Share Sleuth: the FTSE 100 stock I have added to the portfolio

Richard Beddard has reduced exposure to a top performer and invested the proceeds in a new holding. 

This month, I have made two minor adjustments to the Share Sleuth portfolio which may make it a little less hare-like, and a little more tortoise-like.

Trading Treatt

I reduced the size of Share Sleuth’s holding in Treatt (LSE:TET), one of the portfolio’s best-performing shares.

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According to SharePad, the software I use to track the portfolio, Treatt has earned a return of more than 600% since I added it six years ago in March 2015. It has earned an annualised return of 39%.

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Treatt processes essential oils and other mostly natural flavours used in soft drinks. While much of its business trades commodity citrus oils, for many years now it has been developing unique and more profitable ingredients for drinks companies.

The story is unchanged and to my mind very positive. Growth should accelerate once Treatt has moved into its new headquarters, a once-in-a-generation investment in a facility that will enable it to invent many more flavours to quench our insatiable thirst for novelty and sweetness without the sugar. But as Treatt has prospered, so too has its share price, which is the reason I am trimming the holding.

Since Treatt had grown even faster than the portfolio as a whole, it accounted for a bigger proportion of it in March, just under 7%.

And at just shy of £10, it values the enterprise at about £109 million, which is 43 times adjusted profit for the year to November 2020.

Since high share prices multiples are penalised by my scoring and ranking system, Treatt had fallen to a rank of 29 in my Decision Engine.

This rank does not tell me that Treatt is a bad long-term investment, just that there may be 28 better ones, and consequently some of the money invested in Treatt might be more wisely invested elsewhere.

Such is my respect for the company and its management, I chose to trim the portfolio’s holding by my minimum trade size (2.5% of the value of the portfolio).

On 22 March, I disposed of 459 shares at a price of £10.75, raising £4,706.23 after deducting £10 in lieu of broker charges. The remaining holding of 763 shares is worth over £7,000 or about 4% of the total value of the portfolio.

Buying Bunzl

Little more than a week after I disposed of the Treatt shares I added shares in Bunzl (LSE:BNZL), a supplier of everyday consumables such as packaging and safety equipment to businesses and organisations across North America and Europe.

I had reviewed Bunzl favourably earlier in the month, but I did hesitate before pulling the trigger, wondering whether it is too boring for Share Sleuth.

The company is one of only two FTSE 100 shares in the portfolio (the other is Next (LSE:NXT)) and its growth is contingent on acquiring smaller distributors to increase its product range and geographic reach.

It is unlikely to set the portfolio alight like Treatt. Whereas Treatt has been through something of a revolution, Bunzl is growing incrementally, by doing more of the same thing.

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But the risks are lower too. Bunzl has been executing the same strategy successfully for nearly two decades and since its aspirations are global it should be able to continue for a long time.

Treatt is a hare, and Bunzl is more of a tortoise, but I think it is probably a good idea to have both in a diversified portfolio. We all know who wins in the fable, but I prefer to hedge my bets.

On 31 March, I added 201 shares in Bunzl at a shade over £23.28. The total cost including charges in lieu of broker fees (£10) and stamp duty (£23.40) was £4,713.56, about 2.5% of the total value of the portfolio.

The diversity of companies in Share Sleuth gives me confidence, which is why I chose to add a new share, rather than more of Howdens (LSE:HWDN), the kitchen supplier, or Goodwin (LSE:GDWN), a manufacturer of steel castings and machined products.

They are also ranked highly by my Decision Engine and perhaps under-represented in the portfolio.

Share Sleuth performance

At the close on Thursday 1 April, just before the Easter holiday, it was valued at £190,690, which is 536% more than the notional £30,000 invested over the course of its first year starting in September 2009.

A £30,000 investment in accumulation units of a FTSE All-Share index tracking fund would be worth £65,825, a gain of 119% over the same period.

The cash balance is £6,161, about 3% of the portfolio’s total value, sufficient to purchase a new holding, or top up an existing one, at my minimum trade size of 2.5%.

Table notes: added Bunzl. Costs include £10 broker fee, and 0.5% stamp duty where appropriate. Cash earns no interest. Dividends and sale proceeds are credited to the cash balance. £30,000 invested on 9 September 2009 would be worth £190,690 today. £30,000 invested in FTSE All-Share index tracker accumulation units would be worth £65,825 today. Objective: To beat the index tracker handsomely over five-year periods. Source: SharePad, 1 April 2021.

Richard Beddard is a freelance contributor and not a direct employee of interactive investor.

Richard owns shares in Treatt.

Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard.