STOCK PICKS REVIEW
Disappointing recent performance from one of our earlier star turns takes the sheen off our annual selection
Third quarter update for our top picks of the year
Nine months into 2018 and we’re still outperforming the market with our top picks of the year. Nonetheless, a 3.1% average gain versus 0.3% loss from the FTSE All-Share only calls for a celebratory orange juice and lemonade rather than high quality champagne.
Earlier gains have been reduced thanks to notable weakness in Alliance Pharma (APH:AIM) in recent weeks plus Dixons Carphone’s (DC.) losses
Alliance Pharma has moved from a 58% gain at the half year stage to now only being 10.5% in profit. A spokesperson for the company said there was no clear reason for the share price decline. However, looking at its share price chart, the sell-off was clearly triggered by half year results on 19 September.
The results included one-off costs from stricter regulations and Brexit preparations. It also plans to increase stockholdings ahead of these events coming into force, which will have a negative impact on cash flow.
Investors may also be worried about Alliance Pharma’s shifting focus on the International Star portfolio away from its Bedrock products, as the former may require extra investment in relative terms to drive growth. We think the share price sell-off has been overdone and that now is a good time to buy more stock.
Half year results published in August showed the company made £93.1m pre-tax profit in six months, fast approaching the £111.7m it made in the entire 12 months of 2017.
Chief executive Ian Lonergan said Charter Court had delivered against or exceeded all of its targets in the period. Shareholders are being rewarded with their first dividend.
News flow has been very thin from AB Dynamics (ABDP:AIM) since we updated three months ago, although we now finally know who is going to be its next chief executive. James Routh started on 1 October, having previously held senior
management roles at FTSE 250 firms Chemring (CHG) and
Diploma (DPLM). There should be a trading update any day now, if it hasn’t already been published as we finalise this edition of Shares.
Shares in publishing group
Future (FUTR) have lost some momentum since the company carried out a £105m rights issue to fund the takeover of US tech and science magazine publisher Purch. We’re still sitting on a 22.1% profit and we remain fans of the company’s strategy of integrating titles within a transferable licensing, e-commerce and digital advertising platform.
Although Purch is on a different scale to other assets it has acquired, we were still encouraged enough to recommend in July that investors should take up their rights in the three-for-four issue.
Someone investing £5,000 at the time of our original ‘buy’ suggestion in December 2017 and taking their full rights issue allocation this summer, would now be sitting on around 2,211 shares acquired at an average price of 356p, and at 482p the shares are currently trading 35% above this level.
ON THE REBOUND
Multi-channel digital marketing business DotDigital (DOTD:AIM) seems to have put the market’s doubts about the impact of new data legislation to bed, which has at least returned the share price to their starting point after a weak period.
The challenge now is to re-energise investors for what is still, in our view, a very strong growth story driven by its dotmailer digital marketing platform.
A recent research note by stockbroker Peel Hunt flags the potential for increased personalised marketing to ‘captive audiences’ using artificial intelligence. Interestingly, DotDigital’s chief financial officer Paraag Amin is a former Peel Hunt analyst himself. Waste management group
Biffa (BIFF) is performing well as a business and now has a new leadership team. Chief financial officer Michael Topham last week moved to the chief executive role and former Associated British Foods (ABF)
sugar division finance director Richard Pike has joined as the new numbers man.
WHAT ABOUT THE LAGGARDS?
We crystallised our losses on
Dignity (DTY) earlier this year after a shock change in business strategy with significant price cuts. The share price did make a small recovery in May but has barely moved since June.
Our bullish call on high street retailer Dixons Carphone is 10.2% in the red, with sentiment poor since a May profit warning and subsequent damaging cyberattack.
Subdued consumer spending on computing and mobile markets are near-term headwinds, but we’re still hopeful new CEO and digital specialist Alex Baldock has the nous to reinvigorate the market leading electrical-totelecommunications titan’ s like for-like sales and compete with rivals including Amazon.
If Sage’s (SGE) lacklustre growth progress wasn’t disappointing enough, the shock resignation of previously highlyrated chief executive Stephen Kelly in August really stings. It was his job to help the FTSE 100 accountancy and enterprise software firm accelerate growth gears after years running at around the 6% organic revenue mark.
He was meant to get Sage’s cloud computing act together, and reading between the lines, it looks like his failure to do so cost him his job. With a new boss unlikely until the New Year this stock looks set for aimless drifting for the time being.
Entry prices taken 19 Dec 2017 Latest prices taken 1 Oct 2018 *Exited trade 29 March 2018
START PERFORMERS Charter Court Financial Services(CCFS) is quietly getting on with the job and its share price is slowly ticking up accordingly.
Dixons Carphone’s shares have been weak but we are hoping to see an improvement under its new CEO