Shares to buy, hold or sell: Carl Stick
Stick bought into distribution and business support services group DCC during March and April this year following the Ireland-based firm's debut on the London Stock Exchange at an average price of 3,180p a share, which by Stick's own admission was not cheap.
However, the manager claims that the FTSE 250-listed company, which is primarily involved in the distribution of refined oil and gas, embodies much of what he looks for in a firm: it's established, highly cash-generative and well-managed.
"From a business point of view DCC is very strong, but what is most interesting is how it is financed. Over the past 20 years its operating profit has grown by 13% a year – that's very steady growth - plus it has converted £2 billion of profit into £2.6 billion of cash," says the manager.
The financial strength of the business is certainly the main draw for Stick, who adds that DCC's strong cash flow has enabled the firm to increase its dividend every year for the past two decades.
However, Stick also believes DCC is in a strong position for future growth, with more than 22% of the firm's operations involved in the distribution of hardware for some of the world's biggest technology firms and 14% in the distribution of pharmaceutical and healthcare products.
"It's not the cheapest stock, but I'm investing in businesses that are going to give us long-term sustainable earnings growth, cash back and dividend growth. This business fits the bill,"
Stick has held motoring and bicycle retailer Halfords in his portfolio for more than seven years and remains positive on the stock, despite recent turbulence that saw its share price plummet from a peak of 534p in June 2010 to a low of 191.60p in June 2012.
"Halfords is a good retailer with a dominant position in selling car parts, bicycles and outdoor leisure equipment. It was always a good business, but it went through a tricky couple of years," says Stick.
According to Stick, the appointment of current chief executive Matthew Davies in October 2012 was made to correct some basic errors by the previous management. Halfords' share price has recovered to its current level of 471p.
"Davies is relatively young, but he is experienced and has focused on doing the simple things correctly. He saw the workforce needed to be better trained," says the manager.
Alongside staff training, Davies has also introduced 'click and collect' to the business, an online ordering system that has helped trans- form the fortunes of other British retailers, including John Lewis and Argos.
However, Stick says that while he believes Halfords' long-term business plan is sound, he is currently holding, rather than buying, as the shares are not necessarily pricing in the 'odd hitch' along the way.
One stock Stick did not hang on to through troubled times is Barclays. An unusual purchase for the 'high quality' focused manager, Stick bought the bank last August during its rights issue for an average price of 268p.
"We thought the market reaction to Barclays was too extreme; we felt it was failing to recognise the disciplines being put in place by chief executive Antony Jenkins.
"The bank was also suggesting it might be able to grow the dividend quite aggressively over the next two years to the extent that we might have seen a dividend yield of about 5% in 2015. We thought it was a risk worth taking," says Stick.
However, the manager says he did not buy blindly and had a firm exit strategy should the shares rise or fall dramatically. Unfortunately, the latter proved to be the case. News of a fresh rate-fixing scandal caused shares to tumble from a peak of 296.50p on January 15 to 240p in mid-March, when Stick sold out.
Since then the shares have continued to slide – they stood at 225.70p as at 31 July, having rallied slightly from a low of 201.75p earlier in the month - suggesting that Stick made the right choice.
"We felt the business risk in Barclays seemed to be rising rather than falling and we don't need to take that risk, so we exited. If you've made a mistake, you're better pulling that plaster off quickly."
This feature was written for our sister publication Money Observer
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
A way a company can raise capital by creating new shares and invite existing shareholders in the company to buy these additional shares in proportion to their existing holding to avoid a dilution of value, which means keeping a proportionate ownership in the expanded company, so that (for example) a 10% stake before the rights issue remains a 10% stake after it. As an added incentive, the new shares are usually offered below the market price of the existing shares, which are normally a tradeable security (a type of short-dated warrant) and this allows shareholders who do not wish to purchase new shares to sell the rights to someone who does.
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.