Portfolio Update (10/08/19)

AU Portfolio

News

On Tuesday, in the midst of a market meltdown, Advance Nanotek Ltd (ASX:ANO) announced that sales orders are up 400% year to date. The company's financial year is only a month old and so whilst the news was pleasing and confirms my view of the stock, it is perhaps of limited significance.

On Friday Ashley Services Group Ltd (ASX:ASH) announced its intention to pay a final fully franked dividend of 2.7 cents, up from 2.5 cents last year. ASH got caught up in the panic selling in the earlier part of the week falling from 33 cents to 26 cents. Needless to say the shares bounced back on the announcement.

Trades

I purchased United Overseas Australia Limited (ASX:UOS) shares during the week. Rather than writing down my rationale for the purchase, I'd prefer to share with you the lucid investment case outlined in EGP Capital's May update. UOS is a stock I have held in the past and one I should have never let go. Buying it again feels bad because I am paying more than what I previously sold it for. This is anchoring bias because in my estimation even at today's elevated prices the stock offers compelling value versus most ASX listed alternatives. As a Malaysian property developer it has a different risk profile compared to the rest of the portfolio.

I also bought online travel agent (OTA) Webjet Limited (ASX:WEB) primarily for its rapidly growing B2B operation which connects hotel inventory to corporate and retail travel agents, OTAs, tour operators and other wholesalers. It is the second largest B2B operator globally but has less than 4% market share. WEB looks reasonably priced to me in contrast to the majority of ASX growth stocks at the moment.

My final purchase this week was Southern Cross Electrical Engineer Ltd (ASX:SXE).

To make way for the above additions I sold Wellcom Group Limited (ASX:WLL) which is under takeover offer and Blackwall Ltd (ASX:BWF) because it was my least favourite holding following a recent share price bounce. I have also been adding external funds to the portfolio in recent weeks and will continue to do so as opportunities arise.

Holdings

ACF - 3.94%
AKG - 4.00%
ANO - 4.63%
ASH - 4.59%
CWL - 4.04%
EAS - 3.85%
EZL - 3.98%
FID - 4.30%
GAP - 4.07%
HIT - 4.19%
ICS - 4.26%
JYC - 3.81%
KME - 8.06%
LBL - 5.65%
LYL - 4.93%
OTW - 3.30%
RXP - 4.71%
SSG - 4.61%
SXE - 4.69%
UCW - 4.19%
UOS - 4.80%
WEB - 4.88%

Cash - 0.53%

UK Portfolio

News

Avon Rubber plc (LON:AVON) announced the acquisition of 3M's ballistic protection business this week for US$91 million. Consolidation of back office operations should deliver US$5 million of synergies and the acquired business reported $10.8 million of EBITDA in 2018. The 3M business shares the US DOD as a major customer with the existing Avon protection business and there is an opportunity to sell ballistic protection equipment to the division's other existing customers such as law enforcement agencies and European armed forces. This seems like a reasonable deal to me if a little expensive as the trend of rising international tension should lead to rising military budgets and hence increasing demand for bullet proof helmets and body armour.

Vitec Group plc (LON:VTC) announced its half year results on Thursday. Profits were flat on an adjusted basis whilst the interim dividend was up 7%. Vitec is a fairly complicated business with fx, acquisitions, Chinese trade tariffs and the absence of the Olympics during the period all impacting these results. I have some misgivings about the directors mainly because they are paid very well (total remuneration was £4.5 million in 2018) and don't hold much stock. However, the outlook for the company is positive (as reflected by the increased dividend) and the stock trades on a very reasonable forward earnings multiple of 11 so I am happy to continue holding for now.

Morgan Sindall Group PLC (LON:MGNS) announced a pleasing set of half year results on Wednesday. Dividends, profit and cash all ticked up although earnings growth was partly assisted by "other gains" of $3.8 million which were not explained in the release. Unlike many contractors Morgan Sindall has longterm earnings visibility with £7.5 billion of contracted work in hand, also up strongly during the period. The company is dependent on the controversial and perhaps unsustainable Help to Buy scheme in its Partnership Housing division, but the segment makes up less than 20% of group profit. I continue to believe the stock is undervalued given its forward earnings multiple of less than 8 and substantial net cash position.

Trades

None

Holdings

AFM - 4.68%
ASY - 5.58%
AVON - 5.23%
BKS - 5.13%
BGO - 5.01%
CCT - 4.81%
CRL - 12.14%
D4T4 - 5.68%
EYE - 4.93%
JDG - 5.65%
MGNS - 4.99%
OXB - 4.53%
RFX - 5.23%
SDI - 4.60%
VTC - 4.34%
WINK - 4.53%
WJG - 4.23%
XPP - 5.30%

Cash - 3.41%

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