In the last newsletter I drew attention to Orchard Funding’s (LSE:ORCH) net current asset value, NCAV, per share, at 77p, being appreciably more than its share price of 48p. This was a good starting point for increasing my holding for my net current value portfolio. Other factors, mostly on the qualitative side, also came into play - to be discussed in future newsletters.
First I’ll show how Orchard might have fitted into my Modified cyclically adjusted price earnings ratio portfolio as well as the NCAV. As you can see in the table below for the last nine years Orchard has produced impressive earnings per share numbers for a share valued by Mr Market at 48p (with 21.35m shares in issue that’s a market capitalisation of £10.2m). The average is 6.5p Thus the cyclically adjusted price earnings ratio is 48p/6.5p = 7.4, about one-half of that for the UK market. My, admittedly thin, reasoning for allocating to the NCAV portfolio is merely that I only have nine years of data for earnings rather than the more conventional ten used for a CAPE ratio calculation. It really doesn’t matter which portfolio it goes into; simply that it is a deep value investment likely to provide a good return. Having the reinforcement of fitting not just one but two strict criterion is comforting. It’s also comforting to see such a high proportion of earnings flowing to shareholders in the form of dividends. The business is cash generative, growing steadily (until Covid-19) at a rate which doesn’t absorb a high proportion of the money it makes. The directors, including the 53.3% holder, prefer to reward shareholders regularly – his dividends amount to more than a third of a million each year – rather than splurge on rapid expansion and speculative ventures............
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Glen ArnoldI'm a full-time investor running my portfolio. I invest other people's money into the same shares I hold under the Managed Portfolio Service at Henry Spain. Each of my client's individual accounts is invested in roughly the same proportions as my "Model Portfolio" for which we charge 1.2% + VAT per year. If you would like to join us contact Jackie.Tran@henryspain.co.uk investing is about making the right decisions, not many decisions.
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