Last month, to celebrate my 75th birthday, we held a family dinner taking over an excellent small local Italian restaurant. In my few words of welcome I said that at my age there were only two things that really mattered in life: family and health. I couldn’t help adding, to a ripple of laughter, “perhaps also the stock market”.
It is my 60 years of private investing which has been for me a lifetime hobby, morphing into arguably my core activity. Hours of reading, research, gossip, meetings, thinking and writing have thankfully delivered a modest degree of financial independence.
Many readers will be familiar with my investment focus. I make long-term investments in established, conservative, profitable, dividend-paying small cap companies, rarely selling, letting the dividends flow and the occasional takeover arrive (approximately 50 over the years).
I like to think I have built up a comprehensive knowledge of most PLCs which have been around for some years, often returning to invest again when “value” reappears. However, I have to confess to an inability to keep up with all of the recent IPOs and flotations, though I am sure I am missing some potentially great businesses.
Now for another confession. On June 5, three days before the general election, I sold 8 per cent of my large Isa holding in Treatt. It was no easy decision as it has been a stellar performer and has, I believe, a great future. I sold for two reasons: first, the trebling of its share price over the last 12 months must make it fully valued in the short term. This was compounded by small-cap tracker funds having to buy into Treatt as it became a small-cap index stock. Second, I wanted to create a degree of liquidity as the election outcome looked increasingly uncertain.
This sale effectively means that my remaining holding stands in at virtual nil cost. In the very short term, the sale at 488p has not paid off: the shares are now hovering north of £5. But I am happy to have generated a cash reserve, with which I have already made three further purchases. Two have been old friends: palm oil producer MP Evans and niche engineer MS International, both Aim stocks.
I first bought Rowe Evans (as MP Evans was then called) in 2002 at just over £1, finally selling out in 2007-8 at £5. I was always convinced that this conservatively managed palm oil producer with substantial property holdings would be taken over one day.
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So it was no surprise when Malaysia’s Kuala Lumpur Kepong launched a bid last year. Evans resisted and a final bid at 740p was fought off, the board stating that an independent valuation had demonstrated a net asset value (Nav) of more than £11 per share.
I sensed a real value opportunity here. I bought first at 698p in May, adding more at 735p in June. The widespread view is that KLK will return again — it has been building up its stake to a current 12 per cent. Given the size of discount between Nav and share price I see little downside risk. A shrewd friend who went to the recent AGM felt it would probably be the last. KLK has to wait until December before it can bid again. We shall see.
I have been in and out of MS International a number of times over the years. Indeed, I was a board member many years ago. I last sold at £2 in 2014. Capitalised at only £28m it is effectively controlled by the Bell family and like many proprietorial PLCs is very carefully stewarded with other directors having significant shareholdings.
Of the four divisions, the most profitable and valuable is defence, where it has a world-leading position in the production of stabilised gun mountings for a range of naval cannons. It should be a beneficiary in due course from Donald Trump’s planned increases in defence spending and similarly its products are specified for the UK’s new aircraft carriers.
I always look for an optimistic outlook statement by chairmen before I invest. Michael Bell did not disappoint. “We believe that the group is in excellent shape …following the considerable investment made across the various businesses … the order book is at a higher level than at this time last year, in particular there is a good level of orders in hand for both established and recently developed defence products,” he wrote.
So it was back on board MSI for me — cash-rich, well-backed by assets and on a near 5 per cent yield, at around 170p.
My third purchase was events and exhibitions company Tarsus, which operates 100 venues worldwide, at 286p and 290p. I continue happily to build up this valuable holding.
John Lee is an active private investor and author of “How to Make a Million — Slowly”. He is a shareholder in all the companies indicated.
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