Final results from Computacenter (CCC) today the £1bn information technology and infrastructure services company. These look fine on the face of it with the earnings slightly ahead of forecasts, although they are somewhat confused by disposals and subsequent share consolidations last year. Probably as a result of this effect the dividend looked to be a little light of forecasts. I'm not unduly worried by that as the cash generation here remains good and they are back up to record levels of cash on the balance sheet despite returning significant sums to shareholders during the year.
Further to the September / quarter end performance update here are the changes as a result of the latest quarterly screening. First up though a quick reminder of the screening criteria and a small tweak to these that I have been hinting at in recent weeks.
Firstly the normal criteria remain in place for new purchases which are:
1) Selecting new stocks from top scoring stocks
2) Maximum PE of 20x, minimum dividend yield of 2% and an earning yield in excess of 5%.
3) Minimum market cap. of £50m
Now for the tweak which I have decided to add which is to also look at price momentum and exclude from the purchase list any candidates which have negative 12 month price momentum. There are several reasons why I have decided to do this as follows. While I have momentum in the Scores to a certain extent with earnings momentum, which does correlate with price momentum, I have generally fought shy of using price momentum that much myself although I pay some attention to it. However as per this graphic from one of my recent posts:
I am also adapting my mode having implemented it and assessing the evidence. The thing that struck me, although this may have been a coincidence and I could be making a false connection, is that the two troublesome stocks in the portfolio in the first six months had negative 12 month price momentum when they were selected. The stocks concerned were Plus500 (PLUS) and Utilitywise (UTW) and on reflection both seemed to have had some background concerns and therefore despite the apparently attractive financial metrics they had both underperformed suggesting the the market was wary of them. It is also noticeable that most top scoring stock tend to also have strong price momentum so when a high scoring stock has underperformed I'm now going to let the mechanical process use it as a red flag and skip that stock. Plus the fact that price momentum itself seems to be a powerful factor despite my own reservations about using it, so it is good force the model to use it in this way as I'm trying to use the model to counter my own human biases.
That's it for the tweaks on the purchase side but I guess it does raise the question as to whether I should use price momentum on the sale side too to cut losers even if they still score well, but I have not applied that this time around to Utilitywise as there were already 4 natural sales using an 80 cut off point on the Scores. So it will be "interesting" to see how it goes from here to see if I should perhaps have applied this rule to sales as well.
Any way enough already what about the changes I can hear you thinking. Well on the sale front the natural sales using the 80 Score as a threshold were Alliance Pharma (APH) - which had been re-rated and didn't get any upgrades after results so I'm relaxed about that as I had sold my own holding any way. A.G.Barr (BAG) - had a poor update and big weather related downgrades so as a result it has to go, although personally as it was not an operational problem and the quality and dividend growth remain, I would probably have given it the benefit of the doubt if I held it. Finsbury Foods (FIF) was the next stock to go as it's score had collapsed like a soufflé to 28 on the back of the share price rise, big downgrades post their results and on going low scores in quality and financial security. So I'm sure Paul Hollywood & Mary Berry might have thought it over baked too, that's a British bake off reference in case you don't know who they are. I heard on the news today that sales of baking equipment are booming on the back of it so trying to think of a way to play that. Any way I digress, finally PLUS500 (PLUS) was still coming up as a sell and I only kept it last time because the cash bid was supposed to have completed by now. So since that has dragged on and been delayed by regulatory clearance taking longer than expected, I have decided to eject it this time given it did its job as a cash proxy in the market sell off this quarter any way and I guess the bid could still fail if clearance is not received.
That gave me around £6500 to reinvest which I split equally between four top scoring candidates after applying the criteria mentioned above and adding the 12 month performance filter which excluded Elementis (ELM). So the new stocks were the top scoring Sprue Aegis (SPRP) the fire alarm producer which has a strong following in the private investor community so I'm sure that will be a popular choice. Less popular maybe 32Red (TTR), an on line gaming company, which seems like a natural replacement for PLUS500 if you know what I mean. The portfolio has a retailer already and quite a lot of exposure to consumer cyclicals, but nevertheless I let it buy Next (NXT) as the weighting in FTSE stocks is quite low and the alternative would have been Computacener (CCC). I left this because the other purchase was RM Group (RM.) which adds another technology related stock to the portfolio, although this exposure is mostly software rather than hardware.
