James Halstead JHD

[TheMotorcycleBoy]

Hi everyone,

I'm looking at a few ideas for buying some AIM shares.

James Halstead looks tempting. Does anyone else hold them, and does any one have any ideas of a good price for them?

I can that the price peaked at 5.40 (ish) at May 2017, and it has steadily fallen to it's current price of 3.95.

On stockopedia all the valuation methods seemed to think that it is *still* overvalued at this figure.

I appreciate that no one can take my risks for me, but just wondered what peoples' ideas were on this share.

Many thanks
Matt

[TheMotorcycleBoy]

Incidentally Stockopedia terms this as a "falling star".

Perhaps as the Stranglers used to sing I should "Walk on by"....

[WickedLester]

Hi Melanie

After a fairly cursory glance I would say it looks very highly rated for a company which is not really growing much. Personally I can't see it being one for me at the current price.

Lester

[TheMotorcycleBoy]

Hi Melanie

After a fairly cursory glance I would say it looks very highly rated for a company which is not really growing much. Personally I can't see it being one for me at the current price.

Lester

Thanks Lester,

Yes, I agree. If it's price ever stabilises, it does have plus points, strong margin/ROCE/net cash, and a good divi yield.

However it's market place does not seem to be particularly niche.

Matt

[simoan]

Hi Melanie

After a fairly cursory glance I would say it looks very highly rated for a company which is not really growing much. Personally I can't see it being one for me at the current price.

Lester

Thanks Lester,

Yes, I agree. If it's price ever stabilises, it does have plus points, strong margin/ROCE/net cash, and a good divi yield.

However it's market place does not seem to be particularly niche.

Matt

Matt,

I held it for a while but sold it last month as it's not a sector I want to be involved in currently. I don't have any other strong feelings about it and the management are sound and conservative. All I would say is that you need to be careful with certain AIM shares and this is the reason many of the more safe and conservatively run companies listed on AIM that pay a dividend always look fundamentally overvalued - people buy and fold them for Inheritance Tax purposes! If the government ever changes this legislation i.e. they change the status of AIM shares, most of these companies share prices would deflate rapidly. As someone not investing for tax purposes it is important to know this although it would probably take a Corbyn government to change things.

All the best, Si

[Lootman]

you need to be careful with certain AIM shares and this is the reason many of the more safe and conservatively run companies listed on AIM that pay a dividend always look fundamentally overvalued - people buy and fold them for Inheritance Tax purposes! If the government ever changes this legislation i.e. they change the status of AIM shares, most of these companies share prices would deflate rapidly. As someone not investing for tax purposes it is important to know this although it would probably take a Corbyn government to change things.

Is there any way to tell how many of these AIM shares are held for IHT purposes rather than purely investment purposes?

I hold 20 or so AIM shares partly for their favourable IHT status but they have to pencil out as investments as well. Of course, being AIM shares, some of them fail spectacularly whilst others have multi-bagged, hence the need for 20.

I've heard elsewhere that their prices are propped up by their special IHT status, but is there any way to know that for sure? One way would be if there are specialist funds and vehicles that are marketed for tax purposes, but I am not aware that there are too many large ones.

[TheMotorcycleBoy]

I'm also looking at
NUMIS
ZYT (zytronic)
and GOR (gordon dadds)

Common sense says Numis, my heart says Zyt, Gor is a little premature, but might really pick up over the years.

One of my issues, philosophically speaking, is after reading reading a fair bit now of Warren Buffett and of his accolades, is the mantra of "buy a firm you want to own forever".

I'm not so sure it's always practical. Some AIM shares I'd rather frequently monitor and either topslice/sell up when I've some profit.

And as far as wanting to own NUMIS and GOR forever; they really do look heart-breakingly boring.....but what for WBs advice? But then again, money is money..

Matt

[TheMotorcycleBoy]

Consider this topic renamed to various AIM shares I'm currently looking at,

e.g. NUMIS, ZYT and GOR

M

[TheMotorcycleBoy]

safe and conservatively run companies listed on AIM that pay a dividend always look fundamentally overvalued - people buy and fold them for Inheritance Tax purposes! If the government ever changes this legislation i.e. they change the status of AIM shares, most of these companies share prices would deflate rapidly. As someone not investing for tax purposes it is important to know this although it would probably take a Corbyn government to change things.

Perhaps look for stuff selling close-ish to book value, to attempt to mitigate?

[simoan]

I've heard elsewhere that their prices are propped up by their special IHT status, but is there any way to know that for sure? One way would be if there are specialist funds and vehicles that are marketed for tax purposes, but I am not aware that there are too many large ones.

