LON:PURP | The BBB Fund – Jan 2022 Recap [ISA -1.2%, SIPP +3.0%, Both +1.2%, All-FTSE Benchmark -0.4%]

4th Feb '22 by Boon

5 comments 1067 reads

See all the previous BBB Monthly Recaps here. 2021 summary here.

(Part Time) Fund Manager’s Report

Who would have expected such a turbulent market in January? Investors finally started panicking about interest rate rises. With the rise of Gilt Yields and Treasury Yields, major parts of the market started puking, and volatility shot through the roof.

In my BBB Fund, it was very pleasing that my combined performance of +1.2% beat the All-FTSE index handily. Even my ISA, which only has AIM shares, had only a decline of -1.2% compared to the AIM-100 which suffered a -12% fall.

Three things that helped to protect me in January:

I sold some of my highly valued, unprofitable shares early on. System1 (LON:SYS1) and Sosandar (LON:SOS) were quick to go, and it was the right call as both are trading below my sale prices. I do think they are good growth companies, so will be looking for weakness to buy back in.

I held 31% cash in my ISA, at the start of January, which helped to minimise any falls.

In my SIPP, I had >25% in total in a Gold ETF and Short S&P500 ETF. Both did well during January, producing positive returns that helped to offset declines I saw in some of my shares. Along with 11% in cash.

My decisions were not all perfect. I held onto Fulcrum Utility Services (LON:FCRM) and Oxford Biodynamics (LON:OBD) despite both being highly valued, loss-making companies that I knew would be hit. In both, I couldn’t give up the opportunity of an event (contract, approval, launch, bid) happening in January that was the thesis of my investment. Unfortunately, both have declined over January and none of the catalyst events I had hoped for happened. However, I take solace in the fact that due to my position-sizing approach, they were my two smallest holdings, less than 3% each, minimising losses.

What am I focused on going forwards? With 33% of my portfolio now in cash, I am salivating at opportunities arising, given the huge market volatility. All I have to do is monitor my watchlist and wait for the pricing opportunities to land. In late Jan, I took advantage of one of those opportunities, investing a medium sized stake in Thg (LON:THG) (more discussion below). And…

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abtan

8th Feb '22

Hi Boon

I always enjoy reading your monthly updates, so thanks again for posting.

Interesting to see you sell out of System1 (LON:SYS1) . I thought that would be more of a long term hold for you.

And I see that you finally bought Spectra Systems (LON:SPSY) . As you might recall I am a holder and topped up recently. Was there anything in particular that attracted you to this one? I see that you classify it as a "bargain valuation."

Purplebricks (LON:PURP) is on my radar too and I'm keen to buy back.

I recently read an interesting piece on Redfin, a much larger listed company based in the States, that said the benefits of direct employment outweighed giving contracts to agents (which is what Purplebricks (LON:PURP) have transitioned to recently).

Here is the note if it is of interest to you or anyone else:

https://www.sagapartners.com/p...

You seem to be doing excellently with your timing recently - such as buying Thg (LON:THG) right before the buyout rumours.

I'm also keeping a keen eye on bombed out shares. So far I've bought a smidgen of Ig Design (LON:IGR) , and really like the numbers I see from Netflix.

I imagine that I will buy the latter in due course as I believe that their pricing power is being underestimated. They also have plenty of expansion room beyond Europe and North America so I remain quite optimistic here, at least taking a long term view.

Thanks again for sharing your thoughts.

Boon

Sys1 - I do want to be a long term holder, but the optics (PE ratios, Price/Rev, SaaS tech) makes me think that a wider punishment of tech shares in the US will hit this. And as we have seen, SYS1 is prone to big drifts downwards, in between TUs. So I am partly trying to time - expecting to be able to pick up my sold shares, at a cheaper price before the next update.

Spectra - This was actually a top-up for me in Jan. I've held since June 2021. Still think there's upside scope if they win a few more contracts, and the contracts they won last year, the proof will be in the pudding in the next set or two of results. So one just to wait and see - brokers don't seem keen to upgrade EPS forecasts in line with the contract wins. Meanwhile, it'll be nicely defensive if markets take a lurch downwards - nothing like stable long term contracts with government departments for a non-cyclical product.

