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Update on the CISP

9/3/2018

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Here is another update on the Compound Income Scores Portfolio (CISP), this time on the monthly screening and recent announcements from companies in the portfolio.

Taking the announcements first, we had slightly underwhelming results from Headlam (HEAD) the flooring distribution company which struggled a bit for growth as one of its major customers cut back on orders and conditions in the UK were generally more difficult than the previous year as the squeeze on household budgets from falling real incomes presumably had its effect on demand for carpets etc. Having said that though the European performance was stronger and they also undertook some cost saving measures and made some add on acquisitions which helped to produce some modest 6 to 7% growth in profits and earnings despite the tougher domestic conditions. They also increased the dividend by 10%, helped by their robust balance sheet and their reasonably confident view of the future and a clear dividend policy based on a target level of cover. There was however no special dividend this year as there has been in the last few years given the outlook and the demands for capital investment that they see. Overall an OK set of numbers but the market didn't seem to like them that much and marked the shares down quite sharply on the day of the announcement. They have not recovered since and I note there have been a few small downgrades since then, so they may well continue to drift for now despite looking good value on 10x with a 5%+ dividend yield for the current year. So in summary good value and reasonable quality but lacking momentum and some concerns about the outlook, although their self help measures should help to alleviate the worst of this, so a hold for now but we will have to see how it scores come the next monthly screening to see if it remains in the portfolio. It does however, look like it has come back into a range of support between about 400 and 465p, see chart at the end.

On the same day we had better news from Bodycote (BOY) which saw strong growth, paid a special dividend and rose on the day as the market clearly liked these numbers and this helped to offset some of the weakness seen in the Headlam share price, which after all is the whole point of a portfolio. So we have something of an opposite here a quality cyclical which is benefiting from stronger demand and therefore is rated more highly (18x with a 2% yield or thereabouts) and which therefore has better price momentum which is supported too by earnings upgrades seen since the figures.

Moving onto the transactions this month these gave me something of a mental challenge as the scores challenged my preconceptions and natural inclination on some stocks as well as presenting some challenges in constructing a suitably diversified portfolio. Firstly on the sales the stocks that came as a result of the screening was Unilever (ULVR). Unilever is of course well know and a solid company which is a classic compounder and one which personally I'm happy to continue holding of a more broadly diversified income portfolio. I did decide to sell it for the CISP though to follow the process, as despite it being somewhat over sold in the short term, it still looks a bit of an expensive defensive, albeit not as expensive as it was given recent share price falls. It has however had earnings downgrades and I guess maybe investors generally are rotating towards more cyclical names given the improving economic situation globally if not in the UK.

The second sale candidate was XL Media (XLM), which even though it had only been in the portfolio for a short time, I decided to sell for a small profit despite the recent positive trading update. This was because the score had deteriorated on the recent re-rating and there had been some small downgrades. In addition to this the CISP still has exposure to this area via Taptica (TAP ) and they both seem to have come off recently as they have tapped the market for new capital and perhaps investor appetite for this area is satiated in the short term, so maybe you can have too much of a good thing.

Talking of having too much of a good thing that brings me onto the buys this month. Now back in January, which was poor timing with the benefit of hindsight, I did buy another market related stock in the shape of Miton (MGR), which gave the portfolio three positions in market sensitive stocks. Thus when Plus 500 (PLUS) came out top of the pops this month I didn't feel able to add it to the portfolio for that reason as well as being naturally biased against it myself. It does however look very cheap having just had a strong upgrades on the back of a positive trading update and it does trade on about half the rating of IG Group - so the scores are signalling that it should do well if you can stomach the risks. I note however that the directors have also placed a large slug of stock recently, although they do still retain quite substantial holdings - so even they are hedging their bets having tried to sell out previously at 400p to Playtech (PTEC). So in the end I bought some Amino Technologies (AMO) which helps TV networks with IPTV streaming and some Spectris SXS which helps companies with enhancing their productivity, see the name links for more details of their operations. Both these scored well and bring something different to the portfolio.

This now leave the portfolio looking reasonable value on around 14x with a 3.4% prospective yield based on the forecast dividend growth 15% for the current year, thereby hopefully it will deliver on the objective of delivering value, income and growth which the Compound Income Scores are designed to identify. So there you go that's it for this week and don't forget if you would like to find out more about the Scores and how you could gain access to them to help you with your portfolio monitoring and construction then check out the Scores page which has all the details.



