August 2017 UK Investor Magazine by UK Investor Magazine

UK INVESTOR MONEY // SHARES // INTERVIEWS

ISSUE 25 // AUGUST 2017

Six reasons the stock market may crash in 2017 Q&A with Richard Chairman, PCGE Plc Poulden + CEO Wishbone Gold Plc PLUS

• 7 Share tips • The end of the housing bubble? • The one gold stock you UK Investor Magazine — 1 — August 2017 all must own

Intro

From The Editor INSIDE 3 The one gold stock you all must own Chris Bailey 4 Three resource shares to buy for August Gary Newman 7 Q&A with PCGE chairman and Wishbone Gold CEO, Richard Poulden Tom Winnifrith 9 Six reasons the stock market may crash in 2017 Tom Winnifrith 11 What does the National Trust have to do with LGBT rights? Tom Winnifrith 12 All about Begbies Traynor Steve Moore 13 UK Investor Show special offer ends 30 September 14 Why is controversial to point out the First World War was pointless? Tom Winnifrith 16 Three shares to sell in August Tom Winnifrith 18 The House View: The Housing Bubble

CONTACT US UK Investor Magazine 91 - 95 Clerkenwell Road London, EC1R 5BX E: info@ukinvestorshow.com W: www.UKInvestorShow.com EDITORIAL Tom Winnifrith

Welcome to the August edition of the UK Investor Show Magazine which is, as ever, horribly late in arriving. Blame AIM Listed ( for now) Telit Communications, the latest story of mega fraud to break on, what laughably describes itself as, the world’s most successful growth market. We say the story broke. As you might imagine it was the team at ShareProphets that made the running, leaving the British deadwood press, as per normal, way off the pace. If you have not followed events at Telit they are, even by the standards of AIM, bizarre. Indeed so strange have been the goings on that this tale of fraud and deception has made it into the wider non financial media such as Radio 4’s Today programme. We started covering Telit two years ago pointing out then that there were numerous red flags in its accounts. But top City analysts knew best and urged folks to buy. At one point the company was valued at £500 million or more. But the past month has seen disastrous results, a Nomad resignation, breach of bank covenant and then the shock exposes that the CEO and his Mrs were wanted on fraud charges dating back to 1991 in the USA. He was a fugitive from justice when he IPO’d Telit, she had skipped bail and is very much wanted for that. By spelling his name Oozi Cats not Uzi Katz he somehow avoided detection until our expose HERE The story is not over yet and the ending will not be a happy one for shareholders, the whole board and a raft of City advisers left looking very foolish indeed, not to say greedy as well. But this has rather distracted us when we should have been bringing you this magazine. Anyhow, better late than never, I hope that, as ever, there is something for everyone: buys, sells and investment (and non investment) ideas. There is news of a new free share tip service we launch on page 6, and Telit features again on pages 16 and 17 as I look at three still big stocks heading to zero or close. And our main feature offers six reasons why a stockmarket crash is very likely indeed. I hope that you enjoy this issue of UK Investor Show Magazine, the September issue will be with you shortly!

Editor

Tom Winnifrith Editor www.ShareProphets.com

UK Investor Magazine — 2 — August 2017

Randgold - undoubtedly the best large cap gold company in the world Says its most loyal shareholder, Chris Bailey

know, I know...I do have a bit of a perma loveup with Randgold Resources (RRS), London’s largest listed gold company but as it is a year since I wrote my last paean on the stock in my portfolio that I love the most, I felt an update was overdue following numbers. The other day. Let’s get the easy stuff out of the way first. Randgold reported a 53% increase in profit compared to H1 2016 helped by gold production increasing by 16% over the same period. Why this leverage? Well it is all about keeping costs under control with total cash cost per ounce of $572 for the quarter and $595 for the half-year down respectively 8% and 13% compared to a year ago. That’s useful darts with the gold price pushing above $1260 an ounce. Meanwhile the balance sheet remains rock solid with net cash, a free cash flow yield of 2.7% and a very pleasant rise in the interim dividend. To put some of the above into context, global mine production fell by one tonne or 0.2% yearon-year in the first quarter of 2017 and with the second quarter data still accumulating the aggregate first half results are unlikely to be much better. Meanwhile global average total cash costs rose by 8% in Q1 2017 to $814/oz. Global gold companies are not only growing more slowly, they are extracting gold less efficiently. The (er...) golden element in the process is

undoubtedly the high grade - or the amount of gold in a tonne of soil - at Randgold’s mines. Too many larger cap gold companies get caught in that horrible vicious circle of developing projects of a significant size that become bloated and less economic if the gold price falls back. Do a quick search of all the write-downs by industry behemoths in the last five or so years if you want to know why most large cap gold stocks are a waste of space. Randgold’s criteria of looking for a double digit return at $1000/ounce gold (i.e. nicely lower than the prevailing gold price) has helped keep it out of trouble. New significantly sized mines are still being developed by the company on this criteria. That bodes very well for the future. The company has been helped versus some others in being active in countries like Mali, Cote d’Ivorie and the DRC where economic deposits of gold have been less picked over. However you still need to operate successfully. Less unique today is a continuing focus on building relationships with governments (as stakeholders and tax recipients) and local populations (as not just a workforce but fledgling managers). Randgold pioneered many of these initiatives and the proof of its good sense is reflected in the copy tactics I see in pretty much everyone of its peers.

