Monday 30 June 2014

Plastics Capital - Final Results

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, two in China and sales offices in the USA, Japan, India and China. The Group has approximately 350 employees.
It is a small company with a market cap of around £40m and is listed on the AIM market. PLA was added to my portfolio last December - here’s a link to my post.

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


PLA has today issued results for the full year to 31st March 2014 (link via Investegate). Revenues increased 3.3% to £32.4m  and profits increased by 8.7% to £3.58m.

Adjusted earnings increased 11% to 11.1p per share and PLA has increased the full year dividend by 50% to 3.0p covered 3.7x. The final dividend of 2.0p is payable 15th August(ex div 16th July) providing a yield of 2.2% at current prices. The projection is for 4.0p next year and 5.0p  in 2015/16, although this could be a little conservative given the progress made over the past 12 months.

Net debt has reduced from £8.37m to £7.17m

Commenting on these results, Faisal Rahmatallah, Executive Chairman, said:
"The 12 month period to 31 March 2014 represents a period of solid progress and significant investment for future growth.  Pleasingly, sales have advanced, margins have improved and profits have increased. Furthermore, new capacity has been added in the UK, our Chinese operations have been expanded and several exciting new product ranges have been developed for launch during the current financial year.

"Trading in the current year is in line with management's expectations and we therefore continue to anticipate improving turnover throughout the year as projects that have already been won convert into sales.  We continue to be highly profitable and cash generative as a Group and look forward to another year of good progress."

These look like decent results and I am v. happy to see the anticipated increase in dividend materialise. More following the interims at the end of the year.

As ever, slow & steady steps…..

Friday 27 June 2014

Mencap Retail Charity Bond Launched

Charity Mencap has today launched its first retail charity bond offering a return of 4.375% over seven years.

The housing arm of the learning disability charity, Golden Lane Housing, plans to use the money raised to build 30 homes for 100 people with learning difficulties

The bond is the first to be launched through the Retail Charity Bonds platform which has been created to enable charities to raise medium-term debt through bond issues. Bonds are a type of IOU that sees investors lend money to a company or charity in exchange for a twice annual return, known as a coupon, and the return of their original investment after a set period.

The Bonds will pay a fixed rate of interest of 4.375% per annum, payable twice yearly on 29 January and 29 July of each year with the first coupon payment being made on 29 January 2015. The Bonds are expected to mature on 29 July 2021 with a final legal maturity on 29 July 2023.

One of the biggest challenges facing people with a learning disability in the UK is lack of access to suitable supported accommodation. Due to the chronic housing shortage in the UK, a significant number of people with a learning disability live in unsuitable residential institutions or with elderly parents and carers, and as a result face an uncertain future. Local authority accommodation is in short supply, and with limited choice available, individuals often have to move into accommodation far away from friends and family.

Alastair Graham, Director of Golden Lane Housing, commented:
“We are delighted to be the first bond to be issued via the newly created Retail Charity Bonds platform. The Bond will enable Golden Lane Housing to invest in much-needed housing for the people with a learning disability that are currently living in housing that does not meet their needs, in the wake of a nationwide housing shortage. The houses and bungalows purchased from the proceeds of the Bond will provide a positive and lasting legacy for people as well as future generations with a learning disability.”

Seems like a great cause and expect to purchase some bonds when my new house purchase is completed (now looks like July!)

Thursday 26 June 2014

DS Smith - Portfolio Purchase

DS Smith was foolishly offloaded from my portfolio last June and I have been awaiting an opportunity to repurchase - here’s a link to a post from April 2013.

The company has today reported a strong set of results for the year to April 2014 (link via Investegate) with adjusted profits up 23% at £307m and revenues up 10% at just over £4bn.

The driving force behind the company’s improved performance has been the takeover of SCA in 2012 and the growth in revenue over the past year includes the effect of a full year of SCA Packaging (compared to ten months in 2012/13) and was underpinned by corrugated box volume growth across Europe of 2.2 per cent. Plastics delivered revenue growth of 5%.

