XL Media (XLM) - the Israeli, Aim Listed on line performance marketing company has announced interim results today. These look pretty strong with revenues up by 33% driven by a similar level of organic growth in their highly profitable publishing division which makes up 44% of their business. This helped to make up for slower organic growth and lower margins in their media business & a fall of 25% in turnover from their partner networks operations which make up the remaining 56% (50% & 6% respectively) of the business. They also completed some acquisitions in financial & cyber security verticals in the US and in the mobile gaming area which helped to boost revenues in the media business.
The dividend was increased by 5%, which is a bit better than the marginal growth that is reflected in current consensus forecasts, so these could be upgraded if analysts bother to note that. More interestingly in the Outlook and headlines where they said: "The Board is therefore confident of comfortably meeting profit expectations for the full year..." which I take to mean they think they will probably easily beat current forecasts of 14c per share. This looks likely as even if the 2nd half was flat, then by my calculations, they would still come close to 14c. Thus there may be scope for some upgrades here if analysts share my opinion, but maybe the Company will steer them to keeping unchanged numbers so they can beat them later in the year? There will be a webcast of the results presentation which will be available on their website later today at: http://www.xlmedia.com/media/.
So overall a decent looking set of numbers which leaves the potential for some upgrades or a beat of full year numbers if upgrades don't come through in the short term. Of course being an Israeli company listed on AIM with a somewhat opaque business model, this is not one for everyone and indeed maybe one that the market loves to hate. Despite that it does have good financial metrics and has delivered growth of over 20% per annum in eps since 2011, although this may not be sustainable at this rate as they seem to be needing to make acquisitions now to keep the growth going which is potentially more risky. This new phase may well have been highlighted by big holders selling down in the last year or so, although I note the CEO still has a decent stake in the business. Given all that the quantitative scoring systems such as Stockopedia & our own Compound Income Scores continue to rate it highly at 97 & 98 respectively. So on about 12x with a 4.5% growing yield it will remain the CIS Portfolio and might be worthy of further investigation if you are not put off by the nature of it or think that the market will continue to love to hate it.
Month End Update for January 2016.
So one of the worst starts to a year ever from equity markets around the world comes to a close with a sharp rally. This fall seems to have been caused or rationalized post event as being driven by fears of a global slowdown, especially in China and the effects it was having on commodity prices and in particular the oil price. In addition markets had been on a bull run for nearly seven years on the back of Central Bank support and as a result some markets, such as the US, had also got onto extended and historically high ratings.
Thus with the US Federal Reserve starting to tighten monetary policy in December it seems as though investors came into the New Year and suddenly feared that the Fed put may have been withdrawn and so like Wylie Coyote they suddenly looked down and had a panic attack.
Fast forward to the end of the month and we had a sharp rally seemingly on the back of the Japanese central bank introducing negative interest rates and some weak US growth numbers which probably firmed peoples expectations that the US Fed may now be one and done in terms of raising rates, rather than doing a series of rate rises this year, perhaps.
However, it does all beg the question of how dependent markets have become on central bank support as each time they try to start withdrawing it markets seem to have a fit. Thus I guess time will tell if the central banks have now blinked on the back of the markets sliding in January and if therefore this current sell off turns out to be another temporary affair or if it is the harbinger of something worse. Which brings me nicely onto a look at the monthly timing indicators and how the Compound Income Scores Portfolio has done in this difficult month.
Another busy day for announcements in another difficult day for the market on the back of Chinese stocks being down 6% and the oil price heading back down to $30. So I'll comment in brief on a couple of stocks I have covered in the past and which are currently held in the Compound Income Scores Portfolio. These are Easyjet (EZJ), Q1 IMS and possibly another chance to get on board perhaps and XL Media (XLM) launching a strategic review considering all opportunities for maximising value for shareholders.
Another busy day for stocks which feature in the Compound Income Scores portfolio. So in brief firstly EMIS the healthcare software provider produced a trading update which saw turnover held back by timing of contracts within Secondary Care so growth in revenues of 13% look about 3% light of forecasts. But they do say overall trading is in line as they saw further progress in the like-for-like operating margins. It will remain to be seen if the earnings can come in line or if we will see downgrades on the back of this. With a highly rated stock such as this, which has held up well in the recent sell off, it is therefore perhaps unsurprising to see it off by around 12% on the back of this announcement, but it does remain a quality company nevertheless, albeit highly rated to reflect this.
Meanwhile 32Red (TTR) announced a trading update for the full year with record revenues and EBITDA expected to be slightly ahead of expectations. They also said that the new year had started well with revenues for the first nineteen days in January up 27% on the corresponding period in 2015 and up 54% including contribution from Roxy Palace which they acquired last year. On the back of this the shares spiked over 150p first thing and the holding therefore hit the 10% risk control limit that I set the other day. I have therefore sold half the holding at this mornings price of 152p to rebalance and retained half as I note their brokers apparently put out a note the other day with a target price of 200p.
As for the proceeds I did discuss the other day topping up some losers, which is not generally a good thing to do and one of those has now slipped into the sell zone as far as the Scores go. So I have resisted the temptation to do that. While I could have done a full re-screen and sold another three stocks as a result, I decided in the end to just add another holding instead as given the current volatility doing lots of trading may prove to be counter productive.
The new holding I decided to add was XL Media (XLM) which I mentioned the other day and which looks good value to me and has a CIS of 88 v 86 for TTR. They have also announced today a final dividend today which means their full year payout, which is based on a 50% payout policy will be 24% ahead of forecasts on Stockopedia. This statement therefore also suggests to me that their eps will also therefore be around 4% ahead of forecasts at just over 10c. So this one has been added to the portfolio at this mornings 63.3p price and therefore effectively keeps exposure related to a similar industry to 32Red but in a stock which looks much better value (94 value score v 14 for 32Red) and comes with a 5%+ yield versus 2% for 32Red. Whether this proves to have been a good idea or reduces the risk and increases the returns remains to be seen!
Talking of returns, I note that after this update that the portfolio seems to be down by around 5.7% since the year end which compares with -9.3% from the FTSE All Share year to date. So at least it seems to be holding up reasonably well in a down market too, although no doubt helped by continued lack of exposure to commodity sectors and the astonishing running streak from 32Red. Obviously if a market bounce back comes about and should be led by the commodity sectors then it would obviously then lag that.
Sorry for the lack of posts in the last few days, but with the markets being so unsettled there seems little point in putting out too much at the moment. Today we have however, had a few updates from stocks that I have written on in the past which may be of interest, so here is a brief review of the key points.
So just goes to show, even in what feel like horrible markets there are always opportunities around if you focus on the fundamentals of the Companies and are prepared to dip your toe in despite the gloomy mood.