ISSUE 8 ❙ January 2016
Invest for
success in
2016
WINTER PORTFOLIO
PROPERTY INVESTMENT
TEN SHARES FOR THE FUTURE
TIPS FOR FINDING THE PERFECT WATCH
TOP DIVIDEND GROWTH STOCKS
AIM SHARES STILL WORTH BUYING
BEST TECH IDEAS FOR THE YEAR AHEAD
SCOTTISH MORTGAGE INVESTMENT TRUST
SCOTTISH MORTGAGE WAS ORIGINALLY
LAUNCHED TO PROVIDE LOANS TO
RUBBER GROWERS IN MALAYSIA IN THE
EARLY 20TH CENTURY.
PICKING STOCKS WITH
PRECISION.
Scottish Mortgage Investment Trust plays a ‘long game’ with a focused list of around 70 stocks.
Our aim is to meticulously seek out truly innovative organisations (the obvious and the unexpected) and
stick with them over the long-term. We believe this strategy gives us a strong competitive advantage in
identifying companies with real potential for significant sales growth – often as a result of their intelligent
deployment of transformational technology.
But don’t just take our word for it. Over the last five years Scottish Mortgage, managed by Baillie Gifford,
has delivered a total return of 104.4%* compared to 48.4%* for the index. And Scottish Mortgage is
low-cost with an ongoing charges figure of just 0. 48%.†
Standardised past performance to 30 September each year*:
2010-2011
2011-2012
2012-2013
2013-2014
2014-2015
Scottish Mortgage
-1.0%
14.2%
35.9%
27.6%
4.2%
FTSE All-World Index
-4.8%
17.3%
18.2%
11.8%
0.6%
Past performance is not a guide to future returns.
Please remember that changing stock market conditions and currency exchange
rates will affect the value of your investment in the fund and any income from it.
You may not get back the amount invested.
For a free-thinking investment approach call 0800 917 2112
or visit www.scottishmortgageit.com
Long-term investment partners
*Source: Morningstar, share price, total return as at 30.09.15. †Ongoing charges as at 31.03.15. Your call may be recorded for training or monitoring
purposes. Scottish Mortgage Investment Trust PLC is available through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA,
which are managed by Baillie Gifford Savings Management Limited (BGSM). BGSM is an affiliate of Baillie Gifford & Co Limited, which is the manager
and secretary of Scottish Mortgage Investment Trust PLC.
CONTENTS
In this issue of Inspired we mark the turn of the year by
asking experts to tell us what they expect to happen, in
what promises to be an eventful year in the markets. In
our special video section David Buik gives his view on
where he expects the FTSE to be at the end of 2016 and
what the major themes to watch out for will be.
Issue 8 January 2016
PUBLISHER:
Jeremy King
COMPANY NEWS AND
FEATURES EDITOR
Lee Wild
CONTRIBUTORS:
Richard Beddard, Chris Torney,
Hannah Nemeth, Andrew Hore,
Heather Connon
With many investors still looking at smaller companies
we consider some of those that have high valuations
and why those that retain a strong underlying position
may still offer a good investment opportunity.
DESIGN:
Yin Su
SALES:
Iain Adams, Dan Jefferson
We have a back to basics view looking at how to
approach making your first equity investments and
the pitfalls that new investors can avoid if they take a
planned approach to putting money into the market.
Our thoughts on a selection of funds to build a
portfolio around are revealed.
FEATURES
4 WINTER PORTFOLIO TRIO
ROCKET 10%
6 10 SHARES FOR THE
FUTURE
10 VIDEOS FOR 2016
12 INVEST FOR SUCCESS IN
2016
PUBLISHED BY:
Moneywise Publishing Limited 2015
Interactive Investor plc, registered
number: 5034730
You should remember that the value of shares
can fall as well as rise. The information contained
in Inspired is not intended to be a personal
recommendation and you should always speak to
your financial adviser before investing
CONNOISSEUR
21 TRY YOUR LUCK WITH
PROPERTY INVESTMENT
32 SUPERCAR: NOBLE M600
24 8 EXPENSIVE AIM SHARES
STILL WORTH BUYING
36 TEN TIPS FOR FINDING
THE PERFECT WATCH
22 TOP 50 OTHER FUNDS TO
INVEST IN NOW
41 PORT AND DOURO WINES
27 13 TOP UK STOCKS FOR
DIVIDEND GROWTH
inspired Issue 8
January 2016
3
Winter Portfolio roundup
Winter
Portfolio trio
rocket 10%
Lee Wild
Seasonal investing is nothing
new. Statistics going back 20
years show that share prices
do best during the long winter
months. This anomaly has made
smart investors substantial
profits for two decades, and last
year we launched our own model
portfolios based on the simple
trading strategy. They were so
successful we’ve done it again.
4
inspired Issue 8
January 2016
K
nown as the six-month strategy, all investors
need do for this play is buy a basket of shares on
1 November and sell on 30 April. Investing in the
market between these dates only for the past 20
years would have turned £100 into £316. Over
10 years, it would have made twice as much profit as staying
invested all year round.
A year ago, we screened the FTSE 350 for the five stocks with
the best record of returns between November and April over
the past decade - the Interactive Investor Consistent Winter
Portfolio. Last year it made a 14% profit compared with 8.7%
for the FTSE 350 benchmark index.
We also relaxed the rules slightly to include companies
with a track record of at least nine years, but which must
have risen at least three-quarters of the time over the past
10 years: our higher-risk Aggressive Winter Portfolio. Last
year, it returned an impressive 16.9%.Investing in this year’s
Consistent Portfolio every winter for the past decade would
have generated an average gain of 24% (excluding dividends)
compared with an average of 5.4% for the FTSE 350. Gains
for the Aggressive Portfolio would have averaged over 35%,
seven times more than the benchmark. Here’s a round-up
of the highlights and lowlights from the first month of this sixmonth strategy.
Consistent Winter Portfolio
that shares in the speciality chemicals giant have risen every
winter since at least 2004, yet this time it’s the only constituent
underwater at the end of month one.
A 2.3% increase in third-quarter like-for-like sales was a smidge
lower than expected, and the weak euro - Croda makes a slug
of profits on the Continent - keeps nobbling profits. Even so, the
shares, which were down as much as 5% mid-month, ended
just 1% lower.
Aggressive Winter Portfolio
What a spectacular first month’s trading for this year’s
Consistent Winter Portfolio! It took a few weeks to warm up,
but when it did, this basket of historically reliable shares flew.
Having traded down 3% at one point, the portfolio consistently
outperformed the FTSE 350 benchmark index, ending the
month up over 6%, compared with just 0.2% for the 350.
Incredibly, three of the constituents registered double-digit
gains.
Irish building materials firm CRH (CRH) just edged it, surging
10.3% over the four weeks as economic recovery in the
Americas kept driving construction industry demand. The
acquired assets of LafargeHolcim could also generate bigger
savings than expected. Acquisitions and improving margins
should keep driving earnings, too, which is why Numis
Securities thinks the shares are worth 2,100p, 7% more.
Equipment hire company Ashtead (AHT) and Johnson Matthey
(JMAT), which makes catalytic converters, tied for second place.
Third-quarter results from US peer Neff implied that the rental
industry is not oversupplied, which is good news for Ashtead.
Recent interim results revealed a 21% increase in revenue to
£1,267 million and 21% rise in underlying pre-tax profit to £343
million.
Johnson Matthey thrives on tighter emissions legislation, and
reductions in nitrogen oxide levels in diesel cars underpinned
profits in the six months ended 30 September. True, it made a
little less than last year, but results could have been worse, and
confirmation of a 150p per share special dividend has clearly
boosted sentiment.
And workspace provider Regus (RGU) reported “good trading”
in its third quarter. Revenue rose 17.3% at constant currency
- slightly less at actual exchange rates - and is up over 16% on
both measures for the nine months. Investec thinks shares in
this highly-rated, fast-growing company are worth 370p.
That leaves Croda International (CRDA). We know from last year
Ashtead’s heroics and big gains at Regus are reflected in the
Aggressive Winter Portfolio, too, but the normally runaway
higher-risk portfolio lagged its consistent cousin this time.
Up 1.3% in November, this dependable basket of shares still
easily beat the FTSE 350, but was upended by shenanigans
at online gaming platform company Playtech (PTEC). Dillydallying by UK regulators meant its £460 million acquisition of
Israeli CFD broker Plus500 (PLUS) would not complete by the 31
December deadline. The deal was called off.
Playtech shares plunged as much as 14% intraday, although
they clawed back a slug of those losses to end the month down
5.5%. Crucially, it has almost £700 million to spend on other
acquisitions, so the next five months should be interesting.
