China AI venture DeepSeek comes out of nowhere to upset the apple cart
07 US technology stocks tumble on surprise Chinese
innovation 09 WH Smith hangs ‘for sale’ sign over historic High Street stores
10 Sage Group hits new high after 2024 results and buyback spur gains
10 Everyman Media plumbs the depths after registering all-time low
11 Will Diageo shareholders be raising their glasses or downing their sorrows?
12 Can Palantir keep the plates spinning as its valuation balloons?
GREAT IDEAS
13 Capri is a contrarian pick with identifiable upside catalysts in place
15 Why we think Beeks Financial Cloud is primed for exciting growth UPDATES
17 Trainline should be able to ride out government plans for a state-backed rival
18 It’s time to cash in our ‘Get Out Of Jail’ card in Burberry
20 INVESTMENT TRUSTS
Saba loses first round as Herald shareholders vote down resolutions
23 6 great small caps to
37 What I learned from a trip to SRT Marine for its AGM
Find out how Phil started his investment journey with Cable & Wireless as a teenager in the 1980s
What higher bond yields mean for your personal finances
The Indian conglomerates which have helped drive strong returns
Netflix shares soar after blockbuster results and big plans to boost advertising
Can I take tax-free cash from my pension more than once? 49
Shares, funds, ETFs and investment trusts in this
Three important things in this week’s magazine
GREAT SMALLCAPS TO BUY TODAY
Learn why UK small-caps are a great way to diversify your portfolio
Small-caps tend to grow faster than big-caps, and right now UK smaller companies are particularly cheap so discover our top picks for 2025.
Why did US tech stocks sell off and what should investors do?
The unexpected emergence of a cheap AI rival has rocked the market and raised big questions about Big Tech’s capital spending and profit forecasts.
Visit our website for more articles
Did you know that we publish daily news stories on our website as bonus content? These articles do not appear in the magazine so make sure you keep abreast of market activities by visiting our website on a regular basis.
Over the past week we’ve written a variety of news stories online that do not appear in this magazine, including:
Read about Phil’s investor journey from the 1980s to today
A reader shares their experience of building a portfolio fit for the future as they navigate major milestones like buying a home, getting married, having children and starting a business.
China AI venture DeepSeek comes out of nowhere to upset the apple cart
Lofty
Who had an open-source Chinese AI chatbot on their bingo card as something which could trip the markets up in 2025? Not me, I have to confess. We have a news special on the DeepSeek story and its implications from my colleague Martin Gamble, who won’t mind me saying has seen a few market cycles in his time.
Anyone invested in a global fund or tracker will likely to have some exposure to this story and they might understandably be somewhat concerned about the sell-off. Remember corrections are normal and healthy even if they don’t feel that way in the short term.
The concentration on and weighting afforded to AI plays on the US market, in particular, means we will inevitably see a much larger impact there than we might here, for example, where the FTSE 100 has remained pretty steady over the last couple of days.
We are still some way off knowing the full implications of DeepSeek’s launch and the selling seems to have been short-lived for now but, as we discuss, the lofty valuations afforded US stocks means they are vulnerable to this sort of setback.
Interestingly, one asset class which has been popular as a store of wealth for centuries seems to be back in favour with gold close to testing new record highs.
The precious metal has had a stellar run in recent years, supported thanks to its role as an inflation hedge and a safe haven during a period of elevated geopolitical uncertainty while buying by central banks looking to diversify their reserves out of dollars has been another driver.
We have one observation to make - this recent leg up has happened during a period of dollar strength, so given it is denominated in
Chart: Shares magazine • Source: LSEG
dollars, gold would likely get a boost if the US currency were to reverse any of its recent gains.
From some of the largest companies in the world to some of the littlest, this week’s Shares turns its attention to some of our best small-cap ideas.
Obviously higher-risk, nonetheless they have the potential to deliver outsized returns.
You can read why the team have made their respective selections and why they are excited about them in our main feature this week.
One further observationsmall caps are very definitely not overvalued. Constituents of the MSCI UK Small Cap index trade on a forward priceto-earnings ratio of less than 12 times compared with more than 19 times for names in the MSCI World index.
We’re on a mission to make pensions easy. It’s why Which? rate no other investment platform higher for ease of use.
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US technology stocks tumble on surprise Chinese AI innovation
Bringing down artificial intelligence costs could be positive for all in the long term
The fast-changing world of AI (artificial intelligence) has taken another unexpected turn after reports over the weekend that Chinese firm DeepSeek had developed a competitive LLM (Large Language Model) at a fraction of the cost of traditional AI models.
DeepSeek’s latest R1 model can perform similar levels of reasoning as OpenAi’s best available model, scoring as high or higher than ChatGPT-4 and Meta’s LLaMA 3.1 on a variety of third-party tests to measure performance.
The news sent markets into a tailspin on 27 January, with the technology heavy Nasdaq 100 index tumbling 3%, wiping off over $1 trillion of market value and taking the benchmark S&P 500 index down 1.6% in its wake.
AI-darling Nvidia (NVDA:NASDAQ), whose high-end chips have powered the AI revolution, plummeted 17%, registering the biggest ever singleday loss for an individual stock of almost $600 billion.
Other casualties included US and European semiconductor chip names and energy and uranium stocks which have been bid up on the idea of massive demand from power-hungry AI chips. There has been something of a recovery in the interim but nervousness remains about the DeepSeek threat.
It’s fair to say nobody knows exactly what the long-term implications of the latest innovation may be, but what has not been lost on investors is that that DeepSeek’s R1 requires far less energy and has been achieved using less advanced Nvidia chips.
The first model built by DeepSeek reportedly cost just $5 million, which is around a tenth or less of the cost of traditional AI models and requires far less power.
Perhaps the biggest challenge for the AI industry is that DeepSeek is open-source and therefore free for developers to download and use, allowing access to a much wider group of firms outside the so-called hyperscalers such as Alphabet (GOOG:NASDAQ) and Amazon.com (AMZN:NASDAQ).
The irony for the US administration is that policies designed to restrict Chinese access to the most advanced AI chips may have contributed to DeepSeek’s engineering success, demonstrating once more that necessity is the mother of all invention.
It also brings into question president Trump’s AI spending plans of up to $500 billion through the Stargate programme, which was only revealed a few days ago to great fanfare.
So, how worried should the big tech giants be?
Mark Hawtin, global head of equities at Liontrust, believes DeepSeek is more than just hype.
‘In our view, the DeepSeek buzz is justified and more notable when considering the US imposed restrictions on Nvidia’s AI chips to stall AI advancement in China in an “arms race”,’ says Hawtin.
Instead of building one large AI which tries to encompass everything, DeepSeek’s engineers have
designed a system of experts which are only called upon when needed, vastly reducing cost and power.
Effectively the design tweaks mean only 2,000 GPUs (graphics processing units) are needed instead of 100,000, and models can be run on gaming chips instead of data centre hardware.
Hawtin believes the open-source nature of DeepSeek’s R1 could ‘democratise’ AI and cause a tectonic power shift. ‘We could witness an explosion of new applications by decoupling AI advancement from high capital costs,’ explains Hawtin.
‘Open models enable customisation for nicheuse cases that are often overlooked by Big Tech’s one-size-fits-all strategy, fostering creativity across all industries.’
In conclusion, Hawtin believes the Liontrust team’s positive view on AI is reinforced and there will be a broadening-out of the opportunity set. However, AI infrastructure players may become victims of the ‘right thesis at the wrong valuation’ mantra.
STRETCHED MARKETS
If the claims of DeepSeek can be substantiated, the narrative of US technology companies’ dominance is under threat exposing their valuations and the assumptions underlying them.
Investor enthusiasm for AI has created one of the most concentrated markets in history with the ‘Magnificent Seven’ representing more than a third of the S&P 500 index.
Technology
We could witness an explosion of new applications by decoupling AI advancement from high capital costs”
This concentration has contributed to double-digit gains over the last two years, pushing the valuation of the benchmark to levels not seen since the dotcom era.
Which is where the ‘Fed model’ − which compares the yield on 10-year US treasury bonds with the equivalent stock market yield, calculated as the inverse of the forward market PE (price-to-earnings) ratio − comes into play.
With the S&P 500 trading on a forward PE close to 25 times, that represents a yield of 4%, while 10-year treasuries yield 4.5%, even after they fell in response to market turmoil.
Stock market investors can typically expect to receive a 2% to 3% premium over the 10-year risk-free rate to compensate them for the extra risk involved in owning stocks − the so-called equity risk premium.
A negative yield gap or premium can therefore be interpreted as a sign of excessive risk-taking, and while there are those who criticise the model because it does not factor in inflation it is still closely-watched by the Fed as a gauge of market exuberance. [MG]
wasn’t the only sector to
suffer heavy losses
WH Smith hangs ‘for sale’ sign over historic High Street stores
Group exploring options as it focuses on faster-growing Travel arm
Shares in WH Smith (SMWH) jumped 5% to £12.11 on 27 January after the storied retailer confirmed it was ‘exploring potential strategic options’ for its High Street business, which opened its first shop in London back in 1792.
These options include a potential sale of all 500 High Street stores at a time when bricks-andmortar retailing faces online competition, subdued footfall and a sharp rise in labour costs following the recent UK Budget.
A successful sale and repositioning of WH Smith as a pure-play travel retailer would no doubt be welcomed by investors – the High Street arm does make money and is cash-generative, but it has become less relevant to the group as a whole over the last decade.
With more than 1,200 stores across 32 countries, Travel is now the core business, selling an array of essentials ranging from food-on-the-go, drinks, health and beauty and tech accessories to books, newspapers & magazines.
The business is faster-growing and higher-margin than the High Street stores and now generates threequarters of WH Smith’s group revenue and 85% of its trading profit.
After strong momentum during the peak summer period last year, the Travel division is well positioned to benefit from the structural growth in global passenger numbers. This was reflected in a positive update on 29 January.
so far and where chief executive Carl Cowling sees ‘excellent prospects to further grow our airport business’.
Regarding the High Street operations, Russ Mould, AJ Bell investment director, said: ‘There isn’t an obvious buyer, particularly if WH Smith is looking to sell everything together rather than in blocks of stores.
