Not that many analysts working for big City stockbrokers make the switch into asset management. Katie Potts is one of the exceptions, until the early 1990s covering technology stocks at Warburg Securities. In 1994 she launched Herald Investment Trust, raising an initial £65 million.
Not surprisingly, Herald has a bias towards technology and media, though Ms Potts tends to eschew online retailers, some of which enjoy earnings multiples that appear to have no grounding in the real world. Herald started off focused on small UK stocks, but within a few years had widened its investment remit to cover the United States and the Far East, where much of the real progress in technology stocks was taking place. The fund has ridden through the dot-com boom and bust and the financial crisis rather well, now having a market capitalisation of about £770 million.
The share price rise over the past couple of years has been pretty spectacular, as has the performance of a number of large investments. One of these is the biggest, Diploma, in which Herald has invested since the 1990s, although it has recently reduced its holding and taken a handsome profit. Diploma is not generally seen as a tech stock, being a distributor of equipment from hydraulic seals to scalpels, but its record for grinding out earnings growth is impressive, the shares having risen by more than 40 per cent since the start of last year.
Also of note is IQE, one of the few Welsh technology stocks and a maker of gallium arsenide wafers. The company has not always been fully appreciated by the market, but the shares have soared in recent months, now standing at more than six times their price last summer.
Another spectacular performer is Pegasystems, a software company based in Massachusetts. Herald initially bought in at the equivalent of $3.95 a share in 2003; the shares, at the fund’s half-year end in June, were worth $58.
Advertisement
Ms Potts thinks that the business environment for the sort of tech companies Herald invests in has not been better since the dot-com bubble burst, leaving a degree of over-capacity that has largely dissipated. This has been reflected in the fund’s performance, the net asset value having grown by 13.6 per cent in the first half, with the UK part of the portfolio, about 57 per cent, having appreciated by 15.6 per cent.
There is no dividend, but Herald still offers a good way into some high-growth assets.
MY ADVICE Buy
WHY The trust offers a good way into investing in technology shares with an excellent track record for stockpicking
Halma
Halma is one of those reliable businesses that grows both organically and by means of carefully selected acquisitions. That organic growth is running at about 5 per cent to 6 per cent, but the company has been a little quiet on the acquisition front, with only one achieved in the last financial year. Now it has completed two more, of the sort of niche, must-have products in which it specialises.
Halma is buying a Brazilian business that makes ECG and blood pressure monitors, its first move into that country, for an initial £12.1 million. Brazil has a problem with heart disease and the like, while the market for medical devices in the country is growing by 6 per cent to 7 per cent a year. Halma also has bought an American company to extend the product range in blood pressure monitoring for a maximum of £4.9 million.
Advertisement
The shares, up 9p at £11.17, are again trading towards the top of their range, after a dip at the end of last year amid concerns over its exposure to the oil and gas sector. Halma’s £4 billion-plus market capitalisation must put it in striking distance of the FTSE 100. Such reliability does not come cheap and the shares change hands on 26 times earnings, but they remain a key holding.
MY ADVICE Hold
WHY Not cheap but with a long record for reliability
Ultra Electronics
Ultra’s half-year figures look to be a bit of an irrelevance, given the size of the deal the defence electronics company carried out at the end of the period — which is probably just as well because they are not exactly sparkling.
The company is blaming the late approval of the US budget in May, which had frozen defence spending at its earlier level, and the uncertainty surrounding the UK election for a dearth of orders, although these began to flow through in the last two months. Revenues, therefore, were pretty much unchanged at £366 million, but this masks the beneficial effect of the lower pound and on an underlying basis they were off by 6.7 per cent. Underlying pre-tax profits were likewise frozen, off 0.2 per cent at £52.3 million.
In June, after an early leak of the deal, Ultra said that it was in advanced discussions to buy the NYSE-listed Sparton Corporation, and the acquisition was confirmed last month at a cost of $234.8 million (£180.6 million), part-funded by a £137 million placing.
Advertisement
Sparton has two businesses, one of which is in a joint venture with Ultra providing sonobuoys to the US Navy and elsewhere, so Ultra was the only obvious buyer. The other half is an engineering business that will be sold once the deal completes, expected by the end of the year. The purchase brings extra annual revenues of $150 million while the US sonobuoy market is growing by 3 per cent a year. Ultra shares fell 77p to £19.93. They sell on less than 15 times earnings, which looks reasonable.
MY ADVICE Buy
WHY Benefits of the Sparton deal as they come through
And finally . . .
Ethiopia, according to World Bank forecasts, is expected to be the world’s fastest-growing economy this year. Kefi Minerals has a gold project, Tulu Kapi, in the west of the country that is moving towards production after being granted a licence in 2015, supported by the Ethiopian government, as well as a joint venture in Saudi Arabia. The company said yesterday that the Ethiopian authorities had lifted a state of emergency imposed last October to quell anti-government protests after a vote in the parliament.