Stonking Month in July following Nothing June.

Compound Income Scores Portfolio Performance
After nothing much in way of returns last month, July proved to be more productive in terms of investment returns for the Compound Income Scores Portfolio as shown in the table & graph above. This extends the out performing streak to eight months in a row since the end of November last year and leaves the portfolio up by a stonking 27.74% YTD compared to the still good 11.68% total return from the FTSE All Share which I use as a benchmark.

The highlights behind this stonking performance in July were as follows:
Ultra Electronics (ULE) - soared over 40% on the back of a possible VC bid.
Jarvis Securities (JIM) - up around 30% after positive trading update led to upgrades.
EMIS (EMIS) - up over 10% on a positive H1 update suggesting they were slightly ahead.

On the downside the main laggards were as follows:
Sylvania Platinum (SLP) - suffered profit taking as PGM fell & on mixed looking results.
Wincanton (WIN) - No news, so maybe profit taking after strong run & stories about driver shortages and their wages being bid up perhaps?
City Of London Group (CLIG) - fell H1 update saw outflows & volatility in Emerging markets probably didn't help either.

On the income / dividend front it was notable that Rio Tinto (RIO) which is held in the portfolio announced a stonking dividend increase plus special which means they are yielding over 6% on these interim payments alone. It is interesting to note that even before those have gone XD / been paid the income in the year to date from the Compound Income Portfolio is already 18% higher than it received in the whole of last year.  Looking at the latest Link Asset Services Dividend Monitor this seems like a stronger bounce back than the overall market  as they suggest: 

On an underlying basis in Q2 2021 (ie excluding special dividends), pay outs rose 43.8% to £24.3bn, recovering to one sixth below the pre-pandemic Q2 2019.
While in their outlook they suggest the following: 

• Stronger-than-expected Q2 and the removal of constraints on banking dividends mean an upgrade for 2021, more than offsetting negative second-half timing factors

• Net effect is to upgrade 2021 headline forecast by £2.5bn to £79.5bn, up 24.4% year-on-year

• Underlying dividends (ie excluding special dividends), upgraded by 3.9 percentage points or £2.7bn to £71.2bn, an increase of 13.4% year-on-year

Monthly Screening
After giving three stocks the benefit of the doubt last month as they were quite close to the cut off line it was good to see them all go onto outperform in July, although maybe I could have picked even bigger winners? Anyway one of them has seen its Score recover into the top quartile again while the other two Paypoint (PAY) and Strix Group (KETL, that ticker makes me smile) remain up for consideration as potential sales as their Scores of 60 & 67 respectively are outside the top quartile of the Scores and therefore in the  zone where I consider if I should sell them if the fundamentals justify it or if they still have investment merit or the Score has just drifted due to lack of news.

In the case of Paypoint, where the Score had slipped a bit further from last month, it is clearly trying my patience. The Q1 update that I waited for last month looked fine to me and showed some growth at the net revenue level as I had expected. They reported £28.1m v £23.2m in Q1 last year for growth of over 20% aided by last years acquisitions. This compares with £97.1m of net revenue at the full year stage. Thus with more to come from the acquisitions and re-opening benefits too and higher energy prices on the billing side it looks like they are well placed to show decent growth for the full year and they did see some modest upgrades post these figures.

That picture is obscured by the financial websites etc showing the historic figures with the gross revenues and the forecasts, which I assume are based on the net numbers, making it look like they will see a fall in sales - when the opposite is true on the underlying net basis.
So the investment case and indeed the price and rating have not changed much in the last few months since it was purchased for the portfolio. I therefore decided to give it the benefit of the doubt again and show some patience with this one while enjoying the 6% yield, although it is obviously not the most exciting situation in the short term.

The other seemingly dull stock Strix Group, which mostly makes switches for kettles and has good quality metrics like Paypoint, has shown the potential benefits of steady growth and a re-rating if you have a little patience. This one was purchased for the portfolio in February 2020 at 181p when it was on around 14x with a 4% yield as it seemed likely that it would probably cope ok with the brewing Covid crisis at the time. Fast forward to today and it has reached 334p and trades on nearly 21x with a 2.5% yield. They had a positive update which I had held on for last month, but strangely some small downgrades but the price steamed away to a new high break out. They did promise more updates on the growth outlook with the results in September. So on that basis I decided to hang on again and run this winner and hope that it doesn't boil over, although I was also tempted to top slice and add another, albeit lower quality holding to the portfolio but I resisted the temptation on this occasion. 

The other two potential sale candidates also had Scores in the 60's with EMIS being very similar to Strix Group  in so far as they had a positive update accompanied by some small downgrades and it is now trading above 20x too so not that cheap. I gave this the benefit of the doubt as a classic compounder & potential beneficiary of more NHS digitization etc. ahead of the actual results in September. Finally S&U (SUS) had seen its Score drift on little news so I decided to await the results from them in August to get a better picture. 

Summary & Conclusion.
So a stonking July for the Compound Income Portfolio after a nothing month in June and some masterly inactivity. Dividends continue to recover well and probably more quickly than expected and the Portfolio is already ahead of last year on that front and its only July. 

While on the trading front I decided to be patient / lazy again as the silly season holiday  month of August approaches and hope that some more masterly inactivity might add some more value again this month. Any way that's it for now thanks for reading if you got this far and have a great August and a good staycation or an overseas holiday if you are lucky enough to be able to get away with all the Covid traffic light lottery nonsense. 
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