June 2016

UK INVESTOR MONEY // SHARES // INTERVIEWS

ISSUE 12 // JUNE 2016

Brexit or in Tom Winnifrith vs Darren Atwater

Sainsbury v Tesco Four share tips Three sells to 0p from Tom Winnifrith Q&A with Alexander Mining UK Investor December — 1 — June 2016

Intro INSIDE 3 Three resource shares to buy for June

Gary Newman 5 Brexit: Out or In Darren Atwater vs Tom Winnifrith 8 Alexander Mining Q&A Tom Winnifrith 9 Supermarket Sweep Sainsbury Chris Bailey Tesco Graham Neary 11 Company of the Month: Waterman Group

Steve Moore 12 Three shares to sell for March Tom Winnifrith 14 The House View

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

UK Investor steps up a gear with Lucy Wray We took a month off after the UK Investor Show as we were all pretty knackered after such an amazing event. More than 2500 folks turned up at the QE2 Centre in Westminster for what is now, definitively, Britain’s best regarded one day show about shares and the stock-market. I found myself giving more talks than ever but despite that, the feedback we got from attendees was that the standard of presentations was better than ever.

A general feeling is that while some events are just a platform for promoters to ramp shares, UK Investor is about educating, warning and genuinely assisting private investors. It is also irreverent, no-one is beyond ridicule and that makes it great fun both to take part in and to attend. Laughter can be heard throughout the day. And the big news today is that there is a new owner of the show.

ADVFN has agreed to sell out its interest to a firm owned by Lucy Wray, whose dad Nigel is someone you may have heard of.

And thus going forward UK Investor Show will be owned and organised jointly by Lucy’s firm—a professional events organiser of incredibly high standing—and by the family interests of myself, Tom Winnifrith. I have known Nigel for a good many years. He was one of the few business folks who attended my wedding just under three years ago and so having the two families working together seems a perfect way to go forward. Lucy and her firm really know what they are doing when it comes to events and it will relieve me of a lot of stress hitherto heaped on my shoulders and so it should be fun.

That is the thing about business—it should be fun. When it stops entertaining you it is time to call it a day. When you meet truly successful entrepreneurs, folks like Nigel or Vin Murria who build real businesses that is what strikes you. For them it is not about the money now, and in a sense that was never the driving force, it is about having fun. That is not to say that money does not matter. Any business that does not make money will in the end meet an inevitable fate...investor shows are no different to any other enterprise in that regard.

I hope the joint themes that making money is a serious matter but also that it should be fun, come across on April 1 2017 (no April Fool I am serious) which is when UK Investor Show takes place next year. We will open a website soon to take bookings for the event and you will see a raft of spectacular improvements but also all of what made 2016 such fun. The 2016 show was brilliant but in 2017 we move up not one but several gears. Watch this space!

Put the date in your diary now! Meanwhile I hope you enjoy this edition of the magazine.

Tom Winnifrith Editor UK Investor Magazine — 2 — June 2016

Three resource shares to buy for June Suggests Gary Newmam

T

he resource sector can be a minefield when it comes to smaller companies as so many fail to succeed, but here I take a look at three early stage AIM-listed companies that I think have the potential to do well in the future.

The three that I have chosen are all involved in different commodities and span gold, platinum and oil – all of which I expect to do well longer term even if there are blips in the coming months (oil looks particularly susceptible to that).

I have also chosen companies that are either producing or are about to commence production, as I believe that these will have the greatest chance of doing well, rather than those with assets in the ground and no funding to extract them currently.

One of my favourite small platinum plays currently is Sylvania Platinum (SLP), which operates in South Africa and is currently on track to produce 57-58,000 ounces during the current year.

It is one of the lower cost PGM producers

around, and is involved in the re-treatment of chrome tailings from other mines in the area, as well as having its low-cost, shallow mines.

Cash costs per ounce have been reduced to $399/ oz thanks to the weak Rand, and the company has been making a net profit, albeit quite a meagre one as a result of the recent low platinum prices, with just $281,000 for the six months to the end of December 2015.

Unlike many small AIM miners it does have a fair bit of cash in the bank currently, which stood at $7.2 million at the end of the last quarter. It is also generating enough free cash flow to have engaged in a share buyback scheme since last September, and so far has spent circa $550,000 on that.

UK Investor December — 3 — June 2016

Currently it is trading at a little over 7p to buy, and from this level I can see plenty of upside potential, although that will largely be linked to movements in the platinum price, barring any other company-specific major news.

