned or otherwise. One way to keep track of portfolio performance is to create ‘units’ in the same way as a unit trust fund or OEICs.

For example, when purchasing your first investment - shares or collective fund/trust/ETF, convert the total purchase price into, say £1 units (it could just as easily be £5 or £10 units).

Lets assume you buy 500 Vodafone shares @ 210p - total cost including dealing costs is £1,065 - you will have 1,065 units.

Each time you intend to inject further cash, you will need to ascertain the current value of each unit. Just ahead of the next intended purchase, the value of Vodafone shares has risen to £1,086 so each unit is now worth 102p (£1,086/1,065).

The next purchase is, say, 50 Unilever shares @ 2350p - total cost is £1,190. This will create a further 1,166.7 units (£1190/1.02). The total number of units is now 2,231.7 (1,065 + 1,166.7).

By the time of the 3rd purchase, the value of the portfolio has risen to £2,300 and each unit will therefore be worth 103p. The next purchase is 60 BHP Billiton @ 1825p - total cost £1,110. This creates a further 1,077.7 units (1,110/1.03). The total number of units has now increased to 3,309.4 (2,231.7 + 1,077.7).

Sale of Units

If money is to be permanently withdrawn, it is simply a matter of cancelling or subtracting units. So, for example, if you sold £500 worth of shares, first calculate the current price of each unit according to the value of the portfolio immediately prior to the sale/withdrawal. Lets assume it was £3,600, this would give a unit value of £1.088 - so £500 would equate to 459.5 units. The new total for remaining units is 2,849.9 (3,309.4 - 459.5)

Once the portfolio is unitised, it is simple to compare your performance to your chosen benchmark e.g. a FTSE All Share tracker fund/ETF.

As ever, slow & steady steps….

7.25% Good Energy Bond

AIM-listed clean electricity provider Good Energy Group are hoping to raise up to £15m via the issue of a four year bond. They will pay 7.25% p.a. payable half-yearly - plus an extra 0.25% for existing customers who hold for 4 years.


The bonds will be classed as unsecured debt and also cannot be traded on the secondary markets. The minimum holding is £500 with no upper limit.

The money will be used to increase the group’s solar and wind generation capacity, developing 110MW of renewable energy by 2016 – 50% of its customers future electricity. To put this into context 110MW is enough electricity to power up to 25,000 homes for 25 years.

I am certainly tempted by the return on this one as well as the satisfaction of supporting a small company trying to provide a greener future.

Here's a link to the website for those who would like to look into this in more detail. The offer is open until 13th November 2013.

Quarter 3 Portfolio Review

Following on from my half year review at the end of June, I have just reviewed my portfolios - sipp drawdown and ISA - for the 9 months to the end of September.

The FTSE 100 is up 4% for the quarter at 6,462. However, since the start of 2013, the FTSE 100 is up 9.5%  - if we add on another 2.5% for dividends paid, this will give a ballpark figure of 12% total return for the 9 months to date.

My total return, including income, is up 9.8% so far.

My portfolio is allocated between fixed interest (40%) and equities (60%), which in turn are divided between individual shares and investment trusts.

Shares

Individual shares have been a little mixed, providing a total return of 10.9% over the 9 month period. The better performers were again Reckitt & Benckiser (20.0%),  Sainsbury (22.2%), Abbey Protection (20.6%) and also GlaxoSmithKline (20.6%). BHP Billiton has recovered a little in recent months but remains well down over the 9 months(-11.1%). Others that have had a good quarter are BSkyB up 12% and Carillion up 11%.

Total income on shares so far is 3.4%.

Investment Trusts

Most of the trusts have recovered the ground lost in the previous quarter. The total return for the 9 months was 11.6% - the best return came from smaller companies specialist Aberforth with 44.5%. Others continuing to provide solid returns are Law Debenture (20.4%), Temple Bar (20.6%), Bankers (24.2%), Edinburgh (20.7%) and City of London (17.6%). The only trust that is struggling for me this year has been recently added Aberdeen Asian Income (-12%).

Income from the trusts portfolio has been steady at 3.0%.


Fixed Interest

Following the problems with the Co-op Bank in May which affected capital values over the 2nd quarter, I am pleased to report that my PIBS and preference shares have seen a strong bounce-back this third quarter. Total return for the 3 months was 7% including income of  1.2%.

