Review of Paul's top 20 share ideas for 2023

1st Jan by Paul Scott

24 comments 5152 reads

Introduction

This time last year, for the first time, I decided to write an article with my top 20 value/GARP shares for the year. After all, writers here fancy ourselves as being able to select good shares and hopefully avoid bad ones, so we should have the courage of our convictions to publish our ideas for scrutiny and eventual praise or ridicule! Obviously we cannot predict the future, so some ideas will work, and some won't - it's the same for everyone.

My performance (personal portfolio)

Another way to show you’re good at investing is to make loads of money from the markets in real life (as many subscribers have done)! My track record here has been a massive rollercoaster, famine to feast and back again at least 3 times in the last 20 years, due to my liberal use of gearing. After a £2m loss in one personal account alone in 2022, I decided to ditch gearing completely. So this is now classified as a “discontinued activity” in my personal finances!

Instead I now just focus on traditional share ownership, including the use of SIPP and ISA for the generous tax advantages. These ungeared accounts have produced excellent results since I took control of my SIPP in 2012 - I’ve nearly 10-bagged my portfolio, without putting in any new funds, which is a compounded annual return of c.22% over 12 years.

A fair bit of those gains happened in 2023, where I grew my ungeared portfolio over 100%. This was partly luck - takeover bids for my largest positions happened twice (Seraphine, then BOTB) early in 2023.

Then I spotted a tiny, obscure oil services company called Plexus Holdings (LON:POS) in August 2023, with news of its biggest ever contract win being ignored by the market for several months, despite it being forecast (Cavendish) to trigger a long-awaited return to profitability in FY 6/2024. So I bought up every share I could get my hands on, after poring over the detail at…

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Nothingventured

1st Jan

Really good read Paul. Thanks to you and the whole team for all your efforts in 2023. I'm really enjoying the podcasts too so keep em up!

2023 was a tough year but it all came good in the end. I have high hopes for 2024 now the macro backdrop seems to be swinging in our favour.

Jim

Jim Wall

When do we think Plexus Holdings (LON:POS) does its first raise of 2024? To what extent has the new found interest from here helped move the price? Maybe the reason they find the listing essential is to raise more money. I could be wrong but doesn’t the CEO have rights to buy any raise at a discount?

G Morris

Held several of the shares during 2023, Renold (LON:RNO) Belvoir (LON:BLV) Hargreaves Services and Cerillion (LON:CER) (LON:HSP) , dropped Wickes (LON:WIX) earlier in the year as don't like CEO's becoming too political, will continue to hold those mentioned for 2024.

Would like to wish a happy and prosperous New Year and especially to everyone at Stockopedia and posters whose advice, opinions and knowledge are very much apreciated.

Paul Scott

Hi Jim Wall.

"When do we think Plexus Holdings (LON:POS) does its first raise of 2024?"

The way you've phrased this question seems to imply that Plexus (I hold) is a serial equity issuer, and/or that it may need to do several fundraises in 2024. If you check the facts, the last time Plexus did a fundraise was in June 2016, when it issued 9.23m new shares at 65p, raising £6m before costs. The Chairman & CEO took about 20% of the new shares personally. That took the share count up from about 96m shares, to 105m.

Plexus then did share buybacks of c.5m shares, taking the share count down to 100m. It sold these treasury shares in 2023, at a loss, but raising much needed cash, at about 19-20p per share.

Therefore the share count is now back to the June 2016 level of 105m.

So you can see management jealously guard the shares, and are very much against dilution.

The next event re potential dilution was announced here in Oct 2022. This is when the CEO lent the company £1.5m of his own money, in convertible loans. If you read the detail in the announcement, it says that an equity fundraise is planned within 2 years (so by Oct 2024) -

The Board recognises the importance of the Company's existing shareholders, and the issue of the Loan Notes will enable them to avoid dilution to their holdings at this time. Furthermore, the Loan Note structure provides for the participation of existing shareholders in a future capital raise, which is anticipated to take place alongside the conversion of the Loan Notes.

