Last week saw my portfolio continue to new highs, but with some big moves both up and down in a few of my larger holdings. I bought a new position in dotDigital following some decent end of year results. I’ve also extended my coverage to the US market and have started to scour it for opportunities.
Bioventix issued some results on Monday that to me looked very good. Its main product of Vitamin B antibodies continued to perform well ahead of expectations and many of its smaller products also grew very strongly. However, the CEO, Peter Harrison, made some cautious statements about expectations for this year causing the price to fall. We have known for some time that it is about to lose a significant revenue stream this year for one of its main products whose license has expired. It had been touting the launch of Siemen’s new Troponin test (for which Bioventix supplies antibodies) as the replacement for these revenues. However, this time it was a bit more cagey about the extent to which this will be the case, as it does not have much visibility of when use of the test will take off. Consequently, the share price fell quite a bit last week as I think many anticipate a period of stagnation during this ‘transition’ year. I trimmed my position (which had been my largest by some margin) but continue to hold, against my normal practice of selling in the face of price weakness. I am so impressed with the quality of Bioventix’s business that it is an exceptional conviction hold for me, unless something in the story changes. Bioventix is fairly illiquid share making trading in and out costly. I also saw the outlook statement in the latest results fairly positively and would be surprised if Bioventix doesn’t very significantly outperform the low bar it has set itself as it has repeatedly done in the past.
RWS went on a bit of a rollercoaster. I had bought in to RWS last week following some very upbeat results and had built up a fairly hefty position that was almost 20% in profit. The share price then took a fairly big fall on Tuesday following the surprise news of a major acquisition and placing to fund it. I don’t think RWS had anticipated the surge in price following its results and the placing ended up being at a significant discount to the share price at the time of the acquisition announcement, causing the fall. However, I think the acquisition itself looks like a very good one. Moravia provides similar translation services but with a focus on ‘localisation’ services (i.e. translating content to fit local languages and culture) for technology customers. This appears to be highly complementary to RWS services (which focus on patents and life science) and so likely to give decent cross selling opportunities. Moravia appears to be a high quality and growth business similar to RWS. The share price is still in a medium term uptrend despite the fall and I will continue to hold for the time being.
Craneware has finally started to take off after spending a long time not doing anything. Craneware provides IT payment systems for US hospitals and is the closest thing to another conviction hold for me and currently occupies a major position in my portfolio. Games Workshop also continued its meteoric rise after issuing a vague but positive trading update, suggesting it was likely to substantially exceed expectations again.
I sold Just Eat again soon after my purchase not much more than a week before. The price had fallen back and I needed to the funds to top up more promising opportunities.
Following my foray into Europe, I’ve decided to extend my coverage to the US market and have started to scour it for opportunities. My initial impressions are very positive. This is partly because my broker has a much better coverage of US than European stocks. It is also because of the large number of very high quality of the businesses I am identifying with my screens in the US. Contrary to my expectations a lot of them seem to be on decent valuations too. I feel a bit like a kid in a sweet shop at the moment and am adding quite a bit to my existing watch list.
dotDigital is an IT business which provides software to business for automated email marketing. I’ve had it on my watchlist for quite a long time but this is the first time I’ve bought it for my portfolio.
- Business economics: dotDigital is very profitable. It makes a high operating margin (26%) and has averaged a return on capital in the high twenties for the past few years. It has fairly low capital requirements, turns most of its profits into cash and has quite a bit of cash on the balance sheet.
- Track record: dotDigital has a fairly consistent but not very long track record of rising revenues and profits, barring a down year in 2013. Its share price has risen steadily since it listed.
- Competitive advantage: I’m not sure that dotDigital dominates its market but it does appear to have a decent product and growing market share. It may benefit to some extent from ‘sticky’ customers (who face costs to switch to a different product) and has a high proportion (>80%) of recurring revenues.
- Growth prospects: dotDigital has excellent growth prospects. It has opportunities to grow both internationally and through improving its product. Online commerce and so the demand for dotDigital’s products are currently experiencing secular growth and are likely to continue to do so for some time. It is growing internationally and faces little costs to scaling up its operations. Technological change may pose some risk to dotDigital through its effect on consumer behaviour and consequently the attractiveness of email as a marketing medium.
I bought dotDigital just after it issued very positive final results. Share price momentum is excellent with the price breaking out to new highs following the results. I think the shares are currently marginally undervalued given the growth prospects.