A downbeat broker note on the housebuilders had all the
major players skidding lower for a few weeks. But Taylor
Wimpey’s (TW.) trading update mid-month struck an optimistic
note and the high-yielding shares were chased back up to
finish just 2% lower - they had been down 12% at one point!
It seems strange that JD Sports Fashion (JD.) is left till last, given
the high street sportswear chain has gone like a rocket since
the spring. This, it seems, was just a pause for breath.
In an unscheduled trading update on 3 December, the firm says
it will make about £10 million more than expected this year.
That should guarantee a big contribution to the Aggressive
Portfolio this month.
This article is for information and discussion purposes only and does not form a
recommendation to invest or otherwise. The value of an investment may fall. 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.
inspired Issue 8
January 2016
5
10 shares
for the
future
Richard Beddard
Rolls-Royce has slid down the
decision engine’s rankings this month.
Formerly one of the highest-ranked
shares of all those I track, the latest
profit warning from the manufacturer
of power systems (engines and
generators) anticipated profit
headwinds of £650 million, more
than enough to question its status as a
reliably profitable company.
6
inspired Issue 8
January 2016
N
ew chief executive Warren East may
be the man to lead the turnaround
though. As chief executive at ARM
(ARM), East helped build the chip
designer into a driving force of the smartphone boom. One of the many admirable
things about ARM is its competitiveness and
how ably the company explains it to investors. Judging by East’s presentation last week,
he’s setting about improving competitiveness
at Rolls-Royce, and he’s being pretty forthright about it.
He may also have been less forthright, in
revealing £650 million headwinds. One
investment firm says the company is “aggressively bearish” and ignoring “several hundred
million in tailwinds”. Effectively it accuses
East of “kitchen sinking”, deliberately setting
expectations very low to make the subsequent recovery more impressive. If it’s true,
it’s both good news and bad news. Things
may not be a bad as they seem, but the company is playing with our expectations.
The Mercantile Investment Trust
Launched in 1884, this is one of the oldest and largest investment trusts in
the UK, with assets of more than £2.1bn.* The trust aims to provide capital
and income growth through a diversified portfolio of around 120 UK medium
and smaller company shares.
You can rely on our experience and rigorous investment research processes
to target the most attractive companies.
Please note investments carry risk to capital. Investment in smaller
companies may involve a higher degree of risk. This trust may utlilise
gearing (borrowing) which will exaggerate market movements both up and
down. Ensure you fully understand the risks before investing. For details
including product specific risks, refer to the ‘key risks’ section for this trust
on our website.
*Source: The Association of Investment Companies as at 31 October 2015.
QUARTERLY ROLLING 12 MONTH PERFORMANCE TO 30 SEPTEMBER 2015
%
2014/2015
2013/2014
2012/2013
2011/2012
2010/2011
Share Price
21.7
5.7
36.6
20.3
-2.6
Net Asset Value
18.0
6.3
33.2
23.8
-6.7
Benchmark
12.3
5.4
34.0
25.0
-4.6
Past performance is not a guide to the future.
Benchmark: FTSE AllShare (ex FTSE 100, ex Inv Companies) (£) Source: J.P. Morgan/Morningstar as at 30/09/15.
Performance data has been calculated on NAV to NAV basis, including ongoing charges and any applicable fees, with any
income reinvested in GBP. For details, see the Trust’s latest Report & Accounts.
Find out more at jpmorgan.co.uk/mercantile
Copyright © 2015 Morningstar UK Limited. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or
distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this.
This material should not be considered as a recommendation relating to the acquisition or disposal of investments. Investment is subject to documentation which is comprised of the
Investment Trust Profiles and Key Features and Terms and Conditions, copies of which can be obtained free of charge from J.P. Morgan Asset Management Marketing Limited. Issued by
J.P. Morgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No. 288553. Registered address:
25 Bank St, Canary Wharf, London E14 5JP.
JPM28322 | 11/15
4d03c02a8002f00c
Rolls-Royce is a large, complex business. Its troubles
have revealed the inadequacy of my analysis, and
I’m not going to pretend I’m on top of it now.
In giving the company a middle ranking, the decision engine recognises my uncertainty. For now it’s
working as an indecision engine, stopping me from
buying or selling shares impetuously.
A hybrid of man and machine
The decision engine is a hybrid of man (me) and
machine (a spreadsheet). It incorporates all of the
information I need and arranges it so it’s easier for
me to decide what to invest in. It ranks the shares
I am tracking, whether they are members of the
Share Sleuth model portfolio or potential members. The highest ranked are those most likely to
earn a good return on the current share price over
many years, based on my estimation of the risks
the businesses face and their current market valuations.
I select the companies tracked by the decision
engine and do the fuzzy work of assessing their
strengths and weaknesses. The machine does the
number crunching and ranking.
Of the other six companies ranked most highly
by the decision engine last month Goodwin,
Dewhurst, Renishaw and BrainJuicer have not
reported any information to incorporate into the
decision engine. They remain good value. Goodwin
is perhaps most under threat, as I expect profitability over the next few years to be lower than in the
past.
As usual, you can learn about these companies by
clicking on their names. Castings, a manufacturer of
car and van parts, reports a rise in profit at the halfyear and a stable outlook. Sagentia/Science Group,
8
inspired Issue 8
January 2016
which conducts research and development for
businesses in the consumer, healthcare and energy
sectors, says it will report losses at Leatherhead
Research, a company it acquired in September
from the adminstrator.
After it has restructured Leatherhead, Sagentia
expects to profit. I doubt this modest acquisition is
much of a risk to the company, which is otherwise
highly profitable and financially very strong, and
so, like Castings, Sagentia remains a share for the
future.
Four more companies, Colefax, Vp, FW Thorpe, and
Animalcare are perhaps on the cusp of good value
and because they are stable, profitable, businesses,
they are worthy of consideration.
I visited FW Thorpe in Redditch for the company’s
annual general meeting in November. It confirmed
the manufacturer of lighting systems is managing
the transition from incandescent lighting to LED
very effectively. It serves exceedingly good cakes.
I also attended AGMs at Finsbury Food and Ricardo.
Both have slipped down the decision engine’s rank
because of rises in their share prices, which has in
turn inflated their market valuations. Management
impressed, less so their remuneration. As one
might expect, Finsbury does good cake too.
This month I have included five new companies. None of them rank particularly highly. World
Careers Network and SWP are on low valuations
but I wonder about the reliability of profitability in
future. Diploma, Avon Rubber and DotDigital may
well be very robust businesses, but that’s probably
already recognised in their share prices.
Research changes my opinion on a business. All
manner of developments change other people’s
perceptions. One day the decision engine may well
rank these shares more favourably.
inspired Issue 8
January 2016
9
Videos for
2016
There’s a long-held tradition in the Square Mile that as the
calendar year draws to a close, the great and the good stick their
necks on the line and predict what will happen over the next 12
months.
It’s why Interactive Investor has asked City legend David Buik
for his thoughts on the major themes for equity markets in
2016, the likelihood of a major correction, and which shares he
believes will do well next year. Always entertaining, David gives
his respected opinion in these three videos. There’s even time for
a guess at where the FTSE 100 will be in a year’s time.
1
watch the video
There are multiple themes at
play in the technology space.
Lorne Daniel, tech analyst
at finnCap, reveals the most
significant and identifies where
the next takeovers are likely to
happen.
10
inspired Issue 8
January 2016
2
watch the video
Could there be a serious
correction in 2016? City legend
David Buik tells us how global
stockmarkets might avoid a
bloodbath next year.
3
watch the video
There’s a lot to chew over as
2016 looms. City legend David
Buik tells Interactive Investor
what he thinks could torpedo
equity markets, or be the
catalyst for another rally.
4
watch the video
David Buik at Panmure Gordon
tells us which shares he’ll be
backing in 2016. His prediction
for where the FTSE 100 will
finish the year may shock some
investors.
inspired Issue 8
January 2016
11
Invest for
success in
2016
ChrisTorney
Whether you’re a novice
investor or simply
need to pep up your
portfolio, read our guide
to investing and pick up
hot tips from the experts
inspired Issue 8
January 2016
Will 2016 be the year when you
finally get around to putting money
into stocks and shares? Alternatively,
perhaps you’ve made a New Year’s resolution to whip your existing portfolio
into shape.
Investing in the markets can be
rewarding, especially if you are saving for the long term – at least five
years, and typically much longer.
But it can at times be confusing; it
carries a certain degree of risk; and
there are a number of potential pitfalls to watch out for. This guide
aims to cut through the jargon and
complexity to explain everything
you need to know, whether
you’re taking your first steps in
investing or trying to make the
most of existing holdings.
cash to cater for any short-term emergencies or
requirements. This will stop you going into debt
or cashing your investments in at the wrong time
if you need to get hold of some money quickly.”