Earnings per share climbed 25% to 21.4p (2012/13: 17.1p), building on the substantial growth of the prior two years of 37% and of 29% respectively

Approximately two thirds of the Group's earnings are in euros. The results for the year 2014/15 will likely be influenced by foreign exchange translation, where the euro is currently weaker than the average rate over 2013/14 of 1.19. A change of 1c impacts EBITA by approximately £1.6 million and profit before tax by approximately £1.2 million..

Organic corrugated packaging volumes grew 2.2%, ahead of the corrugated packaging market. It said volume growth has been particularly strong in its Central Europe and Italy  after new customer wins and expanding services to existing customers.

Chief Executive Miles Roberts said: "This is a strong set of results achieved despite economic conditions across Europe remaining challenging. We have achieved our synergy targets for the year and delivered good growth in profits, returns and dividends.

Our strengthened customer proposition and an ability to deliver across the whole customer supply cycle has led to increased market share across our regions. The current year has started well and is in line with our expectations."

DS Smith said while it expects the difficult consumer economic environment to remain, it believes the sustainability of its business model will create further growth opportunities.

The group has recommended an increased dividend payment of 10p compared to the previous years  8p. The dividend is covered 2.1x by earnings

Despite what appears to be v. good numbers today, the share price has retreated over 5% to 287p (at the time of posting). With the combination of a lower share price and a 25% hike in the dividend, I have taken the opportunity to repurchase for my income shares portfolio on a yield of 3.5%.

Friday 20 June 2014

SIPP Drawdown Review - End of Year 2

Whilst researching material for my ebook “DIY Pensions”, I looked at the various scenarios to provide me with the best long-term income from my sipp which had been many years in the build phase. The annuity rates on offer in 2012 were, in my opinion, derisory and therefore it was not a difficult decision to convert to income drawdown.

The plan is to maintain a rough split of 60% equities to generate a rising income which should hopefully keep pace with inflation. All equity investment trusts have managed above inflation dividend increases over the year. In this regard, the drawdown sipp is an index-linked annuity substitute.

In my first year review at the same point last June, the portfolio had got off to a good start with a total return of over 20%. The positive run has continued for a second year with an unchanged portfolio returning just shy of 8%. Total return for the two years is 32.6% which means the value of the portfolio is now back to where it was prior to taking the 25% tax-free lump sum payment.

By far the best return has been smaller companies specialist Aberforth with a return of over 30% this year and a near 95% return since the start. Losing a little ground this past 12 months have been Murray International (-5%) and Aberdeen Asian (-7%).

Here is the portfolio (not actual amounts but roughly reflecting weighting for each holding)

(click to enlarge)

Pension Changes

As we all know, there was quite a radical shake-up of pensions announced by the Chancellor in his March Budget. Here’s are links to my posts shortly afterwards - Budget 2014 and Review of SIPP Strategy.

Fortunately the GAD rules have once again recently been relaxed to allow the drawdown limit increase from 120% to 150% so this will provide some additional flexibility for the coming year. I am currently awaiting notification of the new limit from AJ Bell,  however when the changes announced in the budget take effect from April 2015, these GAD limits will become redundant.

Having had a little time to digest these changes over recent weeks, I am increasingly drawn to the conclusion that option 3 would be the best course to adopt - that is a phased withdrawal of the remaining pot and the reinvestment of excess funds into my ISA.

I am still not 100% decided on this so leave a comment below if you have any thoughts.

SIPP Charges

One area of surprise this year has been the significant increase in charges levied by AJ Bell. Their annual admin charge has increased from £90 to £120 p.a. but in addition, they have introduced an entirely new tier of charges which they call a ‘custody charge’ of £25 per quarter (£100 p.a.). They have also introduced a 0.2% fund custody charge capped at £50 per quarter but as I do not hold funds, this will not apply thankfully!

The new charges will be £220 per year - an increase of £130. I am sure nobody likes to see charges increased and personally, my inner Geoffrey Boycott - a frugal Yorkshireman who likes value for money, is grabbing for his stick of rhubarb. It pays never to be complacent and I suppose I have had a good run on charges over the years.