Gold has already performed well so far this year, despite a bit of a pullback recently, but some of the smaller companies still look to offer value that is yet to be priced in.

rises despite the company having performed well already this year.

Oil companies in general have taken a battering of late, but I can still see plenty of future potential with North Sea producer Serica Energy (SQZ), which actually made a healthy profit in 2015!

The company did take a hit to its operations during March this year when there was a pipeline blockage at its Erskine field and production was temporarily suspended – prior to that it had been around 3,200boepd net to Serica – but things should return to normal once it is back up and running again.

Ariana Resources (AAU) falls into that category in my opinion, and also has the added bonus of its Red Rabbit Project and Kiziltepe mine, in Turkey, producing large amounts of silver as well as gold.

That is an added bonus given that silver prices are expected to rise in the future and it currently looks comparatively undervalued compared to gold when you look at historical ratios between the relative prices.

Whilst the company doesn’t actually produce anything as yet, that should change in the second half of this year with the first pour from Kiziltepe expected, following a joint venture with Proccea Construction (which will eventually own 50% of the project through an ongoing earn-in deal), plus the $33 million construction finance facility that is already in place and being drawn down upon to complete the work (this facility has a two year repayment holiday and a five year term).

The latest JORC update on resources at Kiziltepe gave an estimate of 195koz of gold and 3.15Moz of silver for the project on the four main veins – of which 108koz of gold and 1.48Moz of silver are measured resources - and a potential mine life of around ten years.

All in cash cost of production is around $600/ oz – which includes money previously spent on exploration, some general admin expenses plus the sustaining capital needed to keep the project going – meaning that even if gold were to pull back towards that $1,000 area again in the future, the company should still be able to make a healthy profit.

Ariana currently has a market cap of circa £11.5 million, and at the current buy price of around 1.5p I can still see plenty of potential for further

Production is scheduled to restart after a planned two month shutdown of the Lomond facility, so this will have an impact on revenue and potential profits for 2016, but the company is well placed to ride this out with no major financials commitments due.

Cost saving measures have also been effective at Erskine, with operating costs now below $20 per barrel, as compared to guidance of $20-24, and the life of the field expected to now extend well into the 2020s. Some amount of hedging also proved a big help to the company during Q1 of 2016 when oil really plummeted, but allowed the company to sell 1,000boepd at round $37.5 per barrel.

The annual results up to the end of December 2015 showed that the company generated a gross profit of $16 million during the seven months since it acquired Erskine partway through the year. That resulted in a pre-tax profit of $4.3 million, despite more than $8 million in impairment charges to its assets, and on top of that it received a tax credit for $2.4 million.

Cash at the end of 2015 stood at around $21.6 million, and net assets according to the balance sheet, and taking into account writedowns to reflect lower oil prices, stood at over $74 million, although as we know these valuations can be quite subjective.

Given the amount of cash in the bank and the fact that the company makes a profit and has been adding to those cash reserves, I view Serica as relatively cheap at its current market cap of £28.3 million, and a share price of around 11p to buy offers plenty of further upside should oil continue to show signs of a recovery, and once Erskine is confirmed as being back online again.

UK Investor Magazine — 4 — June 2016

Should we stay or should we go?

We must stay

writes Darren Atwater

A

few weeks back, the editor of this esteemed publication, one Tom Winnifrith, was telling me of his future plans for his Greek property—the guest house, the funicular, the stray cat rescue centre, etc—whilst simultaneously revelling in the idea that Britain will leave the hated European Union.

“But Tom”, I asked, “I thought that you loved living in Greece. If we leave, what right will you have to continue living there?”

“Of course I can still live here. It’s been tradition to live in different countries for centuries. That won’t change.”

Tom’s dream sums up the delusions of the cut-and-runners, that all the benefits of the EU will remain whilst the annoyances of properly curved bananas will be banished forever.

This will not be the case. One of the main continued on next page

We must go

writes Tom Winnifrith

I

n the 1975 Referendum my grandfather, Sir John Winnifrith, campaigned as a Bennite for us to leave the EU. The old commie was wrong about most things but on this one matter he got it right as folks like Ted Heath lied to the British people and conned us to stay in. Today we are being lied to by another slimy Tory Prime Minister but I urge you to ignore Dodgy Dave cameron and vote for Brexit.

Let us rewind to 1975 for it was instructive. The “inners” from both Labour and Tory parties sang from the same hymn-sheet. The Liberals were too busy thinking about how to murder the gay lover of leader Jeremy Thorpe and were thus as insignificant then as they are now. The in line was that we had, via negotiations, secured great safeguards for key industries such as fishing and that we were voting merely on membership of a common market, there was no chance

UK Investor December — 5 — June 2016

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WE MUST GO continued from previous page

that the EEC could evolve into something else.