That sounds like an open offer, at the same time as a placing in Oct 2024 maybe?

Directors get a 20% discount to the placing price, in lieu of interest on the loan notes. The loan notes might of course be repaid in cash, so the issue of equity is not necessarily the only outcome -

If the Loan Notes are repaid in cash, the Noteholders will, in addition to the principal amount of their Loan Notes, be paid an amount equal to 20% of the principal amount of their Loan Notes.

It has been agreed that the Noteholders, subject to shareholder authority, will convert their loans into new shares at a 20% discount to the share price paid by investors in the corresponding Qualifying Financing in recognition of and compensation for the funding support that has been provided.

Given the dire circumstances at the time in Oct 2022, this deal strikes me as perfectly reasonable.

Note that since then, the share price has shot up 10-fold from 2p to 20p. Therefore dilution now would be much smaller than back then. I'm working on the basis that there might only be about 15% dilution, plus existing small shareholders should be given the opportunity to participate. I can live with that, it's far from a disaster.

" To what extent has the new found interest from here helped move the price?"

I shone a light on the remarkably improved outlook for Plexus, by flagging the RNSs and the research notes from Cavendish - all completely factual. Readers here can then make up their own minds. So if they agreed with me, it's entirely possible that some readers here might have also bought some shares - the bull case is obvious. Why does that matter? I've also flagged the risks, which include a material uncertainty over going concern in the latest accounts. Lots of SCVR readers have also flagged negatives (usually displaying a lack of research, which I find reassuring!)

What am I supposed to do when I find something overlooked and under-priced? Keep quiet about it?! No, I'm obviously going to flag it up here, which might contribute towards the price rising. So what?! I've not sold, so anybody accusing me of pumping and dumping is a liar.

"Maybe the reason they find the listing essential is to raise more money."

Well as I explained above, since they haven't issued any new equity since 2016, that argument doesn't stack up does it?!

Plexus is higher risk than my usual investments, but FY 6/2024 is heading for a >600% growth in revenue, and a move back into profit (confirmed in the recent outlook comments with FY 6/2023 results). It's the type of share I like best - overlooked, and too small to be noticed by anyone, so game-changing contract news in the summer just slipped through the net. The market has since caught up with the much improved circumstances, hence why it has 10-bagged from a ludicrously oversold position.

What happens next? That depends on newsflow, and it needs to win more contracts to keep the momentum going.

As always, essential to DYOR, and there are no guarantees as to what happens next.

Regards, Paul.

rhomboid1

firstly congratulations Paul…there aren’t many folk getting into triple figures around the place in 2023.

On the subject of Plexus Holdings (LON:POS) The annual report makes interesting reading https://www.plexusplc.com/wp-c...

I’d suggest the CEO taking c20% of the company’s revenue as salary is a little excessive for my delicate palate…..and him apparently being a resident of Portugal suggests that there’s a possibility that travel to their Aberdeen office might add to the cost base somewhat too.

it’ll be interesting to see how much fresh capital they can raise and at what price…they quote the recent treasury sale at just under 20p as reason to be encouraged in their own going concern narrative …

good luck to all

Thanks for the response. I wasn’t implying they have been a serial issuer but tbf they’ve sold treasury shares recently and a placing/open offer seems on the cards at or before October 2024 so it seems pertinent. My concern is I’ve seen a pop in the share price when it’s been mentioned positively - as indeed is the case when illiquid stocks get favourable mention - for instance Goodwin (LON:GDWN) which I hold - and that with a raise likely this year there is scope for some less than experienced investors to lose out.

Hi rhomboid1,

Yes, fair point, mgt remuneration at Plexus Holdings (LON:POS) does indeed look excessive, given the poor P&L over the last 7 years.

Although ironically, the money found its way back in propping up the company during a period of intense financial pressure in the last year.

