GB Group, Patisserie Holdings, FRC Stewardship Code and Halma

The stock market seems to be in limbo as business waits to see the outcome of Brexit politics. In my portfolio, small cap companies are drifting down and even large funds and trusts have been declining. Is this due to currency effects or the realisation that “star” fund managers such as Neil Woodford cannot be relied upon? Others are just bouncing around. However there was one exception yesterday when GB Group (GBG) jumped 14% after a positive trading statement. That company is one of my more successful longer-term holdings but there may be more growth to come from it because of the sector in which it operates. On-line id verification is becoming essential for many businesses.

The Administrator for Patisserie Holdings (CAKE) has issued their final report before the business moves into liquidation and another firm took over from KPMG to look into any legal recovery from the past auditors (Grant Thornton) and others. The handover was due to a conflict of interest. The Serious Fraud Office is still investigating the affairs of the company and a number of arrests have been made, but ordinary shareholders should not expect any return and it could be years before the legal processes are completed from past experience of similar situations. Even preferential creditors may not receive anything. The administration has so far cost £2.3 million.

The Financial Reporting Council (FRC) have announced a new Stewardship Code to improve the activities of institutional investors. Go here for a fuller discussion and references. There is more emphasis on “Purpose, values and culture” and the recognition of environmental, social and governance (ESG) factors.

This is all very worthy, but personally I would prefer the FRC concentrated on tightening up the quality of public company accounts for which it is responsible. It also needs to be a lot more forceful on patent audit failures that enable frauds to go undetected for years as at Patisserie – and there have been many other similar cases of not just downright fraud but also over-optimistic presentation of accounts.

This morning (25/10/2019) I attended a presentation by Halma Plc (HLMA) in the Investec offices. It was given by Charles King, Head of Investor Relations and it was a very professional presentation unlike many we see. I have held shares in the company for four years and it confirmed that my choice of it as an investment was sound. But I did learn a bit more.

I’ll cover some of the key points that were made. This company has strong fundamental growth drivers. It has grown both organically and by acquisition over 45 years and now has 45 companies in the portfolio which primarily operate independently. One might call it a conglomerate. It focuses on life saving technology businesses – in essence “safer, cleaner, healthier”, in global niche markets. These are often regulated markets which helps on defensibility and growth. Demographic trends help as more people who are older and fatter promote growth and higher regulatory standards also move in. There is a lot of diversity in the products.

They aim for 15% growth per annum and have 6,000 staff in total. They bet strongly on “talent” to run the businesses. In essence there are many little companies all run by entrepreneurs who are left to operate as they wish. These people are paid on the basis of profit achieved in excess of the cost of capital but one requirement they look at when recruiting is that they must have “low egos”. There is only a small group of central staff handling some corporate functions.

Their focus is on acquiring companies with low capital intensity and ROTIC of greater than 16% when their cost of capital is about 8%. They are very diversified internationally but see opportunities to grow more in Asia/Pacific and other developing markets.

The high share price was questioned (or as one person put it: “it’s in nose bleed territory”). It’s currently on a forecast p/e of 32 according to Stockopedia which is higher than when I purchased shares in 2015 but the share price has more than doubled in that period. This company is like many high revenue/profit growth companies – they never look cheap but simply grow into their share price.

However the share price has fallen back of late like a lot of highly valued technology stocks that I hold. The speaker attributed this to market trends, not management share selling. Growth companies tend to go out of fashion as economic headwinds appear.

But if they stick to the business model, with the high return on capital and sensible acquisitions, I doubt they can go far wrong. In summary a useful and enlightening meeting for a company that until recently kept a low profile. But it is now in the FTSE-100 (market cap £7 billion).

The author holds shares in Patisserie Holdings, GB Group and Halma.

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

Post Date: October 27, 2019

Group description:	SIGnet Taunton is a new group with around 10 keen members at present, with a range of investment styles and experience. We welcome new members.
Meeting Type/Venue:	In person meetings at a golf club near to the centre of Taunton.
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.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Monday of the month at 7:00pm.

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.
Meeting Type/Venue:	Online using Zoom.
Meeting Frequency/Timing:	Meetings are usually held on the last Wednesday of the month at 7:00pm.

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.
Meeting Type/Venue:	Meetings are held online.
Meeting Frequency/Timing:	Meetings are held every 6 weeks on a weekday between 7 and 8:30pm.

Group description:	The Group welcomes investors of all levels of experience, from beginners to advanced. The focus of meetings is on all types of income generating financial instruments, from stocks through Trusts and Funds and ETFs to retail bonds. Meetings involve presentations from members, who are also expected to lead discussions from time to time, as well as discussions on what has been bought and sold since the last meeting.
Meeting Type/Venue:	Meetings are in-person in a venue in Central London.
Meeting Frequency/Timing:	Meetings are usually held on the last Thursday of every other month, starting with an informal lunch around 1pm followed by discussions until around 5pm.

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
Meeting Frequency/Timing:	Monthly during the evening on the first Wednesday of the month.

Group description:	Our group is a broad church that contains investors of varying experience. Our members’ backgrounds are diverse and include corporate banking, engineering, teaching and the leisure industry. We generally pick a discussion topic for every meeting, e.g. housebuilders or the defence industry, and members are invited to research and discuss different aspects or companies within that industry. We also discuss stocks and investment trusts that we have bought, sold or are interested in and the reasons behind our decisions, and try to make sense of the ever changing investment environment. Discussions are robust and challenging but we are a friendly and approachable group who welcome investors of all levels – we just ask that you contribute, at whatever level you can.
Meeting Type/Venue:	Our meetings are held in a private room at a nice pub near to South Ealing tube station (Piccadilly Line), not far from Ealing Broadway (District, Central and Elizabeth Line).
Meeting Frequency/Timing:	We meet every 2 months, usually on a Wednesday morning at 11am.

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.
Meeting Type/Venue:	Online via Zoom
Meeting Frequency/Timing:	The first Tuesday of every month from 7 to 9pm

Group description:	Our group members have wide ranging investment experience and work backgrounds. Discussion topics include reviewing our recent stock or collective investment buying and selling activity, plus what we are considering buying or selling and the reasons for our decisions. We also have a wider discussion on where we think opportunities might arise in the next few months and what we think needs to be avoided. Members occasionally lead discussions on specific topics such as recent events attended, articles or books of interest and sources of investment ideas and information.
Meeting Type/Venue:	During the pandemic our meetings were held on Zoom, but we have now resumed meeting in person at a location a few miles to the west of Colchester. Most meetings will now be in person, but it is possible that occasional meetings will be held on Zoom in special circumstances.
Meeting Frequency/Timing:	We meet midweek every two months. Zoom meetings run for about two hours from 10.30am and in person meetings from 11am until about 3pm, including a break for lunch.

GB Group, Patisserie Holdings, FRC Stewardship Code and Halma

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