‘There aren’t many retailers who would want to take on an additional 500 stores in the current climate. It’s probably a step too far for Frasers (FRAS), Next (NXT) is making the most of the stores it already has and B&M European Value (BME) seems to have enough on its plate to be so bold as to snap up the WH Smith portfolio.’
WH Smith sees ‘considerable opportunities to win and open additional stores’, particularly in North America, the world’s largest travel retail market, where it has more than 300 stores
There aren’t many retailers who would want to take on an additional 500 stores in the current climate”
‘Interested buyers may want to repurpose the high street stores for alternative use. Turning shops into gyms has proved to be a successful model for many leisure operators and the fitness industry continues to grow in the UK.’
As Shares went to press, there were reports HMV – owned by Canadian businessman Doug Putnam –was interested in some or all of the stores.
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
Sage Group hits new high after 2024 results and buyback spur gains
UK accounting software company may need to look over its shoulder at the competition
Sage Group (SGE) has put in a robust performance over the last three months, with shares in the accounting software provider gaining 21% since late November to hit an all-time high last week.
Much of the increase came on the 20 November when the company reported full-year results, which included a 7% increase in revenue to £2.3 billion for the 12 months to 30 September buoyed by progress made with Sage Copilot its generative AIbased (artificial intelligence) digital assistant.
Sage Copilot is now accessible to over 8,000 customers using Sage Accounting, Sage for Accountants and Sage Active.
Free cash flow increased by 30% to £524 million during the period, and there was more good news for investors with the announcement of £400 million share buyback plus a 6% increase in the full-year dividend to 20.45p per share. The company said it was starting the 2025 financial year ‘with good momentum driven by consistent strategic execution’ and it expected to post 9%-plus organic
Everyman Media plumbs the depths after registering all-time low
Cinema chain has grown from 10 venues in 2012 to 47 in 2024 but struggled to consistently deliver profit
In a week when the FTSE 100 and FTSE-All Share indices made new all-time highs, it is quite striking that shares in posh cinema company Everyman Media (EMAN:AIM) made an new all-time low.
The stock is down 17% over the last six months and has lost around half its value since listing on AIM in 2013. Notwithstanding the disruption caused by the Hollywood actors and writers strikes in 2024, the company achieved record memberships and grew market share.
Revenue was up 18%, helped by three new openings, higher average ticket prices and a 3.4% increase in
spending by cinema-goers on food and beverages to £10.64.
Despite delivering growth in a difficult year, adjusted EBITDA (earnings before interest, tax, depreciation, and amortisation) was flat at £16.1 million. Investors will have to wait for the full year results on 14 April to get a full breakdown of profitability.
The company said it was more cautious around the outlook for 2025 and 2026 following the Autumn Budget and a softening in guest spend per head in the last two months of 2024.
Intriguingly, long-term shareholder
in total revenue.
Analysts are generally positive about the outlook for the business, with the team at Panmure Liberum commenting management have ‘done a great job over the last few years investing in the business’, and applauding the fact subscriptions are now 82% of revenues, although they caution the firm needs to keep a watchful eye on some of its faster-growing competitors. [SG]
Blue Coast Capital has been increasing its holding over the last few months and at last count owned 29.2% of Everyman’s equity. This is just below the 30% threshold where the private equity group would be obliged to make a mandatory offer in cash at no less than the highest price it paid for the shares over the preceding 12 months. [MG]
5
4 Feb: Entain,
5 Feb: DCC, SSE
6 Feb: Compass
Will Diageo shareholders be raising their glasses or downing their sorrows?
The Johnnie Walker-to-Guinness maker needs to rebuild credibility with investors following a protracted downgrade cycle
Prevailing negative sentiment towards alcoholic drinks companies reflects tariff and regulation risk, the fact drinkers’ disposable incomes are under pressure and the younger demographic is quaffing less alcohol, as well as worries over the demand impact of weight loss drugs on the sector.
Little wonder then that global beverages behemoth Diageo’s (DGE) shares have underperformed the FTSE 100 over one and five years amid a cycle of downgrades driven by a post-pandemic slowdown in spirits and some self-inflicted issues, including problems with excess stock in Latin America.
As such, the Johnnie Walker whisky-to-Smirnoff vodka maker’s under-fire chief executive Debra Crew will need to reassure investors Diageo remains a growth company
able to gain global market share when the company serves up first-half figures on 4 February.
Following a tough few years, Warren Buffett-backed Diageo has recruited a new heavyweight CFO in Nik Jhangiani, who Jefferies believes will bring a renewed focus on growth, profit and cash.
There was a rumour late last week the firm was planning to sell off its Guinness unit as part of this focus, but it was quickly rebuffed.
On results day, Jefferies thinks Diageo could provide ‘a new guidance framework of 3% to 6% organic sales and 4% to 8% organic EBIT (earnings before interest and tax) growth, with an emphasis on stronger returns, effective from full-year 2027.
‘This provides a cushion to absorb potential volatility around possible tariffs under Trump 2.0 and to build in full-year 2026 as a recovery year to rebuild credibility before hitting full stride.’ [JC]
Chart: Shares magazine • Source: LSEG
Cryptocurrencies, gold and Nvidia (NVDA:NASDAQ) have all been going gangbusters lately, but if it’s momentum you’re after, you don’t get any hotter than Palantir (PLTR:NASDAQ), the company costarted by prominent Silicon Valley entrepreneur Peter Thiel, a cofounder of PayPal (PYPL:NASDAQ), Founders Fund and an early investor in Facebook, now Meta Platforms (META:NASDAQ)
Shares in the company have increased 10-fold from May 2024 to an all-time high above $80 and are trading just a smidge below that despite some DeepSeek-related volatility. Notably the company has earned a place in the S&P 500 but can the stock maintain its momentum in 2025?
The latest earnings, for the fourth quarter to 31 December, on 3 February will provide clues, with the fourthquarter and full-year EPS (earnings per share) consensus pitched at $0.11 and $0.38 Q4 on $778.9 million and $2.8 billion revenues.
US commercial growth will be crucial, seen as the long-run growth driver of the business. ‘The commercial sector is the growth story for the company as it expands beyond
government clientele,’ wrote Beth Kindig, lead tech analyst at the IO Fund.
The commercial segment continued its to perform in Q3 with 13% quarteron-quarter and 54% year-on-year revenue growth.
Palantir has been particularly keen to talk up the impact of its Artificial Intelligence Platform in various sectors, such as insurance and rail, delivering significant operational improvements and financial outcomes, including reducing underwriting response times from two weeks to just three hours.
Exciting times, but at a price – according to Stockopedia, the 12-month rolling PE (price to earnings) multiple is a jaw-dropping 166 times, which looks stretched to say the least.
US UPDATES OVER THE NEXT 7 DAYS
QUARTERLY RESULTS
31 Jan: AbbVie, Aon, Chevron, ColgatePalmolive, Eaton, Exxon Mobil
5 Feb: Arm, Boston Scientific, Dayforce, Uber Tech, Walt Disney
6 Feb: Amazon, ConocoPhillips, Eli Lilly, Expedia, Honeywell, Linde, Philip Morris, VeriSign
Capri is a contrarian pick with identifiable upside catalysts in place
Sentiment is turning more positive towards the out-of-fashion luxury group behind Michael Kors, Versace and Jimmy Choo
Market cap: $2.94 billion
Risk-tolerant investors might want to take a look at Capri (CPRI), the global fashion luxury group behind iconic brands Versace, Michael Kors and Jimmy Choo.
Shares in the New York-listed company have plunged 50% in the past year after its planned $8.5 billion takeover by Tapestry (TPR:NYSE) was blocked by the FTC (Federal Trade Commission), leaving the shares looking cheap relative to history on around 15 times forward earnings.
Admittedly Capri’s plump debt pile is a concern, but there are a number of catalysts in place which could drive a re-rating of shares that have staged a mini rally year-to-date.
These include a return to positive revenue growth and sustainable
Why you can afford Capri
profitability driven by a recovery in luxury spending, reduced risk as improving cash generation and brand disposals bolster the balance sheet, not to mention the possibility of another tilt at a company with fabulous brands, pricing power and attractive gross margins in the mid-sixty percent range.
WHAT IS CAPRI?
Capri is the parent company of brands including Michael Kors, Kors, Versace and Jimmy Choo, and designs and sells luxury clothing, shoes, watches, handbags and other high-end accessories.
In 2023, Coach New York-to-Kate Spade owner Tapestry offered to buy Capri for $8.5 billion or $57 a share, more than double the current stock price, in a planned affordable luxury combination that put Capri’s shares within touching distance of the $70 mark.
However, the stock cratered after the handbag makers’ combination was kiboshed by the regulator on anti-competition concerns, forcing Tapestry to abandon the deal late last year.
THREE ICONIC HOUSES
With management understandably distracted by the ill-fated takeover and the global luxury industry seeing softer demand, Capri is on a losing run of quarterly sales declines.
Disappointing second-quarter results on 7 November revealed a 16.4% top-line drop to below $1.1 billion, although chief executive John D. Idol was at pains to point out that: ‘Versace, Jimmy Choo and Michael Kors continued to resonate with consumers as evidenced by the 10.9 million new consumers added across our databases, representing 13% growth versus last year. This reflects the strong brand equity and enduring value of our three iconic houses.’
Market expectations ahead of results (5 February) for the third quarter including Christmas are subdued, which is a favourable set-up since any sign of a demand uptick should be met with a positive reception by the market.
Recent results from luxury rivals Richemont (CFR:SWX) and Burberry (BRBY) proved better-thanfeared and indicated an overall improvement in luxury demand, with Burberry’s comparable store sales up 4% in the Americas.
CATALYSTS IN PLACE
Michael Kors is at the core of Capri
Year to 30 March 2024 Revenue ($m)
Michael
618
are too negative on the stock. ‘Capri deserves management and investor focus,’ wrote Siegel in a research note. ‘It’s regained the former; the latter should follow.’
Idol has personally taken the reins as chief executive of Michael Kors, the jewel in the Capri crown and the group’s largest brand.
