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But we didn't achieve a positive return in what was a very difficult year for investors
Thursday 20 Dec 2018 Author: Daniel Coatsworth

Our annual portfolio of share picks has outperformed the market yet again, although we didn’t deliver a positive return. The average share price return from our portfolio of 10 stocks was a 6.4% loss versus a 10.2% decline from the FTSE All-Share.

It was a very difficult year for all investors, including fund managers, and anyone who managed to deliver positive returns deserves considerable praise.

The market punished stocks with the slightest bit of bad news, meaning a lot of decent companies would have lost money for investors in 2018 because the market took a very short-term view of everything.

TOP OF THE CHARTS

Our best performing stock was vehicle testing expert AB Dynamics (ABDP:AIM), up 58.1% on the year. The company last month reported a 78% rise in full year pre-tax profit to £7.9m and said trading continued to be very good.

AB Dynamics has enjoyed rising demand from traditional car manufacturers who are spending large amounts of money on vehicle development, with technology companies also entering the industry.

Following the 2018 results broker Cantor Fitzgerald upgraded its 2019 pre-tax profit forecast by 22%, and net cash by 31%. ‘Investments in factory capacity, new products, systems and people are starting to deliver good returns,’ it said.

‘Demand for the group’s testing and measurement products is being driven by ever more complex vehicles and systems, designed to improve safety, driving characteristics and, increasingly, autonomous operation.’

Cantor now expects 2019 pre-tax profit to be £10.8m (2018: £8.6m), rising to £13.4m in 2019.

FUTURE TAKES SECOND PLACE

The second best performer was media group Future (FUTR), up 23.1% over the 12-month period. Its revenue increased by 48% in 2018 thanks to both acquisitions and organic growth. Future also restarted dividends and said the new financial year had started well with trading ahead of expectations.

The other standout performer in the portfolio was Alliance Pharma (APH:AIM), delivering a 10.8% share price return. The gains had been higher earlier in the year but eased back in September when the market didn’t like news of one-off costs from stricter regulations and Brexit preparations.

HAVING A TOUGH TIME

Four stocks gave up some or all of their positive returns in recent months, being Johnson Matthey (JMAT), Charter Court Financial Services (CCFS), DotDigital (DOTD:AIM) and Biffa (BIFF).

Johnson Matthey’s half year results in November beat expectations, driven by strong demand in Europe for exhaust catalysts. However, investors still seem sceptical on the auto-catalyst business longer-term as the world shifts to electric or hybrid vehicles.

DotDigital reported greater revenue per client at its full year results in October and growth in profit and cash. The results flagged a desire for ongoing investment in people and products, but nothing really negative to explain why the shares have subsequently drifted.

Biffa’s half year results in November showed weakness in its municipal division with underlying operating profit margins more than halving. However, the much bigger industrial and commercial division saw growth in revenue, profit and margins, and management remained upbeat about the company’s prospects.

Stockbroker Numis forecasts that Biffa’s pre-tax profit will stay flat at £59.6m in the year to March 2019, before rising to £64.6m in the following year.

THE LAGGARDS

Elsewhere, Sage (SGE) and Dignity (DTY) had very challenging years and Dixons Carphone’s (DC.) shares were caught up in the general negative sentiment towards the retail sector.

We walked away from Dignity in March after the company made radical changes to its business model. Sage was hit by a profit warning in April and chief executive Stephen Kelly then stepped down in August.

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