My next step will be to compare prices of the low cost providers to see how they stack up with the new charges from Youinvest. I imagine this may take a little time to research as the usual comparison sites do not cover sipp charges in drawdown. I will post my findings in due course.

Apart from this, I am happy with my first two years of self-managing a drawdown sipp portfolio. I will make a note to update again next June.

Wednesday 18 June 2014

Berkeley Group - Final Results

Berkeley was added to my income portfolio of shares just 6 weeks ago - here’s a link to the opening post.

They have today issued results for the full year to 30th April 2014 (link via Investegate). Berkeley has built and sold 3,742 new homes in the past year, less than 1% more than the year before, but at an average selling price up almost 20% to £423,000 from £354,000, which has driven an 18% increase in revenues to £1.62bn. Pre tax profits are up over 40% at £380m (2013 £270.7m) and earnings (diluted) are up 34% at 188.4p per share (2013 140.3p). The board have declared a further interim dividend of 90p payable in September 2014.

The Group remained ungeared throughout the year, with net cash rising from £44.7m to £129.2m after paying £195.2m of dividends to shareholders and investing further in new land and construction.

 Commenting on the results, Managing Director Rob Perrins said: "With cash due on forward sales now approaching £2.3 billion and estimated gross margin in its land holdings now in excess of £3 billion, the Board has visibility over its commitment to meet the remaining 180 pence of the first milestone through regular dividends. The land and planning now in place has extended this visibility to delivery of the second milestone payment of 433 pence by September 2018 and Berkeley has made substantial inroads into the planning requirement on the land required to cover the third milestone payment of a further 433 pence by September 2021".

This makes a total of £10.46 to be distributed to shareholders over the next 7 years - just under half the current share price.

He added "Looking forwards, we continue to see opportunities to acquire land that meet our hurdle returns.  This will typically be characterised by long term and complex development sites to which Berkeley can bring its expertise.  The land already in our pipeline comprises a number of sites that match these criteria and the ongoing operational focus is to deliver this over the next five years.  If this is achieved, it has the potential to enhance the existing gross margin in the land bank by some £1.5 billion and help build a sustainable business".

Last week the governor of the Bank of England announced that interest rates were likely to be increased earlier than planned - possibly starting before the end of this year. This announcement sent the share prices of the house builders into a tail spin and last Friday BKG dipped around 5%.

These look like excellent figures to me, yet for some reason the share price is down around 1.5% at £22.20 at the time of posting - I am tempted to pick up a few further shares at this point to add to my original purchase.

I am however happy with my purchase - if not the timing - and hope this will become a solid long term hold for my income portfolio. Looking forward to the 7% or so yield for the foreseeable future.

Tuesday 17 June 2014

Invesco Income Growth Trust - Final Results

This trust has been managed by Ciaran Mallon since 2005 and is part of the UK income sector. The investment objective is to provide shareholders with long-term capital growth and real long term growth in dividends from a portfolio yielding more than the FTSE All-Share Index.

It is one of a basket of income trusts held in my SIPP drawdown portfolio. It is one of the smaller trusts in my basket with total assets just shy of £170m. I generally like to hold the larger trusts as the expense ratio tends to be lower due to economies of scale with the larger operation. Having said that, the expenses for IVI are not too bad - 0.93% incl. transaction charges

The trust issued its annual report today for the 12 months to 31st March 2014 (link via Investegate).

On a total return basis, the share price (incl. dividends) increased by a very acceptable 16.7% over the year compared to the benchmark FTSE All Share rise of 8.8%. The trust has outperformed its benchmark index over 1, 3, 5 and 10 years.
3 yr comparison -v- ftse all share index
courtesy of Digital Look (click to enlarge)

The board are recommending a final dividend of 3.65p which will make a total of 9.85p an increase of 3.1% on the previous year (2013  9.55p). Dividend CAGR over the past 10 years is 7.6%. The current yield is around 3.6%.

The balance of the portfolio is weighted towards FTSE 100 large caps comprising 70%, FTSE 250 23% and the rest made up of smaller companies and some fixed interest. The top 10 holdings are have a significant weighting in the traditional big hitters; tobacco - 8%, pharma - 8% and oil producers - 5.6%. Also good to see Next making the top ten with a weighting of 2.6%.

Commenting on outlook, the trust manager says: " …I continue to find pockets of decent value, especially amongst the higher dividend payers. Indeed my guarded optimism with regard to portfolio prospects is reflected in the fact that the Company remains modestly geared, the portfolio being 108% invested at the time of writing, using our short-term flexible borrowing facility.

My investment strategy remains intact - I am seeking companies with strong fundamentals, with sensible management whose interests are aligned with shareholders, and a low risk balance sheet. The UK stock market, as measured by the FTSE All-Share Index, has very nearly doubled over the last five years. Whilst I would not expect such performance to be repeated over the next five, I nevertheless feel confident that the current portfolio looks well placed to provide good long term returns for shareholders."

I am happy to continue with IVI in my portfolio - the only slight reservation is the revenue reserves are a little on the light side at 84% of past years dividends paid. I would be happier if this could be increased to over 100%.

As ever, slow & steady steps...

Thursday 12 June 2014

"The DIY Investor" - Book Update

Last October I reviewed a new book “The DIY Investor” by Andy Bell - here’s the link. The post subsequently received a lot of interest and I suspect some of you will have purchased the book. Feel free to leave a comment below if you have read DIY Investor and let others know what you thought of it.

As we know, there were some significant changes to pensions and ISAs introduced by the Chancellor in his March budget. Indeed, I spent some considerable time updating my ebooks following these changes.

Andy recently drew my attention to the updates he has made to his book. Here’s a link to the various updates to The DIY Investor in May 2014.

Thursday 5 June 2014

Personal Assets Trust - Portfolio Sale

I added this to my portfolio of investment trusts last August. My previous update was November following their half-year results - here’s a link to the post.

They have today issued results for the full year to 30th April 2014 (link via PNL website). Share price total return for the year was -(5.5%) compared to a gain of 10.5% for the FTSE All Share index. In fact the trust has now failed to beat the index over not just the past year but also the past 3, 5 and 10 years - quite an under achievement!

Given the trusts remit / investment policy is to protect and increase (in that order) the value of shareholders' funds per share over the long term, I imagine the management will be facing many increasingly frustrated investors at the forthcoming AGM and will have many uncomfortable questions to answer.

Investment adviser, Sebastian Lyon concluded his report:

"We are in the midst of an extraordinary and unprecedented monetary experiment which is unlikely to end well. More than five years after the financial crisis, interest rates remain at emergency levels (in the case of the UK, at a 300 year low) and there is little sign of an appreciable increase any time soon. Stock markets are back at their all-time highs (in nominal terms, at least), but valuations are overstretched and vulnerable, and we have yet to see the negative consequences of the US’s tapering of QE on markets which have grown addicted to this sweet poison. Money printing has failed to secure the desired ‘escape velocity’ for western economies and corporate earnings have stagnated over the past two years. The disconnect between the economy and the stock market has become ever wider. Those piling into equities today may well be locking in very low prospective returns with commensurate high volatility and downside risk. Prudence will not always be punished. It is reckless behaviour that is ultimately penalised with permanent losses. Stock market bubbles make investors look foolish either before or after the peak. The last year gives no doubt as to where we stand".

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….

Everyone makes mistakes from time to time and I think there can be little question that PNLs allocation of such a high weighting in gold and government bonds totaling 55% in recent years and just 45% in equities was a big mistake.

My mistake was to sell the likes of RPC Group and DS Smith last Summer and recycle some of the proceeds into Personal Assets. I will try to learn from this for the future.

Of course, PNL may well be proved correct when the markets head south but I have not been persuaded during my brief period of ownership and have therefore decided to sell at £333 - a 3% capital loss.

If anyone has any thoughts on Personal Assets or would like to share their mistakes of the past year, please feel free to leave a comment below.