ASSES
THE RISK
Connolly also says that shares are unlikely to be
appropriate for short-term saving. “If you are
INVESTING FOR
BEGINNERS
If you are completely new to investing,
the first step is to work out whether putting money into the markets is right for you,
based on your current financial situation and
goals.
“There are many reasons why people need
to save and invest,” says Jason Hollands, managing director of investment firm Tilney
Bestinvest. “It could be to accumulate a
deposit to get on the property ladder or, indeed,
pay off a mortgage; to build a pot of assets for
your children’s future education needs; or, most
importantly of all, to see yourself financially
secure during retirement.”
Hollands explains that rising longevity and
improved health in old age, coupled perhaps
with less generous state and company pension
provision, mean that more financial resources are
needed in later life. “Most people underestimate
the scale of this – so building up a pool of longterm investments, whether through pensions,
Isas [individual savings accounts] or other means
is vital.”
Patrick Connolly, a chartered financial planner
at independent financial adviser Chase de Vere,
adds that not everyone is in the right position to
invest.
“You should make sure that you have paid off
any expensive debt and have enough money in
investing over a short time period, certainly less
than five years, then you should stick to cash,
even though interest rates are currently at historically low levels. This is because if you invest in
the stockmarket and it falls in value, you will have
very little time to make back any losses.”
Returns from investing in the stockmarket have
in the past tended to outperform cash savings
accounts over longer periods of 10 years or more.
But, unlike a deposit account, where the first
£75,000 of your money is safeguarded by a government guarantee, stocks and shares carry the
risk that you could lose some, or even all, of your
capital.
There are a number of strategies, however, that
can be employed to reduce or minimise this risk,
as we explain here.
When deciding how to invest, you need to be
clear about your goals, Connolly says: “As a starting point you need to decide what you want to
inspired Issue 8
January 2016
13
them.
fees that require a maths
degree to work out.
us.
one simple flat fee for all.
open an account with us.
The comparison relates to execution-only share dealing service provider account
fees charged as a percentage of your account value, versus those charges at a flat
rate. Different providers charge for their services in different ways. Please ensure you
understand the basis on which you are, or will be, charged.
iii.co.uk/us
The value of investments, and any income from them, can fall as well as rise so you could get back less than you invest.
Interactive Investor Trading Limited, trading as “Interactive Investor”, is authorised and regulated by the Financial
Conduct Authority. Registered Office: Standon House, 21 Mansell Street, London E1 8AA, Tel: 0845 200 3637.
Registered in England with Company Registration number 3699618.
inspired Issue 8 January 2016
Holding a fund with a large range of
companies reduces each investor’s
overall risk through diversification
achieve, how long you are planning to invest for
and how much risk you are prepared to take. This
will help you decide the most appropriate investments for you.”
If you don’t have a lot of spare cash, putting a little money aside each month can be worthwhile.
“The sooner you start saving, the easier it will be
to reach your financial goals,” Connolly says. “Even
if you cannot afford to save much initially, it is better to do something than nothing.”
Hollands adds: “In the world of investing, the first
pound you invest is the most valuable. That’s
because long-term investing is all about time: the
longer you have, the more time your investment
has to grow, so the earlier you start, the better.”
GET STARTED
Most experts agree that, for beginners at least,
buying shares in individual companies is not the
best approach.
“While some people enjoy researching individual
companies and choosing their own investments,
this is a daunting prospect for most of us,” says
Hollands. “To do this confidently, you need to be
prepared to understand reports and accounts,
watch the progress and news from a business
carefully and decide when it might be the right
time to sell. And it can be very risky if a company
runs into problems.
“That’s why most investors access stockmarkets
through funds – investments where your cash
is pooled together with lots of other investors’
money and the combined firepower is used to
take stakes in lots of different companies.”
This pooled approach has two major benefits:
firstly, as investment fund managers effectively
buy shares in bulk on behalf of thousands of people, their average trading costs are lower.
And secondly, holding a fund with a large range
of companies reduces each investor’s overall risk
through diversification.
“Diversification is an important principle in the
world of investing and this is really all about not
having all your eggs in one basket,” Hollands says.
For example, it is less likely that a portfolio of 50
companies will experience a sudden fall in value
than one consisting of just two or three firms’
shares.
It is possible to diversify further by putting money
into other assets such as corporate bonds – which
are effectively a type of loan that pay holders a
fixed rate of interest – or property. This can also be
done via investment funds.
Funds also make it simpler to give your portfolio
international exposure by investing in overseas
companies and markets.
TYPES
OF FUNDS
Your main choice when it comes to picking a fund
relates to its approach to investment, Hollands
says. “The investments within funds can be chosen by an expert, called a fund manager, based
on research and their judgement over which
businesses they believe will perform well. This is
known as an ‘active’ fund.
“Alternatively, money can be automatically
invested by a computer in a basket of shares to
replicate an overall market – such as the FTSE 100
– with a type of lower-cost fund called an index
tracker or ‘passive’ fund.”
Hollands warns that anyone going down the
active route – which is likely to incur higher
charges than the tracker option – should give
careful thought to which fund they opt for.
“If you are going to trust a fund manager rather
than a low-cost tracker, then it is vital to select
the right fund – while some managers have great
track records, others simply haven’t justified the
fees for their ‘skills’,” he says.
“But if you are in a fund with a manager who
proves successful, they should be able to deliver
much better returns by buying and selling shares
as their views and markets change than you could
as an amateur on your own.”
Connolly says that using recent performance as
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15
a guide to picking a fund can be a bad idea.
“Don’t get swayed by investments just because
they are at the top of the performance tables,”
he says. “Strong recent performance should
be seen as a warning sign, as investment gains
have already been made – rather than as an
opportunity to buy.”
The most common types of funds are unit
trusts and open-ended investment companies
(OEICs): investors buy units or shares, respectively, in these funds direct from whichever
investment company runs them. Investment
trusts also pool investors’ cash to buy shares
and other assets – but shares in these vehicles are bought and sold on the stockmarket.
Within these fund types, there are further labels
that reflect the approach taken by the relevant
investment manager. These could be sector
specific – for example, a UK technology fund –
or might instead focus on a single country or
region, say Japan or Latin America.
“First-time investors should usually avoid
higher-risk or more specialist investments
unless they fully understand the risks and are
prepared to take a long-term perspective, say,
10 years or more,” Connolly adds.
Each fund comes with a lot of information for
prospective investors, covering the investment
approach as well as a guide to the level of risk
attached.
Hollands says that a relatively new class of fund
is worth considering. “For a small investor just
starting out with a modest amount of money,
an efficient way to achieve diversification can
be through investing in a ‘multi-asset fund’,” he
explains.
“These are funds that themselves invest in wide
selection of underlying funds, typically from
between a dozen and 20, picked by a team who
then adjusts the mix periodically. From about
£50 a month, a multi-asset fund could provide you with exposure to lots of funds, lots of
markets and literally thousands of underlying
companies held within them.”
ADVICE AND
INFORMATION
While novice investors may welcome expert
guidance, it is unlikely to be cost effective for
anyone investing relatively small monthly premiums to pay for independent financial advice,
Connolly says.
He explains that a lot of guesswork can be taken
out by simply choosing the default fund in a company pension scheme, for example, or by opting
for a global equity fund or index tracker. “But if
you’re investing a larger amount or as the size of
your investment portfolio grows, then it could be
sensible to take independent advice.”
The services you can use to buy funds also have a
lot of information and recommendations to offer
at no cost, Interactive Investor highlights popular funds and suggests portfolios that could suit
investors depending on their attitudes to risk.
REGULAR
INVESTING
Another way of reducing investment risk is by
drip-feeding money into your portfolio, a process
known as ‘pound-cost averaging’. Connolly says:
“If you are starting out, then look to invest regular
premiums on a monthly basis rather than putting
in a lump sum. By investing regular premiums,
you negate the risk of market timing because if
the stockmarket goes down you simply buy at a
cheaper price the following month.”
If, on the other hand, you were to invest a single
lump sum every year, you would run the risk of
buying just before a sharp fall in the market and
suffering an instant loss of capital.
Hollands adds: “Regular saving is also a great discipline to keep on going through the good times
and the tougher times, which helps get around
the natural tendency to invest when markets are
very high and so is optimism, but hold back when
the news is bad.
“Actually, weak markets are a good time for longterm investors to put money in, even though our
emotions tell us otherwise.”
