It’s been another fine quarter for the portfolio. Total return year-to-date now stands at 35.98%, representing an increase of 14.86% for Q3 2017. By comparison, the FTSE All-Share Total Return index has returned 7.75% in 2017 so far. Since inception in August 2015, the portfolio is up 57.47%, against 17.9% for the FTSE All-Share. A healthy 39.57% premium to my designated benchmark. You can view the current portfolio here.
The third quarter was quiet, as usual, for the portfolio. I don’t trade often, as you may already know, and this sloth-like behaviour has been of notable benefit this time around. Thankfully, all big movements have been to the upside, leading to a really great third quarter. As with Gattaca last quarter I finally gave up with Dunelm, for two reasons. Firstly, sentiment appeared entirely negative for the company. The share price had been slowly sliding for a long time, exacerbated by downbeat updates throughout the year.
Secondly, I looked again at a discounted cash flow model for the business, and based on free cash flow there did not appear to be much in the way of upside. Typically, Dunelm is up nearly 26% since I sold. Perhaps the worm is turning, but I’ve no desire to get back in. If I’ve learned one thing, its that you can make your money back elsewhere.
In terms of buys, only one name joins the portfolio. I bought Taptica PLC in late July having looked into the business and liking what I saw. You can read about why I like the business here. Other than that, I topped up on Creightons, which has by far been my stand out holding. Trading updates continue to impress, and the valuation of the company is still attractive. Following this, I subsequently sold a quarter of my holding, equating to my total purchase price. Everything else now will just be an added bonus. I still think this company has a bright future for many years yet.
In August I also topped up on Next, following a more upbeat update. Next was my worst performing holding for a good while, approaching -55% at its lowest, however the share price is up nearly 33% in the past three months. My holding in the company is now -13.01%. Not out of the woods yet, but definitely more positive. Time will tell if this trend continues.
A short update on my holdings, now.
AB Dynamics PLC
Percentage gain/loss: 28.38%
Forward P/E: 20.73
Little in the way of movement in the share price since my last update, however trading remains strong leading to the forward P/E dropping from over 26. Happy to hold at this valuation.
Advanced Medical Solutions PLC
Percentage gain/loss: 49.12%
Forward P/E: 38.62
Basically no movement in the price since Q2, AMS remains my most expensive holding on a P/E basis. Growth remains at a good pace with positive interim results this month. Whilst expensive, I’m happy to reflect in the fact that quality companies do at times get a little ahead in their valuations.
Percentage gain/loss: 35.62%
Forward P/E: 18.20
As anticipated, Apple announced a tenth anniversary iPhone this month. Alongside the ‘X’, standard model updates, the 8 and 8 Plus introduced a few new features. Naturally the Apple keynote is one of the most widely discussed business events of the year, and you can read my write-up here. Happy to hold for the foreseeable future, but keeping an eye on iPhone sales. It is widely believed this year constitutes another smartphone ‘super cycle’, so we’ll see if that plays out.
Avon Rubber PLC
Percentage gain/loss: -10.58%
Forward P/E: 14.39
Been in the red since purchasing AVON. This is a long-term purchase however, so a small drop means nothing to me. Still a very new holding so time will tell how it performs.
Berkeley Group PLC
Percentage gain/loss: 17.44%
Forward P/E: 8.26
Housebuilders have done well this quarter, due in part I expect to the continuation of the help-to-buy scheme put in place by the government. With a big fat dividend schedule I’m more than happy to collect for the time being.
Percentage gain/loss: 411.61%
Forward P/E: 11.46
Creightons continue to delight. They’ve added another 30-odd percent to their market cap in this recent quarter, but still remain on a reasonable valuation. Growth continues to please analysts and investors alike. Having now sold my initial holding, I’m willing to let this run and run.
Dialog Semiconductor PLC
Percentage gain/loss: 18.45%
Forward P/E: 20.42
Little in the way of movement here, the share price has so far failed to recover to the highs reached in March. I wrote last quarter that I will likely be selling DLG due to its dependence on Apple as a key customer. As you can clearly see, when I say my behaviour is sloth-like, I really mean it!
Percentage gain/loss: 47.38%
Forward P/E: 22.85
I said in Q2 that I’m happy to hold, and this remains the case. The share price has dropped back a little, but that’s fine. Diploma is one holding that has gotten a little ahead of itself in valuation and perhaps deserves a little period of consolidation.