As a former permanent under-secretary at the Ministry of Agriculture, Fisheries and Food, my grandfather knew these were lies and said so. I have the press cuttings: he was pelted with rotten tomatoes and ignored.

Pretty soon we saw that the safeguards for fishing and other industries were mere pretence.

Today 95% of fish caught in “British waters” to be eaten by British consumers are caught by non British fishermen. Our fleet has been decimated not by over-fishing but by a quota system that screws British fisherman and benefits those from the rest of the EU. Sir John knew this was going to happen. And today, in our heart of hearts, we know that David Cameron’s “concessions” on migrants claiming welfare, and other matters, are equally worthless.

Heath on fishing, Chamberlain on peace in our time, Cameron on EU concessions...you get the picture?

The bigger lie, however, was that in 1975 there were already moves within Brussels to turn a common market into a single political union.

That, after all, was the dream of Jean Monnet and the other founding fathers of the EU. Yet the British people were assured that the choice was “stay as we are or out”. Dodgy Dave makes the same claim today and again he knows that he is lying.

The European army is already taking shape.

Within the next fifteen years the EU will enlarge to take in countries including Turkey and Albania, countries where poverty is grinding. Though David Cameron has managed to secure a one, four year, exemption from the UK having to pay welfare to EU citizens that is not a permanent break. And welfare in Britain is far more comfortable that most working jobs in Turkey or Albania. The collapse of the PIIG economies means that the EU is meddling every more closely in the economies, dictating policy, in some member states. 55% of new laws passed in the UK are EU laws and each working day the EU passes five more new laws. The EU is on a one way track to a larger and deeper Union and so the real choice is between taking part in that process or quitting.

The fact that Cameron and the remainers—as in 1975—cannot bring to tell you the truth about the nature of the way the EU is developing should be a clear sign on how you must vote. For Dodgy Dave et al know that if the voters knew the real truth, very few outside the metropolitan elite would vote to stay in.

The EU is, of course, good at some things. The way that it imposes tariffs on food producers from outside Europe helps to push up food prices

for its citizens while at the same time ensuring that folks in places such as Africa have fewer customers for their product and so stay poor. So the EU is good at reducing the disposable income of ordinary folks both inside and outside of the Union.

The EU is good at producing vast amounts of new legislation and red tape. That crushes small businesses across the community and so deprives consumers of choice. Big business can absorb the cost of regulation and thus celebrates its smaller rivals being put to the sword as it gains market share. It is no surprise that while small businessmen, i.e. folks who have risked their own capital, across the UK are clearly in favour of Brexit, the fat cat bosses of the CBI, managers not entrepreneurs, look forward to more red tape from Brussels and want us to stay in.

The EU is good at wealth creation. That is to say for the armies of officials and failed politicians such as Neil Kinnock, the EU has been a godsend. For the fat cat bosses of the CBI it has been like Christmas come early. And for bankers at Goldman Sachs who have earned fortunes cooking the books so that Greece could enter the Euro and then again as they renegotiate its unsustainable debts, and which likes a regime that is constantly bailing out failed banks, the EU is great news. The banksters get to make rash bets and its heads they win (bonuses, coke & hookers all round), tails the EU bails them out with the cash extracted from ordinary folks across Europe.

How much cash? It is £350 million a week from the UK. And then, now and again, the EU admits to an overspend and there is an additional bill.

Our next one is going to be £2 billion but the EU has agreed not to announce it until after June 23rd so as not to embarrass Dodgy Dave. There will be another bonus bill for the UK later this summer when Greece needs another bailout.

But at least we can vote to change things can’t

UK Investor Magazine — 6 — June 2016

we? Oddly enough we cannot, Nearly all EU actions are decided by the unelected officials like Lord Kinnock. Within the EU Parliament the UK has but a small fraction of the seats and that assembly has been happy to screw Britain for many years so what on earth makes you think it is going to change? It will not.

The EU is a mechanism for extracting cash from ordinary voters across the EU but with British taxpayers paying more than our fair share because we have the temerity to have not joined the Euro and thus to have a thriving economy.

Some of that cash is then wasted in Brussels.

A bit is sent back to the UK and the rest is sent elsewhere. As well as having our cash taken away, we must pay more for our food and our small business owners join the fisherman on the dole queue.

