Independents add so much more value

I don’t know which surprised me more: the mooted bid for Unilever or the swift departure of Kraft Heinz after the first whiff of grapeshot. It is very rare for a major company to risk having its name and reputation exposed without having played through all possible scenarios with their advisers. They surely must have appreciated how unpopular they were likely to be over here, post-Cadbury. There is a minority view that Kraft’s tactic was to put Unilever under pressure and it will return in the future. We shall see.

Meanwhile Unilever now has to accelerate shareholder value. The fact that the mega-group was a target emphasises just how vulnerable all quoted companies are irrespective of size. Anyone with any historical perspective of the stock market knows that takeovers have been with us forever. In 1960, my late father’s stockbroker, a two-man Manchester firm called Stothard, Brockbank, published the official list of all then quoted companies. I have it still.

There were, for example, 40 quoted breweries and distilleries to choose from — long-forgotten names such as Boddingtons, Friary Meux, Newcastle, Threlfalls and Watney Mann. From that list only a dozen or so are still quoted: Associated British Foods, Marks and Spencer, Imperial Tobacco, Reckitt & Colman, Tate & Lyle and, of course, Unilever. Hundreds of others have long departed, some into liquidation but the great majority through consolidation and takeover.

In my near-60 years of investing I have been on the receiving end of 50 takeovers — old friends such as Breedon, Forte, Friedland Doggart, Pfico, Trafford Park Estates, Wintrust, and more recently Cable & Wireless, Capital Pubs and Delcam. Many of these were at significant premiums to prevailing quoted prices and welcomed by me at the time, particularly when I was building up my capital, taking profits, paying capital gains tax and re-investing.

But in retrospect, I would prefer if many of the 50 had remained independent and continued to grow, as I suspect financially I would have been much better off. When I look at my portfolios today, particularly non-Isa, many companies have prospered greatly by being left alone from both predators and profit-taking from yours truly. Lighting manufacturer FW Thorpe and soft drinks maker Nichols, bought in 2006 and 2002 respectively, have appreciated nine-fold; optical/laser specialist Gooch & Housego, bought in 2004, is a “tenbagger”; UDG Healthcare, bought in 1994, has appreciated 12 times; mini-Unilever PZ Cussons, first bought in 1976, has grown 16-fold; and marine services company James Fisher, first bought at 78p in 2000, currently trades at over £16, thus taking top spot with 20-fold growth.

In some ways I should be grateful for capital gains tax and my reluctance to pay it. Without it, the temptation to take profits over the years on some of the aforementioned stocks would have been considerable. I always say that the two requisites for successful investing are common sense and patience, the latter being the most important.

No CGT, of course, is payable on realised profits in my Isa. Having learnt from experience, I have nonetheless built holdings that I have confidence in and I let profits run. I operate a very concentrated Isa portfolio with only 10 serious holdings, placing great emphasis on stock selection. Last week brought a very pleasant surprise with an unexpectedly buoyant trading statement from flavours and fragrances company Treatt. Order books were materially up, revenue growth was strong and product margins higher. Profits for the financial year ending September 30 2017 “will substantially exceed its previous expectations”.

This propelled the shares 20 per cent upwards to north of £3, making Treatt by far my biggest holding and more than double the value of next largest, Nichols. A professional adviser would no doubt urge caution and suggest I “top-slice” Treatt, but I have no intention of doing so. It is a very well managed, near unique global business with I believe many years of growth ahead. Particularly interesting is the work it is doing on sugar-reduction programmes. I first bought into it in 1999, adding more on 24 separate occasions. So far it has appreciated seven-fold. Long may it remain independent.

John Lee is an active private investor and author of “How to Make a Million — Slowly”. He is a shareholder in all the companies indicated.