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Update on the CISP & UK Market Timing Indicators

2/2/2018

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Just a quick update on the performance of the Compound Income Scores Portfolio (CISP). After such a promising start it was a fairly disappointing month in the end. FTSE 100 and the broader FTSE All Share Index both ended the month with total returns of nearly -2%, while the Mid 250 stocks did slightly worse with -2.24%. As is often the way at the start of a sell off (if that's what this is) the Fledgling & Small Cap Indices held up better with Small Caps flat and Fledgling stocks actually delivering positive returns of 1.83%. The more general weakness seems to have been led by nervousness about rising bond yields on the back of the gradual withdrawal of Central Bank Quantitative Easing or QE being therefore replaced by Quantitative Tightening or QT.

So onto the CISP and its returns for the month of January were similarly drab but were at least just about positive at +0.06%. This compared to the 1.93% loss from the FTSE All Share giving 2% of out performance on the month.  Since inception of this portfolio in April 2015 it is now up by 68.8% which equates to an annualised return of 25.3%, albeit that this has been achieved in a very favourable market background. Within the portfolio it was pleasing to see one of last months new purchases - Miton Group (MGR) - coming in as the top performer with a near 20% rise, while Hays Group and Bodycote delivered 11.5% and 6.6% respectively on the back of their updates. On the downside the laggards were Games Workshop (-10%), Jupiter Fund Management (-6.1%) & Bellway (-4.3%) which all probably succumbed to profit taking after previous strong performance.

Personally since I'm be using the Compound Income Scores, together with Stockopedia Stock Ranks more this year to manage my portfolios I was also able to benefit from the rise in Miton Group too. I firmly believe that these quant models can be a great help in identifying shares that outperform, as demonstrated by CISP and other portfolios based on ranking sytems. If you are not familiar with the Compound Income Scores (which have been updated for subscribers today) you can read more about the background to them and how to get access to them if you want by clicking here.

Finally we have the US Unemployment data with the non-farm payrolls today. These should still be fine, while the main FTSE Indices all still remain about 2.2 to 2.4% above their moving averages, with the Small Cap index is nearly 4% above. So these still suggest that we should not be that worried about the sell off just yet, although I guess it could develop into something nasty given valuations and the levels of complacency that have built up over the last few years on the back of QE which meant that corrections were few and far between recently.
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Manic or Blue Monday - take your pick.

15/1/2018

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A surprisingly busy even manic Monday today, or maybe even Blue Monday as I see #bluemonday is trending on twitter today.

As far as the Compound Income Scores portfolio (CISP) goes we have had positive US tax related update from Bodycote (BOY) where they say it will add 5p or around 10% to this years earnings thanks to a one-off revaluation of US net deferred tax liabilities. In addition they said that Q4 trading had been strong & therefore the Board now expects full year 2017 headline operating profit to be towards the upper end of market expectations (company compiled analysts' estimates range: £117 million - £126 million). So continued good momentum in the business and the shares here, although this has left it looking poor on the value front as it approaches the upper end of my normal comfort range at around 20x with a circa 2% yield.

Also on the US tax cut front Ferguson (FERG) outlined the effects of this and the reduced tax charge they will have going forward. They didn't give explicit guidance as to the effects but I would expect we will see upgrades here too. This should help to continue their strong momentum where the price has broken out to new highs. While they are good quality and offer slightly better value than Bodycote.

Away from US related tax changes we had an operational update from Central Asia Metals (CAML) which saw production towards the top end of their expectations. For the coming year they affirmed expectations of similar production levels at this stage and confirmed
that as of 31 December 2017, CAML had cash in the bank of $46 million.

Finally XL Media (XLM) announced the acquisition of
a number of leading Finnish gambling related informational websites from Good Game Ltd for a total cash consideration of up to €15 million. The Acquisition is expected to complete during the first quarter of 2018 and to be immediately earnings enhancing in the current financial year following completion. Seems fine and a continuation of their acquisition strategy, although on this occasion it is not diversifying but bulking up their original core operations.

That's it for the CISP today so I'll leave you with some music appropriate to today's title to choose from and cheer you up if you need it or not as the case may be. Happy Investing & listening.
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