Shares Magazine 01 February 2018

STOC KS | F U NDS | I N VESTM E N T T RUSTS | P E N S I O N S A N D SAV I NGS

SHARES VOL 20 / ISSUE 04 / 01 FEBRUARY 2018 / £4.49

WE MAKE INVESTING EASIER

THIS WEEK:

L L OY D S , RENISHAW, E, DECHR A , SHIR E PHOENIX SPRE AND MORE

EUROPE

SO MANY REASONS TO INVEST NOW

PENSION POWER: will your employer pay into your SIPP?

US DOLLAR CONTINUES TO WEAKEN: why it matters

BITCOIN BLUES: the end of cryptocurrency fever?

‘REMARKABLE TIME’ TO INVEST IN UK INCOME FUNDS

Take the road less travelled with somebody who knows it well.

LET’S TALK HOW.

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Nitin’s approach is quite simple – he looks to invest in attractively-valued, quality businesses that are run by people he trusts.

PAST PERFORMANCE Dec 12 Dec 13

Dec 13 Dec 14

Dec 14 Dec 15

Dec 15 Dec 16

Dec 16 Dec 17

Fidelity Asian Values Net Asset Value

10.9%

11.4%

5.2%

38.6%

10.6%

Fidelity Asian Values Share Price

13.2%

11.8%

4.6%

42.3%

14.5%

1.8%

9.6%

-4.4%

25.8%

29.5%

MSCI AC Asia ex Japan

It’s an approach that’s working. Since Nitin took over the trust in April 2015, it has delivered 44.0% - compared to a return of 41.3% from the index.

So, if you want to explore a road less travelled, then Fidelity Asian Values PLC could be just what you’re looking for.

Please note that past performance is not a reliable indicator of future returns. The value of investments can go down as well as up and you may not get back the amount invested. Overseas investments are subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. This investment trust may invest more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies.

To find out more, go to fidelity.co.uk/asianvalues or speak to your adviser.

Past performance is not a reliable indicator of future returns. Source: Fidelity and Morningstar as at 31 December 2017 on a bid-to-bid basis with income reinvested in GBP terms. © 2018 Morningstar Inc. All rights reserved.

The latest annual reports and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. Issued by Financial Administration Services Limited, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited.

UKM0118/21425/SSO/0418

EDITOR’S VIEW

Companies and investors need to avoid short-termism Don’t make rash decisions if a quarterly earnings statement doesn’t live up to expectations

L

ast week I met the manager of a global fund who made a ver interesting comment about the companies he meets in apan e said his most rewarding conversations are the ones about industr rather than uarterl earnings apanese directors, in his view, are more li el to engage in a livel discussion when tal ing about their sector and its opportunities rather than dissecting numbers for a short trading period It s an interesting point orporates should have a view on how their business ts in the mar etplace and how the will grow it The e e should be on the longer term pri e and not three months worth of trading TOO MANY INVESTORS ARE IMPATIENT an investors are ma ing nee- er reactions to uarterl trading updates The can also be impatient, demanding almost instantaneous gain or the wal awa , rather than waiting for value to be created or realised in the share price o has this driven a culture of short-termism among corporates as well Harvard Business Review made a ver good point in an article last ear sa ing that too man companies prioritise uarterl earnings over long-term innovation, human capital investment and brand development The popular argument goes as follows hortterm investors those who hold onto a stoc for less than, sa , a ear aren t interested in the compan s prospects be ond that ear, it wrote o, if the compan misses its uarterl earnings target, the sell their shares The fear of such selling forces the rm to ate on meeting the target, cu ng investment to do so oreover, since shareholders can sell at the drop of a hat, the rm has no stable source of long-term capital, and so cannot ma e long-term plans ompanies ma be better o tr ing to focus on the long-term picture in order to attract long-

term shareholders nd investors shouldn t udge a compan on a three month trading period but the should righ ull scrutinise a compan if a month period disappoints onsultant c inse last ear wrote that companies should ma e more e ort to attract and retain longer-term shareholders to ‘blunt the e ects of short-termism and best support a strateg of long-term value creation a s in which to achieve this goal include pursuing long-term value creation even at the e pense of short-term earnings, proactivel structuring investor communications, resisting arti cial e orts to meet earnings targets, and rethin ing management s approach to uarterl earnings calls BEING PUNISHED BY SHORT-TERM ACTIONS point related to short-termism was raised last month by Fundsmith Equity (GB00B41YBW71) fund manager Terr mith in his annual investor letter e criticised activist investors, sa ing too o en the follow a pla boo that involves bu ing a sta e in a business, engaging in a public row, pushing for a spin-o , merger or sale of assets and then, if the demands are met, selling their sta e e and other long term shareholders are le with a compan that has incurred fees and diverted time from running the business to respond to the activist and e ecute the changes, which is now potentiall more fragmented, more highl leveraged and has had to install new management, comments mith In e ect, mith implies the activist has enjoyed a short-term gain yet the longer-term shareholders have potentiall been le with an inferior business I I R The author has a personal investment in undsmith uit 01 February 2018 | SHARES |

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Contents

VIEWING SHARES AS A PDF? CLICK ON PAGE NUMBERS TO JUMP TO THE RELEVANT STORY

01 February 2018 EDITOR’S VIEW

03 Companies and investors need to avoid short-termism BIG NEWS

06 Currency movements imply potential weakness in many large cap stocks BIG NEWS

06 Dechra deals could create animal magic

BIG NEWS

07 Lloyds has an under-appreciated business which could boost group profit

10

BIG NEWS

07 Renishaw’s rating haircut may not be over

BIG NEWS

08 A ‘remarkable time’ to invest in UK income funds

STORY IN NUMBERS

10 Kier’s bounce back and other stories in numbers

DISCLAIMER IMPORTANT Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters.

Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.

Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below.

1. In keeping with the existing practice, reporters who intend to write about any

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| SHARES | 01 February 2018

12

GREAT IDEAS

12 K3 Capital is hoovering up small cap M&A deals GREAT IDEAS

14 Value retailer B&M is strong and getting stronger GREAT IDEAS UPDATES

15 We update on Sopheon, Greencore, NMC Health, Avesoro Resources and MPAC securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, self-select pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.

2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail.

3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor.

4. A reporter should not have made a transaction of shares, derivatives or spread betting positions for seven working days before the publication of an article that mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within seven working days after the on-sale date of the magazine.

Contents 24

22

FUNDS

36 Unicorn UK Growth Fund is a magical money-maker UNDER THE BONNET

38 Why have shares in FTSE 100 pharma group Shire been falling since 2016?

FEATURE

LARGER COMPANIES

44

18 Bitcoin blues: the end of cryptocurrency fever?

40 Beazley is a cyber security insurance leader

WEEK AHEAD

SMAL LER COMPA NIE S

MAIN FEATURE

43 Pension cash withdrawals are falling

20 Financial results and ex-dividends over the coming week

41 Sterling bounce is a boon for Shoe Zone

MONEY MATTERS

22 Europe: so many reasons to invest now

FEATURE

MONEY MATTERS

31 Pension power: will your employer pay into your SIPP?

44 How to protect yourself from financial scams

INVESTMENT TRUSTS

INDEX

34 Is there more to come from top performer Phoenix Spree?

46 Index of companies and funds in this issue

WHO WE ARE DEPUTY EDITOR:

NEWS EDITOR:

Tom Sieber @SharesMagTom

Steven Frazer @SharesMagSteve

EDITOR:

Daniel Coatsworth @SharesMagDan FUNDS AND INVESTMENT TRUSTS EDITOR:

James Crux @SharesMagJames PRODUCTION Head of Design Rebecca Bodi Designer Darren Rapley

REPORTER:

REPORTER:

CONTRIBUTORS

David Stevenson @SharesMagDavid

Lisa-Marie Janes @SharesMagLisaMJ

Emily Perryman Tom Selby Stephanie Hawthorne

ADVERTISING Sales Executive Nick Frankland 020 7378 4592 nick.frankland@sharesmagazine.co.uk

MANAGING DIRECTOR Mike Boydell

Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852.

All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.

BROKER RATINGS EXPLAINED: We use traffic light symbols in the magazine to illustrate broker views on stocks.

Green means buy, Orange means hold, Red means sell.

The numbers refer to how many different brokers have that rating.

Eg: 4 2 1 means four brokers have buy ratings, two brokers have hold ratings and one broker has a sell rating.

The traffic light system gives an illustration of market views but isn’t always a fully comprehensive list of ratings as some banks/stockbrokers don’t publicly release this information.

01 February 2018 | SHARES |

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BIG NEWS

Currency movements imply potential weakness in many large cap stocks Dollar weakness means US-focused firms may struggle

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here has been considerable volatilit in currenc mar ets of late with the pound shooting above for the rst time since the Bre it vote in une It has since slipped bac through this level on renewed fears about the course of the s e it from the uropean nion nless ou are a currenc trader it isn t necessar to monitor dail movements in the foreign e change mar ets owever, it is important to eep tabs on the wider trend which shows signi cant dollar wea ness against both the pound and euro since arch This has signi cant implications for the pro t of companies with substantial sales an of these companies would have seen their results boosted b sterling wea ness but will have seen that supportive trend steadil reverse over the last months s such the ma have found it di cult to match their nancial performance in

If earnings disappoint due to a currenc impact in the coming full ear results season, we ma see some share price wea ness The accompan ing list from Bell shows companies which derive a lot of their revenue stateside and which could be vulnerable to dollar wea ness T COMPANY

% OF SALES IN US

BT shtead BB

viation

Indivior erguson Source: A J B el l

Dechra deals could create animal magic We explain the benefits of acquiring AST Farma and Le Vet for €340m INVESTORS ARE excited by Dechra Pharmaceutical’s (DPH) proposed acquisitions of AST Farma and Le Vet Beheer for a combined €340m announced on 25 January, prompting a 13% share price rally over two days.

Dechra is an international veterinary pharmaceuticals business that derives approximately two-thirds of sales from its companion animal products, essentially medicines for cats and dogs.

We believe the acquisitions are a good strategic fit for Dechra as Le Vet

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| SHARES | 01 February 2018

and AST Farma derive approximately 80% of their revenue from companion animal products. The remaining sales are generated equally from treatments for horses, poultry, pigs and cattle.

AST Farma develops generic treatments and sells them directly to vets, while Le Vet sells products through a European network of marketing partners, including Dechra.

The deals are expected to boost underlying earnings per share in

the year to 30 June 2018 and be ‘materially accretive’ to earnings in 2019. Investment bank Jefferies reckons they could boost earnings per share by between 11% and 17%.

Jefferies says the €340m price tag implies a multiple of 24.4 times earnings before interest, tax, depreciation and amortisation.

The broker expects the price to be ‘far lower’ in reality thanks to the significant growth potential delivered by the deal alongside cost, sales and manufacturing synergies. (LMJ)

BIG NEWS NEWS BIG

Lloyds has an underappreciated business which could boost group profit Jefferies says bulk annuities could help drive future earnings igh-street Ban Lloyds (LLOY) is best nown for its increasingl pro table ban ing operations which have helped underpin generous dividend pa outs owever its insurance division is o en overloo ed despite the considerable scale of this business lo ds bought the ear-old co sh idows in for bn and last ear further bolstered the division b bolting on urich Insurance s bn pension arm But it was co sh idows entr into the bul annuit mar et in that mar ed a real turning point for the compan bul annuit is essentiall a contract which pa s a retirement income to a large proportion

of participants in a pension scheme, freeing a compan of investment, in ation and longevit ris s In return the insurer secures substantial assets and regular premiums nal sts at nancial institution e eries note the bul annuit mar et in the is a ma or growth opportunit for insurers and onl specialist pla ers can be involved, co sh idows included according to them e eries views that co sh idows mar et share of bul annuities has much less penetration than other parts of the group s business where it en o s an average mar et share of If it can raise its mar et share, it could result in a upli to lo ds pro t for and bn of value creation

Renishaw’s rating haircut may not be over Large premium to peers does not reflect unpredictability of orders INVESTORS IN science-based engineering group Renishaw (RSW) have been left stunned by the big sell-off in the share price in the wake of half year results on 25 January.

