The second set

This post follows on from the last in the series – looking at my current porfolio holdings and trying to get back up-to-date with how they’re going and how I feel about their valuations.

Trinity Mirror (TNI)

I came late to the party to Trinity Mirror, but it’s still up about 40%. Most of my other stocks rising about that level, or a bit more, start to be interrogated along the lines of whether I really want to keep them. Trinity Mirror avoids that fate. Why? Well, it’s pretty much the flipside of the argument I posted here when I was distinctly sceptical of Trinity Mirror. There, I argued that situations where debt represents a big part of the capital structure and equity represents only a little are particularly dangerous because the (small) equity portion becomes especially volatile. Small changes in cash flow assumptions make big changes to equity value. It’s basically just the story of leverage and aversion to high levels of debt that many investors have, really.

If you turn that around, and keep the assumption that small changes in cash flow assumptions have a big impact on equity value, it’s easy to see the positives when market opinion starts rallying. Even slightly more optimistic outlooks boost the share price significantly. It’s in that vein that I’m keeping Trinity Mirror, then – even a 40% rise in the value of the equity doesn’t change the story much.

Verdict: If my analysis was right, it’s still cheap and has a while to go. If it’s wrong, it’s wrong at both my purchase price and this price, and a wide range of prices either way. Such is leverage!

Communisis (CMS)

Communisis are a company I bought in the first place after a bit of deliberation, a bit like Trinity Mirror. Unlike Trinity Mirror, which I bought after it had risen (not a factor in my purchase, I should add), Communisis came along for the ride after they dropped ~40% in a month for no discernible reason. The trading statement they released shortly afterwards was pretty positive, too, so I’m still not sure why that was! They’ve risen to above the price I originally turned them down at – so it seems logical that if they’ve risen above that point, I should be thinking about offloading. That makes sense if the business has stood still, but if the business and the outlook has improved – maybe not. What has Communisis done?

Well, it looks like things are improving, but there’s been acquisitions and the income statement has a not-insignificant amount of exceptionals on it. It’s difficult to really get at what’s happening underneath it all. Management are bullish, though, and forecasts for the year as a whole are really quite strong. I think the only logical thing to do is wait for another update from management and appraise on the day it comes out. Doubtless there’ll still be complicating factors then, but at least I’ll be working with up-to-date information.

Verdict: Probably still cheap, but share price and market forecasts seem to contradict. Bullish market forecasts make me nervous; share price makes me comfortable.

Tullett Prebon (TLPR)

Tullett Prebon also released a set of results since my fairly recent purchase; most of the figures were more or less flat, with a slight drop off in underlying operating profit. I bought at a P/E of about 6, though, so even a continuation of prior results is a decent showing if the trend continues into the future. Positively, they raised their dividend, which can be taken as a sign of confidence from management – the yield is already pretty healthy (6%)  – though, realistically, I doubt there’s that much to invest in and they’re still keeping most of their profits.

Overall, I’ve been having second thoughts about Tullett. I’m in two minds, simply because the whole idea behind investing is so different from my usual. Normally, I try to understand the business, understand the figures and invest after I know what I’m getting in to. In short, I look for no obvious roadblocks on the horizon, and instead try to invest in companies which I think are unfairly penalised. Tullett Prebon clearly does not fall into this category. While I understand what they do, sort of, the regulatory questions about the role of intermediaries in the financial system means their fate is probably tied up in questions which fly far above my head. It’s more of a bet on that old psychological one – that change is always expected to be faster and more sweeping than it actually is, and that Tullett will remain one of the leading inter-dealer brokers, just with a new shape.

Verdict: Really should decide on whether that sort of investing is one I want to be involved with, or to stick to more bottom-up research.


Well, I guess the last one is the easiest one. With Zetar, my hands are probably tied. The takeover bid looks very likely to succeed, which will leave me with a 300p payoff for each of the shares. As I’ve said there, the price doesn’t seem to be anything special but does probably represent a normal premium. My only question is whether to sell now or wait for the 300p – slightly more complicated than it sounds by the fact I think they’re worth more than 300p anyway, meaning holding the shares and the bid falling through isn’t the disaster it might be for a short-term trader.

Verdict: Probably going to hold until the deal completes.

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