DOTD bought

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.

DotddotDigital

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.

Quality

  • 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.

Price

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.

8 thoughts on “DOTD bought

  1. Hi QSF,

    I like your blog and investment style very much – and stop by to look at your trigger14 portfolio regularly. Are you starting to get tempted to become a full time private investor? Im curious as to the broker you use that has more US coverage than European – do you mind revealing the identity. I presume by cover you simply mean have the facility to trade or do you use them for research ideas? Do you find stockopedia good for US and EU stocks?

    Cheers
    Steve

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  2. Hi Steve

    Thanks for the feedback – it’s great to hear that you like the blog.

    I don’t think I’m ready to become a full time investor quite yet. I am fascinated by the intellectual challenge of developing a strategy that beats the market and perhaps even a little obsessed at the moment. However, investing doesn’t feel like something that would keep me occupied full time. Maybe when I get tired of my day job and fancy a quieter life.

    I use Interactive Investor as my broker and mostly trade within an ISA. Yes by coverage I mean facility to trade. What has been a little frustrating is that my screens picked up a lot of Nordic and Swiss stocks that I put some research into but can’t seem to buy. I haven’t found much I can’t buy in the US yet.

    Stockopedia seems to work just as well for the US and Europe as for UK as far as I can tell (though Stockranks don’t work so well in the US). I’d particularly recommend looking at the US if you haven’t already – my screens picked up a lot of promising opportunities there without too much effort.

    Quality Share Surfer

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    • Hi QSS Do you get this reply email? I’m curious as to your screens, are they much different to the price and earnings momentum screens that stocko uses? Cheers Steve

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  3. Hi Steve

    My screens are quite simple and just the very first step in my approach. I use a combination of screening and qualitative judgment to help identify candidates for my watchlist. The idea is that this stage is based on quality (as I define it) rather than momentum. Momentum and newsflow comes in later when deciding what to pick from the watchlist. I’ve written a previous post, called ‘mechanical screening’, which sets out what I look at when screening here:

    https://qualitysharesurfer.com/2017/05/14/mechanical-screening/#more-4501

    QSS

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    • Hi again Wondered what you made of current markets. My portfolio has retraced by a few percent, though overall market is near its highs I sense a degree of rotation has been happening. Also wondered if you were London based? Cheers Steve

      Sent from my iPad

      >

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  4. Hi yes the current markets have been quite volatile recently as has my portfolio. There seems to have been quite a bit of rotation out of tech and growth into value and cyclicals over the last few weeks.

    I’ve little faith in my ability to time markets – looks possible we could get a market correction soon, but could also be a while as valuations don’t seem that stretched yet. I’m not sure which so I’m just following my strategy as usual but trying to be more careful with valuations when deciding what to buy.

    Yes I’m in London – are you?

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  5. Hi. Sorry for the slow reply. Yes – I’m London based. I wondered if you wanted to join me and a friend (also a private investor) for a long lunch to discuss to discuss investments?

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