TAX
IMPLICATIONS
When investing, it is important to think about the
potential tax implications. If your portfolio does
not sit inside a pension or an Isa, you will be liable for capital gains tax (CGT) on any profits you
eventually make. In the 2015/16 financial year,
the annual CGT allowance is £11,100 per person,
so only any gains above this level are taxable. The
CGT rate at present is 18% for basic-rate taxpayers
and 28% for higher- and additional-rate taxpayers.
Potential CGT bills can be minimised by taking
money out of your portfolio gradually to try to
keep any realised profits below the annual limit.
If your investments are held in a stocks and shares
Isa, they are exempt from CGT. In 2015/16, the
annual Isa limit is £15,240 – this is the maximum
amount you can put in an Isa before 6 April 2016.
With a pension, on the other hand, any income
or withdrawal you take from it is taxable at your
marginal rate once you’ve taken 25% tax-free. But
there are tax advantages when you put money
into the pension, Hollands says.
“A pension has particular attractions for long-term
investors, as the state adds to any investment you
make, so that every £80 contributed is ‘grossed up’
to £100 – and there can be further tax savings if
you pay tax at the higher rates,” he explains.
“But money in a pension is tied up – currently
the earliest date you can access it is 55, but that is
expected to rise – so many people prefer to invest
in Isas.
“There’s no state top-up with an Isa, so the tax
perks are not as attractive, but the returns are
tax-free and they are very flexible, as you can
withdraw your investment at any time.”
ALTERNATIVE
INVESTMENTS
When
it comes to investing, buying stockmarket-
listed company shares – or funds made up of
them – isn’t the only game in town. Alternative
investments such as buy-to-let property and
crowdfunding have been the subject of growing
levels of interest recently.
Landlords across the UK have been enjoying
healthy returns over the past few years as property prices and rents have resumed their upward
trend. Meanwhile, online equity crowdfunding
platforms have made it much simpler for individuals to buy shares in new, potentially fast-growing
businesses that are as yet not listed on any stockmarket.
According to some investment analysts, a potential problem with alternatives such as these is
the lack of diversification they offer. An important point to remember is that an investment
fund will be diversified over a number of different companies and sectors, whereas alternative
investments can be heavily concentrated in one
area, once mortgage costs, stamp duty, maintenance, agency fees and void periods are
considered, returns could be significantly lower
than expected.
Property appeals to many investors as it is a physical entity, which is relatively simple to understand.
However, many overlook the costs involved in
such an investment and therefore overestimate
the income potential.
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In addition, buy to let isn’t a very tax-efficient investment. It can’t be held in a Sipp
[self-invested private pension] or Isa and the
government is also restricting tax relief on
mortgage interest to just basic rate.
This restriction will be introduced on a gradual basis from 2017.
EVALUATE YOUR
PORTFOLIO
Once your investments are up and run-
ning, it is important to keep tabs on them,
not just to see what kind of returns you
are making but also to ensure they remain
appropriate, given your attitude to risk and
your overall aims.
Philippa Gee, managing director at Philippa
Gee Wealth Management, says there are
tools available online – for example, on the
platforms where investors can buy and sell
funds – where you can input details of your
portfolio and review its performance.
“Be realistic, though: your investment might
not have performed well over a particular
period, but that could be for a good reason that no longer applies,” Gee says. “So
while the raw data can help, you need to
drill down and understand what you are
invested in and why.”
If you are trying to work out whether your
portfolio is doing well or not, there is no
point comparing apples with oranges. “It all
depends on what you are trying to achieve,”
Gee explains. “If you are looking for minimal risk and would prefer small but certain
gains, then judging your returns against the
FTSE 100 is the wrong approach. Decide
what benchmark you want to use for risk
and for return and then use that to interpret
the data.
“If you have chosen a fund that is not performing well even when the sector it is in
does well, this is a good indication that everything is not as it should be.
“Equally, you might need to change tack if
you are in an expensive fund, which is not
delivering value for money or when the
fund manager moves on or retires. Nothing
in the investment world stays the same, so
keep monitoring.”
BUILDING A £25,000
PORTFOLIO
If you have several thousand pounds to
invest, it is worth creating a portfolio of
several investment funds to give extra
diversification and exposure to different economies, sectors and asset types.
We asked a well-known investment analyst to come up with suggestions for both
a cautious and a medium-risk portfolio for
someone with £25,000 to invest.
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CAUTIOUS
PORTFOLIO
A cautious investor will often
have a considerable part of
their portfolio held across cash
and fixed-interest investments,
as they tend to be less volatile
than shares. An allocation to
more defensive, larger companies is also included, as equities
tend to outperform fixed-interest over the long term.
£6,250: Invesco
Perpetual
Tactical Bond
The approach of Invesco Perpetual’s Fixed Interest team
is to identify undervalued opportunities they believe will
add value when markets are rising, but try to seek shelter
when opportunities are lacking.
£6,250: Newton Real
Return
This is the type of defensive fund we believe comes into
its own when markets hit a rough patch but which also
has the ability to deliver good long-term returns, thanks
to its core of solid companies that are generally wellplaced to withstand a variety of economic conditions.
£6,250:
Troy Trojan
The manager, Sebastian Lyon, is able to shelter investors’
wealth in tough market conditions, while growing capital
over the long term.
£6,250: Artemis
Strategic Assets
The fund has the potential to continue offering a degree
of capital shelter in tough markets while delivering
attractive long-term returns.
Total: £25,000
MEDIUM-RISK
PORTFOLIO
This portfolio differs from that of
a more cautious investor as the
level of equity exposure is higher,
adding more risk but also the
potential for higher returns.
£5,000: Woodford Equity
Income
Manager Neil Woodford is one of the most successful, expe-
rienced and well-known fund managers in the UK. His
long-term track record is exceptional, having significantly
outperformed the UK stock market while producing impressive income growth along the way.
£5,000: Artemis Strategic
Assets
The advantage of a diversified, multi-asset fund such as this
is that different areas of the portfolio will perform well at different times.
£5,000: Newton Real
Return
The manager, Iain Stewart, is held in high regard and rcon-
tinues to provide good returns while offering some shelter
during more turbulent periods.
£5,000: Lindsell Train
Global
Equity
This is the type of fund investors could tuck away in the
bottom drawer and let some of the world’s most valuable
brands work at growing their wealth over the long term.
£5,000: Old Mutual UK
Alpha
This fund, which aims to maximise capital growth by investing in UK companies, is managed by Richard Buxton, a
talented and skilled stock picker.
Total: £25,000
Established 1897
SeaSon’S greetingS from
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KNIGHTSBRIDGE OFFICE: 82 BROMPTON ROAD LONDON SW3 1ER T: 020 7225 6506
MAYFAIR OFFICE: 61 PARK LANE LONDON W1K 1QF T: 020 7409 9001
CHELSEA OFFICE: 58 FULHAM ROAD LONDON SW3 6HH T: 020 7225 6700
KENSINGTON OFFICE: 48-50 KENSINGTON CHURCH STREET LONDON W8 4DG T: 020 3650 4600
HARRODSESTATES.COM
inspired Issue 8
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Planning on
trying your luck
with a property
investment?
Hannah Nemeth
If you’re thinking of investing in residential property in order to generate an income,
the good news is that rents are higher than
they were a year ago. Private rental prices in
England, Scotland and Wales rose by 2.7%
in the year to September 2015, according to
the latest figures from the Office for National
Statistics. Unsurprisingly, London saw the biggest hikes with rents increasing by 4.1%.
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On the downside, the Bank of England’s
Financial Policy Committee recently noted that
the stock of buy-to-let lending might be disproportionately vulnerable to very large falls in
house prices. It said that buy-to-let mortgage
lending had increased by 40% since 2008, compared to a 2% rise in owner-occupier mortgage
lending.
BUYING
AGENTS
If you are short of time or lack the confidence to negotiate with estate agents, you
could hire a buying agent who specialises
in investment properties. Although you’ll
pay a fee, they will have access to properties that are not on the market yet and you
could recoup some, or all, of the money
you’ve spent if they have good negotiating skills.
Focusing on prime London areas, Temple
Field Property specialises in searching for
investment property. Its Yield Plus London
Opportunity aims to add value to ex-local
authority properties it finds for its clients
through refurbishment.
“We are getting most interest in ex-local
authority property built in the Sixties and
Seventies, which is the cheapest property
you can buy in London,” says co-founder
Dominic Field. “You can buy a three-bedroom, 850 square foot flat for around
£500,000, which is a lot of money, but
that’s pretty much where it starts.”
The company, which only buys low-rise,
low-density property, near to public transport, typically looks for properties where
it can move the kitchen into the sitting
room to create an additional rentable bedroom. This boosts the rental yield while
still leaving a common area for people to
congregate.
