FTSE 100: 7409.64 ▼ -7.60 (-0.10%)
Over the nine years that I have been writing these occasional columns for Citywire Money, obviously I have not got everything right, but I have been reminded recently of two really glaring errors.
Some suggested stocks have underperformed, whilst some have doubled, even quadrupled, but I have never missed an opportunity to powerfully advocate selling at a 20% stop loss and running profits. The two corner stones of any portfolio – cut losses, run profits.
That stop loss discipline was crucial with one of my howlers, Gulfsands Petroleum (GPX). I suggested buying the Syrian oil producer in 2011, claiming the regime was well governed and safe from the encroaching Arab Spring.
A surprising mistake for me as a committed Arabist and old Saudi hand, but I was strongly taken to task by reader Alan Franklin. How right he was, with the shares down 98% since, and I hope he is reading this.
This June I suggested IQE (IQE) looked fully valued, placing the shares on a ‘hold/sell’ recommendation and selling most of mine. With the shares up 72% since that article, I was badly wrong in failing to keep running profits on the stock. Reader Robert Ray missed no opportunity to tell me – how right he was too.
I certainly don’t accept being a ‘remainer’ as wrong, but do take the criticism of being too gloomy, albeit in a year when we have somehow created a weak minority government, hammered our currency 20%, and gone from the strongest growth rate in Europe, to one of the weakest.
It’s not all gloom. I was delighted to read the lead article in the business section of The Telegraph last week, reporting that Norway’s huge sovereign wealth fund was buying gilts and London property.
I was tempted to visit Norway immediately and buy them lunch – just the action we need to help sentiment.
So far London remains Europe’s financial hub with US consultants estimating £50,000 relocation cost per employee, with most reluctant to leave and uproot themselves from family and friends.
Oxford Economics still forecast 2.3% annual growth in London for the next four years, compared to Paris at 1.6% and Frankfurt, 1.5%.
Against this background equities hold firm for now and we play on whilst the music lasts.
Last month I bought ITM Power (ITM), and although it’s run up 70% already, it’s still a stock to get some useful exposure to the next vehicular mobile world power source.
Brave comment perhaps, but I’ve recently swung away from mobile lithium batteries, notwithstanding their use by Tesla, the US’s most valuable car maker. I believe that fuel cells will now gain traction very quickly as more hydrogen supply stations appear around the country.
Hydrogen is now universally produced on site, with no more deliveries needed from outside sources. The UK electrolyser equipment is made by ITM and located at each service station for cars, buses and trains, where it converts electricity and water into hydrogen and oxygen. Ideally the electricity comes from 24-hour local wind turbines or solar panels, supported by the mains.
A car can be filled up in three minutes for a range and cost (currently, although expected to fall 30%) similar to a petrol or diesel vehicle.
The advantage over lithium is significant in grid power usage, where a single overnight battery charge consumes more electricity than several houses, whilst 43% of vehicles currently live on the street with no possibility of home charging.
No more ridiculous queues at hotel power points or hour-long motorway coffees awaiting a 20% charge, ‘just’ enough to get you home. Obviously hybrids overcome that issue, but blow out carbon whilst supporting a dead battery.
ITM is a small new public company with, as yet, no projected profits – buying the shares is an act of faith in a new fast developing technology, where the powerful fuel cell growth in the US paves the way.
Results in August for its maiden year as a quoted company show strong project and grant income rising 13% to £9.2 million plus £4.1 million booked after the period and ongoing negotiations for a further £12.3 million. Plus it has £3 million of cash. Last week contracts were announced for fuel cell buses in Pau and a 10 megawatt unit from Shell for a refinery in Germany.
Irritatingly the share price has doubled in two months and you may wish to wait for market sentiment to settle down, but there is comfort in the very competent team of senior non-executive directors, with JCB owning 8% of the company.
I have just bought Augean (AUG) which looks very oversold, with the shares 55% down over the last month.
It is a specialist in the growing hazardous waste sector, with landfill and specialist treatment services including radioactive waste.
Projected revenue for 2017 is £83 million for a pre-tax profit of £7.5 million. The shares are trading on a five times earnings, with a price to earnings growth ratio of 0.2 and a projected yield of 4.4%.
The shares have been battered on news of halved profits from exceptional items; however revenue was still up 25% and confidence in the future was demonstrated by a 54% hike in the dividend.
Last week’s announcement of full year profits ‘at the lower end of expectations’ further disappointed the market, but a cost reduction programme to save £2 million annually was also indicated. I’m encouraged by the very savvy bunch of institutional shareholders, one of whom increased his holding last week.
I have added to my T Clarke (CTO) shares, encouraged by its acquisition of building management services provider Eton Associates last month.
T Clarke is much more than a boring old electrical contractor; apart from a record order book, up 23% at nearly £400 million, electrical demand is growing strongly.
We need it for our banks of computers, mobile phones and soon robots, virtual reality and artificial intelligence – it is even involved in developing facial recognition building entry systems.
On a projected year price-earnings ratio of 6.9, price to earnings growth ratio 0.8, dividend yield of 4.1%, cover of 3.5 times and cash of £9 million, the shares look too cheap and I’ve just bought some more.
These are not mainline stocks: be careful, vigilant and please cut losses at 20% and run the profits.
David Kempton is non-executive chairman of Hawksmoor Investment Management and a non-executive director of Impax Funds Ireland. He is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.