The corny title refers to one of my long standing holdings which has delivered excellent returns for me over the years. As I have written before it is one of those family run businesses which Lord Lee is fond of backing and indeed I think he has been in this one in the past. Any way I digress, but the stock concerned is S & U Plc which is now a £240 million market cap. car loan company which also has a fledgling bridging loan operation. So why mention it today? Well they have their AGM today and have put out a trading update statement ahead of that.
This confirmed continued strong trading despite what the share price might have been suggesting. If that is of interest you can read the announcement and learn more about S&U at their investor relations website. Here you'll also find links to some Proactive Investor Interviews with Anthony Coombs, chairman of S & U. I thought the last one, which you can view here if your want, was interesting as he seemed to be pretty confident about on going growth as they only take a small proportion of all the loans they are offered by their panel.
Cutting to the chase I think the shares look good value down here on around 10x this years forecast earnings with a 5% yield based on both of these growing in double digits, which seem likely given the latest update and the Chairman's confident comments in the interview after the finals in April.
Looking at the chart you are would not getting in at the top if you were to buy in now as the they have come back from over £25 to their current £20 or so. Looking at the chart below I have drawn on the trading range and what is called a triangle formation by connecting the highs in the recent downtrend and it looks like it might break out of this triangle one way or the other fairly soon. The theory is I believe that it should then move by around the height of the triangle which in this case is roughly 500p. So that would suggest targets on a decisive break, of either £15 or £25 which would be around the old highs which could then act as resistance.
My money is obviously on a breakout to the upside and having top sliced some of mine near the £25 high in 2015, I have been buying some back around the £20 levels recently. As ever you pay your money and take your choice. In the meantime I'll continue to enjoy the 5% yield including the 39p final worth 1.95% which is due to go XD on 15th June.
A couple of positive updates from domestic Companies exposed to what are seen as the vulnerable sectors of Housing and Car sales. Firstly there was Bellway (BWY) the national house builder which has been one of my favourite plays in the sector over the last few years. They continue to look cheap given the on going strong trading and the price fall since the BREXIT vote. The current strong trading is however largely backward looking as they are updating to their year end which was 31st July 2016. Like many others on current trading they say it too early to tell the impact of the vote but they do observe that recent weeks have been encouraging, visitor numbers are still strong and the cancellation rate remains at a historic low. In addition to this they flag a strong forward order book which seems to account for around half of the turnover they did this year and having invested in land they say they are well placed to continue their sizeable contribution to meeting the UK’s requirement for new homes in the year ahead.
Thus they seem reasonably confident of continued strong trading in the year ahead, although I note that analysts have unsurprisingly down graded next years numbers heavily recently to the extent that they now see a near 10% fall for next year. Now as we know analysts are not that good at forecasting so it will remain to be seen if they have been too pessimistic or to optimistic in this regard. Personally I would tend to still be more favourably disposed towards the house builders given all the monetary and probably fiscal support to come and the on going housing shortage which should all help to underpin demand and allow them to keep pumping up the volume and paying out generous dividends. As ever though I guess you pay your money and take your choice and those that believe that the economy and housing market are about to crash on the back of BREXIT will obviously not be going near house builders or may be even shorting them.
Another of my favourite stocks S&U (SUS) the car loan finance company also reported a strong update today. If any thing the Chairman, Anthony Coombs was almost too cocky for my liking when he said: "In contrast to the recent gyrations and doom saying in the stock and currency markets following June's Brexit vote, trading in the real world at our Advantage motor finance business continues as strong and consistent as ever. Customer applications are at a record high with live customer numbers up 39% on last year at over 38,000 whilst margins are being maintained." Again this is largely backwards looking and they did suggest that credit quality was not quite at last years record levels but still within the range of expectations. He then went onto say: "A sound and consistent strategy, substantial investment and a dynamic and committed team both at Advantage and the Group, form the bedrock of S&U's progress. That is why, whatever the current economic uncertainties, we continue to regard the future with great confidence."
Now while I like to see a confident statement from management I do just get a bit worried about hubris kicking in when they start to sound so bullish when things are going well, which as we know in the stock market is not normally a good thing. Despite that caveat it does still look reasonable value on around 13-14x earnings with a near 4% yield. In addition looking at the numbers they are talking about I wouldn't be surprised to see some upgrades on the back of this so on that basis I'll stick with it.
We have had strong looking numbers from three stocks that I have covered in the past. First up alphabetically is Bellway (BWY) the well managed national housebuilder which unsurprisingly osi doing well given the recent buoyant housing market in the UK. This meant that turnover, margins, profits and therefore earnings and dividends were all up by strongly. Indeed the 43% rise in h1 earnings and 36% rise in the dividend were ahead of the growth rates forecast for the full year so it looks like some more upgrades might be due here. Even without that they still look cheap on less than 9x with a yield of close to 4% and with a Compound Income Score of 99 it seems likely to remain in the CIS Portfolio at the next review.
Meanwhile there were also some strong looking Q3 numbers from a former CIS Portfolio stock IG Group (IGG), the financial services firm which was focussed on spread betting but has more recently expanded into stock broking too. Their numbers today also look strong and have probably benefited from the more volatile market conditions in recent months.
It fell out of the portfolio when it had got onto an expensive rating and as lack lustre markets and the costs of investing in their stock broking business led to flat earnings and dividends. With the more volatile markets and presumably some return on their investments in stock broking forecasts are for some modest growth in earnings and dividends, which with the fall in the share price recently has brought the rating back a little.
