Magic Hat – FXPO in, IBST 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.

IBST leaves the portfolio by rotation, having gained 60% over the year. Those are the kinds of gains I like to see!

Metals & mining company FXPO enter the portfolio. It has a Stockopedia StockRank of 98, and is classified as a speculative mid-cap super stock.

It has a cracking chart:

Stockopedia shows that the price vs to 50dMA is 22.1% So the share price might be overbought at the moment, and due for a pullback. We shall see.

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SDL drops 22% on H1 report

Shares in Software & IT Services company SDL dropped 22% to 497p, as of writing, on the back of its half-year report.

They reported total revenue up 5.5%, whilst adjusted earnings per share dropped 65%.

I see that their report made several references to revenue growth. I also see that their average ROCE has been 3.4% (source: Stockopedia), and they are on a PE of 22.1. The company is highly rated, yet is earns meager returns on capital. Taking these numbers at face value, it does not seem that the company is able to obtain sufficient return on capital, and that attempts at growth could actually be value-destroying.

I glanced through the report, and couldn’t see offhand why the market was so negative on the report. The bulletin boards didn’t offer any insights, either.

Stockopedia categorises the company as a High Flyer. Given the price action today,  the categorisation should be ignored. The combination of high PE rating and bad market reaction would cause me to sell the shares if I held them. Its low ROCE does not help, either.


I am predicting that the share price will be lower in 6 months time than it is now. Stay tuned, and we’ll see how well that prediction worked out.


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UTW – Utilitywise – down 38%

UTW (Utilitywise) issued two regulatory statements today, advising of a trading update, and the early adoption of IFRS 15, send the shares down 38% to 36.25p as of writing. Not all news services seem to be carrying these announcements, though.

I had written a technical analysis on the chart a month or two ago, but it seems to have been lost in the ether. Even before today, the chart was pretty clear that there was something awry with the company:


The chart was saying it all.

I am sure Paul Scott will write about this company over on Stockopedia in his Small Cap Report, so I am going to be lazy today and not even look at the company-issued statements. They are sure to be bad. It seems that UTW will have to hand back a large chunk of money to the utility companies, having over-estimated the amount of electricity that customers would consume.

Leon Boros undoubtedly sums it all up in a nutshell: “Utilitywise’s negative reserves of £11.9m to 2017 means under IFRS 15 accounting it has never made a profit.” That’s all I need to know.

The usual moral of not investing in companies with a shady business model applies here. Another one is: just because Neil Woodford invests in it, doesn’t mean that you should.

I hope nobody became burnt too seriously.


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Sold my DTG (Dart Group) shares

I decided to sell my shares in DTG today. It could possibly have a big retrace. I dislike share price crashes when the market releases results; such as we saw. Ideally I would have sold out straight away rather than hanging on. It seems like there could be a lot of competition ahead.

So those were my two principle reasons.

However, I have no problem with anyone who thinks this is a hold or buy. It may have a lot of room for growth and be a much bigger company in a decade’s time. We shall see.



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Whitehills annual gala (#rnlimacduffselfie)

Whitehills had its annual gala day today. A contingent from RNLI Macduff was there, along with the Lydia MacDonald lifeboat. All the RNLI volunteers deserve our praise for the selfless, noble and brave work that they do.


The lads of RNLI Macduff in high spirits.


A different viewpoint.


The lifeboat on display.


Some members of the Banff Castle Pipe Band


A view of the sea from Whitehills




He shoots …


Photogenic guy


Another one. He gave permission for me to shoot these pictures, although I think he was a little surprised that someone wanted to take them

All pictures are released into the public domain. Original digitals are available on request.

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RPC – my own thoughts

Sharescope’s Phil Oakley released an article today, outlining his thoughts on RPC (RPC Group).

The first thing that struck me was the worrying chart:


Encountering resistance at the 50dMA was a disconcerting development. The chart is making lower highs and lower lows: a definite bearish indicator.

Although it is trading at a PE of only 11, there are two things that I am particularly concerned about:

  1. the debt is too high. It made a PBT of £155m against net debt of £1087m
  2. the average ROCE for the company has never seemed to be particularly high, but Stockopedia reports the latest figure at 5.24%, which makes it unattractive.

The company issued a positive outlook when it reported on 7 June 2017, but it did contain a lot of management-speak.

According to Sharescope, the company has increased its dividends 24 years in a row. It also appears to be acquisition-hungy, which is rarely a good sign. The company has also raised substantial amounts of money over the last three years using a combination of debt and equity. Given that the company is on a PE of 11, it seems that the market is becoming fatigued by its eagerness for capital.

And therein lies the trap. I have seen this many times before: just because a company has raised its dividends X years in the past, it doesn’t necessarily mean that it is safe. The huge debt pile, coupled with low ROCE means that it could face a huge smackdown if something goes wrong.

I would not like to buy into this company, as there are too many risks for my liking. It’s nearly impossible to say when (or indeed if) the wheels will come off the wagon, but when they do, it will be a mess. I think a lot will depend the market’s appetite for risk. If the capital markets dry up (bearing in mind that I can’t offer a timescale for this), then RPC might be subject to a visit from the Reality Adjustment Bureau.

Let’s see if, in a year’s time, my bearish view was justified.





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CLLN – Carillion – down 34.6%

CLLN issued a Trading Statement today, sending shares down 34.6% to 126p. An extract is as follows:

Deterioration in cash flows on construction contracts, combined with a working capital outflow due to a higher than normal number of construction contracts completing and not being replaced by new contract starts

It gets worse, as it looks like  a fund-raising is on the cards:

The Board announces today that it is undertaking a comprehensive review of the business and the capital structure, with all options to optimise value for the benefit of shareholders under consideration.

The chart looks appalling, and this is a clear case where the market was signalling disappointment:


Stockopedia gives it a value score of 95, and a momentum score of 27. Curiously, it does not classify it as a value trap. The algorithm missed a trick. It happens.

A data source that I used showed PBT of £146m, and net debt of £218m. That is within my limits of 3X, so I would not have been concerned based on those numbers. So it was me who missed a trick this time, as the mention of “capital structure” suggests that something is wrong with those numbers.

The cashflows reported by Stockopedia perhaps tells a more truthful story:

2017-07-10 14_00_17-CARILLION Cash Flow Statement _ LON_CLLN _ Stockopedia.png

We see that the cash from operating activities is significantly below net income for the last 5 years.

Also worth mentioning is that the dividend yield is reported as 9.7%: a strong sign that the Market thinks performance will worsen, and that the dividend will be cut.

I had invested in CLLN a few years ago, but got bored with it. This company reminds me of IRV (Interserve); a company that is sluggish and has a hard time going anywhere.

My commiserations to any holders out there.


Update 10-Jul-2017: Now that I have had a chance to look at the bulletin boards, it is apparent that many investors and analysts saw this coming. I rate this company as “avoid”. Let me follow up in 6 months time and see how good my prediction is. I just don’t see the shares going anywhere. The prospect of a rights issue will squash all expectations. As ever, we shall see.

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