Annualised returns of 12% since 2013, but now I am selling

Share Sleuth explains why it's time to dispose of one of the portfolio's holdings.

1st July 2019 11:20

by Richard Beddard from interactive investor

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Share Sleuth explains why it's time to dispose of one of the portfolio's holdings.

News that Science (LSE:SAG) has acquired 9% of Frontier Smart Technologies Group (LSE:FST) has sealed the former company's fate as far as the Share Sleuth portfolio is concerned. On 28 May, I liquidated the shareholding.

As I reported last month, a strategic review at Science has opened the door to large acquisitions, potentially unrelated to the company's existing scientific consultancy business. As Science's executive chairman and majority shareholder has a reputation for turning businesses around, the chances were that the review would involve the company using money raised by mortgaging properties it owns to buy struggling companies. Then it would set about improving their performance.

Frontier is the first of Science's targets to come to our attention because, around the time it acquired the shareholding, Science also made and then withdrew an offer to buy the company. Frontier, which is in debt and losing money, rejected Science's offer, claiming it was not in shareholders' interests. Science disagrees.

A frontier too far

I have not considered the merits of this deal, or the possibility that something will come of it. As a public company, Frontier has not made a profit, so it is not the kind of business I am comfortable evaluating. It is also headquartered in the Cayman Islands, a tax haven that shelters Frontier from regulation. The putative deal confirms what I feared, that as it absorbs companies like Frontier, Science will also slip beyond my ken.

On 28 May, I 'sold' the portfolio's entire holding at a price of 198.4p, the actual price quoted by a stockbroker. After deducting £10 in lieu of broker's fees, the trade added £5,267 to the Share Sleuth cash balance.

I first added Science in 2013 at a price of 100p and added more shares at 115p in 2014. While the investment turned out to be one to buy and hold for five or six years rather than forever, it brought me some joy. Including dividends, Science earned the Share Sleuth portfolio an annualised return of 12% according to SharePad, the software I use to track performance. Science worked for a fee, developing sometimes unproven technologies for other companies. It was a low-risk way to invest in progress. Now it's buying technology companies, the risk has risen.

While the portfolio has nearly £6,000 in cash to burn, more than enough to fund a new addition, I mainly have sales on my mind. Portmeirion (LSE:PMP) could be the next share on the block.

The potter, famous for highly stylised classic British tableware designs such as Portmeirion Botanic Garden, issued a profit warning in May. The reason for the warning was an unquantified but calamitous slump in sales in South Korea. Not long ago, South Korea was the biggest market for Botanic Garden, Portmeirion's most popular design, but in the financial year ending in December 2018, before the recent collapse, sales in South Korea were 45% lower than their peak in 2014. South Korea is no longer vying with the UK and North America to be Portmeirion's biggest market.

Small dip on an upward path

Strategic drift

Although sales have grown outside Portmeirion's three biggest markets and compensated for the decline in South Korea, I had thought the huge popularity of Botanic Garden was evidence that Portmeirion's designs can be enduringly popular in the Far East as they have been here and in North America. Now I am worried they are a bit of a fad.

These fears are exacerbated by Portmeirion's strategic drift. Once focused on tableware, the company branched out into scented candles with the acquisition of Wax Lyrical in 2016. Portmeirion expects to repeat its export success, but I am doubtful scented candles are as distinctive or as enduring as the tableware designs – some popular for centuries.

Selling science

Portfolio			Cost (£)	Value (£)	Return (%)
Cash				5,900
Shares				118,004
Since 9 September 2009			30,000	123,904	313%

Company		Shares	Cost (£)	Value (£)	Return (%)
ALU	Alumasc	938	999	1,022	2
AVON	Avon Rubber	192	2,510	2,523	1
CFX	Colefax	434	943	2,322	146
CGS	Castings	1,109	3,110	4,680	50
CHH	Churchill China	341	3,751	5,371	43
CHRT	Cohort	1,600	3,747	6,640	77
DTG	Dart	456	250	4,072	1,529
DWHT	Dewhurst	735	2,244	8,269	268
GAW	Games Workshop	198	568	8,732	1,438
GDWN	Goodwin	266	6,646	8,140	22
HWDN	Howden Joinery	748	3,228	3,740	16
JDG	Judges Scientific	252	5,989	7,787	30
NXT	Next	45	2,199	2,582	17
PMP	Portmeirion	349	3,212	3,560	11
QTX	Quartix	1,085	2,798	2,864	2
RM.	RM	1,275	3,038	3,086	2
RSW	Renishaw	92	1,739	3,581	106
SOLI	Solid State	1,546	4,523	7,544	67
SYS1	System1	463	1,793	1,097	-39
TET	Treatt	1,222	1,734	5,572	221
TFW	Thorpe (F W)	2,000	2,207	6,320	186
TRI	Trifast	2,261	3,357	5,336	59
TSTL	Tristel	750	268	2,325	767
VCT	Victrex	150	2,253	3,009	34
XPP	XP Power	339	6,287	7,831	25

Notes: No new additions. Transaction costs include £10 broker fee, and 0.5% stamp duty where appropriate. Cash earns no interest. Dividends and sale proceeds are credited to the cash balance. £30,000 invested on 9 September 2009 would be worth £123,904 today. £30,000 invested in FTSE All-Share index tracker accumulation units would be worth £63,089 today. Objective: To beat the index tracker handsomely over five-year periods. Source: SharePad, 4 June 2019.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

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This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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