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Questor: this stock has risen by 20pc in three weeks. This is why it’s still worth holding
Questor Inheritance Tax Portfolio: Gamma Communications has been a great success for our IHT Portfolio – and there’s no sign of its growth slowing
This week we update readers on the progress – or lack of it – at a couple of the stocks in our Inheritance Tax Portfolio. These are shares that, in addition to our hopes of share price growth, offer exemption from death duties if held for at least two years.
Update: Gamma Communications
Gamma is the IHT Portfolio’s star performer. Since we said buy in January last year the shares have gained 56.7pc. They have performed extremely strongly this month, rising by 20.5pc from 830p on March 1 to £10 at last night’s close.
Strong full-year numbers published on March 12 certainly helped. Sales for the year to Dec 31 rose by 18pc to £284.9m and pre-tax profits by 30pc to £34.5m. Earnings per share on an adjusted basis rose by a similar percentage to 30.3p and the proposed full-year dividend was increased by 11pc to 9.3p.
Anthony Cross, who holds the stock in his Liontrust UK Smaller Companies fund, said Gamma’s growth had come partly from selling more into its existing markets and partly from expanding into new ones – it made an acquisition in Europe last year.
He added: “We have had to trim our position as the rising share price has caused the holding to become larger but have no plans to sell beyond that.”
Maurice Patrick, an analyst at Barclays, said: “Gamma continues to execute on its strategy, seeing strong growth in its core segments. We see no signs of this slowing despite the company appearing to want to keep a lid on expectations.” He said his price target for the stock was £11 but under a more bullish “blue sky” scenario it could reach £15.
Questor says: hold
Ticker: GAMA
Share price at close: £10
Update: Fulcrum Utility Services
Fulcrum, which specialises in gas and electricity infrastructure, has been a less successful pick for us. We added the stock to the IHT Portfolio only two months ago but after initial gains the price began to fall in mid-February and now stands 23pc below where we tipped the firm.
In that time the company had made no announcements concerning trading or expected profits until a statement yesterday that acknowledged the share price fall and confirmed plans to publish a trading update on March 28 for the year ending three days later. It added that it expected full-year sales to be about £57m, compared with £44.6m the previous year, and profits, on an “adjusted Ebitda” basis, to be about £11m, against £8.4m last time.
Greg Poulton of N+1 Singer, the broker, said these figures were about 10pc below previous expectations. He speculated that the shortfall could result from weak trading in Fulcrum’s recently acquired electrical connections arm, Dunamis, which made just £2,000 in profits in the first half of the year.
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“There were a couple of contract delays in this division,” he said. “I expect a big improvement in the second half of the year. I think there is a good business here – if you can offer clients such as housebuilders the opportunity to install their gas and electricity connections at the same time, that makes a lot of sense.”
Matt Hoggarth of Thesis Asset Management, which holds Fulcrum in its own IHT portfolio, supported this view. He said a recent ruling from the European Court of Justice that banned government payments to operators of “standby” electricity generating plants might have prompted them to delay projects that could have led to business for Fulcrum.
Another concern that may have weighed on the shares is the review by the energy regulator, Ofgem, into the returns that firms in the sector are allowed to make. A cap could affect the Fulcrum subsidiary that owns gas pipes and other assets.
Hoggarth added: “The shares trade at less that eight times forecast earnings and yield 6pc, with the dividend covered 1.75 times by profits. We are tempted to add to our holdings at these levels."
Poulton said the dividend was safe for the year about to end, although an increase was unlikely.
We tipped the stock for its income so the shares are a hold.
Questor says: hold
Ticker: FCRM
Share price at close: 34.75p
Update: Gama Aviation
Gama has also performed poorly for the portfolio. We will publish an update after its full-year results, due by April 3.
- Questor archive: telegraph.co.uk/questor
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