A turnaround of Michael Kors will take time, but retail sage Siegel believes Capri has multiple ways to improve sentiment and share price performance alike. ‘While we don’t see clear signs of strength/inflection – yet - we see potential upside as sales, margins and debt pressures turn “less-bad”,’ he explained.
Media reports suggest Capri is preparing to sell Versace, with Prada (1913:HKG) mulling a potential acquisition, and gearing up to offload Jimmy Choo, disposals that would bring in bumper proceeds, help Capri reduce leverage and free up cash for reinvestment in the Michael Kors label.
BMO Capital Markets retail analyst Simeon Siegel recently upgraded Capri to an ‘outperform’ rating with a $31 target price, arguing the bears
While we don’t see clear signs of strength/inflection – yet - we see potential upside as sales, margins and debt pressures turn “less-bad””
BMO’s Siegel argues that the shortest path to share price upside is a reduction in that problematic debt load; net debt stood at $1.5 billion at the end of the second quarter, but is forecast to shrink to $1.2 billion by Capri’s financial year end.
‘Whether via asset sales or cash flow from business improvement, shrinking the market cap to enterprise value gap could represent meaningful and underappreciated upside to shares,’ enthused Siegel in his note.
Also relevant is that the new occupant of the White House, Donald Trump, loves a deal, and his administration is expected to take a more lenient stance on competition considerations than the anti-business Biden government, so any future bid for Capri could be looked upon more favourably by the FTC. [JC]
Why we think Beeks Financial Cloud is primed for exciting growth
Under the radar data infrastructure firm is becoming a more mature, largescale business
Beeks Financial Cloud (BKS:AIM) 260p
Market cap: £174 million
There is a lot to like about Beeks Financial Cloud (BKS:AIM). Namely rapid and (largely) profitable growth and improving cash flow and margin profiles from an expanding market niche. Compound average revenue growth since 2019 runs at 31.5%, and while profit has been lumpy, due to expansion investment, the shares have returned 18.5% a year on average over the past five years. Put that another way – for every £1 invested in the shares since just before the pandemic struck, you would have £2.34.
Analysts at Canaccord Genuity see the share price vaulting the 300p level this year to something in the region of 335p, thanks to strong organic growth and scope for EPS (earnings per share) upgrades, implying nearly 30% upside in 2025.
WHAT DOES BEEKS FINANCIAL DO?
Founded in 2010 by chief executive Gordon McArthur, who still owns a 32% stake, the Glasgow-based business provides low latency access for traders of equities, futures, forex and other financial markets. Latency is the time lag you sometimes get when trying to connect to something using the internet. When retail investors push the trade button, a few seconds delay barely matters because the trade sizes will likely be comparatively small, but with most of Beeks’ client institutions using automated trading systems handling millions of
pounds, fractions of seconds matter, potentially making the difference between a profitable trade and one that loses money, and certainly the margin gain (or loss) on a trade.
Beeks uses a cloud infrastructure platform that runs out of data centres located close to major exchanges, currently 19 in financial centres including London, Frankfurt, New York, Chicago, Tokyo, Hong Kong, Singapore and Brazil, including hosting, colocation, connectivity, data feeds and network security.
Beeks describes itself as AWS-like cloud for specific financial activities. It recently added a private cloud offering in the form of Proximity and an Exchange Cloud white label solution, which offer pre-built plug-and-play solutions that can be installed on a customer site or in a Beeks data centre.
Beeks Financial Cloud
Chart: Shares magazine • Source: LSEG
Key Metrics FY22-FY24
Clients access the platform through a configurable portal that means they get exactly want they want with Beeks doing the behind-thescenes work.
Arguably, deep-pocketed institutions could do this themselves, but it would be costly and a poor use of internal resources, a point demonstrated by the rapid growth in clients, going from 90 in June 2016 to 220 three years later, and now at more than 1,000, including the world’s second biggest exchange Nasdaq, signed in early 2024 but whose identity was only revealed this month as the client went ‘live’. That’s as strong a client recommendation as you could hope for, and it underlines Beeks’ potential to increasingly get top tier exchanges on board.
As Canaccord analysts noted, assuming successful Exchange Cloud take-up by end customers, ‘large exchanges such as Nasdaq and others could potentially each become £10 million to £20 millionplus revenue opportunities for Beeks’.
WHAT TO WATCH OUT FOR
bigger the client the longer the sales cycle, and onboarding for some top tier clients can run for up to four months thanks to stiffer compliance and procurement processes, versus the couple of days turnaround for smaller customers.
This has been illustrated in the past when Beeks has been forced to tone down growth expectations, with capex requirements sometimes lumpy. But the upsell opportunity can also be considerable, implying upside to existing forecasts. Now a more mature business with larger scale, we also see Beeks being better placed to managed capex more efficiently and drive better quality and more reliable profit and cash flow, bolstering margins and returns on capital.
There are some risks to consider. For example, the
Stockopedia consensus pitches revenue increasing 55% over the next two years (to end June) to $45 million, yet those quality metrics previously mentioned could see earnings growing far faster, from 3.36p EPS in 2024 to just shy of 9p in 2026. If Beeks can meet these expectations, it will either slash the current rolling 12-month price to earnings of about 30 or, more likely, see a swathe of new Beeks investor fans propel the shares yet higher. [SF]
Trainline should be able to ride out government plans for a statebacked rival
Investors should ignore temporary fall in the online ticketing platform’s shares
Trainline (TRN) 366p
Gain to date: 11%
Since we flagged the stock’s appeal last February, Trainline shares have been steadily rising and the firm has become the number one travel app in Europe.
The online ticketing platform has shown investors that it has truly recovered both from the pandemic and from the disruption caused by UK rail strikes last year.
Recent results saw net ticket sales rise 13% yearon-year to £3.01 billion for the six months ending 31 August.
WHAT HAS HAPPENED SINCE WE SAID BUY?
Since the company first listed, investors have been aware of government plans to launch a centralised system to consolidate individual train operators’ ticket websites, and last week the topic raised its head again, sending the shares down more than 8% on the day (22 January).
Analysts at Swiss bank UBS called the market reaction ‘exaggerated’, and we are inclined to agree - looking at the government’s plans, it said it would work with third-party retailers to ensure a
Trainline (p)
competitive environment, which suggests Trainline will. be included in any discussions.
‘There will be an industry-wide consultation on the Rail Reform Bill in the coming weeks, but we note that the process of legislating and establishing GBR (Great British Railways), as well as nationalising the carriers, is expected to take several years,’ said Shore Capital analysts in their analysis of the situation.
WHAT SHOULD INVESTORS DO NOW?
We remain positive about the prospects for the online ticketing platform and think investors should sit tight ahead of the full-year trading update in mid-March.
Trainline has a dominant market share in the UK, with 18 million customers and counting according to chief executive Jody Ford, and a growing market share in Europe with combined net sales growth across Spain and Italy of 23% for the six months ending 31 August.
The group recently raised its full year 2025 guidance and now expects annual growth in net ticket sales year-on-year of between 12% and 14% and year-on-year revenue growth between 11% and 13%. [SG]
It’s time to cash in our ‘Get Out Of Jail’ card in Burberry
£12.01
7.2%
When we suggested buying shares in UK fashion house Burberry (BRBY) at £12.94 in February 2024, little did we know the bottom was about to fall out of the luxury goods market.
WHAT
HAS HAPPENED SINCE WE SAID TO BUY?
At their nadir in September, after exiting the FTSE 100, the shares closed at 575p handing us a paper loss of more than 55%, but Lazarus-like they have risen from the dead and now sit just over 7% below our ‘in’ price, so excuse us if we collect our coats and head for the exit.
The recovery of the last four months was hastened by better-than-expected results from Swiss luxury giant Richemont (CFR:SWX), owner of
top-name brands including Cartier and Van Cleef & Arpels.
The Swiss group reported its highest-ever sales in the three months to December, topping analysts’ forecasts thanks to strength in its jewelry division and sending its shares 17% higher.
Burberry itself surprised the market positively last week with stronger-than-expected sales for the same three-month period, unleashing a similar rally and prompting chief executive Joshua Schulman to proclaim his ‘Burberry Forward’ turnaround strategy to reignite growth was already having an impact.
WHAT
SHOULD INVESTORS DO NOW?
Without wishing to rain on anyone’s parade, the three-month consensus was ‘stale’ at best, as Jefferies’ analyst James Grzinic put it, so the bar was artificially low allowing Burberry to clear it with ease.
The comparable sales figure in the final quarter of 2023 was particularly weak, whereas luxury spending in the US saw a surge last quarter following the election, and the firm slashed prices on some of its older stock by up to 50%, helping to drive sales.
As the saying goes, one swallow doesn’t make a summer, and without the benefit of a weak prior year and aggressive discounting we doubt Burberry will be able to repeat the trick next quarter, so it’s time to cash in our ‘Get Out Of Jail’ card, admittedly not for free but for a much smaller loss than we had feared. [IC]
Saba loses first round as Herald shareholders vote down resolutions
The US activist lost the initial battle but there are six more meetings to come
On 22 January, as Shares was preparing to go to print, the board of Herald Investment Trust (HRI) announced all of the resolutions put forward by activist investor Saba Capital had been defeated.
The meeting was a first test of whether shareholders would stand by the boards of the trusts called out by US activist hedge fund Saba for underperforming. Votes against the resolutions totalled more than 26.4 million, equivalent to 65.1% of the votes cast, whereas Saba’s total reached 14.1 million or 34.75% of votes cast with a further 59,221 or 0.15% in favour of the resolutions.
Herald called the result ‘a damning indictment of Saba’s proposals’ and ‘a clear, complete and incontrovertible rebuttal of Saba’s attempt to take control of the company and change its strategy against the wishes and interests of its non-Saba shareholders’.
ENCOURAGING RESULT FOR OTHER TRUSTS
While there’s no room for complacency for the remaining trusts in the firing line, they will be encouraged by the result.
Herald chair Andrew Joy said: ‘We are well aware of the environment in which investment companies operate and the need to have regard for creating value not just by multi-year patient growth in NAV, which to remind people, has enabled a 27 times NAV total return since launch in 1994, but also by ensuring that capital allocation is optimised, again for the long term.