Purp - fascinating, thanks for sharing the article! I have had a read and am a bit more convinced now it could work. The puzzle piece that needs to fall for me, is a recovery in housing listing volumes, and a recovery in their market share. I wonder if their competitive advantage is fundamentally broken now, with their 3.9% current market share, vs 5-6% historically, and their ambition to get to 10%. But I think their sum of parts valuation (cash, Homeday, Purp if it gets back to profit) is far higher than 20p. On the other hand, their Purp business could continue to burn millions, and their tenancy issue could also cost millions in fines and compensation. So not an easy call.

THG - I'll be buying even more once one of the PE firms puts in an offer. Why? Because it will definitely draw out Softbank or another PE firm, likely to be a bidding war IMO. The worries for me is that eCommerce, globally, seems to be slowing rapidly (see Boohoo, ASOS, Paypal), potentially more bad news from their portfolio of eCommerce websites.

IG Design - one I haven't had a look at, but its now gone on my tasklist!

Netflix - I don't look at non-UK shares, so sadly no view on this. On a personal note, I am a long-time Netflix user but just signed up to Disney+. I have to say I'm impressed with Disney's offering. I can afford both subscriptions easily, and planning to keep both. But if I was a family with kids, and now hit by inflation and looking to squeeze every penny of costs out of the family budget.... I wonder if Disney+ wins out? Especially with the Netflix price rise just announced for the family premium package in the USA.

As always, I love reading your comments, whether on my post or on the SCVR reports too! Do you write anywhere else that I can subscribe to? Substack etc?

9th Feb '22

Re. Purplebricks (LON:PURP) I actually think market share will pick up. As the biggest player in the hybrid sector, I imagine that if they are struggling, then others are too.

I follow Strike on Companies House and noticed a big loss in their last financial year, which should really have been a boom time for them. If this year is going to be worse, I genuinely wonder how much cash they're willing (or have available) to pump into the business.

I'm also tentatively following London property sales via the ONS with a view to buying Foxtons (LON:FOXT) .

The lettings business looks highly profitable and I imagine this will increase with rising London rents. Indeed, if the company only ran this side of the business, the SP would look cheap.

Unfortunately Sales has been loss-making for several years now (since 2015 from memory), bringing down the overall results. If there is an uptick here, however, it could be a game changer to the perception of the company.

---

I too am a Netflix subscriber. The extra £1 monthly price rise that comes through every year is annoying, but not enough to make me unsubscribe.

Indeed, I did some analysis on where growth was coming from - price inflation or volume growth.

The conclusion was that in mature territories, like the US + Canada, YOY growth through price rises seemed inevitable going forward (possibly forever ?)

In more developing markets, volumes were still growing rapidly, and accounted for much of the top line growth.

My belief is that once the developing markets hit maturity, presumably many years from now, then price rises should ensure the top line growth continues, hopefully in perpetuity.

So whatever the scenario, the top line growth should be around for quite a while yet.

Here's a screenshot of my workings. Apologies it's so small, but hopefully you can follow my thought process.

I know there are those worried that users will simply jump from platform to platform as competition increases - honestly, I think they already are doing this and that this is already baked into the numbers.

On a personal note I signed up to Disney+ twice and cancelled both times when the promotional 3 month period had finished.

I'm afraid that I don't publish anywhere else, but many thanks for the kind words.

Cheers

rmillaree

hello abtan have you had a look at discovery inc shares ? Their merger with Warner bros presuming it goes ahead is gonna create a bit of a beast with regard to the content they will have available on their combined platform - think they have goals over reaching 400 million homes in the future (they would say that wouldn’t they)

Hi rmillaree

I was aware of the merger and I did briefly look at it.

I had a couple of initial concerns:

The combined group looks like it will have a lot of debt.
It looked like AT&T was going to get a big pay out from the merger, but I didn't really understand where that money was going to come from.

I'll probably revisit once the merger has taken place.

The BBB Fund – Jan 2022 Recap [ISA -1.2%, SIPP +3.0%, Both +1.2%, All-FTSE benchmark -0.4%]

(Part Time) Fund Manager’s Report

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Boon

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