Some Britons benefit. Officials like Neil Kinnock are, thanks to the EU, very rich. The grossly overpaid managers of big businesses in the CBI can grab market share and so justify even more fat cat pay packets as can the bankers whose gambling and venality is underwritten by the EU. The BBC gets direct funding from Brussels and so it is inflation busting pay rises all round for its already well paid staff. Those folks will tell you that you must trust David Cameron and vote to stay in.

I urge you to ignore the media, banking and business elite and to vote for your own best interests to leave. You cannot - as things stand -have any meaningful say in how the EU is run, we have lost our democratic voice. We can only gain that by returning all powers to Westminster.

And the EU is not going to accept the “stand still” that David Cameron lies that he has secured. Do not buy into the falsehoods of the elite as we so sadly did in 1975. Trust yourself and vote to leave.

For my grandfather but, more importantly, for my children and grandchildren, here is my ballot paper posted some days ago...

WE MUST STAY continued from previous page

urges to leave is the idea that Britain is being overrun by swarms of Poles, of Romanians, of Europeans of the wrong sort who come here with their work ethics and willingness to do the jobs that Britons won’t.

This is the era of the illegal migrant. Once we leave, Britons become just another mass of outsiders attempting to take away the livelihoods of honest working Europeans. We’ll be alongside the Japanese and Americans: welcome tourists, as long as we don’t try to work or stay longer than six months.

The European Union is a superior trade bloc and the Brexiters don’t seem to understand how good that they have it.

Most of the trade blocs of the world, be they the North American Free Trade Agreement or Association of Southeast Asian Nations or the East Caribbean Trade Area allow for investment to cross borders or locally made goods to be sold tariff-free within the area. But it’s the European Union alone that allows for the free movement of labour.

Bureaucratic rules out of Brussels is nothing compared to the nightmare regulations that American companies who wish to open a branch office in Canada or Mexico must navigate. And, once open, most staff must be hired from the local populace unless the business can prove that the the locals just don’t have the mettle. This can take years.

British companies can open and staff their EU offices, as they like, with their own best and brightest. German companies can staff their EU offices, as they like, with their best and brightest.

French companies can staff their EU offices, as they like, four days a week, with a nice Burgundy for lunch, and a strike every six weeks.

It’s probably better not to compare the EU with the North American Free Trade Agreement or the Australia-Korea Agreement. The real comparator is the United States.

The freedom of a person in Wyoming to pick up and move to Hawaii, for a Kentuckian to sell bourbon tariff-free to Oregon, or a West Virginian to get wrecked on Colorado pot is clearly to the financial benefit of every citizen of the US. But that Kentuckian doesn’t go crying that their personal freedoms are compromised because they their bottles are of standard sizes, and the labels must meet guidelines that are standard in all fifty states. Yet, the right to label as one sees fit is about as little British as one can get. Damn the market of 300 million people, we want our jam labels to be oblique!

But we’re tired of the European Court of Human Rights telling us that we must let our prisoners vote or telling us that we mustn’t deport people to states where they will be tortured.

Supporters of the European Court of Human Rights, like hard core leftist Winston Churchill, would tell you: the European Court of Human Rights has nothing to do with the European Union. If we Brexit, we’d still be part of the European Court of Human Rights.

But really, it comes down to the money.

Forty-four per cent of Britain’s exports go to EU countries. If we leave, the tariff wall goes up and Europe buys its ‘Mind the Gap’ t-shirts and Houses of Parliament snow globes somewhere else.

The European Union is sui generis in world history. It took sixty years of perfect mistakes to reach what we have now: all the economic benefits of living in a 300 million person country but retaining all the national sovereignty that matters. It’s not going to happen twice.

UK Investor December — 7 — June 2016

Alexander Mining plc An interview with executive chairman, Matt Sutcliffe

A Q &A conducted by Tom Winnifrith I recently put a series of questions to Matt Sutcliffe the boss of Alexander Mining (AXM), an AIM listed mining technology business. I started with an obvious question for me at least.

Tom Winnifrith: As one former analyst to another, it is often said that City analysts who try to run AIM companies rarely make a good job of it.

What makes you different?

catalyst for the turnaround .TW: I know that you are a believer in sound money and a conservative minded fellow on economics and thus you must be something of a base metals bear. Am I wrong about that if if not would that not indicated that there will be relatively few new mines built on a 24 month view so limiting potential opportunities for Alexander?

Matt Sutcliffe: The company has a team with strong industry, technical and financial markets’ experience – not ex pen pushers.

TW: The technology that Alexander claims to have is to do with leaching. I thought that was what the City did to quoted companies. What exactly does your IP do, is it patent protected and why should any company take it up?

