Three reasons why bitcoin doesn’t add up

Bearbull

Last month, I attended a presentation by Smarter Web Company (SWC) chief executive Andrew Webley.

Although the IC hasn’t written much about SWC, many readers will know the company and Webley well because, since its April listing, it has been one of the most heavily traded shares on UK investment platforms. That includes the largest, Hargreaves Lansdown, where Webley was once head of online services.

For the unfamiliar, the story goes like this: after leaving Hargreaves in 2009, Webley founded SWC, a small but profitable website development company based in Bristol. Along the way, he became a keen adopter of bitcoin and even began accepting the cryptocurrency as payment.

Eventually, Webley’s attention turned to MicroStrategy (since renamed Strategy (US:MSTR)), a software company that in 2020 started buying bitcoin to hold on its balance sheet, popularising the idea of a ‘digital asset treasury company’. In 2024, Strategy was the third most popular share on Hargreaves Lansdown’s platform, as investors flocked to the bitcoin proxy. While UK retail investors weren’t yet able to hold bitcoin exchange traded funds (ETFs) in their portfolios, they could buy shares in a company offering leveraged exposure to the token.

Frustrated at the lack of a British equivalent, Webley decided to build one himself.

After SWC floated on Aquis via an unlisted shell company, the bitcoin buying began in earnest. As the token’s price climbed and SWC’s share price soared above book value, Webley was able to sell multiple blocks of shares at incrementally higher valuations to fund bitcoin purchases.

From initial IPO proceeds of £1.3mn, SWC has since raised over £200mn to buy 2,664 tokens. Today, following autumn’s crypto sell-off, these are worth about 15 per cent less, on average, than the company paid for them. After peaking above £1bn, the company’s fully diluted market capitalisation has dropped to £120mn, about a third below the value of its bitcoin holdings (see chart).

Line chart of Bitcoin treasury firm Smarter Web Company trades at a discount to its tokens ($mn) showing IS THIS NOW A VALUE PLAY?

In person, Webley comes across as genuine. He expressed regret that some shareholders have suffered losses, even as he shrugged off bitcoin’s recent fall. He also keeps all his wealth in bitcoin, intends to hold forever – a commitment that could complicate any bid to return SWC shares towards net asset value – and sees “zero value” in fiat currencies.

Evangelical certainty is common in the world of bitcoin. Despite another year spent pondering the phenomenon, I’m now certain that I’ll never convert. Here are three reasons why.

Either/or, not both

Webley has called bitcoin “the world’s greatest asset” and wants everyone to participate. While widespread buy-in would probably push up prices for existing holders, it would defy what we know about human psychology. That’s because sharp price drops (which for most people are incredibly hard to stomach) remain a feature, not a bug.

Crypto enthusiasts who decry inflation’s steady erosion of ordinary currencies correctly identify the pain of declining spending power. Why, then, are they so cavalier when it involves the crypto version?

The truth is, while it has made some people very rich, bitcoin remains highly volatile. Granted, this is also true of the other store of value to which bitcoin is now most readily compared. But in dollar terms, gold has only seen three drawdowns of more than 30 per cent since 1980 (even if one of those involved a decade-long bear market). It also has several millennia of cultural and financial buy-in to its name.

Since 2011, bitcoin has experienced four peak-to-trough sell-offs of more than 50 per cent. In sterling terms, there have been seven drawdowns of 30 per cent or more, including two in 2025 alone. Claims that the token is becoming less volatile, or that these are teething problems, fail to grasp the bigger picture. By comparison, the US stock market has halved on only four occasions since 1871.

The mythologising

On several occasions this year, including in ETF marketing literature and on SWC’s pitch document, I have seen bitcoin referred to as the “best performing asset class” since 2011, when its price first hit the $1 mark.

Although there’s no disputing the time series, it is highly misleading to retrospectively apply the “asset” label to a moment when few people had heard of something. At the start of 2011, the total value of all bitcoins was $1.5mn (£1.1mn), roughly equal to the cost of two average London houses. And while the token has done much better than the capital’s property values since then, the proof of a financial asset’s usefulness has nothing to do with the experience or riches of the first adopters, or the bragging rights of who bought in when.

I’d argue that the earliest point for treating bitcoin as an investment is late 2017 (incidentally, the year when Webley first bought in). It was around this time when, in a self-reinforcing loop, a surging price pushed bitcoin into the mainstream and past a total $100bn market value. Start your reference point in the second half of 2017, and the compound annual growth rate drops to between 35 and 48 per cent.

Yes, that’s still very high. But it’s a less glittering (and far more realistic) ceiling for near-term price action than the 150 per cent all-time growth rate some bitcoin mythmakers would claim. And if 30 per cent annual growth is now more realistic, the massive volatility matters more.