While those figures were impressive and demand continues to be firm, the company’s valuation is being called into question. The stock slumped nearly 15% on the day from £56.40. The shares currently change hands for £49.12.

Renishaw is a world leading developer and manufacturer of high precision, automated metrology equipment, or very high-specification measurement kit. Products are used widely in aerospace, automotive, healthcare and other industrial markets.

The half year results showed 20% organic growth in revenue to £279m, while high margin after-sales work helped pre-tax profit jump 70% to £62.3m. Dividends

were raised 12% to 14p per share.

The company’s expertise is not in doubt but unpredictability remains a long-run problem. Renishaw has a long history of surprising the market both positively and negatively and management admit little more than six weeks visibility on its order book.

Even after the latest share price sell-off the stock continues to trade at a hefty premium to peers, about 40% to 45% on a price to earnings measure, based on next 12 months data from Reuters.

SHARES SAYS: This is a fantastic business but the valuation is too high to warrant buying at the current price. (SF) BROKER SAYS

1

6

3

01 February 2018 | SHARES |

7

BIG NEWS

A ‘remarkable time’ to invest in UK income funds Wealth manager picks top collectives after UK-listed companies paid record dividends in 2017

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wo new reports are o ering an insight into the continuing dividend appeal of stoc s in The latest UK Dividend Monitor report from in sset ervices shows British rms paid a record bn to shareholders in , boosted b miners being more generous with dividends and several large one-o pa ments nderl ing dividends were up to bn which represented the fastest rate of growth since ealth manager anlam s own bi-annual income

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Premier Income an

Income

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ulticap Income

Source: Sanl am , January 2018

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| SHARES | 01 February 2018

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stud notes that now is a remar able time to invest in e uit income funds with investors having the opportunit to own man funds ielding between and It has compiled three lists of income funds ran ed according to levels of dividend income The topran ing hite ist includes names such as ervais illiams and artin Turner-steered LF Miton UK ti p me which has onl ever occupied rst place since it uali ed for entr in the stud signi cant turnaround appears to have been achieved under manager enr i on at me which came in at the bottom of anlam s ran ings in ul strong performance and a generous ield have helped li it onto the hite ist The middling re ist includes e ee e i me which has dropped out of the hite ist onsistent laggards which feature once again in the Blac ist include s i s i me , me and e ee i me T O

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tarting with I uit Income sector statistics, and including onl funds available to retail investors with su cient trac records and si e, anlam underta es a uantitative stud It e amines the previous ve individual calendar ears of performance, ve- ear levels of volatilit and the total dividend income distributed over the ve- ear period ach of these metrics is weighted using a consistent formula, ran ed individuall , and then used to identif the funds with the best combination of performance, volatilit and income paid

SCOTTISH MORTGAGE INVESTMENT TRUST

COSTS MAKE A REAL DIFFERENCE TO PERFORMANCE – OUR ONGOING CHARGES ARE JUST 0.44%*.

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Baillie Gifford’s track record as long-term, supportive shareholders makes us attractive to a new breed of capital-light businesses. And our committed approach means we can enjoy a better quality of dialogue with management teams at transformational organisations such as Alibaba, Dropbox and Airbnb. So it is a case of who you know as well as what you know. Over the last five years the Scottish Mortgage Investment Trust has delivered a total return of 222.8% compared to 117.6% for the sector**.

Standardised past performance to 30 September**:

2013

2014

2015

2016

2017

Scottish Mortgage

35.9%

27.6%

4.2%

37.0%

30.4%

AIC Global Sector Average

23.6%

12.1%

5.1%

21.8%

21.6%

Past performance is not a guide to future returns.

Please remember that changing stock market conditions and currency exchange rates will affect the value of the investment in the fund and any income from it. Investors may not get back the amount invested.

The Trust’s risk could be increased by its investment in unlisted investments. These assets may be more difficult to buy or sell, so changes in their prices may be greater.

For some very exclusive opportunities, call us on 0800 027 0132 or visit us at www.bailliegifford.com A Key Information Document is available by contacting us.

Long-term investment partners

*Ongoing charges as at 31.03.17. **Source: Morningstar, share price, total return as at 30.09.17. Your call may be recorded for training or monitoring purposes.

Scottish Mortgage Investment Trust PLC is available through the Baillie Gifford Investment Trust Share Plan and the Investment Trust ISA, which are managed

by Baillie Gifford Savings Management Limited (BGSM). BGSM is an affiliate of Baillie Gifford & Co Limited, which is the manager and secretary of Scottish Mortgage Investment Trust PLC.

STORY IN NUMBERS

13.2%

KIER’S 10% RALLY IS NOT AS Vertu crashes after big slump IMPRESSIVE AS SOME MAY THINK in new car sales NEW CAR SALES slumped by 13.2% on a like-for-like basis at Vertu Motors (VTU:AIM) in the four months to ecember, triggering a pro t warning from the company.

Vertu has been hit by further declines in the new car market due to the depreciation of sterling and weaker consumer spending in the run-up to Christmas.

It is cautious on the outloo for the ne t nancial ear, although a strong, propert rich balance sheet with low debt levels should, in theor , help it weather the tougher times ahead

onstruction compan Kier’s (KIE) shares soared by 10.1% to £11.04 on 25 January as it made a reassuring statement to the market about the fallout from the collapse of Carillion (CLLN).

It is worth pu ng the share price ump in the conte t of previous share price movements.

Kier’s shares had actually fallen from £11.47 to 955.5p between 16 and 23 January amid fears over its e posure to arillion s problems and negative bro er comment about the strength of its balance sheet.

The rebound on 26 January is merely recovering the bulk of that lost territory.

THREADBARE MARGINS IN MOBILE PAYMENTS DIRECT CARRIER billing specialists Bango (BGO:AIM) and peer Boku (BOKU:AIM) have seen their commission from app store purchases shrink to just 1.4% each.

Direct carrier billing is where consumers can elect to charge app store purchases to their monthly phone bill rather use a credit card.

But as digital purchases continue to soar, large app store operators ma on, oogle and pple, for e ample are demanding an increasingly large part of the pro t pie 10

| SHARES | 01 February 2018

End user spend margins have been shrinking for years. Five or si ears ago Bango had hopes of long-run margins of 4% to 5%. That has proved to be overl ambitious, and the measure stood at 1.8% at interim results announced in September.

Further squeezes are believed to have come through since, a point con rmed b the 1.44% Boku reported in a trading update on 23 January. (SF)

1.4%

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LET’S SOLVE IT.

SM

Long term return objective and initial dividend based on J.P. Morgan Asset Management Long Term Capital Market Assumptions. The stated target returns are the investment manager’s objectives only, and are not necessarily part of the fund’s investment objectives and policies as stated in the prospectus.

The objectives are net of fees. There is no guarantee that these objectives will be met.

LV-JPM50810 | 01/18 0903c02a8204facd

GREAT IDEAS

K3 Capital is hoovering up small cap M&A deals This gem of a business enjoys high margins and generates lots of cash

W

DISRUPTION PAYS OFF nli e the well- nown professional service rms such as and eloitte, operates 12

| SHARES | 01 February 2018

XXXX K3 CAPITAL  BUY BUY (xxx) (K3C:AIM) xxxp 224p Stop loss: xxp 179p

Market value: xxx £94.5m

a direct mar eting approach to client ac uisition using salespeople rather than advisers.

This helps keep costs in check, with the average salary of the company’s workforce being , albeit with additional mone for hi ng targets and other performance-based incentives The company also uses a valuation database, accessible online sing this, potential clients can enter data and receive a range of valuations for their business instantly. All those enquirers will receive a phone call within hours to gauge interest in the sales process.

This is both a rapid and e cient means of securing new clients.

to

and its subsidiaries o erings Gateley acts for 76% of the more upmarket KBS Corporate division of K3 and 59% of the smaller business vendor Knightsbridge.

The bene t to the client is that legal costs are contingent on completion of the deal The law rm holds the cash consideration of the deal so there can be no bad debts for K3. trades on -times s 10p of earnings using FinnCap’s forecasts. There’s also some income on o er with a dividend yield.

BROKER SAYS: 1 240

LEGAL EAGLES Another trick K3 has up its sleeve is a partnership with Gateley (GTLY:AIM), a legal services provider. This has been in place since and adds another tic

0

0

K3 CAPITAL GROUP FTSE ALL SHARE Rebased to first

220

Source: Thomson Reuters Datastream

hile much focus is on the large cap mega deals, the ra - ein $46bn merger in 2015 for example, we think it is worth looking at a company involved in smaller deals, of which there are currently plenty. e give ou advisor rm K3 Capital (K3C:AIM), a fantastic little gem that has alread topped Thomson Reuters’ small cap advisory league table. It’s the market leader in UK small cap M&A and a company you may not have heard of, yet.

Being a market leader is not just about bragging rights either. Someone looking to sell a business will presumably look at the leaderboard as it suggests that the top name will have the largest supply of buyers as well.

Jeremy Grime, analyst at the company’s broker FinnCap, is certainly a fan. The company’s half year results to 30 November 2017 came in above his e pectations across the board. Grime says: ‘The unique high margin, high return on equity and highly cash generative model is set to grow signi cantl over time while we con dentl e pect a re-rating The shares have jumped up since that comment, yet we think they’ve got much further to go.

200 180 160 140 120 100

MAY

JUL

SEP

NOV

JAN

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GREAT IDEAS

Value retailer B&M is strong and getting stronger Bag the FTSE 250 constituent for self-funded growth and sustainable payouts

CHRISTMAS CHEER Last month (12 Jan), B&M reported record Christmas trading, with li e-for-li e sales in its core UK B&M estate up 3.9% in its third quarter to 23 December, a performance built on a particularl strong prior year comparator, when sales shot up 7.2%.

Overall sales for the UK B -branded estate grew to m, re ecting same-store growth and new store openings, with B&M’s budget grocery and FMCG (fast moving consumer goods) ranges 14

| SHARES | 01 February 2018

B&M EUROPEAN VALUE RETAIL  BUY (BME) 418p Stop loss: 300p

Market value: £4.2bn

ing o the shelves As Liberum Capital argued in a recent note to clients, B&M is ‘a stoc for all seasons, bene ting from higher average transaction values in prosperous times, while foo all and volumes rise in a more uncertain climate.

CONVENIENCE OPPORTUNITY In Germany, B&M’s nascent Jawoll chain’s sales grew 10.4% to £52.7m in sterling terms.

Back on home turf, the FTSE constituent said its orth of ngland-focused discount convenience chain eron, acquired for £152m last summer, chipped in m of revenues in the quarter including ‘strong positive li e-for-li e revenue growth’.

Convenience is one of the areas of growth in grocery retailing and eron is allowing B to roll out a complementary discount convenience grocery brand.

‘Management has a strong trac record of navigating exogenous shocks and we see multiple drivers of long-term

growth,’ enthuses Liberum Capital. For the year to 31 March umis ecurities forecasts a pre-ta pro t surge to m (2017: £190.1m) for earnings of p p and a p dividend p For 2019, Numis looks for pre-ta pro t of m and earnings of p and an p shareholder reward. Though B swaps hands for times next year’s forecast earnings, we view the business as an e citing structural growth winner.

In addition, sterling s recover will help B&M’s margins, since it sources most of its non-food product directly from Asia in US dollars. (JC) BROKER SAYS: 13 3 440

0

B&M EUROPEAN VAL.RET. FTSE ALL SHARE Rebased to first

420 Source: Thomson Reuters Datastream

I

nvestors see ing a bene ciar of the cash-strapped shopper s quest for value should consider multi-price discounter B&M European Value Retail (BME).

New customers are driving strong growth at B&M, it is opening new stores in the UK and Germany and the ac uisition of eron oods provides a new growth channel in the attractive convenience sector iverpool-head uartered B , a variet retailer founded in and oated on the stoc mar et in 2014, is among those shopkeepers disrupting the mar et b o ering value to hard-pressed consumers We’ve come round to the view that imon rora-steered B is one of UK retail’s highest quality names It is a self-funded growth stor and a cash generative business o ering investors scope for higher dividends.

