As Vanco speeds ahead, the 'IoS' 2005 portfolio is really motoring

A small telecoms group and a small tipster helped our team beat the FTSE All Share
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The Independent Online

Granted, there were a couple of misses. But the hits more than made up for it. The Sindy 2005 portfolio - an eclectic mix of FTSE 100 giants, telecom minnows and crash barrier manufacturers - was selected last January by the Independent on Sunday team and has since turned in a stellar performance. In a bumper year for equities all round, the six-stock portfolio managed to outstrip the FTSE All Share Index.

If you had invested £100 in a fund tracking the FTSE All Share, you would have made £18.10 before tax - not a bad return at all. But had you chosen to invest £100 in our portfolio, you would have made £23.10.

Wm Morrison

First, however, the bad news. This time last year, when we tipped the FTSE 100 supermarket chain, we noted that while it was agreed that a recovery in the stock was due, there was a risk this might take longer than a year. And irritatingly, we were proved right.

After a brief respite at the start of the year, the profit warnings kept coming and the shares continued to slip as the City fretted over Morrisons' troubled integration of its larger rival, Safeway, which it had acquired for £3bn in March 2004. Boardroom squabbles only made matters worse.

But as winter approached, there was brighter news. Non-executive directors had been appointed to shore up the board; the search for a new chief executive was under way in earnest; and a no doubt relieved Sir Ken Morrison, chairman of the chain, was able to announce that all the Safeway stores had finally been Morrisonised. All this meant that the shares enjoyed a strong rally in the last two months of 2005, but it was not enough to save our tip from what was, overall, a dismal year. The stock closed on Friday down 6.5 per cent at 193.5p.

Telecom Plus

The other big loser was Telecom Plus, the portfolio's worst-performing stock. The group, which started 2005 offering cut-price domestic gas, electricity and phone calls, saw its value slump a hefty 39.3 per cent during the year to finish on Friday at 135p.

The group's biggest problem has been wholesale gas prices. As they soared at the beginning of October, Telecom Plus was forced to increase charges. The hikes were sharp, at around 30 per cent for gas customers, and meant the company could no longer brag of being the cheapest. Instead, it has had to reinvent itself as, in its own words, a "best value" provider.

The group warned last month that final profits were expected to be "significantly" lower than in 2004, as well as being subject to "considerable uncertainty". The dividend was suspended, and institutional investors - never fans of uncertainty or withheld dividends - sold out in droves.

ITV

Media featured heavily in the portfolio, and both ITV and Pearson (see below) performed well. The broadcaster added 7 per cent during a busy year, which saw it agreeing to spend £175m to take control of the Friends Reunited website.

As well as raising ITV's exposure to online classified advertising, the Friends Reunited deal was seen by many as proof that the company - which has been hit by falling audiences for its main ITV1 channel - is trying to expand its operations beyond traditional broadcasting.

And well it might. While the stock made upward progress last year, it still failed to beat the FTSE All Share. The concern is what happens this year: traditional forms of advertising, such as print classified ads, are on the wane, and media stocks in general have not enjoyed a strong showing. ITV starts off 2006 at 112.5p.

Pearson

Despite the odd slip, the owner of the Financial Times and the Penguin publishing group has made solid progress throughout the year. The real rally, however, came towards the end of 2005, helping Pearson finish 9.4 per cent ahead of last year's figures, at 687.5p.

The City was cheered, in particular, by news at the beginning of November that Pearson had seen strong growth in sales and operating profits during the first nine months of the year, powered in the main by a robust performance at its educational unit. The Penguin books division was also faring well, while the group's chief executive, Dame Marjorie Scardino, insisted the FT remained on course to break even.

The paper saw a big shake-up, however, when its editor, Andrew Gowers, abruptly quit after four years over a row about future strategy. He has been replaced by another FT veteran, the former US managing editor, Lionel Barber.

Vanco

The best-performing stock in the IoS portfolio was not a FTSE 100 giant but Vanco, a small telecoms specialist. The group provides services to big companies including Ford, Siemens and Lloyds TSB and spent 2005 carrying on like an old-fashioned business should - winning new contracts, boosting profits and doing value-enhancing deals.

These deals included a 10-year partnership with the telecoms giant Swisscom. On the back of this, Vanco's interim pre-tax profits came in at £3.3m, up on the previous year's £2m.

A share issue helped Vanco shore up its balance sheet after a £13m acquisition in the summer of its US rival, Universal Access Global Holdings. The effects were felt immediately as the enlarged group started winning new orders.

All nice and simple, and the City lapped it up. The group saw its value surge during 2005, up 87.3 per cent to close on Friday at 502p.

Hill & Smith

But, proving that expertise is not everything when it comes to picking winners, the second-best stock in our 2005 portfolio was selected by Albert Nissé, the then six-month-old son of the IoS business editor, Jason Nissé.

The tried-and-trusted tip-selection method favoured in past years by Albie's older brother, Jonas, was to take a coloured pencil to the prices pages of the FT. But Albie's astute start to a career in stock picking had begun so early that pencils were beyond him, and he opted instead for drooling on the newspaper.

Unorthodox this strategy may have been, but it came up with a winner. Hill & Smith, which makes temporary crash barriers and steel fencing, was boosted by a series of government contracts during the year. Its shares shot up in response, adding 37.5 per cent to close 2005 at 217p.

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