Some Interesting Meetings – Palace Capital, Dunelm, NCC

There are some interesting meetings in prospect for investors. Firstly, I notice Simon Thompson has tipped Palace Capital (PCA) in this week’s Investors Chronicle. He suggests this property investment company’s half year results at the end of November “are likely to make a good read”. Now it just so happens that Palace Capital are presenting at two ShareSoc events in November (in Richmond and in Manchester). So that would be a good opportunity to learn more about the business. See this web page for more information and links to the individual events registration pages: .

The first one is on the 1st November so please register soon if you wish to attend.

The Dunelm (DNLM) Annual General Meeting is coming up on the 22nd November. At the last AGM there was considerable debate about the remuneration scheme including the LTIP. Otherwise it was not a particularly useful meeting with the Chairman hurrying through the formal business. There is a full report on it on the ShareSoc Members Network. However it was held in London, albeit at the somewhat inconvenient time of 9.30 am. This year they have gone one better to discourage investors from attending. It will be held in Syston at 9.00 am. Syston is near Leicester for those not familiar with the location of Dunelm’s Store Support Centre. I don’t personally object to such locations and in this case it may help staff to attend. But the timing is abominable.

NCC (NCC) is another company who likes to hold their AGM at remote locations at inconvenient times (in this case in Manchester at 11.00 on the 22nd September this year). The company also missed talking about the bad news they issued on the 20th October in a “first four months” trading statement (why not a few weeks earlier for the first quarter?).

The statement caused the share price to abruptly fall and at the time of writing is down 39%. The announcement indicated three large contract cancellations and other difficulties. But the odd thing is that although “the growth in profitability will now be more biased towards the second half” it also says that it “remains in line with the Board’s expectations”. It would seem at least one analyst has reduced their forecast however. I am sure a few investors might like to have quizzed CEO Rob Cotton on this apparent anomaly. It will now have to await the next AGM.

The writer holds shares in some of the above.

Roger Lawson

More Power Requested for Ultimate Investors

ShareSoc has issued a press release noting our submission to the Parliament BIS Committee Inquiry into Corporate Governance. It requests more power for ultimate investors. Here is a brief summary of the contents (the press release includes a link to our full submission).

We suggest that the goal should be to get more power back to the ultimate investors. This can be achieved by:

– Ensuring that individual shareholders can exercise their rights, even if their shares are held in nominee accounts.

– Providing government and/or NGO support for representative organisations such as ShareSoc.

– Requiring a binding annual vote on the remuneration report and requiring companies to disclose the Pay Ratios.

– Introducing shareholder committees as outlined in the paper by Chris Philp MP “Restoring responsible ownership” so long as a representative of individual investors is included.

The views of individual shareholders tend to be under-represented. Part of the problem is the way that individual shareholders are disenfranchised through the way nominee accounts operate.

Individual investors do not have effective power to curb directors’ pay. Fund managers, who are merely intermediaries in the ownership chain, have usurped this power: but have patently failed to provide effective stewardship. They are responsible for creating many of the current problems, yet to date seem to have avoided blame. Why should we expect them to suddenly change their behaviour? It is time for a strong input from Government and regulators of the London Stock Exchange to change the framework in which we are currently operating. The goal should be to get more power back to the ultimate investors and hence make capitalism work for everyone.

Our full press release on our submission to the BIS Committee is present here:

Roger Lawson 25/10/2016

WH Ireland Stop Offering Personal Crest Accounts

I have been advised that stockbroker W.H. Ireland are to stop offering Personal Crest Accounts. Existing clients using such accounts will have to move into a nominee account, or transfer to another broker which I can imagine a number doing. As ShareSoc Members have been told repeatedly, there are great advantages in terms of legal security and in retaining your shareholder rights by using such accounts rather than pooled nominee accounts offered by most brokers. Your name is on the share register of a company when you hold the shares in a Personal Crest Account, the same as with certificated share accounts, but you get the advantages of electronic trading. Being on the share register means the company in which you own shares will recognise you as a shareholder and communicate with you, i.e. you will get all Notices and Annual Reports directly from them and you can guarantee to be admitted, and be able to vote or speak, at any General Meeting.

