Stock Picks | Boon's Fund Recap – March To May 2023 - 3 Month Bumper Edition!

11th Jun '23 by Boon

21 comments 2121 reads

2023 YTD Performance +0.4% vs -0.2% benchmark

2022 Performance +12.0% vs -3.4%

2021 Performance +21.6% vs +14.6%

See all the previous BBB Monthly Recaps here.

What a three months it has been

I have endeavoured to do a write-up monthly, but life and work has been busy over the last few months, so I have not had the spare time for either the Boon Fund, nor this regular write-up. In fact, I’ve got a month-old backlog of RNS announcements and news to process through!

However, I have also found that without making headspace to look at my portfolio from a birds-eye view, I think my portfolio performance has meandered in the last 3 months.

Despite my lack of time, my performance has been okay YTD – beating the index by 0.6 percentage points. But my aim is a yearly beat of 7-10 percentage points, and I’m now more than 40% through the year already, so there is much to gain ground in the next 8 months.

In the 3 month time period between March and May, I have made 5 buys, and 2 sells. The markets had thrown up some good bargains during that time, and I took advantage of weakness in a few shares I have been tracking to start new positions (more below in the section detailing my trades). I now have the lowest cash position I’ve held since I started writing about the Boon Fund in 2021. This is not me being bullish on where I think the overall market will go; I had bought because those companies were at what I thought was a great share price to buy.

On an absolute basis, a 0.4% gain in 5 months is just not good enough either, compared to inflation, or even putting the money into a one-year fix (4% was available at the start of the year). I read a recent blog post that argued we’re entering a multi-year period of sideway market; and it certainly feels that way at the moment. This should be the best period for active, bottoms-up stock-pickers like me. I still have high conviction in my methods and process; but I need to find the time to execute them, otherwise I might as well invest in an index ETF.

Macro Thoughts

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bsharman

12th Jun '23

Hi Boon,

Really enjoy reading your updates and I like your stock picking style.

I wasn't sure i understood your comment on Costain (LON:COST) :

I think the market hasn’t read between the lines – it won’t hit this year’s revenue

I'm not sure if this is a typo or I'm misunderstanding it? Are you saying that they won't meet revenue targets but margins will be better?

I've held On Beach group (LON:OTB) before and am considering buying back in as I feel that you are right about the demand for holidays being good. However, do you feel that the likes of easyJet (LON:EZJ) (I also hold) will eat their lunch in time? I have heard quite a few adverts for Easyjet Holidays and if they improve their website it could be the place to buy the full holiday package and therefore make the market more competitive. I would like to understand the On Beach group (LON:OTB) strategy for future opportunities and growth.

Your comments about commercial property worry me as I hold a few REITs and property investment trusts...

Thanks again for the update.

Helvellyn

Boon's comment meant that Costain pulling out of the A66 contract would not affect (hit) this year's revenue.

Boon

Thanks Helvellyn! Yes - I should have been clearer in my write-up.

As the A66 contract wasn't fully signed yet, it didn't go into management's view of Secured Revenues (for this year - almost certain in terms of timing) nor Order Book (signed but future work, timing still tbc). It was recognised in Preferred Bidder status (chosen, but all the details not fleshed out, contract not signed yet).

Of course, losing this A66 contract represents less future revenue. But not for FY23. My point was that this type of event is inevitable given Costain's new strategy - higher margin work, and being more selective with construction contracts. In any case, I think Costain has plenty of opportunity in the pipeline (Order Book and Preferred Bidder) to not be worrying about revenues in FY23 or FY24.

BnB

Very generous and interesting update thanks, Boon. The very best of fortune to you :-)

Package Holidays - my view is that packages from operators (airlines, hotels) are always going be a threat. But in almost all industries, DTC packaging never ever kills off indirect distribution channels. In the case of airlines, there are a few limitations:

Range/breadth - as they will only ever offer flights they fly in their packages, not of their competitors
Customer Experience - have you ever come across a good airline website? Their digital teams are not very good, both for website dev and for online marketing, compared to pure-play companies like OTB
Non-core - packages will be a minor part of an airline business, so the investment they put into it will make their proposition inferior to a specialist like OTB

I believe OTB's short term strategy (1-2 years) is just to capture as much share as they can in the UK. I'm not sure if they're going to revive their European ambitions in a big way; maybe they're still unsure yet. In the past year they've gone more upmarket (luxury packages). Maybe there is some M&A to be done, to consolidate the market and therefore be able to squeeze better margins from their hotel and flight suppliers.

The story started when Thomas Cook and the likes pulled out of the UK packages market in 2018, 2019. OTB was poised to capture much more share then, but COVID interrupted that in 2020. It will be interesting to see, after this year's summer season, what their share of market is, given that many smaller package holiday companies also shut down during COVID. I think OTB and Love Holidays could be a duopoly in the OTA Packages market in the UK, leading to some fat margins.

