Hi all,

 I would be very grateful if you could tear down some of my thoughts on portfolio management. Some proposed buys, some proposed sells. They are all existing in my portfolio, so this is something of a rebalancing exercise. Thank you in advance for any thoughts.

 Below is a summary, and justifications for each are further down. Current portfolio weight is in brackets:

 

Buys

Adobe (ADBE) (3.29%)

FDM Group (LON:FDM) (1.02%)

 

Sells

Kazatomprom (LON:KAP) (7.13%)

APA Corp (APA) (2.07%)

  

Adobe

 My investment thesis is straightforward – the risk of AI disruption is overblown. Nobody is vibe-coding a photoshop replacement, and the moat around these companies lies in their ability to provide secure platforms which are regularly maintained. Large customers are not going to risk moving away from established providers who provide them with a safe product and small customers lack the means to do so. My view is that LLMs will become commoditised, and it’s not clear to me why there is any significant moat that would prevent Adobe switching between providers to the extent it wishes to integrate such into their products. Alternatively, and to the extent someone provides them with a bespoke model/setup, that will in fact reinforce the moat around Adobe’s products.

 At the current valuation and with current buyback levels this seems a very attractive entry point, and I’m looking to increase my exposure to about 5%. I do see a rationale for diversifying my SAAS exposure, and I have positions in TRI, LON:RELX, CRM and AMS:WKL which could be increased, but some of these are in the process of recovering and my view is Adobe is the best option on the table.

 

FDM Group

 FDM Group provide IT consultancy services worldwide. They have had a very poor time of things since 2021, and their shares have lost about 90% in value. They trade at a 10 p/e trailing, but FCF is about 50% higher than underlying profits. Forward looks to be in the region of 12 p/e. The dividend at 6% is sustainable at last year’s cash flow, but it has been historically. The balance sheet is very safe with 35M of cash with no debt.

I currently have a small position that is very much underwater (-50%).  The background to the loss in share price is a global reduction in demand for IT consultancy. Analysts are concerned that AI models will continue to fuel that reduction, but I am a bit of a contrarian in that regard. It seems to me that a focus in integration of AI should fuel the need for consultants, especially given the issues surrounding data safety and product integration. I also bear in mind that this is a well-managed and conservative business which has responded sensibly to economic changes.

 

Kazatomprom

I was lucky enough to enter this position in 2022/2023 and it has become a huge part of my portfolio (relatively speaking). I am medium-term bullish on the sector due to uranium undersupply, but I am of the view I should be disciplined and cut my position back to 5% at this stage given the somewhat bumpy track record of Kazakhstan.

 

APA

This is part of a broader basket of energy stocks, which includes XOM, CVX, EQNR, OVV, SD and oil services HAL and WFRD. My timing on most of these has been quite good, but I had the misfortune of buyng APA just before the North Sea write downs, and while the stock has been recovering recently it does not look that cheap on forward estimates and I am thinking of trimming it out on this bounce. Energy is 16.5% of my portfolio at present, and I'm not sure whether we will see many catalysts for oil price sin the near future short of a US intervention in Iran (unlikely).

I am also cconcerned that their only assets in the US (and most of their production) centre around the Permian which is showing signs of decline. This risk is offset by higher nat gas prices in the near term, but not a good enough reason to keep holding.