A relatively quiet month in terms of corporate results and news flow was dominated by Q1 trading updates. Pleasingly these were generally positive and have served to underpin the ‘recovery’ trade in a wide range of our holdings. Having been overly pessimistic a year or so ago, analysts are firmly in ‘upgrade’ mode as profit expectations are being revised upwards, generating positive share price momentum. We hope to see this bounce in current earnings gradually start to be reflected in improving dividend payments as Boards confidence in their trading outlook starts to improve. For the moment investors are happy to look through any potential changes in the government’s roadmap back to normality and appear sanguine about any short term volatility in domestic macro numbers. The consensus is still that any pick up in inflation will only be temporary although we are less convinced on this front and will be looking for any signs of sustained wage inflation which may undermine this view.
Once again there was no discernible theme or trend in our best and worst performers over the month. A number of stocks with high overseas exposure were strong, Bodycote, Tyman and Morgan Advanced Materials, as were Redde and Bloomsbury which are predominately domestic orientated stocks. On the downside, Diversified Energy, Wood Group and Telecom Plus detracted from performance. The new issue market has been extremely active over the past few months but has been focussed on ‘growth’ stocks. In the last month however we added Kitwave, our first IPO since the start of the pandemic, to our portfolio. It is a delivered wholesale business with 26 UK depots that specialises in selling impulse products such as confectionary, soft drinks and snacks to independent retailers. We expect to see more IPO activity in our investible universe as funds are starting to flow from relatively highly valued ‘growth’ stocks into cyclicals and ‘value’ type opportunities. On the trading front we sold down a number of holdings on income grounds such as Shoezone and Flowtech and added to positions in Morrisons, Stock Spirits and Smart Metering.