A Wise time to buy again?

This question could apply to the market I guess given the recent market sell off. It could  also apply to a Utilitywise (UTW), a Company which features in the Compound Income Scores Portfolio and which I have personally traded successfully a couple of times this year. They reported an update on payment terms with another of their major suppliers and an AGM today.

So taking the market first, if you are going to invest for the long term and want to try and buy low and sell high, then you are being given a third opportunity to buy low this year.
As you can see from the chart above last nights close on the FTSE is just below 5,900 is in line with the lows that we saw back in August and September and has also led to the FTSE being over sold on the RSI which has only happened on a couple of occasions this year.

We are also into what is supposed to be a seasonally strong period for the market from around the end of November through to May and we also quite often get a year end / New year rally or "Santa" rally as it is often called. So if you have an unused ISA allowance and have some cash available, then now would seem like as good a time as any this year to put it to work in the stock market for the long term.

However, of course in the short term there are worries about the first US rate rise in years, China and emerging market problems etc, etc. but then there always are reasons to be scared about investing at any moment in time. But if you want to benefit from the longer term expected equity risk premium / returns then you have to accept some risk to your capital. Aside from that you can choose to ignore macro fundamentals in the main, although probably not completely and then just focus on individual companies and their prospects.

Which brings me nicely onto today's individual stock mentioned at the start - Utilitywise.
As I said this one is in the CIS portfolio, although to be honest it has been one of the more disappointing holdings as it has had some accounting concerns and downgrades to earnings running up to and post their results this year. As a result the score has deteriorated to 79 which will leave it in danger of exiting the portfolio at the next quarterly screening at the end of the year. The volatility did however allow me to trade it profitably myself a couple of time already this year.

So what did today's AGM announcement add? Well in the first place they confirmed that they had made what they described as a solid start to the year and that they were trading in line with expectations. They also suggested that recruitment of customers (which tends to drive their growth) is picking up and they expect this to increase as the year goes on.

Putting some numbers on this they stated that their customer numbers had risen to 28,507 at the end of November which is up by 1242 since they last quoted this figure to the end of September with their year end results. This would suggest, if they carry on at this rate, that their customer numbers would be up by nearly 30%, although they claimed that they thought this rate of increase should increase through the year.  So if they do achieve that then the increase in customer numbers could be even greater.

However, I note that they said their secured future pipeline was £27.7m at the end of November which is actually down on the £28.3m they reported at the end of September but up on the £26.2m reported at the year end. Not sure if that just represents timing differences of new customers moving through the sales process or more likely a decline in margins as that has been the trend in recent years as they have added more, less productive, sales agents. Nevertheless the current rate of growth in this metric since the year end suggests they should still be on track to hit or slightly exceed current revenue forecasts which are for a 30% rise to around £90m. So I assume that forecasts should probably not be downgraded any further on the back of the AGM statement.

Meanwhile in a separate announcement today the company have also confirmed that another of what they describe as their major suppliers (presumably one of the big six) has agreed to a change of payment terms. This is the second one of these they have announced out of three who account for a large part of their revenues. This will mean that they get 75% to 80% of expected revenues up front (depending on contract type) from the contract falling due on the extension signing and the remainder at maturity subject to the normal reconciliation process. This is apparently in line with new contracts and on this they said:

"This is a further step forward in getting our commercial terms for both new contracts and contract extensions harmonized. A key focus for our business is improving cash conversion and hence this change of commercial terms  is a very positive achievement.We have more suppliers to target improved terms and will update the market as and when we are in a position to do so."

Thus this is another step in the right direction to addressing the cash flow and accounting concerns that have dogged this one this year and might help to rehabilitate them somewhat in investors eyes. Talking of which optically the shares look very cheap as a result of this issue and they way the shares have reacted, which as you  can see in the chart below has left them over sold.

So I'm not surprised to see them up 10% this morning on the back of this as this one does tend to be very volatile. But even at this mornings higher price of 154p, assuming no changes to forecasts on the back of today's announcements, they stand on a still attractive looking 8x with a well covered 3.9% yield.

So in conclusion, it does look like this may indeed be a wise time to buy this one again, although as this one is controversial and is volatile it feels uncomfortable to do so, but sometimes those turn out to be the best buys.