400 380 360 340 320 300 280

2017

2018

GREAT IDEAS UPDATES SOPHEON (SPE:AIM) 574p

GREENCORE (GNC) 200p

Gain to date: 73.9%

Gain to date: 8.3%

Original entry point: Buy at 330p, 22 June 2017

Original entry point: Buy at 184.6p, 5 October 2017

DRIP FEEDING INFORMATION into the market may not be for everyone but Sopheon (SPE:AIM) investors won’t be complaining, certainly not a er the latest update and share price spi e on anuar , with a ump to a record p That came a er the so ware pla orm designer reveal a m forecast revenue beat for , con rming m versus e pectations of m opheon is the innovation management solutions supplier we rst agged bac in une It helps enterprises manage all aspects of new product development lifec cles, allowing customers to ma e smarter decisions about which products to develop and how to bring them to mar et faster This latest share price surge adds to a hi e on anuar We now learn that 59 new licence agreements were signed in , up from in , including two large deals ith m of net cash and m of sales alread in the bag, near-term prospects and share price momentum look very much on the front foot. e still don t now what this means for pre-ta pro t, previousl pitched at m b inn ap, an estimate that was retired in earl anuar ecent operating leverage should see plent of revenue translated into pro t It is a good reason to be optimistic about full ear results on arch

ur positive call on convenience food ma er Greencore (GNC) is given some credence b a robust rst uarter trading statement an The sandwiches, salads and chilled soups supplier caught our attention in ctober as we saw the compan was poised to reap the bene ts of a period of heav investment e e pected rising cash ow to reduce indebtedness and help drive the shares higher.

Pro-forma revenue ad usted to re ect the impact of ma or ac uisition Peacoc oods in the was up in the wee s to ecember The compan also noted that as e pected the tra ector of the group s capital spend continued to reduce in the rst uarter The group also sa s it e pects to report a one-o non-cash credit of m in its rst half results on a than s to reduced corporation ta

SOPHEON FTSE ALL SHARE Source: Thomson Reuters Datastream

600 Rebased to first 550 500 450 400 350 300

2017

2018

SHARES SAYS:  Stick with this momentum play. (SF) BROKER SAYS:

1

0

0

Source: Thomson Reuters Datastream

270

GREENCORE GROUP FTSE ALL SHARE

240

210

180

Rebased to first

2017

2018

SHARES SAYS:  While the company is very bullish on the year ahead, it does warns that a continuation of the current sterling-dollar exchange rate could have an ‘adverse impact’ on profit from its US arm (around 40% of the business).

We acknowledge that is a key risk to the share price near-term, but still believe the business is an attractive investment longer term, so we’re sticking with it. (TS) BROKER SAYS:

1

0

0

01 February 2018 | SHARES |

15

GREAT IDEAS UPDATES NMC HEALTH (NMC) £33.60

AVESORO RESOURCES (ASO:AIM) 205p

Gain to date: 59.8%

Loss to date: 24.1%

Original entry point: Buy at £21.03, 6 July 2017

NMC HEALTH FTSE ALL SHARE

3600 Rebased to first 3200 2800 2400 2000 1600

2017

2018

SHARES SAYS:  Keep buying. (LMJ) BROKER SAYS: 8 16

| SHARES | 01 February 2018

2

0

Source: Thomson Reuters Datastream

IT R B IR T B private healthcare provider NMC Health (NMC) has soared since we agged its potential last ul The healthcare mar et is anticipated to e pand in the low double digits, driven b an ageing population su ering from more diseases, according to Berenberg anal st harles eston e is optimistic further growth will be supported in bu habi b the higher oil price, agging the International onetar und s forecast growth of in on the basis of per barrel il currentl stands around per barrel, suggesting growth could surprise on the upside was bus in anuar , ac uiring a sta e in osme urge for m and bu ing an sta e in l alam edical for m ubai-based cosmetic clinic osme urge o ers a high margin, double-digit growth business and l alam e tends s foothold in audi rabia with a -bed hospital and two clinics To build on its position as the second largest pla er in the global fertilit mar et, the compan has bought the remaining sta e in a ih I also ac uired the remaining sta e in s alama ospital for m

Original entry point: Buy at 270p (adjusted for consolidation), 8 June 2017 LIBERIAN GOLD MINER Avesoro Resources (ASO:AIM) has completed a share consolidation e ectivel cu ng the number of shares by a hundred times That serves to ma e the share price loo much higher than it did before The new p share price doesn t mean we are in the money on our bullish call on the stock. e ad ust our entr price from p to p and await a better for vesoro as it ramps up production from its e isting mines and loo s to add new pro ects to its por olio T BROKER SAYS:

1

0

0

MPAC (MPAC:AIM) 155.2p Gain to date: 11.7%

Original entry point: Buy at 139p, 28 September 2017 ENGINEERING FIRM MOLINS has renamed itself MPAC (MPAC:AIM) to re ect its increasing focus on the pac aging industr Shares is not always a big fan of name changes as the can re ect an attempt to de ect attention from historically weak performance.

In olins case the compan had no choice as it re ected the terms of its sale of its tobacco machiner business which involved the transfer of the olins name T BROKER SAYS:

1

0

0

GUINNESS

Equally Weighted holdings

GLOBAL INNOVATORS FUND

Concentrated Portfolio

Quality Companies

Growth through Innovation

We believe that innovative companies outperform

WINNING WITH INNOVATION: The Guinness Global Innovators strategy was launched 15 ago with this simple idea.

LOOK FOR VALUE years & AVOID HYPE

£60,000 £55,000

Guinness Global Innovators IA Global Sector average

£50,000 £45,000 £40,000

Growth of £10,000 invested 31.12.2003 to 31.10.2017 £58,305 £42,168

Innovative companies – in any industry – can develop competitive in strengths that translate into high return on investment, Innovative companies can maintain a competitive edge (GPU) in 1999.

This charted a growth path into wide some of a £30,000 which translates into superior financial and stock theand most innovative margins strong balance corners sheets. of a wide range of sectors, £25,000 performance. far beyond IT. Recently, the adoption of the GPU into in high-quality innovative companies, wehas access the £20,000 That’s why we look for innovation as we assemble theBy investing the automotive industry and data centres led to universe of high-quality growth stocks for the Guinness further revenue streams asavoid a direct oflook product transformative growth themes, but the result fads. We for £15,000 Global Innovators strategy. innovation.

Return in GBP. Source: Financial Express growth, but not at any price. £10,000 Nvidia’s product upgrade life can be as short as four £5,000 How do we assess innovation? years, so continuous innovation essentialThis to reflects avoid a our Our portfolio is concentrated and equally is weighted. £0 Innovation isn’t just about small-cap ‘tech’ companies. product being superseded quickly.

A good comparison conviction in every holding and keeps stock-specific risk low.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 While there are many definitions, we see innovation as is the mobile phone industry; for Nokia and Blackberry, the creative application Yearof ideas1 – and3 this 5can be found missingGlobal the rise of the smartphone wasintheir downfall.

The Guinness Innovators strategy* ranks the top quartile 10 Return in GBP to 31.10.2017 in Cumulative virtuallyreturn any(%)industry, as is shown by the diversity The product cycle is similar for chip designers, and the to-date year years years years of the Investment Association Global Sector over 2017 to 31 OctoofGuinness stocks held instrategy* the Guinness Global competition is unforgiving.

Global Innovators 22.1 25.0 63.0 Innovators 180.1 239.4 Fund. ber andToday, over 1, Nvidia 3, 5 andspans 10 years.

MSCI World 10.5 very 13.5different 54.9 115.6 147.4 Here, weIndex look at how two companies numerous innovative themes, IA Global sector average 13.9 46.6 89.7 peers.

95.8 have used innovation to 12.3 stay ahead of their such as self-driving cars, augmented reality, data Learncentres more atand guinnessfunds.com/global-innovators-fund Quartile in IA sector 1st 1st 1st 1st 1st artificial intelligence. Nvidia’s innovation Boeing’s continuous innovation lies in the way it has developed quality technology 31-Oct-13 31-Oct-14 31-Oct-15 31-Oct-16 31-Oct-17 Annual return (%), to end: Past performance is which not a guide returns.

The value of infrastructure manyto offuture the world’s future Guinness Global Innovators strategy* 43.0 20.2 3.2 26.4 25.0 products and services may require. your investments can fall as well as rise. You may not get back MSCI World Index 26.8 9.7 6.0 28.8 13.5 Large companies sometimes struggle to 23.2 stay nimble Importantly, Nvidia has not forgotten to innovate IA Global sector average 24.2 4.2 4.5 13.9 the amount you invested. and innovate with the necessary speed to remain a within its core market, the computer gaming business, market leader. With its culture of innovation, Boeing winning support for its new Pascal architecture chips. has a proven history of adapting and improving its The company has regularly spent more than 20% of business. revenues R&D and has spent $1.5bn over the last 12 W: guinnessfunds.com | E: info@guinnessfunds.com | T: 0845 on 519 2161 In the years after the First World War, for example, months.

Authorised and regulated by the Financial ConductNvidia’s Authority.persistent Telephone calls will be recorded when military orders were dramatically reduced, innovation at all levels has helped Boeing sustained its business by expanding beyond it deliver double digit earnings growth every quarter in Equally Weighted Concentrated Growth aircraft manufacturing and using its skills to make 2016, with further growthQuality seen in 2017, and the market holdings boats and furniture. has rewarded the company.

What began from aInnovation single Portfolio Companies through GLOBAL INNOVATORS FUND Boeing’s continuous innovation – and R&D spend ground-breaking invention has led to a culture of of around $3bn a year – has seen it introduce a continual innovation and a disruptive company with moving production line for its 737 aircraft, a method We believe strong that and profitable innovativegrowth. companies outperform £60,000 Guinness Global Innovators more commonly found in car production; increase £55,000 IA Globalfrom Sector average production 31 aircraft per month in 2005 to a The Guinness Investing Global in innovative companies Innovators strategy was launched 15 £50,000 targeted 52 in 2018; and use carbon fibre fuselages foryearsWhen selecting stocksidea. for the Global Innovators Fund, ago with this simple Growth of £10,000 invested £45,000 their superior lightness, strength and capacity for we are not looking for the most innovative companies to 31.10.2017 higher 31.12.2003 cabin£58,305 pressure, which leaves passengers less on the market. Rather, we want the best growth stocks £40,000 Innovative companies – inisany industryfactor.

– can develop £42,168 jet-lagged. where innovation a success We usecompetitive a quality in £35,000 strengths that–translate into high return on investment, wide At the same time, Boeing is a well-run, quality screen looking for return on capital above the cost a £30,000 company with a strong balance sheet. It has been of and capital, and balance sheet strength – to ensure our margins strong balance sheets. £25,000 generating returns above their cost of capital for many universe contains companies which have translated in high-quality innovative companies, access athe years, showing strong cash generation and the abilityBy toinvesting innovation into financial success.

We alsowe employ £20,000 create value. value discipline to ensure arethe notfads. overpaying transformative growth themes, butwe avoid We look for for £15,000 future growth, recognising that hype can drive up Return in GBP. Source: Financial Express growth, but not at any price. £10,000 Nvidia: the disruptive technologists valuations. £5,000 By passing these tests, NvidiaThis have shown Our portfolio is concentrated andBoeing equallyand weighted. reflects our £0 that as well as being good, innovative companies, they conviction in every holding and keeps stock-specific risk low.

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Nvidia began in 1993 as a computer graphics card are also good investments. designer.

Its graphics cards became regarded as the The Guinness Global Innovators strategy* ranks in the top quartile Year1 3 5 10 Return in GBP to 31.10.2017 best available gaming.

