The March Newsletter from the SF t1ps Smaller Companies Growth Fund is brought to you by UK-Analyst.com
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Another year over a new one just begun… You rather show your age when your headline is from a John Lennon song. Clearly this piece was not written by James Faulkner (not even born the year Lennon died) or Robert Sutherland Smith (aged 147). I am not sure why the year end of your fund is February 28th but it is. As the press release above shows we had a more than acceptable year. Comparisons with indices are always odd as Nigel Wray explains far more eloquently than I. With an index rubbish stocks disappear and so the headline performance of an Index always overstates how a market has actually done for real investors. We are infrequent traders but we have some dealing bills. Indices do not. And so comparators are always a tad unfair. But since our launch back in November 2007 we have continued to whip the other small cap funds whose average performance is a matter we should perhaps not dwell upon. Past performance is, of course, no guide to future performance. So 2009/10 is over for us. What is the outlook? Well we have made a few changes in the portfolio. We always assess the stocks within it not on the basis of whether the shares have gone up or down but on the basis of whether given what we know now they are expensive or otherwise. In this vein we have sold our shares in Advanced Computer Software (for a chunky 150% gain). We cannot state enough times how highly we rate its CEO Vin Murria and in the long term she will probably make us look like prize banana-brains. But Advanced has just completed a large acquisition which looks a reasonable deal but not a total sizzler. This is in part a function of size. As companies get larger they have to do larger deals to make the maths stack up and such deals do not usually end up being the absolute crackers you can do at the smaller end of the scale. Advanced is now a mainstream institutional stock in a way it was not when we first became involved. It has big brokers covering it. It is a sad day, but Vin has sort of moved out of our league. We like to maintain a long term approach to investment and our philosophy is buy and hold but circumstances change. So we are reviewing a number of our winners as well as a couple of our losers. We do not have a problem with selling at a loss if circumstances change. It would be invidious of me to mention companies individually but I am sure you can guess who is being called into the headmaster's study for a stern interview. If we are selling a few holdings and not suffering redemptions, which, not surprisingly given our performance to date, we are not - you may ask what we are buying. For once the answer is not a boring more of what we already hold. Well not quite. We are in fact buying more of what we already hold where we see value. There are a couple of announcements out in that regard shortly. But we are also investing in an asset class that you know we like, high yielding convertible loan stocks and this means that we have broadened our portfolio with investments in Resources In Insurance and an other which is yet to be announced. In both cases we are backing companies which are just on the cusp of profitability and where sales are moving ahead sharply so profits should follow this year and more especially in 2011. Banks are not lending and share prices are conked so providers of convertible finance can drive a great bargain. So, with 5 year loan notes, we reckon our worst case scenario is a return of 50-60% thanks to interest and then we should get our capital back. That is not exactly Warren Buffett but it is no disgrace. But if either company comes even half way close to hitting the forecasts we have modelled, the current share price will prove to be utterly wrong and as such we can convert and get a real equity kicker on top. That way we aim to get up to the WB target return (in fact to beat it). We already own converts in a number of portfolio stocks (Blavod, Access Intelligence, IQ Holdings) and you would not be surprised to see another couple join that stable during the coming weeks. Generally we still see tremendous value in small caps. The UK economy is improving, albeit slowly. The PLC cost cuts of 2008/9 mean that operational gearing is writ large across our portfolio. But that is far from discounted in a number of lowly ratings and in some cases chunky dividends. A New Year has begun but we continue to plot the same course. It's working! Tom Winnifrith If you have any questions about investing in the SF t1ps Smaller Companies Growth Fund or if you want a simplified prospectus and an application form please contact our hotline on 020 7562 3387 or email spiros.kurtidis@t1ps.com
If you have any questions about investing in the SF t1ps Smaller Companies Growth Fund or if you want a simplified prospectus and an application form please contact our hotline on 020 7562 3387 or email spiros.kurtidis@t1ps.com
Don't forget to use your ISA allowance for the 09/10 tax year! From 6 October 2009, the ISA subscription limit was increased to 10,200 pounds for anyone eligible to invest in an ISA who was born on or before 5 April 1960 (that is, who will be aged 50 or over during the current tax year). Up to 5,100 pounds of the new ISA allowance can be saved in a cash ISA with one provider. The remainder of the 10,200 pounds can be invested in a stocks and shares ISA with either the same or another provider. Alternatively, the full 10,200 pounds can be invested in a stocks and shares ISA with one provider. These higher limits will apply to all eligible ISA investors with effect from 6 April 2010. Example 1 An individual is aged 65. He has not opened an ISA in tax year 2009-10. From 6 October 2009 his ISA allowance is 10,200 pounds. Up to 5,100 pounds of his allowance can be saved in a cash ISA with one provider. The remainder of the 10,200 pounds can be invested in a stocks and shares ISA with either the same or another provider. Alternatively, the full 10,200 pounds can be invested in a stocks and shares ISA with one provider. Example 2 An individual is aged 70. She has opened a cash ISA in 2009-10 in which she has subscribed 3,600 pounds. From 6 October 2009 she has an ISA allowance of 10,200 pounds. She could save up to another 6,600 pounds in ISAs. This could be up to 1,500 pounds in the same cash ISA, or up to 6600 pounds in a stocks and shares ISA with either the same or another provider, or a combination of both. Example 3 Aged 49 or below? From the 6 April 2010, you will be able to invest up to 10,200 pounds in ISA accounts overall regardless of your age (so long as you are over 18).