Rambo

13th Jun '23

Much Appreciated write up Boon and please continue with the updates. Given you have a full time job its surprising you can fit these updates into your schdule.

In relation to Surface Transforms - Given thier customer base mentioned in the description it would appear that they are supplying a very niche product into very low volume niche industries. Having worked in manufacturing all my life, scaling this to a high volume manufacturer and trying to get an effective cost/price entry into the likes of the EV industry is going to be no mean task but that is not to say they will not find a breakthrough to achive it. I found in my early investing I got bought into the story of these R&D type companies with the promise of jam tomorrow but got burnt too many times therefore I have found it better to avoid them but I realise this is not for everyone and as long as you understand the risk then why not ..

Again, many thanks and as a newbie investor I learn a lot from your updates and investment style.

KevinS1

Thanks very much for a comprehensive update again - it is great to read others take on both the market and their own holdings.

I too have had a bit of a disappointing YTD - probably about 5% down. The whole of this has been due to some very poor decisions around some oil holdings - including a near 100% loss on some blue-sky stuff eg. Orcadian Energy (LON:ORCA) - when will I learn?

I am now taking a far more intense look at the stock ranks before any purchases. Along with this I am also continuing to spread much more into Investment Trusts and some dividend ETF's/Trackers - I will be relying on my income in the next couple of years and am happy to invest in things I think may take 2+ years to mature, but in the medium term will pay me a nice dividend whilst I await this to happen.

Like you, I did take a long hard look at PayPoint (LON:PAY) , but I was lucky enough to get into it before its recent update. I was also attracted by its purchase of Appreciate - as a shareholder at the time, I think they got a bargain and the interest it will be getting form its cash holdings will surely be helping its finances out a lot.

My play in the property world is with Watkin Jones (LON:WJG) where I am holding for a recovery in a couple of years time - I badly mistimed my entry but have since topped up a couple of times and am happy to await a recovery. I also like the family connection and am attracted to long-term businesses that have a large family holding believing that they will be making decisions for the long-term prosperity of not just the shareholders, but also for their family members.

My biggest winner YTD has been ME International (LON:MEGP) which I bought into last summer, so am very happy here. I continue to believe that they will continue to do well and that their latest update showed them looking at further innovation. They pay a nice dividend as well. Hopefully with the odd special thrown in.

My play in the finance/insurance area is Legal & General (LON:LGEN) which although never seeming to do a lot in terms of SP appreciation does pay a superb dividend consistently.

Good luck in your holdings and I look forward to your next update.

All the Best. K

rogerh

Hi Boon, thanks for the update. Most interesting. I share the problem with OBD. Re package holidays, you don't make any mention of JET2 as a competitor. Aren't they the main competitor to OTB? I'm assuming that the drop in short-haul beach holidays OTB had contracted for was down to JET2. £1 billion net cash too, though they do have to pay for the new planes on order.

You're right that Jet2 is a main competitor, and probably the most serious one out of all the airlines. But at the end of the day, they also face some of the similar drawbracks - they can only sell packages for routes that they fly to, and only THEIR flights, versus more convenient or cheaper competitor flights on the same route. And then they also are primarily an airline, so decision making, capabilities, and focus are on the airline side of the business, not the holidays side of the business.

And then there's the fact that Jet2 only services a part of the country. Try to find a Jet2 package holiday from London, and there's only Stansted Airport, and a select list of destinations.

An analogy I'll use here is maybe buying a used car. You can buy it directly from the brand via their own dealership. There's some extras the brands can offer. And then there are the car supermarkets (Motorpoint (LON:MOTR) is probably the only listed one) but also Cargiant, and a bunch of other independents. The consumer demand has enough variation to support both models.

Thank you for the kind words!

On Surface Transforms (LON:SCE) you're right that the worry is that it is serving just a niche market, never able to scale, and therefore no pricing power because of the power imbalance between them and the car manufacturers.

I did some digging before buying, and it looks like new Euro 7 regulations is going through the process of being approved. If I read it correctly, Euro 7 will tighten the amount of brake dust that can be produced. Ceramic brakes like the one SCE has, gives off much less brake dust. And brake dust goes up when the car is heavier (eg an EV).

I dug through SCE annual reports for commentary on this, and there are sections where they vaguely mention this opportunity, but not specifically.

But even if they don't break into mass-market, I collated all the contract information and it looks like they are saying they have very high visibility on £24m-£36m/yr of revenues starting in H2 this year, and then just two firm contracts from OEM8 and OEM10 supports £40m/yr in 2025. Obviously their customers aren't tied in despite being firm, they can order less, there is no contractual minimum (based on what I've read so far). At those run-rates, and what I expect to be a 65%+ gross margin, the company becomes highly profitable.