‘As evidence, Herald has bought back its own shares every year since 2007, including approximately 10% of the company’s share capital in each of the last two years. The company has only ever issued £95 million of stock and has bought back over £465 million already, and still has net assets of £1.2 billion.’
Richard Stone, chief executive of the AIC (Association of Investment Companies), called the result ‘a victory for shareholder democracy’ and urged investors in the remaining six investment trusts to vote at their upcoming meetings (see table) or risk losing their voice.
HOW TO VOTE
As a reminder. If you own your shares through a platform the voting process is straightforward.
Meetings and voting deadlines for trusts requisitioned by Saba
On the AJ Bell website, for example, you can log into your account, click on the drop-down menu in the box titled ‘Account Menu’ and select ‘Voting Instructions’, which will bring up a new page listing your investment, a description of the event (in this case general meeting), the last date by which you need to send your instructions (usually a week or so before the event) and a button saying ‘Give Instruction’.
Clicking on this button takes you to the ProxyVote website, where you can view the meeting agenda, ‘learn before you vote’, or request to attend the meeting in person. Unfortunately by the time you read this the AJ Bell deadline will have passed for half of the planned meetings. Though it is still worth keeping tabs on the outcome of the meeting even if you’ve missed the chance to have a say.
Interestingly, US asset manager BlackRock (BLK:NYSE) reached a ‘standstill’ agreement with Saba meaning the activist will not take hostile action against four of its UK trusts for at least another two years.
The trusts involved are BlackRock American Income (BRAI), BlackRock Energy & Resources Income (BERI), BlackRock World Mining (BRWM) and BlackRock Smaller Companies (BRSC). However, another five trusts on Saba’s ‘hit list’
have not announced an agreement – BlackRock Frontiers (BRFI), BlackRock Greater Europe (BRGE), BlackRock Income & Growth (BRIG), BlackRock Latin American (BRLA) and BlackRock Throgmorton (THRG).
The news follows the announcement of share tenders at two BlackRock US closed-end funds, the $1.8 billion BlackRock Innovation & Growth Term Trust and the $1.7 billion BlackRock Health Sciences Term Trust.
WHAT NEXT?
In total Saba has 24 disclosed positions in UK investment trusts, however if the Herald vote proves to be a decent guide to the outcome of the remaining requisitioned meetings, the chances of it pushing the same strategy elsewhere seem likely to be reduced.
DISCLAIMER: AJ Bell referenced in this article owns Shares magazine. The author (Ian Conway) and editor (Tom Sieber) of this article own shares in AJ Bell.
By Ian Conway Deputy Editor
Baillie Gifford US Growth
Table: Shares magazine • Source: The AIC
Fidelity Special Values PLC
An AJ Bell Select List Investment Trust
The recent strong relative performance of the UK equity market has gone largely unnoticed by investors, reinforcing its unloved status. Alex Wright, portfolio manager of Fidelity Special Values PLC, believes the value-oriented areas of the UK market represent a strong investment opportunity.
Turning insight into opportunity
Despite the UK being a value market, many of those who invest in the market don’t invest with a value bias. However, Alex looks to construct portfolios focused on unloved UK companies entering a period of positive change. The market is often slow to recognise change in out-of-favour stocks which creates opportunities to add value by identifying companies whose improving growth prospects are not yet recognised by other investors.
Our broad analyst coverage means that we are able to find ideas across the market cap spectrum, giving us many shots on goal. Our network of over 390 investment professionals around the world place significant emphasis on questioning management teams to fully understand their corporate strategy. They also take time to speak to clients and suppliers of companies in order to build
Past performance
Past performance
conviction in a stock. Our approach translates into a clear bias towards small and mid-cap value stocks, compared to most of our competitors who are often less differentiated.
It’s a consistent and disciplined approach that has worked well; the trust has significantly outperformed the FTSE All Share Index over the long term both since Alex took over in September 2012 and from launch over 30 years ago.
Past performance is not a reliable indicator of future returns
Past performance is not a reliable indicator of future returns
Past performance is not a reliable indicator of future returns
The value of investments can go down as well as up and you may not get back the amount you invested. Overseas investments are subject to currency fluctuations. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The Trust can use financial derivative instruments for investment purposes, which may expose it to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. The trust invests more heavily than others in smaller companies, which can carry a higher risk because their share prices may be more volatile than those of larger companies and the securities are often less liquid. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.
Investment professionals include both analysts and associates. Source: Fidelity International, 30 September 2024. Data is unaudited. The latest annual reports, key information documents (KID) and factsheets can be obtained from our website at www.fidelity.co.uk/its or by calling 0800 41 41 10. The full prospectus may also be obtained from Fidelity. The Alternative Investment Fund Manager (AIFM) of Fidelity Investment Trusts is FIL Investment Services (UK) Limited. Issued by FIL Investment Services (UK) Ltd, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. UKM0125/399908/SSO/0325
SMALL CAP FOCUS - PART 1 UK small cap ideas
GREAT SMALL CAPS TO BUY TODAY
By The Shares team
Small caps still remain largely out of favour with the market but that doesn’t mean there aren’t some great opportunities out there.
True, fishing in this part of the market can be riskier than going for larger companies, and it’s really important investors understand this, but there is also the potential for them to outperform too thanks to the greater capacity for growth implied by their size.
In this, the first of a multi-part series the Shares team has put its collective heads together to
identify six UK small caps which we believe have really exciting potential.
Because there’s less coverage and focus on small caps it is easier for names to fly under the radar and that certainly applies to some of our selections which offer a mix of growth, value and even income.
We’ll go on to run some data on the UK small cap market and look at some of the fund options both here and overseas in the remainder of this series.
But first, read on to discover of our sextet of great smaller companies and the reasons why they could make you money.
Aoti (AOTI:AIM) 120p
Market cap: £127.6 million
It is seemingly rare these days that a highly successful US-based medical technology group chooses to list its shares in London rather than the US. Investors should therefore rejoice that Aoti (AOTI:AIM) joined the AIM market in June 2024 at 132p per share, raising around £35 million.
Aoti has developed a proprietary oxygen therapy for use ‘at home’ which delivers oxygen to the body to heal chronic wounds caused by diabetic foot ulcers and venous leg ulcers.
Unusually for a newbie coming to the market, Aoti is already profitable and at the first-half results in September 2024, reiterated full-year guidance for revenue growth of more than 30% and a high teens EBITDA (earnings before interest, tax, depreciation, and amortisation) margin.
We believe Aoti has a credible and exciting profitable growth runway which is yet to be fully appreciated by the market.
Advanced Oxygen Therapy Inc’s (to give it its full name) proprietary oxygen therapy has demonstrated a proven immune response leading to revascularisation and sustainable healing of chronic and hard to heal wounds.
Clinical trials showed wounds are six times more likely to heal in 12-weeks and six times
less likely to recur within 12-months. In real life settings covering more than 20,000 patients, the therapy has resulted in an 88% reduction in hospitalisations and 71% fewer diabetes-related amputations.
In late 2024 the company received FDA (Food and Drug Administration) clearance for the launch of a next generation NPWT (negative pressure wound therapy), NEXA, extending use to the home care setting.
Aoti’s strategy is to roll out its proprietary therapy on a state-by-state basis and, over time achieve full national coverage, as well as grow internationally.
In a trading update on 5 January, the company said it is now billing across six states, up from three at the time its listing, including Arizona, Massachusetts, New Jersey, New York, Tennessee, Virginia. The group is in advanced stages to add a further six states at the current juncture.
Cake Box (CBOX:AIM) 184p
Market cap: £73 million
Investors hungry for a slice of double-digit profit and dividend growth should tuck into franchise model business Cake Box (CBOX:AIM), the fresh cream celebration cakes retailer that has put a 2022 accounting controversy behind it with positive trading momentum set to continue.
The £73 million cap is the UK’s largest franchise retailer of fresh cream celebration cakes whose bull case rests on its growth prospects, strong cash generation and a net cash balance sheet. Steered by CEO Sukh Chamdal, the retailer’s cakes are completely egg free. Management believes this has no effect on the taste and texture of its products, but it allows Cake Box to service a much larger potential market, including customers who are unable to eat eggs for dietary or religious reasons, meaning the company is a growth play on demographic change.
Following a number of years of investment for growth, momentum is building at the sweet treat maker, which recently raised its new store opening target and whose marketing initiatives are boosting customer numbers and heightening brand awareness; a branded products collaboration with Nutella holds promise aplenty.
House broker Shore Capital believes the quality of both sites and franchisees is building, with most of Cake Box’s new sites being operated by existing franchisees already wellknown to the group.
Results (12 November 2024) for the first half ended 30 September 2024 were encouraging, showing group revenue up 4.3% to £18.7 million amid positive momentum in franchise store sales, which grew 8.1% to £39 million. Franchisee online sales proved a highlight, growing 16.6% to £9 million, while gross margins expanded from 50.3% to 53.8% with a boost from continued production process efficiencies. In a show of confidence in Cake Box’s growth
prospects, management bumped up the interim dividend by 17.2% to 3.4p.
For the year to March 2025, Panmure Liberum’s Wayne Brown forecasts pre-tax profit of £6.7 million and earnings per share of 12.2p, ahead of £7.8 million and 14.3p respectively in full-year 2026.
Based on these estimates, Cake Box trades on a forgiving forward price-to-earnings ratio of 12.8 and offers a juicy 4.8% yield, based on Panmure Liberum’s 8.8p dividend estimate for the current year.
(CER:AIM) £15.85 Market cap: £471 million
Built-in-Britain growth opportunities in the technology space may be rare, but they do exist, and Shares believes that Cerillion (CER:AIM) is one of them. If you’ve not come across the company before, in short, it scores very highly on core quality growth metrics like returns on capital, equity and operating margins, throws off oodles of cash and appears to have years of growth runway before it.
Cerillion, which floated in 2016 on the junior
Steven Frazer News Editor
AIM market, built its reputation as an integrated enterprise billings and customer relationship management software platform sold to telecoms companies, particularly smaller and mid-sized operators but it has expanded the suite over the years to cover charging, interconnect, mediation, and provisioning solutions.
As the product suite has expanded, so has its customer base, and crucially that is starting to include top tier telcos too, with Three, Virgin Media and Cable & Wireless added to the list in recent years.