I must admit personally I'm a bit uneasy about buying 32Red but that is the point of this exercise. I'm also probably prejudiced against RM as it doesn't seem to have gone any where for years, although on closer inspection it does seem to be turning around under new management, so it might be one that is worth investigating further. Finally I mentioned the exposure to consumer cyclical earlier so I thought I'd include the charts below to add a bit more colour to this. While it was not surprising to see it tagged as small cap exposed I am a bit surprised to see it identified as growth, but since I'm targeting quality growing income maybe this shouldn't come as such a surprise.
So there you go, just remember that if you are attracted to any of the names I have mentioned, don't forget to do your own research as there are no guarantees although I'd say it has been good so far. Cheers good luck with your investing in these difficult times, have a great weekend whatever you are up to, enjoy the weather while it lasts and come on England in the Rugby!
...or cinemas, computers, convenience stores & CCR. The cinemas part is the final result from Cineworld (CINE) which look very good and in fact the adjusted eps of 24.4p was close to the 25.8p forecast for 2015 and the bumper dividend of 13.5p (+33%) was ahead of the 13.1p forecast for the year to 2015. With the shares up by about 4% to 465p this morning, this leaves them on a fullish looking historic 19x PE with a reasonable 2.9% yield.
The shares had a good run prior to these numbers but they seem well placed with a strong film release schedule for this year, benefits from the merger with Cinema City the Israeli and eastern European cinema chain being upgraded to £5m from £2m and with 20 new cinemas (about 10%) planned.
Thus while they have done well and look a bit expensive now, with consumer confidence and incomes improving, the prospects looking good and upgrades likely they seem like they should be well supported or could still show some further momentum to the upside. Late morning update I see that Numis have upgraded to £90m Pre Tax for this year which I estimate would translate to around 27p of earnings for a 17.5x P/E @ the now 473p price.
The second C today came from Computacenter (CCC) the independent provider of IT infrastructure and services that enables users which reported final results today. These are somewhat difficult to interpret due to the recent return of capital and resulting share consolidation. Thus the numbers which are adjusted for this don't seem to square with the forecasts, which presumably were not adjusted. Nevertheless there seems to be underlying progress here in the UK and Germany but continued losses in France on the back of poor older contracts and they say a return to profit here is still some way off and it has led to a write off.
These shares have also risen recently ahead of and post the return of capital and as a result they have enjoyed something of a re-rating. So taking the reported adjusted numbers of 46.8p eps and 19.8p dividend (although confusingly they also mention 19p in the headlines) this leaves them on a fair looking historic PE rating of 15.4x and a yield of 2.75%, although with the overall operating margins being up to 2.77% the earnings yield comes in at a decent looking 10%.
On balance it seems like a well managed group with a shareholder friendly management, although the operations in Germany and France continue to struggle, they seem confident of making further progress this year. As such I can't honestly say you should rush out and buy it here as I suspect forecasts may reset downwards as the confusion surrounding the consolidation clears, but it would seem like a solid hold as part of a diversified income portfolio.
The final C is C-Stores or convenience stores as mentioned in Morrison's (MRW) final results today. They have taken a write off and are closing some of these which seems bizarre given they were charging into this last year as they played catch up, obviously they were not discerning enough about the sites they were buying. Apart from that the headline numbers all seem to be reasonably in line with the guidance they set out about a year ago, which is quite an achievement given the industry background.
This saw a big drop in profits as they invested in lowering their prices and it seem this will be on going when the new Chief executive joins next week. It also means, unsurprisingly that they are also cutting the dividend from this years promised 13.65p to a minimum of 5p for next year for a 2.4% yield. So on that basis and given the on going price war etc, in the industry I'm not tempted to buy this one here, although I could see that some might want to buy it as a recovery / new management turnaround play or maybe there's a bad moon rising so here some CCR for you?