A major step wasof theLearn how we invest inGlobal innovative to-date year years years years Cumulative return for (%) computer Investment Association Sectorcompanies over 2017 toat31 OctoNvidia’s invention of the22.1 graphical processing unit guinnessfunds.com/global-innovators-fund Guinness Global Innovators strategy* 25.0 63.0 180.1 239.4 ber and over 1, 3, 5 and 10 years.

MSCI World Index 10.5 13.5 54.9 115.6 147.4 £35,000

GUINNESS

IA Global sector average

12.3

13.9

46.6

89.7

95.8

Learn moreofat guinnessfunds.com/global-innovators-fund IA sector 1st income 1st from 1st it can1st TheQuartile valuein of an investment and the fall as 1st well as rise as a result market and currency fluctuations and you may not get back the amount originally invested

Pastbyperformance is notAuthority. a guideThis todocument future returns.

The Issued by Guinness Asset Management Limited, authorised and regulated the Financial Conduct is provided for value of Guinness Global Innovators strategy* 43.0 20.2 3.2 25.0 information only. All the information contained in it is26.4 believed to be reliable but may be inaccurate or as incomplete; it should not be relied upon.

It is your investments can fall well as rise.

You may not get back Index to make an investment 26.8 9.7 6.0 it constitute 28.8 13.5 notMSCI an World invitation nor does an offer for sale. Telephone calls will be recorded.

Documentation The documentation needed to an investment, including the Prospectus, the Key Investor Information Document (KIID) and the IA Global sector average 24.2 4.2 4.5 make 23.2 13.9 the amount you invested.

Application Form, is available from the website www.guinnessfunds.com Annual return (%), to end:

31-Oct-13 31-Oct-14 31-Oct-15 31-Oct-16 31-Oct-17

W: guinnessfunds.com | E: info@guinnessfunds.com | T: 0845 519 2161

Authorised and regulated by the Financial Conduct Authority. Telephone calls will be recorded

TALKING POINT

Our views on topical issues

Bitcoin blues: the end of cryptocurrency fever?

The value of bitcoin, ethereum, ripple, dash and other cryptocurrencies have taken a big hit in 2018

A

er rall ing through most of , popular cr ptocurrencies have rml fallen out of bed or e ample, bitcoin soared to record highs of , ust before hristmas and has since fallen b to , The decline has been widespread across the cr ptocurrenc ecos stem with ever one of the top cr ptocurrencies, b mar et value, showing steep declines over recent wee s This group includes ethereum, ripple, dash and others lthough, it is worth noting that ethereum has started to recover uite strongl in recent sessions The general decline in the value of cr ptocurrencies this ear will undoubtedl cement the views of sceptics that the entire industr is nothing more than a nancial fad in ated to the e treme, and that the bubble is close to popping WHY ARE CRYPTOCURRENCY PRICES FALLING? It seems investors have been spoo ed b veiled threats that cr ptocurrenc mar ets could face tight regulation down the line, something that could massivel undermine the perceived advantages This could involve bans on underage

18

| SHARES | 01 February 2017

investors and a clampdown on anon mous trading accounts outh orea s nance minister im ong- eon recentl said that an outright ban on cr ptocurrencies remains a possibilit and hinese authorities are also thought to be mulling potentiall restrictive measures There were further cautionar words from Treasur ecretar teven nuchin and hancellor Philip ammond at the orld conomic orum meeting in avos last wee WHAT ARE CRYPTOCURRENCIES? Bitcoin and other cr ptocurrencies are digital alternatives to cash In theor , the can used to transfer nancial resources cheapl and uic l across international borders In some cases the can be used to purchase goods and services The wor on what has become nown as bloc chain technolog bloc is a piece of computer code that stores the data for a transaction It is lin ed to the e isting chain of bloc s which acts as a ledger, or a record of all transactions, copies of which are distributed across the entire networ s of a cr ptocurrenc s users

WHAT ARE THE CONCERNS? nli e traditional currencies such as pounds, dollars or euros, there is no central control of cr ptocurrencies, such as the Ban of ngland in the That worries politicians, central ban ers and man investors The perceived lac of chec s and balances, sa critics, potentiall opens cr ptocurrencies up to be used for all sorts of illegal practices such as mone laundering, organised crime and funding terrorists The also potentiall loosen the controls governments and central ban s have over the traditional cash s stem GETTING RICH QUICK Bitcoin and other cr ptocurrencies have become notoriousl volatile In the last uarter of the total mar et cap of all cr ptocurrencies increased b a uarter to around bn arlier in anuar the total mar et cap rose to ust sh of bn, before the big sell-o in the second wee of anuar It is now trading at around the bn mar , but still shows enormous gains over the past months The mar et cap was less than bn a ear ago uch vast paper pro ts have pulled in a lot of new investors,

TALKING POINT THE BLOCKCHAIN NAME GAME Eastman Kodak (KODK:NYSE) imaging business best nown for ma ing lm for cameras has now created its own cr ptocurrenc Long Blockchain (LBCC:NDQ) Previousl nown as ong Island Iced Tea, the former loss-ma ing retailer of non-alcoholic drin s now invests in bloc chain technologies ADVFN (AFN:AIM) inancial data website has launched the Plus ne oin bloc chain oint venture in con unction with n ine OnLine Blockchain (OBC:AIM) The shareholder is launching the Plus ne oin cr ptocurrenc wallet Blockchain Worldwide (BLOC) ash shell tapleton apital switched plans to invest in the telecoms space and is now focused on bloc chain investment

pu ng up prices The e d namic is that the cr pto mar et is growing b hundreds of thousands of users per wee , with the mar et adding over , users dail , sa s acob Pounce , a cr ptocurrenc e pert at a o Ban r pto assets are behaving similar to the dotcom stoc s of the late s, sa s Pounce e points to e amples such as oda , the photographic lms compan and ong Bloc chain formerl nown as ong Island Iced Tea The have seen their stoc prices soar a er announcing bloc chain pivots, ust as did companies that added com to their names during the internet bubble The anal st also ags the rapid rise of investment vehicles emerging in the cr ptocurrenc space B his calculations

there are more than cr pto-focused hedge funds currentl operating, while the ecurities and change ommission has recentl noted the increase in the number of bloc chain and cr ptocurrenc T applications VERY HIGH RISK hat is perhaps most startling about the surging value of cr ptocurrencies is that it has not been built on an fundamental change in how the wor , or their potential in the long-run The ultimate success of an cr ptocurrenc depends on its abilit to become widel accepted and used, so rapid growth in users is a positive sign et even bitcoin, the most popular, remains a long wa o mainstream adoption

a o s Pounce believes that could become a ma e or brea ear for the cr ptocurrenc world ost have progressed little further than producing an idea in a white paper, and a rough technological roadmap It can be argued that none has as et made a meaningful demonstration of their fundamental use The cr ptocurrenc space remains in its infanc and that ma es it an e tremel high ris asset class for investors hether an of these assets will be able to show long-term usefulness remains to be seen, and until there is more positive evidence we rml suspect that the ma orit of ordinar investors should avoid the space e don t et now if cr ptocurrencies are merel the emperor s new clothes

01 February 2017 | SHARES |

19

WEEK AHEAD FRIDAY 2 FEBRUARY FINALS AstraZeneca INTERIMS BT TRADING STATEMENTS Gem Diamonds Vedanta Resources AGMs Autins Brewin Dolphin Scottish Investment Trust ECONOMICS UK Construction PMI

AZN BT.A GEMD VED AUTG BRW SCIN

MONDAY 5 FEBRUARY TRADING STATEMENTS International Consolidated Airlines AGMS Cerillion Future ECONOMICS UK Services PMI

IAG CER FUTR

TUESDAY 6 FEBRUARY FINALS Amino Technologies Ocado St Modwen Properties INTERIMS BP Frontier Developments

AMO OCDO SMP BP. FDEV

SHARES IN defence contract outsourcer Babcock (BAB) have been in decline for around three years. Weighing on the stock more recently have been Brexit concerns and a reduction in the Ministry of Defence’s spending.

The company’s trading statement in September last year buoyed investors and reversed the depreciation of its share price briefly.

Investors will be hoping for good news on 6 February when the company issues its latest trading update. (DS)

20

| SHARES | 01 February 2018

WE’RE ABOUT to enter results season for the FTSE 100 drug developers.

Full year results are expected from AstraZeneca (AZN) on 2 February and from peer GlaxoSmithKline (GSK) on 7 February.

Shares in AstraZeneca have been gaining momentum since the second half of 2017 as the company’s prospects started to improve. This was confirmed in November when the company said it expected earnings to hit the ‘favourable end of the guidance Hargreaves Lansdown Mattioli Woods TRADING STATEMENTS Babcock ECONOMICS UK BRC Retail Sales

HL. MTW BAB

WEDNESDAY 7 FEBRUARY Finals GlaxoSmithKline Rio Tinto Smurfit Kappa Tullow Oil INTERIMS Redrow TRADING STATEMENTS Grainger GlaxoSmithKline Severn Trent AGMS Blackrock Frontiers Investment Trust Daily Mail and General Trust Grainger Nektan ECONOMICS UK Halifax HPI

GSK RIO SKG TLW RDW GRI GSK SVT BRFI DMGT GRI NKTN

THURSDAY 8 FEBRUARY FINALS Smith & Nephew INTERIMS Ashmore

SN. ASHM

range of a low to mid-teens percentage decline.’

Oncology sales are anticipated to drive further growth at AstraZeneca.

In the third quarter of 2017, new oncology sales grew by 72%.

GlaxoSmithKline’s shares haven’t fared as well with a big sell-off between October and December 2017, although they’ve since been slowly recovering. Its HIV drug Juluca was approved late last year and should boost value in its ViiV business.

TalkTalk Thomas Cook TRADING STATEMENTS AA Bellway Compass EI Tate & Lyle AGMS Compass Dunein Smaller Companies Investment Trust Dewhurst EasyJet On The Beach Premier Asset Management Thomas Cook EX-DIVIDEND Daejan DJAN Foresight Solar Fund FSFL ICG Enterprise Trust ICGT Impax Asset Management IPX Nexus Infrastructure NEXS Sage SGE Treatt TET ECONOMICS UK Official Bank Rate

TALK TCG AA. BWY CPG EIG TATE CPG DNDL DWHT EZJ OTB PAM TCG 35p 1.58p 5p 2.2p 4.2p 10.2p 3.35p

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EUROPE

SO MANY REASONS TO INVEST NOW

By Daniel Coatsworth

I

gnore all the buzz about US markets surging away and businesses enjoying a boost from lower ta rates e thin ontinental urope is a better opportunit and one that is still underappreciated b man investors h do we li e urope conomic conditions are good, companies are nall en o ing decent earnings growth, politics aren t ge ng in the wa and e uit valuations aren t overl e pensive In contrast, there are growing concerns about strong in ation in the and a lac of faith in President onald Trump which could cause mar ets to wobble e uit valuations are also ver high in man sectors, plus we feel there is too much e citement in general about mar ets

22

| SHARES | 01 February 2018

Ban of merica errill nch sa s there is little evidence of euphoria on e uities despite froth elsewhere It sa s booming macro data and improving pro t margins underpin a recover in earnings per share growth for uropean-listed companies IT CAN’T ALL BE GOOD, CAN IT? It is important to stress this article and its comments are onl about ontinental urope and do not include the Before we e plain in more detail wh uropean e uities are a great place for our mone at present, it is important to note one negative to the story.

The euro has become much stronger versus the dollar since ecember which presents a headwind for uropean companies which e port goods owever, man observers comment that global growth is more important to uropean e uities ou also have to consider that man uropean manufacturers incur costs and revenue abroad, providing a hedge for the currenc impact ‘Yes, the euro strength has some minor implications for some e porters at the edge But far more important is the improving global outloo The bigger picture is so strong that a higher euro is not a concern at the moment, sa s a e Robbins,

fund manager at Premier Global Alpha Growth Fund (GB00B6740K61).

