Hei fra norge

It's been over 4 months since I last posted, and I'm now living in Norway.  I've sold my house in the UK, which means that once again I have funds available for investment.  At the moment I'm a bit too busy renovating my house and learning Norwegian to do any in-depth research, so my plan is:

• Get a sensible overall asset allocation.
• Invest funds that I'm happy to tie up for the long term.
• Invest in safe, low-maintenance shares I already know well.

Asset allocation

I'm no longer tied very tightly to the UK.  I still have family and friends there, so I will be visiting regularly, but it doesn't make sense to have most of my funds tied up in sterling.  On the other hand, investment opportunities in Norway are limited, so I don't want my money tied up in kroner.  I have a vague future entitlement to some US dollars through my work, so I don't want to be overweight in dollars now.  I need a decent mix - lets say 40% UK, 30% US, 30% Euro/other.  I don't mind if shares are denominated in sterling if they're really international.

Funds for the long term

Of my available cash right now I'm going to invest half and keep the rest in cash.  I'm not yet sure if I'll spend that cash in the near future, or invest it later.

Shares I know well

Here are some of the various shares that I owned recently and was happy with:

• Berkshire Hathaway.  I need look no further for the US part of my portfolio.
• Tesco.  I like Tesco a lot, and they look pretty cheap on a P/E ratio of 11.
• Next.  I like Next, but they are in a difficult industry.  They've done fantastically well, but will they continue to do so for the next 10 years?  I wouldn't like to say.  And therefore they fail the "low-maintenance" test.
• NWBD.  Currently on a yield of just under 10%.  Seems a pretty good deal, although this is obviously totally UK focused.
• Lloyds.  Look very cheap, but beyond my powers of research, so I'm going to rule them out.
• Diageo.  Moderately expensive, and they do have a lot of debt, but I also like them quite a lot.  They're also a good international company - although the share price is in sterling the UK is not a big market for them.  
• British American Tobacco.  Too expensive on a P/E ratio of 19.
• BP.  Pretty cheap, and very international.
• Greene King.  Very UK focused, and although they are well-led I wouldn't like to predict how they will do in the next 10 years.

So putting it all together my candidates are:

• US: Berkshire Hathaway.
• UK: Tesco, NWBD.
• Euro/other: Diageo, BP.

I expect to invest my funds over the next few weeks.

Quick update

Since selling off 90% of my portfolio I haven't really been on the lookout for anything new, so I've been pretty quiet recently.  Sadly the world at large hasn't remained quite so static:

• Game Group continued to plummet, before staging a minor recovery.
• Maxima has cratered.

At the moment all my trading decisions are driven by tax / administrative reasons.  Accordingly I have:

• Held onto BDI, GMG and MXM in order to realise the tax losses when I move to Norway.  (Also ROK, but I can't sell those even if I want to).
• Sold IAPD to realise the capital gain at £18.82.
• Made a small investment in IS15, a short-term sterling corporate bond ETF from iShares at £102.52.  (I've recently opened a new trading account that I can use after moving to Norway and you need to hold some shares to avoid inactivity charges).

As always my entire portfolio (plus all the shares I've ever held) is available here:

http://www.danieltebbutt.com/portfolio.html

And every trade I make will appear on this blog.

P Z Cussons

As a follow-on to my recent article on Unilever, I've now written about a potential acquisition target: P Z Cussons.

Unilever

After a couple of months of being distracted by (a) buying a house, and (b) selling 90% of my portfolio, I've finally written a new article at shareworld.  I was looking for a company that I'd be happy to invest in after moving to Norway, which means it must be:

• International.  Working for a UK company gives me quite enough exposure to the £ already.  I don't mind it being listed in the UK as long as its revenues come from all over the world.
• Safe.  I am going to have a lot more debt, and far fewer financial assets.  My personal risk threshold will be much lower than it has been in the past.

So I took a look at Unilever.

Sell shares, buy Norwegian property

Not the best investment advice I'm pretty sure, but nevertheless that what I've done over the last week.

The big move
I have bought a house in Norway.  The price of houses in Norway is ludicrous, and the exchange rate is extremely unfavourable.  But needs must when the devil vomits in your kettle - I need somewhere for my family to live when we move, and renting is not exactly cheap out there.