I'm not aware of any specialist vehicles for using AIM shares for IHT purposes, but then again I've never looked. I'm not sure how the beneficial tax treatment would work through a third party from a tax point of view as surely the whole point is you need to hold the shares as "business assets" on your personal account. My comment is really based on things I have read over the years on BB's including some threads about it on Motley Fool. I am sure there are several others who have an AIM portfolio for similar reasons to yourself, so probably best start a thread and share AIM IHT portfolio contents with others so that we can all see which shares crop up the most!

I was only really making the point as others were questioning why James Halstead looked so expensive for a share that is not growing the top-line and Matt & Mel are new to investing and so were probably not aware of the "IHT effect" on AIM shares.

All the best, Si

[OLTB]

I've heard elsewhere that their prices are propped up by their special IHT status, but is there any way to know that for sure? One way would be if there are specialist funds and vehicles that are marketed for tax purposes, but I am not aware that there are too many large ones.

I'm not aware of any specialist vehicles for using AIM shares for IHT purposes, but then again I've never looked. I'm not sure how the beneficial tax treatment would work through a third party from a tax point of view as surely the whole point is you need to hold the shares as "business assets" on your personal account. My comment is really based on things I have read over the years on BB's including some threads about it on Motley Fool. I am sure there are several others who have an AIM portfolio for similar reasons to yourself, so probably best start a thread and share AIM IHT portfolio contents with others so that we can all see which shares crop up the most!

I was only really making the point as others were questioning why James Halstead looked so expensive for a share that is not growing the top-line and Matt & Mel are new to investing and so were probably not aware of the "IHT effect" on AIM shares.

All the best, Si

You need to be very careful as not all industries qualify for IHT relief, even if they are listed on AIM. In addition, if an AIM listed company that currently qualifies for IHT relief is taken over by a bigger fish, you may find out that the investment suddenly is non-qualifying!

Maybe better to opt for a managed solution and there are a number of popular players in this field that set up and monitor portfolios. I am aware of schemes with Octopus and Close Brothers who set up individual AIM portfolios and diversify between the allowable industries to ensure they qualify for IHT relief. After two years of holding the portfolio, it becomes an asset that isn't included in the IHT calculation. You can also hold them as ISAs now - transfer in existing cash or stocks/shares ISAs and after two years, hey presto, an asset that could have 40% whipped away in IHT now won't (as long as you still hold the investment on death). AIM investments are, however, very different beasts to cash and 'normal' stocks and shares so risk is higher. Here's a factsheet https://octopusinvestments.com/investor ... heet-2018/ from Octopus that gives performance and an example on the second page of the companies invested in.

Tax rules may change though! Just to say that the above examples aren't meant as a recommendation, just that I am aware of them as options that potentially meet your criteria.

Cheers, OLTB.

[simoan]

Perhaps look for stuff selling close-ish to book value, to attempt to mitigate?

I've already made my opinion clear about book value elsewhere! I don't use it and never have. It is of no interest to me, however companies with net cash are. Some of the best companies have very high Price to Book Value (even when they have bags of cash sitting in the bank!) because they make big margins from very few assets. These are the really great businesses and so investing only in low PBV shares will keep you out of some great long-term investments.

OTOH concentrating on Book value will potentially get you into all kinds of trouble. I'm sure the banks looked cheap before the GFC on PBV but it turned out the assets on which the book value was based were just fairy dust!

All the best, Si

[TheMotorcycleBoy]

I've already made my opinion clear about book value elsewhere! I don't use it and never have. It is of no interest to me, however companies with net cash are. Some of the best companies have very high Price to Book Value (even when they have bags of cash sitting in the bank!) because they make big margins from very few assets. These are the really great businesses and so investing only in low PBV shares will keep you out of some great long-term investments.

Don't worry I'm by no means fixated on P-BV. Not in the least. I only made the remark after your's re. IHT+AIM+overpricing.

I'm sure our criteria aren't that dissimilar to your own, profitability, cash flow, net cash or low debt, etc. etc.

I'm sure the banks looked cheap before the GFC on PBV but it turned out the assets on which the book value was based were just fairy dust!

I'm pretty sceptical on banks TBH. We are not invested in any currently, and it may well remain this way.

Anyway thanks for everyone's comments re. JHD

M&M

[Gengulphus]

I'm not aware of any specialist vehicles for using AIM shares for IHT purposes, but then again I've never looked. I'm not sure how the beneficial tax treatment would work through a third party from a tax point of view as surely the whole point is you need to hold the shares as "business assets" on your personal account.

IIRC the products I've seen marketed for the purpose are advisory or discretionary share accounts rather than funds. I.e. each client has a separate share portfolio and legally owns the shares in it, but they pay the account manager for advice on what shares to trade in it with a view to getting the good IHT treatment, following which they make the final decision about whether to follow that advice (advisory), or for the manager to decide upon and execute the trades with no further input from them, the client (discretionary). Whereas with a fund, the fund legally owns the shares in the portfolio and the client owns the beneficial interest in a portion of the portfolio.