Crucially, Cerillion’s suite offers the industry the kind of flexible, off-the-shelf solutions needed to monetise vast capital investment in new 5G mobile (6G is coming) and fibre networks in a savagely competitive market environment.
Increasingly selling five-year software-as-aservice contracts, Cerillion’s investment in its IT suite and headcount (US in particular) means it has more tools in its stack to sell to clients, so average contract sizes have been rising, with November 2023’s Virgin deal worth €12.4 million over the full term of the contract, and an $11.1 million deal with a South African operator, announced in May 2024.
This helps explain a consistently growing new sales pipeline that hit a record £262 million in the first half of fiscal 2024 (to end of September), and sales conversion rates that indicate the level of replenishment activity is strong.
Since 2020, returns on capital and equity have grown to 35.7% (both in full year 2024) from 13% and 16.5% respectively, while operating margins have expanded from 13.5% to 42%.
The shares aren’t cheap, as you would expect for a business with these credentials, on a 12-month rolling PE (price to earnings) of about 28, based on Stockopedia data, but with EPS forecast to grow at 30% to 40% over the coming years, that multiple will fall steeply or, more likely, drive the share price ever higher. There’s also a chance it could be targeted by cash-rich private equity, with any deal likely to attract a large premium.
FW Thorpe (TFW:AIM) 303.5p
Market cap: £361 million
The lighting products designer and manufacturer is one of those unsung small cap heroes that are judiciously sprinkled across the UK markets, handing loyal long-term investors market-beating returns. Over 10 years, the stock has chalked-up total returns (share price growth plus dividends) that average 10.6% a year, close on twice as good (6.3%) as the FTSE 100.
This is a business that dates back to 1936 when it was established by Frederick Thorpe and his son, Ernest, so it’s got oodles of track record. At the time it made vitreous enamelled steel reflectors, sometimes called porcelain enamel. This is an integrated layered composite of glass and metal used as shades that powerfully reflect and direct light, often used in industrial settings.
The company floated on the stock market in 1965 and it remains largely controlled by the Thorpe family, with stakes of about 50% of the shares. The Thorpe family remain crucial day-today movers and shakers, with Andrew Thorpe and Ian Thrope, both grandsons of the founder, on the board, while founder’s great grandson James Thorpe is a joint managing director.
This is one of those buy-and-build stories, the company acquiring small specialists it knows well, which are integrated into the whole and allowed to operate with a large degree of autonomy, a bit like FTSE 100 Halma (HLMA). Today, that means 11 operating units, including LED manufacturing arm Thorlux Lighting, employing roughly 800 people.
Products are sold around the world and the business has a long track record for growing sales, profit and, crucially for the family and many private investors, dividends.
The firm made operating profit of £30.6 million in the year to 30 June 2024 on £176 million revenue, up from £19.6 million and £111 million in 2019. Average compounded growth runs at about 10% for both and the business throws off lots of cash, easily covering its 6.78p per share dividend last year. One-off payouts are also on the cards
Steven
Frazer News Editor
when cash surplus builds up, worth £56.3 million as of June 2024.
No earnings forecasts are available but extrapolating average growth rates would imply EPS (earnings per share growing to around 28p over the next three years on last year’s 20.7p, implying a threeyear PE (price to earnings) average multiple of about 12. We suspect that small cap investors will like the implied reliability at that price, we do.
Knights Group (KGH:AIM) 115p Market cap: £100
million
Casting our collective minds back to before the pandemic, 2018 saw a handful of small law firms rush to join the market.
They were marketed by advisors to their no doubt slightly bemused clientele as a way to ‘diversify’ their portfolios, which in a sense they were as in just about every case they lagged the market.
Among the better-quality companies to list was regional firm Knights Group (KGH:AIM), set up by David Beech in 2012, which was one of the first law firms to use an ‘owner-manager’ model as opposed to the centuries-old partnership model.
Beech reasoned that if lawyers owned a part of the business themselves, in the form of shares, they would have a greater incentive to collaborate and invest in its future, unlike traditional partners who compete among themselves to take out as big a slice as possible of the fees.
Thanks to a steady process of organic growth
Ian Conway Deputy Editor
and more than two dozen savvy bolt-on acquisitions, Beech has increased Knights’ revenue base five-fold from £35 million in 2018 to a projected £165 million by the end of April this year.
By expanding into higher-margin legal services and taking on higher fee-earning lawyers, underlying pre-tax profit is on track to increase six-fold since IPO from £4.8 million in 2018 to a projected £28.7 million this year.
Knights now has the critical mass, the depth of expertise and the national coverage (outside of London) to attract top talent and achieve significant client wins, and the chief executive has set his sights on doubling revenue over the medium term while continuing to increase margins, meaning profit will grow faster still.
Remarkably, the shares are currently trading on less than five times current-year earnings and 0.9 times book value against 11.5 times earnings and 1.8 times book value for the FTSE All-Share.
Table: Shares magazine • Source: Knights Group
Supreme (SUP:AIM) 176p
Market cap £205.64 million
In November fast-moving consumer products maker Supreme (SUP:AIM) delivered an impressive set of first-half results.
The company hiked its sales and EBITDA (earnings before interest taxation depreciation and amortisation) guidance, the latter by around £2 million to £40 million, and also revealed a strong balance sheet. This is enabling the business to augment its organic progress with acquisitions.
The AIM-quoted company supplies products across six different categories including batteries, lighting, vaping, sports nutrition & wellness, branded distribution, and soft drinks, having bought UK soft drinks brand Clearly Drinks for £15 million in June – financed entirely from the company’s own cash reserves.
In early December, Supreme continued its spending spree with the purchase of famous British tea brand Typhoo for £10.2 million rescuing the company from administration.
Under Supreme’s ownership it is anticipated that Typhoo Tea ‘will operate a capital light outsourced manufacturing model’.
Shore Capital believes the Typhoo deal could pay off. ‘Supreme is not new to the buy and build arena, or to understanding the planning and discipline around turnaround. Whilst the proof will be in the pudding, or tea in this case, we harbour optimism that the Typhoo deal will enhance adjusted group EPS (earnings per share) in due course whilst the group sustains a strong balance sheet.,’
These purchases diversify Supreme’s business further and bring non-vape annualised sales to more than £120 million – around 50% of group revenue. This is important given the regulatory risks facing the vaping market.
To date Supreme
Sabuhi Gard Investment Writer
can count a mix of supermarkets, wholesale, discount, and online retailers as its customers including Poundland, Tesco (TSCO), Sainsbury’s (SBRY), Waitrose and Aldi.
The company is currently trading on 8.6 times forecast earnings which we think is highly attractive and there is the added benefit of a modest dividend yield of 2.1%.
The big questions for 2025
Yoojeong Oh and Eric Chan Managers, abrdn Asian Income Fund
• If market leadership broadens from the US technology giants, Asia would be a natural beneficiary
• The tariff question will be an important, if unpredictable, issue for Asian investors in the year ahead
• The economic picture remains uncertain for China, but there are selected opportunities
2024 had a familiar feel for investors: the dominance of technology, the US market and a narrow focus on AI. However, in the final months of the year, there was a change of mood. Investors were willing to look further afield for growth, while markets were also weighing up the impact of Donald Trump’s return to the White House. This may have implications for Asian markets in the year ahead. An important question for 2025 will
be whether investors continue to look further afield for growth, with market leadership broadening out from the US technology giants. The US market has been the easy option for growth investors in recent years, but the price for that growth has edged higher and valuations now look stretched.
If investors start to rethink, Asia would be a natural hunting ground. It also has beneficiaries of the AI juggernaut, such as TSMC, alongside other technology behemoths such as Tencent. It also has a far greater share of the technology and AI supply chain. We hold Sunonwealth Electric Machine Industry, for example, which makes the cooling fans for datacentres, as well as Accton which makes the logic switches for AI chips. These options are generally available at more reasonable prices than their US equivalents.
But Asia is far more than just an alternative play on AI. There are
broader growth themes across the region, as might be expected in a region where economic growth is the highest in the world. Asia delivered approximately 60% of global growth in 2024 and this is forecast to continue. This is supported by a demographic dividend, with working age populations growing in many countries across Asia. That points to increased productivity and higher economic growth.
We find opportunities across green energy, such as Power Grid of India, or consumer growth, such as insurance group AIA. Also, retail banks provide a good way for us to invest in the economic growth of Asian markets whilst collecting good dividends. We own DBS for example, a Singapore-listed bank, with operations across South East Asia which supports earnings growth and also pays close to 5% dividend yield. More importantly – and unlike
other regions – as income investors, we don’t have to sacrifice growth. High quality growth companies such as TSMC, Tencent and Power Grid all paying growing dividends to their shareholders and our highest sector weighting is in technology.
THE TARIFF CONUNDRUM
The tariff question will be important for Asian investors in the year ahead. Donald Trump has threatened to impose tariffs on US imported goods, and Asia, particularly China, is a potential casualty of that agenda. Tariffs are likely to be just a bargaining chip and therefore it is impossible to predict the ultimate outcome of Trump’s tariff regime with any certainty. Nevertheless, we believe it is likely to drive intra-Asian trade, as companies seek to insulate themselves against an unpredictable US regime.
This is likely to be seen in greater trade localisation and diversification of supply chains. Against this backdrop, we hold SITC, a Hong Kong listed intra-Asia focused shipping company. The trade war uncertainty has worked in its favour in recent years, and it has paid bumper dividends. The company has been very disciplined about returning excess cash to shareholders as special dividends when the freight cycle works in its favour.
CHINA REVIVAL ON THE CARDS?
The tariff problems may influence the revival – or otherwise – of China. The government announced a significant stimulus package in November, with the aim of boosting the country’s property market and supporting consumer confidence. However, China is likely to be the prime target of any US tariff regime, and it may be that more stimulus is needed to counter its effects.
The picture remains uncertain. Our fund has a natural underweight position in China because Chinese companies have historically been less inclined to pay dividends and so our focus has been more on markets such as Taiwan, Singapore and Australia, which are the highest yield markets in the region.
