DividendMax Half Yearly Review – 14/07/2014
At the beginning of the year when we chose the model portfolio, we warned our members that 2014 would be a very difficult year to trade the markets and so we have been proved correct. The FTSE 100 at the close of play on the 11th July (which will be our benchmark date for this report) was 6690 having started the year at 6749 so most passive investors are down about 1% on the year if they held a FTSE 100 tracker fund or something similar.
Model Portfolio
The DividendMax model portfolio has increased by 4.56% in absolute terms (excluding dividend payments)which easily outperforms the FTSE 100, but there have been many trading opportunities within the portfolio to have boosted your performance considerably. Admiral, Amec, Anglo American, Astra Zeneca Imperial Tobacco, Man Group, Royal Dutch Shell, SSE and Vedanta have all increased by strong double digit percentages during the year so far which justified our cautious stance on the market in the early part of the year.
We are now going to revamp our portfolio for the second half of the year, during which we expect further tough trading conditions ahead, but we feel that some high quality stocks have become far too cheap and we will switch out of some of the winners into these stocks.
Now that we have passed the half year we will revamp the portfolio, having outperformed the market by over 5% in the first half.
We are going to retain the strategy of 20 stocks and equal weightings of 5%
All prices have been rebased to the price as at the 11th July, so we start to monitor from there having locked in our gains for the first half of the year.
Ins
Easyjet with a weighting of 5% at a price of £12.52
Berkeley Group with a weighting of 5% at a price of £23.98
Vodafone with a weighting of 5% at a price of £1.90
BP with a weighting of 5% at a price of £5.02
Outs
AstraZeneca at a profit of 22.63% (dividends not included)
Vedanta at a profit of 24.92% (dividends not included)
SSE at a profit of 15.71% (dividends not included)
Imperial at a profit of 22.70% (dividends not included)
Small Cap Stocks
Our small cap picks have generally performed well.
1) Cathay International Holdings. (CTI) (Market Cap £135m)
Cathay began the year at 31p per share and currently have a mid price of 36.5p, up a modest 17%. As we pointed out in January ‘We are expecting 2014 to be a pivotal year for Cathay as the inositol business comes fully on stream’
We met with the management following the publication of their final results for 2013 and there was nothing in the meeting that has led us to change our beliefs. Cathay remains our number one small cap pick.
Hotel
We still expect a sale of the hotel within the next couple of years.
Inositol
The group announced in its interim management statement that ‘Haizi has increased its inositol production level from approximately 100 tonnes per month in December 2013 to 130 tonnes per month in April 2014 (annualized run rate of 1560 tonnes). Haizi has a full order book of inositol manufacture in the second quarter. The inositol market price has remained relatively stable during the period.’ We expect the Inositol business to contribute strongly to the group’s results in 2014 and very strongly during the 2015 financial year.
Lansen
The Lansen pharmaceutical business is quoted on the Hong Kong stock exchange and this allows easy valuation of this business. The strategy that has emerged over the past 12 months or so has been to purchase well-established Western Pharmaceutical products (as per the recent deal with Novartis) and use its very strong sales network to promote those products. We also believe that they will use the strong Lansen sales network to promote various OTC products that the group has access to.
We still believe that Cathay has enormous upside potential and will need the tax protection of a SIPP or ISA.
2) OPG Power Ventures (OPG) (Market Cap £349m)
OPG began the year at 56p and has performed extremely well since our recommendation by rising almost 80% in the year to date.
The ramp up in production has yet to happen although the market does now recognise their ability to produce ever larger projects within time and budget. In spite of the rise in the share price to 100p, we still believe in the long-term merit of being in Indian power production. Hold onto your stock and buy into any weakness.
3) Toumaz (TMZ) (Market Cap £97 million)
Toumaz began the year at 4p, slipped to 3p, when the highly respected chairman, Mr Richard Steeves and the CEO Anthony Sethill bought 12.5 million and 1.5 million shares each following the full year results. They have doubled their money and Toumaz currently sits at 6p. It remains a stock that carries a high risk, but the Sensium healthcare monitoring product seems to be gaining traction as a global sales distribution network is built up by the company. We believe that the stock has substantially de-risked and that 6p still remains an attractive entry price for this stock with great potential.
4) Imagination Technologies (IMG)(Market Cap £572 million)
Imagination began the year at 173p and currently sit at 202p, up 17%, but way off its all time high. We still believe strongly in the management foresight and the technology that they own. It may take a couple of years to discover who will win the battle of Imagination; the bulls or the bears. We are bulls.
5) Graphene Nanochem (GRPH)(Market Cap £70 million)
It is impossible to value a blue-sky stock like Graphene Nanochem and this has been our only failure in price terms this year. A spectacular failure as the price has halved because there are no really strong fundamentals underpinning the stock.(yet) That said, they do not seem to have done anything wrong and if you believe in the future of Graphene, the current price could be a very decent entry level. The Broker is saying that this is a strong buy that will be underpinned by fundamentals in the 2014 and 2015 financial years.