Chris Bailey is editor of FinancialOrbit.com

UK Investor Magazine — 3 — August 2017

Three resource shares to buy for August By Gary Newman

uring the past 18 months copper has been one of the best performing commodities, and is up by more than 40% on the lows of around $2/lb which we saw in early 2016. Despite having already seen a move of this size there could be far more to come in the next few years, and even more if we look further into the future, and electric vehicles are going to play a big part in that. Many seem fixated with lithium, which actually only makes up a very small part of the batteries used in these vehicles – not to mention that these cells will only grow in popularity if the cost of them can be cut – but copper is actually far more significant and some are predicting a nine-fold increase in copper demand within this industry over the next decade. Your average car engine uses around 23kg of copper, but a standard hybrid uses nearly double that at around 40kg, rising to as much as 83kg for a purely battery-operated electric model. Even here in the UK it was recently announced that petrol and diesel cars will be banned by 2040 – personally I’m not convinced that will happen by then, but we will certainly see a lot more demand for hybrid and electric vehicles, which in turn will substantially push up demand for copper.

guidance in the 34,000 to 40,000 tonne range. This comes from its Proyecto Riotinto operation, which has all-in-sustaining-costs of $1.9-$2.1 per pound, so as long as copper stays at these levels or higher it will continue to be very profitable – in Q1 2017, with higher AISC and lower production and copper prices, it managed to make revenue of €25.6 million from two full months of production and that netted a profit €5.2 million for the period. Alongside this there is further upside via Proyecto Touro, which although still at prefeasibility stage looks encouraging and could make a big difference to the company in the future. One negative here is the recent court case relating to the Astor agreement, under which the company must repay the outstanding €53 million before distributing any profits to shareholders, but it is still allowed to use capital to progress other projects as well as servicing its existing ones. Currently the market cap stands at just over £150 million with a share price of 132p, and barring any unexpected disasters I think these levels will look very cheap in future years if you treat this as a longer term investment.

As we have seen recently, it hasn’t taken a lot to push copper higher and a lot of that has been down to supply disruptions in Chile, so I think it fair to assume that any significant rise in demand could see further large upside in prices, especially with a lack of new mines coming into production.

For those of you looking for something a bit more speculative and early-stage in copper – as well as having projects in other areas – Asiamet Resources (ARS) definitely jumps out as being worth a look.

With that in mind the first company that I’m taking a look at this month is Atalaya Mining (ATYM), which is not only already in production but also has the benefit of having another project which is c lose to that stage as well.

Although with this Indonesian based explorer, with operations in Sumatra and Kalimantan, I suspect that if it proves to be as good as the initial studies and results appear to be, then it won’t be around that many years down the line anyway – certainly not in its current form as it will either have been taken over, have sold assets, or a large partner will be onboard.

This Spanish based outfit recently released an operations update which showed that during the quarter up to the end of June it produced over 9,000 tonnes of copper, with a record recovery rate of 85%, and is on target to achieve full year

It is still relatively early days, although plenty of drilling has been carried out and Beruang Kanan has measured and indicated resources of 322,600 tonnes of copper, and will soon be the subject of a feasibility study and preliminary

UK Investor Magazine — 4 — August 2017

economic assessment.

a decent set of quarterly results.

Alongside that is the Beutong project which also has large copper resources measured and indicated at 563,000 tonnes, as well as 373,000 ounces of gold, 5.7 million ounces of silver and 20 million pounds of molybdenum.

This company is a relative rarity amongst the AIM miners in that it actually makes a profit, and the Q4 results up to the end of June 2017 showed that its Sylvania Dumps operation had produced nearly 18,000 ounces, with a record total of just over 70,000 ounces for the year.

The risk here is both political, given that it is in Indonesia, as well as there always being a chance that the economics of the project won’t stack up (which I see as unlikely given the resource size and type of mining involved). The projects will also need funding – assuming no bigger player steps in before they reach production stage, but if either one gets into production at even remotely close to the sort of resource figures that have been mentioned, then there is huge potential from a market cap of just over £30 million currently, with a share price of 4.35p top buy. Another metal that has shown signs of a recovery lately has been platinum – although in recent months it has performed very poorly – and that bodes well for producers. Amongst them is a small AIM outfit called Sylvania Platinum (SLP) which I have covered here previously when the share price was in the 6-7p range, and which has just released

That resulted in quarterly revenue of $13.2 million, and despite a $3.2 million income tax payment it still generated cash of around $2 million, giving it a total of $15.3 million in the bank. In the past there had always been slight concerns as to how long this operation would be sustainable, but with the implementation of Project Echo it should see production in the 55,000 to 60,000 ounces per annum range for a good few years to come. Another concern has been the reliance on this one income stream, but that has also been allayed with the acquisition of Phoenix Platinum for $6.6 million in cash, with its proven and probable reserves of 200,000 ounces, which will be extracted over the next eight to nine years. The share price here is now around 9.5p, with a market cap of circa £27 million, which to me still looks cheap, especially if platinum, and other PGMs, are able to rise further from here.

