Investment for June

[Boro Boy]

I’d go with Ramsdens
They do a lovely fish supper

I have to say thats who i thought it was when i voted

Don't think it's Harry's lot...!

[richard@imutual]

Thanks for taking the time to pull this together, Mr Chairman

However I'm am a bit concerned that we don't have enough info yet to make an informed decision (and of course, the onus is on all of us to do the research). Which is why I'm yet to vote

I realise we're sitting on a lot of cash and everyone's keen to invest, but maybe we need a little more time to do the research?

The newspaper "tips" are 6 months old and, for example, Hollywood Bowl was tipped at 183.5p but at the time of posting it would cost us 233p to buy - i.e. it's already gone up by 35%!

Not wishing to sound negative, just keen that we give ourselves the best chance to invest wisely. For future votes I'd like to see 3 volunteers research one share each, and publish their nomination by a given deadline (along with sufficient reasoning)

[garindan]

The newspaper "tips" are 6 months old and, for example, Hollywood Bowl was tipped at 183.5p but at the time of posting it would cost us 233p to buy - i.e. it's already gone up by 35%!

This is true, though the reason I thought Hollywood Bowl was an acceptable option to include is twofold: it is different to any of the current shares we have and the broker ratings all suggest it is a strong buy, as of when I published the poll. Just because it rose 35% at that point you mentioned it does not exclude it having another significant rise, and it may go down but that is the same for any share really. Is there any harm in including it - I don't see it myself but would I vote for it - I'd consider it and make the decision. I'm hoping that is what others are doing

Not wishing to sound negative, just keen that we give ourselves the best chance to invest wisely. For future votes I'd like to see 3 volunteers research one share each, and publish their nomination by a given deadline (along with sufficient reasoning)

I did think we'd agreed to trial doing it the way i have been for the past two votes. We have tried what you have suggested above before but it resulted in either you, me or a couple of others doing it every time. It clearly did not work, as well as causing some members to say certain shares were being pushed upon the Club, and was why I suggested we moved forward using tip sources from share pundits to remove the baggage of blame and have ready made sources of vote options. We can change it so we look at the previous week's tips if members would prefer. However if members need more time than a week to research the share purchase suggestions we can't react as quickly as might be needed to take advantage of those tips in the way you might be suggesting. Asking members to suggest shares and provide reasons is just asking for failure once again and I cannot see any point in going down that route once more.

Personally I'd like to see the discussion on the share options provided, with comments from members like has been seen earlier in this thread, such as:

Ramsdens is a gut instinct based on the current precarious nature of the economy. Liquidiating for cash is going to be a growth industry in the coming months.

If we could concentrate on sharing insights, thoughts and other gut feelings among the community it would be the most helpful thing to do. We don't have to buy any of these shares and if there is no appetite for the ones raised then it shows we should think on our feet and adapt how we select once again, to a different time period, a different tipster or whatever until we find a formula that works for us. I'm always open to ideas for this but to be fair they are normally few and far between.

[BeautifulSunshine]

In the age of the internet and sites like eToro using six month old tips is like looking back into the stone age.

[richard@imutual]

Well, here are current key stats for each of the four proposed investments

Hollywood Bowl
Buy price: 233p
Market cap: £351m
P/E ratio: 18.69
Dividend yield: 2.68%

Ramsdens
Buy price: 181p
Market cap: £55m
P/E ratio: 10.72
Dividend yield: 4.02%

GVC
Buy price: 623p
Market cap: £3.63 bn
P/E ratio: 8.12
Dividend yield: 5.12%

Essentra
Buy price: 416.6p
Market cap: £1.09 bn
P/E ratio: 18.01
Dividend yield: 4.98%

[richard@imutual]

Ramsdens and GVC look the better value picks to me. Here's a recent article from Stockopedia about Ramsdens

Ramsdens (12 June 2019)

Share price: 173.3p (+2%)
No. of shares: 31 million
Market cap: £53 million
Annual Results for the year ended 31 March 2019

I always keep an eye out for results from this "diversified financial services provider" (a rather grand description of the business).

Ramsdens had a good year, underlying PBT up by 4% to £6.7 million.

Including the cost of share-based payments, PBT is up by 3% to £6.5 million.

Pawnbroking - Ramsdens generates 25% of its gross profit from pawnbroking, and grew the loan book by 20% to £7.6 million in FY 2019, helped by The Money Shop acquisitions.

FX - 38% of gross profit is here. Fewer foreign holidays last year hurt the result in this division, with the result that there was only very modest growth in this division (despite the increase in the number of stores).

Return on Equity / ROCE falling

The company's average net assets during FY 2019 was £29.2 million, up by 14.5% compared to FY 2018. Similarly, I calculate that average capital employed increased by 14% in FY 2019.

Equity and capital employed are outpacing the growth in profitability, so I reckon that return on average equity and ROCE have both fallen.

This might just be growing pains - the effects of setup costs and commencing operations in new areas - but I have said before that I have a question mark or two over the Ramsdens expansion plan. For example, see my coverage in November 2018.

Opening a significant number of new stores per annum could dilute overall returns, if the new stores can't match the profitability of the existing estate. This is a mature industry and it's not easy to find new territories where you don't run into difficult competition or cannibalise yourself. The Ramsdens store count has increased by nearly 20% to 156.

I'm not suggesting that the company is headed for some sort of catastrophe, I am just a little bit sceptical that ROE/ROCE will sustain their high levels as the company expands.

At the moment, Ramsdens has the lead over H & T (LON:HAT) (in which I have a long position) in these quality metrics. If these metrics deteriorate for Ramsdens, that in turns means that earnings growth and free cash flow growth could disappoint.

Overall returns are likely to be solid, however, given the cheap market cap relative to earnings and the c. 5% dividend yield.

In the absence of any more info, I'm plumping for Ramsdens. Despite being far smaller than GVC, it actually looks the less risky of the two. And I think "small cap" is where we should be looking to be

[garindan]

In the age of the internet and sites like eToro using six month old tips is like looking back into the stone age.

Like I said a few posts ago - the format we discussed previously was supported by members - based on how Rich originally sourced Medica and that it would help us try and spot an opportunity from a share that has had a little while to play out, lessening risk. However, for next month's poll I will change approach and we'll look at voting on shares tipped from the day of the poll (I think it will be a Sunday to match when the article is published).

[BeautifulSunshine]

The poll has ended. And the winner is:

Ramsdens: 9/14 votes, 64%.

[garindan]

Ramsdens has been purchased - details as follows:

Ramsdens 533 shares @186.2450p £992.69
Commission £6.95
Total = £999.64

Can you please make sure you enter your position about this share, by voting in the poll here. Remember if you change your mind you need to update the poll!

No other shares reached an acceptable number of votes to warrant a purchase, so no discussion needed there and only one purchase this month.