“The properties we go for are generally
bordered by period houses, which trade
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at a premium of 30% to 40% more. What
we like is to find an in-fill development
of 20 flats, which are ex-local but in fabulous locations such as Fulham, Battersea or
Clapham,” says Field. “Tenants are young
professionals who want clean, safe accommodation and they don’t want to pay too
much for it.”
Temple Field charges an initial fee of
£600 and 2% of the purchase price
after exchange. “That’s in line with what
estate agents charge, but we do so much
more,” explains Field. “We hold their
hands throughout the process, the legal
work, the survey, all the way through to
exchange. When we go to buy a property, our clients are taken very seriously.
We’d like to think we save at least 2% on
the purchase price by acting as their representative.”
And it’s not just London’s trendiest areas
that are attracting investors. Henry
Sherwood, managing director of The
Buying Agents, has seen a growing interest in properties close to Crossrail.
The Buying Agents, which generally carries out light, cosmetic refurbishments
– perhaps a new kitchen, new flooring,
painting and decorating – seeks out properties throughout the UK, as well as in
Paris and the South of France. It charges
£600 initially, with the fee deducted from
its commission, which is around 1.5%, if a
purchase goes through.
On average, we are usually around one year ahead
of the general public when deciding where to
invest. We started buying on the Crossrail route
around 2008 to 2009, long before anyone else. This
was at the height of the credit crunch so some clients bought at the bottom of the market and then
saw the huge Crossrail effect. We have been buying
properties near Crossrail 2 for about nine months
now.
“In London, the more central you are, the lower the
yield, but higher yields can still be found further
out of the capital – in Tottenham, for instance. A lot
of people missed jumping on the Crossrail 1 bandwagon, so are now looking at Crossrail 2.
They now have a greater appetite for risk and don’t
mind going into more ‘emerging markets’.”
Another company that looks beyond London is
buy-to-let estate agent Assetz for Investors, which
finds and pre-negotiates investment-grade, buyto-let property for private investors, offering a wide
range of properties including new-build, student,
off-plan and resale property. Each property comes
with online data that clearly spells out what an
investor will pay, including the fee, mortgage costs,
and rental yields.
Stuart Law, chief executive of Assetz for Investors,
says: “Some properties are commission-free for
the buyer as the vendor/developer will pay all the
fees, while for others the buyer would need to
pay part or all of our fee, which is typically around
£3,000. Given our properties are off-market and
have already had negotiated prices, this is a valuable overall cash saving to an investor and also a lot
more time-efficient for busy property investors.”
“We have always focused more on rental income
than speculation on house prices and have a quality investor base with cash to deploy rather than
supporting speculators with just a small, high-risk
deposit.”
A quick browse of its site reveals a wide range of
properties across the UK. For example, at the time of
writing a selection of apartments in a development
in Leicester’s city centre was priced from £127,355,
with a rental yield of 7% and a projected return on
the investment of 14.4% – Assetz’s fee was £4,000
plus VAT.
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8
expensive
AIM
shares
still worth
buying
Andrew Hore
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Some companies consistently
trade on high valuation
multiples, but that is because
they have a record of strong
results. They may slip up
occasionally and they are not
immune to what is happening
in the wider world, but if
investors want to buy shares
in these businesses they have
to pay for that impressive
performance.
C
onsistent and growing profitability over a
long period of time is key to these highlyrated companies. They do not work in
sectors where investors have got overexcited
and pushed share prices to ridiculous levels,
only for the share price to subsequently slump.
An example of that was the surge in the shares of
companies involved with Big Data a couple of years ago,
before returning back to earth shortly after.
High share prices with nothing to back them up can
only be sustained for a number of years before they
eventually suffer a heavy fall - if the performance does
not back them up.
A recent example of this is mobile banking services
provider Monitise (MONI). Revenues have grown
significantly (although there was a dip to £89.7 million
in the year to June 2015.However, the losses made
in recent years are enormous, even if write-offs of
intangible assets are excluded. In the past five years,
there has been an operating cash outflow of more than
£144 million and, when capital expenditure is included,
the figure is £259 million.
Lessons from
history
A strong share price enabled Monitise to raise money to
invest in the businesss, but the share price could only defy
gravity for so long. The share price peaked at 80p during
February 2014 - and is now 3p. There has been a 90%
decline over 12 months.
Oil and gas exploration safety equipment developer Plexus
(PLXS) has a high rating, but it has tumbled over the past
two years as the oil and gas sector is out of favour and
spending on exploration is being cut. That said, the Plexus
historic price/earnings (PE) ratio has fallen from 93 to 31, so
it is still on a high rating because of its unique technology.
The FTSE 100 (UKX) index long-term average PE is around
15 and the FTSE Small Cap index tends to trade at a
discount to that rating.
During the dotcom boom at the end of the 1990s, when
technology and internet companies were the focus of
investor hype, the FTSE 100 PE moved above 25. Nearly a
decade later, when the credit crunch took hold, it had fallen
to around seven.
This shows how ratings can change as economic
circumstances and investment fashions change. The
more soundly based companies do not tend to have such
significant swings in their ratings, although they will still be
affected by macro economic changes, as well as inevitable
business-specific challenges.
A tough
benchmark
The performance of the FTSE AIM All-Share index has been
poor so it makes sense to use a more taxing benchmark,
such as the FTSE Small Cap index.
During the period from the beginning of 2011 to now, the
FTSE Small Cap index has increased by 41.8%. The table
below includes examples of AIM companies that have not
only been trading at a premium to the FTSE Small Cap
index, but that have also significantly outperformed it since
the start of 2011.
The constituents of the table provide some of the best
examples of better-performing highly-rated companies,
but there are many others. All the companies in the table
have historic PE ratios of more than 20 and have generally
maintained a PE above that level for most of the years.
There is a range of businesses covered, from longestablished industries to technology companies. What they
have in common is that they are profitable and highly cash
generative. Some also have large cash piles - even though
this might be frowned upon by some as inefficient use of
capital.
The profits of these businesses have grown over the past
five years and, although there have been some dips during
the period, they are tipped to report growth in profit in the
current year. The historic multiples are based on underlying
earnings per share (EPS), so one-off gains and losses are
excluded.
Another thing all of the companies have in common is that
they pay dividends which have consistently grown over the
period. A couple of the companies began paying dividends
during the period under review, but most of them have
been returning cash to shareholders for much longer.
The final eight
Many of the examples in the table are predictable. For
example, floorcoverings manufacturer James Halstead
(JHD) and soft drinks supplier Nichols (NICL) regularly
appear in tables of consistent dividend payers or better
performing shares. They have been around for years and
the share prices have risen substantially over a 25-year
period.
Nichols was hampered by litigation relating to Pakistan
licensee Gul Bottlers, which led to a large cash payment,
which is why its historic multiple fell below 19 at the end of
2014. The rating has subsequently recovered.
Iomart
Web hosting services provider Iomart (IOM) has consistently
had a high rating, but the share price slumped following a
profits warning last year.
This type of slip-up can lead to a sharp reaction as investors
fear that it could just be the start of the disappointments.
Even so, the multiple was still 22 at the end of 2014 and
it has recovered to 34 times as Iomart rebuilt investor
confidence because there were no more bad surprises.
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Tracsis
Transport software and services supplier Tracsis (TRCS)
has built up an impressive track record during the past
five years and this is shown by how the PE ratio has
risen over time. Tracsis has developed a reputation for
beating the profit forecasts of analysts.
Tracsis had a PE ratio of 13 at the end of 2011 and
this multiple has increased every year since then.
WH Ireland forecasts a 2015-16 profit of £6.2 million,
up from £5.8 million - but history shows that the
final outcome should be much better than that,
particularly if the remote condition monitoring orders
pick up faster than forecast.
Gooch &
Housego
Gooch & Housego (GHH) has also been rerated, as its
position as one of the global leaders in the photonics
sector becomes better appreciated.
Trakm8
Telematics services and equipment provider Trakm8
(TRAK) is not in the table, but it is another example of
a company where the rating has increased over time.
Back at the end of 2011, the PE ratio was less than 12;
now, the share price rise of more than 2,100% over the
period has led to the multiple rising to more than 48,
even though there has been a fivefold increase in EPS,
with more to come.
dotdigital
Email marketing services outfit dotdigital (DOTD)
moved from Plus Markets (now the ISDX Growth
Market) to AIM during 2011, so the share price
improvement is from the beginning of 2012.
The company had a good growth record prior to
joining AIM. The low rating at the end of 2011 is
probably due to the fact that dotdigital had moved
from Plus/ISDX, where ratings tend to be much lower.