Businesses in urope were previousl hit b e cess capacit and no pricing power The re now seeing better demand ld econom industries li e manufacturers are seeing margin improvement and higher sales, he comments e re entering into a new phase for uropean mar ets in , adds ld utual fund manager Ian rmiston It loo s li e we will see faster P growth than which leads us to be more optimistic about uropean e uities igher P growth e uals higher earnings growth which should be the driver of the mar ets

ECONOMIC GROWTH 2016

2017

2018

2019

EUROPE EX-UK EURO AREA

1.8%

2.4%

2.2%

2.0%

FRANCE

1.2%

1.8%

1.9%

1.9%

GERMANY

1.9%

2.5%

2.3%

2.0%

ITALY

0.9%

1.6%

1.4%

1.1%

SPAIN

3.3%

3.1%

2.4%

2.1%

UNITED STATES

1.5%

2.3%

2.7%

2.5%

JAPAN

0.9%

1.8%

1.2%

0.9%

UNITED KINGDOM

1.9%

1.7%

1.5%

1.5%

WORLD OUTPUT

3.2%

3.7%

3.9%

3.9%

OTHER REGIONS

All forecasts, apart from 2016. Source: IMF, Jan 2018

01 February 2018 | SHARES |

23

FIVE REASONS TO BE BULLISH 1. ECONOMIC STRENGTH

The International onetar und last wee upgraded its forecasts for global economic activit in and , li ing both ears b percentage point to It also raised e pectations for b percentage point to , noting particular strength from urope and sia The e message is that the global recover has strengthened The euro area will grow b in , according to I forecasts That s uite impressive when compared against e pectations for growth in apan , and Russia uro one consumer con dence climbed to a near-record high in anuar ash estimate from the uropean ommission showed the inde rose from in ecember to in anuar Businesses are also in a chirp mood I ar it s ash composite purchasing managers inde P I for the euro one stood at in anuar , its highest level since une n thing above indicates growth

2. EARNINGS GROWTH

ast ear was a ma or turning point for corporate earnings among companies in ontinental urope rowth started to come through and the trend is continuing as gets underwa or si ears to , mar ets started each ear optimistic for to earnings growth for uropean stoc s s each ear progressed, growth was revised down to ero or even negative, sa s Tim tevenson, director of pan- uropean e uities at asset manager anus enderson Investors ast ear started with e pectations for growth and it got better as the ear went on stimates suggest we actuall got for Pro ections for are still holding up at to earnings growth, he adds Ian rmiston at ld utual sa s he wouldn t be surprised to see low to mid-teens growth for both small and large cap stoc s in urope this ear uit ratings should, in theor , move in tandem with earnings per share movements so ou could deduce that investing in a urope e - fund could deliver a return in the region of or more in

24

| SHARES | 01 February 2018

ust before hristmas investment ban e eries anal sed mar et forecasts for an inde of stoc s across the main euro one countries and sa s nancial sector earnings were e pected to grow b ust under industrials b and telecoms b ust over , among others lan Ball, a por olio manager at Templeton lobal uit , sa s earnings at uropean companies as at eptember were ust over half of their prior pea , providing ample room for catch-up nli e the nited tates, where corporate pro ts have alread surpassed their pre- nancial crisis pea s, uropean corporate earnings have lagged, he comments decade of e traordinar central ban polic support will begin to end in , but a favourable economic environment and improving corporate fundamentals could allow uropean stoc s to pla further catch-up with e uities

EUROZONE PMI MANUFACTURING DATA

UK PMI MANUFACTURING DATA

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Eurozone PMI data has become much stronger than the UK's

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UK PMI data took a big step back at the end of 2017

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uropean times 260e uities are trading on forward240 earnings versus a long-run average of times220In comparison, mar ets are trading 200 on appro imatel times forward earnings 180 The long-run average for the P inde is 160 around 140 times illustrating how e uities are 120 a bigger premium versus urope trading on 100 2010 2012called2014 2016 uropean2008 mar ets can t be cheap but 2009 2011 2013 2015 2017 the certainl cannot be called e pensive when ou consider the earnings growth stor is in full swing.

4. POLITICAL CONCERNS HAVE EASED CONSIDERABLY ear ago the mar et was concerned about the potential outcome of various elections in urope, principall ones in rance, erman and the Netherlands.

The rench election result was deemed positive with the centrist part of mmanuel acron beating the arine e Pen-led far-right part acron is de nitel a positive for rance, sa s ll Russ, manager of Liontrust European Income Fund (GB00BD2WZ105) Basic ta reforms are a step in the right direction ou can ma e the case for rance to en o a better time over the ne t decade than over the last one

Source: Thomson Reuters Datastream

280

FTSE EUROPE EX UK EURO

360

FTSE EUROPE EX UK EURO S&P 500 COMPOSITE Source: Thomson Reuters Datastream

3. INEXPENSIVE EQUITY VALUATIONS

340 320 300 280 260 240 220 200

2015

2016

2017

There was relief as the mainstream triumphed in the etherlands election as ar Rutte s centre-right part beat the anti-immigration part of eert ilders erman hancellor ngela er el won a fourth term in eptember but had still to form a collation government at the time of writing this article oing into , the onl ma or election in urope is Ital and observers don t believe that event will have a ma or impact on the direction of uropean stoc mar ets atalonia is perhaps the one issue that still presents itself as a potential ris to urope in atalonia s drive for independence has plunged pain into its biggest political crisis for ears It is being watched nervousl b other uropean states with strong nationalist movements

01 February 2018 | SHARES |

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The uropean entral Ban B will begin a moderate withdrawal of monetar stimulus in eptember It has previousl said it would e tend uantitative easing be ond this date, or even raise the level of monthl purchases from bn, should conditions worsen again It also said it would eep interest rates low until well past the end of ome anal sts believe the B will revise up its economic forecasts at a meeting on arch and then use that to ustif a change to its forward guidance around The overall monetar polic stance is li el to sta accommodative for the foreseeable future, as the B balance sheet is going to sta ver large for another decade e tensive amounts of e cess li uidit impl that the deposit rate is li el to sta the de-facto polic rate for ears to come, sa s investment ban B It forecasts the rst deposit rate hi e will happen in ul , moving from to It sees another hi e from to ero in eptember uro one ban s should bene t if the B s emergenc measures start to come o eposit rates moving from negative to ero would have a big positive e ect on ban s, sa s ld utual s Ian rmiston FOLLOWING A SIMILAR PATTERN? tevenson at anus enderson believes the

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| SHARES | 01 February 2018

B is

280 260 240 220 200 180 160 140 120 100

FTSE EUROPE EX UK EURO Source: Thomson Reuters Datastream

5. MONETARY POLICY

10 YEARS CHART

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

360 340 320 300 280 260 240 220 200

following a pattern that resembles the actions ta en b the appro imatel to months ago s the econom grows, ou have to start scaling bac , he sa s There is still signi cant bond bu ing from the B But could see less bond bu ing than issuance This will be the rst time there is net suppl in ears There was a negative ield on the - ear erman bond in now there is a positive rate at o ou sell e uities now the bond mar et has turned e e pect the - ear bond to go to b the end of tevenson doesn t see rising bond ields as a headwind for e uities e believes a compan is a far better investment in a low in ation world than a bond eading companies will have pricing power whereas ou can t sa I want a higher ield with a bond, he comments

FT S&

SEVEN FUNDS AND INVESTMENT TRUSTS TO PLAY EUROPE MID AND LARGE CAPS: HENDERSON EUROTRUST (HNE)

MID AND LARGE CAPS: SCHRODER EUROPEAN (GB00B76V8C37)

R R TR T has achieved compound annual growth over the last ears Toda in a lower growth, lower in ation world, it is misleading to thin ou can compound over another ears It is more realistic to drive for , sa s fund manager Tim tevenson If we can nd a compan that grows sales b a ear if it is cash generative then there is a good chance it can add a ear through ac uisitions and ode o are doing this That gives ou annual sales growth. ou can li this to through small operational improvements, adds tevenson It isn t radical to suggest ou can get ield from these companies If ou ma e an unrealistic assumption that mar ets are valued the same in months as the are now, then ou d ma e total return The investment trust s holdings include industrial conglomerate iemens as the fund manager thin s erman will spend more mone on infrastructure and iemens will be one of the bene ciaries lsewhere, it has a position in egrand which is an e cient lighting s stems business with ver good growth, according to tevenson It has also a long-held sta e in eutsche Post which the fund manager describes as one of the world s foremost logistics companies e adds erman parcel growth is phenomenal and eutsche Post-owned has a mar et share in sia

T R ,T , R goods, industrials and nancials are e focal points for the chroder fund which is predominantl weighted towards large cap stoc s ain holdings include pharma-to-agricultural e pert Ba er, automotive giant Porsche and private ban ing group ulius Baer inancial data and research group orningstar sa s it li es fund manager artin anberg s measured approach to investing e believe that under his management, investors see ing core continental uropean e uit e posure are in safe hands with chroder uropean The fund manager is st le-agnostic, assessing each investment opportunit in terms of an in ection-point thesis with a focus on a compan s growth, margins, and returns , implied mar et valuation, and share price behaviour, sa s orningstar Performance has generall been stead on a calendar- ear basis, which is in line with our e pectations of a manager who is st le-agnostic but willing to ta e ris s, it adds

TOTAL RETURNS (PRICE)

TRAILING RETURNS

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orningstar, as at

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MID AND LARGE CAPS: FIDELITY EUROPEAN VALUES (FEV) T I I T T TR T markets itself as the cornerstone long-term investment of choice for investors see ing uropean e posure across mar et c cles It has a fairl concentrated por olio of between to stoc s with no bias to a particular sector or compan si e however its current por olio is dominated b mid and large caps oldings include food group estle, drugs compan Roche and oil and gas producer Total The investment st le is to see growth at a reasonable price

TOTAL RETURNS (PRICE) R R

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orningstar, as at

TRAILING RETURNS R R

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SMALL CAPS: JPMORGAN EUROPEAN SMALLER COMPANIES TRUST (JESC)

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SMALL CAPS: OLD MUTUAL EUROPE (EX UK) SMALLER COMPANIES FUND (IE00BRTNQ884) T I to achieve long term capital growth through investing in uropean e small cap stoc s Its por olio includes sta es in bric ma er ienerberger, semiconductor foundries group - ab ilicon oundries and education provider cademedia e recentl bought Barco, the Belgian world leader in cinema pro ectors, sa s fund manager Ian rmiston There is massive growth coming from hina in pro ector demand nd in urope, it s about ma ing the customers life easier Barco can replace old fashioned light bulbs with laser lights which are brighter and save customers mone n the global growth theme, the fund has a sta e in argotec It owns iab which is the

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global mar et leader in on-road load handling argotec also owns almar which is a pla on ports automation where the industr is see ing to replace e pensive wor ers with robotic s stems argotec is a self-help stor with restructuring and a business on verge of ta ing o in the eld of automation, sa s rmiston

| SHARES | 01 February 2018

T I I T T TR T focuses on smaller uropean companies It aims to invest in both undervalued companies and growth companies in a bid to achieve strong returns ealthcare, tech and nancial sectors feature heavil in its por olio The top holding is mplifon, an Italian hearing services group The investment trust s other holdings include etherlands-based chemicals provider I , rench IT consultant opra teria and Italian nancial services group inecoBan

TOTAL RETURNS (PRICE) R R

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orningstar, as at

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OTHER FUNDS: ARTEMIS EUROPEAN OPPORTUNITIES FUND (GB00B6WFCR53) I T pic resilient ualit franchises which have been in our view unfairl de-rated b a sometimes m opic mar et, sa s co-fund manager aurent illet Investors seem to be obsessed b short-term earnings growth and are prompted to sell stoc s without momentum illet sa s two stoc s currentl t this description in the rtemis fund it has either bought or added to them both in The rst is Intrum, a uropean leader in collecting non-performing loans both for its own purchased debt as well as for third parties with sales almost double its nearest competitor Investors have been worried about the costs of integration for a recent large ac uisition illet is convinced the compan will continue to grow its earnings per share b nearl a ear in the foreseeable future.

