When pub operator Regent Inns (REG) began trading below liquidation value we took the opportunity to advise Members to double up on their original exposure. As value investors, stocks trading below net tangible asset backing can be nearly irresistible. The market slowly came around to our analysis as a successful turnaround was implemented. However, while significant progress was being made, we became concerned that much good work may be undone by management overpaying for an acquisition. So in 2005 we advised Members to bank some profits. In light of further belt tightening by consumers and the impact of late licensing laws, our concerns continued to grow throughout the year. As such, and with upward momentum also waning on the charts, we took the decision to exit Regent completely for an average gain of 74 percent.

The start of 2006 saw both of the printers in our Portfolio become subjects of takeovers. The first to go was Wyndeham Press Group (WDSW). We were impressed by Wyndeham's fight to remain competitive through a series of actions ranging from bolt-on acquisitions to internal restructuring. The initiatives were generating promising results in the face of difficult market conditions. Not surprisingly, this success attracted the attention of prospective buyer Dagsbrun, the Icelandic media and telecommunications group. We believed the group's 155p all cash offer represented fair value given market conditions. With the board unanimously behind the offer, we recommended Members sell half in FAT128 locking in initial profits before fully exiting the position two weeks later. 

At around the same time, the second printer, south London based Fulmar (FMR), also became the subject of foreign interest. With the market still characterised by high levels of competition, rising energy costs and overcapacity, we believed the takeover came as a welcome opportunity to crystallise value. Particularly as the cash offer was pitched at a 30 percent premium on Fulmar's share price during the six months prior to the announcement. The company in question was the privately held Cameron CPI UK. With shareholders and the entire Fulmar board (particularly Mike Taylor, Fulmar's Chief Executive and major shareholder) representing nearly 70 percent of the share register agreeing to the acquisition, we were confident the deal would occur. As such, we recommended Members return their acceptances and take profits.

The lacklustre UK home improvement market proved to be the undoing of the UK's largest DIY retailer, Kingfisher (KGF). Despite buoyant trading conditions elsewhere in Europe and in Asia, after two and a half years our patience with the retailer wore thin. In the UK, Kingfisher's flagship B&Q chain was under pressure from the weakest home improvement market in a decade. Mounting concerns over cash flow and debt levels plus a weakening technical picture was also added to our negativity. In all, the promise of growth from expansion abroad and persistent speculation regarding a possible takeover were not in our view sufficient to keep Kingfisher in the Portfolio. The potential benefits of holding Kingfisher no longer outweighed the risks. Accordingly, we realised a modest loss in April when we issued a mid-week sell alert followed by a full report in FAT130.

Given our overall upbeat view of Japan, one of the more surprising sell recommendations we made in 2006 was the Martin Currie Japan Fund (MCJF). Three factors contributed to our decision to sell the Japan Fund. The first occurred the prior year. Underperformance by the fund manager resulted in a corporate action converting our original Martin Currie investment trust purchase into a unit trust. (At the time of the conversion, we took the opportunity to lock-in some profits by selling half, citing concerns over management and an anticipated period of consolidation.) The Fund's technical picture was the second factor. A break below initial support suggested to us further weakness in the near term. Finally the Japan Fund's primary focus on large more export oriented companies meant it was less likely to partake in the domestically led recovery we were attempting to get exposure to.

We remain steadfast in our positive long-term view of the Japanese economy. However, given the Japan Fund's fading technical picture at the time, management under-performance and portfolio construction, we recommended Members lock in profits just under 60 percent in FAT134.