Over the 9 months of 2013, total return is 6.4% and includes income of 3.7%


As a whole, the portfolio has advanced 9.8% over the first 9 months of this year including the payment of 3.4% income. Bearing in mind that 40% of the portfolio is represented by PIBS and fixed income securities, I am reasonably happy with this.

As an income investor, the steady flow of dividends and interest has been predictably reassuring and is on track to yield around 4.7% for the year.

As ever, I would be interested to hear how others have done over recent months - leave a comment if you keep track of your portfolio.

Nichols - New Purchase

I did a write-up on this one back in March following the final results (here’s the link). I really had intended to purchase at the time but for one reason or another I was distracted and the share price advanced quite rapidly.

I have been patiently waiting for a pull back but to no avail. I have therefore taken the plunge with my customary ‘half’ now at 1230p and will top up at a later date.

Since the first post, Nichols have issued interim results in July for the 6 months to end June 2013.

Here’s the highlights:

• Profit before tax up 9% to £9.0m
• Basic earnings per share up 11% to 18.76p
• Strong net cash position of £31.2m (H1 2012: £23.6m)
• Exclusive licence to add Extreme Sports and Energy to brand portfolio
• Interim dividend up 13% to 6.32p

I am looking for around 20p dividend for the full year which would put it on a forward yield of 1.6%.

The company are currently planning further growth for 2014 and beyond including the introduction of further new products, entering new international markets as well as continuing to invest in existing core brands.

Nichols is listed on AIM and has a market cap of around £450m. As the rules have recently changed, I have been able to purchase this in my ISA.

More on this in the new year.

Dunedin Income Trust - Interim Results

In March, I commented on DIG after the full year results were issued (here’s the link). At the time I was a little concerned regarding the dip in revenue reserves and also the meagre CAGR for dividend growth rates over recent years.

They have today issued interim results for the half year to 31st July (link via Investegate). Share price total return (incl. dividends) increased 13.7% compared to the benchmark FTSE All Share Index increase of 8.9%.

Income from dividends has increased by 10%, boosted by a one-off special from Sage. Nearly 25% of dividends were provided by overseas listed holdings. Revenue reserves have been boosted from £19.9m to £23.2m (+16.5%) which should help with future dividend growth.

The chairman‘s statement concluded “We are comfortable that our existing holdings, are in good shape operationally, possess sound balance sheets and strong management teams and are well placed to weather difficult conditions. Recent crises have certainly taught us that uncertainty is the friend of the long term investor and we will continue to look closely for any potential opportunities that may be thrown up by events. In the meantime your Company is well placed to continue to grow its distributions to shareholders.”

The trust has recently moved to quarterly payments and expects the full year payment to be 3% ahead of the previous year. I have 11.1p pencilled in for the full year which would provide a current yield of around 4.1%.

Top ten holdings are all from the FTSE 100

GlaxoSmithKline 5.2%
Vodafone Group 5.1
Centrica                      5.0
Royal Dutch Shell 4.8
HSBC Holdings 4.5
Br. American Tobacco 4.1
Prudential Corporation 3.5
Unilever                      3.4
Pearson                     3.3
Tesco 3.3

Total                     42.2%

More on this following full year results next March.

City of London Trust - Full Year Results

City of London, like Murray Income, is another of my steady, predictable, middle-of-the-road income trusts. It is one of the older investment trusts incorporated in 1891. For the past 22 years it has been managed by Job Curtis. He is a value investor who counts Warren Buffett as his investment hero.

City have just announced full year results for the year to 30th June 2013. Net assets total return has increased by 23.8% over the year compared to the FTSE All Share benchmark of 17.9%. Dividends have increased by 4.1% from 13.74p to currently 14.3p giving a yield of 3.9%. Companies in City of London's portfolio on average increased their dividends by 6.2% (excluding special dividends).  The dividend has been increased for the 47th consecutive year. 

3 yr comparison -v- FTSE All Share

Ongoing charge remains, at 0.44%, the lowest in the sector. The Board has reviewed the Company's management fee arrangements with a view to simplifying these and making the Company more attractive to a wider audience of retail investors. With effect from 1 July 2013 the performance fee element of the management fee arrangements has been removed.  The management fee will henceforth be 0.365% per annum of net assets, reducing to 0.35% on the balance of net assets above £1 billion. (City of London previously levied a performance fee if it outperformed its benchmark by 15% or more over a rolling three year period, capped to a maximum management fee of 0.65% of net assets.)

