7 min read

Q2 2015: Quarterly review of my value portfolio

Q2 2015: Quarterly review of my value portfolio

A share tip circled in a newspaper share listingDisclosure: As this is a review of my portfolio, I own shares in all of the companies mentioned except those listed as recent sales.

Quarterly reporting can sometimes make investors (and companies) focus too closely on short-term performance anomalies, but I think it’s useful to take a look at your portfolio once a quarter and assess what’s changed over the period.

I made several changes to the value portfolio during the last quarter, too, some of which have proved to be slightly poorly timed, given the recent downturn in commodity stocks.

Stocks marked with a * were bought during Q2.


My view on Barclays (LON:BARC) remains the same: the bank is making slow but steady progress towards recovery and remains an attractive value buy. The shares remain at a c.25% discount to book value, the yield is 3% and rising and a forecast P/E of 11, falling to 9 in 2016, is undemanding.

Added to this is the catalyst that may be provided by the arrival of new chairman John McFarlane. I looked at this in more detail in a recent Motley Fool article.

Although it happened after the period end, the rapid dismissal of CEO Antony Jenkins makes it clear that Mr McFarlane will take no prisoners is his attempt to repeat the success he had at Aviva.

Barclays remains a buy, in my view.

Wm Morrison Supermarkets

Wm Morrison Supermarkets (LON:MRW) appears to be making progress with its recovery. The firm’s interim statement in May suggested that the decline in sales is being arrested and that the strategy of reducing promotional activity and simplifying the product range is ongoing. The number of SKUs fell by 8.3% last year, while promotional activity has fallen steadily.

Of course, we don’t know how all of this is affecting margins, but cash flow seems reasonably healthy, based on the £150m reduction in net debt reported during the last quarter.

I do have concerns, though. While I am convinced that the big supermarkets have a future, I don’t think they have really started to address the issues of overcapacity and incorrect store mix which seem to be at the root of the big firm’s problems.

For now, Morrisons remains a hold in my portfolio (at a modest profit), but in all honesty I wouldn’t buy the shares today.

BHP Billiton

BHP Billiton (LON:BLT) shares have been battered by the recent commodity downturn, but I’m not really bothered. The income appeal remains solid and BHP’s assets are high quality. Cash flow from iron ore remains strong and will underpin the firm’s profits. Profits from petroleum will be down but costs have been cut and the long-term outlook seems fine, to me.

We’ll learn more when the firm’s full-year results are published on August 25.

BHP remains a buy, for me.


Fenner (LON:FENR) half-yearly results contained few real surprises. Trading conditions have worsened slightly but nothing fundamental has changed. Earnings per share are expected to fall by around 5% this year and 10% next year, leaving the shares on a 2016 forecast P/E of 13.

However, cash flow remains healthy, cost-cutting is progressing and capex is expected to fall from next year as investment in the firm’s AEP business falls.

I expect the dividend to be left unchanged, giving an attractive 6% yield on my purchase price.

Fenner remains a buy, for me.

Standard Chartered

The appointment of US investment banker Bill WInters as the new CEO at Standard Chartered (LON:STAN) galvanised the bank’s share price, but we’ve yet to learn much about Mr Winters’ plans.

StanChart shares continue to trade in-line with tangible book value and look cheap on a PE10 of about 9.5. I’m happy to hold while we wait to learn more about Mr Winter’s plans, and continue to see the shares as a buy.


My purchase of Lamprell (LON:LAM) was fortuitously timed, as the share price took off soon after my March buy.

I did consider selling for a quick 20% profit but have decided to hold, as a PE10 of 9.2, a strong order book and a positive outlook suggest to me that there could be more to come.


My decision to hold onto my newly-acquired South32 (LON:S32) shares looks misguided in the short term, as the shares have fallen by 28% from the high of 120p seen shortly after they were listed.

However, the amount of money involved is relatively small so I’ve decided to take a punt and see how this story develops over the longer term. There’s takeover potential and I’d like to see a full set of financials before making any further decisions.