Hot Stock

ROCKETS Stocks Ready to take off hotstockrockets.com UK Investor Magazine — 5 — August 2017

ollowing complaints from shamed share ramper Roger Lawson, ADVFN has insisted on a raft of new editorial

controls on the OneFreeShareTip.com service which I know many of you use. I did not re-start my life five years ago to be told what I could or could not write. I said no and ADVFN boss Clem Chambers has said that the website will be shut down. So...our hand is forced ... Welcome to fivefreesharetips.com - we hope you join NOW HERE. The share tips on the new site will be more detailed than on the old one. It will be free. The “price” you pay is that a maximum of once a week we will send out a third party mailing. But we will have full control on who that mailing is from and we won;t be associated with any rubbish. We will have full control on who can advertise and full control of the editorial content. The tipsters who will be penning the articles include Gary Newman, Chris Bailey, Malcolm Stacey, Lucian Miers, Cynical Bear, Nigel Somerville, the team from HotStockRockets, Steve Moore and, of course, myself. We will start sending out share tips on or around September 1. We hope very much that you will support this and will sign up NOW HERE UK Investor Magazine — 6 — August 2017

Q&A with Richard Poulden Chairman, PCGE Plc and Chairman & CEO Wishbone Gold Plc

By Tom Winnifrith TOM WINNIFRITH: Well Richard, that’s quite a week: the PCGE results are finally out, a further funding for PCGE and then to top it all new loans and equity for Wishbone, where I should declare that I am a loyal shareholder. Can we take those in reverse order? Firstly the Wishbone funding: I thought you already had a loan facility, what gives?

TW: But what really is this “equity swap” deal? It seems immensely complicated: what’s the benefit?

RICHARD POULDEN: Tom, we do but that loan facility is limited solely to supporting trading. It also has a percentage sharing attached for each trade which actually makes some trades, which we would otherwise do, uneconomic. With the expanding strategy in Honduras we need the ability to use loan capital to fund the installation of equipment at more mine sites. That is what the RiverFort facility enables us to do. TW: So does the Sanderson facility get repaid? RP: Not immediately but it will be wound down steadily during the rest of this year. TW: Since RiverFort have come into both PCGE and Wishbone it looks as though you are developing a relationship here: what’s the plan? RP: Tom as you rightly observe I do hope this will be an expanding relationship with RiverFort. An important aspect is their ability to mix debt and equity which substantially reduces the dilution for equity investors. Also, as we say in the announcement, RiverFort are prepared to fund at the project level not just at the holding company level. In Wishbone’s case this means that we can fund Honduras separately from say any expansion of our business in Africa. In PCGE’s case if we were to have separate divisions operating in related areas these might be funded separately. The benefit of this is that you are not betting the holding company on a single project.

RP: Simply put, it is an equity placing but the company is also effectively betting that the average of the share price over the next 12 - 18 months will improve based on the company’s capability to deliver positive results. If that occurs then the company receives more than the headline amount of the placing over a 12 or 18 month period. In that case, RiverFort will also achieve an enhanced return as part over the overall increased benefit for the company. Of course if the shares go down or collapse the company may end up getting substantially less than the headline amount but if you have projects moving ahead well and believe there will be good news flow during the period then it makes a lot of sense for both sides. So I hope people can read into that we are expecting good news flow from both companies. TW: So we must be due a trading update on Wishbone, what’s it going to say? RP: Well, Tom, of course that can only be known when it comes out! We are on track in Honduras so we will be issuing an update when the new equipment is installed and operating. We are of course also looking at projects in other countries. TW: Right, let’s turn to your uber-dog former Chinese business: delays on the accounts, qualifications when they do come out and your former CEO going to the unemployment tribunal. This doesn’t seem such a pretty picture. RP: Tom, once Nick Bryant had been dismissed in March and Michael Mainelli and I took over the audit procedure it became obvious that there would be problems covering off the disposed subsidiary CPDC. What we did was to move the year end from 31st December to 31st March thus

UK Investor Magazine — 7 — August 2017

bringing the CPDC disposal into the last financial year. This meant that we could give a clear picture of the group as it was after the disposal and as it will be going forward. All of this took us past the old deadline for the accounts of 30th June and one thing I will say is that despite having slaughtered AIM in the past for the relentless bureaucracy, in the last few months they have been supportive and communicative with PCGE, and I’d like to thank them for that. TW: But there were still a whole bunch of qualifications to the accounts weren’t there? RP: Well actually only two and both related only to CPDC. The first audit opinion, from RSM on the holding company, was unqualified which is key because that is the business going forward. The major qualification related to the inability to access the records of CPDC which is there because the records had been destroyed when the Taichung office, which CPDC subleased from Kung Min and Henry Lin, was closed. TW: So is this why Bryant was dismissed? Or is there more? RP: Tom, I can’t comment on anything to do with the Employment Tribunal, much as I would like to. TW: Ok, so what about the future: what now for PCGE? Are you continuing down the same path? There’s a lot of speculation on social media, particularly about football JVs and the like. Care to elaborate? RP: Firstly I have never said we were doing a football JV and I have tried to give as much of a steer as I

can in the various presentations and releases we have issued. In the Chairman’s statement I say “we have reviewed a number of possible avenues for the future of PCGE across different continents and industries”. I hope that makes it clear that we are not limiting our search for the future to one market or sector. You have to remember that the people involved here worked with me to change a bust copper explorer into a potash business and what was, frankly, a “me too” AIM gold explorer into a gold trader now operating on three continents. We have been offered two Chinese gaming businesses but have passed on both. We have some very strong prospects we are looking at which are all in different sectors although some might be seen as associated. As always we will announce as soon as we can. So in conclusion what about the world economy? You usually have heretical views on these things. Political crises are everywhere and given that, overall, the markets look very toppy. Jim Rickards is touting $10,000 gold again on the basis of Trump restoring the gold standard. Since that remains the Chinese plan it makes interesting reading. Lastly, whilst we may not have that dreadful woman in charge in America the continuing attempts to reverse the election of Trump makes for high uncertainty which markets always dislike. TW: Thanks Richard: “may you live in interesting times” RP: Thanks Tom: the old Chinese curse! At least for PCGE I think that curse is lifted.

