IRV – Interserve – drops 30%

IRV (Interserve), the international support services and construction group, provided an update on its exited EfW (Energy from Waste) business and “on certain financing arrangements”. Shares plunged around 30% to 238p as at the time of writing.

IRV announced that they will increase the provision for exceptional charges on account of the termination of the Glasgow Recycling & Renewable Energy project. Their debt will also rise.

In the latest full year accounts nearly a year ago, IRV had PBT of £80m, and net debt of £309m. I follow the rule suggested by Robbie Burns of requiring net debt to be no more than 3X PBT. IRV fail on this score. The situation is sure to be worse then they report on 28th Feb.

I have long been highly sceptical of government schemes, alternative energy, renewable energy, recycling, turbines, and all the rest of it. It’s all too faddish and unproven for my liking. Governments throw money at projects one minute, companies pounce on the opportunity to soak up all the dough, only to then see politicians either fiddle with the scheme or drop it entirely in pursuit of the next new shiny adventure. Companies are left holding the baby, and much taxpayer money and capital is destroyed in the process. Let that be a warning to you.

This seems to be what has happened to IRV.

I have a passing interest in IRV because I bought in Mar 2014 at 635p, and sold out in Jan 2016 at 489p. I can’t find my buy rationale for the company offhand. I documented my sale, though: the Stockopedia Rank had declined to 79, I found a more interesting company, and “I got fed up with this share”.

The sale was a good one in light of the subsequent share price action. IRV proved to be a value trap. IRV is on a PE of 5, as of yesterday, according to Stockopedia, so clearly the market had an inkling that the company could deteriorate further.

I am not tempted to buy at the moment. The bulletin boards note the ponderous debt situation, and the divi looks threatened.

I am going to predict that the shares will be lower in 6 months time than they are now. Catch you then.

As with most disasters, it is worthwhile keeping tabs in case there is a turnaround opportunity.


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DNLM – Dunelm – market dislikes update

DNLM issued its half-yearly report today, sending the price down 8.5% to 626p as of writing. The shares were down over 10% earlier on, if I recall correctly.

DNLM has been a poor investment for me. I had made a purchase at 955p in Nov 2015. I was attracted to its growth story. However, I bailed out at 774p on 4 Jan 2017, before its trading statement on 12 Jan 2017.

DNLM had issued its Q1 trading update on 6 Oct 2016, showing total revenue falling by 1.8%, and LFL growth decreasing by 3.8%. Given the company’s high rating at the time, I should have bailed out there and then. I was too slothful, though, and decided to hang on.

At the beginning of Jan 2017, I came to the conclusion that I was wrong to have held on, and made a switch to SGP (Supergroup), whose results I liked a lot more. The switch has been a curate’s egg. Although I saved myself from further declines on DNLM, I bought SGP at 1663p. So I am down nearly 9% on the latter.

My point is this, though: the poor reception to the Oct 2016 trading statement should have been taken as a warning of what was to follow. The company reported LFL stores decrease of 3.1% today. Hence the market’s reaction to the news. I claim that today’s worsening of trading conditions, and to some extent the market’s reaction, was more probable than not.

The company has increased its interim dividend by 8.3%, which should provide some comfort that the situation may stabilise. According to Stockopedia, DNLM trades on a PE of 13.6. This is not unreasonable, but is contingent on the fundamentals improving rather than declining.

I am fortunate in having no position in DNLM, and have largely lost interest in it. My feeling is, though, that I dislike the market’s reaction here, and would not be tempted to buy in at this stage. It would be better to wait for the next trading update before taking a long position. I think the share has further to fall, and that you would need a positive update before being bullish on it.

Just my 2 cents, anyway. Stay safe out there.


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Magic Hat Portfolio: STY in, LAM out

The MHP (Magic Hat Portfolio) on Stockopedia ( is an experiment by me to see if a human can improve on a mechanical Greeblatt Magic Formula screen. I am trying to weed out “mistakes” that I feel the screening commits: unseasoned companies, scams, foreign companies (particularly Chinese), fishy accounting, and statistical quirks. Apart from that, I am agnostic as to the sector the company operates in, although I will try to avoid heavy concentration in any one sector. I will mostly apply “Strategic Ignorance”, by which I mean that I wont try to be clever in my stockpicking. My picking will be mostly mechanical. A summary of most of my Magic Hat articles can be found on the web page This will allow you to see, at a glance, what shares have been bought and sold in the past, as well as what shares have been rejected from consideration and why.

LAM is ejected from the portfolio by rotation, having lost about 5.6% since purchase. Stockopedia shows its EV/EBITDA to be 3.32, PBV 0.54, and value score to be 98, which makes it cheap. It may yet come good for holders. I imagine it been a drawn-out ride for most people. Analysts estimate a revenue of $416m for FY2017, which is less than half that reported for 2015.

STY (Styles and Wood Group) goes into the portfolio. It is ” engaged in providing property services to banking and finance, retail and leisure, commercial and public sector organizations.” It has a stock rank of 99, being the highest in the Greenblatt screen.

Stay safe out there.

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LMI – Lonmin – bailed out

For the record, I bailed out on the market’s reaction to Lonmin’s results today. That’s one bullet I didn’t dodge. I must say, the market seems to be in punishment mode for companies that disappoint.

I bought early this year at 150p, and sold early today at 155p Inc. all costs). That’s a gain of a little over 3%, which is not great, but on the other hand hardly disasterous for a period of less than a month.

