Questor: it’s steady as she goes for the Income Portfolio but a sad end for our Conviviality tip

Update: Renew Holdings

Renew, the engineering services and specialist housebuilding group bought for the Income Portfolio in November 2016, published a positive trading update on Tuesday.

It said performance “continues to be strong”, adding: “Trading for the first half of the year is in line with the board’s expectations and we anticipate reporting an increased forward order book at the interim results.

“This has been driven by engineering services, where order flow across our infrastructure and environmental sectors has been good.”

The company said it expected to report a “modest” net debt position at the half year and to have net cash by the end of its financial year.

It will report its interim results on May 22.

The shares have been volatile since we bought them but are currently back at our purchase price. They are a couple of per cent below the price at which we tipped them in February as a bargain following the stock market sell-off. Hold.

IHT Portfolio update: Conviviality

Events have moved quickly at Conviviality, the beleaguered drinks distributor, and it is now clear that shareholders face a total loss of their investment.

The group announced late on Wednesday that it had sold the Conviviality Direct business, which accounted for 78pc of its turnover, to C&C Group, the maker of Bulmers cider, for a “nominal” sum.

The sale is good news for the employees, creditors and customers of Conviviality Direct but not for shareholders. Yesterday the parent company appointed administrators.

Questor can only apologise to readers who followed what turned out to be a very poor tip and trust that good performance from our other selections will outweigh the loss.

We were attracted to Conviviality by purchases of its shares by members of its board after poorly received interim results in January, and by the fact that it was a top-10 holding in the well regarded Acorn Income investment trust.

We argued that no one should know a business better than the people who ran it, but in this instance it seems that the directors were not really aware of what was going on in their company.

In a distribution business, where margins are small but large sums pass in and out on a daily basis, strong financial controls are vital.

It is now clear that such controls were lacking. And arguably the directors’ share purchases, while far from nominal, were not large enough to be really convincing.

Fraser Mackersie, who co-manages the stock portion of the Acorn fund, told Questor: “Regrettably we were wrong about Conviviality.

“It’s become clear in the past couple of weeks that the strong level of internal controls required in a business with turnover in excess of £1.5bn were not in place.

“We overestimated the ability of the management team to run a profitable, growing business while maintaining adequate control of working capital.”

He added: “There remains a strong case for a national alcohol distributor of scale – unfortunately this opportunity will now not be seized by Conviviality. We are disappointed and frustrated with the position that we and other stakeholders now find ourselves in.

“We’ve been shareholders since the flotation in 2013 and have been astonished at the rapid deterioration in the prospects for this investment.”