I live for the sun and have struggled to keep up with my work in the last few weeks. I’ve just returned from the Costa Blanca to find the summer appears to have ended here in the UK, so I’ve spent some time catching up. I hope we get a few more days of sun before the summer ends.
I don’t feel too guilty for not staying consistant with my weekly reviews over the last few weeks, as the market is relatively flat, and the news is minimal.
First things first, whilst everything looks a little grim in the United States over the last few weeks, the inflation data coming from the UK is on another level. The clown heading up the Bank of England is an absolute moron! I remember Bailey’s appointment to the position of Governor, and many raised concerns that he wasn’t up to the job. Well, nice one, Andrew, you’ve proved them right.
As inflation sticks around in the high figures, the ones at the top are scratching their heads with that ‘what’s going on here all over their chevy chases’ when anyone with half a brain cell could see this could have been easily avoided. From the prime minister to the unqualified chancellor to Bailey, the incompetence of these people amazes me.
As excuse after excuse is dished out, blaming everything from the weather to supply chains to skint Britons asking for a bit of wage rise to feed their families, not one imbecile takes responsibility for the shit show we now find ourselves in, and all blame is aimed at us.
We all know by now that the money printing to furlough a quarter of the population whilst subsidising the rest during the pandemic was unnecessary. I stood with amazement in late 2020 as three friends entered the pub after a long day at work. The friends were apparently “key workers” working on the demolition, telling me how Rishi had just put an extra three grand in each of their bank accounts when a local mechanic piped up from the back and informed us he also received ten thousand pounds for nothing. With this, Rishi told us to spend it in restaurants whilst subsidising our curries. This idiot then gets promoted to prime minister and sets out to fight his own previous idiotic decisions.
Rishi is an expert in finance and economics but fails to understand how his actions could affect inflation. Hopefully, plans are in place to deal with the next pandemic differently.
Interest Rates
Since 2008, when interest rates dropped to near 0%, the thought process was that money is free, and they can do anything they want with it. Inflation! What inflation? It’s all just transitory! With my limited economic education, I could see this would not end well.
Why didn’t interest rates slowly increase while everyone skipped to Homebase to buy a new garden lounger set? Would anyone of even noticed? It wasn’t because then “their” money would not have been free!
They gambled on the transitory bullshit in the hope that everything would be ok in a few weeks, a gamble that’s gone completely tits up. These people are gambling with our lives, but what can we, little people, do? Vote labour? They are all just as incompetent as each other!
Cost of Living Crises
The cost-of-living crisis is worsening with no signs of improvement. Rising interest rates are pushing families over the edge. With every fixed-rate mortgage term ending, more and more families will have to choose between eating or paying the bills.
Low-interest rates of nearly 0% became the norm, but unfortunately, this couldn’t have been further from the truth; it is more acceptable to say that over the last 100 years, this 5% rate is a more normal figure. It’s disgusting that the public was led to believe that these low figures were here to stay.
I’m not blowing my own trumpet, but I went against the crowd. When I started building a property portfolio, a friend who worked for HSBC drilled it into me that one-day interest rates would go back up and encouraged me to plan for a scenario of how I would cope with 15% rates. This was all whilst every investor tried to convince me that debt was free and would be forever and that I should load up. Instead of having all my properties on interest only, I decided to pay down some of the debt, which has created a large buffer that protects me from higher rates and some equity to take advantage of price dips later.
I could have taken more advantage of the lower rates to build a more extensive portfolio and built equity that way, but it’s swings and roundabouts. I have always wanted a margin of safety.
Many people now believe that government should step in with mortgage relief. I do feel for the ones who struggle but with every mortgage I’ve ever enquired about, I am asked how I would manage my investment if my mortgage rate rose. Every investment should be risk assessed by the investor.
Chancellor Hunt has given homeowners options to suspend the capital repayments and extend their mortgage term. This gives very little short-term relief and only really benefits the bank, which now collects more interest payments while thanking their mates in the government who are helping increase enormous profits during a crisis.
That’s where the problem lies! These corrupt fucks (I don’t usually swear on my blogs, but this is a disgrace), have thier main priority to look after their mates from Eaton. They run everything from your electricity to the water you drink, and they need reigning in! This is where inflation comes from, not from postal or rail workers asking for a little more money to feed their families or paying that phone or gas bill that has just been increased halfway through a contract with no option for the consumer to pay it or charged penalties to leave.