UK Investor Magazine — 8 — August 2017

Six Reasons why the stockmarket might crash in 2017 By Tom Winnifrith

t is almost October, the time of year when we look back to 1987 or - if you are really ancient - to 1929. Might we be on course for another stockmarket crash in 2017? There is just one thing that makes me wonder if it is likely and that is that so many City experts say, at least in private, that they are worried about extreme valuations and the likelihood of a crash. Notwithstanding that here are six reasons why 2017 might be like 1987 all over again. But worse.

.Valuations are quite simply extreme. Bulls such as my esteemed colleague Malcolm Stacey (who remembers 1929 as if it was yesterday) will say that the UK market has been on higher ratings, higher PE multiples, in the past and that this has not preceded a crash. What the bulls miss is that those higher

ratings were at the start of an economic cycle when earnings ( the E) had just been crushed and so the high PE discounted a dramatic rebound in E. We are now eight years into economic recovery and so earnings growth going forward will be pedestrian at best. That makes today’s sky high PE’s unsustainable and unjustifiable.

.Dramatic shifts in technology and cultural behaviour are raising real doubts about the entire business models of many large stockmarket entities. How will banks with high fixed overheads cope with competition from new virtual competitors? How will the oil majors cope as we move to electric cars? How will big retailers survive as so much of their business goes online? The established players can go online too but they still

UK Investor Magazine — 9 — August 2017

have the high overheads of the traditional business model. If folks abandon shopping at malls - as they clearly are - how will many restaurant groups fare as passing trade disappears? Sure, all the established businesses might survive but surely there will be big earnings shocks (on the downside) along the way?

3 4

Brexit. I am a lifelong and ardent supporter of Brexit and, for me, the Independence day vote of June 23 2016, was an issue of democracy not economics. I happen to believe that the UK will be better off out of the Evil Empire in the long run but short term, I concede that there could be shocks of a negative nature to our economy.

over the past decade are impressive but are simply not sustainable. Something has to give and it is just a matter of when. We will all feel the shockwaves from that.

. And finally when American sneezes the rest of the world catches a cold. That saying comes, I think, from the 1920s but in terms of the stockmarket it is still very true today. The ratings of the Dow, S&P and Nasdaq make our own stockmarket look like a classic Buffett style value investment. Okay the outlook for earnings growth is a bit better in the US than it is in the Old world but it is hardly stellar and certainly nowhere near exciting enough to justify current market ratings and valuations.

Debt. At every level, national, corporate and personal the world is drowning in debt. In the UK it is personal debt and lack of savings that is most terrifying and that could easily de-rail a host of B2C facing stocks. It makes me question the earnings visibility of such sectors. But the UK’s Government debt is also the highest in the EU although in terms of debt to GDP some countries are even more profligate than we are. In the US interest rates are already rising. I am more and more inclined to think that the weakness of the housing market may mean that UK rates will not rise for a while. But perhaps the weakness of sterling will force a rise, who knows? However, even the smallest of rises or the hint of one could prove an almighty shock for a nation drowning in so much debt. And eventually we will come to realise that the answer to debt is not “more debt.”

As importantly there are all the signs of mass irrationality, that one expects to see in the last blowoff days of a bull market, in evidence. Individual investors, mug punters, are always the ones left holding the baby after every market top, they were the last in, the ones who overpaid most and the data shows that the rush of individual investors into the market so far in 2017 has become a stampede especially among the so called millenials. Meanwhile if one looks at the valuations of the stockmarket darlings, the FANG stocks, and of the crazy tales of largesse and foolishness among Silicon valley venture capitalists this is all so 2001. Despite being a strong Trump supporter, I would have to concede that this most unusual of Presidents adds an additional wild card into the game. The big risk has to be a major sell off on Wall Street. If that happens British stocks will be whacked in sympathy.

China. I have been writing about the Chinese economic bubble for several years. It has not burst yet although there have been a few wobbles along the way. But the Chinese economy, though vying with that of America to be the world’s biggest, is still built on very shaky foundations of debt, massive capital mis-allocation and corruption. The rates of growth it has displayed

This is not a prediction that a UK stockmarket crash or correction is imminent. But a fall of 20-30% is not impossible and I have outlined a number of triggers that could start the fun and games. I am not saying sell everything. But the argument for increasing ones cash weighting - as we ourselves are doing - to allow for bargain hunting after a great fall and to reduce the pain off such a fall, seems to me to be pretty compelling.