A list of alternative brokers who offer personal crest accounts is here:

But it emphasises the importance of reforming shareholder rights as promoted on our web site as the number of brokers offering Personal Crest Accounts continues to decline.

Incidentally, one person I spoke to about the acquisition of TD Direct by Interactive Investor queried how they could transfer shares he owns in a TD Direct account to someone else without his permission. Well there is of course a simple answer to that – he does not own them as they are in a nominee account, TD Direct do!

Roger Lawson

Monitise and Scancell AGMs, and the Wonders of the Nominee System

Monitise (MONI) was one of those stocks for speculators in the past. One of those technology shooting stars that got to a ridiculous valuation under former CEO and founder Alastair Lukes. But despite numerous fund raisings it never managed to reach profitability. The business model chosen never turned out to be of value and the market needs also changed. So he has departed, a new management team is in place, and substantial restructurings have been implemented. The company has also revised its product and sales offerings with more focus on repeat revenue rather than license sales. But it is really betting on a new product called FINKit to revitalise sales in the future. Revenue had been falling rapidly but has now stabilised according to the Annual Report and it also reported a half-year EBITDA profit for the second half and perhaps more importantly, positive cash flow.

The AGM took place on the 19th October 2016 in the City of London at 10.00 am. I bought a very few shares recently as I have an interest in the financial technology sector. A full report of the meeting is on the ShareSoc Members Network but I will just highlight one issue that arose and give a summary.

The voting was undertaken on a poll (far from my ideal way of doing things), but the proxy counts were displayed. I questioned the votes cast against the share buy-back resolution. These were actually reported as less than the votes I had submitted against that resolution (both directly as a personal crest member, and indirectly via two nominee accounts). It later transpired that there were no votes from the nominee operator – just one more bit of evidence of the wonders of the nominee system!

One simply cannot rely on nominee operators to collect or submit votes and there is no clear audit trail when votes do not appear to arrive. This is one good reason (there are lots of others) why this system needs to be reformed so all shareholders (including “beneficial owners”) are on the register.

The results of the votes were declared later in the day – all resolutions passed by over 99%, but only about 10% of shareholders actually voting which is a very low number in comparison with most companies. Perhaps shareholders have totally lost interest in their investment after the dramatic fall in the share price over the last two years (down from a peak of about 80p to 2.5p recently). Or perhaps a lot are in nominee accounts and either find it difficult to vote or their votes did not arrive.

Summary and comments: A useful AGM in terms of learning more about the business. Clearly though it depends on the future sales of FINKit and progress there seems to be slow. Investing in the shares now would clearly be a bet on the future success of that product and although I do not doubt that there is a need for such technology, selling a new solution is always difficult. Until they get some “satisfied customer” stories under their belt, it is not likely to take off. In the meantime they are reliant on their legacy businesses and revenue from pilots and consultancy work. The market is therefore unlikely to change its view on the business rapidly. However its market cap is only about 1 times revenue at present which is a lowly valuation for such businesses.

There is also a very good report on the Scancell AGM on the ShareSoc Members Network by Tim Grattan.

Roger Lawson

Foresight 4 VCT Announce Board and Other Changes

Following a campaign by some shareholders in Foresight 4 VCT Plc (FTF) supported by ShareSoc (see ) which resulted in the directors only narrowly managing to get re-elected at the recent AGM, the company has now responded with a major announcement. The proposed changes are:

  1. Chairman Philip Stephens and Director Peter Dicks indicate they intend to retire from the board. A specialist recruitment firm is being engaged to identify suitable candidates to replace them (this was one of the suggestions that the campaign made). No recommendations regarding options for the company will be put to shareholders before new directors are in place.
  2. The new board will consider the proposed merger with Foresight 3 VCT but shareholders will be given an advisory vote on this matter when the half-yearly report is issued. The company reiterated the benefits they saw from the proposed merger in the announcement.
  3. The board anticipates that a tender offer will be made to shareholders subsequent to the proposed merger. In addition they will introduce share buy-backs to enable the share price discount to NAV to be reduced to 10% (another complaint from shareholders at the AGM was the high discount and lack of buy-backs).
  4. In addition to the tender offer and share buy-backs, the board expects that the enlarged VCT would be in a position to pay a post-merger dividend.