They have us over a barrel with penalties coming in from every angle, like driving an old polluting car because you can’t afford a new one and, simultaneously, unable to pay the exorbitant rail fees. We are forced to bow down to the banks with forced two or five-year fixed terms (with fees) and mortgage increases with extra fees for this and that and failing stress tests that force you to pay more or even sit on the banks’ variable rate with no other option than to pay what they say!
We are charged for drinking water from the only monopolised companies in our areas who can charge what they like! We are watching the energy companies profit off the backs of our starving children.
We need an overall of the price gouging companies at the top or even some nationalisation; I believe in a mixed economy. We need to end random price increases during contracts and penalties for leaving. We need to end unjustified mortgage fees and short-term fixed rates with penalty fees. We must end the poor man’s tax to fund climate change policies.
We need real reform, but I don’t know where this will come from.
My Portfolio
I have an ISA portfolio comprising mainly UK small to mid-cap growing companies, most trade globally. I am down 50% from its peak, and more pain will come. I also hold a residential housing rental portfolio which is up 140%. I don’t have much confidence in these portfolios short term because I don’t have confidence in this country short term.
Half Year Review
We have made it to the half-year without the global meltdown. Will this come in the second half? With every passing day, I get more disillusioned with investing. This is where most leave, and only the strong benefit from the recovery. The bull market always returns, but shall we utter those famous words, “Could this time be different”. I remember 2008 – 2009, I couldn’t see a way out of the economic mess, but we got back on track and watched the stock market head back up as it’s done for hundreds of years.
Next gave us an unscheduled trading update whilst I was away, stating that the last seven weeks’ revenue was up 9.3% compared to an average expectation of -5%, and the shares shot up 4% on the news but have come back slightly following the overall market.
Next is one of my favourite companies listed on the London Stock Exchange, and I’m a regular customer, shopping in-store and online. The business benefits from its omnichannel business model as the consumer returns to the high street.
Next believes that the warmer weather has boosted sales after a cold and wet spring and sees benefits from annual pay increases for their customers.
With inflation at 10% for the last few months, many workers, especially unionised ones, have fought for inflation-matching wage increases. The boost in the wage packet may look impressive when it lands in the bank to those who turn their back on inflation, but with the cost of living expected to worsen over the next year or two, consumers may soon realise that they may need to tighten the purse strings, and these boosted sales may head down again.
Next has increased their guidance for the full year with revenue expected to be £4.67b and Profit before Tax of £835m.
Next is 7.5% of my portfolio. My full-year January 2024 price target still stands at 7500p.
Volex plc manufactures and supplies power products, cable assemblies, power cords, plugs, connectors, and receptacles. The company operates in electric vehicles, data centres, medical equipment, and electrical power products sectors. All are growing industries and very diversified. This is also one of my favourite shares due to the mega global industries it operates in.
The management team knows what they’re doing since Nat Rothschild stepped in to turn the company around some years ago. Now they’re making some tremendous strategic acquisitions to take market share globally.
The company has an excellent reputation, and with a name like Rothschild heading it up, many doors are being opened and new relationships created.
On 22 June, the company gave preliminary results for the 52 weeks that ended on 2 April 2023. The main points were:
- Revenue up 17.6% to $722.8m
- Underlying PBT up 15.4% to $59.3m
Remember that Volex reports in dollars apart from the share price. Hence, everything needs converting to find a price-to-earnings ratio.
The company stated:
“We entered the new financial year with good momentum, with high customer demand. Our supply chains are much improved, enabling us to step up production, particularly for high value-add complex products.”
Supply chains and the small margins of the business were investors’ primary concerns some months back, but all seem to be improving. I must admit I got scared out! I sold my shares for a significant loss back in 2022. But recently bought back in roughly where I got out.
The balance sheet looks ok, with net debt of $76.4m and banking facilities at $300 million.
Equity is $233m. The Net Tangible Asset Value (NTAV) is $109m compared to $124m of Intangibles, mainly goodwill from acquisitions. If everything goes wrong tomorrow, the assets can pay the debt.