Sprue Aegis (SPRP) is a more recent example of how a
company can move from ISDX and gain a substantial
re-rating.
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Churchill China
Tableware manufacturer Churchill China (CHH) is not
an obvious company to be highly rated, but it has
nearly doubled its earnings per share over five years.
Brooks
Macdonald
Wealth management services provider Brooks
Macdonald (BRK) has grown its funds under
management to £7.33 billion, both organically and via
acquisition. It has been able to grow steadily through
various market conditions and the performance over
a decade is even more impressive.
There are other companies that are profitable and
have high valuations, but they have not been around
long enough to assess whether they will continue to
warrant these ratings.
It will be particularly interesting whether or not
Fevertree Drinks (FEVR) can build a track record to
maintain its stratospheric rating, given the relatively
modest level of profitability.
This article is for information and discussion purposes only and does not
form a recommendation to invest or otherwise. The value of an investment
may fall. 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.
13
top UK stocks
for dividend
growth
Heather Connon
Some companies consistently
trade on high valuation
multiples, but that is because
they have a record of strong
results. They may slip up
occasionally and they are not
immune to what is happening
in the wider world, but if
investors want to buy shares
in these businesses they have
to pay for that impressive
performance.
I
nflation over the 10 years to the end of 2014
averaged 2.7%; the real return on equities over
the same period was about 5%, and on gilts
about half that.
GDP growth has been well below 3% and house
prices across the UK have risen by an average of less
than 2% (although Londoners, of course, have done
much better than that). So any company that has grown
its dividends by at least 10% a year over the bulk of that
period has been doing pretty well.
Analysis conducted by Interactive Investor’s sister
publication Money Observer shows that of the 573
companies that have been in the FTSE All-Share index
over the past decade, an elite group of 13 have managed
to grow their dividends by that amount in at least nine
of those 10 years.
Overall, our dividend heroes averaged a 19.2% annual
increase in dividends every year, with the leaders chip-maker ARM Holdings (ARM) and Domino’s Pizza
Group (DOM) - averaging a stellar 27.8% per year.
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27
Top dividend growth stocks
While our rules allowed companies to miss the 10% target for one
year in the decade, four of our heroes scored a full house of 10%plus every single year.
They were: ARM Holdings, veterinary specialist Dechra
Pharmaceuticals (DPH), software business NCC Group (NCC) and
the RPS Group consultancy (RPS).
They range in size from the relatively tiny, such as support services
group Mears (MER) with a market value of just over £400 million,
to the tobacco giant Imperial Tobacco (IMT), which is worth more
than £31 billion; they cover industries from the media (advertising
group WPP (WPP)) to fast food (Domino’s). But the biggest sector,
with four of the 13 companies, is support services.
Indeed, four of the other constituents also have a significant service
element: Paypoint (PAY), which provides payment services to
companies and consumers; advertising giant WPP; NCC, which
offers security and software services and ARM, which designs and
then licences the chips in smartphones and other gadgets, rather
than manufacturing them itself.
Services rule
The preponderance of service companies has some logic. Such
businesses are generally not particularly capital intensive, relying
instead on a skilled workforce to service their clients.
In theory, at least, that should leave more cash flow available to
reward shareholders - although the experience of businesses such as
Serco (SRP) and G4S (GFS), both of which suffered from disastrous
public contracts, shows that keeping customers satisfied is not
always easy.
Just three businesses
could fall under the
manufacturing banner:
Cobham (COB), whose
products include tactical
control, navigation
and communications
systems for commercial
and military aircraft,
although it also has
a sizeable servicebased business; Dechra
Pharmaceuticals, which
supplies therapeutic
products for animals
- although its research
and development
activities are at least as
important to its long-term success; and Imperial Tobacco, with its
range of cigarettes and other tobacco products.
All are very specialist manufacturers: Dechra has tapped into a
niche that is growing rapidly as we all spend more on our pets.
While tobacco should be a commodity product - and a shrinking
one at that, as health authorities across the world persuade us to
give up smoking - Imperial’s global reach and dominance of its key
markets give it a particular strength.
Retailing gets just one entrant, in Burberry (BRBY), although this
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January 2016
firm also designs and manufacturers its distinctive clothing range,
so it straddles manufacturing. Domino’s, while classed in travel and
leisure, is also a presence on the British high street, albeit through
franchised stores.
The list is also notable for its absences. Imperial and Dechra apart,
the sectors traditionally favoured by income-seekers - utilities, oil
companies and pharmaceuticals - are missing.
That reflects the fact that these are generally operating in mature
industries where growth is limited and that, while they may pay
generous dividends, their pedestrian earnings growth means they
are unable to meet the stretching target of our dividend heroes.
Many of the electricity and water companies, for example, promise
merely to match inflation, which has been well below 10% for at
least a quarter of a century. Banks and other financial companies
would have earned a place at the start of our decade, but the
financial crisis put paid to their ambitious dividend growth plans.
Those that missed
A number of companies came very close to joining the select group:
Capita (CPI) missed out in two of the eight years, Genus (GNS),
the animal breeding expert, would have been in if we had rounded
the 9.7%, 9.8% and 9.9% growth achieved in four of the years up
to 10%; Next’s (NXT) growth averaged more than 14% a year but
it held its dividend one year, and in another the growth was 7.32%,
impressive enough but below our target.
It has also paid 340p a share in special dividends in the past two
years, making it a prized stock for many income-seekers; but special
dividends are excluded from our calculations, as we are interested
in sustainable income growth.
Our companies are not particularly
high-yielding: indeed, the lowest,
ARM Holdings, has a yield of just
0.72% and the highest, Imperial
Tobacco, 3.82%.
Again, that is not surprising:
companies that pay high dividends
are unlikely to be able to increase
them consistently by enough to
make our list of dividend heroes. A
high yield can also indicate a low
dividend cover and thus limited
capacity for growth.
Many of our heroes also have a
relatively short history. That is
understandable, as young, fastgrowing businesses are likely to
start off by paying relatively low
dividends, keeping capital for expansion. When they do eventually
start growing their dividends it will be from a low base, so it is
easier to achieve the high rates of increase.
The global economy is still sluggish and China shows signs of a
marked slowdown, which will make life more difficult for many
companies.
What their records do say, however, is that these companies
are cash-generative and growing, and that they recognise the
importance of rewarding their shareholders - three valuable
characteristics in any investment portfolio.
THE 13
DIVIDEND
HEROS
Mears Group
Mears maintains local authority and other social housing
and provides care services to around 30,000 people a year,
helping them to remain in their own homes. While cashstrapped local authorities are having to trim their costs, this
has proved a profitable niche for the company.
Intertek
Intertek (ITRK) was spun out of the international trading
company Inchcape in 1996, listing on the stock exchange
again in 2002. It provides quality and safety services to
companies in a range of industries - from nuclear to food
manufacturing - across the world.
Among its services are audit and inspection, training and
certification. Both revenues and earnings have grown by
an average of almost 20% a year over the past five years,
although recent results have shown falls in both; however,
analysts are forecasting a return to growth.
Imperial Tobacco
One of the leading tobacco companies, Imperial has
operations in 160 countries, with brands including
Gauloises, Lambert & Butler and West.
While tobacco sales are declining in mature markets, they
are still rising in emerging economies. The company is
also focusing on consolidating its position in key markets,
including the US and the European Union, where its market
share is below 15%.
Its strategy reads like a primer for dividend generation: “Our
focus on quality sustainable sales growth, combined with
the efficient way in which we manage costs throughout our
operations, delivers high operating margins.
“This generates the strong cash flows which we use to reward
our shareholders and to reinvest in the business, pay down
debt or return to shareholders.”
Diploma
Dechra Pharmaceuticals
The British are not the only nation of animal lovers:
across the globe, more and more people have pets - and
are spending more and more on them. Dechra is tapping
into that trend with its range of specialist veterinary
pharmaceuticals.
Cobham
Cobham operates in three primary business sectors:
aerospace systems, avionics and flight operations and
services.
It designs and makes equipment, specialised systems and
components used within the search and rescue, civil and
defence aviation, marine, aerospace, homeland security and
communication markets.
These are very specialist businesses, with high barriers to
entry and a demanding client base that Cobham has shown
it is expert at servicing.
Diploma (DPLM) has been around since 1931 but started
a transformation in the early 1990s, when its traditional
engineering and building industries went into decline.
It has now reinvented itself as an international group,
providing specialist, technical products and services in three
areas: life sciences, sealing products and controls.
It aims to continue its growth by acquiring other
complementary businesses that fit with its existing specialist
niches, investing to take them to a new level, and then
growing both the new and existing operations.
Underlying revenue growth has been 9% over the past five
years, while margins are a healthy 18 to 19%.