As a result, CTY will continue to have one of the lowest ongoing charges in the UK Growth and Income sector and is extremely competitive against other equity investment alternatives.

The portfolio performance benefited from underweight positions in the oil and mining sectors, allied with overweight position in industrial engineering - notably IMI which returned 54%. Other significant contributors were housebuilder Persimmon and holiday firm Tui Travel which both returned over 100%, Standard Life 60% and betting firm William Hill with 73%. Share selection accounted for 4.1% of out-performance over the FTSE and gearing a further 2.1%.

Over the year there was a 4% reduction in the weighting in large companies with medium-sized companies increasing by 3% and overseas listed by 1%.  Large companies (FTSE 100) now account for 76% of the portfolio, medium companies 16% and overseas-listed companies, 8%.

I first purchased CTY for my personal equity plan (PEP) in 1995. I now hold in both my ISA and Sipp drawdown portfolios. It feels like a dependable, faithful old carthorse. Maybe that's where Slow & Steady Steps.. comes from!!

Dialight - Portfolio Sale

Dialight have today issued a further warning on profits for the year and say :

"Since the interim results, the Group has announced one contract for Obstruction Systems and has made good progress towards qualification and award of other significant Obstruction System business. However, the Group does not expect these contracts to be awarded in time to sufficiently impact the current financial year. This is likely to negatively affect the Group's expectations for overall financial performance in 2013."

They issued a similar caution at the time of announcing half year results in June (see update). A more reassuring statement followed last month (further update) so I am a little disturbed to see this warning on profits so soon after the August trading statement.

I have had a good run with Dialight over the past 3 years, and I may return to it again at a later time, but for now I am a little nervous there may be further bad news and corresponding share price weakness. 

I have decided to take profits - sale @ £11.74 (the proceeds may be needed in any event in connection with a pending house move). 

Murray Income Trust - Full Year Results

Murray Income Trust has been in my basket of income focused investments for several years.

In 2013 it will be celebrating its 90th year as an investment trust. It is currently managed by Charles Luke and his team at Aberdeen Asset Management. It is essentially a UK growth & income trust but like several others in this sector, the management have been gradually increasing their exposure to larger, high-quality overseas listed companies. These currently make up 15% of the portfolio and include Roche and Nestle.

Murray Income Trust has this week issued its  results for the full year to 30th June 2013 (link via Investegate).

Share price total return is up 21.5% over the year compared to the FTSE All Share Index of 18.9%. The board are proposing a final dividend of 9.75p making a total of 30.75p for the full year - an increase of 3.4% compared to 2012.  It has a record of increasing annual dividends in each of the past 30 years. At the current share price of around 782p, the yield is 3.9%.

12m share price (via Digital Look)

The trusts performance benefited from its underweight position in mining and oil. It also benefited from a modest exposure to smaller companies via holdings of Aberforth IT and Dunedin SC Trust - both have increased over 40%. Aberforth has become a top 20 holding in the portfolio.

The managers policy is to buy and hold for the longer term - portfolio turnover is reasonably low at under 10% and this helps to keep ongoing costs at 0.75%.

“Our aim is to ensure that the Company's capital is employed as effectively as possible and to that end we will always seek to improve the earnings and dividend generating capability of the Company's holdings if we feel that valuations remain attractive.

Our belief is that companies with strong competitive positions, robust balance sheets and experienced management teams will generate attractive earnings and dividend growth over the long term which should translate into healthy share price appreciation“  Charles Luke.

Its not an investment that is going to shoot the lights out but I regard it as a solid, middle-of-the-road steady performer.

As ever, please DYOR.

5 Years On from Armageddon

In 2008, I was starting to explore the possibility of early retirement and ways to take more income from investments. At the time, I was receiving around 6% interest on my cash deposits with the Coventry BS so there was no great impetus to switch into equities. The FTSE 100 was around 6,000 and the yield would have been around 3%.

By the end of the year, the financial landscape had seen a sizemic shift.

