Saturday, 29 December 2012

My investment non-mistakes in 2012: Part 3

Right, let's wrap this up:

7) Halfords - HFD

I first bought Halfords in 2011 at ~295p on a very simple thesis. The share price had fallen significantly after 2011 profits were a bit disappointing (and it too has the 'retail' stigma attached to it), however HFD offered a) a business with high long term ROEs, b) a large yield of over 7% at the time and c) a low historic P/E. I thought that the decline in profit was likely to be relatively short term and the company would carry on growing in the future as it also had an auto garage business that was expanding to offset the retail slowdown.

I didn't really expect what happened next, when profits looked to have another year of -20% falls. I'm still not entirely sure what caused it, but the share price reaction was to knock a further ~35% off the price down to ~190p. I topped up again, at 210p, but was still kind of unsure as to why profits were falling so fast. Halfords then decided on a CEO swap, and together with a big boost in cycling sales from the British Tour de France success the share price swung back up as high as 355p. I got pretty lucky as I sold out completely at 351p basically because the shares looked much worse value given profits were still expected to fall significantly and, importantly, I don't really get why the decline is so drastic nor why it should reverse. I'd be interested to hear if anyone has any further light to shed on this situation.

8) Staffline - STAF

I don't have a great deal to add beyond Paulypilot's summary of his meeting with management here and MaxCashflow's share competition write up here. It ticks the boxes of a) good long term growth b) decent level of management ownership and c) an attractive valuation. It's gone up ~30% since I bought it so I've trimmed a bit at ~300p but I still hold a good chunk for the longer term.

9) 21st Century - C21

C21 is an interesting one. I got in to this quite late, making my first purchases at 17.8p (including the 3.5p return of capital) as it has quite a nice growth story but without a sky-high P/E. Carmensfella has a good write up here which is well worth a read. The really interesting thing for me is the number of very good investors who own large chunks of this share. The historical numbers probably aren't a good guide for the future here as so much has changed in the past few years after activist investor Peter Gyllenhammar effectively revamped the management and focused the company on its products which had achieved product/market fit and were beginning to grow rapidly.

Naturally, the next thing that happened after making my purchase was the shares tanked on no news. Actually, I consider this to be one of the great strengths of small caps. Share price volatility without fundamental volatility allows bargains to be had from time to time, and I took advantage here and added a lot more at 10p. As they declined even further to 8.5p I wanted to make a big top up but I knew Carmensfella had scheduled a meeting with management in December so I told myself I'd wait till then, learn more about the company, then add if I was still very confident. Sadly I never got this chance, as the share price recovered and the meeting never happened because senior management were busy with meetings in France (They have next to no sales in France at the moment, so this is kind of a good sign!) and they released this trading statement that really sent the share price up - which probably wins the record for most apologetic 20% rise in profits I've ever seen :)

Even at the current price of 14p, the shares are only trading on ~10x 2012 profits which seems far too harsh for a company that considers 20% growth disappointing. I'm planning to hang on in here and benefit from the growth and/or the re-rating it deserves.

10) Robinsons - RBN

Robinsons I bought pretty much entirely as an asset play. It seems clear they have a lot of land on the balance sheet which isn't reflected at its true value. Aimzine has a good write up here (you may need to register to read it, if you even can anymore, as they have now merged with investors champion). I also liked the side-story of them rationalising their business to focus on the profitable, higher margin "secondary packaging". In the end though, I sold out after a decent rise to ~120p (I first bought at ~90p) as I realised that, while the asset backing was nice, I probably wouldn't see any of it for a long, long time. To quote the Aimzine article:

"We see our substantial non-core land and property holdings as part of a long-term disposal process.  We will be looking to sell at the most opportune moment in the property cycle and in our opinion this may not arrive for at least five, perhaps even fifteen years from where we are today."

I don't really fancy management trying to time the property market, especially since they bottled their timing in 2005-2007 and it's not as though someone rings a bell at the top to let then know when to sell! After the rise, I decided that I didn't really fancy being around here for the long term as the ROEs the company earns aren't great (they are largely in a capital intensive commodity business after all) so at a forward P/E of 12 and a ~3% dividend yield I reckoned I could find better value elsewhere.

Right, that's all the shares that have contributed to my positive performance this year. I still hold a number of shares from 2012 that haven't really gone anywhere or I've bought recently and haven't moved (ALLG, JD., MGNS, KENZ, LCG, SIV) which I'll get round to discussing in 2013.

Disclosure: I own shares in STAF, C21, ALLG, JD., MGNS, KENZ, LCG, SIV


  1. Great reviews of the year. Reading these has made me think a little more about the shares i own and my strength of conviction for each... i am planning to limit shares i own to those i truly believe in. This may result in fewer holdings but so be it.

    1. Thanks Shaun. I'm trying to be more picky in general too and I only hold 14 shares at the moment - as I get more experience I'd probably even like to go lower than that. My top 4 make up about ~50% of my portfolio too so I'm going big on what I think are my "best ideas" - we'll see how that pans out!