It does however still look fairly fully valued on a PE of around 18x for this year, although the yield is more attractive at around 4%. It still scores reasonably well on the Scores but probably not well enough to get back into the portfolio.
Finally we had full year results from S&U (SUS) the motor finance and specialist lender. Comparisons here are muddied somewhat by the disposal of their home collected credit business which led to a 125p special dividend. The earnings seems to have missed forecasts by some way, but I suspect this may be due to the effects of the disposal as the dividend ex the special seems to be in line or may be 1p ahead of some forecasts.
So I guess the miss could lead to some downgrades although they do say they see very significant opportunities to maintain and even accelerate the steady and sustainable growth which has been S&U's hallmark. They also flag a 2x dividend policy going forward which, on current forecasts suggests a dividend of around 88p which at the current price of 2260p would give a yield of 3.9%. The PE again on current forecasts is a reasonable looking 13x, although it is probably best to see where forecasts settle.
If there are some downgrades then that might afford a better buying opportunity for the medium term if you are attracted to their simple business model, with lows around 2000p in the last year appearing to offer some support. Not one that scores that well but still one I'm happy to hold for the long term.
As the bear market continues to roar on there were a few snippets of news from stocks that I have covered in the past. I'll keep it brief as no doubt you might want to get back to watching your portfolio, although that may not be good for your well being and blood pressure. First up we had an in line trading update from what is now just a car finance company S&U (SUS). This included a 19% increase in the dividend which is probably in line with forecasts, although this is a bit hard to discern due to the special dividend paid this year on the back of the disposal of their home collected credit business. This also means they have a strong balance sheet with only low gearing and therefore plenty of scope to grow their business and consider acquisitions. On acquisitions quite topically they said:
"We continue to examine potential acquisition and start up opportunities in a rigorous and painstaking way and have added to our development team. The recent reverses in stock market values have confirmed our impression of unrealistic pricing last year and may lead to better value in the coming months. Our search continues, but against a background of continuing investment in Advantage, and our determination to maintain shareholder returns in areas where we have experience and expertise."
Seems like a sensible and cautious approach and I would continue to trust the management to deliver value for shareholders. As such with that in mind the shares look good value having come back with the market recently and are close to potential support from lows in April / May last year. At around 2000p they now trade on around 12x with a 4%+ yield which seems fine to me, although if the market carries on falling then no doubt this one may be dragged down further with it.
Meanwhile Rolls Royce (RR) have announced their results and the on going restructuring being undertaken by the new CEO. As a result of this, probably unsurprisingly, they become the latest blue chip, after Rio Tinto (RIO) yesterday, to announce a dividend cut. In this case it is a 50% cut to this years final and next years interim. So looks like the turnaround here will be a long haul, but it does at least have a large order book to tide it over.
Finally I noticed that the recently appointed finance director at RM has picked up an initial 35,000 shares and a director of Matchtec (MTEC) seems to have done a bed and ISA transaction so probably nothing too significant in those. That's all for now, I hope your portfolio's are not being too badly hit by the current turmoil. If you are on the look out for bargains in the stock market flash sale then just to let you know the latest Scores are out today, right now where's my tin hat.
In a fairly quiet news flow day today we have had some acquisition, disposal and directors dealing news from a few stocks I have written on in the past. Firstly there is another acquisition and associated rights issue from RPC Group the £2bn rigid plastic container manufacturer which wrote up in detail some time ago and updated on it here.
This latest in a long line of deals from them, which have historically been successful, again looks sensible and given the price, expected synergies of €15m per annum and the financing arrangements looks as though it will be earnings enhancing, like previous deals.
They are paying £470m for GCS Group which is a leading global manufacturer and provider of closures and dispensing systems for consumer products in more than 100 countries worldwide. They are funding this with a mix of cash from a 1 for 5 rights issue at a discounted 460p and debt which is expected to leave their debt at a highish but manageable 2x EBITDA.
In summary on the benefits of the deal they say it will see:
Meanwhile we had a disposal of the national network assets from KCOM the Hull based telecom operator. This has raised £90m for them and pays down most of their debt. I estimate this will be roughly neutral as the £4m net cost of using the network going forward will roughly match the interest cost savings. However as they say it does give them capacity to accelerate investment in their plans to transform the group, without the need for any material increase in debt, while at the same time as providing shareholders with a clear medium term dividend commitment.
The shares had been suspiciously firm in the run up to this and have now moved to the top of their trading range over the last few years where they now also appear over bought in the short term. Thus it will be interesting to see if this deal and perhaps details of their
investment plans can prompt a further re-rating, although I note this is very much like a sale and leaseback deal that a retailer could undertake and as I don't see it enhancing earnings I'm not sure it really changes the story that dramatically. Thus given it is on a fairish looking 14x with limited growth and a low EBIT /EV yield the main attraction remains the 6% or so yield which has been growing strongly but is scheduled to be at least maintained at 6p after the current year as indicated by the Company in their interims recently,
So on that basis I would be tempted to suggest locking in some profits up here, although maybe I could be missing something here. But worth noting if you are in need of income the shares are due to go XD the 1.97p interim on 24th December.
Finally further to the bullish update from S&U which I mentioned on Friday. I note that the Chairman Anthony Coombs backed up his bullish comments with a purchase on Friday of 1,000 S&U Ordinary Shares at £24.05 per share which takes his total beneficial holding to 1,335,027 Ordinary Shares representing 11.2% of the total voting rights of the Company.