Volex has a current ratio (working capital) of 1.62. Remember, this number should always be above 1. I like to see this figure above 1.5 in the current environment. As always, they are some exceptions; massive successful growth companies like Amazon spend everything on growth, so they rarely have positive working capital.
My Price Target.
Volex makes up 8% of my portfolio with an average price of 289p. I may plan to buy more, but I am conscious to avoid overexposing myself.
Volex sits comfortably in my growth at a Reasonable Price (GARP) strategy. I love the mega-growth industries it caters to, and Volex will benefit from its relationships with the top companies.
Electric vehicles are expected to grow 35% this year, Datacentres 12% CAGR to 2030, and power cords 6.4% CAGR to 2030. As Volex takes market share, this company will be re-rated to the upside many times over the coming years.
Volex is expected to grow EPS by 37% by 2025, with an expected EPS of 34.3c or 27.2p.
The average Price to Earning (PE) is around 13x, but things are moving fast, and this doesn’t represent the price investors are willing to pay in the future.
On the side of caution, a PE of 13x gives us a price target of 353p by 2025, an upside of 30%, plus an annual dividend of 1.32% from today. But as stated above, the future is bright here, and we should see a re-rating of the PE.
Latest Acquisition
The share count has increased recently with a placing and retail offer at 275p to raise £60m, with the remainder funded by existing debt facilities to buy a Turkish company called Murat Ticaret, which makes complex wiring harnesses. The management has also increased its holdings, showing how aligned the management team is with its investors.
Nat Rothschild is the largest shareholder owning 25% of the company.
I love the building sector now. Most companies’ share prices are at recent historic lows but still paying great dividends, “Buy when others are fearful”. No matter how hard it is to believe now, Britain will have a leveling out of interest rates soon that will be accepted by the consumer as the new norm, and the housing and renting sectors will rise again.
Watkin Jones doesn’t fit in with the traditional house builder but still operates in the same industry, providing build-to-rent and student accommodation. This niche was booming before the recent economic turbulence. It will bloom again as the demographic of students and renters change. This new era of renters wants something a little more unique and is catered for perfectly by Watkin Jones, who forward sell all deals to minimise risk.
In April, the company gave us a profit warning and then confirmed the struggles in their half-year report. This was due to build cost inflation and the incremental impact of additional build costs on a PBSA scheme in Exeter, where the main contractor went into liquidation. I predicted these would come and was prepared to buy on the dips. This decision was made by assessing the strength of the management team, who have sailed the company through economic downturns many times before.
The business continues with Watkin Jones still forward-selling deals with a recent development announcement in Belfast.
The balance sheet is good, and the risk of insolvency looks doubtful. Still, analysts do not like the company short term with downgrades flowing in, with EPS for FY25 expected to be 19p.
I suspect things will not worsen for the company or industry, but maybe longer until we recover. My price target remains unchanged from 242p. I am happy to sail the economic waves with WJG whilst collecting a great dividend of 9.23%.
Nexteq plc, formerly Quixant plc, is designing and manufacturing optimised computing solutions and monitors, principally for the global gaming industries, mainly in casinos.
This share remains flat, waiting patiently for good times to return. Covid affected the business as all the casinos closed, and no one played the games Nexteq designed the technology for. My original thesis for the investment was that they could be pent-up demand as casinos have to update their technology regularly. These updates were suspended during lockdowns.
Casinos are still nervous about spending on capex due to the economic outlook. This should return as the economy improves. When that will be is anyone’s guess.
Still, revenue is increasing to $119.8m, up 37%. Remember that little trading took place in the previous covid years.
Operating margins improved to 7.5%, enabling the business to achieve an EPS of 16p.
The company has no debt and plenty of cash, with a current ratio of 3.23.
Nexteq trades on a PE of 13x but historically achieves an average of around 18 – 20x.
With analysts estimating an Earnings Per Share (EPS) of 16c or 12.56p by 2025, my price target is around 266, an 65% upside from today’s 161p.
Will the economic outlook improve in the coming years, and will consumers return to having some disposable income they can lose in the casinos? As this is only a small holding in my portfolio, making up 2.4%, I am prepared to wait and watch if some momentum may return to the share price and analyst upgrade expectations.
This is another one in my waiting for a recovery strategy. S&U trades in a cyclical market, mainly lending money for car purchases and bridging loans for property. I will accept profit warnings through the economic downturn. With h the management strength of the Coombs family, who are heavily invested in the business, we should be able to tackle all headwinds through this storm.
