Magic Hat – LSL in, MCGN out

The MHP (Magic Hat Portfolio) on Stockopedia (http://www.stockopedia.com/fantasy-funds/magic-hat-463/) 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 http://www.markcarter.me.uk/money/greenblatt.htm 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.

MCGN is ejected from the portfolio by rotation. It gained 185% during its two years there. That is, obviously, pleasing.

Real estate services company LSL.L (LSL Property Services) is added to the portfolio.

The portfolio has had a fantastic 6-month performance, being up 19%. Performance has slackened off since June, however. The portfolio climbed a steep hill during the first half of the year. It looks like it it making an equally sharp descent. We shall see, in the fullness of time, just how much of a retrace it makes.

That’s it for the Magic Hat portfolio this month. See you in a month’s time.

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NXT (Next) and DEB (Debenhams) 6 months on

Six months ago, I wrote about NXT and DEB with a view to updating the subsequent progress of the shares today.

On 4 Jan, NXT dropped 11.5% to 4222p on the back of its trading statement. My standard procedure in those cases would be to sell. I noted that the shares were in value territory, but that may be a trap.

How well would you have done by selling? The chart gives the answer:

Chart-next-362017.png

Although the share price eventually recovered above the initial sell point, the shares subsequently declined below that figure. I claim this as “mostly” a victory on my part, because you would not have necessarily known when to sell. You might also have assumed that the share price was in recovery, only to have been disappointed.

NXT currently has a StockRank of 56, and a Value score of 79. It is described as a “balanced contrarian” share. It also passes the Richard Beddard’s Nifty Thrifty screen, which has been quite successful at picking winners.

NXT has a PE of 9.8, a dividend yield of 4.7%, and an EV/EBITDA of 6.9. So there’s something to be said for investing in it. I do not own any shares in NXT, though, and I am not eager to buy in. I would look to see if the Value score edged higher. NXT reported an 8.1% decline in full retail sales looks bad for the future of the shares.

I said back in Jan that internet retailers were doing well, and it looks like it was at the expense of the high street.

So on balance my opinion is: stay clear, it could get worse, and there may not be enough value in the shares to justify the dangers. That’s just my opinion, of course. I would be interested in following this up in 6 months time.

3890p

I had also commented about DEB in my Jan post. Stockopedia describes it as “adventurous contrarian”, with a Stock Rank of 63, and a Value score of 98. It has an EV/EBITDA of 3.4, which is amazingly cheap.

DEB issued a trading update on 27 Jun. They said:

Having announced our new strategy, Debenhams Redesigned, in April 2017, we are making good progress putting in place our plans to drive growth through Social Shopping and our shorter term “Fix the Basics” plan.

Personally, I think their whole “Social Shopping” idea smacks of desperation on management’s part. In my opinion, they are clutching at straws.

On balance, as with NXT, I would rather be out than in.

However, rather than pontificate on that too much, I am really happy about how my technical reading of the chart turned out.

Chart-debenhams-362017.png

My reading of the chart was as follows: the downward trend (1) was disturbing. The gap down (2) confirmed this, and was a signal that if you were long, you were wrong, and should probably sell. There followed a period of consolidation (3), which I considered to be “marking time” ahead of the next move, which would be in the direction of the preceding trend.

This turned out to be spot on, as the current share price (4) shows. You cannot always get it right, of course, but I am growing in confidence that the chart pattern I mentioned is reasonably reliable.

42.75p

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$GMD.L – Game digital – down 30%

GMD (Game digital) published its trading update today, sending the shares down 30% at the time of writing.

The RNS contained positives:

The Board is pleased with the progress achieved on the Group’s key growth initiatives.

and negatives:

we expected the challenging trading environment  faced in the UK retail market in the first half to continue into the second half of the financial year.

and

positive momentum would be highly dependent on stock availability of Nintendo Switch

A funding is on the cards:

we continue to be encouraged by the initial performance of our new in-store gaming arenas …  As a result, the Group is exploring new funding arrangements to enable an acceleration of the roll-out of this new initiative.

GMD is a share owned by Woodford’s Equity Income Fund. The fund also had some disappointing news from UTW (Utilitywise) yesterday, causing the shares to fall c. 30% yesterday.

Woodford’s speculative punt shares often seem to go awry. Investors should take that as a warning: just because it’s good enough for Woodford, doesn’t mean that it’s good enough for you.