The scarcity thing

Every so often, I’ll ask a bitcoiner to explain the scarcity pitch to me. With a look equal parts pity and incredulity, I’ll be told that people want to own bitcoin, that more people will want to own bitcoin in the future, and that because there will only ever be 21mn bitcoins issued, its scarcity is valuable and will become ever more so.

I can accept the first premise, the proof of which is bitcoin’s price. For the sake of argument, I’ll accept the second premise, and the idea that demand, adoption or speculation is yet to peak. But try as I might, I can’t get my head around the scarcity bit, given that few individual bitcoin holders own an entire token.

A few months back, a reader responded to a piece in which I described the scarcity claim as nonsense. His email centred on the analogy of bitcoin as a pie, and that its infinite divisibility did not alter the fact that the whole is finite. If demand for the pie grows, so will demand for its pieces, no matter how small they get.

Often, the resource scarcity argument is cloaked in a pushy (and gloomy) sales pitch. With one simple (well, 10-minute) transaction, you can reserve one of the thrones for the courageous overlords of our inevitable post-fiat world! Of course, without its hard currency reference points, it’s not quite clear what value bitcoin would hold. The price of energy, perhaps? Food? Regardless, given how painful the complete debasement of the world’s major currencies will probably prove, it all sounds a bit like buying a timeshare for the apocalypse.

But play the tape forward, and there’s hope for the bitcoin-less yet. Forced, like the hapless citizens of El Salvador, to accept what remains a frictional means of exchange, the minions would soon discover that each bitcoin can be divided into 100mn ‘satoshis’. Assuming quantum computers don’t crack the cryptography first, this means there will one day be a supply of 2,100tn (or 2.1 quadrillion) satoshis.

Which doesn’t sound quite as scarce. And that matters, because if the functional supply of bitcoin is much wider than its scarce perception (which it already is) then the whole supply-demand equation falters.

That’s my conclusion, at least. What I will say of bitcoin is that despite all my instincts, I can’t quite avert my gaze. Unlike gambling, which I’ve never seen the point in, crypto remains a watchable experiment in finance, technology and human psychology. The longer it endures, the more reason I have to doubt my doubts, or whatever paradigm in which I’ve cocooned myself. I might not get it. But I can live with that.

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Wealth preservation trusts focus on protecting investors’ money during market downturns, as well as growing it over the long term to beat inflation. So, looking at how they are positioned can give investors a feel for how the most cautious managers are thinking about the months ahead.

So far, 2025 has been a buoyant year for stocks, and expensive valuations have left wealth preservation managers reasserting their defensive attributes. The gold price also reached record highs in October, before partly falling back in the following weeks.

Equity opportunities?

Of the three wealth preservation trusts, Personal Assets (PNL) has the highest exposure to equities at the moment, accounting for 41 per cent of its portfolio at the end of October, against 28 per cent for Ruffer (RICA) and 26 per cent for Capital Gearing Trust (CGT).

This is not because the trust’s managers are not worried about valuations, but because they are still finding good opportunities in the areas of the stock market they prefer, particularly quality companies.

Personal Assets’ managers, Sebastian Lyon and Charlotte Yonge, said the trust’s equity allocation has risen this year as a “valuation divergence has emerged”, noting traditionally defensive sectors “have not looked more friendless since 2000”.

The trust’s biggest stock holdings as at the end of October were Alphabet (US:GOOGL) at 5.2 per cent of the portfolio, Unilever (ULVR) at 4.5 per cent and Visa (US:V) at 3.3 per cent.

Peak gold?

Wealth preservation trusts traditionally have exposure to gold, which can act as a safe haven during a crisis and help hedge against a series of risks. But this year’s rally has left managers feeling wary of the precious metal, at least in the short term.

Personal Assets had 11 per cent exposure to gold as at the end of October, against 6 per cent (in bullion and other commodities) for Ruffer and just 1 per cent for Capital Gearing.

Personal Assets’ managers said they still believe in gold as a diversifier. “We accept that there are some short-term risks to the price after such a strong run and we have taken profits to keep the holding to a low teens percentage of the portfolio,” they acknowledged.

“We believe the immediate threats to the price include an unexpected rally in the US dollar or a sell-off in wider markets, which may see a dash for liquidity.”

But, they added, while in a downturn gold tends to fall alongside equities at the beginning, it then recovers much more quickly. “The diversification benefits of gold are real, but they can require a little patience,” they said.

Private Investor’s Diary: Why I’m backing gold and copper

Ruffer favours gold equities rather than physical bullion, and even there it has been taking profits, roughly halving its exposure between June and October.

“We maintain a meaningful position because global investor allocations are still low, and the structural drivers remain in place,” the managers said. In June, they had argued gold equities benefited “from a record high gold price, while their expenses have been falling as input costs (labour, energy prices) have eased”, meaning operating margins were at record highs as a result.

