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Lonmin carrying the flag for Bombed Out portfolio

Lonmin stays in the recovery stocks portfolio for another week, and is sitting on a 14% gain.

Lonmin mine
The platinum producer's performance has been as good as gold

The recovery stocks portfolio is still waiting for a runaway winner that will dig it out of an ever-deepening hole.

As we expected last week, Watchstone Group – the company formerly known as Quindell – proved more of a millstone than a saviour. The stock has now been sold at a loss of £284.

The Bombed Out but Bouncing Back portfolio also took a loss (of £134) on its investment in merchant bank MXC Capital, and a loss of £30 – basically the assumed transaction costs of trading in and out of the stock – on San Leon Energy.

All hail DX (Group), however, which hung around for a couple of weeks and banked us a profit of £81.

The logistics group put out its full-year results last week, which were terrible but not as terrible as the market feared.

A new management team, chock-full of logistics industry experience, has moved in and a major new financing agreement has been sealed.

A lot of the companies that pass through the Bombed Out portfolio look, to put it politely, to be no more than punts rather than recovery stories, but on an admittedly superficial investigation, DX looks like it might be a bombed out stock that has a genuine chance of bouncing back.

Having said that, share price momentum is currently not strong enough to keep it in the portfolio, so out it goes to raise cash for new entrants.

Stocks sold

DX (Group) PLC (LON:DX.): Sold 11,095 shares @ 11.5p to raise £1,261 for a profit of £81

MXC Capital PLC (LON:MXCP): Sold 104,500 shares @ 1.55p to raise £1,605 for a loss of £134

San Leon Energy PLC (LON:SLE): Sold 6,650 shares @ 26p to raise £1,714 for a loss of £30 (all transaction charges)

Watchstone Group PLC (LON:WTG): Sold 1,410 shares @ 103.75 to raise £1,448 for a loss of £284

Those sales meant the portfolio was reduced to one stock – Lonmin PLC (LON:LMI) – which is currently well in profit, and left £6,028 in cash for reinvestment.

The stock filter generated two new candidates; initially it generated three, with the third being the dreaded Allied Minds, which has been in and out of the portfolio more than once, but a quick refresh thankfully eliminated it from the runners and riders.

Stocks bought

Game Digital PLC (LON:GMD): Bought 7,750 shares @ 38.5p each at a cost of £2,999.

Management Resource Solutions PLC (LON:MRS): Bought 46,000 @ 6.5p each at a cost of £3,005.

The new arrivals

The Bombed-out portfolio finds itself in the company of Sports Direct as a (virtual) shareholder of the UK’s leading specialist retailer of video games, GAME Digital.

Even someone with only a minor knowledge of the computer games market must know that the days of high street shops selling games are numbered, and even the hardware (games consoles and peripherals) market has probably migrated online these days, with Amazon, eBay, Argos, Dixons and Tesco among the formidable competitors.

GAME also realises this and is pushing hard into the e-sports market, which is where a bunch of geeks (elite nerds) compete against each other in computer games while thousands of nerds (wannabe geeks) watch them do so online.

The change in emphasis is probably the right one, and bears similarity to HMV’s attempt to move into live music, which worked out OK – it was the rest of the business (its debt and long leases on underperforming shops) that dragged it under.

Whether GAME will go the way of HMV is still to be determined ,but after issuing a profit warning in June the company pleasantly surprised the market with its full-year trading update in August.

Following the launch of the Nintendo Switch console in March 2017, both the UK and Spanish video games markets have experienced growth (GAME also has retail outlets in Spain).

Shares in Management Resource Solutions have more than halved over the six months despite rising 70% in the last three months.

The Aussie firm offers plant hire, equipment repair, refurbishment and fabrication, mine rehabilitation, earthmoving, road construction and other support services to a wide base of private and public sector clients in Australia.

It predominantly caters for the mining, civil engineering, construction and infrastructure industries.

In August, the company said it had traded in line with expectations in the year to the end of June but made a much bigger loss than expected owing to the lack of working capital.

It received some good news last week a A$3.6mln claim from the liquidator of a Guernsey-based subsidiary was dropped.

That probably explains why the stock has appeared on the Bombed Out radar, but as it is a one-off event and not part of a continuing recovery narrative, I strongly expect this stock to disappear from the portfolio next week.

 

Here’s where we currently stand

 

Company

No. of shares

Total cost

Average price paid

Current bid price

Current value

Profit/ loss £

Profit/ loss %

Game Digital

7,750

£2,999

38.69p

37p

£2,868

-£131

-4.4%

Lonmin

2,050

£1,747

85.23p

97.25p

£1,994

£246

+14%

Management Resource Solutions

46,000

£3,005

6.53p

6.25p

£2,875

-£130

-4.3%

 

  • Cash: £24
  • Total value of original £10k portfolio: £7,760
  • Profit/loss on closed trades and dividends: -£2,225
  • Unrealised profit/loss on current holdings: -£15
  • Total profit/loss: -£2,239

 

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