FTSE 100   2008/09

The dramatic market falls started in September with the demise of US investment bank Lehman Brothers, and by early October the situation had descended into utter panic. The first week saw the main market fall by 9% followed by a whopping 26% fall the following week to bring the FTSE to below 4,000. The main casualties were banks and miners - RBS was down a massive 60% in just one week.

In many ways, it felt a bit like Armageddon!

Shareholders were not the only casualties of the turmoil. Thousands of savers with Icelandic banks such as Kaupthing and Icesave were left wondering about their savings when the banks suddenly went into administration.


The Government and Bank of England had to step in with a support package of £500bn to prop up RBS, HBOS and later Lloyds in an attempt to halt the wildfire financial panic. The chancellor at the time, Alastair Darling later said Britain was two hours away from total social collapse  -

"The risk I have always seen is that people forget just how close we came to a complete collapse and the thing about a collapse of the banks is that it wouldn’t just have been the banks in ruins, it would have been complete economic and therefore social collapse.

People without money can do nothing – you can’t buy your petrol, you can’t buy your food, anything".

A Buying Opportunity

In situations described above where fear runs equity markets, there is a disconnect between share prices and fundamental value which can offer great opportunities. Efficient market hypothesis goes out of the window temporarily and is replaced by a panic driven momentum.

Legendary investor John Templeton said famously "Invest at the point of maximum pessimism.”

During October/November I took a punt on several shares which seemed to have entered bargain basement territory - some were top ups of existing holdings - Petrofac (339p), Weir (320p), RPS Group (126p) and BHP Billiton (1054p), others were new additions - Wood Group (195p), Lamprell (74p), Vodafone (119p) and Prudential (250p).

In retrospect, I obviously regret not being a bit braver and buying more - within the next couple of years, the markets had witnessed quite a recovery and it would have been possible to secure a return of double, or possibly treble the sum invested - hey ho! During 2009, after an initial drop back, the FTSE finished the year up around 27% on a total return basis.

Some 5 years on and, for one reason or another, all the shares apart from Billiton have been gradually sold and the proceeds recycled into a far more diversified basket of investment trusts, other shares and fixed interest securities.

As an investor, this period of volatility was quite a scary ride but also a big learning curve.

The main lessons I picked up were that if you can become more relaxed about share price volatility, it will be possible to secure a better income (and better total return) by exploiting a shares negative reaction to poor market sentiment or short term bad news. Secondly, don’t get too panicky when markets are falling and keep on falling because an eventual recovery is inevitable. Finally, it sometimes pays to take a chance!

Having said that, I really do not wish to re-visit the market meltdown of late 2008 for a good many years!

If you were investing during this time, leave a comment with your memories.

Keeping Track of Dividends

As an income investor who depends on dividends to pay the bills and buy the food, it is important for me to have a good idea what income I can expect from each investment and when it will be due for payment.

Many of my investment trusts pay dividends quarterly which is very useful. With shares and fixed income, the income is usually paid half yearly.

If you have only two or three holdings, it may be simple to keep track of receipts in a notebook. However with several shares and/or investment trusts, I find it much easier to keep track using a sreadsheet on my computer.

When I make a new purchase, the first thing to record on my income spreadsheet will be the dates for expected payments, the amount expected and some way to indicate that the payment has been received.

I use a simple Microsoft Works S/S package that was installed on my old computer when purchased. The modern day version would be Microsoft Excel. Here’s how it  looks using the sipp portfolio from this recent portfolio review  -

click to enlarge

As information comes in from annual reports and Investegate news, the spreadsheet will be updated. For example, I recently received this announcement regarding the next quarterly dividend from City of London Trust to be paid in November. As each announcement comes in, it will be updated and the entry marked in bold font. Similarly, when a payment is received in my brokers account it is marked in bold.

Spreadsheet Formulas

Formulas are a quick way of automatically adding up lengthy columns of figures or multiplying a constant number (e.g. shares held) by a changing number (e.g. dividend amount). I use a few simple formulas in my spreadsheet -

Column G ‘Amount Received’ is a formula to multiply the number of shares held in column D x the current dividend per share in column F. The formula for the first line - Murray Income - is =D4*F4/100

This formula can then be simply copied and pasted for each line.

The next column is the full year dividend as a percentage of initial cost. The formula is =SUM(E4+F4)*D4/C4

The total dividends received for the year =SUM(G4:G41)

In a future article, I will cover how to keep track of capital.

As ever, slow & steady steps….