RPS Group
RPS is an international development, energy and
environmental consultancy company, with offices in the US,
Canada, Malaysia and the Netherlands as well as in the UK.
Among its services are advising on energy infrastructure and
on transport links.
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ARM Holdings
Domino’s
Paypoint
NCC Group
Burberry
WPP
The specialist chip-maker was spun out of the
collaboration between Acorn Computers and Apple
in 1990. Its technology quickly became the industry
standard for mobile devices.
ARM has 1,100 licences with more than 300
companies, earning it royalties for the design and
licencingof its smart chips: a much more effective
business model than actually shipping the chips
itself.
While its share price tends to rise and fall in line
with the fortunes of Apple (AAPL), its most highprofile customer, it has customers from across the
industry.
Another young company, Paypoint was formed less
than two decades ago as a nationwide bill-paying
network, offering outlets in the places that people
use daily, with the aim of making it easier for them
to manage their finances.
From that, it established an internet payment
service provider, connecting merchants with banks,
which was then rolled out to mobile through
PayByPhone, now one of the world’s leading mobile
payments systems.
It is also the company behind the Collect+ service,
which allows customers to collect and return online
purchases. Earnings growth over the last five years
has averaged 12%.
Not long ago Burberry was a rather dull and
pedestrian brand, but is now one of the world’s
leading fashion brands, focusing on what it
describes as “authentic and distinctive products
and continuous innovation in design and
manufacturing”.
The transformation owed much to Angela
Ahrendts, who took over as chief executive in 2006
but was enticed away by Apple last year. Whether
her successor, Christopher Bailey, can continue the
growth remains to be seen.
The pizza delivery company arrived in the UK in
1995 and became the first home delivery company
to float on the Alternative Investment Market
(AIM) when it listed there in 1999.
The company has the UK franchise from US
company Domino’s Pizza International and operates
here through franchising stores. Its growth has been
impressive: its 2,000th store was opened in Hemel
Hempstead in 2013, and it also has franchises in
Germany and Switzerland.
Like numbers one and two, NCC has a relatively
short corporate history, having formed in 1999
when the National Computing Centre sold its
commercial divisions in a management buyout. It
floated on Aim in 2004, moving to the main market
three years later.
Its business is information assurance: its services
include verification, security consulting, website
performance, so ware testing and domain services all fast-growing areas as computer use explodes.
While earnings were growing strongly - in the year
to May 2013 they grew more than sixfold - recent
results have been more pedestrian, although brokers
are forecasting strong growth for the next two years.
A world-leading advertising, marketing and
communications business, WPP has also undergone
a transformation since its chief executive Martin
Sorrell took over a wire basket-maker, Wire and
Plastic Products, in 1985.
It is now seen as a bellwether for the global
economy, and Sorrell’s colourful descriptions of
the state of the recession - he likened its shape to a
bath at one point - are pored over by analysts keen
to extrapolate his comments to other parts of the
economy.
This article is for information and discussion purposes only and does
not form a recommendation to invest or otherwise. The value of an
investment may fall. 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.
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A look at the Noble M600
p32
Finding the perfect watch
p34
Port and Douro Wines for the
new year p41
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The Noble
M600 is
for those
who love
to drive…
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A Noble like no other
T
he Noble M600 delivers the
ultimate driver reward with a rush
of adrenalin. It is quite simply
an “event”... tinged perhaps with
just a little fear. The Noble M600
is a car produced not in competition to the
current supercar establishment, but one
that offers those serious about their driving,
an alternative philosophy and a more
rewarding driving experience. Each car is
hand built in England, bespoke and built to
an exacting clients’ individual requirements
by a small team of craftsmen. Carbon
bodied, incredibly rare and exclusive, the
M600 does not compete or align itself with
any other currently available supercar. Super
light and with incredible power, the M600
boasts an impressive power to weight ratio
of 542bhp per tonne, but that’s only half the
story, the rest is the stuff of legend.
It is rumoured that there is some stiff
competition out there, and although
Noble Automotive is a very small low
volume motor manufacturer, a David in a
Goliath’s world, Noble do take great pride
in their bespoke individuality, attention
to detail and engineering excellence. The
development of the M600 has been an
incredibly intense and rewarding journey,
a journey in its literal sense, Noble shipped
the development prototype to the USA.
Crossing the continent from East to West
they experienced the most dramatic and
demanding of climates and terrains in
order to prove and test the efficacy and
engineering of the M600. In company
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for comparative purposes, with a Porsche
Carrera GT and for some of the journey,
a Ferrari Enzo. They drove from Chicago
westward; the journey included every type
of environment, from the incredibly hot
Death Valley in California to the mountains
and snow of Utah, from the infamous Pikes
Peak to the Bonneville Salt Flats, and finally,
to a hot and dusty race track in Phoenix
Arizona where the M600 was tested and
evaluated against some of the fastest and
most respected supercars in the world.
Nearer to home, in the UK they completed
a full wind tunnel aero program, climatic
wind tunnel testing and durability program,
and acoustic noise, vibration and harshness
testing. Four post rig for damper and
suspension tuning and thousands of miles of
both road and track testing.
The M600 has a massive 650bhp available,
this amount of power, or indeed the power
delivery, is not always either appropriate
or required, however with the Adaptable
Performance Control function you can
select the power output to reflect both the
location and suitable driving conditions.
Noble believe in freedom of choice, but not
at the expense of safety. Traction can be
totally deselected, in order that this function
is not utilised in error they have provided
the ‘are you sure?’ failsafe switch guard. This
feature, as used in fighter jets to prevent
accidental missile firing, ensures that the
process requires a two stage action. Lift the
switch guard...push the button, traction is
off. The traction automatically resets to the
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‘on’ position after the engine is turned off.
The brakes, developed for the M600 in
partnership with Alcon, feature semi-floating
front disc with cast aluminium alloy monobloc
calipers. The monobloc six piston front and
four piston rear caliper designs ensure high
strength with low weight and provide a firm
brake pedal in all driving conditions. Caliper
bore sizes are staggered to ensure even pad
wear and the pin mounted pads provide
low threshold pressure and low noise. The
calipers clamp 380mm front and 350mm rear
ventilated discs both of which are mounted
to lightweight aluminium bells. Friction is
provided courtesy of Pagid performance pads.
The wheels are exclusively designed for the
M600, featuring forged aluminium alloy 9Jx19
fronts and 12Jx20 rears.
The M600 is primarily designed for the
handling, speed and the ultimate driver
reward, however this is not at the expense
of either comfort or practicality. The cabin
features a traditional bespoke British hand
built finish. Totally bespoke with your choice
of leather, suede or Alcantara with contrastor
matching twin needle stitching. Exposed
carbon centre console, door cards and gear
knob all of which can be finished in gloss
or matt, hand turned knobs and bezels and
fine quality wool carpets bound to the edge
with leather. The seats, designed and created
exclusively for the M600, are of lightweight
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carbon fibre composite construction which
can be bespoke upholstered to individual
requirements. Seat backs can be natural
exposed carbon or painted to match the
exterior. Seat panels can be of any combination
of materials or colour.
Noble firmly believe that every M600 should
reflect both the personality and individuality
of the owner.The M600 is meticulously handbuilt in England and will be individually
finished to the owners taste and aesthetic
requirements. Each M600 will carry on the
dashboard an identification plate featuring the
unique build number. To reflect this level of
personal commitment every car will discreetly,
but proudly display the name of all of those
involved in the build on the door sill kick plate.
During the build the customer will be invited
to view the progress of the build and to meet
those engineers and personnel involved in its
creation. There is also the option of a Carbon
Sport version.
Manufacturing less than twenty cars per year
allows Noble to give the customer full aesthetic
control. They take huge pride in the fact that
they have never built any two cars the same,
making each car as individual as you are.
When building commences they welcome, in
fact encourage, their clients to visit the factory
to meet the craftsmen and women and to
witness the creation of their motorcar.
Ten Tips for
Finding the
Perfect Watch
Buying a premium watch is
a unique and exhilarating
experience, but one that can be
daunting the first time around.
Should you consider X brand? Is
Y watch worth the money? The
questions are endless. We’ve
probed the expert knowledge
of the UK’s biggest pre-owned
watch retailer, Watchfinder &
Co., to find out what the top ten
tips are for making sure you get
that perfect watch, perfectly.
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1.
2.
Whether budding enthusiast or seasoned collector, it’s no secret
that different brands attract different fans. Some may tell you that
the watch you want is no good, but don’t let that get to you (unless
the concerns are about reliability or similar)—if you like it, then
there’s no reason it’s not the watch for you. Watch enthusiasts can
behave similarly to Ferrari’s Tifosi: passionate and dogmatic. Learn
to filter the useful knowledge from the noise.
