Share Sleuth: disposals make room for Howdens

Share Sleuth: disposals make room for Howdens
 Last month’s decision to add kitchen supplier Howdens to the portfolio required me to raise funds by liquidating or reducing other holdings. The portfolio had very little spare cash, so the target amount was just over £3,200, one 30th of the portfolio’s total value.

I never find selling easy because my intention is to buy and hold shares indefinitely. I only dispose of shares when they no longer fit my criteria, or when I believe my reasons for buying a new share are clearly better than my reasons for continuing to hold the share it will replace. I think I made a good case for Howdens, although the founding chief executive confounded me by resigning shortly after!

The following paragraphs explain why I disposed of ITE and reduced my holdings in Air Partner and Renishaw.

ITE

ITE no longer meets my criteria. The trade show organiser was focused mostly on running shows in Russia and central Asia, where it owns some of the leading exhibitions, but it has since acquired shows in other developing markets, including China and India.

The diversification strategy is sensible, given my new appreciation of the weakness of the oil-dependent Russian economy. I knew ITE was vulnerable, but last time the oil price crashed and the Russian economy spiralled into recession taking the ruble down with it, it was a short-lived event during the financial crisis. I hadn’t appreciated that oversupply of oil could undermine the Russian economy for much longer. Chalk that one up to naivety.

Two and a half years ago, at ITE’s AGM in January 2015, I quizzed Neil Jones, who was its finance director then, about the debt it would accumulate if it followed through on its acquisition strategy. He said the company would be in a completely different shape once the program was complete. I don’t like that shape. It looks like ITE has maxed out on debt, and it has written off some of its investment in India because it can’t secure large enough venues to grow the shows it acquired.

Air Partner

The decision to shed some of the portfolio’s shares in Air Partner was so difficult I couldn’t bring myself to lose them all. Instead I kept a rump valued at £1,000 or about 1 per cent of the portfolio’s total value. It serves little purpose except to remind me to keep tabs on the air charter broker, which is trying to turn itself into a diversified air services business.

Air Partner has not experienced as dramatic a reversal of fortune as ITE, but that may be partly due to the actions of chief executive Mark Briffa. The company grew rapidly before the financial crisis, ferrying military and aid personnel and equipment to trouble spots, but the work dried up as our foreign policy ambitions diminished. Air Partner found almost as lucrative work arranging charters for football teams, corporations, holiday companies and even Hillary Clinton during the election. The business is ad hoc though, and Air Partner’s private jet business may be under threat from online brokerage platforms.

Air Partner’s response is similar to ITE’s. It’s acquiring service business in the expectation it can sell safety audits and training, for example, to the customers of its charter business or the operators of the planes. While the plan sounds sensible, it's clear that Air Partner is also becoming a very different business. Again, that’s given me the collywobbles.

Renishaw

Renishaw’s stratospheric share price is beginning to make me a little queasy. Sightings of Renishaw machine tools in a factory gearing up to produce the iPhone 8 may be behind traders’ enthusiasm for the shares. No doubt tens of millions of iPhones will be made, which will require a lot of kit, so shareholders are right to be excited.

We’ve been here before, though. I added Renishaw shares to the portfolio after a dramatic fall in the share price. Revenue couldn’t maintain revenue and profit after it had fulfilled a gigantic contract, reportedly for machines used to produce the iPhone 6.I’ve taken some profit, reducing the size of the portfolio’s holding back down to one 30th of the total value of the portfolio.I have profiled three Share Sleuth shares in this month’s Share Watch. They are Castings, Cohort and Games Workshop.

Strong period for sleuth
Portfolio Cost
(£)
Value
(£)
Return
(%)
Cash 2,380
Shares 99,996
Since 9
September 2009
30,000 102,376 241
Company Shares Cost
(£)
Value
(£)
Return
(%)
AIR Air Partner 900 681 1,161 71%
ALU Alumasc 938 999 1,557 56%
ANCR Animalcare 1,283 1,799 4,491 150%
CFX Colefax 434 943 2,213 135%
CGS Castings 1,109 3,110 5,155 66%
CHRT Cohort 804 1,016 2,967 192%
DTG Dart 456 250 2,396 859%
DWHT Dewhurst 735 2,244 5,035 124%
FIF Finsbury Food 2,032 1,062 2,306 117%
GAW Games Workshop 348 998 5,589 460%
GDWN Goodwin 163 4,155 2,497 -40%
HWDN Howden Joinery 748 3,228 3,152 -2%
MSI MS International 1,836 3,966 3,902 -2%
NXT Next 45 2,199 1,976 -10%
PMP Portmeirion 349 3,212 3,368 5%
RCDO Ricardo 193 500 1,413 183%
RSW Renishaw 92 1,739 3,970 128%
SAG Science 2,660 2,908 5,533 90%
SOLI Solid State 1,070 3,381 5,703 69%
SPRP Sprue Aegis 687 650 1,566 141%
SYS1 System1 463 1,793 3,880 116%
TET Treatt 1,222 1,734 6,159 255%
TFW Thorpe (F W) 2,000 2,207 7,300 231%
TRI Trifast 811 294 1,778 504%
TSTL Tristel 1,690 604 4,399 628%
VCT Victrex 150 2,253 3,012 34%
VP Vp 221 508 1,827 260%
XPP XP Power 222 3,808 5,694 50%
Transaction costs include £10 broker fee, and 0.5% stamp duty where appropriate; Cash earns no interest; Dividends and sale proceeds are credited to the cash balance;£30,000 invested on 9 September 2009 would be worth £102,371 today; £30,000 invested in FTSE All-Share index tracker accumulation units would be worth £61,720 today; Objective: To beat the index tracker handsomely over five-year periods; Source: SharePad, 10 Aug 2017

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