UK Investor Magazine — 10 — August 2017

My Grandfather Sir John Winnifrith spinning in his grave again as the National Trust joins the LGBT fest Writes Tom Winnifrith

arlier this week it was his fellow socialist Polly Toynbee arguing for subsidies for farmers and higher food prices for the workers that would have had my late grandfather spinning in his grave. Well Sir John will have had reason to spin again as the National Trust has joined the 50 year LGBT-fest led by the BBC, in the most ridiculous of ways. This is not to say that Sir John was a homophobe but he was Director General of the Trust. In his day the Trust was there to restore and maintain old buildings for the nation. I remarked a few years ago on a visit to Kent and Sussex that while the Trust was spending cash putting up signs at Bodiam Castle to propagandise about the perils of global warming it had allowed Hall House Farm in Appledore, a lovely old house which the NT let my grandparents use in retirement, to fall into disrepair. My grandfather had a wonderful sense of history. He had been part of history working in Churchill’s war rooms during WW2. As a boy I’d travel around Romney Marsh - the history of which is told in a book by Sir John Winnifrith with him and he’d tell tales of how if the Germans had invaded he had been ordered to assemble on the playing fields of Eton. He’d point out a remnant of PLUTO (the pipeline sending fuel to France after 1944), an old concrete guard box from the War, a “pill Box”, we’d discuss the Royal Military Canal built to fend off earlier invaders. In his garden and on the other side of the road there were still concrete Dragon’s Teeth - defences against enemy tanks. We discussed the Mithraic finds on the Marsh. Grandpa thought the National Trust was there purely to save our heritage. And that is what it should be there for. Wind forward to 2017 and to Felbrigg Hall, in Norfolk, which was gifted to the Trust by Robert Wyndham Ketton-Cremer. Mr Ketton Cramer was gay but never disclosed this in his lifetime. He chose to stay in the closet. But last week the NT outed him with a new film about his sexuality and this week it demanded that all staff who met the public at the Hall wear rainbow LGBT National Trust badges. No badge and you are off the team.

per se. There might just be circumstances where one can make a case. For instance of the gay in question was in public a high profile homophobe working to discriminate against LGBT folk. I can understand that such hypocrisy deserves exposing. But if your ordinary LGBT person wants to stay in the closet his or her wish must be respected even after death. The Trust does not care about that basic right because its determination is to drive home political points. But it does so when it faces limited resources and so is failing to implement its basic remit in full. In doing so it threatens its very existence in that many of its supporters are older folk who will not share its belief in the need to preach about LGBT rights or the perils of global warming and so will withdraw financial support in life and in death, via legacy bequests. The National Trust is only starting its descent into a self inflicted financial crisis but it should perhaps look at the RCPCA whose obsession with persecuting fox hunters has alienated so many of its core supporters. The RSPCA is now in terminal decline. I fear that Grandpa will be doing a lot more grave spinning as the National Trust heads down the same path. PS. I am not sure where my grandfather stood on LGBT rights. In Brideshead revisited there is a scene where the most obviously queer chap at Christ Church was thrown into a pond in the main quad. Evelyn Waugh (who like another great writer of the 20th century was rejected by The House and ended up at Herford) based that on a real incident involving a flamboyant fellow and the Christ Church rowing team out celebrating. As an old man sitting in the Ferry pub my grandfather discussed that for he was on the team. He was deeply ashamed both of being such a hearty for he was a solid and sober man for most of his life but also, I think, for his intolerance. I doubt Grandpa would ave been cheering on Pride as a supportive straight but he was certainly a tolerant man and, of course, he was married to a Lesbia. Footnote: In the face of a huge backlash the Trust rowed back on this madness. But its card has now been marked by many as a body that has lost its way.

Outing folks even if they are dead is wrong This article first appeared on www.TomWinnifrith.com

UK Investor Magazine — 11 — August 2017

company profile Begbies Traynor A counter-cyclical buy as macro reality starts to bite?

By Steve Moore

t the end of July, Begbies Traynor (BEG) announced new research showing “329,834 UK companies were experiencing ‘Significant’ financial distress at the end of Q2 2017, a 25% increase from Q2 2016, representing the largest annual increase since Q2 2014 and the largest number of corporates experiencing significant distress in at least 5 years”. However, economic reality starting to bite is good news here… This is with the company “the UK’s leading independent business recovery practice”. July also saw results for its year ended 30th April 2017. These noted that despite, “activity levels improved in the second half... activity in business recovery for the year as a whole was impacted by the insolvency market being at the lowest level since 2004”. However, there was some mitigation from financial advisory and property services diversification. The net result was an adjusted pre-tax profit of £4.9 million on revenue of £49.7 million, generating earnings per share of 3.3p, compared to a prior year 3.2p. Even after particularly £2.9 million of acquisition spending and £2.3 million of dividends paid, net debt was still slightly reduced to £10.3 million. Looking ahead in terms of business recovery, the company emphasised “well positioned to take advantage of the cyclicality” – and it now seems to be looking more likely that it will soon have the opportunity to demonstrate this. There are forecasts for earnings per share to rise above 3.5p for the current year – though these remain low-cycle earnings, and at some point much more can be expected. And whilst waiting, attractive dividends continue – 1.6p per share recommended to be paid on 8th November, with an ex-dividend date of 12th October, seeing the per share annual total maintained at 2.2p and it

stated “the board remains committed to a longterm progressive dividend policy, and intends to increase dividends when we are confident of both the market outlook and continuing our recent earnings growth” . The shares have recently reflected the prospects noted somewhat – rising to a current circa 60p. However, I’d suggest the scale of the potential earnings increase from here still not discounted – and there’s that dividend income while you wait.

