A brief update this time on a couple of sets of results from shares in the Compound Income Scores Portfolio. Firstly somewhat belatedly I report that we had results for the year to 31st December 2017 from Portmeirion Group(PMP) last week which is the supplier of branded goods in ceramic tableware, cookware, giftware and tabletop accessories. These were another good set of number and we summed up by the chairman when he said:
"We are delighted to be reporting a ninth consecutive year of record revenue and a record profit before taxation. Our core values of innovation, targeted product development and operational excellence remain unchanged, and we are pleased to report on the successful integration of the Wax Lyrical home fragrance business into the Group. Trading in the first two months of the current year is ahead of the comparative period in 2017. The outlook for 2018 is positive and we remain confident for the future."
Overall it remains a small and seemingly well managed company which looks reasonable value on around 14x earnings with a near 3.5% and growing yield, although it is hard to get excited about it, sometimes boring stocks can be good and it still scores well on the the CIS so boring or not it will remain in the portfolio for now.
Meanwhile in a more timely fashion we have also had full year results for 2017 form the small fund management group - Miton (MGR) which as they had already suggested were better than expected. These substantially beat existing forecasts & even matched or exceeded those that had been pencilled in for 2018 by the analysts. In addition as I flagged in January when I added it to the portfolio the dividend was also much better than expected coming in at 1.4p for 40% growth rather than the 10% or so that had been suggested by analysts as this also actually matched what they had in for 2018. Thus I suspect upgrades will be likely here as they seem well placed to make further progress unless volatile markets or a bigger sell off generally should de-rail them. They still look good value on 12.6x the eps they have just reported and with a yield of 3.3% too from the dividend just declared.
I suggest you read the results if you want more information & if you perceive that it is dependent on one fund manager, in the name of Gervais Williams, then you should check out their people & teams page from their investor relations web site to reassure you about the strength and depth of experience that they have on board.
Here is another update on the Compound Income Scores Portfolio (CISP), this time on the monthly screening and recent announcements from companies in the portfolio.
Taking the announcements first, we had slightly underwhelming results from Headlam (HEAD) the flooring distribution company which struggled a bit for growth as one of its major customers cut back on orders and conditions in the UK were generally more difficult than the previous year as the squeeze on household budgets from falling real incomes presumably had its effect on demand for carpets etc. Having said that though the European performance was stronger and they also undertook some cost saving measures and made some add on acquisitions which helped to produce some modest 6 to 7% growth in profits and earnings despite the tougher domestic conditions. They also increased the dividend by 10%, helped by their robust balance sheet and their reasonably confident view of the future and a clear dividend policy based on a target level of cover. There was however no special dividend this year as there has been in the last few years given the outlook and the demands for capital investment that they see. Overall an OK set of numbers but the market didn't seem to like them that much and marked the shares down quite sharply on the day of the announcement. They have not recovered since and I note there have been a few small downgrades since then, so they may well continue to drift for now despite looking good value on 10x with a 5%+ dividend yield for the current year. So in summary good value and reasonable quality but lacking momentum and some concerns about the outlook, although their self help measures should help to alleviate the worst of this, so a hold for now but we will have to see how it scores come the next monthly screening to see if it remains in the portfolio. It does however, look like it has come back into a range of support between about 400 and 465p, see chart at the end.
On the same day we had better news from Bodycote (BOY) which saw strong growth, paid a special dividend and rose on the day as the market clearly liked these numbers and this helped to offset some of the weakness seen in the Headlam share price, which after all is the whole point of a portfolio. So we have something of an opposite here a quality cyclical which is benefiting from stronger demand and therefore is rated more highly (18x with a 2% yield or thereabouts) and which therefore has better price momentum which is supported too by earnings upgrades seen since the figures.
Moving onto the transactions this month these gave me something of a mental challenge as the scores challenged my preconceptions and natural inclination on some stocks as well as presenting some challenges in constructing a suitably diversified portfolio. Firstly on the sales the stocks that came as a result of the screening was Unilever (ULVR). Unilever is of course well know and a solid company which is a classic compounder and one which personally I'm happy to continue holding of a more broadly diversified income portfolio. I did decide to sell it for the CISP though to follow the process, as despite it being somewhat over sold in the short term, it still looks a bit of an expensive defensive, albeit not as expensive as it was given recent share price falls. It has however had earnings downgrades and I guess maybe investors generally are rotating towards more cyclical names given the improving economic situation globally if not in the UK.
The second sale candidate was XL Media (XLM), which even though it had only been in the portfolio for a short time, I decided to sell for a small profit despite the recent positive trading update. This was because the score had deteriorated on the recent re-rating and there had been some small downgrades. In addition to this the CISP still has exposure to this area via Taptica (TAP ) and they both seem to have come off recently as they have tapped the market for new capital and perhaps investor appetite for this area is satiated in the short term, so maybe you can have too much of a good thing.