Finally, the three trusts all have high exposure to fixed income, but in slightly different flavours. Capital Gearing focuses on inflation-linked bonds, at 43 per cent of the portfolio as at the end of November.

Ruffer prefers nominal short-dated bonds (39.1 per cent as at the end of October). Personal Assets has a mix across Japan, the UK and the US, including 11.4 per cent in inflation-linked gilts and 10.7 per cent in short-dated gilts.

How the US economy fares in 2026 matters for UK investors. They say that when America sneezes, the rest of the world catches a cold, and no wonder: the US is the world’s biggest economy, one of its biggest exporters and issues the dollar, still undisputedly the world’s reserve currency.

That’s before we even mention its stock market. The US is home to eight of the 10 biggest companies in the world by market capitalisation – and 17 of the biggest 20. They increasingly dominate portfolios, with US shares now making up 73 per cent of the MSCI World Index. Last year, research from PensionBee found that around 10 per cent of DC pension savers’ money was invested in US tech stocks alone, concentrated in the Magnificent Seven. Many UK portfolios could be more vulnerable to a US market correction than we might expect.

The fate of the US economy also matters to homegrown companies: AstraZeneca (AZN) (44th globally by market cap) generates two-fifths of its revenue in the US. Overall, a quarter of FTSE 100 sales are generated in the US – a greater proportion than in the UK. If the US economy starts to stall, these stalwarts could struggle. This all means that our portfolios could be vulnerable to a US economic correction, too.

Forecasters have mixed views on the prospects for the US economy next year. The OECD is relatively downbeat, projecting 1.7 per cent GDP growth. Economists at the body warn that the sharp slowdown in net immigration, pass-through of tariffs to prices and cuts to government spending will all weigh on output.

What about AI?

In 2026, we could also see evidence of artificial intelligence (AI) feeding into greater productivity, meaning faster economic growth. Thomas Ryan, North America economist at Capital Economics, thinks that “the AI investment boom is still in its relatively early stages and will eventually drive strong productivity gains as adoption of the technology rises”. As a result, Capital Economics is “optimistic on the growth outlook” despite headwinds, and sees scope for 2.5 per cent GDP growth next year.

In the very short term, companies buying more AI-related tech should continue to boost growth. Analysts at Pantheon Macroeconomics think that AI business investment will keep rising next year, but not at this year’s “breakneck pace”: 2025 saw companies frontload purchases of imported components to minimise tariff risks.

What does this mean for markets?

The outsized importance of AI raises a pertinent question as we look ahead to next year: will the US economy and US stock market move in tandem, or have they become untethered from one another? Stretched valuations and circular spending deals have given rise to fears of an AI ‘bubble’. Given the huge prominence of tech stocks, there are fears that a bust could plunge the US economy into recession.

Analysts at Pantheon Macroeconomics think that the impact would be more muted. Unlike the early 2000s, when the dotcom bust rippled through the wider economy, they expect a reversal in AI-driven gains to slow growth, rather than cause a recession. But the risks also run in the opposite direction. Could a US slowdown drag on tech stocks, despite otherwise healthy profits?

Analysts at Société Générale note that “AI is now a global priority, and infrastructure spending reflects that scale”. The industry’s fate does not entirely hinge on US economic performance – but as the chart below shows, some of the Magnificent Seven have more geographically diversified revenues than others.

Bar chart of % of revenues by super-region showing Magnificent Seven revenue exposure

There is also a danger in assuming that stock markets can operate completely divorced from economic realities. TS Lombard economist Dario Perkins cautions against thinking that the stock market can “shrug off recessions”. He says that while this might have happened after the pandemic, this was a “fake Covid cycle” influenced by shutdowns and vast state support. Perkins warns that recency bias shouldn’t lull us into a false sense of security today.

Find more Economics analysis here

November market overview

November was a volatile month for markets, with many attempting to call the top of the artificial intelligence (AI) bubble. Whether it has popped or is just letting out a little air is a moot point.

Equity markets weren’t helped by the chair of the Federal Reserve. Following a quarter-point interest rate cut early in the month, Jerome Powell poured cold water on the chances of a further cut in December. Towards the end of November the mood changed, with the market now expecting another cut. This helped equity markets stage a spirited rally in the last week of the month.

It was not, however, enough to push the Nasdaq into positive territory – it was down 1.5 per cent in the month. It is, however, still up a healthy 21 per cent this year. The S&P 500 scraped into positive territory with a return of 0.1 per cent.

In other equity markets, there were no huge moves in either direction. The worst of the major indices was the Nikkei 225, down 4.1 per cent. The more widely based Tokyo Stock Exchange index, however, was up 1.4 per cent, so it was a mixed picture from Japan. The Indian Nifty 50 gained 1.9 per cent, and the FTSE China 50 was down 0.6 per cent. In continental European markets, the Italian MIB and Cac 40 were up a smidgen, and the Dax was down 0.5 per cent.

