IQE – it’s not ARM

There was a discussion on Stockopedia in early Oct about IQE: “another good growth stock?” ( Both IQE and ARM are in the semiconductor business. IQE is up 116% over 10 years, whilst ARM is up a monster 827%. IQE is obviously no slouch compared to the Footsie, but if you had bought IQE in late 2006, you would only be about even.

I owned some IQE in the past, and lost money on it. Nowadays I doubt it is the kind of company I would touch.

My reasoning is that, although revenues rose from £20.9m in 2005 to £112m in 2014, the share count has doubled. It spends far more on R&D than it receives as operating cashflows, and hence needs to keep asking the market for more money. As they say on Dragon’s Den: “for that reason, I’m out”. (Cyriak spoof:

It has never paid a dividend. Its mean ROCE according to Stockopedia is 6.4%. That is pretty poor, actually. It just can’t seem to get a sustainable lift-off.

It has a Stockopedia StockRank of 93, but I am still not keen.

The shares could do anything.

Conclusion: lots of sizzle, but no steak.


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Snippets from the Schroder Recovery Fund presentation of April 2015

All information relevant at April 2015

Full PDF:

CAPE in 0-7 => 10 yr subsequent annualised return: 10-11% ( no current candidates)
CAPE 7 -14 => 6-7% return (currently tobacco)
CAPE 14 -21 => 5% (travel and lesiure, utilities, chemicals, food and drug retailers, homebuilders, food and beverages)
CAPE 21 – 28 => 1% (financial svs, industrials, health care, banks, insurance, real estate, gen retail, basic resources)
CAPE 28 – 35 => neg (no candidates)
CAPE 35+ => unknown (oil and gas, media, telecoms, tech)

Market traded on CAPE of 27.1

estimates UK CAPE at 12.8 as of 30.10.2015]

Portfolio activity in last 12 months [highlights]:
New positions: Asian Citrus [fraud?], Centrica [Woodford sells], Chemring [too much debt?], Lonmin [oh my God, tell me it isn’t so]
Added: Apollo Education [Jim Chanos: “national shame”]
Reduced: Hewlett-Packard [another Chanos short?], Tinity Mirror [at
least they figured out it was in long term decline], Johnston Press [Paul Scott: “almost certainly terminal”]
Complete sales: Next [their one decent holding]

[holy cows, guys, you must have really held your noses when buying
that bunch of garbage. They’re contrarian, I’ll give them that!]


significant discount to asset value
balance sheet is strong

[I bought Lonmin, but bailed out, thankfully. Schroder’s call was
just plain wrong here, the rights issue pretty much zapped existing


the most attractive sector
balance sheets have vastly improved yet valuations are still depressed

[the possible downside is that banks will not be able to earn
attractive returns on equity. Schroder’s don’t make a bad argument,
but time will tell if the results will bear out.]

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$REDD.L – Redde – sold

Decisions, decisions. In the stock market you have to make them, never being sure if they’re right or wrong. Anyway, I sold my holding of specialty finance company REDD (Redde) today.

I bought it in Jan 2014 when it was called HHR, at a price of 5.753p. Adjusted for consolidation, it’s 57.53p. I see from my notes that I put a FV of £420m on the company, with a reference to my blog ( It was a Magic Formula stock. The shares are currently worth around £460m. Blimey. The system works!

I had actually lost track of my original decision, so it was good to refresh my memory. REDD became a momentum share, which is when I kind of got sloppy in my thinking. I just let the momentum run.

Momentum investing is something I have been thinking about lately. I am firmly convinced that if you play momentum, you are going to need an exit strategy. I had used PV50 (price vs 50dMA) in the past, and it stopped me out of EZJ too early.

The problem as I see it is that PV50 is often an area of support, so if it dips below that figure, what do you do? Is it a sell, or actually a buy? At what point do you say that momentum is broken?

I now have a different strategy, which worked well on my recent sale of APH. It is very simple: a percentage of the 52w high. That way, you can allow shares to pull back or consolidate without losing your position. On APH I set it at 20% below the 52w high.

On reflection, I figured that 20% was too loose, so I set it at 15% for REDD. The stop was triggered today, so I bailed.

