Portfolio review

It's been a while since I took a look at my portfolio. The market has done well, and I'm in substantial overall profit. I'm not sure the market as a whole is tremendously cheap, but nor does it seem obviously overvalued.

In general I am happy to hold onto a fairly-valued share in a great company. But once a share in an average or mediocre company reaches fair-value, that should be the time to sell. So when looking at my portfolio I need to look at the quality of the company as well as the value of the share.

BRK-B: 9.6%

I am convinced by the intelligence, honesty and talent of Buffett and Munger, and would put Berkshire in the top rank of quality.

I recently assessed Berkshire's B-share value as being around $4000. Currently at $3270; I am up 40% in $ and 20% in £, but I will hold to $4000 and beyond.

IEEM.L: 8.8%
IAPD.L: 8.8%
IDVY.L: 8.0%

Relatively low-cost trackers, in markets that I think should do reasonably well in the long run.

I anticipate a yield of around 1.8% on IEEM and 3.6% on IAPD and IDVY. Considering I'm paying 1.24% on my mortgage, I'm satisfied that the value here is OK.

LLPF.L: 7.0%

A preference share, so the calculation here is different. I think Lloyds has made a huge mistake in acquiring Halifax, but with the help of the UK government it has built a large buffer of common equity and is in the process of reducing exposure to its most risky assets. From a capital safety point of view therefore, I'm satisfied that these are safe.

Looking at security of dividends, I think the key uncertainty lies around possible interference from the EU. Lloyds are unlikely to want to rock the boat, and given the UK government's enormous shareholding they are in that same boat.

On the other hand there is the potential upside of (a) Lloyds tendering for the preference shares eary, at, say, 75% of face value (currently trading at 53%), or (b) Lloyds calling the shares in 2015 at face value, giving a running yield of 25%.

If there is a tender offer at about 75% I am minded to accept, but for now I am happy to hold.

NXT.L: 6.6%

Next have a powerful brand and a UK-wide presence. They have an excellent RoCE and RoE, wide margins, moderate debt (approximately 2 years' post-tax profit).

Current yield is 3%. P/E ratio is around 12. Not as good value as when I bought it (at a P/E ratio of around 7) but certainly not excessive.

DGE.L: 6.1%

They have an excellent collection of brand names, which allows them excellent RoCE, RoE and margins.

Currently on a P/E ratio of almost 15, and a yield of 3.75%. Not cheap, but perfectly adequate.

SLXX.L: 5.9%

Most of the holdings in this ETF look pretty secure. It's heavily weighted towards the financial sector, but given the amount of government support in this area I don't expect any defaults.

On a running yield of about 6%, compared with the base rate of 0.5%, I'm happy to hold.

BATS.L: 5.3%

Excellent brands, good RoCE, RoE and margins.

On a P/E ratio of 16 and a yield of 4.27% it's not cheap, but not bad.

NG.L: 5.2%

I don't think I really have a good grasp of how safe National Grid's operations are. I'm hoping that they have extremely predictable revenues, and therefore their high leverage is sustainable. But there could be risks here that I'm failing to appreciate.

On a yield of 6% they are reasonably cheap, even if it does come off a P/E ratio of 16.

GNK.L: 5.1%

A decent company, with a mountain of debt. However, the debt is structured very favourably to Greene King - the have a secure source of funding for decades, provided they continue to meet the covenants on the debt.

Price/free-cash-flow of about 9. Reasonably cheap, if you ignore the debt. Expected yield of about 3.5%, covered about 2.5 times by free cash.

Market cap £950m, debt £1.6bn, so EV = £2.55bn. Earnings before interest payments are about £230m, minus tax at 30% = £160m. So on a debt-free basis Greene King would be on a P/E ratio of about 15. Expensive, but in fact in the current climate the structure of their debt is an asset, and means they are benefiting from cheap leverage.

GSK.L: 4.9%

Decent big pharma company, moderate debt. Pharmaceuticals face some headwinds at the moment, but I can't see Obama's plan making a significant dent in US healthcare spending.

P/E ratio of 13.6, yield of 4.7%.

TSCO.L: 4.8%

Tesco is the dominant supermarket chain in the UK, and is growing rapidly abroad. They continue to leverage the Tesco brand in non-food and financial areas. An excellent record of growth, superb margins (for a supermarket) and a good RoE and RoCE.

P/E ratio of 14, yield of 3%. Pretty cheap as far as I'm concerned. Definitely happy to hold.

BDI.L: 3.2%

Operate in a crowded marketplace of recruitment software. Seem to be decently run, but their accounting methods mean that profit is significantly higher than free cash flow.

They trade at a P/E ratio of about 10, but Price/Free-cash-flow of about 14. Not disastrous by any means.

BARC.L: 2.8%

Barclays have weathered the storm better than RBS and Lloyds. I have my doubts about the integrity of upper management, so I'm not sure this is a place I want to be in long-term.

Barclays now trade at about 1.1x book value. Reasonably close to fair value I reckon.

MXM.L: 2.4%

Maxima is the opposite of Bond. Their high amortization charge hides a stonking free cash flow performance.

Currently on a Price/Free-cash-flow of about 5-6. They look very cheap.

CPT.L: 2.4%

Carpathian seem to be a perfectly adequate, highly-leveraged property company. I'm not looking to hold them for the long term - this is a short-term play on them realising the value of their assets.

I reckoned Carpathian was worth about 40p per share a while back, after taking into account a fairly dismal performance from their property portfolio, but the strength of the euro probably means that that is now an underestimate. Let's say 50 euro cents, compared with their current price of 27 cents.

And while I'm waiting for value to out, they should generate cash.

QDG.L: 2.0%

Quadnetics doesn't seem the best-run company in the world. I think I'm looking for a way out.

On a dividend yield of 4.7%, a P/E ratio of 7-8, they do look pretty cheap. But if the price moved up to ~200p I think I'd be looking to sell.

ZRX.L: 1.2%

Zirax seem to be very poorly run. Letting a couple of Russian banks abscond with all your spare cash is not the smartest move.

They do look quite cheap in terms of assets and potential earnings, but I'm giving up hope of the value ever being realised. At about 6p per share I'm probably out.

Conclusion

I don't think anything in my portfolio is screaming to be sold on value grounds. There are some elements of the portfolio I'm not entirely happy with, but I don't see a pressing need to act.