Announcements from companies in the CIS Portfolio this week included a positive trading update from recent purchase Mondi (MNDI). These suggested that their underlying operating profits are up by 15% in the half year to date. This includes the effect of some planned down time at some of their plants which overall they now expect to be a slightly greater drag on results this year than last at €115m v €95m and this is also slightly up on their previous estimates. They also flagged higher costs and a headwind from currencies, but despite these negatives they still say that the outlook for the business remains postiive as they continue to experience a strong pricing environment in a number of key product segments and also good demand. Thus they expect to continue to deliver what they describe as "value accretive growth", so it looks like a hold on that basis.
On a less positive note there was also a rather lacklustre set of interim results from Zytronic (ZYT) which in a mirror image of Mondi saw their basic eps decline by around 15% as their revenues fell slightly on the back of weak demand in the Financial area, primarily ATM's which they make flat screens for. On a more positive tack they did suggest that there had been a customary pick up in demand in this area in H2 so far, but went onto suggest that demand overall may be suppressed compared to recent years. This was disappointing and may help to explain the recent de-rating of the shares and prompted another sell off on the day of the results. One saving grace against this is the strength of the balance sheet with net cash of £13.7m against a market cap. of £65m. This allows them to pursue a progressive dividend policy. Thus although the earnings were down they raised the interim dividend by 100%.
This was however partly to address the split between the interim and finals so I wouldn't expect such an increase for the full year, but forecast growth of 20% in the dividend for this year and next puts it on potential yields of 5.6% and 6.7%. this is however at the expense of cover which will come down towards a rather low 1x if the current forecasts are achieved. Thus it looks good value on yield grounds with a fairish looking PE of 12 to 14x or less if you factor in the cash. So a dull hold for income at the moment but unlikely to excite on the capital side I suspect, until they are able to return to demonstrating more turnover and earnings growth. As it has drifted back towards it's recent lows this might be a good entry point for a patient contrarian investor if you believe they will be successful in returning to a growth path, otherwise might be worth waiting for evidence of an upturn.
The only other snippets worth mentioning were a contract win in Slovenia for Amino Technology (AMO) and a slightly unusual RNS from Taptica (TAP) which included a Q & A with the CEO which you can read here if that's of any interest and you haven't seen it yet.
Charts below left to right from top are; TAP, AMO, MNDI & ZYT
Just a quick note to say that the latest Compound Income Scores have been updated again today. Meanwhile as promised here are brief details about the trades that were carried out in the CIS Portfolio which is run using the scores. This month there were three potential sales, although in the end I gave VP Group (VP) the benefit of the doubt as they had issued an in line trading update and final results are due in June.
Consequently Central Asia Metals (CAML) and Portmeirion (PMP) whose scores had deteriorated both left the portfolio having delivered decent returns over about a year in the case of CAML & just three months in the case of PMP. CAML was replaced directly with a similar stock with a higher score - Rio Tinto (RIO) albeit that it is much bigger and more diversified in terms of its operations. While PMP was replaced with Mondi (MNDI) the much larger , international packaging group where the portfolio then picked up the final & special dividends which gave an immediate yield of 6.27%, although obviously the price will have adjusted down accordingly on the XD day.
Finally in a bit of portfolio tidying up I also topped up a couple of holdings which had lagged with some of the proceeds of the above sales and from some cash that had accrued from dividends. Thus holdings in Headlam (HEAD) & Ferrexpo (FXPO) were topped up. I know this goes against all the suggestions of running your winners and cutting your losers but in this case FXPO continues to score extremely well and HEAD's score is still quite good at 88 and the CIS portfolio will also pick up the final dividend of 17.25p worth 3.88% which goes xd towards the end of May.
That's all for now but don't forget if you would like to learn more about the Scores and how to gain access to them or learn more about the CIS Portfolio then do explore the navigation links at the top of the site if you are on a PC or in the three lines menu at the top if you are on a mobile or tablet or click the highlighted links in the first paragraph. Good luck with your investing and have a great weekend whatever you are up to.
