Bonmarché Update, FCA Grilling over Woodford and Amati AIM VCT AGM

Yesterday Bonmarché (BON) conceded defeat in its opposition to a takeover bid at 11.4p. On the 17^th May it had rejected the bid because it “materially undervalues Bonmarché and its prospects”. The share price of this women’s clothing retailer was over 100p a year ago but the latest trading review suggests sales are dire because of underlying weakness in the clothing market and “a lack of seasonal weather”. Auditors might have qualified the accounts due to be published soon due to doubts about it being a going concern if sales did not pick up before then. Bonmarché looks to be another victim of changing shopping habits and changing dress styles.

Is the market for traditional men’s clothes any better? Not from my recent experience of buying two formal shirts from catalogue/on-line retailer Brook Taverner. Cost was zero although I did have to pay postage. Why was the cost zero? Because they had a special offer of 60% off for returning customers, and I had collected enough “points” from them to wipe out the balance. Smacks of desperation does it not?

On Tuesday the Treasury Select Committee interviewed Andrew Bailey of the Financial Conduct Authority (FCA) over the closure of the Woodford Equity Income fund and their regulation of it. It is well worth listening to. See https://parliamentlive.tv/Event/Index/34965022-ec99-4243-8d0b-ae3350c31fe4

It seems that technically the fund only made two minor breaches of the 10% limit on unlisted stocks twice in the UCITS rules which were soon corrected in 2018. But Link were responsible for ensuring compliance as they were legally the fund manager as they were the ACD who had delegated management to Neil Woodford’s company. But in the morning of the same day the Daily Telegraph reported that nearly half of the fund investments were actually illiquid including 20% that were nominally listed in such venues as Guernsey and not actively traded. In other words, they were perhaps technically complying with the UCITS rules but their compliance in principle was not the case. Mr Bailey suggested this is where regulation might be best to be changed to be “principle” based rather than “rule” based but surely that would lead to even more “fudges”? The big problem is yet again that the EU, who sets the UCITS rules, produced regulations that lacked any understanding of the investment world.

The Investment Association has suggested a new fund type be allowed which only allows limited withdrawals, e.g. at certain times or on notice. But that does not sound an attractive option to investors. When investors want to sell, they want to sell now.

Bank of England Governor Mark Carney has said open-ended funds are “built on a lie” in that they promise daily liquidity when it may not always be possible. He also suggested they posed a systemic risk to financial stability. Or as Paul Jourdan said at the Amati AIM VCT AGM: “Liquid investments are liquid until they are not”.

There is of course still no sign that Neil Woodford is taking steps to restore confidence in his funds, as I suggested on June the 5th. There needs to be a change in leadership and in name for that to happen. Once a fund has become a dog and untouchable in the minds of investors, and their financial advisors, redemptions will continue. Neil Woodford making reassuring statements will not assist. More vigorous action by Woodford, Link, and the FCA is required. Affected investors should encourage more action.

The Amati AIM VCT (AMAT) had a great year in the year before last as small cap AIM stocks rocketed but last year was a different story. NAV Total Return was down 10% although that was better than their benchmark index. AB Dynamics was the biggest positive contributor – up 93% over the year with Water Intelligence also up 93%. Ideagen was a good contributor (now second biggest holding) and Rosslyn Data was also up significantly. Accesso fell 36% but they are still holding. I asked whether they had purchased more AB Dynamics in the recent rights issue but apparently they could not as it was no longer VCT qualifying.

I also asked about the fall in Diurnal which wiped £1.2 million off the valuation. This was down to clinical trial results apparently. However, fund manager Paul Jourdan is still keen on biotechnology and pharmaceutical firms as he suggested that healthcare is being revolutionised in his concluding presentation – he mentioned Polarean as one example.

Other presentations were from Block Energy – somewhat pedestrian and not a sector I like – and Bonhill Group which was more lively. Bonhill were formerly called Vitesse Media but are growing rapidly from some acquisitions and clearly have ambitions to be a much bigger company in the media space.

It was clear from the presentations that the investee company portfolio is becoming more mature as the successful companies have grown. This arises because they tend to take some profits when a holding becomes large but otherwise like to retain their successful holdings.

All resolutions were passed on a show of hands vote but I queried why all the resolutions got near 10% opposing on the proxy counts which is unusual. It seems this is down to one shareholder whose motives are not entirely clear.

In summary, an educational event and worth attending as most AGMs are.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

Post Date: June 28, 2019

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Meeting Frequency/Timing:	We meet on the first Monday of every month at a golf club near to the centre of Taunton, 11am until 3pm with a lunch break.

Group description:	An online group for those who are new to investing, or have only been investing for a few years. Including topics such as: – What is a share or a bond, why and how to buy them. – Comparing funds, unit trusts, Investment trusts and exchange traded funds. – Portfolio management and diversification. – ISAs, pensions, SIPPS and how to save tax. – How terms such as PE ratio and dividend yield are used to value a share. – How to use technical analysis or charting.
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Group description:	An online group for those who already have some experience in investing. Covering topics such as finding companies to invest in, financial statements and ratios, valuation / margin of safety, analysis of companies and investment trusts and exchange traded funds.
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Group description:	The Equity Income Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on dividend paying Investment Trusts, though there is also discussion around individual shares.
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Bonmarché Update, FCA Grilling over Woodford and Amati AIM VCT AGM

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Group description:	A welcoming group open to all types of investors. Typical meeting content is to have a deep dive presentation on a topic selected by the participants and a session on buy/ sell/ key lessons learnt last month.
Meeting Type/Venue:	In person at a friendly pub close to Piccadilly Circus
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Group description:	All levels of experience welcome. A typical meeting agenda includes: – Macro Environment – Trades: Members review existing positions and identify securities with promising TA entry patterns or setups and with suitable risk/reward. Any security, long, short, futures, options may be considered. The convener takes actual positions in trades and maintains his own detailed ledger, accurately measuring performance of individual securities and cumulative activity. Members are notified by e-mail prior to the entries or exits that are decided upon. Following each meeting an updated copy of the ledger is circulated together with the next meeting agenda. Members may wish to maintain similar ledgers of their own but there is no obligation to do so. – Technical Analysis: Techniques and systems used in trades. Members can request discussion of particular aspects of TA.
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Group description:	Group focused on active investing, primarily in small / medium cap UK equities.
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