Interserve - £90M write down

[flint]

SDN 123 - " assuming that the market has overestimated the current problems ".

Is there any basis for this assumption?
If not, you should consider the Lynch's Law most common mistakes set out above.

[Dod1010]

RJ

I would be happy to hold SL as well, at least until their proposed 'merger' with Aberdeen because I am not confident about that either business wise or in terms of the proposed management structure.

(Maybe I have exceeded my quota of postings for today; you can see that it is snowing where I live)

Dod

[vrdiver]

In simplistic terms sell a share with no income but potential for capital gain ... for a share with excellent prospects of sustainable income but low potential for capital gain.

If I were living off the income of my HYP I think that this would be an easy call for me(sell Interserv and buy a share like Pheonix).

Whilst capital is of secondary importance to a HYP, in reality, if dividends are to steadily increase (at least at the portfolio level) then the capital will increase as well, albeit less steadily!

TJH and others have mentioned elsewhere that selling a share shortly after a dividend cut or other bad news may be an expensive knee jerk, as the market often over reacts and the share will recover (some of) the loss over a period of time.

With Interserve, my personal question is whether the recovery in price will be more, or less than the dividends I could get with the capital if I sold and bought something else? Looking at it over a 5-10 year horizon, I also have to consider the risk of my alternative purchase also crashing, further shrinking the base capital.

So unlike Dodd, I tend to dither rather than cut my losses. Sometimes it works and the capital recovers, sometimes it doesn't, but I note that at the portfolio level the dividends keep increasing...

VRD

[Arborbridge]

Dod wrote:

Currently Interserve fails on both counts.

The problem for me is that the statement is perfectly true, but only "currently". IRV has been a most successful share up until it wasn't!.

From 2010 until January 2016, it was my tip-toppiest performing share for TR, being No 1 all that time, with a good yield too. Even at December 2016 it was in fifth place out of nearly 40 shares with a total return of over 16% pa.
No way could one at that time describe it as anything but one of my most successful investments.

Then, BANG!.

This sometimes happens, and it happens to previously large a apparently reliable shares. How to avoid such events with foresight rather rather hindsight, is what we would all like to know

[toofast2live]

I'm pretty sure, Arb, that if TJH held that share and it had appreciated 16%pa it would have been trimmed a few times by now, thereby capturing some of the gain, which would have been re-invested in some of his poorer performing, under median shares with ecent yields.

I'm assuming that in your case (assuming you are a tinker), it never reached such giddy heights?

On the other hand many professional fund managers would have employed a trailing stop loss to exit the position at their chosen exposure level. In absolute terms IRV never appeared outrageously expensive to me, but once bad news appears history teaches that usually more bad news follows. Much the same as a new CEO will kitchen sink operations and shaft his/her shareholders with a dividend cut!

[Arborbridge]

I'm pretty sure, Arb, that if TJH held that share and it had appreciated 16%pa it would have been trimmed a few times by now,

Not unless it breached his limits, or mine. I don't believe it ever did because other shares were rising also. I also set a higher limit than Terry as x2.00 median and the only shares I've trimmed are UBM, GSK and AZN, once each.

Arb.

[tjh290633]

I'm pretty sure, Arb, that if TJH held that share and it had appreciated 16%pa it would have been trimmed a few times by now,

Not unless it breached his limits, or mine. I don't believe it ever did because other shares were rising also. I also set a higher limit than Terry as x2.00 median and the only shares I've trimmed are UBM, GSK and AZN, once each.

Arb.

Everything is relative. If it increased by 16%pa while the rest of the market stood still, then it would have doubled in 5 years, so it would have been trimmed back. My limit is 1.5 times the median holding value, so it all depends on what has happened to the median share in value terms.

As I have said in the past, originally I set my limit at 10% of the portfolio value, then changed to twice the median when I had more than 20 shares and then to 1.5 times when I had over 30 shares. It all revolved around what was a sensible size of trade to sell a chunk.

TJH

[toofast2live]

I'm pretty sure, Arb, that if TJH held that share and it had appreciated 16%pa it would have been trimmed a few times by now,

Not unless it breached his limits, or mine. I don't believe it ever did because other shares were rising also. I also set a higher limit than Terry as x2.00 median and the only shares I've trimmed are UBM, GSK and AZN, once each.