April saw a bounce back from the weakness seen in equity markets in Q1 2018, with FTSE 100 for once leading the way with a 6.84% total return. This plus lesser positive returns from the smaller indices was sufficient to turn the market timing indicators positive again for all the indices that I follow this for in the UK. This leaves them all some 2 to 3% above their trailing 10 month simple average and as such they are giving a buy signal again.
Regular readers will however know that I do not follow the buy and sell signals from these religiously as they tend to be volatile and can sometimes lead you to be selling and buying in quick succession as they flip and flop, as they have done recently, when you get a periodic shake-out in the market. As mentioned here regularly and originally when I looked at some research based on this, these indicators are improved and therefore best used in conjunction with economic indicators that tend to signal a downturn in the US economy and this tends to keep one invested for much longer to benefit from positive trends and compounding. Now strangely the best of these was seen to be the US Unemployment rate, which is currently close to record lows, despite this generally being perceived as a lagging indicator. In addition to this I am also monitoring ISM indices which measure business confidence in the manufacturing and service sectors and can also be a leading indicator of business downturns.
The other thing I have added more recently to the list of things I am monitoring is the the shape of the US yield curve ( a graph of the yield on US Treasuries from 2 to 30 years) with a particular focus on the spread between the 2 year and the 10 year bonds. I've done this as these yields have been in the news recently as the Fed has started to tighten and indicated up to 3 more rate increases this year. This has led to the ten year yield popping above 3% recently which provides a bit more competition for equities. The thing to watch out for is if the yield curve inverts (the shorter term 2 year yield exceeding the 10 year yield) as this has also been an advanced warning of around 9 to 18 months of trouble ahead in the US economy. I know this sound esoteric but I picked this up years ago (hat tip to John Mauldin) and you can read some recent academic research about this in the file attached at the end of this post.
Meanwhile in the Compound Income Scores Portfolio (CISP) there was also a recovery but to a lesser extent than the FTSE All Share given it bias towards Mid and Smaller Cap stocks. Thus year to date the performance is nothing to write home about being roughly flat against the index, so I won't write about it this month after last months bumper third anniversary update. If you are interested in checking out the numbers etc. you can find them elsewhere on the site here under the portfolio heading or the link above. Meanwhile I'll try and raise the enthusiasm to do another post next week with an update on any trades coming out of this month re-screening as it looks like there are at least 2 or 3 potential sales.
Cheers for now and here's to hoping that now we are in May that the weather here in the UK might also follow the markets lead and pick up too. Lets hope that the market recovery in April, like the brief spell of warmer weather, wasn't a false dawn too!
As promised on Friday here is a more in depth look at the performance of the Compound Income Scores Portfolio (CISP). As mentioned already it the last post it was a weak month for returns from both the portfolio and markets in general, although the CISP did outperform the market by falling less.
The better performing stocks which helped to produce this out performance were: Miton Group (MGR) which benefited from being cheap and reporting strong results as expected, as did Portmeirion (PMP). Ferguson (FERG) reported good results and a special dividend as it continues to benefit from a robust US economy. Avon Rubber (AVON) meanwhile gained on the back of some more orders and associated upgrades to its forecasts. While rounding out the top five, Bloomsbury Publishing (BMY) was just recovering from prior unexplained losses during the recent market volatility as their trading update reassured.
On he downside the negative stocks which detracted from performance (which all seemed to suffer despite reporting decent results) were Jarvis Securities (JIM), Zytronic (ZYT), Ferrexpo (FXP), Headlam (HEAD) and Tapitica (TAP).
In terms of this months screening, of the stocks mentioned above Headlam, Portmeirion and Taptica together with a couple of other names came close to the drop zone but on balance given the comments above I have decided to give them all the benefit of the doubt for now to keep turnover down in volatile market conditions, although I note that Headlam now also has poor 12 month momentum so unless it picks up in the next month it seem possible it might not make the cut next month.