The second is life sciences group Ba er Its price is still below its pea in the summer of ,

when it announced its ta eover of onsanto e purchased our holding a er the share price fell nal decision on the merger is e pected in the rst uarter and should provide investors with visibilit , sa s illet If the merger is re ected, we see no reason for the decline from the summer pea If the merger is accepted, then the compan will be able to end the uncertaint around the nancing of the deal oreover, the combination ma es strategic sense Ba er would bene t from the historicall low cost of debt and the s nergies should be substantial If the merger goes through, Bayer should be a more balanced and focused compan than in the past

TRAILING RETURNS R R

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OTHER FUNDS: FP CRUX EUROPEAN SPECIAL SITUATIONS (GB00BTJRQ064) ru s fund is run b veteran uropean manager Richard Pease who has been successfull investing in the region for over ears e focuses on companies that have e ceptional management and a mar et leading position combined with a strong nancial position These companies should be in a position to generate e cess cash which can be reinvested to accelerate growth or returned to shareholders through dividends urrent holdings include real estate group roundtown, information services business olters luwer and testing e pert Bureau eritas I

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R The author owns shares in enderson uroTrust

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A LITTLE MORE CONVERSATION Ivan Posted 1h ago +

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Just came across the investment forum on Shares – anyone have any more detail?

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Dan Posted 1h ago

Ivan, welcome to the Shares forum! It’s where investors unite and talk about all things investing related from ISAs, SIPPs and personal finance to individual stocks and funds.

Ivan Posted 36min ago +

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Thanks Dan, really interested to hear what other likeminded investors are talking about

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Becca Posted 25min ago

Well it’s not just about investing, there is a general area so you can get to know your fellow forum users better. I look after customer support so if you have any questions about Shares do ask away.

Come and join your fellow investors on the new Shares Forum, where you can share ideas, ask questions and see what others are up to with their investments.

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PENSION POWER: WILL YOUR EMPLOYER PAY INTO YOUR SIPP?

We look at the role of self-invested personal pension schemes in collecting pension contributions as part of your remuneration

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ontributing to a pension should be high on ever one s priorities These da s ou will probabl be auto-enrolled in the wor place scheme but this option might not suit ever bod If ou would li e more control, one option is to have a self-invested personal pension IPP , a do-it ourself pension plan In a IPP, ou can invest directl in e uities, funds, T s and a range of other choices not alwa s on o er in wor place schemes an people assume ou can t use this t pe of retirement savings account if ou want to bene t from emplo er pensions contributions In fact ou can use them for this purpose dmittedl not that man companies will ma e emplo er pension contributions into a IPP at present owever, we believe more companies will eventuall support it It s de nitel worth as ing our emplo er if the will ma e contributions to our IPP as it ma be simpl be something the ve not thought about before

CAN YOU HAVE A SIPP AND A WORKPLACE PENSION? IPPs are designed for individuals with e perience of investing and there is nothing to stop ou holding a wor place pension and a IPP at the same time IPP can be a useful wa of saving a bit e tra and giving ou more choice over the sometimes restricted range of o erings from our emplo er hile some emplo ers will contribute to a IPP, the are under no obligation here an emplo er does contribute, the ma re uire that ou also contribute with matching contributions from our salar inh Tran, senior consultant at illis Towers atson, e plains the bac ground T picall where companies contribute to a IPP, it is a group IPP and via pa roll It is fairl uncommon but not unheard of for companies to contribute to emplo ees individual and di erent IPPs due to the burdensome pa roll and administration re uirements dditionall , Tran emphasises wor place 01 February 2018 | SHARES |

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“

IT’S DEFINITELY WORTH ASKING YOUR EMPLOYER IF THEY WILL MAKE CONTRIBUTIONS TO YOUR SIPP – AS IT MAY BE SIMPLY BE SOMETHING THEY’VE NOT THOUGHT ABOUT BEFORE

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pension vehicle is alwa s needed to compl with the automatic enrolment regulations If ou opt-out of our wor place pension in favour of our IPP, it is di cult for emplo ers to monitor our own contributions to chec that ou are still an active member of a pension scheme lthough in theor , companies can provide a cash allowance for emplo ees to fund their individual IPPs WHY WOULD SOME EMPLOYERS BE avid airs, pensions partner at P , sa s given each emplo ee has a di erent IPP the emplo er has the administrative burden of potentiall pa ing a large number of di erent providers If something goes wrong, ou don t have the contact and leverage that ou would have if all the emplo ees are in the same scheme, he adds But if ou wor in a senior role, it is still worth as ing an emplo er for a bespo e deal because sometimes the can be surprisingl e ible and regular contributions ma not even be necessar to receive a contribution from an emplo er HOW TO GET A HEAD START WITH A SIPP ne possibilit to gain ma imum e ibilit is to transfer part of a wor place pension fund to a IPP and then top it up with e tra contributions, so ou don t lose out on an emplo er contributions IPPs are also portable If ou change obs, or stop wor ing, ou can continue contributing to the scheme, and, if ou oin a new emplo er, the ma also decide to contribute to it If ou do change obs, ou should let the pension 32

| SHARES | 01 February 2018

provider now to ensure that our contributions continue especiall if our old emplo er was pa ing contributions on our behalf HOW MUCH MONEY CAN YOU PUT INTO A SIPP? ontributions to IPPs and their ta treatment are identical to other t pes of pension such as a wor place pension and ou can hold as man pensions as ou want to, sub ect to overall limits Pa ments are limited to , , before ta relief or of earned income, whichever is the higher, up to a ma imum of , in an one ear In theor , emplo ers can even contribute more than the emplo ee s salar up to the annual allowance of , or more, if using carr forward If the emplo ee s income is over , pension contributions are restricted, tapering down to , for those on incomes of over , ince the introduction of the pension freedoms in , IPPs are increasingl being used to access the new e ibilities and some companies are o ering IPPs as part of their at-retirement solution iona Tait, technical director at Intelligent Pensions, sa s an retirees, particularl those loo ing to use e i-access drawdown, are attracted b the e ibilit and investment choices available through a IPP s a nal point, it is worth considering that IPPs aren t alwa s suitable for ever one an people don t actuall use the e ibilit of IPPs, so ma e sure ou are not pa ing for e ibilit ou don t need, comments airs at P

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INVESTMENT TRUSTS

Is there more to come from top performer Phoenix Spree?

German residential property specialist has ‘considerable embedded growth’ in its portfolio

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he adviser to German residential propert investor Phoenix Spree Deutschland (PSDL) notes average propert prices in the capital cit of urope s largest econom are lower than those in arsaw P Partners director i e ilton uses this astonishing fact to illustrate the potential opportunit still in front of the fund in Berlin despite an e ceptional ast ear saw its por olio increase in value b nearl and its shares advance nearl This made it one of the top performing investment trusts of the ear WHY BERLIN? Partl due to its colourful histor , that less than ears ago saw two halves of the cit separated b a feet high wall, Berlin has not developed li e most other capital cities in the developed

A selection of the uildings owned

hoeni Spree

world but in ilton s view that is beginning to change ounded in , Phoeni pree is a long-term investor in mid-mar et erman residential properties It listed on the ondon toc change in The compan focuses on apartment buildings where it can create value b modernising and renovating individual ats ost of the buildings it owns

are more than ears old and the o en re uire signi cant investment to bring them up to modern standards single apartment generall costs between , and , to renovate, while an entire building renovation might cost up to m B renovating properties, Phoeni can push through rent increases in a tightl regulated

Phoenix Spree - business model Acquire

Properties with potential in Berlin

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| SHARES | 01 February 2018

Renovate

Targeted and value-added investment

Optimise

Increase lettable area and rental income

Reinvest

Revalue, facilitating further investment

INVESTMENT TRUSTS mar et The erman rental mar et is ver di erent from the and tenants have several protections not en o ed b their counterparts here victions are rare ome people even hold on to tenancies for life nce a tenant is in place the are protected from rental increases and more recent legislation has also limited the scope to increase rent for new tenants too, although arguabl less successfull in ilton s view The controls on this mar et mean ou can have two identical apartments in the same building and et a four-fold di erence in the rent that is paid, according to ilton O THE PORTFOLIO s a result, ilton argues assets must be micro-managed in a wa that a por olio of private rental properties in anchester, for e ample, wouldn t have to be r, in other words, he and his team wor hard to earn their lo ongoing charge of nearl istoricall there s been ver little construction activit in the Berlin residential mar et and with growing demand for apartments there is now a gap between suppl and demand, ilton sa s emand is around twice the level of suppl e adds that, amid an in ow of oung professionals wor ing in several burgeoning new industries, this has been re ected in rising rents and falling vacanc rates ccording to ilton these d namics are e pected to persist for several ears to come The rent controls also mean

ow interest rates also mean borrowing costs are ver low, reducing from more than when the business was started a decade ago to less than toda Recentl the trust s holdings were trimmed as positions in other erman cities were e ited ilton sa s the fund doesn t have the scale to adopt a pan- erman approach ensibl the team didn t advertise the fact its assets in cities li e Bremen and annover were non-core so as not to undermine their negotiating position and the trust poc eted m from a sale of properties announced in ecember These funds can be reinvested in the Berlin mar et which now represents more than of the por olio b value there is in ilton s words considerable embedded growth in the por olio T picall , there is a to gap between the rents e isting tenants are pa ing and the rents achieved on a new lease Tenants leave on average ever seven or eight ears and when the do the unit can be re-let at the mar et level O ver time this creates a virtuous circle for Phoeni pree Properties within the por olio are revalued on an annual basis Increased rental income is re ected in higher propert values which allows the cash spent on renovations to be balanced out b increased ban lending and reinvested into the por olio

O ilton concedes there ma be further changes to the regulator bac drop which could impact returns and sa s this is the biggest challenge for landlords owever, he argues the authorities must wal a middle ground in order to provide incentives to invest in propert and thereb ensure a consistent suppl of decent ualit accommodation Phoeni pree also operates a lucrative side-line in so-called condominium pro ects where apartment bloc s are sub-divided and sold as single apartments n one considering an investment in Phoeni pree should note that its shares at p are trading on a ver high premium of to net asset value T 01 February 2018 | SHARES |

35

FUNDS

Unicorn UK Growth Fund is a magical money-maker We reveal the process behind a multi-cap fund which has delivered more than 16% annualised return over the past five years

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hile the growth outlook for Britain is somewhat uncertain, many small companies with good positions in structurall -growing mar ets should still be able to deliver increases in sales, pro t and cruciall , the cash ows that drive share price performance over time One fund plugged into this part of the market is Unicorn UK Growth Fund (GB0031269250), a multi-cap collective aiming to achieve long-term capital growth through investment in a por olio of e uities, but with a bias towards smaller companies listed on I anaged b nicorn sset Management’s Fraser Mackersie since ebruar , nicorn UK Growth has a concentrated por olio allocating capital across all sectors of the mar et ver the last ve ears, the

BBA Aviation accounts for 2.3% of Unicorn UK Growth’s top holding

fund has returned versus the generated b the I ll ompanies sector, according to data from FE Trustnet, and has been ran ed consistentl in the sector s rst uartile of performers O e eep things prett simple on the growth fund,’ says Mackersie,

UNICORN UK GROWTH TOTAL RETURNS ear 3 years annualised years annualised ears annualised Source: Morningstar, as at 26 Jan 2018

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| SHARES | 01 February 2018

who see s out pro table, cash generative and t picall dividend paying companies for the near- m por olio There s no blue s , prerevenue or ver speculative stocks held within Unicorn UK rowth, he stresses cross the board at nicorn, we do meet lots of companies e re loo ing for a strong endmarket and a company with a strong position in that endmar et Mackersie says the team behind the fund are generalists, although the ve been drawn to so ware and computer services over the last seven years as one of the sectors which o ered good value The fund does not invest in oil, gas, mining, pharma or biotech stoc s f the names currentl nestling in the por olio, were