MS: The IP is an environmentally better way to extract base metals at the mine site from amenable ores with major operating and capital cost savings.

We have numerous patents granted worldwide in the major mining markets such as the USA, Australia and South Africa. There is massive pressure on operations to cut costs and capex due to the drop in base metal prices.

TW: You appear to have got close to signing deals with a couple of companies but at the last minute we see that Compass & Ebullio both baulked. Should that concern investors? Why did they pull out?

MS: Both those deals have struggled due to nontechnical matters unrelated to our IP and input.

There are a number of other factors which affect mining deals such as the availability of finance or local politics in individual jurisdictions. We are working hard on alternatives and when we achieve a breakthrough we expect a rapid take up of the technology elsewhere.

TW: Given that you have yet to sign a license for the IP how can you say in your recent results statement that you are confident that you will?

MS: The investment climate has changed in the mining industry and to paraphrase Dr Johnson “when a man knows he is to be hanged in a fortnight, it concentrates his mind wonderfully”.

Many operations must adapt or die - we can be the

MS: Smart people are looking now on a contrarian basis to add value to quality projects – our IP can be the catalyst. There are often distressed assets owned by banks/creditors which could use our IP to recover investment.

TW: If your IP is so great why has a larger mining company just not bought you out?

MS: Innate industry conservatism - it is lower risk for management in big companies to wait for first production somewhere and then buy it at a much higher price. Although - the pressure is on to adapt as per my earlier comments.

TW: At 0.11p what is your market cap? And do you see any point in a share consolidation?

MS: £860k, we have no share consolidation plans TW: One of the frustrations of backing AIM stocks is that placing after placing just gets a bit tiring. How many months cash do you have?

MS: 12 months at least.

TW: As a major shareholder yourself you may have noted that Alexander’s share price has not filled its followers with delight. What will be the catalyst for a re-rating and what is your timescale?

MS: Securing licence agreements and technical progress on live projects - vindication for me and the shareholders. We have seen copper cathode produced at our pilot plant in the past and we KNOW that it works.

TW: Thank you Matthew. Now get back to campaigning for Brexit - we shall follow Alexander with interest.

UK Investor Magazine — 8 — June 2016

Is th e v su alu re a pe e ny r i sh mar n ar es ket ?

We have had trading news from both Tesco and Sainsbury, shares in which have been the bedrock of many a portfolio for ages. But should they be. we asked two of our leading writers to have a look.

Sainsbury’s does vinyl..are the shares a hit or a flop?

By Chris Bailey of Financial Orbit

I

f you are interested in retail shares then one of the more sensible uses of your research time would be to become familiar with the output of Kantar. Even for cheapskates like me there is a reasonable flow of free insights from the business research consultancy to provide a bit of colour.

The other day its in-house data implied a period of shabby trading at the middle classes core food retailer Sainsbury’s (SBRY). The recent

first quarter update was suitably mixed with the company bemoaning pricing pressures, consumer uncertainty and all the other usual stuff. There were brighter parts however: a decline of -0.81% in like-for-like sales (depending if you want to include fuel or not) was better than the teenage scribblers in the professional investor analytical community was going for. continued on next page

Tesco – Back to Basics, buy the Bonds

By Graham Neary

L

ast week saw confirmation from Tesco (TSCO) of two divestments which were anticipated to be in the works. The first is a proposed sale for cash of £30 million, while the second is the intention to sell (price not yet given).

The news signals continued efforts to manage the company’s debt pile and the scale of its ambitions.

Let’s take a look.

The first is the £30 million sale of Tesco’s Turkey

business, Kipa. Kipa was first acquired by Tesco in 2003 and has 170 stores with 9,600 employees.

Tesco CEO Dave Lewis remarks: “The sale of Kipa reflects the particular strategic challenge we have faced in Turkey as a small regional player in a highly competitive market.

It removes the need for the sustained investment required to enable the business to compete

UK Investor December — 9 — June 2016

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Additionally it anticipated still taking market share off their big rivals if not some of the recent German upstarts like Aldi and Lidl. And it gave a shout out to their newly enshrined position as the UK’s leading retailer in...vinyl records. Not much of a structural growth market boys would be my top tip.

Early doors market watchers would have seen a solid near 2% rise in Sainsbury’s shares but as I write post company conference that has wholly dissipated. My interpretation is that the impact of a few of those demon short sellers that anticipate consumer doom and gloom in 2016-17 caught between the three-pronged attack of too much debt, Brexit and the rise and rise of e-commerce / Amazon (AMZN) no doubt had to cover a few shares as immediate apocalypse has been avoided.

