Shares to buy, hold and sell: Mark Slater
Here are the latest stocks Slater has bought and sold and the one he's holding on to.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
BUY: NCC GROUP
"I have been buying more NCC shares as the company has performed well both as a business and in share price terms. It has two divisions, software escrow and internet assurance, both of which are market leaders. Software escrow is the larger part of the business – customers pay a small annual fee for their software to ensure that if the software provider fails the customer will be able to continue using the software.
"This business is growing steadily and is hugely cash generative. The internet assurance business stress tests cyber security for clients. It's the largest of its kind in Europe and rapidly growing. The company warned in December that profits would be higher than current
market expectations. This prompted analysts to upgrade their forecasts by around 7% for the current year to May 2012. The improvement in profits had been driven by faster-than-expected turnover and margin growth in the assurance division.
"The shares now trade on about 18 times current year earnings. This may look expensive, but the growth rate is impressive and I see scope for upgrades in both divisions. I don't mind paying for good growth. I also like the fact that growth is not tied to the general economy, which looks like it will be lacklustre. NCC has a tail wind, which is a rare and wonderful thing in the current market climate."
"We first bought Cape in March 2009 at between 17p and 20p. The company sells blue-collar services to oil and gas companies: it puts up the scaffolding, installs the insulation, does the blasting and the painting.
"It is one of the very few oil and gas companies that had a ‘good' crisis with both earnings and turnover rising through 2008 to 2011. The shares ran up as high as 600p.
However, the shares have fallen back following a statement in November. A number of expected orders have been delayed and two small exceptional costs were also announced. Although it has reassured the market that revenues will hit expectations, its shares have dipped as far as 300p.
"Cape's fourth quarter update was reassuring but we would still like to see news of the larger contracts that are expected. I believe these should be announced in the next few months. Trading on a share price multiple of less than eight times its earnings, it is a strong hold until there is more clarity on future orders."
"We have sold insurance group Admiral. We only had a small investment, but it has recently had some disappointing results. The dynamics of the insurance market are changing for the worse, with referral fees – previously a means to generate revenue – being outlawed. Equally, the insurance market is extremely competitive. All this we knew, but
"Admiral had been generating profits ahead of its peer group and was paying a decent dividend. However, recent results were poor. In particular, the group's personal injury claims came in extremely high, which cast some doubts on management strategy.
"More worryingly, there are signs that Admiral might have been under providing for claims. Until recently, it appeared that Admiral was outperforming its peer group but this might simply be a matter of providing less for claims.
"Our concerns are therefore fundamental – for us, this is not just a question of the price being a little bit high – and we sold out completely. If I believe the price is a little high, I might trim back a position, but if the story has changed completely, I simply sell out. In general, we are not scared of a high multiple as long as it is high in relation to its growth rate. But
Admiral is still on a relatively high multiple, while its growth prospects appear far less certain than even a short while ago."
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.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.
Generally thought of as being interchangeable with insurance but isn’t. Assurance is cover for events that WILL happen but at an unspecified point in the future (such as retirement and death) and insurance covers events that MAY happen (such as fire, theft and accidents). Therefore you buy life assurance (you will die, but don’t know when) and car insurance (you may have an accident). Assurance policies are for a fixed term, with a fixed payout, and unlike life insurance have an investment aspect: as a life assurance policy increases in value, the bonuses attached to it build up. If you die during the fixed term, the policy pays out the sum assured. However, if you survive to the end of the policy, you then get the annual bonuses plus a terminal bonus.