Shares currently down 20% to 141p. I bailed out when they were about 11% down, which I took as a sign to abandon ship. Investing, it’s not easy, is it?

Stay safe out there.



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RTN – Restaurant Group -a tiny update

On the 17th Jan, I wrote about RTN, promising that I would announce whether or not I was right on selling my shares.

RTN issued a post close trading update today, stating:

The results are expected to be in line with previous guidance.Recent trading continues to be challenging, with 2016 quarter four like-for-like sales down 5.9% … We expect the trading performance of the business in the first half of 2017 to remain difficult, but anticipate momentum improving towards the end of this transitional year as our initiatives start to take effect. … During 2017, the Group will also face well documented external cost pressures from the increases in the National Living Wage, the National Minimum Wage, the Apprenticeship Levy, the revaluation of business rates, higher energy taxes and increased purchasing costs due to the combined effects of a devalued pound, and commodity inflation. [Emphasis mine]

That’s quite a catalogue of negatives. The news sent the shares down 10% to 310p in early trading.

So it looks like I made a reasonable call there. I don’t dodge all the bullets, or course – if only – but every bullet dodged helps.

This should make an interesting turnaround at some point, although I do not know when. I might keep an eye on it, and see if there’s a good opportunity. The shares in RTN can be erratic sometimes, dropping a lot, but then quickly recovering. Or not.

I had thought that RTN might have posted encouraging results, and I would have been proved wrong. Some other restaurant groups seem to be doing well, so the situation was not without hope. It did not pan out that way, though.

Stay safe out there.



Update 25-Jan-2017: I would like to point out what I think is an important additional lesson. A lot of investors espouse the virtues of patience. That’s fine, but there’s also a flip-side to this: it tends to make you procrastinate, than act. I have found that I have made some good calls under pressure. Sometimes you just need to act.


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DPLM – Diploma – Trading statement

DPLM (Diploma) is a company that doesn’t attract much attention. It issued its Q1 TU (trading update) today, with revenues up 23%. Net funds are up, too. All good to see. The market has been a bit undecided how to take the results, but it correctly stands up 1% to 1010p.

Dividends were 4.6p a decade ago, and have risen to 20p. It has averaged a ROCE of 24.2% according to Stockopedia. It’s a cracker of a company, which I hold.

BUT, a PE of 21 does look rather high for this company. It is also worth noting:

The very substantial depreciation of UK sterling against all the major global currencies contributed a 17% increase to reported Group revenues

So a lot of that revenue increase is due to currency translation.

Personally, I think Sterling will bottom shortly (which is of course adverse to DPLM) on the basis that:

  1. it’s at a 35 year low
  2. the majority of economists expect the pressure on Sterling to continue.

I work on the simple premise that economists basically have no idea what they are talking about, so when they say things like “and it can only get worse”, you have a big contrarian indicator.

They say that nobody rings a bell at market bottoms … but, well, sometimes they kinda do … and the people ringing the bells are politicians, economists and experts. They may not necessarily sound like bells, but they are bells nevertheless.

If you have a long enough memory, then you may recall that when the UK joined the ERM (Exchange Rate Mechanism), Sterling soon shot up to the top of its permitted range, and we had to take measures to weaken Sterling. Yes, believe it or not, Sterling became too strong for awhile.

Roll forward a few years, of course, and the whole thing crunched into reverse. We shifted to the bottom of the range. Lamont wasted huge amounts of taxpayer money trying to prop up our currency. It was a complete failure. He might as well have just set fire to it.

We had to beg Germany to lower their interest rates in order to make our currency more attractive. Germany said “no”, on the basis that they had to think of themselves first. Fair enough, I suppose, but that, my friends, tells you everything you need to know about the EU.

We now find ourselves in what is basically the complete opposite situation. Interest rates are low, we want to withdraw from the EU rather than tighten our bonds with it, and the pound has plummeted rather than soared. We should now expect Sterling to recover, in mirror image of what happened when we joined the ERM.

Anyhoo, I still have my holding in DPLM, but I expect they’ll be plent of profit-takers to emerge. That’s just my take on things.

Stay safe out there.


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Sold my RTN – Restaurant Group

RTN (Restaurant Group) has been a sorry old performer for me. In retrospect, I should have sold out in March 2016 after the profit warning, and saved myself a lot of heartache.

RTN is a bit like NXT (Next): it has had a good run-up to 2015, but then came off the boil.

RTN was tipped by Questor in October 2016, and the shares have made a bit of a comeback since mid-December.

Gross margins had decreased for 27 w/e 31.7.2016, and I think I would want to see that reversing before having more confidence that we’re in proper turnaround mode.

There is a lot of contradictory data floating around, so I don’t think it’s clear which way this is going to go.

I had previously decided to tough it out until the results, which will be published on Wed 25 Jan. The thing that tipped me over the edge, though, was that results are going to be published much later than normal. The results are generally published on the 9th of Jan, although last year they were published on the 14th.

This seems suspiciously like a case of “bad numbers take longer to add up”. It might all be just paranoia on my part, of course, but a cynic might say that they know they are going to produce lousy numbers, and are hoping for some kind of pickup in the beginning of January in order to have something positive to say.

Anyway, this is in so way a “sell” recommendation. I’m just saying what I did.

See you again on the 25th, when we’ll know whether I am right or wrong.


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