That advisory/discretionary share account structure presumably gets the ownership right for IHT purposes, while still getting the benefits of 'pooled' research/trading/etc costs for all the clients who use the product.

As a note of caution, though, that is merely a memory of something I last looked at quite a few years ago, so anyone interested should research it properly! A starting point is to google "inheritance tax portfolio", but I haven't taken that any further myself than skimming the list of results enough to see that the services offered do indeed include ones about using the 'business asset' nature of AIM (and maybe other 'unlisted') shares to avoid IHT.

Gengulphus

[Gengulphus]

You need to be very careful as not all industries qualify for IHT relief, even if they are listed on AIM. In addition, if an AIM listed company that currently qualifies for IHT relief is taken over by a bigger fish, you may find out that the investment suddenly is non-qualifying!

To be more complete, suddenly becoming non-qualifying can also happen because the AIM company chooses to move to the main market - it doesn't require something as dramatic as a takeover. And not qualifying despite being on AIM can happen for reasons other than being in the wrong industry, the main one being that the company is not only on AIM, but also listed on a foreign 'recognised stock exchange' (in quotes because that's a technical tax term, i.e. don't try to interpret it yourself, but instead check HMRC's definition).

And the reason for most or all of those limitations is that the actual criterion is that the company should be a 'trading' company and not be listed on a 'recognised stock exchange'. No mention of AIM in it at all - the only relevance of AIM is that it isn't a 'recognised stock exchange' and so being traded there doesn't disqualify the company from the IHT relief. And at least most of the disqualified industries are disqualified by the requirement to be a 'trading' company - that's mainly intended to disqualify 'investment' companies, i.e. those whose purpose in mainly to hold and manage shares, land and other investments. And I believe disqualification of 'investment' companies is there to close what would otherwise be a gaping IHT loophole: without it, anyone could set up a private company whose purpose was to hold and manage all their investments, transfer all their assets into it and two years later have the whole lot become exempt from IHT because the only asset they actually own themselves would be the unlisted shares in the private company...

Gengulphus

[TheMotorcycleBoy]

Ha!

Re. James Halstead JHD on Stockopedia. Well Stockopedia have now re-rated this stock.

No longer a "falling star", but now it's "style neutral". Ooh matron!

Personally I don't think it looks that bad. The divi is reasonable, and it has plenty of cash.

I know all the P/E, P/S, P/BV look a bit naughty but still.

[Lootman]

You need to be very careful as not all industries qualify for IHT relief, even if they are listed on AIM. In addition, if an AIM listed company that currently qualifies for IHT relief is taken over by a bigger fish, you may find out that the investment suddenly is non-qualifying!

To be more complete, suddenly becoming non-qualifying can also happen because the AIM company chooses to move to the main market - it doesn't require something as dramatic as a takeover. And not qualifying despite being on AIM can happen for reasons other than being in the wrong industry, the main one being that the company is not only on AIM, but also listed on a foreign 'recognised stock exchange' (in quotes because that's a technical tax term, i.e. don't try to interpret it yourself, but instead check HMRC's definition).

I have been running such a portfolio for about 7 years now. It consists of 20 shares and, in all that time, only two of them have ceased to be eligible (to my knowledge). In one case there was a takeover. In the other case, a change of exchange.

And when that does happen, you can sell and reinvest in another qualifying AIM share, thereby preserving the benefit.

So it's not been a big problem, so far. A bigger problem is that two of them have lost 80% of their value. But then two of them have increased 300% or more, hence the need for a good number of holdings.

[PinkDalek]

... I am sure there are several others who have an AIM portfolio for similar reasons to yourself, so probably best start a thread and share AIM IHT portfolio contents with others so that we can all see which shares crop up the most! ...

On that front, there is one on TLF where I replied recently, once I'd found it again, to get it noticed and miracously it was moved from wherever it was to "Share Ideas":

AIM Shares - Sources of Information
viewtopic.php?f=33&t=4688

There's a number of AIM shares mentioned there (including some of Lootman's), so maybe that's a good place to continue the discussion, leaving this one to Halstead.

[simoan]

Back on the topic of James Halstead (JHD)... the company they tried to acquire earlier this year (Airea) announced results today:

https://www.investegate.co.uk/airea-plc ... 00030905Y/

Nice set of results, particularly now they have jettisoned the loss making carpet business. The market cap is too small for me and the spread often quite horrendous which puts it outside my "investible universe" but I thought it would've made a good bolt-on acquisition for JHD at the right price. Personally, I'm steering clear of UK manufacturing companies that have significant sales into the EU in the run-up to Brexit.

All the best, Si

[TheMotorcycleBoy]

I'm steering clear of UK manufacturing companies that have significant sales into the EU in the run-up to Brexit.

Yeah, good point. However, maybe a lot of the Brexit uncertainly is offset by weak pounds, as far as a continental importers as concerned?