Anyway, for the next few months I need every penny I can lay my hands on, and accordingly have today sold 80% of my investments.  Between now and July I will sell another 14%, leaving me with just the 6% of my portfolio which has an associated capital loss (which is deductible against income tax in Norway, and which I will sell later in the year).

Once the big move has come and gone (late July / early August) and we can sell our house in the UK, I should once again have some money available to invest.  When this happens I hope to be a better investor:

• I will have far less disposable income, and fewer liquid assets, so I will be more risk-averse and more concerned with liquidity (fewer micro-caps).
• My cost of funds will be higher (because I will move off my fantastically cheap UK mortgage), so I will set the bar higher in terms of the return I am looking for.
• My portfolio will be smaller and more concentrated - less like a closet tracker.
• My transaction costs will be higher (because I will have to use an off-shore or Norwegian broker), so I plan to trade less often.

We'll see.

Regrets

Of the shares I've sold today, I've been pretty sanguine about selling most of them.  The ones that have given me pangs of regret are:

• Berkshire Hathaway.  I think this remains cheap, and would like to hold it for many more years.
• De La Rue.  Personally I would have taken 935p from Oberthur, but I can understand why other shareholders were reluctant - I think De La Rue will trade north of £10 again in the not-too-distant future.
• Tesco.  Has remained cheap ever since I bought my first shares, and is another one I'd like to hold for the long run.

And some others that I'm not too unhappy about:

• Carpathian.  Has done very well, and probably worth a bit more than the price I sold at, but the easy money has already been made here.
• National Grid.  I never really felt I understood it well enough, and the scary balance sheet has made me nervous ever since I first bought shares.  Happy to have this one off my mind.
• Diageo.  Great business, but a bit too highly leveraged to be worth a P/E ratio of 19.

2010 / 2011

Looking back
On the whole it has been a good year for the Danfolio.  Over the year I've made capital gains of 20% and earned 3% in dividends, outperforming the FTSE 100 by about 10%.  Thanks to ISAs, capital gains allowances and my wife's basic-rate tax status none of the gains are taxable.  In fact, because this year I am moving to Norway (where capital losses can be offset against taxable income) I have earned about 1% in tax assets.

I've been a net investor over the course of the year, adding 18% to my portfolio, so as a result I have 40% more funds under management than at that start of 2010.

The 3 largest constituents of my portfolio (together making up about 35% of its value) are:

• Berkshire Hathaway, which rose by 25%.
• BP was up 41%.
• LLPC, the Lloyds preference share, returned 39%.

None of the 3 pay a dividend.

Some highlights from the rest of my portfolio.

• Carpathian, unfortunately one of my smallest shareholdings, returned a capital gain of 60% and capped it with dividends worth another 24%, for a total return of 84%.
• British American Tobacco returned 28% capital gain and a further 5% in dividends, for a total of 33%.
• Barclays returned 30% even though I sold it in March(!).  If I'd held it for the rest of the year I would only have broken even.

And just in case I was getting too smug, let's not forget:

• Rok, a complete wipeout in terms of capital, although it did pay 3% of dividends before expiring.
• Game Group, down 22% in only 8 months, slightly redeemed by 6% in dividends.

Looking forwards

As I said above, this year my family and I will move to Norway.  Property is rather expensive in the area we'd like to live in, and therefore I expect to sell off the majority of my shares to fund the purchase of a house.  I hope to continue investing, but (initially at least) my portfolio will be smaller and more concentrated.  Longer term I expect to build it back up to its present size and beyond.

Southern Cross prelims - covenants further relaxed

As I expected last week, Southern Cross have announced a further relaxation in their bank covenants as part of their final results.  The fixed charge cover is now down to 1.1x.  No further news on a possible takeover, except to reiterate the earlier news that "the approaches are still preliminary in nature, and the Board continues to believe it to be in shareholders' interests to continue to hold exploratory discussions."


A fixed charge cover of 1.1x is pretty generous.  They only need to manage adjusted EBITDA of about £20m to hit that.  And they have about £30m of headroom in their revolving credit facility.  Perhaps the more important figure now is their cash-flow neutral point - I reckon they need at least £30m of adjusted EBITDA to be cash-flow positive.


I see no sign of this company going bust imminently - they seem to be within their covenants, they have headroom in their credit facility, and their bankers have repeatedly demonstrated their unwillingness to call in administrators.  But then I've just suffered a total wipeout with Rok, so what do I know?