Weekend Rebel Review 25th October

Let’s put the clocks back 1 decade

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.

Monday kicked off with yet another boring bunch of pretty unmoving RNS’s.  I was sat there this week thinking about the clocks going back this weekend and wishing we could put them back 10 years.  I just seemed to occur to me that we all look forward but to be truthful things don’t get better, they seem to get worse so why look forward?  If I look back at the market 10 years ago we hadn’t had Covid or Ukraine, the FTSE250 was in a nice uptrend and all the Electric Vehicle nonsense hadn’t even got off the ground, the first Tesla had only sold a few years before. Then I thought further back, 2000, when we never had smart phones. We all have them now but are we better off for it –  do they serve us or are we slaves to them? Cars were simpler still and while they had computers by then they were all very different in style, today they all look the same.  The music was better then too but nowhere near as good as the 70’s.  I know there are those that are going to say that’s an age thing and music is as good today as it was then but I’m sorry, I’ll say my evidence is the music used in TV ads and it is nearly always 60’s to 80’s music targeting both the young and old. Rarely modern tunes. Cars were simpler then too, you could take them apart and fix them yourself, stick a new bigger engine from a totally different car into one and just have fun. I don’t think for all the tech gains we have had there has been a real improvement of enjoyment of life. It applies to lots of other things to like buying a house or freedom to do stuff like smoke if you wanted to. It seems everything is less enjoyable and more controlled these days so putting the clock back an hour is something we should savour and think about this weekend.

The market has been pretty naff but I try to pitch my performance v the FTSE250 or SmallCap and as long as I’m beating them most days then I’m pretty cool with market retracements. Relentless down days can grind you down, I have lived through a number of times like this and these times sort the Bulls from the Bullfinches. To and extent I have been lucky in that I had a thumping October to December last year with a circa 37% gain and similar again since the start of the year which put me up 87% up to the end of July where I ran to cash of 80%+.  When you have gains like that in less than a year (and that’s exceptional for me, I’ve only doubled my portfolio in a year once since the tech boom) then any give back is easier to live with, tho who likes giving anything back?  Having bought a few bits back I have paid the spread and dealing but haven’t massively avoided giving back as much as I might have done.  Staying heavy in RR. and MKS and increasing over the last month or so has helped, MKS up around 20% since July and RR. up 25%+. They have been sleep-easy holds that have out-performed cash by a long way and as I have said before, I should have stuck everything in the two of them in July with hindsight.  All in all I have given back just about 4% from my high in July. Annoying because the FTSE Small Cap and Aim Indexes are off around 1% since July and the FTSE250 off 1.5% leaving me up about 83% since last October and up around 33% since the start of the year. I’m more than pleased with that performance in this market. These indexes had bigger drops through Aug and bounced but the bulk of my give back has been the spread and dealing costs of selling and buying back. There is a lot to be said for being able to sleep easier though and when markets get volatile then sleep is often worth a few percent.  I’m cool with giving back that amount, I’m sat with a decent bit of cash here having closed a number of trades and also having sold a large proportion of my Rolls Royce and M&S.  I decided to take a chunk of profit in these two at this point mainly to bank profit but also with trading updates from RR and MKS in the first week of November, and having had such a huge run up, I think a number will want to bank some profit before the updates, but who knows?   These two have carried on up far more than I expected and it’s never bad to bank a profit.  I’ll likely re-assess whether I want to buy any back after the updates. I didn’t intend to be so much cash even up till last weekend but having had another week of listening to this government it’s clear they don’t know what they are doing and if I feel like that the markets must be feeling it too. I’ve seen them welcome business from all around the world and tell these businesses that Britain is a place to invest, then I’ve seen they want to raise CGT and NI on business. They have flitted from raising the higher rate tax, fuel duty, a wealth tax, CGT, NI but it’s clear they want to raise far more than the £22bn ‘black hole’ and they are going to squander it on carbon capture, overseas aid and gawd help us, paying reparations for the slave trade 200 years ago if they have their way!

 I have seen Starmer questioned on who are the working class that he isn’t going to tax and in the end he said it’s going to be those that make money from investing that are going to pay, to paraphrase him, in an interview with Sky’s Beth Rigby.  You can’t keep sending contradictory messages to investors. Asking Starmer about who are the working class he wasn’t going to tax, she said this: “So for someone who works and gets their income from assets such as shares and property, are they a working person?”. Starmer said ‘well they wouldn’t come within my definition’.  So there you have it – you know who they are coming after to tax no.  They are changing the borrowing rules too, so they can borrow more, but say they are not borrowing more.  The market isn’t stupid – shift the goal posts and the market will notice.  The yield on 10 year gilts has started to rise and even after the 0.25% interest rate cut by the BofE the 10 year yield is now the highest since Labour came to power (the red dot):

Still below where they were a year ago @ 4.6%then, but the chart then was making a rolling top as markets priced in the height in interest rates, that rolling top has reversed:

If Reeves is going to start borrowing lots more is the BofE going to be so keen to cut rates?  The recent inflation rate looked like it could trigger larger cuts than expected but Reeves actions may reduce those cuts?