Arb.

Fair enough! If one of my shares had rocked along at 16%pa 2010-2016, it would have been way above median - maybe not x2, but certainly on the cusp of x1.5. Hats off to your stock picking, Arb.

[Arborbridge]

Fair enough! If one of my shares had rocked along at 16%pa 2010-2016, it would have been way above median - maybe not x2, but certainly on the cusp of x1.5.

That made me slightly nervous: have I made some terrible mistake? I've just been looking through saved copies of HYPTUSS back to 2014, and mostly IRV doesn't go far above mediam weight.

I don't understand the mathematics of that when the IRR was 16% for a long time (not now, though) and the median for the HYP is under 10%, but that's what it seems to show.

[77ss]

Dod wrote:

Currently Interserve fails on both counts.

The problem for me is that the statement is perfectly true, but only "currently". IRV has been a most successful share up until it wasn't!.

From 2010 until January 2016, it was my tip-toppiest performing share for TR, being No 1 all that time, with a good yield too. Even at December 2016 it was in fifth place out of nearly 40 shares with a total return of over 16% pa.
No way could one at that time describe it as anything but one of my most successful investments.

Then, BANG!.

This sometimes happens, and it happens to previously large a apparently reliable shares. How to avoid such events with foresight rather rather hindsight, is what we would all like to know

No way of avoiding such events. But surely one can mitigate the effects by being readier to trim on the way up. No share should be regarded as an infallible perpetual motion machine.

I currently have 8 holdings that I have held for over 6 years and that are giving me a TR of over 16%. Checking my records, I find that I have trimmed all of them, sometimes more than once. In the one recent case where the dividend was cut and the share price plummeted (RIO) such trimming meant that I could be relatively relaxed about events, having crystallised some of the gains.

RIO is recovering, and Interserve may well do likewise. But if I had never trimmed RIO, I don't think I would have been very happy last year!

[Arborbridge]

But surely one can mitigate the effects by being readier to trim on the way up.

Yes - that's what TJH's system does, but IRV never reached a size to justify trimming - otherwise I would have done so.
It's never been much more than median weight, which means that's its contribution to any disaster is limited: that's the point of the trimming rules, and you could say it has worked.


Arb.

[toofast2live]

At least it's lowered your median, helping the trimming of other gainers!

[flint]

I see those canny Scots at Aberdeen A.M. have spent £1.4m on increasing their Interserve holding.

[monabri]

Must be a reward for a job done well a "performance share plan" !!!!

http://www.londonstockexchange.com/exch ... 87911.html

[monabri]

Update from IRV from 12th May - seems no more bad news... .... ....

http://www.londonstockexchange.com/exch ... 23228.html


The AGM voted against a share buy back so I'm holding my breath for a reinstatement of a dividend in September (2017 ! )

[mike]

Update from IRV from 12th May - seems no more bad news... .... ....

http://www.londonstockexchange.com/exch ... 23228.html

.... until today's abysmal update

.... the Board now believes that the outturn for the year will be significantly below its previous expectations.

.... the anticipated timing and complexities of [EFW] completion mean that the Board now considers it likely that the final costs will significantly exceed the £160m currently provided.

https://www.investegate.co.uk/interserve-plc--irv-/rns/trading-update/201709140700056957Q/

I think we may be waiting rather longer for resumption of dividends. I can see a CLLN or PFG type fall happening at 8am

Mike

[minerjoe]

If you bought in 2014 you have lost 87% of the value....

Still, might be worth picking up now if you are a bit of a contrarian - no dividends anytime soon, but maybe a recovery value play. PFG a perfect example of buying at the bottom

[monabri]

Interestingly, very little shorting activity on IRV so even the sharks didn't smell blood!

[monabri]

"complexities of completion mean it now considers it likely that the final costs will significantly exceed the GBP160 million currently provided."

"Interserve said it continues to believe it will be able to operate within its banking covenants in 2017."

If they can't nail down costs of EfW exit how can they claim the second statement?

All I'm hoping is that Mrs White is really setting her personal baseline low based on her bonus scheme incentives

http://www.londonstockexchange.com/exch ... 59998.html

[Dod1010]

Support services have never been a very good place to be, Carillion, Mitie, Interserve, G4S....................

Dod