Still... I might yet get burned in the next 6-12 months... high risk of another "factory setback / production issues" as they scale up to run-rates they've never done before.

mjfgs

15th Jun '23

Afternoon Boon

Regarding Chapel Down (OFEX:CDGP)

I live in Kent (home of Chapel Down) and the wet spring followed by the dry heat of the least few weeks appears to have turbocharged the grapevines in my garden. I've also noticed Chapel Down's products now have a much higher profile in the local supermarkets and off licences compared to this time last year. I hear it should be a good year for UK wine production - with respect to quantity and quality.

I recently discovered that if one owns more than 2000 shares (about £700 at today's price) one gets a 33% discount off all their wine & 25% off at their restaurant along with a few other perks.

With the above in mind I bought £4k's worth of shares (not wine!) this morning...

Chapelle en Bas - YouTube

Chapel Down (OFEX:CDGP) have been very active this year in marketing their wares as far as i can see. They have a dedicated sales gondola in my M&S food store and the manager tells me that it has proved very popular, especially for the Coronation celebrations. They are sponsor partners of the English and Welsh County Cricket board and with the Ashes starting next week should see some exposure.

The above clip is a Youtube vid they produced of a blind tasting of English Sparkling wine in the Champagne region, not sure how serious it is but it gets the message out there.

They seem to be doing the right things and coupled, as you hint at, with perfect conditions for a bumper grape harvest . Whether this will translate into an upward movement of the SP who knows.

Very interesting, thank you Helvellyn, M&S, Waitrose etc seem like a good fit...Quite a few of our local pubs & restaurants now sell English wine, whereas they didn't even 2 or 3 years ago.

I would imagine that with a market cap of £62m they might attract the attention of a larger suitor and/or there'll be consolidation amongst the English producers - we have 5 or 6 different independent producers within about 15 miles of us now, up from zero not too long ago!

The larger French Champagne houses having been buying land to plant vines in the Weald of Kent and on the South Downs because climate change has made these areas excellent for growing the Champagne grapes, so maybe they would be potential suitors.

threeputt

18th Jul '23

I too was interested in PayPoint (LON:PAY) but currently out after the delay in results, am also concerned about this piece out today and surprised the sp hasn't budged on it PayPoint hit with multi-million pound lawsuit over alleged anti-competitive conduct (cityam.com)

Eesha

31st Jul '23

On Beach Group took huge hammering from its recent high around 195 (I hold). Any new observation from boon? I have topped up some today.

1st Aug '23

Sorry, just seen your comment!
Am planning to write a bi-monthly update soon, covering June-July.

On PayPoint (LON:PAY) , I am no legal expert but on the surface it looked like a lawsuit with low chance of winning. And given the SP movement after the news broke, didn't look like many other investors thought it would be significant.

With the results now out though and showing some good numbers, I am still bullish here on the big moat they are building, and likely cash cow this will become. As I see Paypoint being the "core tech infrastructure" of a convenience store, where they take a cut of all the other tech-enabled services that want to play in the convenience space.

Judging by the steep sustained SP rise after the results, it looks like other investors are cottoning on to Paypoint and its attractions...

(I hold in the Boon Fund)

Probably hammered because of two things:

Emerging news of a possible slowdown later this year (as customers are tapped out). However, the data really does not show this yet - have a look at the airline updates that have just come out - robust demand still there, albeit of course not at crazy YoY growth rates anymore. Still, forward forecasting is never that precise when it comes to travel demand.
Fears of one-off charges due to Europe wildfires, heat wave. As OTB as a tour operator, is responsible for repatriating travelers, cancelled bookings, etc. This will be a cash hit to profits. But don't forget that last year was a massive cash hit due to all the airport chaos, and I think this year's exceptional costs will be lower than last years, still.

(I hold OTB)

2nd Aug '23

it appears new CEO Shaun Morton is doing well too, trust pilot showing an improvements in customer reviews than few months before (just my observation no figure!) plus terrible weather here will make some people desperate to take an affordable holiday in December which should reflect on March. Everything looks ok but macro situation is terrible now and investors are ignoring fundamentals and relying on risks that does not exist yet!

3rd Aug '23

And the problem is that we won't hear any updates from On Beach group (LON:OTB) for at least a few more weeks IMO, they probably want to wait till all those bookings turn into firmed up revenues. Which means waiting till early-mid Sep to get a Trading Update.

Although last year they didn't do a TU after summer, so maybe it'll be an even longer wait for some positive news...

Am contemplating topping up! But on a portfolio wide view, I'm looking to go more cash for Aug. Think overall share prices and indexes are a lil too high and we're due a correction.

Boon's Fund Recap – March to May 2023 - 3 month bumper edition!

What a three months it has been

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Boon

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