In the UK, markets were dominated by the Budget, with incessant kite flying by the HM Treasury. By all accounts, they were misleading kites. While the FTSE All-Share was up 0.4 per cent, indices representing mid and smaller-cap companies – which are much more sensitive to the state of the UK economy – were down. It’s early days, so it will be interesting to see how the Budget goes down in terms of the markets’ reactions. The initial indications aren’t significant. An interest rate cut is, however, likely at the Bank of England’s December meeting.

Performance: JIC Portfolio

I was bailed out by my performance in the last week of November. It meant I had quite a good month in both the JIC and Funds portfolios. Both were up and ahead of their respective indices. The JIC Portfolio gained 1 per cent in October, ahead of the FTSE All-Share’s 0.4 per cent. That portfolio is now up 20.7 per cent this year, slightly behind the FTSE All-Share (up 21.4 per cent). Since its inception in January 2012, the JIC Portfolio has delivered a cumulative return of 431.9 per cent (another high), equivalent to an annualised return of 12.8 per cent. By contrast, the FTSE All-Share (Total Return) Index is up 203.1 per cent, with an annualised return of 8.3 per cent.

The L&G Gold Mining ETF and, yet again, my Lundin Group holdings drove my performance. International Petroleum (IPCO) was the star of the show, up 18 per cent (56 per cent this year). Third-quarter (Q3) results were slightly better than expected, but the big news was that its new Blackrod field, which significantly increases production, is expected to come online in Q3 – three months sooner than previously indicated. That has significant positive implications for cash flow. The company continues to buy back around 7 per cent of its shares per year. Given the Lundin family’s stake in the business, the buyback equates to around 10 per cent of the free float. Buying back shares makes sense while the shares are at a significant discount to net asset value. As an aside, I would like Serica Energy (SQZ) to utilise some of its cash on a buyback rather than just focusing on the dividend. It would significantly enhance shareholder returns. Blackrod coming on stream earlier reflects good operational management at International Petroleum and sensible expectation management.

While I’m on the Lundin Group companies, Lundin Mining (CA:LUN) was up 15.7 per cent (112 per cent this year), NGEx Minerals (CA:NGEX) up 8.6 per cent (85.1 per cent this year) and Fireweed Metals (CA:FWZ) down 9.4 per cent (+108 per cent this year). Lundin Mining’s Q3 numbers were better than expected, and excitement is building about the development of the Vicuna copper district through its joint venture with BHP. The company’s costs fell and its guidance was raised. NGEx Minerals recovered some of the losses from the previous month when some shareholders took profits following the spin-off of royalty company LunR. LunR has yet to float on the Toronto Stock Exchange, but hopefully there will be an update in the next few weeks. Holders of NGEx received one LunR share for every four NGEx shares. Fireweed drifted on lack of news, although it recovered somewhat in the last week as it announced some drill results at its Mactung Tungsten project.

Other notable contributors were 4imprint (FOUR), up 17 per cent, Pollen Street (POLN), up 8.8 per cent, and XPS Pensions (XPS), up 7.7 per cent. 4imprint’s interim numbers were better than very low expectations. Hence there was a strong rally in the share price. It was looking good value in absolute terms and relative to history. On a price/earnings (PE) ratio of 11 and a yield of 5.5 per cent, it didn’t need much to tempt buyers. Pollen Street published a Q3 update, reporting that assets under management grew by 9.9 per cent over the quarter and 32 per cent year on year. On a PE ratio of 10.2, a yield of 6.5 per cent and with an ongoing share buyback, I believe the share price fails to reflect the growth of the business under founder and chief executive Lindsey McMurray, who owns 20 per cent. Our interests are aligned.

XPS Pensions published results for the first half of the year ending March 2026. The numbers were reassuring, with revenue up 13 per cent. Earnings per share were up 9 per cent, and the dividend was increased by 11 per cent. The company said it was confident of achieving current expectations for the whole year. That was enough to see the share price rally after dropping 20 per cent from its May high.

The worst performer in the portfolio was Serica Energy, down 21 per cent. Annoyingly, the acquisition of assets from BP (BP.) was aborted as TotalEnergies exercised its pre-emption rights (via partner Neo Energy) within the 30-day period. It would have been a transformative deal for Serica, but Total saw the opportunity to consolidate its position. There was also disappointment that there were no substantive changes to North Sea taxation in the Budget. A more sympathetic tax regime is being introduced, but not until 2030.