Comment: In general this is surely a positive announcement as it meets many of the objectives desired by shareholders, although they may still have some concerns about the proposed merger. In addition there may be technical issues related to the tender offer that might prejudice the tax position of some shareholders if they took it up. The tender offer and dividend may also require the company to have considerable cash available which might be problematic but it does indicate a strategy to return cash to shareholders which many desired.

Let us hope that good new directors willing to take on some of the problems faced by the company readily come forward.

Roger Lawson

When in a Panic, Call Lord Pannick

The name of Lord Pannick has cropped up twice recently. He is one of the leading QCs on public and commercial law. So it was not surprising perhaps that those who wished to challenge the Government’s move for Brexit following the Referendum outcome would employ him to make their case in the High Court.

For those who have been out of touch with political events, the legal challenge is about whether the Government can decide to activate Article 50 and hence activate Brexit without a vote in Parliament. The Government claims it has the “prerogative” to do so or not, which requires some analysis of historic constitutional law ultimately going back centuries. The claimants, led by fund manager Gina Miller who seems to like publicity as she has campaigned on other issues, and allegedly supported by many expatriates, claim that this is a major constitutional issue and that the Referendum result did not mandate the Government to act. But others see it as a way of possibly thwarting Brexit bearing in mind that many politicians supported the Remain side. It surely seems unlikely that the claimants would put up as much as £100,000 (the likely cost of the case, and more if lost) and pay one of the most expensive legal minds to work on it just to make a constitutional point.

Lord Pannick’s name has surprisingly also cropped up today in an article in the FT where it is reported that Sir Philip Green of BHS notoriety has commissioned him to write a report on Parliament’s investigation of the affairs of BHS. It includes some “withering criticisms” apparently. It suggests that Parliament Committee Chairman Frank Field had predetermined his conclusions before hearing the evidence. There may be a legal challenge from Philip Green in the offing on this matter, although Parliamentary privilege may make it difficult.

Now Lord Pannick has been in the public eye before because he was one of the lead QC’s in the appeal of Northern Rock shareholders against nationalisation. That was ultimately lost in the Supreme Court and in the European Courts. But he certainly gave a good performance with a well argued case as this writer followed that one in through the Courts. Let us hope he has better luck this time.

As any lawyer will say to you, the outcome of legal cases can be uncertain, and that particularly applies to judicial reviews where only points of law tend to count but where the judiciary can be reluctant to interfere in the political sphere or the will of Parliament. Did Parliament intend the Referendum vote to be binding on the Government? That may be one of the key issues.

Roger Lawson

TD Direct Acquired by Interactive Investor

Interactive Investor Plc has agreed to buy TD Direct Investing from TD Bank Group (its European direct investing business) in a deal financed by private equity group J.C.Flowers . Both businesses offer low cost execution-only share dealing to private investors. The combined group could be the second largest such platform in terms of assets under management in the UK after Hargreaves Lansdown.

The enlarged group will be led by Interactive Investor’s current CEO Adam Seale and will be called Interactive Investor. No immediate changes are anticipated in either service to existing clients, but clearly there may be some simplification and standardisation on a single platform in due course.

ShareSoc Director Mark Bentley, who is a user of the TD DIrect service, had this to say: “I have concerns about this because I initially chose to use TD Direct because of the good international trading facilities and the fact that they support voting of my shares via the Broadridge service which enfranchises nominee shareholders”.

Comment: It is no secret that times are tough for stock-broking businesses with volumes declining and low interest rates damaging the profits they historically made on cash floats. Competition has also been increasing as new entrants have moved into the market in the last few years. So we now see consolidation taking place with the weaker operators being acquired and prices being raised by others.

But it tends to be disconcerting for retail investors to face such churn. They pick a broker based on facilities, ease of use and price and learn how to use it. Soon after they may face a transfer to a new platform with a different cost structure and different user interface, if not more expensive. One cannot thwart the economic logic of business necessity for these companies, but even so it can be very annoying. Let us hope that Interactive Investor do not drop the facilities offered by TD Direct.

Clients of TD Direct may wish to express their concerns to the new management.

Roger Lawson