Management An insolvency practitioner since qualifying as a chartered accountant with Arthur Andersen in 1984, Executive Chairman Ric Traynor established Traynor & Co. in 1989 which, following the acquisition of Begbies London in 1997, became Begbies Traynor. A chartered accountant who qualified with KPMG and joined the group as Financial Controller in 2007, Finance Director Nick Taylor was appointed into this role in 2010.

UK Investor Magazine — 12 — August 2017

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And there are also new breakout session including a panel lead by Adam Reynolds on making money from biotech and small pharma. More on that later. The Big question is why book your ticket for April 21 2018 now? There are TWO Compelling reasons:

We start with Nick Leslau, the secret millionaire and legendary property investor. Will the housing market have imploded by then? Is commercial property a busted flush? Nick is the man with all the answers. Then there is the founder of Pizza Express, Giraffe and acerbic Sunday Time columnist Luke Johnson who will also be doing a special breakout room session. And then there is Ed Croft the genius behind Stockopedia - the man who shows how using stock screens and data can make you a better investor. For a limited time only we are selling tickets for the show with a 25% discount. That means if you book now it is only £9 for an investor class seat and £67.50 for a golden ticket (which gets you access to the after show drinks, guaranteed front row seats and a ticket to the Saracens cabaret featuring Luke Johnson in conversation with Nigel Wray, Private Eye’s Chris Booker and Dominic Frisby the comedian). You can get your discount seat by using the promotional code UKI25 when booking at www.ukinvestorshow. com In terms of the companies attending... we are still seven months away but..... In 2017 there were 123 stands. In 2018 we have made room for 135 stands and already many companies from 2017 have committed to coming back including Nostra Terra, Skinbiotherapeutics, ChapelDown ( with free samples) Ariana

1. We are selling tickets priced at a 25% discount for just a few weeks. Then the price goes up. That means £9 for an investor class seat and £67.50 for a golden ticket (which gets you access to the after show drinks, guaranteed front row seats and a ticket to the Saracens cabaret featuring Luke Johnson in conversation with Nigel Wray, Private Eye’s Chris Booker and Dominic Frisby the comedian). Prices go up in a few weeks but IF YOU BOOK TODAY you can get a discounted seat by using the promotional code UKI25 when booking at www.ukinvestorshow.com 2. There is the book. Next April we will publish a book “ The 21 top investment ideas of the UK Investor gurus.” Every main stage and big name speaker from Nigel Wray via Dave Lenigas and Adam Reynolds down to Darren Atwater will contribute 600 words on the most important lesson he or she has learned from investing. This is a VERY limited edition print run but while stocks last you will be able to buy the book at £12.99 from 21 April 2018. But if you buy a ticket to the show you will be given a free copy. Buy a golden ticket and it will be autographed by the key speakers. manage to scrounge a ticket for free and there is no book. UK Investor Show is now clearly the dominant one day event for those who want to make money from shares. And with our new big name speakers it just got better still. We hope the date is in your diary already so to get your copy of this limited edition one off book, get your discounted seat now. Just go to www.ukinvestorshow.com and use the promotional code UKI25 when booking your seats.

UK Investor Magazine — 13 — August 2017

World War One was utterly pointless â&#x20AC;&#x201D; why is this so controversial? Writes Tom Winnifrith

e are, this month, remembering one of the bloodiest battles of 1917, Passchendaele. Rightly we remember the brave men of both sides who gave their lives for their country. They deserve our respect and should be honoured. But once again many endeavour to rewrite history and pretend that World War One was not utterly pointless. Some folks say that our gallant Tommies died fighting for Democracy. But that is not true. Germany had a Parliament and a powerful King (Kaiser) as did Britain. Women could not vote in either country until 1918. The Nobility ruled the roost. This was not, as some suggest , a battle between a democracy and a dictatorship but between two countries both crawling towards democracy. A chap on twitter lambasted me for queerying his assertion that there was a link between the sacrifice our young men made and Britain not suffering communism and fascism. Really? Was there ever any threat of either before 1914? Were we fighting either communists or fascists during

the war? We were not. In fact it was the chaos of the war, the wholesale slaughter that created the breeding ground for communism to take a grip in Russia. Throw in the appalling treatment of Germany at Versailles and the First War can also be partly blamed for the rise of fascism in Germany. And so we are also told that the sacrifice was justified because it put a check on aggressive German expansionism. Of course that ignores the fact that World War One was not caused by those evil Hun wanting to take over Europe but by events further East. The death of Archduke Ferdinand saw the Austro Hungarian Empire go to war with Serbia. The latter was tied by treaty to its fellow believers in the one true faith, Orthodox Russia and thus it entered the war. Germany was tied by treaty to Austria, France to Russia and Britain to France. Slowly a chain of events unfolded and we had World War One. But that was not caused by German expansionism. Of course Germany had been building up its military for decades. So too had Britain. We