Coinbase Global (US:COIN) dropped 18 per cent after I bought a position early in the month. Not the best timing. Me Group (MEGP) fell 13.5 per cent, not helped by a slightly disappointing trading update, which saw turnover about 3-5 per cent lower than forecast. Photo booths look to be flatlining, while the washing machines division goes from strength to strength. The company says it continues to pursue opportunities to realise shareholder value. A prospective PE ratio of 10.9 times October 2025 forecast earnings and a yield of 5.1 per cent is undervaluing the company. Cash flow is robust, and it achieves a return on equity of 32 per cent.

Performance: Funds Portfolio

The Funds Portfolio was up 2.2 per cent in November, compared with the -0.4 per cent return from the FTSE All-World (TR, GBP). That leaves the Funds Portfolio up a commendable 27.9 per cent this year, nicely ahead of the All-World’s 15.1 per cent. The Funds Portfolio has returned 11.8 per cent a year since its inception, just over five years ago. The All-Share has returned 12.1 per cent a year, and the All-World has returned 13.6 per cent over the same period. I still need another good few months to recover the shortfall from 2023 and 2024.

The Funds Portfolio’s exposure to gold miners and other natural resources did well. L&G Gold Mining UCITS ETF was up 16.2 per cent, BlackRock World Mining (BRWM) up 6.7 per cent and CQS Natural Resources Growth & Income (CYN) up 3.1 per cent. Nippon Active Value (NAVF) gained 5.9 per cent, and my two Argonaut funds were also up: YFS Argonaut Absolute Return Fund (GB00B7FT1K78) gained 1.5 per cent (14.8 per cent this year) and the YFS Argonaut Flexible Fund (GB00BTCLCP27) gained 1.3 per cent (35.6 per cent this year). The worst two performers were the KraneShares China Internet ETF (KWEB), down 6.0 per cent, and Xtrackers Artificial Intelligence & Big Data ETF (XAIX), down 5.3 per cent.

Activity

In the JIC Portfolio, there were several trades, including the outright sale of three positions and the introduction of two new ones. On 4 November, I sold WisdomTree European Defence ETF (WDEF) at 2,760p. I booked a good profit. Defence is a theme that will run for some years, given the menace that is Putin’s Russia. Defence stocks, however, have performed well, and any ceasefire agreement in Ukraine could lead to the sector going through a period of consolidation.

On 13 November, I booked my profits in Premier Foods (PFD). Results were satisfactory if uninspiring. Growth is lacklustre, and there were better uses for my capital. The same went for Gamma Communications (GAMA), where I registered a meaningful loss. The bottom line is that while it looks good value, I struggle to understand why it is performing so poorly. To the simple question ‘would I buy it now’, the answer was no, so out it went on 19 November at 929p.

The two new positions were Invesco Utilities US Select ETF (XLUP) (4 November, 4,864p) and Rosebank Industries (ROSE) (17 November, 338p). The former gives me exposure to the major US electricity generators, which are seeing tremendous growth to meet the energy demands of new artificial intelligence data centres. The latter is the relatively new vehicle of the management team behind the hugely successful Melrose Industries (MRO). Rosebank was set up to pursue the same strategy of buy, improve, sell. It floated last year and went to a massive premium. It made its first acquisition this summer in the US, which it funded through an equity placing at 300p. It raised £1.14bn and has an excellent shareholder list, including 8.8 per cent owned by the Norges Bank, the Norwegian Sovereign Wealth Fund. I expect it to do another deal next year and anticipate concrete evidence of it improving the fortunes of this year’s acquisition. This is purely a management story – I’m backing it to repeat the success achieved with Melrose.

In addition to those trades, I added to four of my existing positions: MeGroup (7 November at 173p and 21 November at 153p), Frontline (FRO)(19 November at 1,978p), XPS Pensions (21 November at 323p) and Serica Energy (27 November at 170p).

In the Funds Portfolio, I also sold WisdomTree European Defence ETF (3 November at 2,790p) and iShares Europe Industrials ETF (IE00BMW42520) (3 November at 767p). In both cases, I booked a decent profit. To be consistent with the JIC Portfolio, I added a new position in the Invesco Utilities US Select ETF. I added to two existing positions in CQS Natural Resources Growth & Income (10 November at 287p) and Xtrackers AI & Big Data ETF (3 November at 14,319p).

Other news

Coinbase Global’s Q3 results showed robust growth, with revenue up 25 per cent quarter on quarter. That wasn’t enough, however, for Coinbase to withstand the sell-off in crypto and technology stocks in November. Polar Capital Holdings’ (POLR) first-half results were encouraging, with assets under management showing further strong growth in the period to 7 November. It maintained the dividend and is likely, yet again, to do the same with the final dividend. That means the stock yields 8.7 per cent at 527p.