FUNDS ac uired when the the stoc mar et

oated on

Technology is a clear theme in the por olio, with so ware and computer services speaking for of assets at last count, although Mackersie stresses that he doesn t li e to be too narrow ‘The growth in online retail and the growth in the broader digital economy in the UK are themes we can play through a variet of other sectors To illustrate, he cites por olio holdings ippe isti s (CLG), the high-growth logistics solutions-to-e-ful lment company whose customers include O , as well as retail assets-owning R IT e i pe In ovember , ac ersie also initiated a position in packaging group DS Smith , which is bene ting from e-commerce demand O O ne por olio holding in good shape is -based and -listed me e p ises O Its shares recently strengthened in value a er it said revenue would beat mar et e pectations and that it would bene t from a lower corporate ta rate in the ‘Somero provides machines that lay concrete to a high speci cation level of atness, enthuses Mackersie, arguing omero is a bene ciar of construction growth in the and globall e ll ta e pro t in things that have done particularl well,

Frontier Developments is due to launch Jurassic World Evolution this summer

says Mackersie, who gives the e ample of selling a bit of the fund’s holding last year in tie e e pme s Despite reducing the fund’s sta e, he continues to believe the long-term outloo for rontier is strong Bac ed b hinese internet giant Tencent, the video games developer has had success with its Elite Dangerous and Planet Coaster games and its third franchise, Jurassic World Evolution, is on trac for launch this summer

the por olio, good companies in strong end markets with an IP or channel to market hard to replicate , means the are o en highl pri ed b bidders Por olio holdings that have been ta en over in relativel recent memory include ARM bought b apan s o Ban , ail eutsche Post and IP-rich Technologies, bought b Teled ne last ear, while more recentl , ervelec has been ta en over b uropean private e uit rm ontagu

LOSING STOCKS TO O While Unicorn UK Growth’s intended investment horizon is three to ve ears and hopefull longer), the fund is currently below that range, in part due to heightened activit Mackersie explains that if he got something right, the holding period will be longer e ve also had a lot of activit in the months since the Bre it vote which has contributed to our current average holding period falling below our e pected long term range The ualities of the rms in

UNICORN UK GROWTH T P I irst erivatives GB Group Accesso Technology rontier evelopments lipper ogistics Somero Enterprises ames ropper Smart Metering Systems BB

viation

SSP Source: Unicorn Asset Management, as of 31 Dec 2017

01 February 2018 | SHARES |

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UNDER THE BONNET

We explain what this company does

Why have shares in FTSE 100 pharma group Shire been falling since 2016?

We explain why the market is concerned about the rare disease specialist’s outlook

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T biopharmaceutical company Shire (SHP) has been ghting negative investor sentiment for more than a ear amid concerns over debt pressures and competitive threats The decision to potentiall spin o part of its business hasn t helped to reverse the negative share price trend, down to since ctober o what s going on The loss of investor con dence can be traced bac to summer when hire completed the bn ac uisition of Ba alta lthough that deal helped to boost revenue, it also increased the compan s debt b a considerable level er the deal was completed, net debt stood at an e e-watering times earnings before interest, ta , depreciation and amortisation B the end of , hire aims to lower the ratio of debt to earnings to a more comfortable times In addition to the high debt levels, investors have also been worried about the threat to hire s haemophilia business Roche s haemophilia in ection Hemlibra is threatening to steal mar et share from hire s Factor VIII treatment iberum anal st Roger ran lin warns the biopharma compan

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• SHIRE’S CORE FOCUS IS TREATING RARE DISEASES • THESE AFFECT LESS THAN FIVE IN 10,000 OF THE GENERAL POPULATION • THE COMPANY LAST MONTH DECIDED TO SPLIT ITS BUSINESS INTO TWO: 1. RARE DISEASES 2. NEUROSCIENCE is at ris of su ering further erosion as positive interim results suggest Hemlibra is stronger than Factor VIII WHAT DOES SHIRE DO? hire s core focus is treating rare diseases These a ect less than ve in , of the general population, according to the uropean nion The compan last month decided to split its business into two, comprising rare diseases and neuroscience The bul of the group s revenue in the ear to eptember comes from the rare disease division The neuroscience business warrants additional focus and investment according to hire It will ma e a decision later this ear whether to list the neuroscience arm on the

stoc mar et Investment ban Piper a ra claims ge ng rid of the highmargin neuroscience division would not be a game-changer It would also ma e the remaining business less attractive due to haemophilia pressures downgrade in mid-term sales guidance from bn in to between bn and bn was also announced last month hile this was disappointing, bearish anal sts had alread forecast lower sales, dubbing the original guidance a stretch goal WHY IS SHIRE INVESTING IN NEUROSCIENCE? hire wants to focus investment in the neuroscience division and specialise in neurops chiatr to help alleviate mental disorders that can be lin ed bac to brain

UNDER THE BONNET

WHY IS IMMUNOLOGY IMPORTANT TO SHIRE? ne of the most e citing franchises is immunolog , which is e pected to grow than s to increased demand for primar immunode cienc treatments HYQVIA and CUVITRU Primar immunode cienc is a chronic disorder that occurs in people whose immune s stems

“

BY 2020, SHIRE AIMS TO DELIVER $4BN IN NEUROSCIENCE SALES WITH NEARLY THREE QUARTERS OF GROWTH COMPRISING NEUROPSYCHIATRY

do not wor properl or have parts of it missing This means people a ected with this t pe of de cienc get more infections and it can ta e longer for them to get better, according to PI In the rst three uarters of , the immunolog franchise grew on a pro-forma basis Investment ban e eries sa s the neuroscience division has strong cash ow and is en o ing international sales growth of between and Through Ba alta, hire can ta e advantage of its leading position in a potential bn plasma products mar et It could also help immunolog become the rm s fastest growing franchise ince eptember , hire s global immunolog sales have roc eted to bn, driven higher b geographic e pansion, demand for subcutaneous deliver and a growing diagnosis rate ubcutaneous deliver is an in ection delivered under the s in, which is highl e ective for medications 6000

SHIRE FTSE ALL SHARE Source: Thomson Reuters Datastream

malfunctions It hopes to achieve this through bolt-on ac uisitions, while growth in rare diseases will be organic The neuroscience division is one of the leaders in attention de cit h peractivit disorder where su erers struggle with h peractivit and impulsiveness pli ng hire into two parts could accelerate development of e pipeline programmes in neuroscience, including P , b focusing resources on this treatment P aims to tac le multiple neurological conditions with high unmet need B , hire aims to deliver bn in neuroscience sales with nearl three uarters of growth comprising neurops chiatr or the rare diseases division, hire is aiming to drive sales to bn b hire s rare disease arm has multiple franchises poised for growth in verall, the compan has seven franchises with treatments to help tac le immunolog , ophthalmics, haematolog , oncolog , genetic diseases, neuroscience and internal medicine ith the e ception of oncolog and ophthalmics, the remaining franchises generate in e cess of bn in annual sales

5500 5000 4500 4000 3500 3000

2017

2018

�

hire has a valuable pipeline in immunolog , particularl P , a treatment for hereditar angioedema, which can be life-threatening if the associated swelling obstructs breathing potential launch is pencilled in this ear WHAT DO ANALYSTS THINK? The anal st communit is generall positive with bu ratings, si hold ratings and one sell rating according to Reuters data Investment ban iberum sa s the compan is worth between and per share depending on various scenarios for the haemophilia arm It thin s the consensus mar et forecast for earnings per share P is too high, particularl for longer term forecasts out to The consensus e pects P in , in and in , according to Reuters we don t have access to earnings forecasts be ond that period In comparison, iberum forecasts P in , in and in Investment ban Berenberg is more enthusiastic, arguing that hire is signi cantl undervalued compared to large cap peers with strong cash generation and debt reduction on trac BROKER SAYS: 16 6

1

01 February 2018 | SHARES |

39

LARGER COMPANIES

Beazley is a cyber security insurance leader Demand for insurance against online fraud is rising fast

L

loyd’s of London insurer Beazley (BEZ) is expanding its range of products to keep up with the changing nature of 21st Century security threats.

Market leading cyber security product Beazley Breach Response (BBR) can carry out an assessment of vulnerabilities and recommendations for improvements across networks, servers and databases. BBR also includes consultation services to tr and help implement incident response plans as well as other critical procedures.

As this fast-growing part of the business increases its contribution to earnings and becomes better understood b the mar et it ma help li Beazley’s shares.

BEAZLEY BOLSTERS ITS POSITION t an investor da last month, lo d s identi ed several areas it thinks provide ‘strong growth across the market’ including the impact of the sharing econom , c ber and political ris Investment ban e eries notes that Bea le already has these lines of business as a key focus which it argues is a demonstration of wh the group business mi is highl attractive The most important growth element for Beazley is c ber according to e eries It is currentl producing of gross written premiums and expected to hit a compound annual growth rate (CAGR) of 26% between 2018 and 2019.

That CAGR should see this niche account for 15% of premiums and 25% of earnings by 2019. owever, e eries anal st Philip ett suggests that rival companies who notice these gures will want a slice of the action and b ge ng involved in c ber could drive down margins. ett sa s while this ma be a threat, he notes that prices rose 20% in 2015 and have remained stable since as industry supply has kept pace with demand In our view, at prices are of no concern, as margins are attractive and volume growth

40

| SHARES | 01 February 2018

should drive earnings’. t p and based on e eries forecasts, the shares trade on a price to earnings ratio of 15.2 and yield 4%.

GOOD TIME TO TEST Beazley says: ‘As the US tax season reaches its peak, cybercriminals will be ramping up their e orts to steal - ta information ta form to report wages , le false returns and poc et ta refunds.’

This is the perfect time to test its new s stems, as last ear - phishing incidents rose -fold in January. Breaches usually result in hackers using the data to defraud individuals in a few hours.

Beazley has set up a rapid response service for its US clients to deal with any breaches. The compan can assign legal help, notif emplo ees and provide access to credit monitoring all within a single day. (DS)

SMALLER COMPANIES

Sterling bounce is a boon for Shoe Zone Budget footwear seller still has considerable appeal despite recent setbacks

S

terling’s recent rebound helps to alleviate a margin headwind for Shoe Zone (SHOE:AIM).

Its value proposition is a source of strength in tougher economic times The stronger pound should ameliorate pressures on the consumer wallet while boosting the rm s overseas purchasing power The company’s full year results to 30 September revealed a drop in pre-ta pro t to £9.5m with the prevailing weaker pound increasing the cost of Far East imports. Gross margins were 120 basis points higher at 63.2% thanks to improved sourcing and stock management.

Rent reductions are enhancing the pro tabilit of the e isting estate hoe one is ma ing positive steps online, sales are building through its own website and international mar ets urope, are opening up through the use of Amazon’s online sales channel.

Furthermore, the roll-out of its Big Box concept, which sells a broader product range and widens the

Pelatro forecast to produce significant profit growth SELF-DESCRIBED precision marketing software developer Pelatro (PTRO:AIM) is set to continue its steep growth curve, if analysts have got their sums right.

Stockbroker FinnCap anticipates that Pelatro will chalk-up a more than three-fold jump in its main earnings points for 2017.

Its 2017 financial year forecasts are: $3.1m revenue (2016: $1.2m), $1.7m pre-tax profit (2016: $0.4m) and 7.5c earnings per share (EPS).

customer base, o ers an additional growth avenue For the year to 30 September 2018, Numis forecasts an improvement in pre-ta pro t to m (2017: £9.5m) on £161.8m worth of sales (2017: £157.8m) and a year-end net cash pile of £12.6m.

It estimates hoe one will increase the dividend to 10.5p (2017: 10.2p) and achieve earnings per share of 16.6p (2017: 15.8p) SHARES SAYS:  Buy the shares at 165.7p. (JC) BROKER SAYS: 2

The rapid growth may not end there, predicts FinnCap. It believes Pelatro will more than double 2017’s expected numbers over the next two years. If successful, that could have significant ramifications for the share price.

Its 2019 forecasts stand at $7.5m revenue, $4m pre-tax profit and 13.7c EPS. Pelatro’s success to date has been built in the telecoms industry, where its analytics engine scrutinises customer behaviour from different points in the network to help create custom promotions and marketing campaigns.

In time the company is expected

0

0

to adapt its mViva platform for other markets, such as financial services and retailing.

