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.
We have had full year 2015 results from Restaurant Group (RTN) today, which shouldn't have come as much of a surprise to the market as they updated on trading earlier in the year. At that time you may re-call that the shares took a big hit as they were cautioned about trading at the end of last year and on current trading in the New Year. Despite this though they have now actually reported strong looking numbers which are actually ahead of where estimates were before the most recent downgrades - which is a bit weird. For example the eps had come down from around 33.6p to 33.2p but they have now actually reported 33.8p of eps, while the dividend was up by 13%, which they say is in line with their 2x cover policy, to 17.4p v 17.1p forecast so another beat there too.
So it is a bit surprising to see the shares off another 15% or so at the time of writing again this morning on the back of this, but as ever the devil is in the detail. The problem seems to be that they continue to highlight weak consumer demand and particularly reduced foot fall in retail parks as on line shopping becomes increasingly popular. I have to say this does seem a bit strange given the generally improving consumer real income and generally positive retail spending data that we have been seeing - see graph below for example, although as a consumer facing business I guess they should know.
Of more concern seems to be their admission that increased competition seems to be impacting on them and as a result they are flagging current trading in the year to date being up by 6% in the first 10 weeks but with negative like for like sales of 1.5%. They go onto say that in the current environment consistent like-for-like sales increases are likely to be difficult to generate. This is a significant change from what the business has delivered in recent years and may well therefore lead to more downgrades for this year and perhaps helps to explain the fall in the shares this morning.
Nevertheless it has not suddenly become a bad business, it is just that it is not likely to be growing so quickly on a like for like basis as the competition seems to have caught up and consumers have become more cautious and perhaps become bored with of some of their offerings may be? So looking at the growth they opened a net 34 sites this year, after closing 10 where leases came up and they did not want to renew. This took them from 472 sites to 506 sites, an increase of 7.2%. Meanwhile in 2015 they reported LFL's of +1.5% and revenues up by 7.9% in total.
In terms of new openings they seem to have done gross and are planning the following opening for the coming year:
Frankie & Benny's 261 units (Mass market) - opened 14 last year & same again this year.
Chiquito 86 units (younger end) - opened 9 & same again this year - trading well.
Coast to Coast 21 units (more upmarket F&B?) opened 8 & expect to open 5 to 7.
Pubs 54 units (Older end / Grey £) opened 3 target 5 to 7 in 2016 in Midlands.
Concessions 61 units (Airports etc.) opened 7, 2 to 4 planned for 2016 benefit from increasing passenger traffic.
All of the brands described above have substantial roll out scalability in the UK. They are confident that they can expand the Group to 850+ restaurants, all financed out of internally generated cash flow. From their current 506 sites this would seem to offer potential for another 8 to 9 years of roll out growth if they carry on at the current rate.
As they have clearly demonstrated in the past the Company has the financial and operational capability to deliver this scale of roll out successfully while maintaining consistently high levels of return. Further more the Group's financial strength and disciplined focus on return on investment and cash flow means that they have the financial capacity to deliver on their long-term growth objectives. This financial strength also means that they can continue to invest in maintaining their existing sites and infrastructure to a high standard and at the same time pay a growing level of dividend.
Thus it seems like they plan to open another 38 to 40 sites this year which would be another 7% or so increase if you assume another few closures, but current and possible further negative LFL's this year seem likely to trim the growth in revenue overall. As I mentioned earlier they say this is currently running at 6%, so lets assume 5% revenue growth overall for the full year to be conservative. That would suggest £719m of sales for the full year which is about 4% below the current £749m forecast. Assuming that flows straight through to the bottom line would take eps for 2016 down to around 35p. although hopefully that might prove a conservative figure. With the 2 time cover policy they flagged in the statement might mean a flatish dividend of 17.5p or perhaps up by 4% or so if they increase it in line with the growth in earnings. All in all that's not too bad but potentially a big step down from the 14% or so that they have grown the dividend at over the last 5 to 6 years.
Summary & Conclusion
So another slightly underwhelming update from Restaurant Group, despite reporting good numbers, which the new CEO seems to be making a habit of. Nevertheless the outlook for their growth in LFL terms does seem to have deteriorated and it looks like the growth rate may step down from mid teens to mid single digits. Given the two steps down that we have seen in the share price this quarter, perhaps the market has now digested this? Taking my hopefully conservative 35p forecast (but let's see where the estimates settle in the days ahead) at the current price around 450p this puts them on 12.85x with a historic yield of 3.9% which may be flat or could maybe grow by 4% to 5% if my forecast proves too pessimistic. Which seems fine, but not that exciting given the diminished growth outlook.