A trading update from Serica Energy laid bare the fall in production due to the extended outages from the Triton field this year. The good news was that November’s output was running at a near-maximum of 50,000 barrels of oil equivalent per day. It will give guidance on 2026 production in January. Hopefully, the problems at Triton are now behind it.

Outlook

I know hope is not a good strategy, but it would be nice to record a strong December to cap off what has been a good year for my portfolios. I think I will be rewarded with interest rate cuts, helping equity markets to push on to new highs after what was a wobbly November. My mind then must turn to 2026. Investors can’t ignore the concentration in the US market in the top stocks. We must pinch ourselves when we see that Nvidia (US:NVDA) has a market capitalisation larger than the whole UK equity market, or Germany and Italy combined. It makes me want to increase my exposure further towards value. There will probably be a decent correction at some stage next year. Historically, the second year of the presidential cycle is the worst for stocks.

I will also maintain my exposure to gold, copper and other industrial metals. Copper is moving into a period where supply will struggle to keep up with demand, given the lack of investment in new mines. Gold will continue to be in demand by central banks of countries that want to reduce their exposure to the US dollar. There are also new buyers of gold, such as those issuing gold-backed stablecoins. In the meantime, government debt – and, more importantly, interest payments – keep rising. Demand for gold from those who want a hedge against inflation or a worse disaster is likely to remain buoyant. Will the new Donald Trump-nominated chair of the Federal Reserve, who takes up his job in May, be more pro-growth and less inflation focused? Probably. $10,000 gold in the next few years? I think so. After a good year, it may be time to start reducing the overall risk of the portfolios.

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Entry into the key Brazilian market offers a growth opportunity
FY2026 guidance maintained

Fevara (FVA), the livestock supplement supplier formerly known as Carr’s Group, has capped a year of transformation with a respectable set of final results.

The Carlisle-headquartered company sold its engineering division to Cadre Holdings for £75mn in April, and rebranded in September following the arrival of new boss Josh Hoopes from Associated British Foods (ABF). The business has pivoted to a pure agriculture focus.

Sales were up 4 per cent year on year, driven by revenue growth of 8.4 per cent in its UK and Europe business. This was fuelled by strong demand for its Crystalyx feed blocks, which provide nutrition for cattle, sheep and goats.

Across the pond, despite “a backdrop of further declines in US beef cattle production”, revenue remained broadly flat. The company is also pressing ahead with plans to expand into South America. Fevara announced its £5mn acquisition of Macal, a manufacturer of minerals for livestock in Brazil, after the period end. The deal should close by the end of January.

Elsewhere, net cash (including lease liabilities) deteriorated, due to £4.6mn being held in escrow to fund the purchase of a bulk annuity policy, although any unutilised balance will be returned on completion. Operating cash generation also fell to £3.9mn.

Less cash meant the final dividend halved. However, the outlook for future payouts looks better, with a progressive dividend policy agreed from FY2026.

According to Shore Capital, Fevara trades on a forward price/earnings ratio of 16.5. This looks fair, and although the Macal acquisition offers a growth opportunity in the strategically important Brazilian market, it remains to be seen how it will deliver. For now, the modest dividend yield does not incentivise us to buy. Hold.

Last IC view: Hold, 125p, 12 Dec 24


FEVARA (FVA)
ORD PRICE:	129p	MARKET VALUE:	£66.8mn
TOUCH:	128-135p	12-MONTH HIGH:	162p	LOW: 101p
DIVIDEND YIELD:	1.9%	PE RATIO:	37
NET ASSET VALUE:	72p	NET CASH:	£1.6mn


Year to 31 Aug	Turnover (£mn)	Pre-tax profit (£mn)	Earnings per share (p)	Dividend per share (p)
2021	120	7.54	6.2	5.0
2022	124	7.57	6.4	5.2
2023*	81.8	-6.46	-1.0	5.2
2024	75.7	-0.77	-4.8	5.2
2025	78.8	2.89	3.5	2.4
% change	+4.1	-	-	-54
Ex-div:	13 Mar
Payment:	22 Jan

*Restated after Afgritech disposal

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£127mn price contingent on rent reviews
Reshaped business looks more focused

Redcentric’s (RCN) interim results had a work-in-progress feel to them, with the company’s newly installed management overhauling the business to focus on being a higher-margin managed service provider (MSP), rather than the owner of sub-scale data centres.

The most dramatic change was the agreed disposal of the data centre business to Stellanor, announced after the period end. Redcentric has agreed to sell the division for an enterprise value of up to £127mn, with completion by the end of March. Management said that the final sale price would be contingent on rent reviews.

Unsurprisingly, the need to carve up the business caused internal disruption, but this seems worth it after the quality of earnings improved.

For instance, in the MSP division, recurring revenue increased to just over 90 per cent of sales and the gross margin rose by 250 basis points to 61.6 per cent. That improved mix helped underpin profits, with adjusted cash profits creeping 2.7 per cent higher to £9.1mn on broadly flat underlying costs.