UK Investor Magazine â&#x20AC;&#x201D; 14 â&#x20AC;&#x201D; August 2017

enjoyed the Dreadnought races of the 1900s as both Countries vied to show that they were dominant on the High Seas. But there is no evidence that Germany laid claim to any territory outside of its 1914 borders. This is just another myth. During the war itself the Germans were portrayed, back in the UK, as barbarians. Look at the posters. They are apes or wolves, the snarl, they destroy, they rape, they murder. We had to justify what was a senseless unfolding slaughter by any means possible. And we have carried on pedalling canards ever since. Did the Germans commit industrial scale war crimes? No. Did we behave like Angels on every occasions? No. For instance there is ample evidence that on offensives we would take no prisoners, we sot Germans who surrendered. The Bosch did the same. But 100 years ago we were constantly told that we were fighting evil men, with God on our side, and parts of that myth have persisted. I was told yesterday as certain folks snarled,at me for my views, that the grandfathers of certain tweeters had fought in WW1 and that they had not regarded it as pointless. But that does not

mean that it was not pointless. Perhaps some of our soldiers really believed our propaganda about the wicked ways of the evil Bosch? I am sure that one hundred years ago many really did think that they had a duty to King and Country and following that was right in itself and thus had a point. Others must have justified the horrors that were all around them by insisting that it must have been for a good reason. How else could you get through such a nightmare? But 100 years on we can look at these things more objectively. Not for a second do I deny the sacrifice made by the young men on all sides in that ghastly war. My respect for them knows no bounds. I doubt I could have endured what they did. But the scale of the slaughter was on a scale it is hard to comprehend. So many young Frenchmen died that the population of France actually fell between 1918 and 1939 due to a lack of births. All that blood spilled achieved nothing positive. It stopped nothing negative. Indeed it created the conditions for worse things that were to follow. Surely now we can accept that World War One was utterly pointless.

This article first appeared on www.TomWinnifrith.com

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newsletters.advfn.com/tomwinnifrith UK Investor Magazine â&#x20AC;&#x201D; 15 â&#x20AC;&#x201D; August 2017

Three shares to sell in August By Tom Winnifrith

s ever I remain pretty bearish on the stockmarket as a whole. A crash may not happen but there are good reasons why it might as you can see on pages 9 and 10. But there are no reasons at all as to why stocks which - as a whole - are fully valued should rise. Except that we could have said the same a year ago, in fact I almost certainly did, and whilst I was logically correct, in terms of outcomes, I was plain wrong. All major indices are well up year on year. When you are in a bubble, that bubble can just keep on expanding so really hurting those who are betting against it. It is the way of all bubbles. With that in mind the three stocks to sell,in August all have valuations that cannot be justified but that does not mean that short term they will not go up. But I really do not expect them to do so. First up is Telit (TCM) which raised $50 million net at 340p on May 5 and where the now ex CEO dumped £24 million of shares at the same price less than three weeks later. Today the shares are 123p but that still values this company at £157 million. That is £157 million too high. That the founder and CEO until the other day was a man charged with real estate fraud in 1991 who fled the US to avoid going to trial ( and whose wife skipped bail to avoid facing the same charges) is bad but not the reason why this stock is worth zero. Nor is the fact that his replacement, the former FD, sold vast numbers of shares 2 days before the end of a disastrous half year and a bank covenant breach. When those awful numbers were published the shares tanked. Surely the FD had some idea of this bad news? The reason why this is a zero is partly that I have clearly established on ShareProphets that the company books some sales through claimed distributors who simply do not exist or distribute Telit stock (INSERT LINK) and that its subsidiary accounts do not march consolidate numbers - tens of millions of Euro are just unaccounted for. Good companies do not behave in this way. The main reason is however cash, or lack of it. Despite that $50 million May 2017 placing Telit ended June with c$10 million of net debt. Chuck

in the widening trade payables/receivables gap which must unwind in due course the real number is at least $20 million and it is growing at least, $6 million a month. Sooner or later another bank covenant will be breached and the banks are just not going to keep chucking cash at a business that cannot and will not ever generate cash. And that will be game over. This could happen with the next quarterly covenant tests on September 30 or maybe Telit will limp on. But the end game of 0p is not in doubt.

On Purplebricks (PURP) I defer to my colleague Lucian Miers, the Bard of the Boleyn, who is the house expert on a company which at 435p is capitalised at £1.18 million. That is pretty full for a loss maker. Lucian notes: In order to justify the stratospheric valuation, investors have to make some heroic assumptions about the company. Namely that its business model of undercutting traditional estate agents by charging a one off fee to prospective sellers will see explosive growth in the short term that will see the company become the largest agent in the UK by volume of houses sold. That this model can successfully be replicated in Australia and the USA must also be a given as must the veracity of the company’s statements. To take the latter first, there is cause for a fair amount of concern here. In the prelims for the year to April 2017 the company claims: UK revenue of £43.2 million Average UK instruction fee of £1,035 An 83% conversion rate of instructions to sales £5.8 billion value of UK sales. Sale agreed in UK every nine minutes 24/7 The last rather childish and obfuscatory sales statistic suggests that the company sold 58,240 houses in the period (60/9*24*7*52). Yet if you divide the revenue by the average instruction fee and apply the 83% conversion rate you arrive at a sales number of 34,643, a massive discrepancy. If the £5.8 billion sales value is correct then the

UK Investor Magazine — 16 — August 2017

average sale price was either £99,000 or £167,000 depending on which of the above numbers is correct. Neither rings true. The company also makes much of the quality of its customer service, constantly referring to the number of outstanding reviews on the Trustpilot site (20,000 reviews averaging 9.5/10 seems an implausible claim by any measure). Other review sites, albeit with smaller (and more realistic numbers), paint a radically different picture with many complaints both of Purplebricks and its conveyancy firm Premier Property Lawyers which most customers are forced to use by opting to defer the payment of the fee. The company claims that this deferral option which is financed by Close Brothers “comes with no additional cost to the customer”. This seems at odds with the fact that the customer is tied into using Premier Property Lawyers who rebate commissions to Purplebricks, thus costing a lot more than average. Taking the implied instruction numbers (Revenue/average fee) and conversion rate (83%) at face value, then around 7,000 instruct Purplebricks but fail to sell their home through it. We are told the majority of customers use the Close Brothers agreement which means that a minimum of 3,500 customers are on the hook for an average of £1,035. It only takes a few to refuse to pay or to complain to the Ombudsman and have their case upheld and the company has some real problems whether or not Close Brothers have recourse to it for the debt. Purplebricks is priced for perfection. The recent highly critical BBC Watchdog programme and hostile coverage in last week’s Sunday Times suggest that the spotlight is now on it and that perfection is by no means evident.