Talking of having too much of a good thing that brings me onto the buys this month. Now back in January, which was poor timing with the benefit of hindsight, I did buy another market related stock in the shape of Miton (MGR), which gave the portfolio three positions in market sensitive stocks. Thus when Plus 500 (PLUS) came out top of the pops this month I didn't feel able to add it to the portfolio for that reason as well as being naturally biased against it myself. It does however look very cheap having just had a strong upgrades on the back of a positive trading update and it does trade on about half the rating of IG Group - so the scores are signalling that it should do well if you can stomach the risks. I note however that the directors have also placed a large slug of stock recently, although they do still retain quite substantial holdings - so even they are hedging their bets having tried to sell out previously at 400p to Playtech (PTEC). So in the end I bought some Amino Technologies (AMO) which helps TV networks with IPTV streaming and some Spectris SXS which helps companies with enhancing their productivity, see the name links for more details of their operations. Both these scored well and bring something different to the portfolio.
This now leave the portfolio looking reasonable value on around 14x with a 3.4% prospective yield based on the forecast dividend growth 15% for the current year, thereby hopefully it will deliver on the objective of delivering value, income and growth which the Compound Income Scores are designed to identify. So there you go that's it for this week and don't forget if you would like to find out more about the Scores and how you could gain access to them to help you with your portfolio monitoring and construction then check out the Scores page which has all the details.
Somewhat surprisingly given we are supposed to be leaving the EU - apparently the EU’s General Data Protection Regulation (GDPR) will apply from 25 May 2018, when it supersedes the UK Data Protection Act 1998.
I told you it was boring, so I'll try to make this as quick and painless as possible. This covers things like data handling and privacy policies etc. This will only concern those readers who have signed up to receive our updates via e-mail for which you have given us at least your e-mail and maybe a few personal details.
& to only use your details for sending you e-mails. Now on e-mails apparently the above regulation requires organisations to get consent from recipients to continue sending e-mails.
Consequently we have suspended taking new subscribers to e-mails on the site (which are after all just links to or a reproduction of posts on the site). After today we will stop sending e-mails as in any event not that many are reading them any way and many may be ending up in peoples junk folders in any event.
If you are happy about that then you do not need to take any action and we won't bother your in box again. If however you are a current subscriber and can't live without a periodic e-mail from Compound Income then please get in touch & I'll put you back on the list.
That's all for now as I said it would be quick, unlike BREXIT if it ever happens!
After scraping into positive territory in January, despite the negative returns from the broader market, the Compound Income Scores Portfolio (CISP) was not able to withstand the continued sell off in February. Indeed it gave back a little of its outperformance from January, as it finished February with a return of -3% versus the -2.6% from the FTSE All Share which it is measured against. This leaves it down by 3% for the year to date compared to -4.4% for the All Share, while since inception nearly three years ago the comparisons are +63.7% & +20.6% respectively.
The positions that resisted the falls and actually rose in value were a mixed bag of a couple of miners, a toy maker, a crockery manufacturer and a magazine publisher (FXPO, CAML, CCT, PMP & AUTO). While the list of fallers were headed up by a couple of fund managers, a house builder, a book publisher and a digital marketing company (JUP, MGR, BWY, BMY & TAP) with some of those obviously geared into markets while the others seemed to just be suffering from profit taking.
So not much to get excited about in February and March hasn't started much better either. I'll leave it there for now as I get the impression readers aren't that interested in this stuff, but nevertheless I'll endeavour to update you on this months trades later in the week - so check back then if that is of any interest.
As I'm sure you are aware by now February was a poor month for stock markets and the UK was no different. The larger indices led the way down with the FTSE 100 producing a -2.55% total return. Mid and Small Cap stocks held up slightly better this month again but they also produced negative returns, so there was no place to hide from the down draught. This has brought the main larger and broader indices such as FTSE 100, 350 and All Share below their simple 10 month moving averages by 0.8%., 0.7% & 0.6% respectively. While the Small Cap and Mid Cap indices, having held up slightly better in the sell off remain just above their moving averages by 1% and 0.1% respectively for now.
Thus a mixed picture on these indicators which ordinarily would suggest a note of caution towards the market in the main and could suggest the start of a more bearish trend generally. As discussed here before however, these type of indicators can be vulnerable to whipsawing - where they force you to sell out and then buy back in higher up when they then subsequently turn positive again. Thus I tend to use these as a guide to overall market mood, but I am not following the signals in the short term unless they are confirmed by economic indicators like economic growth generally and in particular the US Unemployment rate, ISM indices and the shape of the yield curve.
Since these other indicators are all currently in positive territory I'm not inclined to take action based on the market timing indicators other than thinking that it might represent a buying opportunity in the short term - perhaps. Having said that though it is worth bearing in mind that the general consensus is that we have entered the late stage of this particular cycle. Now while last year was unusually calm and profitable making many novice investors think that this game is easy and that they investment gods, I suspect this year will be much more testing. Indeed the late stage of the stock market cycle is typified by increased volatility and the market has certainly been taking no prisoners on the hint of any disappointment so far this year.
Now that's not to say that the market can't go higher from here if the earnings and dividend growth that is expected is delivered. It is just that progress from here is likely to be much less serene and will probably be more a case of two steps forward and one step back. We will however of course have to keep an eye on how "events" pan out and see if all the concerns about rising inflation, interest rates, wages, trade tariffs, BREXIT etc. etc. finally prove sufficient to derail economies and stock markets. So given the icy weather and the cooler tone in the market wrap up warm and be careful out there as sliding down hill on snow and in the markets can be painful.