With so much uncertainty regarding the tax changes in the budget, many long term holders have been cashing in to avoid higher CGT and perhaps the effects of Inheritance tax in certain property investments.  This has been the drag and company directors know it as much as we do.  So I’m not surprised by the lack of news recently, why publish trading updates and news before the budget if you don’t have to?  Any spike up on news is likely to be met with selling into strength. Best for companies to wait till the budget is over but even then their might be a drag or even an acceleration if the date at which CGT changes happen are not for some time, say, not till April.  That wouldn’t be good imo, better to get it out of the way, which they will likely do as they want the money coming in.  But also a lot of these shares are now trading very cheaply if the CGT thing is out of the way and there’s likely to be some good trading updates that move shares a lot.  Also, once these investors have crystalised their CGT by selling, they are going to want to reinvest a lot of that money I suspect, via ISA’s where possible so there will likely be some buying pressure once all this nonsense is out of the way. But will the investment be here?  I’m thinking it might be better to invest overseas, in say the US where there isn’t this drag and if the £ falls v the $ you benefit even more.  I have never been so unsure what I want to do, if I feel like that then so will many others in my opinion, and uncertainty is never good.

While the market is as it is there just isn’t that incentive when the market moves 1% either way over the course of a week, you need confidence to have momentum.  Some decent director buying wouldn’t go amiss either, director buying has been few and far between. Far too many directors are getting free, no risk options, it has become a joke how they are milking investors. Anyway, that’s the macro feeling for me – it is tough out there. Below is a bit about the few co’s that actually put out news this week which I watch most closely.

On Tuesday construction company Morgan Sindal. MGNS saw a circa 20% rally after posing a very positive trading update which said they would be materially ahead of expectations.  I bought some Kier, KIE back on this news, the day before they went XD for 3.48p.  Both Kier and Keller. KLR have trading updates in November and seem to be still trading at very decent valuations.  HS2 which KIE are very active on in Buckinghamshire is said to be £10-£20bn over current budget – it looks like a run away train that a lot of companies in the sector seem to be benefiting from along with a busy construction sector.  Both could be quite interesting in November imo. Reeves looks set to borrow lots more for infrastructure spend she says, that should help construction co’s too.

IPF posted it’s trading update on Thursday.  It had been slowly falling along with most aim stocks but put out what I thought was a very decent trading update the first part below:

You can read the rest in the RNS.

On a PE 7.4 falling to 6.1 and a 7.9% yield that seemed very cheap and I expected it to rally but no, it sold off.  I don’t know why they sold off 4% odd, CGT sellers perhaps?  The growth isn’t much but the yield is very high and shouldn’t be an issue to keep paying. I had only really bought for a trade so that was a bit of a let down.  Not everything goes right in this world so I’ll put them away and wait to sell out on a rally down the line, hopefully into strength.

Luceco. LUCE put out its trading update on Thursday and it was pretty unexciting.

The rest is in the RNS.  It looked like it was firming in recent days but then the Hornby family moved a lot of shares and sold some just before the update, quite a lot.  It wasn’t long ago that the major shareholders were shuffling shares to ‘allow them to buy more’.  I’ve become ever-more sceptical of this company, debt has risen a lot after a recent acquisition and they have raise their debt facility.  The update was pretty mediocre and Hornby has a history of flogging a load of shares into a warning when they first floated, the City has never forgotten imo. The sector seems pretty crap at the moment so I think I I’ll leave these alone in future, it has become a jam tomorrow stock, earnings hardly rising while debt is.  The acquisition they recently made needs to be very earnings enhancing to make these good value imo.

BooHoo has been a disaster for shareholders but this week they announced that Mike Ashley, the largest holder and he of Frasers, Sport Direct and Newcastle United FC, serial retail investor,  said he wanted to be CEO so said the company, replacing John Lyttle as CEO.

This might be the catalyst to a recovery, few know retail better than Mike Ashley. On my watchlist here. There will be some toing and froing and some bitching I am sure but I suspect Ashley will get his way.  Might become a decent recovery play with Ashely running it so one to watch.

On the same day, Ashtad Technology, AT. said it was acquiring Seatronics and J2

There’s more in the RNS.  If it is earnings enhancing this year that should be at least 38p, possibly lots more. They have already done 19.1p eps in H1 , more than halt her full year expectations. A PE of 14 falling to 12or less when the average earnings growth over  5 years when average eps growth is over 41% looks very cheap, they have some great Stocko metrics too.

Has the fall all been down to CGT  sellers?  Chart broke up through resistance on Thurs, one to watch imo.

And that was the week, very little this week and likely little ow till the budget is out of the way on Wednesday. I’ll try to find enough for a review next week, I’m sure Rachael (thick as a brik) Reeves will provide some material.

Have a good weekend.

Rebel