However, following the Chinese equity market correction over the past two years, we are increasingly finding more dividend opportunities there. For example, we have held a Chinese property company for the past decade - China Resources Land. This company funds a very conservative development pipeline with the cashflows from its investment properties portfolio. It has been a far more stable choice over the past ten years than some of its higher leveraged peers. It runs a prudent balance sheet, pays a 6% dividend and may provide some exposure to any recovery in the Chinese economy. More recently, we added to internet company Tencent, white goods manufacturer Midea,
and China Construction Bank on the back of improved dividend policies.
DIVIDEND SUSTAINABILITY
Dividend sustainability is always an important consideration for us, but we believe it should be a greater priority for investors in the year ahead. In some regions, companies have taken on significant debt and dividend cover may be impacted as a result. Asian companies compare favourably for balance sheet strength relative to their peers in different regions, particularly in the US and Europe. These stronger balance sheets provide company
Important information
management with greater flexibility to run their businesses through different market cycles.
Asian companies also have strong free cashflow generation, which supports longer-term dividend and buyback payouts. A combination of prudent debt levels and good cashflow generation is a strong backdrop for income investors.
More than half of the companies in the Asia Pacific ex Japan region are yielding more than 2.5% in dividends.
There are complex forces at work as we look into 2025. However, we believe Asia is in a far stronger
Risk factors you should consider prior to investing:
• The value of investments, and the income from them, can go down as well as up and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Trust shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the Company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.
• The Company may charge expenses to capital which may erode the capital value of the investment.
position than other regions, with compelling economic growth, plus companies that are generating cash, with strong balance sheets. In our view, it is far easier to balance growth and income in a portfolio of carefully selected Asian equities than elsewhere. We welcome 2025 with optimism.
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
• The Alternative Investment Market (AIM) is a flexible, international market that offers small and growing companies the benefits of trading on a world-class public market within a regulatory environment designed specifically for them. AIM is owned and operated by the London Stock Exchange. Companies that trade on AIM may be harder to buy and sell than larger companies and their share prices may move up and down very sharply because they have lower trading volumes and also because of the nature of the companies themselves. In times of economic difficulty, companies listed on AIM could fail altogether and you could lose all your money.
• The Company invests in smaller companies which are likely to carry a higher degree of risk than larger companies.
• Specialist funds which invest in small markets or sectors of industry are likely to be more volatile than more diversified trusts.
Other important information:
Issued by abrdn Fund Managers Limited, registered in England and Wales (740118) at 280 Bishopsgate, London EC2M 4AG.
Authorised and regulated by the Financial Conduct Authority in the UK.
Find out more at www.abrdn.com/aaif or by registering for updates. You can also follow us on social media: Facebook, X and LinkedIn
Find out how Phil started his investment journey with Cable & Wireless as a teenager in the 1980s
Plans to retire at 50 have had to be scaled back but this investor is still aiming to achieve a comfortable post-work lifestyle
Keen investor Phil first got the bug in the mid-1980s when his mum bought him 100 shares in Cable & Wireless shares.
Cable & Wireless was a trailblazing cable company set up more than a century ago and by the start of 2000, C&W Group, as it was then, had a market value of around £38 billion. When the business was demerged in 2010 its value had shrunk to £4 billion – with the now two separate businesses acquired in 2012 and 2015.
For Phil, as he explains, the purchase of stock in Cable & Wireless ‘proved to be a beneficial transaction’.
He kept track of his investment by reading the Financial Times once a week. The way Phil monitors his investments today has changed. Nowadays he says he gets updates via the AJ Bell app and that’s not the only way his investing has changed over the years.
‘There have been many distractions [along the way] such as buying my first home, starting a family, and setting up a business,’ he says.
In 1998, aged 30, Phil set out his ambitions to retire between the age of 50-52 knowing that the
mortgage would be paid off when he was 48. While this plan ultimately didn’t come to fruition Phil still has the goal of supplementing his income when he gives up work.
WORKING TOWARDS A COMFORTABLE RETIREMENT
‘My investment priority now is to avoid pension poverty and use my SIPP in a tactical way to generate enough funds over the next decade to supplement my state pension and provide a comfortable retirement,’ says Phil.
Phil has a certain figure in his mind for a comfortable retirement which is approximately £320,000. To fulfil his objective, he’s investing £86,000. Alongside his SIPP Phil has a trading account, but it is dormant due to lack of monthly disposable income. He hopes to reactivate his trading account when the ‘timing is right.’
Phil’s investment style is themed towards income and growth with a medium-risk appetite. He doesn’t have bundles of capital in reserve so to lose more than 20% of his SIPP ‘would be crippling.’
Phil uses data from free stock analysis and
Massey Ferguson is part of the AGCO portfolio
HOLDINGS IN PHIL’S SIPP PORTFOLIO
1 2 3 4 5 6 7 8 9 10 11 12 13 14
market research website Simply Wall Street, Shares and international and national news broadcasts.
He ignores the ‘hype’ of social media. Phil’s portfolio consists primarily of UK and overseas stocks because they ‘align with his purchasing criteria and long-term objectives’.
He holds international technology, and services company Rheinmetall (RHM:XETRA) which has had an ‘astounding couple of years’ and ‘keeps on issuing’ growth updates and agriculture machinery specialist Agco Corp (AGCO:NYSE).
WINNERS AND LOSERS IN PHIL’S PORTFOLIO
To keep on top of his investments, Phil monitors his portfolio daily noting any volatility, weekly increases and decreases in value. ‘I then periodically analyse this data for patterns, sequences to make informed decisions which align with my risk appetite and the compounding capability of my existing portfolio.’
Stocks that have done well include aerospace and defence company Rolls Royce (RR.). Stocks which haven’t done as well have been UK-based electric vehicle charging solutions firm Pod Point (PODP).
Phil bought 2,000 shares at IPO in November 2021, since then its shares have fallen more than 90%.
The other stock which has performed badly is Ukraine-based commodity trading and mining company Ferrexpo (FXPO)
The miners’ share price has fallen dramatically since the Russian invasion of Ukraine in February 2022.
Pod Point has not performed as well as others in Phil’s portfolio
My portfolio
WHERE PHIL DOESN’T INVEST
Phil doesn’t hold any bonds, investment trusts, and funds in his portfolio as he simply doesn’t fully understand them. He says about bonds and [asset class] property: ‘What little I have discovered [about bonds] is that they may be too volatile for my risk appetite.
‘[I have looked] at UK real estate investment trust Warehouse REIT (WHR) – which is a company focusing on UK commercial property warehouse assets - over the past 18 months, but a lack of understanding and minimal price movements has
discouraged me from including in my portfolio.’
Although he does admit that he needs to carry out some research [to] expand his investment options.
One fund Phil does contribute to is the AJB Income & Growth Fund Acc (BH3W788). Phil uses this within his SIPP to ‘accumulate dividends’ and ‘store loose change’ from transactions.
DISCLAIMER: Please note, we do not provide financial advice in My Portfolio articles, and we are unable to comment on the suitability of the subject’s investments. Individuals who are unsure about the suitability of investments should consult a suitably qualified financial adviser. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA and pension rules apply.
AJ Bell referenced in this article owns Shares magazine. The author (Sabuhi Gard) and editor (Tom Sieber) of this article own shares in AJ Bell.
By Sabuhi Gard Investment Writer
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Fidelity China Special Situations PLC (FCSS)
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Serica Energy (SQZ)
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What I learned from a trip to SRT Marine for its AGM
World-leading technology company opens the doors of its Bath headquarters
Not living in ‘the big smoke’ has many benefits, but as a journalist it does mean missing out on lots of company meeting and presentations.
Now and then, however, a locally-based firm will host an event, and so it was I found myself last Thursday morning heading to Midsomer Norton, just south of Bath on the A367, for the AGM and open day at SRT Marine Systems (SRT:AIM).
As a shareholder, I was keen to hear first-hand how business had progressed over the past year or so – as a journalist, I was curious as to what a typical SRT shareholder looked like.
A GLOBAL LEADER
For those who aren’t familiar, SRT is a world leader in digitising data for the marine domain, and every day national coastguards, security agencies, fishery regulators and hundreds of thousands of boat users rely on its products and its technology to safely go about their business.
Maritime domain awareness, as it is known, is still in its early stages, but through years of investment, development and testing, SRT is now
maximising the huge market opportunity in front of it.
With confirmed system orders of over £300 million and a validated sales pipeline of £1.2 billion – a quarter of which is accounted for by tenders from existing customers, and more than a third of which is from new customers in countries
where SRT has already supplied kit to another government agency – the firm has tremendous visibility over the next few years.
OPEN DOOR POLICY
On 23 January, the company threw open the doors of its headquarters to anyone who was interested in visiting, whether they were shareholders or not, with the opportunity to mingle and speak with the directors and several senior employees, view the facilities and see its products demonstrated.
As I was already familiar with the business and the products, I was keen to meet other shareholders and find out what had attracted them to the company.
To my surprise, many had owned the shares for more than a decade, in other words well before the firm grew into what it is today, making me the ‘newbie’.
It was also clear many of those present had significant shareholdings, and the day was not just an opportunity to meet the company but to meet each other and share their thoughts as stakeholders.
DOWN TO BUSINESS
Following the open morning, we decamped to a nearby hotel for the AGM and to vote on the resolutions, which as with most AGMs was fairly straightforward.
Shareholders were asked to vote on approving the last set of annual accounts, on retaining the current auditors, on re-electing the directors, on electing a new director, and on giving the company the right to issue new shares should the need or opportunity arise.
The chair asked for a show of hands for or against, then read out the proxy votes, which unsurprisingly were more numerous, and each resolution was carried by a substantial margin.
With the voting concluded, the floor was opened to chief executive Simon Tucker – who was as energetic as ever, despite spending most of his time flying to and from the Middle East or the Far East to pitch for and sign multi-million-pound contracts –to present the most recent set of results.
Barring a bulb blowing in the projector – luckily a second projector was on hand – the presentation ran smoothly, followed by a lengthy Q&A session and a further opportunity to mingle over lunch.
I came away wishing more companies would encourage those interested, shareholders or not, to see the business for themselves and get a greater understanding of what makes them ‘tick’, while vowing to attend again next year.
DISCLAIMER: Ian Conway owns shares in SRT Marine Systems.
