February 2018 Portfolio Update

28th Feb '18 by Damian Cannon

15 comments 7713 reads

Well that was an exciting month after the relative calm of January and 2017 as a whole. For a few days there I was a worried at just how fast the market was falling but for the life of me I couldn't believe that we were on the cusp of a recession - the actual economy, of which the market is a forward-looking reflection, is just performing too well at the moment. In fact I believe that globally we're on the cusp of some excellent growth although we've opted out of this bonanza by miring ourselves in the Brexit swamp. Anyway a moderate amount of trading action took place this month as I reacted to various trading updates and result announcements.

Purchases

Keywords Studios Bought 1620p - Feb 18

As mentioned in last month's update I took a position here on the basis that the share price seemed to be in a holding pattern in lieu of any news. Well the trading update came out, as mentioned below, and a decent volume of buying pushed the price up by almost 9%. While in some ways it's annoying to buy more shares after the price has gone up I prefer to look on this as valuable confirmation that the company is trading well. From a technical perspective I can see that a break-out above the all-time high of 1661p might be a trigger to buy and, as it happens, the price looked to be heading through this "barrier" on the day after the update. It didn't quite make it, as the market in general tanked, but I'm happy enough to top-up at this level.

Games Workshop Bought 2180p - Feb 18

Given the gyrations of the stock market recently I thought that I'd take a look at which of my holdings had fallen the hardest and appeared good value. While Games Workshop is only my 6th worst performer it is, also, down by 24% from its 52 week high despite being on a ridiculous forward P/E of 12.5. I understand that the good times won't last forever but with a very recent trading update raising expectations yet again, and another dividend in the pipeline, I can't see much to dislike here. I also believe that the 2019 forecast of a 20% drop in profits just doesn't stack up although it would be interesting to see a broker note covering the reasons…

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Howard Adams

1st Mar '18

Damian

A nice update I enjoyed reading it and contrasting it to my own experiences.

I look forward to future updates.

Regards
Howard

gus 1065

Hi Damian.

Thanks for the update. I hold a few of the stocks you cover and it is interesting to read your thought processes. I note your throw away comment at the end about Burford Capital (LON:BUR) being sharply down recently on no news. They’re currently back at about the level they were last July when they released their interims (which were pretty spectacular) prompting a sharp mark up in price. With their full year results due on or around March 14th I’m thinking of topping up my holding on the basis that they have recent history of significantly beating market expectations (probably the kiss of death!). Any more detailed views on your side?

Gus.

Damian Cannon

Hi Gus,

Thanks! With Burford Capital (LON:BUR) I basically agree. The interims were excellent and current forecasts are for 100p in earnings (which would be 82% growth and a P/E of 14.5). If they hit this mark then I'll be very happy and they must be close given that they would have to have warned otherwise. The tricky bit is that they refuse to provide forecasts and perhaps they really don't know if they're going to meet market expectations but I find that hard to believe.

In addition there was the Jan announcement regarding a tripling of investment compared to 2016. Given the track record so far, and a buoyant environment for legal financing, this should hopefully drive further growth. Finally the bond announcement a few weeks later referenced high demand and a need to scale back investors - suggestive of a company/sector in high demand.

On the whole then I think that they're in a good place and could easily surprise on the upside. I am tempted to top-up as well but I'll probably wait for the results in order to have confirmation of how things are going. Enticing though.

Damian

covkid

Thanks Damian - really interesting to see your thinking................

donald pond

There has been one RNS on Burford that Invesco are reducing. It is easy to make a persuasive narrative that weakness in the SP may be caused by fund managers selling to meet redemptions, and the share price weakness has nothing to do with the underlying company. However, a single holding announcement isn't enough to be certain of that explanation. BUR is one of my biggest holdings and I expect a sharp rerating after the results in 2 weeks, but who really knows.

Thanks and I hope that it's somewhat useful/interesting. I've certainly found that writing down my reasons for buying/selling, along with my thoughts on trading updates, forces me to be a lot more honest about my action/inaction.

In the past I've reliably fooled myself, or just plain forgotten, why I was in various shares and that's usually ended badly. In future I'll be able to look back on my contemporaneous thoughts and make a change to my process if an investment goes pear-shaped (or that's the plan anyway).

Damian

13th Mar '18

News out this morning that Burford Capital (LON:BUR) have sold (with recourse if the award is annulled) their interest in the Teinver suit for $107m (vs. invested value of about $13m).

https://www.investegate.co.uk/burford-capital--bur-/rns/burford-sells-teinver-investment-for--107-million/201803130700064879H/

More about liquidity/financing than transfer of risk given the recourse provision, but the return multiple demonstrates the potential of this market. Interesting that they chose to make a separate announcement on this today rather than roll it into this week’s results announcement due tomorrow.

Gus.

JohnEustace

The Teinver sale will be in the first half 2018 results rather than the full year 2017 numbers that are being announced tomorrow. I think Burford Capital (LON:BUR) like to keep things as clear and distinct as they can given the difficulty many analysts and investors have in understanding their business.
It’s reminiscent of the announcement of the Petersen case sale last year.

shipoffrogs

The realised gain will be shown in the 2018 results. I suspect they'll show an unrealised write up in the 2017 accounts - the timing of this sale would have been determined by the directors and seems very coincidentally close to tomorrow's release of figures.

nickwild

Big mistake with IQE sale.

It seems like a very sensible transaction which de-risks the investment and provides some ready cash.

I particularly like this line in the statement: "It is efficient for us to move investments into the secondary market as they mature, and obtain liquidity to continue to make new investments at the rapid pace we are currently experiencing."

It sounds as though this market is really maturing and Burford Capital (LON:BUR) are, perhaps, seeing as much new business as they can handle.

Damian

Ha ha! Yeah it does look that way but you can't win them all. I should have stuck to my plan of waiting until the release of their results...

I think the simple explanation for the timing is that the directors were busy finalising the 2017 results and wanted to get that done before making their decision on the Teinver sale.

Also it occurs to me that they may have done it this way to avoid showing a specific unrealised gain in the 2017 accounts as that would go against their policy of never disclosing the carrying value of their individual investments

So close the accounts and get them signed off first, then agree the Teinver sale so it falls in 2018.

We’ll see in the morning

14th Mar '18

Results posted.

https://www.investegate.co.uk/burford-capital--bur-/rns/full-year-results-2017/201803140700066352H/

eps up 127%, one of many highlights. This is one mother of an ambulance chaser ......

Gus.

February 2018 Portfolio Update

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Damian Cannon

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