Now they have ‘optimised their position’ we can get back to some proper analysis of what to think of the shares here.

That Sainsbury’s itself was sufficiently unhappy with its corporate set-up to launch an ultimately successful bid for the Argos business of Home

Retail Group (HOME) tells you everything you need to know about the company. Whilst other food retailers went on international adventures or had well-heeled international owners, Sainsbury’s stuck to its UK knitting. The consumer is changing though and whilst individually none of the three issues above can strike a life-impacting blow to the company, in combination they are desperately tricky.

The Sainsbury’s management team and workmanlike aspirational strategy is suitably middle of the road. Even the acquisition of the god-awful Argos makes a bit of sense to create stores as a hub. More of this will need to be done as supermarkets realise that more and more of their larger supermarkets are simply too big.

A bit like the Argos deal though and its mixed financial backdrop (Sainsbury’s was goosed into upping its bid - and simultaneously finding further ‘synergies’ to justify it!) you don’t need to rush with Sainsbury’s shares if you don’t own them.

Yes the slightly reduced dividend is still paying you a yield far more than you will get in any bank you could care to name but until I see the stock lingering back at that 230p odd support level having published a few more numbers on the reality of the Argos buy I am watching from the sidelines...whilst popping into its stores to boost my vinyl record collection. Buy Sainsbury’s 15 greatest weekly shop soundtracks anyone?

other providers.”

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independently, allowing us to focus on improving profitability in Central Europe and continuing to grow our businesses in South East Asia.”

The sale eliminates approximately £110 million in total indebtedness so it would appear that the buyers (a rival Turkish supermarket chain) are more than happy to take on Kipa’s commitments.

The other announcement is in relation to the proposed sale of Giraffe restaurants, the chain which it purchased for £49 million as recently as 2013 but which continues to be loss-making. Lewis noted: “As we stabilise the business in the UK, we continue to focus on where we can best serve the needs of our customers, while ensuring our business remains sustainable for the long-term.

Giraffe is a much loved brand, and while casual dining remains an important part of the shopping trip for many of our customers, we will continue to meet these needs through our Tesco Cafés and

The price remains to be seen but I would personally doubt that Tesco will achieve the price achieved by private equity vendors 3i and Risk Capital Partners in 2013. These deals are not highly material in the context of the £5.1 billion net debt figure announced for year-end February 2016.

Total indebtedness, including lease commitments and the pension deficit, is still £15.5 billion (for context, Tesco’s current market cap is £12.4 billion).

These deals do represent continued progress, though. The net debt figure has reduced from £8.5 billion last year. The next benefit for shareholders to look out for will be reductions in the company’s half-a-billion-pound interest bill.

I wouldn’t be brave enough to put a Buy rating on the stock but I do think the divestments are welcome news. In my experience, unprofitable non-core operations cost more in terms of management time and nuisance value than they do financially. The price received is less important than the importance of freeing up management focus on Tesco’s bread and butter (pun intended).

Tesco has a fine selection of bonds to choose from, all the way from the 2020 yielding 1.9% to the 2057 yielding 6.4%. If you take the view that return on equity is unlikely to be spectacular but the company has a great chance of avoiding default, one of the bonds might be worth a look.

UK Investor Magazine — 10 — June 2016

company of the month

Waterman Group

Still a solidly built investment proposition?

By Steve Moore

CEO Nick Taylor

A

n 11th May “Interim Management Statement” from London main marketlisted Waterman Group (WTM) saw the shares recover from sub 83p to above 90p and they are currently circa 98p to buy. With the latter capitalising the company at around £30 million, is there still value here?

The noted 11th May statement included that the group “remains on target to exceed… adjusted annual profits before tax to £3.3 million” for its year to end June and that “cash collection has remained strong and the board now expects that the group’s net cash at the year end will be above the current market forecast”.

This follows a November 90p offer price addition of the shares to the Growth portfolio on our Nifty Fifty subscription website after an update from the company that month concluded “the board is pleased with the progress that continues to be made with further new project wins supporting the group’s ability to deliver continuing strong returns on capital employed and an improving trend in operating profit margins, consistent with the board’s new aspirational targets”.

So what is the business delivering this performance? Waterman describes itself as a consultancy “providing sustainable solutions to meet the planning, engineering design and project delivery needs of the property, infrastructure, environment and energy markets”. In practical terms, the company’s February-announced half year results included that; “The group continues to win and deliver exciting projects. Friars Walk, a 38,000m2 retail development in Newport, South Wales opened in

November 2015 and construction has commenced on the 80,000m2 retail development at Westgate Oxford by Land Securities and The Crown Estate.

