TMR changes its mind
My wife and I recently enjoyed taking our motorhome for a five-week trip to Sardinia and Corsica. I did take the precaution of putting in place TMR’s recommended stop-losses and gain-locks on my wife’s and my holdings, none of which were triggered while we were away. It was difficult to ignore the idiotic financial happenings in Washington during August and September, reported incessantly on BBC World each day, but I was confident that a passive approach to my investments was best for me.
Imagine my surprise when I updated the data used by TMR on my return in late September, to find that its previous love affair with big caps, and its disdain for small caps, had been turned on its head. TMR is now showing a distinct jitteriness towards the FTSE 100 index, with a sharp downturn in the index forecast for the middle of next year. Its forecast has a horrible resemblance in its analysis to the situation in mid-2000, just before the FTSE 100 plunged from close to 7,000 to below 3,500 over the course of three truly awful years for investors. “Sell in May and go away” could well be the advice I will be giving in my next two articles.
However, TMR is fairly sanguine about FTSE 250 midcap companies, with a mild correction shown for October 2014 lasting less than a month. And there is no sign of a downturn in the forecasts for the Small Caps, Fledgling and AIM 100 indices, all of which look to be harbouring profitable opportunities.
New smallcap selections
I have therefore looked at smaller companies that TMR says are worth investigating and the following AIM 100 companies popped out: Numis Corporation, OPG Power Ventures, Prezzo, RWS Holdings, M&C Saatchi, Telford Homes and Young & Co Brewery ‘A’. Unusually, all seven are fulfilling the second of my criteria that they should not have had more than one loss-making year in the past five. In fact none of the seven has had a negative year in this period and all are forecast to be profitable in the next twelve months. So which to choose?
Numis (NUM; 240p; stop-loss 188p) is already a constituent of the TMR portfolio and showing a good start of 62% profit since being recommended six months ago.
OPG Power Ventures (OPG; 60.25p; stop-loss 52.5p) is a power generating company in the chaotic Indian sub-continent. The finances of power companies in India have been in a parlous state for some time. Recent across-the board rises in tariffs were a welcome shot in the arm for all the companies: the average 13% increase in prices led to many enjoying record earnings in the past twelve months. OPG has also recently increased generating capacity so underlying pre-tax profits soared by 50% in the same period. The Indian industrial scene is not for the faint-hearted but I shall take a small tranche of the shares and hope for the present promise to be translated into solid performance.
Prezzo (PRZ; 117p; stop-loss 88.25p) has been a successful recommendation in the past. This popular restaurant chain of some 211 outlets has been one of the few expanding refreshment groups during the economic down-turn. Despite a lull in footfall during the Olympics, recent expansion has led to the underlying pre-tax profits improving by some 11%. High profile outlets, such as the newlyopened one on the wonderful Kings Cross concourse, will continue according to Chairman Michael Carlton, with 25 new sites due to open in the current financial year. A lot of this success is already in the price and I don’t expect it to soar as it did when I invested first time round, but this is a solid company with good prospects. I see it as well worth adding to the TMR portfolio once more.
RWS Holdings (RWS; 761p; stop-loss 574p) is very much a niche company, albeit one that is a leader in its field. Its core activity is commercial translating, with a particular focus on the translation of patent applications, representing over 70% of group sales. The economic downturn led to a reduction in the amount of R&D work worldwide, and this hit sales. However, research tends to precede recovery and the recent rising number of patent filings led to an improvement in that part of the company’s finances of some 11%. Commercial translation lagged behind at about 4% but, even so, the company appears to be on an upward trajectory. One fly in the ointment is the European Union Patent (EUP) scheme, arriving late in 2014, which will reduce the number of languages into which patents will have to be translated to just three: English, French and German. Early fears that this would affect turnover seem to have been wrong and the general feeling is that the company remains well-poised to continue increasing turnover and profit.
Ad spend rising
M&C Saatchi (SAA; 308.5p; stop-loss 232p), the advertising agency, is as famous in its own right as many of its clients. Large companies are once more shelling out for advertising space and communications budgets are on the increase. Invoiced sales and profits were up 6% in the company’s most recent report, about double the sector’s average. Performance in the UK was good with an 8% improvement, with German and Italian sales also very strong. This is very much a cyclical story with profits lagging those of their clients. At the moment those are strongly on the up, but, as always with cyclical sectors, a close eye needs to be kept on the data, and when those data turn sour, a quick exit needs to be made.
Telford Homes (TEF; 365p; stop-loss 272p) looks to be a pretty boring success story, with the London focused residential developer showing solid success with targeted sales. Even the predicted creation of apartments in central London for 2016 is already 55% sold. It is hardly surprising that the company was able to say that forthcoming results were likely to be well ahead of market expectation, leading to a jump of 6% in the price of shares. Not an exciting investment but a potentially solid one.
Young & Company’s Brewery ‘A’ (YNGA; 992.5p; stop-loss 745p) is another company that has been previously in the TMR portfolio, though not as profitably as Prezzo was. Breweries generally had a good summer and Young’s was no exception, turning in excellent results for early 2013. I’m going to add all six new companies to the TMR portfolio and to my own or my wife’s portfolios. This will lead us being fully invested with little spare cash in our broker’s accounts to cover rights issues and so on, which I see becoming more widespread as the economy recovers fully.
The uncertainties of the American economy put the jitters into Carnival shares and the shares fell below their stop-loss. Carnival is hugely dependent on the American love of cruising and the relative lack of forward bookings has made the shares too speculative for TMR. They have been sold for a small loss of 5%.
TMR has also recommended that I sell my holdings in Travis Perkins, one of the most successful holdings in my present portfolio. I’m a little puzzled at this advice for a profitable share, which usually only comes because the share price has stagnated and better investment is available elsewhere. I cannot see this myself, and I shall ignore TMR’s grumpy analysis. I will, however, keep a close watch on this share and, while I won’t sell, I will tighten the stop-loss a little; this is shown in the TMR holdings table.
Roy Tipping November 2013