Yes, the CEO is resident in Portugal - probably for tax & lifestyle reasons I'm guessing.

LeicesterPete

A very long overdue comment from me, I wanted to thank you for the CEO interview you did with Warpaint London (LON:W7L) at the start of last year. I was already a holder and hearing the interview further reinforced my conviction with the share, so much so I added and held and have reaped the reward of a 100% gain which was much needed to offset some losses elsewhere throughout last year.

I appreciate you do these interviews in your own time, but just wondered if we can look forward to some more in 2024? I do enjoy the content put out by piworld too and I love your weekly podcasts, my number 1 choice to listen to on my Monday morning commute to the office!

The Ox 2906

Hi Paul , HNY to you and all the gang at Stockopedia, I really appreciate your efforts (sometimes misguided) in trying to make us all better investors and congratulations on your performance for this year! An excellent podcast and accompanying post here, as usual your honesty pervades, I like weighing the mid price against the divis received , very Uncle Warren! I excel in trying to be a smartarse so since you said you’re using a discount provider am I correct in assuming you’re holding 4.6% or nearly 5m Plexus Holdings (LON:POS) shares? Hats off to you if I’m right and very best wishes to you, I’m only 4% of your holding and that feels quite committed!! As you say, news and contract flow will make the difference so let’s hope for some early in 2024. Are you producing a new list of stocks for 2024 or Rollins the 2023 list over?

Hi TheOx,

No, I'm just below 3% of Plexus Holdings (LON:POS) otherwise I would have had to issue an RNS if over 3%, so you got your wires a bit crossed there!

Yes I've been working on my top 20 list for 2024 - just chosen the last share to go on it. Trouble is, I've also got another 11 shares that almost made it onto my 2024 list, and loads more that I might put on a "possible buy the dips" list, if they retrace from recent highs.

I'll get that typed up and published tomorrow or the day afterwards.

Well I saw that ii nominees held the amount I said so they must have other clients who followed you in, its none of my business really but thanks for being so honest. Look forward to seeing your 2024 list, I guess it’s good news that you have 31 possibilities so there are still some good value shares for us all to have a go at!

MichaelFBS

Thank you Paul, fascinating. Hat tip to picking the best performing sub £750m mkt cap Plexus Holdings (LON:POS.

As an aside there were only 144 shares in the £20m to £750m mkt cap range (on LSE) that out performed the S&P 500, out of a total 1,471 (excluding those that were no longer quoted at year end).

Happy New Year.

Regards

Michael

JSLDUK

Thanks Paul interesting read + happy new year.

Cockerhoop

The companies house filings for KMS makes for moderately interesting reading.

I'd suggest the company was in much better shape at the end of 2022 (the last results) than at the end of 2018 when Plexus invested. Net assets up around 60%, modestly loss making in 2018, £380k profits in 2022.

BvB appears to have got a better deal for £1m (49%) than Plexus got for their £735k.

back2value

2nd Jan

The only shares I hold are Sosandar and Watkin Jones. None of the winners... I believe that the crash in the prices of both has been overdone and they will recover, My portfolio took an absolute battering in 2023, but I am guilty of neglect.

knighty

Paul who is your stock broker at £5.95 a trade. Thanks JohnKnight

Cancun

4th Jan

HL I would guess

13th Jan

Hi Paul

I don’t know whether this will be read but how did you “spot” Plexus Holdings (LON:POS) I assume it wasn’t on a screen but just through reading through endless RNS’s?

BenHazz

IG is 3quid per trade as long as you make 3 or more each month (otherwise it is 8quid). I think this is excellent value. (Although I do find the platform at times can be a bit frustrating as it goes "phone only" at times on smaller stocks or on larger ones after big updates, rather than allowing you to use online trades.

Sean Reilly

23rd Jan

Mega Lolz

Review of Paul's top 20 share ideas for 2023

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Introduction

My performance (personal portfolio)

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Paul Scott

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