Despite some potentially damaging testimony from Comey and an unexpected hung parliament result from the UK general election, markets have behaved pretty well in the end. My portfolio has been buoyed by its overseas earnings exposure (which benefits from the fall in the £) and by a corker of a trading update from my largest holding, Boohoo.com, which now looks like it’s heading off into space!

I have bought a new holding in Best of the Best (3% of portfolio) yesterday with some of the spare cash in the portfolio following a good trading update. 

Best of the Best is one of the smallest companies I have ever invested in at only £40m market cap. The spread is fairly horrendous at about 10%, so it is not really something to trade in and out of. I will need to accept a bit of volatility here and so will not let the position get too big. Though the flip side is that with less liquid smaller-cap shares the rewards can potentially be much greater if everything goes according to plan.

Best of the Best runs lottery competitions to win cars. Historically it recruited players just at airports but more recently has moved to also  recruiting players online. The business is very easy to understand. My initial reaction when it popped up on my screens was not very positive – it seemed too risky and faddish. After following it for a little while, I still think it looks fairly risky but am a lot more positive about the possible reward.

Quality

I think BOTB is a high quality but somewhat risky business:

• Business economics: unsurprisingly, the economics of running a lottery are pretty attractive. Costs are very low and now BOTB has developed its online platform, little capital investment is required. This is borne out in BOTB sizeable margins and huge ROCE. If it continues to grow from its current small size it is likely to benefit considerably from further economies of scale.
• Track record: there is not much of a track record to speak of, but over the 3-4 years it has been listed BOTB has been consistently highly profitable and has grown fast.
• Competitive advantage: BOTB operates in a clear niche and doesn’t appear to face any direct competition. The small size of the market is unlikely to be attractive to a potential entrant and BOTB would continue to have a first mover advantage from customer awareness of its offer if it is successful in continuing to grow. The risks are more that its existing customers lose interest.
• Growth prospects: given its small size and the success it is currently experiencing in recruiting customers online the growth potential seems very good. However, it faces the risk that its existing customers lose interest. Based on the current trajectory, I am happy to take this risk.

Pricing

Momentum is very good with the share price breaking to new highs, following a positive trading update on Thursday with profits marginally ahead of expectations. The valuation appears reasonable given growth prospects.