My best investment but my biggest headache

Talking Cerillion

So, this is my first (of hopefully many) substack posts. Didn’t plan on starting it today but thanks to Henry Viola on twitter who said “there is no better time to start than the present”.

I don’t have a concrete plan on what this blog/forum will be about but basically whatever topic comes to mind at the time as sporadically as I see fit. Sometimes I may drill down into financial results, others could be a journey through my investing life.

For today, the topic will be Cerillion and how my best investment in % terms has also caused me the biggest headaches within my portfolio.

Now this is not a ramp on Cerillion, so I will only briefly touch on what it actually does as a business and some key metrics. In short, Cerillion provides a SaaS/CRM within the telecoms industry and has been benefitting from a right time, right place situation with the boom of 5G and the need for telecoms firms to upgrade their systems in order to stay competitive within the market. Cerillion provide an out the box solution.

Moving onto what I really want to talk about:

I first bought Cerillion on 23rd September 2020 at 320p and topped up on 19th March 2021 at 416p. For clarification the current price is 1325p (a 314% gain), hence the best investment status. Now, I can hear most of you saying, why has this given him a headache?

When I first bought Cerillion it traded on a forward p/e of 25x (I use forward p/e as that’s what I’m buying, the future not the past), it got as high as 52x and now trades on 30x.

The business itself grew revenues at 25% last year and is forecast to grow at 17% this year. With net profit up 45% last year and forecast to grow at 27% this year. So, the growth is certainly there to back up the high p/e.

I started to trim this business in June 2022, when it was at 900p, and made up 11% of my portfolio. Having trimmed 4 times now, I only hold 30% of the shares I started off with and it makes up 5.7% of my portfolio. Had I done nothing it would be worth 21% of my portfolio and contributed nicely to performance.

The headache is a hindsight headache, should I have left Cerillion and let the winners run.

I did this prior with DotDigital, only to see the share price hit 283p prior to crashing down to 58p. Losing all my gains without taking a single bit of profit.

Have I learnt my lessons from that?

Have I been overly cautious and top sliced too much?

Or, given the fact it is a sub £500mil market cap company, trading at a “healthly” valuation, should the 6% position be okay.

I don’t have the answer to these questions and will likely top up Cerillion when I exit some cyclicals (more on that in another post).

For now though, I’ll keep trawling through the numbers and going over my “hindsight headache”.

Hope you enjoyed this initial write up, which is a head ramble, written down on paper. Next time I think I’ll be covering the mistakes I made in cyclicals where I mistook cheap valuation for a cheap business, rather than a business at peak earnings.

Thanks from the Quality Small Cap Investor