As a property investor, I am on the sidelines monitoring the UK interest rates. With the inflation data coming in hotter, many now predict the Bank of England may rise again. The outlook is too uncertain to bridge a property and get stung on the refinancing through a mortgage. Once I identify that the BoE is happy with how inflation is falling and interest rates moderate, I will look at starting a new project.
The car market is still growing. Business users mainly contributed to the rise, and private consumers declined slightly. As mentioned above, I suspect consumers are waiting and monitoring the situation for any good news in the economic outlook; this could lead to some pent-up demand.
My price target remains the same for 2025 at 2900p on an EPS of 290p and a PE ratio of 10x.
Any improvement in the macro environment will lead to analyst expectations increasing significantly.
I stood on the sidelines at the beginning of the year, watching incredible momentum to the upside showing the company was turning around and confidence from investors was returning.
I thought I missed the boat, but when I looked at the books, I could see there’s still more upside from where the share price currently trades.
After suffering hugely at the hands of covid, the company looked to be finished. With the help of an excellent CFO securing funding, now Card Factory is taking advantage of the consumer returning to the high street.
I bought into the company in May. The share price has fallen back slightly, and I may buy more in the coming weeks.
The price-to-earnings ratio pre-covid sat at an average of 13.5x since 2015. As I witness a normalisation of trading in the shares of Card Factory, I am happy to value this company on a PE of 13.5x. This gives a price target for FY24 of 216p on the bull side and 148.5p on the bearish side, which factor in analysts’ expectations of declining or flat operating margins.
As I write this, Robert Walters gives us another profit warning. I was expecting and prepared to accept these warnings. RWA is a global staffing company, and we all know that during recessions, recruitment suffers, but this founder-led (for now) company has sailed through many downturns before. Current trading statements ensure that everything will be okay on the other side.
The Robert Walters Group is a market-leading international specialist professional recruitment group. With over 4,200 staff spanning 31 countries, we deliver specialist recruitment consultancy, staffing, recruitment process outsourcing, and managed services across the globe.
Today’s update sounded horrible, and analysts have slashed their estimates. Net fee income is down as the company struggles to place candidates.
The balance sheet remains strong, with cash of £70m enabling the company to pay the 5.55% dividend. This information only sent the share price down 1.18% on the day. I suspect many sit in the same camp and align with my thinking that this is expected.
With fundamental strength, the company will benefit from upgrades as the economic outlook improves.
They will be more pain ahead. As I average in, my only worry is that RWA looks like a potential takeover target, and the agreed price may be lower than my average.
Analyst estimates for 2025 are an EPS of 53p.
The PE of Robert Walters fluctuates with market sentiment. When worries of recession loom, RWA trades with a PE of around 8-10x. With such economic woes firmly behind the company, sentiment increases with a PE reaching around 15x – 25x.
So, my price target is 795p on the above estimates and a PE of 15x. This is down from 1000p from when I first invested in Robert Walters.
I am happy to sit tight in my favourite staffing company to ride out the storm, take the dividend, wait for the economic storm clouds to part, and watch companies start hiring in mass again.
I would love to buy all the house builders as I firmly believe that interest rates will moderate and homeowners will continue buying as they have done for years. I wish they were a UK House Builders Exchange-traded Fund (ETF).
I only had funds for one, and Gleeson caters for the lower end of the market, where housing is more needed and not wanted. A recent trading update confirms this with a contract to build houses for an institution for rent. I thought Gleeson would be more in favour of a struggling housing market.
The company only pays a 3.76% dividend, which is at the lower end of other house builders. Still, I think the capital appreciation of my investment will be better than the rest.
Once I have more funds, I want to purchase Taylor Wimpey, Barrats, and Persimmon to take advantage of the dividends.
It’s best to diversify in these challenging times, and I find it here at Associated British Foods.
The company is involved in the retail, grocery, agriculture, and ingredients sectors.
As seen below, the main contributor to revenue is retail and trades as Primark. This budget clothing retailer benefits from a cost-of-living crisis, with my market research showing a preference for more prominent brands as disposable income reduces.