Hargreaves Services*

Perhaps my riskiest and most controversial stock, coal mining, trading and logistics specialist Hargreaves Services (LON:HSP) is undoubtedly going through an existential crisis. Low coal prices mean that the majority of its mining operations have been shut down or mothballed. The diminishing number of coal power stations in the UK also does not bode well.

However, I was attracted by management’s pragmatic approach to slimming down operations and their ability to generate free cash flow from their asset base. This has resulted in a very strong balance sheet and high yield. There are property assets, too, which could deliver value in the medium term.

The market didn’t react well to the year-end trading update and with hindsight my purchase was mis-timed. At the time of writing I’m down 26%. Yet the shares currently trade on just 7 times 2016 forecast earnings and offer a yield of nearly 10%.

This is a special situation and there is a risk that my fat dividends will be obliterated by a crumbling share price. But for now, I’m happy to hold.


Flybe (LON:FLYB) is another special situation/turnaround play. The situation is clear: the underlying airline business is profitable and modestly valued. At the time of my purchase the shares traded on 8 times underlying profits, and even after recent gains the share price is still less than 10 times underlying profits.

But there’s an albatross around the firm’s neck: seven airplanes the firm must pay for but cannot use. These could cost £26m, if a commercial purpose cannot be found for them.

Flybe started out with 14 of these planes and has so far reduced the number to 7. It’s well funded after last year’s placing, with net cash of around £50m. The firm’s latest results, released a few weeks ago, confirm that the remainder of the business is working well.

I believe the airline will find a solution to its surplus aircraft problem, whichi should trigger a further re-rating of the shares.

On that basis, I hold.

Anglo American*

I’d had my eye on Anglo American (LON:AAL) for a while, hoping for a chance to buy below 1,000p. At the time of my recent purchase, Anglo shares traded on a PE10 of 5.9, a price-to-book ratio of 0.65, and offered a trailing yield of 5.7%.

As you may have noticed, the downturn in the commodity market has sharpened markedly over the last month. My purchase at 968p is now underwater, with the shares trading at 874p. However, I remain comfortable with the situation and in my view, Anglo remains a buy.

Shoe Zone*

At the time of my purchase, just before the end of June, I said this about budget footwear retailer Shoe Zone (LON:SHOE):

Shoe Zone appears to be cheap, profitable and cash generative. Its balance sheet looks strong and the shares have an attractively high dividend yield.

With a forecast P/E of 9 and a prospective yield in excess of 6%, nothing has changed since then. The firm’s share price stayed firm through the recent market volatility, which I take as encouraging sign.

Shoe Zone remains a buy, in my view.

IndigoVision Group*

The most recent addition to my portfolio is CCTV specialist IndigoVision Group (LON:IND), which just squeezed into my portfolio on the last day of the quarter.

This is a smaller company than I would usually invest in, but I was attracted by the apparent quality and value in the shares, and the likelihood, based on historical performance, that the firm’s earnings will recover from this year’s disappointment.

In short, this is a company that suffers from lumpy earnings. The shares trade on a trailing P/E of about 8 and a forecast P/E of about 11.5. IndigoVision has net cash, a dividend that’s covered by free cash flow and a six-year average return on capital employed of almost 15%.

Like Shoe Zone, IndigoVision’s share price has remained stable despite recent volatility.

Finally — the ones I sold

I sold two stocks during the last quarter, Tullett Prebon and Petrofac.

I sold Petrofac (LON:PFC) in April for a small loss because looking back over the last few years’ accounts, left me unsure about the firm’s ability to generate free cash flow. You’re right, I should have done this before I bought.

I sold interdealer broker Tullett Prebon (LON:TLPR) because it no longer seemed to be anomalously cheap, which was the reason for my investment. With a profit of more than 40%, I was happy to bank my gain and move on. I’ve written a longer explanation of why I sold my Tullett shares here.

As always, I’d love to hear your thoughts about any of the shares in my portfolio. Please leave a comment below or reach me on Twitter @rolandhead.

Disclaimer: This article is provided for information only and is not intended as investment advice. Do your own research or seek qualified professional advice before making any trading decisions.