Well a busy day for company announcements today so I'll keep it brief. First up of course is the post close update from Restaurant Group (RTN) which I flagged up yesterday. The figures themselves which show total sales growth of 7.9% and LFL of 1.5% show a slight slow down from their last update at 45 weeks and suggest that Christmas maybe wasn't so strong for them and as a result of this they suggested that they expect their figures to be in the middle of the current range of market expectations.
So probably what could be described as an in line update, however they are also flagging in the statement a slow down in consumer demand as the year went on and talking cautiously on the outlook on the back of things like potential BREXIT vote, the living wage and global uncertainty all being mentioned. As a result they say are more cautious than previously on the outlook for 2016 and are talking about openings being broadly in line with this years 44 new sites, which probably means a few less. They finished up by saying:
"TRG has an excellent portfolio of businesses with strong market positions. The Company's move towards a more balanced portfolio is paying dividends and we have a proven track record established over many years of delivering strong financial returns and excellent cash flows, even through more difficult trading periods. Therefore, notwithstanding some of the uncertainties described above, we are confident that TRG is well positioned to deliver further profitable progress in 2016 and subsequent years.
Thus on balance it looks like a bit of a slowing in their growth is likely this year, but they still seem confident of making progress nevertheless, as they have done in the past. The market seems to have taken this very badly first thing and marked the shares down by around 14% to 550p at the time of writing. I have to say I am surprised by this and it seems like a bit of an over reaction to me in the short term. If we take the current forecasts for 2016 which show double digits eps growth and trim this to say 7% that might suggest something like 35.7p of earnings and a similar rise in the dividend could give something like 18.2p which at 550p would put it on 15.4x with a 3.3% yield which seems reasonable to me. However, I guess it might be best to see where the estimates actually move to to get a better handle on the valuation and see if the market wants to de-rate it some more.
Meanwhile Jupiter Fund Management (JUP), which is held in the Compound Income Scores Portfolio and which came close to be sold at the year end re-screening has announced a trading update and funds under management (FUM). These totalled £35.7bn at the year end having seen decent inflows of £0.5bn in Q4 and £2.1bn over the year. On this they said this reflected their strategy to diversify by product, client type and geography, all supported by strong investment performance. Across the whole of 2015, these combined to deliver organic mutual fund flow growth of eight per cent. and to increase total AUM by 12 per cent, despite broadly flat markets. So looks like they should be able to report the strong expected results, but in current markets fund management companies may not be top of everyone's buy lists, although this one looks reasonable value too with PE of around 15x and a yield of 5.5%+. May be one for brave contrarians who think the sell off in the market is over done?
That's it for today off to plough through all the other statements and watch the carnage in the markets at the moment, be careful out there as it seems even in line statements and note of caution can be treated savagely.
If you enjoyed last years Mr. Markets Alternative Christmas Present and you wanted to hang up your stocking on that one. Then here's another quick suggestion for you.
The stock concerned is an old favourite of mine Restaurant Group (RTN) which I exited early last year as I felt the rating had got extended. Since then they have generally traded sideways before coming off by around 100p or nearly 14% to their current 635p or so (see chart at the end). They have been quite volatile recently, probably with the market, despite their in line trading update in November.
So why look at it now? Well like Alternative Networks, we have a news event which may act as a catalyst, in this case their post close trading update. While this may well just confirm their previous in line guidance I think there's a chance they could surprise and beat downgraded numbers given the mild weather we have had and the big cinema releases over the Christmas period. This may have encouraged more shoppers and cinema goers (where a lot of their sites are based) to dine out more, especially with the falling petrol prices and wage rises leading to rising consumer incomes.
Obviously no guarantees on that of course, but the share price doesn't seem to be factoring in anything too positive down here where it is looking over sold. While on the fundamentals for the longer term it looks better value if not an outright bargain at around 17x with a 3% yield on the coming years numbers. I also note that the Compound Income Score had risen back up to 93 as of last Friday - hmm tasty, bon appetite?
As I have observed in the past Thursday seems to be popular day for corporates to put out results and consequently, like today, we often end up with a throng of results on a Thursday.
So I'll cover in brief a few that I have mentioned in the past which are in size order Rolls Royce, Restaurant Group, Safestore & Norcros. So if any of those are of interest then click the read more.