Finally we come to the quoted fund managed by Neil Woodford - the Woodford Patient Capital Trust (WPCT) at 99p. The personal finance press of the deadwood press is noted as the most corrupt, freebie chasing, part of the pond life that is Fleet Street. There is no attempt to hide this. Each year fund management companies and other financial services groups hand out rafts of awards to these creeps most of which come with a pleasant cheque to go with the ugly trophy. Suffice to say, you do not wing prizes for writing hostile copy. This seems to me utterly corrupt. Neil Woodford may not hand out any prizes but the hapless press pack has been all too kind

to the man they view as the UK’s most talented fund manager. This, of course, has nothing at all to do with the vast amounts of advertising that the Woodford Group runs in the personal finance pages of the national press to suck folks into his open ended funds. That means that even though Woodford funds have underperformed by a stonking 9% since launch three years ago, the “Woodford premium” means that the quoted vehicle still trades at a big premium to NAV. Woodford says he is all about long term investment and that is why the Patient Capital Trust has raised vast sums which earns Neil huge fees. But the actual returns on the fund have been very poor even though it has operated in a bull market for its entire existence. The poor performance but more importantly the fact that the fund is stuffed full of early stage investments means it is very high risk, yet it gets put in the safe box because its Neil Woodford - it is trading at NAV but should be at a discount But when you go to his Website – it’s a salesman’s website designed to bring in money and it says “The construction of the portfolio is the sole responsibility of the lead fund manager, Neil Woodford, with other members of the investment team assisting in decision-making and implementation. The aim of all of our fundamental research efforts is to arrive at an informed judgment about long-term fundamental value so that we can assess whether the investment opportunity is attractive enough to include in a portfolio. There is always an intense competition for capital within portfolios, so a new investment opportunity has to fight for attention and prove its credentials alongside existing positions. So basically this is a punting fund for Neil and although he claims he avoids risk – the portfolio takes a few massive gambles that Neil then talks up. So Woodford, as the group is known in a rather conceited way, now has £18 billion of AUM which is an awful lot for one man although the Patient Capital Trust is just shy of £1 billion. But half his portfolio is just 6 stocks so that is your bet. Healthcare group Prothena is listed as is Purplebricks (no 2 in the list). The other four are unlisted biotech punts. So it’s a risk bet on Health care and online estate agents - is that really Patient Capital ? Of course Woodford has already hit the headlines for investing on one mega biotech fraud but the issue is really the value he pays as an entry price in this sector. All in all, a very illiquid portfolio managed by a man on a three year big losing streak who has proven “fuck up ability” in a high risk sector where he is massively overweight should be trading at a big discount to NAV. It is at a premium. That makes it a safe sell.

UK Investor Magazine — 17 — August 2017

the house view You never know when you are in a bubble, but they always burst

hen you are operating or living inside an asset bubble it is almost impossible to realise what exactly is going on. Right now millions of Britons think that house prices are still going up and that they will carry on rising. Mention words such as “negative equity” and anyone under 45 will stare at you blankly for they have no idea what that means. Most people buying a house in recent years simply cannot consider the idea that the value of their shoe-box might go down. You can throw hard data at them from the Land Registry showing that prices are already falling and bubble dwellers will ignore it. After all, has not the Daily Mail published 27 articles so far this month on how prices are still rising and potential buyers should not tarry? The same is true of the stockmarket. Look at it dispassionately from the outside and you see that PEs are at levels never seen before at this stage of the cycle, that is to say when corporate earnings - late in the cycle - are set to grow only very slowly. When, at this point of the economic cycle PE ratios are this high that has always historically been an indicator that a major correction is on the way. Folks like those stock promoters one views on CNBC if you are caught at an airport, will always tell you that “it will be different this time” but it never is. It is hard to see that when you are inside the bubble. Your portfolio looks healthy. It is going up in value and internally you rationalise this at a macro level in that the economy right now seems okay, you are a stock picking genius and anyway that chap on CNBC said that the FTSE was heading for 9,000 and the Dow for 30,000. At a micro level you manage to persuade yourself that the recent RNS releases from every company you own shares in are fantastic and make the stocks you own look cheap. But of course everyone else is coming to the same conclusions and we can’t all be Warren Buffett, but it is hard to appreciate that when you are inside a bubble. All bubbles burst in the end. It is just that as with those bubbles you play with as kids they can get far larger than you thought before they do go pop. But in the end all bubbles do go pop and that is never a gentle process. We believe the stockmarket is worryingly overvalued. The only question about that changing is when.

UK Investor Magazine — 18 — August 2017

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UK Investor Magazine â&#x20AC;&#x201D; 19 â&#x20AC;&#x201D; August 2017