Looking at the longer term performance as it is now the third anniversary of the inception of the CISP I'm really very pleased with the 60% returns it has achieved. Now this may well be a reward for undiversified risk and only a short time frame, but it has at least been achieved from a very active portfolio with high active share (it is not a closet tracker). As already mentioned in the previous post this is well ahead of the 17.2% produced by the All Share Index.
For a broader comparison I took a look at the UK Income universe of Unit Trusts & OEIC's on a total return basis over the same period where the top ten looked like this:
So it is pleasing to see that the CISP was well ahead of the professional competition with the top performer Chelverton producing 34.5%. So at least I must be doing something right with the Scores and how they are being implemented here. It was also amusing to see Woodford Equity Income coming in at Number 79 in the list with a -0.8% return after his recent high profile problems.
For what they are worth I also had a look at Stockopedia's Guru Screens over the last three years and see that the top Income Screen also produced 37% although I don't think they include income, but that still wouldn't be enough to make up the difference & the list of 10 stocks produced for the top performing PYAD Screen seem pretty bizarre. In fact the most sensible ones with reasonable diversifications seem to be the Best Dividend and Dividend Achievers Screens. So if your a subscriber to Stockopedia you could always check those out for ideas but if not click here for a free trial to Stockopdia.
While looking at the full list of Stockopedia Guru Screens some of the momentum based and more sensible investors such as William o'Neil, Jim Slater, James O'Shaughnesy & Robbie Burns seem to have done better but again you might need to sanity check the output of some of those.
Finally For a bit of sport I'd thought I'd also compare the CISP performance to the All Companies Universe and was pleasantly surprised to see that it has also outperformed 98% of those with only 4 out of 248 doing better and interestingly Chelverton also featuring towards the top of this list too.
So well done if you have read this far and sorry for blowing my own trumpet, but I guess nobody else will. As I'd like to bring the Scores to a wider audience and as it's Easter I would like to offer readers until Thursday 5th April 2018, a free sample of this weeks Scores. This will come with a Portfolio tab where you can plug in your own tickers and nominal number of shares held to value your holdings and see how they Score too, although this will only work in the main for UK stocks with a yield as the CIS universe excludes zero yielders and you will need a spreadsheet programme and you may have to check your junk mail to receive it. If that is of interest please get in touch via the contact form & I'll personally e-mail you a copy. Happy Easter.
...well it feels like mid winter what with all the snow and cold weather recently and the chill blowing through the stock market this year too. Thus although it still feels like mid winter outside here in the UK, we are already at the end of the first quarter. Thus we have the March update for the Monthly timing indicators which have also cooled decidedly recently too.
Now after this months further decline in markets I can report that all the UK indices are now negative and trading some 2 to 3% below their respective moving averages. So these suggest that a cautious approach is still warranted, but the economic indicators still do not suggest a recession is on the immediate horizon, so to avoid being whipsawed I would suggest continuing to ignore these signals for now. But I will be keeping a close eye on the stats and bond yields, inflation etc. for signs of trouble ahead. Having said that though I note that the FTSE chart has made a death cross this month (when a short term moving average cuts down through a longer term one) which is a negative signal as far as chartist are concerned - so perhaps I should not be too complacent, especially with the Nifty four Fang stocks losing their bite recently & the threat of a Trump trade war rising.
Any way as for the Compound Income Scores portfolio (CISP) the performance here in March also cooled as it ended the month down by 2.2% in total return terms, although this did compare favourably with the FTSE All Share which was down by 2.8% on the same basis. This leaves the CISP down by 5.15% year to date which means it has lost value more slowly than the FTSE All Share this year which is down by 7.14%. Since inception in April 2015 the CISP has produced a total return of 60% compared to 17.2% from the FTSE All Share and has outperformed in 26 out of 36 months or roughly 72% of the time which is not a bad strike rate.
I'll try and do a more in depth review of the performance and some commentary on the stocks and any changes from this months screening on Easter Monday and I hope to be able to make an offer for readers to try the Scores for free, so if you are bored this weekend don't forget to check back then.