Waterman designed the structures on both these projects. The prestigious 42,000m2 Victoria Gate retail development in Leeds, on which Waterman are the structures and building services designers, reached a significant milestone with the completion of the highest structural point of the development… Several commercial projects in the City of London have made significant progress on site… We continue to provide pre-planning support on major urban regeneration projects in London including Battersea Power Station, Brent Cross and Old Oak Park.”

The results also included a 50% increased dividend per share to 1.2p and for the full year the company is forecast to increase earnings per share to more than 7.5p (from 5.4p last year) and the dividend per share to 1.8p (taking the total per share payout for the year to 3p, up from 2p).

Looking further ahead, on growing revenue, there is a stated aspiration “to increase the group’s adjusted operating profit margin towards 6% by 30 June 2019 compared to the 3.3% delivered in the last financial year ending 30 June 2015”. It is added that “the board continues to anticipate that the results for the current financial year will show a significant increase in adjusted operating margin, consistent with delivery of this new aspirational target”.

This all suggests the valuation still undemanding and, while economic cycle-turning risk is something to monitor here, our current Nifty Fifty stance at up to 100p is buy.

UK Investor December — 11 — June 2016

Three shares to sell in June The Best time to kick a man is when he is down

By Tom Winnifrith

W

e can all identify shares that look ludicrously overvalued. Right now the bear community is all having a very good look at a total joke on AIM called Highlands Natural Resources (HNR) which is loved by bulletin board morons and is drowning in red flags. Shares in this fine company should be trading at sub 10p - and I am being generous - but have soared to as high as 80p and are now circa 50p.

(AVN) shares in which were once c800p and indeed were 200p as recently as November 28 last year when we savaged them at Gold & Bears. On May 16 after a trading statement containing a new lie (to add to many old ones) the shares were 91p and the repellent CEO David Williams announced boldly that he had bought shares, shares costing him just 2 days worth of his 2015 pay packet. That was a sell signal and the shares are now 53p.

The point is that you could have gone short at 40p and made a very sound fundamentals based case as to why you were right but that would not have stopped the shares going to 80p and you closing out on a stonking loss. If a share price is insane it can quite easily be twice as insane. In fact why not three times as insane or four. Your upside from going after an insanely valued stock as a short is capped at 100%, your downside is unlimited.

As recently as February Avanti insisted that since it was already drowning in debt - it had no need to raise fresh debt or equity. Now it says that it is doing just that. But with its existing debt yielding well over 20% it is hard to see why anyone would be gagging to offer Williams new debt. Or maybe someone might but surely there must be an equity component? Perhaps that is why the shares are collapsing.

It is often far safer to kick a man when he is down.

That is to say when it is clear that insolvency or a meltdown event is going to occur but the share price does not yet reflect this as the management fools some last suckers with new lies and Bulletin Board Morons pile in for the bounce, arguing that if a share was one 100p it must at 10p offer some value. These folks are not termed morons for nothing.

What is clear, is that this company - whose red flag strewn 2015 accounts are being looked at by the FRC at my suggestion - needs cash fast or else it is lights out time, for equity holders at least. I see no reason why anyone should supply that cash and that makes the shares - for all sorts of reasons - a sell at 57.5p. The target here is 0p.

Next up is Advanced Oncotherapy (AVO) which is developing a proton beam machine for zapping cancer cells. This is terribly old technology dressed up as revolutionary. The potential market is not half as large as some folks think and the main expertise of the management team seems to be in paying itself at a level which simply cannot be justified for a pre-revenue company.

In that vein, I start with Avanti Communications

Advanced needs cash urgently for two reasons.

One is that it is running out of the readies pretty

UK Investor Magazine — 12 — June 2016

fast. Heck gym club memberships for a 72 year old boss don’t come cheap don’t you know?

And the second is that it has been offered debt for build a machine but that is conditional on a near term equity raise.

There is obviously a fund raise which is majorly material in relation to the current market capitalisation (£88 million at 6.25p) on the way. I am less than convinced that the science behind this company can generate the free cashflows needed to support even half the current market cap. But that is not the point.

The point is that in a market that is not easy this company needs to raise c£30 million and raise it pronto. That makes it a

pretty good

short bet as the brokers scrabble to place in the sweaty June days ahead of the Brexit vote.

