Register Log-in Investor Type

News

Independent caught out by Eddie Stobart

Independent caught out by Eddie Stobart – Independent Investment Trust reports that, over the year to 30 November 2019, its NAV total return was 8.5%, 2.5% behind the All-Share Index and 4.6% behind a global index. The chairman says that poor stock selection, notably since the EU referendum, is largely to blame, with the Eddie Stobart debacle a particularly painful example. The dividend for the year is 8p, up from 7p and there is also a 5p special dividend, up from 3p.

A widening of the discount left shareholders with a return of -0.5% but the discount has narrowed since the end of November and the election.

Extract from the manager’s report

A poor second half performance from our once large holding in Blue Prism restrained the overall performance of our technology and telecommunications stake: worth GBP72.7m at 30 November 2018, it had fallen in value to GBP64.9m at 30 November 2019 after net sales of GBP12.5m. Blue Prism’s share price was hurt by poor interim results but staged a partial recovery when a year end trading statement provided reassurance that the company continues to grow strongly. It still appears to have great potential, but we have learnt that perceptions of the strength of its market position can change significantly over short periods of time. Other disappointments included Zoo Digital, whose legacy subtitling business came under pressure, and Alfa Financial Software, which continues to experience weak conditions in its markets. We sold out of Kainos at a good price and participated in the Seeing Machines equity issue, since which the share price has staged a worthwhile recovery. Holdings in Herald, Gamma and FDM all performed well in response to generally pleasing results.

Growing investor enthusiasm for our three computer games companies, Team 17, Codemasters and Frontier Developments, was the main factor behind the strong performance of our large stake in the travel and leisure sector: worth GBP50.3m at 30 November 2018, it had grown in value to GBP60.6m at 30 November 2019 after net sales of GBP0.5m. The advent of cloud computing has transformed the economics of the computer games industry and our holdings all appear to be benefiting in much the way we had hoped. Elsewhere in the sector, mildly disappointing share price performances from The Gym Group (on the back of competition concerns) and our new holding Loungers (largely attributable to a subdued consumer spending environment) were outweighed by good recoveries in the prices of On the Beach and Hollywood Bowl. We took advantage in each case to reduce the holdings – Hollywood Bowl on grounds of valuation and On the Beach in anticipation of more difficult trading conditions.

The year under review was a happier one for our housebuilders. Although there were signs of continued weakness at the high end of the housing market, demand for reasonably priced houses, the principal market for most quoted builders, remained strong. Margins have come back from abnormally high levels, but profitability has remained at attractive levels and the land market, a vital component of future profits, has remained benign. Despite the recovery in share prices, these stocks are still pricing in a subdued trading outlook. Following the Conservative election victory, we think there is a good chance that trading conditions will improve rather than deteriorate. Meanwhile our confidence in the long term outlook remains as high as ever. Our only activity during the year comprised a small purchase of Redrow (GBP1.0m), made to counteract the effect of the company’s share consolidation, and a brief investment in Galliford Try which yielded a profit of GBP0.2m. The valuation of our position in the sector rose from GBP41.3m at 30 November 2018 to GBP53.6m at 30 November 2019. We have made significant additions to our stake since the General Election.

Our business services stake performed terribly during the year. A disastrous investment in the conference call company, LoopUp, was sold at a big loss and we wrote down our holding in Eddie Stobart to a nominal valuation to reflect the company’s untenable financial position; the shares remain suspended pending the long overdue publication of the company’s interim figures. On a happier note Midwich, the distributor of audiovisual equipment, continued to trade satisfactorily and saw this reflected in its share price; we reduced the holding to take account of the illiquidity in the market for its shares. Overall, our business service holdings fell in value from GBP29.1m at 30 November 2018 to GBP14.8m at 30 November 2019 after sales of GBP4.4m.

Our retail holdings also had a difficult year. We sold our holding in the clothing retailer, Quiz, at a big loss and the share price of The Works fell sharply as trading deteriorated. Fortunately, our big holding in the second hand car retailer, Motorpoint, performed well as the company continued to trade resiliently in a tough second hand car market; as with Midwich, we reduced the holding on grounds of illiquidity. Overall, a retail stake worth GBP16.8m at 30 November 2018 had fallen in value to GBP14.0m by 30 November 2019 after sales of GBP2.0m.

Elsewhere in the portfolio, the Ashtead share price staged a strong recovery as the company continued to trade well, but the Fever-Tree share price fell as the company delivered disappointing sales in the important UK market; sales elsewhere were ahead of expectations. The Medica share price was unchanged in reaction to results that met reduced expectations, while Polar Capital continued to make satisfactory progress and NAHL staged a muted recovery as signs emerged that trading was bottoming out. Our energy holdings performed very poorly in reaction to disappointing results caused principally by difficult operating conditions in the Permian Basin. A short lived investment in NewRiver REIT was sold at a significant loss and, finally, our new holding in the biotechnology company Oxford Biomedica made a promising debut.

IIT : Independent caught out by Eddie Stobart

Leave a Reply

Your email address will not be published. Required fields are marked *

Please review our cookie, privacy & data protection and terms and conditions policies and, if you accept, please select your place of residence and whether you are a private or professional investor.

You live in…

You are a…