Attending an AGM can open your eyes

Monday, 22nd August 2016 09:33 - by Eric Chalker

In the previous article, I suggested that attending an AGM can help you decide whether to retain a share, sell, or buy more.  There may be all manner of questions to ask, but my particular focus was on a company’s strategy, or lack of one, coupled with an assessment of whether the company is sufficiently market-orientated.  In this article, I want to provide a few illustrations, drawing upon my personal experience.

 When the directors don’t get it

Some years ago, I bought shares in Feedback (FDBK).  Over time it became an investment shell and acquired a software business.  The shares rose and I bought more, but when I read the 2015 annual report I couldn’t see the strategy, so I went to the AGM to question the directors.  Afterwards, I concluded that although the company’s business model had been made clearer, the directors did not really have a strategy to make it work.  The company also seemed likely to need more funding to help it along.  While I decided not to exit completely, I did sell the profitable half my holding.  I’m still holding the rest, but the share price has since halved.  A new chairman was recently appointed, who is non-executive but does have sales and marketing experience, so perhaps this will give the company what I think it needs, but a recently announced Polish collaboration still focuses solely on the product, not its marketing.

 My most shocking experience attending an AGM was Transense Technologies (TRT), in November 2014.  Almost everything about the occasion was wrong.  The annual report was little more than a cobbled together sales document.  The chairman failed to read out the statement promised in an RNS published that morning, so he couldn’t be asked questions about it; the questions he was asked produced little of comfort.  It became evident that while the company possessed superb technology, it completely lacked at board level the marketing expertise necessary to exploit this.  Only by attending the AGM did I learn that the NEDs were all lawyers and accountants, because this was not apparent from the report; to my mind, only when this changes will the lack of strategic thinking be remedied and the company begin to make forward progress, but since that AGM another director has been appointed who is also an accountant!  I should have sold my shares, but failed to act quickly enough.

When an AGM offers real encouragement

SmallCap Premier Foods (PFD) lost the trust of investors as it struggled to overcome the consequences of a seriously misjudged acquisition in March 2007.  My first shares were bought in 2006 and, despite their collapse, I bought more over the years in the belief that the business would ultimately be turned round.  In the face of major shareholders’ criticism, the board saw off a takeover attempt last March, believing that its own plans – its strategy – would yield a better outcome.   Because of this, I read this year’s annual report with particular care, but as I could not quite see what the strategy was I went to the AGM.  There, the marketing strength of the company’s strategy became strikingly clear to me, at a meeting which was a classic of good communication between directors and investors.  I immediately bought more shares, since when the price has been steadily rising. 

 Dods Group (DODS) is another share I’ve held for ten years (it was originally Huveaux).  Its share price crashed, but the business intrigued me and I stayed invested.  Then, as with Feedback, something happened to give hope of a better future, so I bought more at the much lower price.  It was evident from last year’s annual report that things were getting interesting and this year’s report positively glowed with expectation.  But I could not see the strategy – not the objectives, nor the means of achieving them – so I went to the AGM.  There I was given a detailed and very clear explanation of what has been done behind the scenes to transform this company’s business model and how it now plans to grow profitably.  Consequently, I bought more shares at a lower price than they have been since and, following through what I was told at the AGM, the board has recently appointed a new chief executive.

Conclusion

The purpose of this article is not to say that FDBK or TRT are doomed to disappoint as investments; in both of them (at the time of writing) I still hold shares, although these are underwater.  Nor is it my intention to persuade readers that PFD and DODS are sure to be profitable investments, although I do hope to hold those shares long term.  My judgements about these companies may be wrong; I am certainly not infallible.  What I am saying is that attendance at AGMs can provide investors with information and understanding that isn’t available to private investors in any other way.  

 Eric Chalker, UK Shareholders’ Association Policy Co-ordinator & Director, 2012-2016

www.uksa.org.uk

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.