Investors may recall that GMD actually went bust once, but were able to affect something of a turnaround and refloat the company. The chart since flotation shows a sorry tale:

Chart-game-digital-3052017.png

Frankly, I have always been puzzled as to what Woodford saw in this company. The shares peaked at over 325p, which was a figure that I could not fathom at the time. The subsequent share price action bore out my scepticism.

GMD has a Stockopedia Value score of 99 (very cheap), and a momentum score of 7 (lots of negative sentiment). Stockopedia describes it as a speculative contrarian share.

Personally, I think the company has no future. It must surely be one of the worst bricks-and-mortar retailing concepts out there. The business has already been bust once, and I see no reason for it to exist. You can easily obtains games and consoles online, and tech such as Valve will squeeze it even more.

According to Stockopedia. its TTM ROCE is 0.35%. GMD is looking to raise money. So basically, it is likely that the company will not be able to earn a return above its cost of capital, which is a recipe for shareholder value destruction.

Maybe it can stage some kind of temporary turnaround and send the shares higher from this level, I don’t know. Personally, I wouldn’t touch this one, though.

23.25p

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#Turriff flag, #Aberdeenshire

I saw an interesting TED talk on Youtube called Why city flags may be the worst-designed thing you’ve never noticed. It made me think about designing a flag for my local town of Turriff, Aberdeenshire.

Here’s what I came up with:

turra-flag.png

According to Wikipedia, Turriff derives from Scottish Gaelic Torraibh, meaning “place of round hills”. My flag therefore reflects this fact. It also ties in with the concept of agriculture, which is an important to the identity of Turriff.

I had also played around with the idea of a cow and sheaf of wheat. My Inkscape skills were not really up to it, though.

There Inkscape/SVG file from which the flag was created is available as a gist, for those wanting to experiment.

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Cuminestown Art Group Annual Art Exhibition

The Cuminestown Art Group held their Annual Art Exhibition at St. Luke’s Hall, Cuminestown, running from Friday 16 June to Sunday 18 June. Entry was £3, but included some very nice refreshments as part of entry. The organisers engaged visitors in conversation, and enquired into their interests in art.

There was a raffle and a chance to vote on your favourite painting. I struggled to chose my favourite between about six paintings, but in the end selected Loch au Eilan (sorry, I forget the exact title) by Miraya Peters. It appears in the bottom right of the last photograph of this blog entry.

The organisers were kind enough to let me take photographs of the exhibition. My snaps do not show the complete display of paintings.

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SGI – Stanley Gibbons – drops 20%

SGI drop 20% today to 10.5p on its announcement of strategic review and formal sales process. Paul Scott’s stand-in comments on the news over at Stockopedia (http://www.stockopedia.com/content/small-cap-value-report-12-june-2017-sgi-motr-ntbr-kbt-trd-193329/):

> So I’m not tempted to dabble in SGI shares in these conditions.

SGI has a stock rank of 25, and is classified by Stockopedia as a Value Trap.

I last wrote about SGI back in Nov 2015 (https://mcturra2000.wordpress.com/2015/11/20/sgi-l-stanley-gibbons-a-comment-on-the-balance-sheet/), where I said that

> I think that this company is a lot weaker than many realise.
Those words have turned out to be prophetic indeed. The share price was 97.99p at the time. I had noted that it had negative free cashflow for at least three years. That trend has continued. Its net debt is close to its market cap, a sure sign that the company is in distress.

It appears that some bulletin board posters are expecting nothing less than 20p per share from a takeover. Given that the shares currently stand at about half that price, and the shares have never reached 20p in the past year, I would say that an offer of 20p is unlikely.

10.5p

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Switched my dad from Linux to Windows

My dad was experiencing some problems with an ageing LXLE Linux distro. It was becoming mysteriously slower. I did a full upgrade, but still no joy. So then I downloaded the latest version of LXLE, installed it, and updated the sytem. Unfortunately, there seems to be a bug in either the screen saver or power manager, as the screen becomes blocky after leaving the machine for awhile.

I could not handily locate the settings. Seeings I had a spare copy of Windows 7 professional, I decided to install that instead. So far, so good.

LXLE is based off of Ubuntu Stable. Unfortunately, I think that there is a distinct lack of quality control with many so-called stable distributions.

It’s undoubtedly about this time that Linux advocates offer their “why don’t you try” lines. My short response is: no. The longer answer is: trust me, I am an expert Linux user, and the answer is still “no”. Debian Stable is too old for me, Ubuntu’s usability is not quite what I want, Fedora is highly crash-prone, and so on, and so forth.

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