Gilead Sciences Inc
Percentage gain/loss: -3.52%
Forward P/E: 10.50
Exciting times for GILD. The share price is making a slow recovery, and their recent announcement concerning the purchase of Kite Pharma has accentuated this. Many were wondering what Gilead were doing to spend their cash pile on, and this was the answer. Kite are awaiting FDA approval in November for an interesting new cancer-immunotherapy treatment which could revolutionise the treatment of a number of cancers. Novartis have already received approval for a similar treatment, and clearly GILD wanted to move swiftly to beat any competition. Assuming approval is obtained, this could be a very exciting period for Gilead.
Howden Joinery PLC
Percentage gain/loss: -10.25%
Forward P/E: 14.70
I wrote last quarter that Howdens are producing slow but positive growth, and this looks to be continuing. No real surprises, no substantial movement. However, the share price has improved slightly and forward price/earnings assumptions have fallen.
Michael Kors Holdings Ltd
Percentage gain/loss: 26.16%
Forward P/E: 11.35
Long term I believe KORS will be a star performer. The retail environment continues to be suffering, however the business have shown their intent with the purchase of iconic British shoe maker Jimmy Choo. At firstly glance this looks to be an ideal fit (no pun intended).
Percentage gain/loss: -13.01%
Forward P/E: 10.17
Whisper it quietly, but patience appears to be paying off here. Next continue to play catch-up with eCommerce rivals BooHoo and ASOS, but signs are that they’re moving in the right direction. Next still remains eminently profitable.
Percentage gain/loss: 25.42%
Forward P/E: 11.10
As mentioned with Berkeley, sentiment appears to be more positive concerning housebuilders. There’s not much else to say other than recent updates continue to impress and their capital return plan remains in place.
Percentage gain/loss: 14.29%
Forward P/E: 12/76
As anticipated in Q2, Playtech’s half year report in August continue to post strong growth across the board. Playtech have many fingers in many gaming and gambling pies, with broad diversification. Almost all areas are performing well and look to carry this on in the foreseeable future.
Percentage gain/loss: 20.13%
Forward P/E: 9.53
Plus500 continue their recovery, swinging from a 20% loss to a 20% gain for me. The company is very, very cheap, and very, very cash generative. It is also, however, very much subject to regulatory intervention. Perhaps this is why people are steering clear. I’m happy to collect the dividends in the meanwhile.
Somero Enterprises PLC
Percentage gain/loss: 2.91%
Forward P/E: 12.83
Donald Trump’s infrastructure plans are nowhere to be seen. A real shame, though not much of a surprise, as this could have been beneficial to Somero. Perhaps it still will be. Regardless, trading continues to be strong, particularly in Europe. China remains positive as well, which is clearly their biggest potential market.
SPDR MSCI EM Europe ETF
Percentage gain/loss: 21.29%
Forward P/E: 8.50
I received notice that this ETF is being closed in November, which is a bit of a shame as it has performed well for me. When the cash is returned to me I will likely look to a similar ETF to deploy my money into. Eastern Europe and Russia is still very, very cheap.
Percentage gain/loss: 1.69%
Forward P/E: 15.42
My newest holding. Israeli based Taptica PLC are growing rapidly but trading on a very modest valuation. With a proprietary customer database growing by the day, the company looks all the more attractive to advertisers looking to get their products in front of consumers. Taptica have recently become an authorised marketing partner with the second biggest global advertising platform, Facebook.
Wizz Air Holdings PLC
Percentage gain/loss: 73.32%
Forward P/E: 15.42
A wonderfully performing company for me this year, Wizz Air appear to be going from strength to strength. Recent weakness from Ryanair could also be of benefit to the business. They’re a young company, with a young fleet of aircraft, capturing market share in Eastern Europe.
Overall, my portfolio sits on an average forward P/E of 22.54. This has risen since Q2 and reflects the general positive performance of my holdings. I said last quarter I wanted to build my cash reserves. This hasn’t quite happened yet (although I am holding more), and I may still look to do so if for any reason I make a sale. I remain happy, however, with all holdings at current valuations.
I’ve had a good discussion recently with Wheeliedealer on Twitter (wheeliedealer.weebly.com) regarding the merits of the discounted cash flow valuation I do on prospective stock purchases. It’s been really interesting to talk to someone with a different view, who uses different methods to value a company (in this case BooHoo). I joined Twitter to debate and learn from others. If you aren’t on there, I suggest you sign up and join our community.
The book buying continues! Ten this quarter. Only read one of them so far. “The Little Book That Builds Wealth”, by Pat Dorsey. A short book (as you probably guessed), but fascinating none the less and definitely one that has given me food for thought. Head on over to my Recently Read page for a quick summary.
If you’d like to discuss anything contained in this article, contact me on Twitter @britishinvestor, or leave a comment below.