By Ian Conway Deputy Editor
CC Japan Income & Growth Trust plc
Uncovering income & growth opportunities in Japan
Portfolio manager Richard Aston’s valuation-disciplined; total return approach is designed for investing in the Japanese stock market of today. With the strategy’s core focus on consistent and improving shareholder returns, Richard looks to provide a stable income via dividends and share buybacks from Japanese companies of all sizes. Richard’s high conviction and index agnostic portfolio aims to capture the key beneficiaries of Japan’s improving corporate governance and ongoing structural economic reforms.
THE INCREASING IMPORTANCE OF DIVIDENDS IN JAPAN
Dividends, as well as share buybacks, continue to rise in Japan thus improving shareholder returns for investors. With a focus on companies that can provide both a stable dividend AND can demonstrate the ability to grow, CC Japan Income & Growth Trust aims to capture the best ideas that corporate Japan has to offer across sectors, the full market cap spectrum and even geographical reach (domestic, regional & global leaders).
The income focus warrants a disciplined approach to valuation and detailed fundamental research prevents the Trust from overpaying for high-growth companies that
are often priced for perfection, whilst also avoiding cheap unloved stocks that are in-fact value traps.
The Trust’s consistent and disciplined approach has demonstrated that it can perform throughout the cycle having meaningfully outperformed the TOPIX Total Return (in GBP) since launch in December 2015.
To find out more visit: www.ccjapanincomeandgrowthtrust.com
Performance Track Record
Source: Independent NAVs are calculated daily by Apex Listed Companies Services (UK) Limited (by Northern Trust Global Services Limited pre 01.10.17.) From January 2021 Total Return performance details shown are net NAV to NAV returns (including current financial year revenue items) with gross dividends re-invested. Prior to January 2021 Total Return performance details shown were net NAV to NAV returns (excluding current financial year revenue items) with gross dividends re-invested. Ordinary Share Price period returns displayed are calculated as Total Return on a Last price to Last price basis. Past performance may not be a reliable guide to future performance. The price of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. All figures are in GBP or Sterling adjusted based on a midday FX rate consistent with the valuation point. Inception date 15.12.15. Investments denominated in foreign currencies expose investors to the risk of loss from currency movements as well as movements in the value, price or income derived from the investments themselves and some of the investments referred to herein may be derivatives or other products which may involve different and more complex risks as compared to listed securities. CC Japan Income & Growth Trust plc (the Company) does not currently intend to hedge the currency risk.
What higher bond yields mean for your personal finances
Discussing the impact of movements in fixed income markets on your money
If you picked up a newspaper in the last few weeks you probably read about the minimeltdown in the bond market. Gilt yields, which move in the opposite direction to prices, started to rise all of a sudden, and it looked like things might spiral out of control.
These yields dictate the rate of interest the UK government pays to borrow money, which is one of the reason they are so important. As it happened, the panic dissipated as quickly as it appeared, and gilt yields are back to where they were at the beginning of the year, at the time of writing at least.
However, government bond yields are still much higher than they were just a few months ago, both here and in the US, as the chart below shows. Lots of people seem to think the rise in gilt yields is Rachel Reeves’ fault, but that doesn’t really explain why US bond yields have been rising too. Nonetheless these higher yields could have knock on consequences for the chancellor if they are sustained, and they will also have an impact on savers and investors.
HIGHER RATE EXPECTATIONS
Higher gilt yields are partly driven by expectations that interest rates will stay higher for longer, and that same factor has led to mortgage rates picking up again. The typical two-year fixed mortgage (with a 75% Loan to Value) rose from 4.4% at the end of October to 4.6% at the end of December, according to data from the Bank of England.
The comparable five-year rate has risen from 4.1% to 4.4% over the same period. These are relatively small moves compared to the big hikes in mortgage rates we saw in 2022, but nonetheless they might sting a bit seeing as the Bank of England is actually cutting interest rates.
In theory higher interest rate expectations should feed through into higher cash rates too. It might not come as the greatest shock in the world to learn there’s little evidence of this feeding through yet. Banks tend to be slower to pass higher interest rates on to savers than they do to borrowers, for fairly obvious reasons. It may be that we see savings rates pick up a bit in February. There are normally at least a few providers who try to drum up some business by creeping up the best buy tables, especially as we approach the end of the tax year. But much of the banking sector may simply hold their current course on savings rates, unless there is a more significant lurch upwards in yields more broadly. And with an interest rate cut expected from the Bank of England in February, we could even see some rates drifting back down again.
HIGHER YIELDS FROM BONDS
Bonds themselves are now offering a higher yield too. Many investors access bonds through bond funds, which can invest in government and corporate bonds, or a mixture of the two. If held in an ISA or pension, the income produced by these funds is tax-free. Investors can also buy individual gilts, which also produce a tax-free income if held in an ISA or SIPP.
However, some gilts may also produce a largely tax-free return if held outside a tax shelter too. That’s because some ‘low coupon’ gilts pay very little income, and so most of the return comes
from price appreciation.
Unlike shares, gilts are exempt from capital gains tax, so returns from rising prices can be harvested free from tax. In the last year or so we have seen some investors using these low coupon gilts as a cash proxy, to tap into the attractive tax treatment and keep more of their returns out of the clutches of the taxman.
Pensions, in particular annuities, are also impacted by higher bond yields. For the uninitiated, annuities are an insurance contract, essentially offering a secure income for life in exchange for a capital sum from your pension. They used to be widely used, before 2015 when George Osborne introduced legislation which opened up other options for drawing your pension, known as the pension freedoms. Nowadays around one in 10 pension savers end up buying an annuity. Those about to take the plunge will have cause to rejoice as rates have been creeping up in response to higher bond yields.
TAKES TIME TO FEED INTO ANNUITY RATES
Annuity rates tend to respond relatively slowly to bond market movements, so there may even be some more increases in the post. Annuities can be part of a retirement plan because they provide a secure income for life, and are certainly worth considering. One reason they’re so unpopular though is they are pretty inflexible, and the majority of pension savers now choose to keep greater control of their retirement funds.
By Laith Khalaf AJ Bell Head of Investment Analysis
Emerging markets outlook
Sponsored by Templeton Emerging Markets Investment Trust
The Indian conglomerates which have helped drive strong returns
A structure which is out of favour in Western countries remains highly relevant in this emerging markets star
Of the top 10 largest constituents of the MSCI India index, two are conglomerates and one is part of Tata Group – the largest Indian conglomerate of them all.
A business structure which has gone out of the fashion in the West is clearly still very much alive and kicking in India – which is the star performer among emerging markets in recent years.
As a brief reminder conglomerate businesses typically involve a parent group under which there are a variety of different businesses in operating in different industries. Often they will be multinational too.
The argument in favour of a conglomerate structure is diversification – so if one part of the business is performing poorly others can pick up the slack. Downsides include multiple layers of management, a lack of focus and issues with transparency.
According to a October 2024 S&P Global Ratings report, Indian conglomerates are set to spend $800 billion over the next 10 years – almost triple their investment over the previous decade. The investment is expected to focus on areas like green hydrogen, clean energy, electric vehicles and semiconductors.
MEET THE BIG LISTED INDIAN CONGLOMERATES
Tata Consultancy: This IT services outfit is the largest of 16 listed companies under the Tata Group umbrella which have a combined market value running into hundreds of billions of dollars.
Reliance Industries: Headquartered in Mumbai, its businesses include energy, natural gas, petrochemicals, retail, telecoms, mass media and entertainment and textiles.
Larsen & Toubro: Has interests in areas like industrial technology, heavy industry, engineering, construction, manufacturing, financial services, information technology, defence
Sponsored by
Emerging markets: Chinese stimulus efforts, the Indian market and Ukraine
Three things the Templeton Emerging Markets Investment Trust team are thinking about right now
1.
China stimulus: Equity markets in 2025 are likely to be dealing with the aftereffects of last year’s election outcomes and subsequent political shifts. Of note for emerging markets in the year ahead are the risks of higher US tariffs and policy-driven volatility as the second Trump administration enters office. China is attempting to minimize the risks inherent within geopolitical tensions by keeping up with its policy support. In 2025, we may see signs of macro stabilisation from these policies, possibly allowing scope for a cyclical recovery. Our China portfolio manager, however, feels that there may be some potential disappointment until the release of key details of upcoming policies, which will likely happen in March 2025. However, he notes that stimulus has shifted from targeting supply to boosting demand.
2.
Indian market: The Indian economy and stock market are less coupled with the United States relative to other EMs. Due to concerns of an economic slowdown and high valuations, we do not rule out the possibility that India’s equity market will correct. However, our engagement with corporations in India makes us optimistic, as companies are reporting slightly better business starting from October 2024, with most companies emphasising that there is no further slide in growth. We see some stabilisation here. We also note the Franklin Templeton semiannual survey of our fund managers globally singled out India as a market they favour in 2025.
3.
Ukraine: President Trump has spoken of swiftly resolving the Russia-Ukraine war after his inauguration. Investors will focus on the likelihood of a peace deal incorporating an
easing of US and European sanctions on Russia, among other concessions. A resumption of transit gas shipments via Ukraine to Central and Eastern European countries is also a focus area, given that Ukraine cut these flows on 1 January. Gas storage in Europe was elevated entering the Northern Hemisphere Winter, which reduces the risk of an energy price spike in the short term. Nevertheless, significantly higher energy prices in Europe relative to the United States remain a competitive disadvantage for the region.
is the UK’s largest and oldest emerging markets investment trust seeking long-term capital appreciation.
Netflix shares soar after blockbuster results and big plans to boost advertising income
Streaming giant is getting a lot of things right just now and it’s helping to drive its stock to new heights
Streaming giant Netflix (NFLX:NASDAQ) is the talk of Tinseltown after serving up a blockbuster quarter. Earnings smashed expectations and it delivered strong subscriber growth. It’s no wonder the shares soared on the news.
It grew fourth quarter revenue by 16% to $10.2 billion and paid memberships increased by the same percentage to 301.6 million.
Netflix has proved its success is not waning – it is going from strength to strength and continues to be king of the streaming platforms. It has achieved
the perfect four – every quarter in the 2024 financial year beat earnings expectations. The last time it achieved that status was in 2018.
