Shares to buy, hold and sell: Anthony Cross
BUY: NCC GROUP
Anthony Cross likes to hold shares for a long time and proceed carefully in equity markets – turnover at the Liontrust UK Smaller Companies fund he manages is only around 10% a year. However, he quickly added to his holding in technology business NCC Group recently, after the price wobbled because of a profits warning.
One of NCC's two main businesses is software escrow, where NCC keeps a copy of software bought by users from a company; it's a sort of insurance policy, so that these users can still access their software should the company go bust. Each year they pay NCC a fee for holding it. "It is a nice, high-margin business with high recurring income," says Cross.
Indeed, recurring revenue is almost a must-have for the companies the Liontrust fund invests in. If a business does not have that, it must have intellectual property or a strong distribution network. Cross likes companies that create strong barriers to competition.
"That means if the share becomes a bit expensive, we are relaxed, rather than worrying about precise valuation all the time," he says. "That is inherently slippery. It's much better, we IMA UK Smaller Companies believe, to find companies that can sustain and compound growth for a long time."
And that is what Cross sees in NCC. The second strand of its business is a fast-growing arm that tests internet security for company websites. It will soon launch a new system to make the lives of businesses and their customers a lot easier.
Whereas previously a bank, for example, would have to buy variants of its website address to avoid customers falling victim to scams from similarly named sites, NCC's innovation means a ‘secure' website address from NCC may be brought in to validate a site's credence.
NCC shares are currently priced at about 210p, up from around 110p in the aftermath of last year's wobble.
Dotdigital helps businesses with their email marketing campaigns. Cross had been watching the share for some time, but the company did not possess any of the qualities he insists on – until it moved to a subscriptions model. "Now we have that magical 70% recurring income," says Cross. The customer base is 250 large – 3,000 companies – and Cross likes the fact they Dogdigital's service integrates easily with other software systems, making it easy to implement.
"[The business] has been growing nicely because email is still a good way of getting hold of customers, and in many ways it has become more sophisticated: as companies gain more information about you, [the service] can become more targeted. It's clever," explains Cross.
Dotdigital's share price rose from 14p to 30p over the past year.
When Cross considers selling a share, he moves slowly. Typically, the process will take around 12 months. "You can't run for the hills straight away," he says. Dialight has been sold over the past year, having had an impressive tenure in the portfolio. Its light bulb and LED business proved "a very successful investment" as longer-lasting, more efficient lighting became increasingly popular, particularly in industrial and commercial uses. However, the company failed to win important contracts and a key board member retired.
Cross likes chairmen to have an equity holding. "It's a powerful signal. We want the board to own at least 3% of the shares," he says. "If the figure falls below 3%, we will sell, and we did. It was good timing, as the shares did poorly afterwards."
Shares are currently trading at around 731p, having reached a high of around £14. Cross sold much closer to the higher level.
This feature was written for our sister publication Money Observer
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Generally refers to money held by a third-party on behalf of two other transacting parties. In the UK, escrow accounts are often used during private property transactions to hold solicitors’ clients’ money, such as deposits, until such time as the transaction completes. Payments for goods sold on eBay are technically held in escrow: buyers pay sellers via eBay and, until both parties are satisfied with the transaction, eBay has the power to demand payment from the buyer, take their money from the seller and refund it back to the buyer. The word derives from the Old French word escroue, meaning a scrap of paper or a roll of parchment.