Source: HM Revenue & Customs Total return, bid to bid line chart from 22/11/2007 to 04/03/2010 from UKUT and OEICs Universe
Source: Financial Express
Total return, bid to bid line chart from 04/03/2009 to 04/03/2010 from UKUT and OEICs Universe
Source: Financial Express If you have any questions about investing in the SF t1ps Smaller Companies Growth Fund or if you want a simplified prospectus and an application form please contact our hotline on 020 7562 3387 or email spiros.kurtidis@t1ps.com Our three largest investments There are three stocks which together comprise around 16% of the fund: Medusa Mining, Telecom Plus and Minoan Group. Each has different attractions. For Medusa it is that it is an incredibly low cost producer, managing to get the stuff out of the ground at sub $200 an oz from its Co-O project. In the second half of calendar 2009 output was 39,162 ounces but output is on target to hit 100,000 ounces per annum pretty soon. Medusa has net cash of $35 million so if the gold price slumps, which is unlikely, the company will carry on adding to its reserves. At $1200 gold this company would be making an annual operating profit on Co-O of $100 million. We think gold is heading far higher than that and I am sure you can do the maths. The company has other development projects which have a clear value (perhaps 80 million pounds) but at 231p the market cap is 393 million pounds. With the pound heading lower by the day, that cashflow multiple looks pretty mean to us. We are not selling at anywhere near this level although we are already c500% ahead. For Telecom Plus at 292p it is the fact that we are getting a yield of 7.6% (the company has already stated that the year just ending dividend will be 22p). This year's payout will be uncovered by earnings of c18p but this company has net cash of c30 million pounds and minimal capex. Earnings will bound ahead sharply next year when the dividend should hit 25p. Now The Times newspaper reckons that paying an uncovered dividend may spook some investors. Heck it might. We will buy some more shares if it does. It should not spook anyone. What is the point of leaving that extra 3 or 4p per share sitting in the bank earning 0% interest when there is no alternative need for the cash in the business. The 2011 payout will be covered and we expect the payout to hit 30p per share within 3 years. That sort of progression and the strong balance sheet surely merits a yield of no more than 6%. The implied 3 year target is therefore 500p. While we await a re-rating we enjoy our income. And finally there is Minoan. This has been a serial non deliverer although having bought most of our shares at 10p we are actually ahead! This company wishes to develop an upmarket resort in Crete . But the Greeks (Spiros Kurtidis excepted) are a bureaucratic lot and red tape and appeals have delayed the Cave Sidero scheme for years. Now, as you may have read, the Greek economy is in the sort of mess Gordon Brown could only aspire to match. As such the new Government has to attract foreign investment and now there are signs that Cave Sidero will get the green light. If so, and it is an if, but it is looking better than it has done for ages, we are off to the races as CS must be worth 40-80p per share to Minoan. If there are more delays then there is a plan B. The company has built up a portfolio of alternative energy production units which will start to generate cash this year and should be covering all corporate costs and more by 2011 allowing Minoan to handle any further delays with CS. On their own we reckon these licenses more than justify the current 16.5p share price. It is hard to see why we would be selling any of these core holdings at anywhere near current prices. Risk warning:
The value of your investment can go down as well as up
and you may not get back a significant proportion of
your investment. Past performance is not a reliable
indicator of future results. If you are in any doubt as
to the suitability of an investment, you should seek
independent financial advice. This document has been
approved by T1ps.com which is authorised and regulated
by the Financial Services Authority FRN 192801).
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