Whether you’re looking at something contemporary or something
vintage, there are a million different ways to spend your heardearned on a lovely, shiny timepiece. The level of choice can be
daunting, but assuming there isn’t a piece you already know
you have to have, there are ways to narrow down your search
perimeters and make things easier. Heeding point number one,
browse enthusiast websites and get a feel for what’s out there,
then when you begin your hunt, you’ll be forearmed rather than
overwhelmed.
3.
4.
Don’t Let Anyone Tell You What You Want
Choose With Your Heart
There’s no question about it—some brands depreciate more
than others. That’s no slight on a brand’s quality, but it can
influence your buying decision, and understandably so. If
you can, try to ignore that factor. If you buy with your head,
chances are you’ll end up selling later on and getting the
watch you really wanted anyway, which will cost you more
in the long run and will fill you with that sickly emotion that
leaves your stomach heavy and throat dry: regret.
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Get Prepared
The Thrill of the Chase
No matter how excited you are, there’s no rush. Enjoy
the search, the study, the learning. It’s a phase where your
eyes are opened up to new and wonderful things, when
you look back at what you previously understood and
laugh knowingly at how naïve you once were. It’s a part to
be enjoyed and not overlooked, a part that draws many
enthusiasts back time and time again. Earn that purchase by
studying it like it’s your third year finals.
5.
6.
If there’s one thing that’s certain, it’s that people selling watches
tend to know what they’re worth. Aside from very rare occasions,
if a watch seems cheap, it’s because it’s not what you think it is, and
unless you have near-oracle levels of watch knowledge, these little
honeytraps are best left avoided. Fake watches are as big a market
force as genuine, and no matter what you think you know about
them, you don’t know enough. If you must seek out a bargain, treat
each purchase like an investment—the value can down as well as up.
We’ve all done it: whether with job interviews, car purchases, house
buying or the like, we get excited about the first thing we see and
convince ourselves to dismiss the rest, completely against every
screaming fibre of commons sense within. This is an impulse to try
and resist. Browse popular alternatives, even if to confirm that your
choice is right, because who knows—you might stumble across an
option you never knew you had.
7.
8.
There’s a certain irony in purchasing such antiquated technology as a
mechanical watch on something as modern as the internet, but it’s a
tool not to be ignored. Boutiques are nice, but free next day delivery
straight to your door is even nicer, especially with the protection of
the distance selling regulations on your side. There are even apps
that can show you what a watch will look like on your wrist without
even having to try it on. What a time we live in!
Research your purchasing options. Some retailers offer interest free
finance, a good way to keep your capital stacked up and earning
interest. Some will negotiate on price, too, but there’s more to it than
that: a solid warranty and good after-sales service can be worth
their weight in gold. Also something to consider is running costs. A
watch needs servicing ever 2–5 years depending on manufacturer,
and costs can vary dramatically. Don’t get caught out by picking up a
cheap watch that needs immediate maintenance. Leather straps will
also need replacing every year or so if worn frequently and in hot
weather—budget for that, too.
9.
10.
You wouldn’t buy a car from a dealer that knows nothing about
cars, and the same applies to watches. Look for solid investment in
a company, something that tells you ‘we’re here for the long haul’:
bricks-and-mortar locations, servicing credentials, things like
that. A warranty’s no good if the company issuing it is no more!
Independent third party sites like Trustpilot are worth scouring to
get a decent look at real-life customer opinions. Yes, it’s possible to
save money by buying privately or through auction, but it’s a real risk
for even the most knowledgable of purchasers, and has no proper
avenue of comeback.
For that extra peace of mind, pay on credit card (unless you opt for
finance). The Consumer Credit Act holds your credit card company
jointly liable with the company that sold you your watch, so if
anything goes wrong and the seller chooses not to play ball, you
can potentially claim through the credit card company to get your
money back. It’s a little known fact, but one that can get you out of a
potentially sticky situation.
It’s Too Good to be True
Use Technology
Buying Knowledge
Compare and Contrast
Get Your Financial Hat On
Parting With Your Money
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S
ince 1793 Bonhams has been a purveyor of some of the most captivating stories
ever told. From the treasures of fallen emperors, to the jewels of Hollywood starlets
and cars of motor racing legends, we are caretakers of beautiful and culturally important
ar tefacts as they pass through time. Don’t just collect, become par t of the stor y.
ENQUIRIES
+ 44 ( 0 ) 20 7447 7447
[email protected]
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bonhams.com/stories
Port and
Douro Wines
P
ortugal is home to the
world’s oldest regulated
and demarcated
vineyard land the
Douro Valley. The land
by the beautiful river Douro has for
centuries provided us with Port wine
and as the wine drinking landscape
has changed, producers in the area
are turning their hand to something
new for them – table wines. This leads
us to a few questions, not least why
has it taken them so long, and more
importantly, are the wines any good?
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FIRST TO PORT
P
ort is by definition a fortified wine. Historically,
wines were fortified with spirts, typically brandy,
to preserve them. Port needed protection from
extreme heat and the risks of damage on their long
journey, first by river to Porto and then by sea to
England.
The way Port is made has been mechanised over the years,
but the process is little changed. The grapes are taken into the
winery and are then crushed under mechanical presses which
mimic the traditional method of trampling grapes by foot.
The juice then ferments and in 2 to 3 days after the grapes
arrived; the wine is poured into storage tanks and brandy is
added to raise the alcohol level, fortifying the wine and to stop
fermentation, which means the sugar levels are kept intact. Of
all wines, the making of Port is the quickest and the maturing
the longest.Like all wines, the quality of the grapes will dictate
the quality of the wine and with Port, this also leads to a
decision as to when the wine is bottled. The very best of grapes
in the very best of years go to make vintage Port. Vintages
are only ‘declared’ in the Douro once every two to five years
and only in years when it is agreed that the conditions have
been excellent for growing grapes. Vintage Port will be bottled
approximately 18 months after it has been vinified. These
are wines which can last for a century in the bottle. These are
the top wines with houses like Graham’s, Dow, Taylor’s and
Sandeman representing the English; Fonseca, Ramos Pinto
and Quinta do Noval representing the Portuguese with Kopke
and Nierport flying the Dutch flag.
In years when a vintage is not declared, the houses will offer
the wines of their finest vineyards in special releases. The
Portuguese word for a vineyard is quinta and these wines are
referred to as single quinta ports. Personally, I would blissfully
quaff a port such as Quinta do Vesuvius and struggle to define
any difference in quality between it and the more expensive
vintage port
The final type of Port to use the word vintage is LBV – late
bottled vintage. This is a wine which has been allowed to
mellow for longer in barrel and is bottled after a number of
years. It is ready to drink upon release and is very good as well
as very good value, although lacking in the depth and interest
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of the greater wines.
LBV provides a bridge to the next major category – the Tawny
Ports – known as tawny because of their pale brown colour.
These are wines which have aged for a longer time in barrel
and the colour starts to fall from the purple of their youth.
These wines are released according to their age – 10 year old,
15 year old and so on. My abiding favourite is 30 Year old.
Whilst not cheap, these wines can easily be had for under £60
which for a wine made in the early eighties isn’t bad.
There are many other variations and categories here and I
could go on. However, what is worth noting is that for the
main part, the ageing which these wines require is carried out
in the lodges of Villa Nova de Gaia (Porto’s twin city) and at
the expense of the producers.
The cash flow implications of this are fairly obvious and this
is something that the producers have tried to address over the
years. This brought us amongst other things Pink Port. Now,
though, they have decided to follow a more conventional path
– they are producing table wine.
The answer to why they hadn’t done this sooner is complicated
and can be boiled down to a combination of tradition and
politics. But now, things are changing. There is a movement
by producers such as Christian Seeley, Bruno Prats and Paul
Symington who are bringing us wines such as Chryseia and
Cedro do Noval as well and others are making more affordable
everyday wines such as Quinta do Crasto and Papa Figos.
The wines, like the more famous Ports, operate across different
quality levels. The Chryseia made in a joint venture between
the Symington Family and Bruno Prats (of the Bordeaux wine
aristocracy) is very much in the mould of a first growth wine
although with a slightly wilder edge. This is a wine which is
very much in its infancy, but may attain iconic status in years
to come. There is no doubt that the potential for greatness
exists.
At the other end of the price spectrum, there are many
bargains to be had. Quinta do Crasto at £11.99 is worth every
penny and more, whilst Papa Figos at £9.99 is a wine which
perfectly demonstrates the quality of fruit which has made the
region famous and offers a window into the future of what is
yet to come.
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