Let’s take a look at the chart:


You can see that there’s a consolidation area at around 160p. It then ran up to 180p, which proved to be level of resistance. With today’s price moves, you can see that the 160p area has been broken.

By my reckoning, the next support level is at around 140p. It looks like that’s where it is heading next. My sale today certainly wouldn’t have helped!

It occurs to me that if you are going to set target prices, then don’t set round numbers. 160p is very obvious as a consolidation region. Suppose you set your stoploss at 160p, and it gets hit. You’ll quit the trade, but how do you know it’s not an area of support, and the shares won’t bounce back up again? It looks like every man and his dog has configured their software to trigger an alert at 160p. In which case, it’s difficult to figure out what to do. That’s why I like a stoploss based on the 52w. It gives goofy numbers, making them harder to predict, which is what you want.

So, in summary, I was in at 57.5p, and out at 153.5p, including all transaction costs. Dividends are ignored. That’s a gain of 167% over a little less than two years. Come to daddy!

I am relieved to get out, in a way, as my holding was top-heavy. People might have suggested top-slicing. I’m not sure I’m a fan of that, though. If a trade is good, then why top-slice? If a trade is bad, then get out.

It will be a long time before I repeat the success of that trade. I do have a winner that it up more than that, but I consider it a long term buy and hold, and I don’t want to start getting too clever with it.

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$MONI.L – Monitise – actually was a dog

In May 2015 I said ( that MONI (Monitise) looked like a dog, with a promise of a six month follow-up.

I said MONI should be avoided. Stockopedia’s StockRank was around 20, which I said was a warning sign. I particularly did not like the company’s RS6m being in the bottom decile. I cited some other reasons, too.

The stock was at 10.12p. It is now 3.07p. I might expect my calls to play out over a much (!) longer time-frame, but in this case its decline was rapid.

When the RS6m is in the bottom decile, beware. They are dangerous stocks. In fact, a simple strategy for traders would, I think, be to choose AIM-listed companies that have never made a profit, with terrible momentum, and short them.

Anyway, I hope no-one got burnt on MONI. You can avoid these kinds of disasters by reading Paul Scott’s Small Cap Value Report on Stockopedia ( Stockopedia aren’t paying me to say that, BTW.

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$QP.L – no solace for Quantum Pharma

Someone asked me my opinion on QP. OK, here goes …

Remember, I don’t have any interest here, so what I say here is talking to my hat offhand speculation.

Let’s look at our checklist for penny dreadfuls and see how many Ticks Of Terror there are:
* startup pharma. check
* no free cashflows. check
* story stock. Obviously
* recently floated. check. Dec 2014, in fact. Actually, the company was only incorporated on October 2014. So it seems to have come out of nowhere. The CEO is 38 years old, which seems suspiciously young.
* on AIM. check.
* too much debt. yep. Looking at Sharelock Holmes for the finals issued on 20 May 2015, there’s profit before tax of 1.1m against net debt of £9m. That’s too risky. Analysts are forecasting PBT of £10.8m for 2015. No doubt there’s going to be equity raised to hit that projection, so you are either damned if they do or damned if they don’t.

Analysts have been downgrading forecasts. The Earnings Manipulation Risk is “high”, according to Stockopedia.

QP announced an acquisition in Jul 2015, which is another red flag as far as I am concerned. Look, if the company had some decent products to sell, why is it making acquisitions?

I could go on, but you get the general idea that I don’t think it is a long candidate. How about short? I think that’s what my original questioner was driving at.

The chart on QP looks terrible. Its RS6m is -21%, which is at the threshold of the bottom decile. I HATE stocks in the bottom decile of RS6m, I think they are very dangerous.

Where might a support level for this stock be? The answer is: I honestly don’t know. We have yet to see enough history to gauge, and it could really be anywhere. But I think we can tackle the question from another angle. I took a look at some recent issues, listed below. You can look at the highs and subsequent lows.

AO made it to 377p, and then went down to 178p. Ratio: 0.47 (=178/377)

AA.: doesn’t count, it’s a £1.6b company

AUTO: doesn’t count, it’s a £4b company

BOO made it to 75p, and then went down to 36p. Ratio: 0.48

CAKE: keeps going up.

