Shares to buy, hold & sell - Jeremy Whitley
The trust is up by 62.5% over three years against a sector average for UK Growth & Income of 55.5%.
Here are the latest stocks he has bought and sold and the one he's holding on to.
Whitley first bought a holding in Sage, the provider of accountancy software for small to medium-sized businesses, in 2011. "We were attracted by its high levels of recurring revenue (67% in 2011), good levels of profitability (27% operating margins), its strong cash flows, its robust balance sheet and the potential for growth in dividend payments," says Whitley.
Sage is mainly based in developed markets but he believes it has potential for growth due to the nature of its products. "We believe it can grow through a more rigorous focus on its portfolio of products and by moving more customers onto premium support contracts."
In recent months, the share price has been weak as investors have growing concerns over Sage's exposure to Europe, which accounts for 60% of sales. However, while trading conditions in certain markets such as Spain are likely to be difficult, much of the company's European presence is in more robust economies such as France, Germany and the UK.
"The firm's European divisions also retain those quality features of the main UK business - strong profitability and high levels of subscription income. Plus, growth from Sage's developing market divisions should also help offset any trading problems in southern Europe."
Alongside that the company now has £120 million of net cash on its balance sheet and a commitment to buy back shares if no acquisition opportunities arise. The shares also offer a prospective dividend yield of more than 4%.
Experian is a high-quality credit assessment company that provides credit risk strategies to businesses and helps individuals monitor their credit scores.
"It is another stock we bought last year. Since then, both the business and the share price have performed strongly," says Whitley. "It has a very strong market position in its core credit business as well as deriving significant revenue from its specialised services. As a result, it has generous margins and revenues have proven resilient during the downturn."
In terms of growth, the firm has managed to increase its earnings due to its ability to expand its services into new markets and regions, in particular its fast-growing credit bureau position in Brazil.
"In terms of our portfolio make-up, Experian is quite a different proposition to our other holdings. Its particular attraction in that sense is that it offers a more resilient, and arguably more transparent, exposure to credit creation than might be achieved via many financial companies.
"Unfortunately, many of these good points are now reflected in the share price, hence the decision to hold rather than buy. However, if the share price were to weaken at all we would welcome the opportunity to buy more stock."
SELL: UNITED UTILITIES
Whitley recently sold his holding in United Utilities. "The company has recovered well after having to cut its dividend two years ago, following an unfavourable regulatory review."
Through a series of disposals, including selling its electricity distribution networks and several overseas investments, it has shaped itself into a pure UK water company.
"The new management team has brought focus to the company with an emphasis on project delivery and cost management," he adds. "This has led to improved performance which, along with lower than expected finance costs due to the Bank of England's low interest rates, has boosted earnings."
United Utilities' share price has risen as investors have both recognised the company's improved performance and valued its steady and reliable dividend (currently 5.3%) in the current volatile financial environment.
"Though United Utilities has done well, and we appreciate the reliability of its current proposition, we felt that much of this is now reflected in the price.
"Having considered the weak global equity markets, and the array of potential investments we could invest in, the opportunity cost of holding on to United Utilities was simply too high and we decided to sell."
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%.
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.