Portfolio Review 5

The next 4 shares…


XP Power

XP Power is 3.4% of my portfolio and is up 19% on my purchase price. XP Power is another post Brexit purchase bought mostly on basis of quantitative screening.


XP Power is a developer and manufacturer of power converters for original equipment manufacturers. I think it is a high quality business though I have a few doubts:

  • XP Power has some competitive advantage from its IP and its provision of high quality service. However, its moat appears somewhat limited and it acknowledges some vulnerability to competition in the future e.g. from low cost Asian producers. There is clearly some risk here in my view. XP Power carries out some of its own manufacturing in Vietnam and is attempting to move up the value chain with more own label product.
  • XP Power has growing market share though there is some suggestion in its reports that some of its markets are a bit stagnant. I believe it may also be subject to technological risk though it is hard to tell how much of a risk this is.
  • XP Power does provide an essential product to its customers and has good visibility of revenues. It has diversification across customer types and geographies. I don’t believe it is very cyclical (a little) but given its revenue visibility there are unlikely to be big surprises.
  • XP has demonstrated fairly consistent growth over the last few years and high margins, ROCE and FCF generation.


XP Power has good momentum and a currency tailwind post Brexit. The valuation appears reasonable.

I am not totally convinced that XP Power has a great long term moat but it does make high margins and ROCE and I am prepared to hold for no while momentum is good.



Fevertree is 3.3% of my portfolio and is up 16% on my purchase price. It took me some time to buy Fevertree, despite being a keen admirer for quite some time after it had scored very highly in my screening. I realise this is because I was continually being put off by the fact that the share price had risen so much. I have been training myself to embrace momentum into my investing style so shouldn’t make this mistake again.


Fevertree is a premium soft drinks and mixer brand. I think it is an exceptionally high quality business:

  • Its ‘moat’ comes from its brand. It has succeeded in the UK as establishing itself primarily as a premium mixer for gin drinks (given a gin&tonic is mostly tonic why drink a fancy gin and a cheap tonic). I think it really does taste a lot better than cheaper tonic. As a result it can be popular while charging a large premium. I think luxury drinks brands are pretty great businesses, having great economics, wide appeal, often almost addictive qualities and very defensive characteristics.
  • Fevertree has very high margins and ROCE. It is also growing at a very high rate, particularly in the UK where there is something of a boom in gin&tonic drinking.
  • The growth potential very exciting. There appears lots of scope for global expansion and also for the introduction of new premium soft drink products. On the latter I am not currently aware of any successful premium brands so this seems quite exciting.
  • It is founder managed.


The business and price momentum is excellent with earnings forecasts being continually exceeded over the past year. The valuation is high but appears reasonable given its growth rate. My DCF experimentation suggests its valuation implies a 25% compound growth rate over the next few years which I think is achievable. It will seem cheap if its international expansion takes off.



Diploma is 3.2% of my portfolio and is up 13% on my purchase price. I bought recently as it scored very highly in my screening and seems like a high quality business though I have to admit some ignorance about exactly what it does.


Diploma is a group of businesses supplying specialist equipment for healthcare and other industries. While I have found trying to understand its business a bit frustrating, Diploma’s reports and results say all the right things:

  • Its competitive advantage is a bit unclear as so many products. It is difficult to tell how much competitive threat it faces though its high margins suggest that currently this is limited. It attempts to differentiate itself and increase margin through providing customer responsive service.
  • It says it focuses on essential products with consistent growing demand so it is likely to be defensive.
  • It looks to grow beyond the secular growth in its markets by making careful acquisitions.
  • It has great numbers: high margins, ROCE and consistently growing profits. I am also attracted by the way the share price has risen in an almost straight line for the past 8 years (in line with the company’s results).


The business and price momentum is great. The ┬ávaluation seems a bit on the high side but reasonable given the consistency of growth and apparent defensive characteristics. I’m happy to let ignorance be bliss for now and hope to understand it better over time.

ted baker

Ted Baker

Ted Baker is currently 3.1% of my portfolio and is down 3% on my purchase price. I finally bit the bullet after being an admirer for some time.


Ted Baker is easy to understand. It is a fasion brand owner operating in retail and wholesale.

  • It has a competitive advantage from its brand. Its brand is not dissimilar to Superdry in terms of its target audience though seems a bit more orthodox and to me possibly more durable. The brand seems to be developing very well at the moment.
  • Ted operates in a growing market with no apparent technological risks. I think it is probably not very cyclical.
  • There seems plenty of scope for further geographic expansion. Similar to Supergroup, Ted has been investing heavily for further growth.
  • Ted has a great track record. It has delivered consistent growth with high margins and ROCE.
  • It is family managed.


Momentum is good with some very good recent results – the share price is bouncing back after a bit of a down year. The valuation is high but seems reasonable given the quality of the business and growth trajectory.

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