Net debt at the half-year stood at £42mn, largely due to drawings on the revolving credit facility (RCF). On completion of the data centres sale, the group has agreed with lenders to reduce the size of the RCF from £60mn to £30mn and cut drawings to no more than £19mn, using the sale proceeds to pay it down significantly. The board also intends to return excess capital to shareholders, most likely via a tender offer.

The company’s valuation increasingly hinges on the MSP business alone. Cavendish’s estimates suggest the shares trade on mid-to-high-teens multiples of enterprise value to earnings before interest and tax, which could look undemanding if management delivers better margins and a repaired balance sheet. Hold.

Last IC view: Hold, 143p, 25 Sep 2025


REDCENTRIC (RCN)
ORD PRICE:	122p	MARKET VALUE:	£194mn
TOUCH:	122-125p	12-MONTH HIGH:	149p	LOW: 109p
DIVIDEND YIELD:	1%	PE RATIO:	69
NET ASSET VALUE:	34p*	NET DEBT:	78%


Half-year to 30 Sep	Turnover (£mn)	Pre-tax profit (£mn)	Earnings per share (p)	Dividend per share (p)
2025	69.2	1.63	1.13	0.0
2026	66.8	1.93	1.19	0.0
% change	-3	+18	+5	-
Ex-div:	-
Payment:	-
*Includes intangible assets of £35.4mn, or 22p a share

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Revenues and pre-tax profit down 8 per cent
Operating margin increased by 0.6 percentage points

After many of its peers flagged a slow Autumn selling season, it was hardly surprising that Berkeley Group (BKG) experienced something similar. The housebuilder, which focuses on London and the south-east, said when it reported interim results that trading had slowed since September due to pre-Budget uncertainty.

It sold 2,022 homes in the six months ended October – a 4 per cent decline from the prior year.

This weighed on revenues and pre-tax profit, which each fell 8 per cent versus the prior year to £1.18bn and £254mn, respectively.

More positively, Berkeley was able to sustain a sector-leading operating margin of 20.8 per cent – a 0.6 percentage point improvement on the prior year. Net cash of £342mn was in line with analysts’ estimates.

The company is also making solid progress on its build-to-rent platform, Berkeley Living, which now numbers 1,100 homes, with a further 2,900 planned. It will launch an initial batch of 200 on the rental market in April 2026.

The company reiterated its full-year guidance for pre-tax profit of £450mn, implying a 44 per cent weighting to the second half of the year. Analysts’ estimates are slightly ahead of this at £455mn.

The company continues to repurchase shares as part of its pledge to return £640mn to shareholders in the five years from October 2025 – equivalent to 19 per cent of its market cap. Analysts expect a 3 per cent dividend yield at the full-year results.

We think this resilient first-half performance demonstrates Berkeley’s defensive qualities and, with the shares still undervalued on 11 times analysts’ 2027 earnings estimates, we remain happy buyers.

Last IC view: Buy, 3,648p, 7 Aug 2024


BERKELEY GROUP (BKG)
ORD PRICE:	3,670p	MARKET VALUE:	£3.5bn
TOUCH:	3,668-3,674p	12-MONTH HIGH:	4,370p	LOW: 3,462p
DIVIDEND YIELD:	1.8%	PE RATIO:	10
NET ASSET VALUE:	3,760p	NET CASH:	£338mn


Half-year to 31 Oct	Turnover (£bn)	Pre-tax profit (£mn)	Earnings per share (p)	Dividend per share (p)
2024	1.28	275	187	0.0
2025	1.18	254	184	0.0
% change	-8	-8	-2	-
Ex-div:	na
Payment:	na
NB: Dividend yield does not include the special dividend of 174p a share paid last year

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Defence group Cohort’s (CHRT) 9 per cent increase in sales, but 4 per cent fall in adjusted operating profit was largely in line with brokers’ forecasts.

The lower profit was attributed to a weaker mix, with more low-margin work done at ELAC Sonar, which is delivering the first of four sonar systems to the Italian navy. Chief executive Andy Thomis said the system is technically more complex than previous installations, with the number of sensors installed increasing by “a factor of over 100”, so it has built in additional contingency to account for potential risks. He expects margins on the contract to improve once the first system is in place.

Cohort also recorded a £27.9mn cash outflow during the period, compared with an inflow of £34.7mn a year earlier. The reasons given were higher capex as a new ELAC Sonar factory in Kiel completes and an increase in working capital to support new deliveries. The company still expects to have net cash (excluding leases) of between £10mn and £15mn by the year-end, given a much stronger second-half profit weighting.

House broker Investec maintained its earnings per share growth forecast of more than 10 per cent this year, to 59p a share.