Finally,I turn to a tiny company, Nyota Resources (NYO) which, at 0.08p, is valued at £1.5 million. This company was until recently run by one of the greediest and most useless management teams on AIM led by disgraced Richard “piggy” Chase. It has been ousted and the new board seems harmless but they find a company with one, utterly worthless, mining asset and almost no cash. In fact by the time Nyota gets its next placing away - and it is going to have to be soon - I reckon net current assets will be zero or less.

An AIM shell is worth £300,000 to £500,000 (if it has an A1 management team on board) plus cash. That means that at 0.07p Noyota is worth somewhere between 0.012p and 0.02p. Heaven knows what the next placing should be done at but I’d suggest that if it wants to raise £500,000 the right price is as low as 0.01p. Ouch.

Only the almighty knows what will actually happen to the shares as this is the AIM Casino but as things stand Nyota is a slam dunk sell.

Tom Winnifrith’s

5 model portfolios: G r ow t h Income Gold R e c ove r y Pe n ny S h a r e s

S u b s c r i b e t o d ay

newsletters.advfn.com/tomwinnifrith UK Investor December — 13 — June 2016

the house view

Dodgy Dave is Chicken Little

L

ess than a year ago Dodgy Dave Cameron told us all that if he could not secure a good deal for Britain from the EU he would argue that we should leave. Cameron insisted that as the world’s 5th largest economy we could thrive and flourish very well outside the EU. In that respect he was right. Even a broken clock....

As we now know, Dodgy Dave told business leaders that he would campaign to stay in even before he negotiated with the EU. He then went to Brussels, asked for very little, got even less and came home declaring that he had secured peace in our time, waving a little piece of paper and urged us all to vote against Brexit.

Since then Mr Cameron has presented as fact what is in fact opinion. Fact is a truth that has been verified by experience, in other words it has happened already. Opinion is one person’s view of what will happen. The sun will shine tomorrow is an opinion although one that we would nearly all agree with. The stockmarket will fall by 20% if we vote for Brexit is also an opinion but unlike that about the sun there is absolutely no historic data to back up that opinion.

That opinion is as provable as the suggestion that Princess Anne is prettier than Cheryl Cole. It is a view. We are not stating that the stockmarket will rise or fall sharply after Brexit because we know that it is impossible to say. The deceit is that of the Prime Minister and Project Fear in presenting such a view and telling us all - with taxpayers cash in some cases - that it is a fact. It is not.

We take the view that the stockmarket is overvalued per se. There is mounting hard data (not opinion) showing that the world economy is slowing badly. Please note that you cannot blame Brexit for lower auto sales in Nevada or Fujian province. If that data is correct and current trends accelerate then it suggests that corporate earnings will not increase rapidly over the coming 36 months but will fall, yet PE ratios on stockmarkets across the world are - in historic terms - high which implies better than normal earnings growth.

Something has to give. Either the data needs to reverse or stockmarkets across the world, including the UK, need to correct in a material way. And that will happen whatever we vote on June 23rd. Of course that is not a fact, it is just our opinion!

UK Investor Magazine — 14 — June 2016

Hot Stock

ROCKETS Stocks Ready to take off hotstockrockets.com TOM WINNIFRITH EXPLAINS HIS NEW BOOK - GET A FREE COPY NOW About fifteen years ago I penned an introduction to a book on how the brave new world of the internet was revolutionising the world of shares. Looking back at that book it all seems rather dated now.

Oh, and the book, though glossy, was pretty piss poor. It is no great surprise to me that it managed to avoid become a best seller.

One of the great novelties of share trading at the turn of this century was the Bulletin Board, then hailed as a forum where private investors could exchange ideas and analysis and also well sourced gossip.

What could possibly go wrong with this idea which was meant to give private investors a real edge allowing them to compete with City players on an almost level playing field when it came to share trading?

Fifteen years later we all know that Bulletin Boards have not really worked out that way. The playing field is not level, the City still has the edge. But perhaps that is in part because a good number of those attracted to Bulletin Boards display traits and repeatedly make mistakes which consign them to perennial loss making.

I am not saying that all bulletin board users act, in investment terms, like morons.

Most Bulletin Board users seem civil and sensible which only makes me wonder what they get out of exchanging ideas with complete lunatics. For Bulletin Boards clearly attract far more than their fair share of utter loons.

The vociferous minority, the true Bulletin Board Morons will over and over again demonstrate the biggest mistakes that investors make. And so if you want to avoid making the most common mistakes in the buying and selling of shares, I have written a new short book based on the collective lack of wisdom of those morons.

If you are reading this online you can get a complimentary copy of “The 22 mistakes all investors in shares must avoid (Don’t be a Bulletin Board Moron)” at ShareProphets.com UK Investor December — 15 — June 2016