DX reached a high of 141p, and dropped to 23.25p. That’s a ratio of low to high of 0.16.

KNOS high 292, low 219 (so far, it’s possibly in downtrend), ratio 0.75

MCS doesn’t count, it’s a £1.2b company

PETS: high 245p, low 169p, ratio 0.68

SOPH: doesn’t count, it s £1.3b company

All figures are approximate and lazily constructed. It does illustrate one thing: you can reasonably expect – although it is hardly a guarantee – that the high price will half.

Applying that principle to QP, it had a high of 172p. So it could potentially go to 86p. It could obviously go a lot lower (which wouldn’t surprise me at all), or even rebound. The share price is 99p. So that’s a potential gain of 13% as a short, and maybe much more. A lot of risk control would be required. QP is really making lower highs and lower lows; a classic bearish sign.

The chart is interesting. See below. There was a great run-up in the share price, with a spike. Notice how the spike was short-lived, and that the share price returned to a previous resistance level. Hindsight is 20/20, of course, but if you were looking at the chart in Aug 2015, you would probably have had fair reason to believe that the top had already been put in. Maybe it would have “done a batman” formation and made it back to the peak. so risk management would be crucial, even there. In the event, it didn’t.


Admittedly, it’s so easy to call the shots after the fact.


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$PAY.L – Paypoint – interims

PAY (Paypoint) released its interims today, sending the shares down 8% to 913p in this morning’s trading. Revenues were down 1.4%, adjusted EPS was down 4.6%, cash was up 4.9%, and the dividend is up 14.5%. A more detailed commentary is available at the CIS blog.

I bought shares in PAY back in May 2015 at 828p. Needless to say, I was pleased with the gap up in share price shortly after my purchase, and was sitting on about a 20% profit over a short time period. I was happy with that.

I only had a small holding, and I was actually planning to top up on the share early next month. “Topping up” is something I now longer do, but as I had planned to make it a longer term holding, I thought that adding a little to bring it up to a proper holding size made sense.

My reason for buying it in the first place was that it offered a good yield, has returns on capital above 15%, net cash, and a dividend that was growing at least 5.5% pa.

Today’s events have given me pause.

Here’s the chart:


Remember: I am lousy with charts. But there’s some interesting things going on here. I first note that there is support at 800p, around the price level I bought. The shares then gap up at the end of May. 1000p looked sustainable, but as we have seen from today, it was not to be.

I have a “rule” now that I can sell whenever circumstances dictate – such as my stoploss trigger on APH – but I only buy once a month. It is to prevent me from over-trading.

I still like PAY – for now, anway – and I am considering my options. It still seems like a good business, so I want to stick with it. My current thinking is to set aside the amount I had planned for PAY for the monthly purchase. I could put an alert for 800p, and buy it on or after my monthly top-up date if it is triggered.

I may change my plan after further reflection.


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Surprisingly, technical analysis saved me

I bought shares in APH (Alliance Pharma) in April 2014 for 33.8p. By the merest stroke of coincidence, I was out at 49.9p yesterday, just in time to avoid its fall of nearly 10% today to 46p. Sometimes you just get lucky like that.

How was I able to do this? Stoplosses! I set a 20% stoploss below the 52w high, which was triggered yesterday. The 52w high is 61.13p, so that would be a stoploss of 48.9p.

It was not a share that I wanted to talk about, as I did not think it had any interest value until today. Here’s my notes from my trading diary: “Sold out at 49.9p, for a 47.6% gain over 19 months. Not bad. Reason: shares in downtrend since Aug and 20% from high stoploss triggered. Revenues flat over 5 years, so I’ve lost interest. ROCE has steadily been declining since 2011. Valuation is reasonable”.

Here’s the chart:


As you can see, there was a massive run-up from Dec 2014 to Aug 2015. Momentum then petered out.

There was a placing today that the market did not take kindly to. I actually wonder if the markets knew about it all along, judging by the chart.

I am being increasingly switched on to the idea of using stoplosses. Although I was not persuing a momentum strategy with APH, I am coming to believe that stoplosses are a crucial component of momentum investing. After all, how else would you know when to get out?



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