Our call to move the shares from buy to hold months ago on valuation concerns looks prescient, given a subsequent 40 per cent share price slide. The long-term prospects for the business still look good, though, and we think short-term concerns about a peace deal between Russia and Ukraine present a buying opportunity. Even if an uneasy peace is reached, the geopolitical picture looks no less secure. Buy.

Last IC view: Hold, 1,750p, 16 Jul 2025


COHORT (CHRT)
ORD PRICE:	1,046p	MARKET VALUE:	£ 491mn
TOUCH:	1,042p-1,052p	12-MONTH HIGH:	1,796p	LOW: 963p
DIVIDEND YIELD:	1.6%	PE RATIO:	26
NET ASSET VALUE:	353p*	NET DEBT:	25%


Half-year to 31 Oct	Turnover (£mn)	Pre-tax profit (£mn)	Earnings per share (p)	Dividend per share (p)
2024	118	8.51	17.6	5.25
2025	129	7.08	13.4	5.80
% change	+9	-17	-24	+10
Ex-div:	08 Jan
Payment:	17 Feb
* includes intangible assets of £128mn, or 272p a share

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The sale of Warner Bros Discovery (US:WBD) has turned into a saga worthy of The Lord of the Rings or an HBO drama series.

This week, Paramount Skydance (US:PSKY) launched an all-cash bid worth around $108bn (£81bn) just days after the WBD board backed a smaller cash-and-share offer from streaming giant Netflix (US:NFLX).

The battle for a package of Hollywood’s most valuable assets leaves WBD shareholders with two sharply contrasting proposals and a difficult judgment to make about the value on offer, and the strategic direction in which the parties want to take the company.

Netflix obtained the WBD directors’ support through a bid priced at $27.75 per share last week, combining $23.25 in cash with $4.50 in Netflix stock. This structure valued WBD’s studio operations and HBO/HBO Max at roughly $72bn in equity and $82.7bn in enterprise value.

Crucially, Netflix’s offer, unlike Paramount’s requires WBD to proceed with its current plan of spinning off its Global Networks division as a highly leveraged standalone entity, taking on the bulk of an estimated $50bn of debt from the Warner Bros parent company. Global Networks contains WBD’s legacy cable TV assets, plus its Discovery Channel family, which although in decline are cash flow positive. Netflix would then acquire the company’s streaming and studio arms.

DC vs Hollywood

The regulatory landscape adds an additional layer of difficulty between the bid process and a completed deal. Netflix faces the more formidable challenge: combining its business with Warner Bros would create a dominant position in global subscription streaming.

Paramount, which has its own smaller streaming business, argues that Netflix’s global market share would be 43 per cent.

This would inevitably trigger scrutiny from the US Department of Justice, the Federal Trade Commission and potentially regulators abroad.

President Trump has suggested that Netflix’s enlarged market share would be problematic, increasing the political unpredictability surrounding the process. The narrative is already set around Netflix as the liberal Hollywood buyer and Paramount heavily aligned to the Trump White House.

Paramount also argues that buying Warner Bros would position the combined entity as a counterweight to Netflix and the streaming services of Amazon (US:AMZN) and Disney (US:DIS). Regulators will nonetheless examine overlaps in film production, streaming services and pay-TV networks.

For now, WBD shareholders hold the keys to the kingdom. Paramount’s all-cash approach intensifies the pressure on Netflix to respond. The share price, which until Tuesday was still trading below both headline offers, reflects the market’s expectation that regulatory and procedural hurdles could complicate the eventual outcome.

Whether the conclusion is a record-setting media merger, an improved counter-offer from Netflix or a regulatory stalemate, the contest for Warner Bros has quickly become the most consequential takeover battle the entertainment sector has seen in years.

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Some good news for the investment trust sector arrived earlier this week in the form of a final decision from the Financial Conduct Authority (FCA) on the thorny issue of cost disclosures.

The industry has long been campaigning to change EU regulations which, it argued, penalised investment trusts. Under those rules, funds had to disclose the management costs of any trusts in which they invested as part of their own charges. This, campaigners said, put off wealth managers and other professional fundholders from holding trusts, because doing so made their own products look more expensive.

The FCA’s new set of regulations for retail investment products, which will replace the previous EU rules, changes this. Funds that hold investment trusts in their portfolios will no longer have to include the trusts’ charges within their own ongoing charges figure (OCF); instead, they will be allowed to disclose those costs separately.

This is, broadly, what the industry wanted, although further regulations applying to wealth managers and advisers still need to be reviewed, which the industry hopes might happen next year. It does fall short of its boldest request – that investment trusts should be fully exempt from these regulations because as listed companies they are already regulated by the Companies Act. The FCA rebuffed this idea, noting that investment trusts are not the same as a company such as Tesco.

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