PRICES ARE GOING UP
With more people signing up to use its services, the business is looking financially strong and strategic growth plans are yielding great success. It’s not a surprise that Netflix feels comfortable in raising prices. Customers love its content so strike while the iron is hot and get them to pay more.
A monthly subscription to Netflix is still an affordable treat and no more than a round of coffees for a group of four or a few beers after work.
There is good reason to put up prices. Its cash spending on content is set to hit $18 billion in 2025 versus $17 billion last year. The extra money needs to come from somewhere. Netflix has bold plans for how it intends to spend the cash and both viewers and shareholders could benefit.
PLANS TO ADD MORE SPORTING CONTENT
Netflix has been spreading its wings to offer more diversified content. Sports and games now comfortably sit alongside films and TV shows, making Netflix a broader entertainment hub. It means there is something for everyone and the company clearly feels this is worth a higher monthly subscription price.
The Los Angeles fires haven’t had a meaningful impact on any of its TV and film productions, but it’s a risk to consider if industry people’s lives are turned on their heads if their homes are lost.
Hollywood strikes caused chaos in recent years and led to widespread delays in new releases and Netflix wants to avoid a repeat of that situation. After all, new releases are a key part of its arsenal to keep viewers engaged and attract more of them.
Sports rights can be incredibly expensive and it makes sense that Netflix has opted to go with special events rather than full season sport packages. There is often a buzz around special events which should help to drive up audience numbers, particularly if everyone is talking about a certain game at work or among friends. It’s a clever move as it means Netflix can be selective with the games for which it wants to obtain the rights, thereby keeping greater control over spending.
Recent boxing and NFL events proved to be a big win for Netflix, entertaining viewers and offering something else in its sales pitch to keep enticing more people to subscribe. Such sporting events are also perfect for attracting advertisers keen to reach a large audience, and this is now a key source of income for the company.
AD INCOME BECOMES MORE IMPORTANT
Nearly all of the main streaming platforms now offer cheaper advertising-led subscription tiers. Consumers can watch content at a lower price point in exchange for being served adverts before and during programmes. These interruptions have become second nature and aren’t a massive turn-off.
Netflix is determined to make advertising a much greater proportion of its overall income and has developed technology to better measure audiences and give advertisers the precise information they desire to support targeted promotions. The company beat its fourth-quarter advertising revenue target and said it had doubled its advertising revenue year-on-year in 2024. It expects to double it again this year, which is a punchy target but a major win if achieved.
BIG HITS OVER THE PAST QUARTER
The company has enjoyed massive success with a wide range of films and TV shows over the past quarter. Black Doves has been the thriller everyone’s talking about; the new season of Outer Banks has kept teenagers hooked; and Carry-On has enjoyed a massive buzz on social media as the new Die Hard-style alternative Christmas movie. The list goes on. It shows that Netflix has proved to be a dab hand at recognising the type of content that keeps people coming back for more.
It’s going large on scripted TV series in 2025. A multi-part series could be 10 hours of content or more, which keeps viewers coming back to the platform and also feels like they are getting value for money.
Already on the slate is the final series of Stranger Things; another round of Wednesday and her spooky antics; and the third series of Squid Game should be a massive driver of subscriber sign-ups in the first quarter as it was only released a few days before the end of the previous quarter.
WHERE NEXT FOR GAMING?
Gaming is perhaps the weak spot for Netflix. It’s been quietly trying to develop a compelling gaming proposition to sit alongside film and TV, but it feels like the service is still finding its feet. During the analyst conference call, management said they continued to refine the strategy on games, which implies things haven’t gone as well as expected.
The focus for gaming is now on milking Netflix’s existing intellectual property, implying we’ll see lots of games featuring characters from its popular shows and movies. Netflix is also trying to recreate the magic of family board game night by launching party-style, play-with-friends video games via the TV.
Can I take tax-free cash from my pension more than once?
A question about the rules governing withdrawals from your retirement pot
I am 64 and retired from my full-time job about four years ago. At that time, I took my tax-free cash from my SIPP.
I haven’t yet taken any other money from my SIPP. Instead, I am working part-time as a consultant which gives me enough money for our needs.
Over the last four years my pension has increased in value. Can I now take more tax-free cash from it? Blake
Rachel Vahey, AJ Bell Head of Public Policy,
says:
Tax-free cash – or a pension commencement lump sum (PCLS) to give it its technical name – is a valuable feature of pension savings.
You can access your pension savings from age 55 (to rise to age 57 from April 2028), and you can take up to 25% of that amount as tax-free cash. The remaining 75% has to provide an income. This could mean moving it into drawdown so you can withdraw the money as and when you want to. Or buying an
annuity – a guaranteed income to be paid for the rest of your life. Or take the whole 75% as a taxable lump sum.
If you decide to move your money into drawdown then it remains invested, for you to take taxable income from as and when you choose. You can take as much income as you want – there are no limits. You can take a regular amount or one-off payments.
Drawdown brings flexibility but there are risks that pension savers need to consider. The SIPP remains invested, giving it a chance to keep on growing. Many investors use any growth in their pension fund to provide them with an income so that the SIPP maintains its value. But, of course, if SIPP investments don’t do as well as expected the value of the fund could fall.
Once the pension fund has been moved into drawdown then you cannot take any more taxfree cash from it, regardless of how much it grows through investment. For example, it could double in value, but you still can’t take any more tax-free cash from it.
A pension saver can only take tax-free cash from a pension fund that has not yet been touched or accessed. (This is also called ‘crystallised’. So a
Ask Rachel: Your retirement questions answered pension fund that is untouched can also be called ‘uncrystallised’.)
PAYING IN MORE CONTRIBUTIONS
If you want to take more tax-free cash, then you can do this by paying more contributions into the pension. Most SIPPs will accept new pension contributions in even if the remaining fund is in drawdown. (At least up to age 75 when you can no longer receive tax relief on your pension contributions.)
You can pay personal contributions of up to 100% of your UK earnings and receive tax relief on those contributions. Your employer – if you have one – can also contribute. Indeed, if you earn over £10,000 then given your age (you are over 22 and under state pension age), your employer will have to automatically enrol you into a pension and pay contributions unless you opt out.
There is also an overall annual allowance of £60,000 a tax year which includes yours and any
employer’s pension contributions and tax relief. But be aware that if you were to take taxable income from your pension, this allowance is reduced to £10,000.
If you don’t have any earnings, you can still contribute up to £3,600 (including tax relief) each tax year into a pension.
AN ULTIMATE LIMIT ON TAX-FREE CASH
One final point. If you are thinking about paying more money into your pension in order to take further tax-free cash, then you should also be aware there is a limit to the total amount of tax-free cash lump sums someone can take from their pension in their lifetime. This is called the lump sum allowance and is usually £268,275.
When working out how much lump sum allowance you have left, you will need to consider the taxfree lump sums you have already taken from your pension. If you go over your threshold, then the excess will be subject to income tax.
04
FEBRUARY 2025
NOVOTEL TOWER BRIDGE
LONDON EC3N 2NR
Registration and coffee: 17.15
Presentations: 18.00
During the event and afterwards over drinks, investors will have the chance to:
• Discover new investment opportunities
• Get to know the companies better
• Talk with the company directors and other investors
COMPANIES PRESENTING
HERCULES SITE SERVICES
Hercules Site Services provides labour and construction services to blue-chip clients in the UK infrastructure sector. Four reportable segments: Labour supply, civil projects, the provision of suction excavator services and other activities. It generates maximum revenue from Labour supply segment being its core business.
POLAR CAPITAL TECHNOLOGY TRUST
Polar Capital Technology Trust plc provides investors access to this enormous, fast-evolving potential. Managed by a team of dedicated technology specialists, PCT is a leading investment trust with a multi-year, multi-cycle track record – a result of the managers’ active approach and their ability to not only identify developing technology trends early on but to invest with conviction in those companies best placed to exploit them.
WHO WE ARE
EDITOR: Tom Sieber @SharesMagTom
DEPUTY EDITOR: Ian Conway @SharesMagIan
NEWS EDITOR: Steven Frazer @SharesMagSteve
FUNDS AND INVESTMENT
TRUSTS EDITOR: James Crux @SharesMagJames
EDUCATION EDITOR: Martin Gamble @Chilligg
INVESTMENT WRITER: Sabuhi Gard @sharesmagsabuhi
CONTRIBUTORS:
Dan Coatsworth
Danni Hewson
Laith Khalaf
Laura Suter
Rachel Vahey
Russ Mould
Shares magazine is published weekly every Thursday (50 times per year) by AJ Bell Media Limited, 49 Southwark Bridge Road, London, SE1 9HH. Company Registration No: 3733852.
All Shares material is copyright. Reproduction in whole or part is not permitted without written permission from the editor.
Shares publishes information and ideas which are of interest to investors. It does not provide advice in relation to investments or any other financial matters. Comments published in Shares must not be relied upon by readers when they make their investment decisions. Investors who require advice should consult a properly qualified independent adviser. Shares, its staff and AJ Bell Media Limited do not, under any circumstances, accept liability for losses suffered by readers as a result of their investment decisions.
Members of staff of Shares may hold shares in companies mentioned in the magazine. This could create a conflict of interests. Where such a conflict exists it will be disclosed. Shares adheres to a strict code of conduct for reporters, as set out below.
1. In keeping with the existing practice, reporters who intend to write about any securities, derivatives or positions with spread betting organisations that they have an interest in should first clear their writing with the editor. If the editor agrees that the
reporter can write about the interest, it should be disclosed to readers at the end of the story. Holdings by third parties including families, trusts, selfselect pension funds, self select ISAs and PEPs and nominee accounts are included in such interests.
2. Reporters will inform the editor on any occasion that they transact shares, derivatives or spread betting positions. This will overcome situations when the interests they are considering might conflict with reports by other writers in the magazine. This notification should be confirmed by e-mail.
3. Reporters are required to hold a full personal interest register. The whereabouts of this register should be revealed to the editor.
4. A reporter should not have made a transaction of shares, derivatives or spread betting positions for 30 days before the publication of an article that mentions such interest. Reporters who have an interest in a company they have written about should not transact the shares within 30 days after the on-sale date of the magazine.
