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Our picks are beating the market
Shares’ ‘Top Ten for 2017’ portfolio has made a positive start to 2017. Our average gain of 11.1% is comfortably ahead of the FTSE All-Share’s 6.2% haul.
Our star turn is Ideagen (IDEA:AIM), the compliance-based information management software supplier which has surged 40.1% higher to 90p. The shares have continued to progress with a boost from strong interim results (24 Jan) showing healthy organic growth and rising levels of recurring revenue.
Investors have also cheered new contract wins and the £12m acquisition of document review software supplier PleaseTech, a nice fit into Ideagen’s core focus of compliance, risk and regulation markets.
Readers who responded to our stock ideas and bought Ithaca Energy (IAE:AIM) were rewarded with a swift 37.8% gain. We took profit on the North Sea oil producer in February following a recommended, C$841m all-cash takeover offer from Israeli firm Delek.
The modest 12% bid premium from the existing shareholder disappointed certain investors as Ithaca is on the cusp of substantial cash flows from its Stella field. However, we prudently booked our gains and moved on.
Energy, healthcare and technology products distributor DCC (DCC), whose firepower for earnings-enhancing acquisitions in the energy space was central to our buy case, has danced 21.2% higher to £70.90 on strong operational progress.
The Dublin-headquartered firm has been busy, buying (7 Feb) Esso’s petrol station network in Norway for £235m and announcing (5 Apr) a £120m deal to acquire Royal Dutch Shell’s (RDSB) liquefied petroleum gas business in Hong Kong and Macau.
The latter news was twinned with the sale (5 Apr) of DCC’s environmental division, a transaction that will bring in £170m of cash.
After a rather inauspicious start, investors quickly regained an appetite for posh chocolates retailer Hotel Chocolat (HOTC:AIM). The premium British chocolatier’s shares were weak in January, reflecting fears that shoppers would pull in their horns and curtail spending on life’s luxuries due to inflationary pressures.
Encouragingly, the shares subsequently rallied to trade 16.4% north of our entry price at 327.8p. News of a strong first half, brisk business seen over Christmas and awareness of Hotel Chocolat’s differentiated product offering growing, restored confidence in the story.
Combined with upbeat soundings ahead of the key Mother’s Day and Easter selling events, analysts upgraded their numbers. We’re staying bullish on this high-quality company; a compelling growth, earnings momentum and soon-to-be income story.
Just a little patience
Among our other key selections, a select pair provides salutary lessons in the risks inherent in recovery investing, although we are doggedly sticking with both stocks.
Sausage skin maker Devro (DVO) is modestly in the money, although its turnaround is proving a drawn-out affair. The Scotland-headquartered edible collagen casings maker’s full year results (6 Mar) revealed in-line underlying pre-tax profit of £31.2m and a flat 8.8p dividend. Broker Shore Capital forecasts improvement in pre-tax profit to £32.6m this year.
The disappointing news is that a programme to drive top and bottom line growth dubbed Devro 100 will come at the cost of further profit and loss account-charring exceptional items and additional capital expenditure.
We still like the long-term fundamentals of the global collagen casing market, which grew by 4% in a testing 2016. And we also like Peter Page-steered Devro’s competitive positioning within it. Yet we’ll need to see Devro regaining market share soon in order to keep the faith.
The second recovery play requiring a little patience is government services outsourcing specialist Serco (SRP). Our bullish call was based on our confidence in CEO Rupert Soames and his five-year transformation plan.
We believed the market would focus on a pipeline of larger new bid opportunities rather than historic troubles, yet our trade currently languishes 17.4% in the red at 116.4p.
We were left scratching our heads at the overly negative reaction to in-line annual numbers (22 Feb).
Impatient investors might be better served elsewhere given the slow pace of the services stalwart’s recovery; as Soames concedes, ‘the road back to prosperity was always going to be long and winding, with many potholes and boulders, but we are making good progress’. We remain hopeful the shares will end 2017 higher than our 141p entry price.
Making a comeback
Last but not least, our transport technology top pick for 2017 Tracsis (TRCS:AIM) is on track to recover from February’s share price collapse.
Investors alighted as Tracsis flagged delayed Network Rail contracts as well as margin pressure. We still view Tracsis as a solid long-term investment.
The AIM-quoted company has the right technology tools to address the growing need to deliver smart transport infrastructure networks in the UK and elsewhere.