ABF has reported excellent trading and lifted guidance since I got involved with the share, proving my above points. Primark is also moving in new directions introducing click-and-collect, which boosts sales.
My last price target was 3400p on an EPS of 162p for 2025. This has since been upgraded to 171p.
My price target is 2100p. not much upside, and I may review this investment again soon.
After a harsh winter and a wonderful summer, my thoughts were that pent-up demand would enter the DIY industry.
I am in B&Q (Kingfisher) and Selco (Grafton) most days and witness the large amounts of custom, with consumers accepting inflated products.
Recent trading updates inform us that inflation is softening, and the outlook is improving. Still, the share prices suffer somewhat, with Kingfisher being one of my largest losers. Both companies are diversified by trading in Europe, offering some protection from the grim situation in the UK. Again, I’m happy to ride it out.
Kingfisher is trading on a PE of 8x and has had an average PE of 12x since 2013. EPS is estimated to be 27.13p in 2025. Analysts have been steadily reducing estimates over the last few months. I have a price target of 325p.
Grafton is trading on a PE of 10.6x but has an average of 14x since 2013. EPS is estimated to be 75p by 2025, but again, analysts are reducing estimates on recession worries. I have a price target for Grafton of 1000p.
The spending will return one day, and home improvements will continue as we enter better times.
Focusrite plc is an audio technology company which develops and markets hardware and software solutions. It has a global customer base with a distribution network covering approximately 160 territories.
Some regret here by getting in too early on the fundamentally sound business that has grown revenues by 20% and EPS by 22% on a CAGR basis since 2016.
The financials are excellent, and the products are highly rated in the music industry, but the economic downturn is severely affecting the share price.
TUNE has moved from cash to a debt position of £13m to fund an acquisition. The company is still growing, introducing 11 new products since the pandemic.
Outlook is positive for the entire year as inventory levels moderate and supply chains ease, live music grows as the world appears to normalise. Focusrite states they are in line to meet expectations of an EPS of 39p.
Analysts are downgrading the stock with an EPS of 39p predicted by FY2024.
Cutting away the crazy post covid stock market trading of 2021, I think the average PE investors are willing to pay sits around 16x, which gives me a price target of 624p, a 41% upside. The company also pays a 1.4% dividend.
The chart is terrible, as seen below. This investment was me catching a falling knife. With hindsight, I should wait for a clear bottom by witnessing consolidation followed by higher highs and higher lows.
I like the products and the management team, and with TUNE only making up 1.4% of my portfolio, I may buy more once I identify a bottom and recovery in the share price.
I am trying to diversify my portfolio, I had confidence in the UK when the portfolio was started, but this has now diminished. I’ve always felt at home investing in companies I can see and use. Home bias is an investor’s preference to invest primarily in domestic equities rather than diversifying with foreign investments.
My initial thoughts were buying an S&P or Nasdaq Tech ETF, but I like to research and pick companies and why spoil something that’s lost me money so much in the past? Practice makes perfect. Laugh out loud with my head in my hands.
Artificial Intelligence is coming, Arnold Schwarzenegger is returning to take over the world, and we need to be invested in the top companies to take advantage. Or is this all hype?
A.I. has been around for years. It’s just the simple process of inputting billions of data, and the most common answer is thrown out, just like the predicted text on your phone or online chess. I don’t understand why the recent hype has developed so much in the last few weeks.
I must admit I needed to be more active with my research for this investment. How much research and models can you create to identify the best investment from the top 10 A.I. companies in the US? I have as much chance of picking the winner as a monkey does. This is a swing trade that I am 20% up on in the last two months.
I have a very tight stop loss and will ride the A.I momentum until it runs out of steam.
InMode designs, develops, manufactures, and markets minimally invasive aesthetic medical products based on its proprietary radiofrequency assisted lipolysis and deep subdermal fractional radiofrequency technologies in the United States and internationally.
It is a very cyclical company based in Israel. The fundamentals are some of the best I’ve seen, and have warned before in my blogs that these could be too good to be true. I have a tight stop loss and admit this is one of my risker positions.
Revenues are increasing by 57%, and EPS is increasing by 112% on a CAGR basis since 2016, with 48% operating margins and a vast working capital with a current ratio of 7.6.
This investment makes up 1% of my portfolio, so I won’t lose the house when it turns out to be a fraud.