The shares have risen by 23% in value to 77p since the company joined the stock market on 14 December 2017. (SF)

01 February 2018 | SHARES |

41

NOW IS THE TIME TO FOCUS ON YOUR INVESTMENT PORTFOLIO Looking for new companies to invest in? Come and join Shares and AJ Bell Media at their evening event in London on Tuesday 13 February 2018 and meet directors from PrimaryBid, Rockhopper Exploration and Valirx with others to be announced.

Sponsored by

London – Tuesday 13 Feb 2018 Companies presenting PrimaryBid Dave Mutton, Chief Operating Officer

PrimaryBid the leading online equity funding platform, available on both web and mobile, that enables investors to gain access to placings, fundraisings and IPOs of AIM-listed companies.

The platform is open to all investors and is supported by the broking community as a way of accessing, on behalf of their AIM clients seeking capital, the large and active private investor market, as well as institutions. To date almost £37m has been sourced for issuers, via the platform.

Rockhopper Exploration (RKH) Stewart MacDonald, CFO

Rockhopper is an AIM-listed oil and gas company based in the UK with interests in the Falkland Islands and the Greater Mediterranean region. Rockhopper’s strategy is to build a well-funded, full-cycle, exploration led E&P company.

The Company is the leading acreage holder in the North Falkland Basin with independently audited 2C oil resources, net to Rockhopper, in excess of 250 mmbbl.

Valirx (VAL) Dr. Satu Vainikka, CEO

Valirx Plc is an oncology-focussed Biopharmaceutical Company, developing treatments and diagnostics.

Technologies are selected by using rigorous clinical and commercial processes to address unmet market needs.

Clinical lead product is VAL201, a peptide for prostate cancer with follow-on indications in ovarian and breast cancers and endometriosis. Product VAL401, is a small molecule reformulation for lung cancers.

Follow this link www.sharesmagazine.co.uk/events for full details.

REGISTER FOR YOUR COMPLIMENTARY TICKET TODAY During the event and afterwards over drinks, investors will have the chance to:

Discover new investment opportunities

Event details Location: Novotel Tower Bridge, London EC3N 2NR Registrations 18:00 Presentations to start at 18:30 Complimentary drinks and buffet available after the presentations

Get to know the companies better

Contact Talk with the company directors

Chris Williams, Spotlight Manager chris.williams@sharesmagazine.co.uk 0207 378 4402

Register free now

www.sharesmagazine.co.uk/events

MONEY MATTERS

Pension cash withdrawals are falling, says the taxman New figures from HMRC show how individuals have behaved with pension withdrawals since April 2015

A

s the pension freedoms approach their third birthday we are starting to get a clearer picture of how savers are using their retirement pots More than ÂŁ16bn has been e ibl withdrawn from pensions since the freedoms launched in pril These pa ments are added to an other income ou have to determine how much ta ou pa during the ear owever, it is average withdrawals that are more useful in ge ng a picture of how people are using the e ibilities nd while man feared a mass draining of retirement funds from savers eager to access their cash toda , the realit appears to be di erent hile there was predictabl something of a dash-to-cash when the freedoms were rst introduced, since then average withdrawals have steadil declined The gure for , was more than , less than during the same threemonth period a ear earlier , , ,

If ou are thin ing about accessing our IPP e ibl there are a number of e things ou should consider rst 1. HOW MUCH TAX WILL YOU PAY? hile mone paid into pensions and an investment growth our fund en o s is ta -free, withdrawals are ta ed at our marginal rate once ou ve ta en our ta -free lump sum ou need to be careful to watch our ta bands when ta ing mone out of our retirement pot because a large withdrawal could see ou inadvertentl pa more ta than ou need to 2. DO YOU WANT TO KEEP SAVING INTO A PENSION? If ou want to eep topping up our pension a er ou have ta en ta able income from our fund, ou need to consider the impact of the one Purchase nnual llowance P This restricts the amount ou can pa in ta free each ear to ust , , compared to the usual annual

allowance of

,

3. WHAT WILL YOU HAVE TO LIVE ON IN RETIREMENT? lthough there is an obvious temptation to ta e cash from our pension toda , ou need to consider how this will impact on our long-term retirement plans The new state pension is worth about per wee , although the age at which ou ll receive it is due to be pushed bac to b If ou have other income sources for e ample ou are still wor ing or have a de ned bene t pension big enough to fund our da -to-da spending then ou ma feel rela ed about ta ing cash from our IPP owever, if our IPP is our onl source of income in retirement ou need to ma e sure the mone lasts as long as ou That means managing our withdrawals carefull and reviewing our retirement strateg at least once a ear Tom elb , senior anal st,

Bell

AVERAGE WITHDRAWAL PER PERSON

, , ,

,

,

,

,

,

,

,

,

,

Source: H MR C

01 February 2018 | SHARES |

43

MONEY MATTERS

Helping you with personal finance issues

How to protect yourself from financial scams Top tips on how to ensure you are not a victim

I

ncreasingl sophisticated technolog and the introduction of pension freedoms are leading to a rise in the number of nancial scams raudsters target people of all bac grounds, ages and income levels, which means an one reading this article could be a potential victim e spo e to the e perts to nd out what ou should loo out for and how ou can protect ourself BEWARE PENSION SCAMS The overnment estimates that m has been unlawfull obtained b scammers since pril , with those targeted having lost an average of , There was a pronounced increase in scams a er the pension freedoms were introduced almost three

ears ago ne of the most common scams is where fraudsters tr to coerce people to withdraw their mone from their pension pot and invest it elsewhere particular target is people with de ned bene t B pension schemes en these investments will promise astronomical, guaranteed returns that fail to materialise, or in the worst case scenario the investment simpl won t e ist at all, warns Tom elb , senior anal st at Bell ne techni ue is nown as pension grooming , when fraudsters groom individuals on how to respond to pension providers when concerns about suspicious transfers are raised ustomers are reassured b the fraudster and told to disregard ever thing pension providers sa The are told that providers don t want to protect their savings, but want to eep hold of their mone , e plains ate mith, head of pensions at egon ther scams o er people the opportunit to access some or all of their retirement pot before age , usuall through a loan The o ers o en fail to mention the ta charge associated with accessing our pension earl or the huge fees the companies charge TOO GOOD TO BE TRUE ome scammers tr to entice

44

| SHARES | 01 February 2018

people to put their mone into e otic investments that are simpl too good to be true The investment opportunit could be a hotel development in ape erde, a vine ard, ewels or a plot of land ometimes the fraudsters are prett convincing at impersonating a genuine investment compan The ma even show ou gloss brochures, certi cates and professional loo ing websites The bro er will usuall contact ou out of the blue with what loo s li e an incredible opportunit , and tr to pressure ou into ma ing a uic decision BANKING SCAMS riminals might contact ou pretending to be our ban The do so in order to obtain passwords and PI s and, in some

MONEY MATTERS cases, dupe ou into transferring our mone to them enuine ban s never phone ou to as for our PI or online ban ing password, nor do the as ou to update our personal details b following a lin in a te t message TAX SCAMS cammers o en tr to catch people out b sending fa e ta rebate messages The emails and te t messages loo li e the re from Revenue and ustoms and as ou to clic on a lin The lin could contain malicious so ware or direct ou to a bogus website R sa s it never sends noti cations of a ta rebate or refund b email, nor does it as people to disclose personal or pa ment information b email or te t BITCOIN SCAMS ew bitcoin scams are popping up ever da , primaril because the cr ptocurrenc mar et isn t regulated b governments cammers tr to tric people into visiting malicious websites, entering their private details or clic ing lin s that contain harmful so ware ome e changes and

initial coin o erings the wa companies raise capital have been discovered to be completel fa e HOW TO PROTECT YOURSELF There are a few simple things ou can do to avoid ge ng duped • Be suspicious of cold-calls or unsolicited te ts or emails • If ou get cold-called b someone claiming to o er an incredible investment opportunit hang up the phone immediatel on t respond to te t messages or emails from someone ou don t now •

on t deal with unregulated advisers

•

hec the inancial onduct uthorit website to ensure the compan is legitimate and regulated

• Be war of overseas investments •

a e sure ou re con dent ou re being sold a genuine investment and that ou full understand the ris s

•

atch out for schemes o ering guaranteed returns

•

othing, and I mean nothing, is guaranteed when it comes to investments, sa s Bell s Tom elb The closest thing ou ll get are government bonds and nal salary pensions – ironically the ver things scammers o en encourage people to

leave o if a compan ou ve never heard of sa s it can deliver guaranteed returns of an amount, don t touch them with a barge pole •

on t rush to ma e a decision

•

a e sure a push salesman doesn t coerce ou into doing something ou might later regret Read an documents carefull before ou sign on the dotted line

• Report possible scams •

ontact ction raud b calling or online at actionfraud police u

WHO ARE THE VICTIMS? n one can be a victim of fraud, but one of the groups most li el to lose mone is men aged to ction raud sa s this group ta es ris s when investing, acts on impulse and has the abilit to invest large amounts of mone This increases the li elihood of them becoming a victim and, when the do, the feel a sense of shame that results in them not reporting the fraud P

01 February 2018 | SHARES |

45

INDEX

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The value of investments can go down as well as up and you may get back less than you originally invested. We don’t offer advice about the suitability of our products or any investments held within them, if you require financial advice you should consult a suitably qualified financial adviser. Tax treatment depends on your individual circumstances and rules may change.

AJ Bell includes AJ Bell Holdings Limited and its wholly owned subsidiaries. AJ Bell Management Limited and AJ Bell Securities Limited are authorised and regulated by the Financial Conduct Authority.

All companies are registered in England and Wales at 4 Exchange Quay, Salford Quays, Manchester M5 3EE

KEY

Clipper Logistics (CLG)

37

• • • •

Dechra Pharmaceutical (DPH)

6

Main Market AIM Fund Investment Trust

Aberdeen UK Equity Income (GB00B0XWN812)

8

Artemis European Opportunities Fund (GB00B6WFCR53)

29

ASOS (ASC:AIM)

Liontrust European Income Fund (GB00BD2WZ105) Lloyds (LLOY)

25

7

28

FP Crux European Special Situations (GB00BTJRQ064)

29

Shire (SHP)

38

Shoe Zone (SHOE:AIM)

41

Frontier Developments (FDEV:AIM)

37

Somero Enterprises (SOM:AIM)

37

Sopheon (SPE:AIM)

15

Fundsmith Equity (GB00B41YBW71)

3

Gateley (GTLY:AIM)

12

GlaxoSmithKline (GSK)

20

LondonMetric Property (LMP)

37

37

NMC Health (NMC)

16

AstraZeneca (AZN)

20

28

Avesoro Resources (ASO:AIM)

16

B&M European Value Retail (BME)

14

Old Mutual Europe (Ex UK) Smaller Companies Fund (IE00BRTNQ884) Pelatro (PTRO:AIM)

41

Greencore (GNC)

15

Henderson EuroTrust (HNE)

27

HSBC Income (GB0000154913)

Beazley (BEZ)

40

Boku (BOKU:AIM)

10

Carillion (CLLN)

10

46

| SHARES | 01 February 2018

8

Fidelity European Values (FEV)

16

10

27

Scottish Widows UK Equity Income (GB0031643561)

MPAC (MPAC:AIM)

Bango (BGO:AIM)

Schroder European (GB00B76V8C37)

37

8

20

7

DS Smith (SMDS)

Man GLG Income (GB00B0117F58)

Babcock (BAB)

Renishaw (RSW)

8

JPMorgan European Smaller Companies Trust (JESC)

28

K3 Capital (K3C:AIM)

12

Kier (KIE)

10

LF Miton UK Multi Cap Income (GB00B4M24M14)

8

Phoenix Spree Deutschland (PSDL)

34

Premier Global Alpha Growth Fund (GB00B6740K61)

23

Threadneedle UK Equity Income (GB0001448900)

8

Unicorn UK Growth Fund (GB0031269250)

36

Vertu Motors (VTU:AIM)

10