If you have been following my posts you should have had today in your diary and also you cannot fail to have missed it in the media that today is the day when Super Mario has to come up with the goods, or rather Euros, to avoid upsetting investors everywhere. The latest thinking seems to be that they will announce €50 billion a month starting in March until the end of 2016 perhaps to give a total of €1.1 trillion. Whether this will be the case and if it does any good or not I guess we'll have to wait and see at 1.30 pm UK time today and beyond.
Otherwise today a couple of stocks that I have covered here in the past put out updates / results. Firstly there was the software provider to the healthcare industry EMIS which gave a trading update saying they expect to be in line with their expectations and that they are confident about the outlook for EMIS in 2015.
That all sounds good so lets see how its done since I first did a check up on it back in March 2014, see link for original write up, or the category list here for updates since then. Well not too bad as you will see from the graph below which has seen the shares rise from their depressed 600 pence level to their current 836 pence or so today for a rise of nearly 40% against a fairly flat market over the same time period.
This has been achieved on the back of slightly upgraded forecasts 40 pence of earnings and 18 pence of dividend and a more significant re-rating from 15x and 3% to 20x and 2.2% for the current year which makes it start to look expensive in my book, although still good quality. Some mid single digits growth for the current year to December 2015 is forecast which still leaves it on a fairly full looking 19.3x and 2.3%. The EBIT / EV yield is also only currently around 4.8% which combined with the yield puts it in the bottom quartile of value on my CI Scores, confirming my impression that it is starting to look expensive. Otherwise the quality metrics and the earnings revisions trend help to improve its overall score and put it just outside the top quintile. However, given the valuation and more limited growth forecast for this year I wouldn't suggest it as a new money buy and in fact it is only just about a quality hold for me given the rating.
The other stock which reported today is Safestore (SAFE) which I mentioned briefly in passing back in November 2014 when they updated and said they expected to be slightly ahead of the top end of the consensus range. It seems that analysts were too lazy to upgrade as they have today reported earnings and dividends about 4% and 10% ahead.
They seem to be doing well as they seem to be successfully filling more of their vacant space. I am kind of regretting selling this one but hey ho must move on.
Any way that's all for today while we wait like Pavlov's dogs for Draghi to ring the bell on QE in Europe but does it mean that the Euro will be a safe store of value going forward and will investors be in investing Heaven until '17 as a result?
Talking of which reminds me of an appropriate song for Mario Draghi today which appropriately saw Heaven 17 going all Eurotrash and trying to do a Kraftwerk with a track called I'm Your Money. So see and hear the video above which just seems so appropriate for today.
...lots of results to plough through today so I haven't had a chance to write any up in detail. But of those that have reported in the last day or two that may be worthy of further research based on their announcements and ranking within the Compound Income Scores (in no particular order) are:
Computarcenter - CCC
Fairpoint - FRP
WH Smith - SMWH
Diploma - DPLM
Meanwhile for income we have had an update from Picton Property Income Ltd (PCTN) which has seen some good NAV growth and has been raising fresh equity to invest as it stands at a premium. This has brought the gearing down a bit and they are paying a covered dividend which gives a yield of around 4.4%.
Finally, talking of yield while many of the telecoms companies have been racing up and getting excited about the prospects of quad play deals, KCOM has been sinking faster than Hull in the Premier league. This has left it towards the bottom of its twelve month trading range where it offers a decent well cover and growing yield in excess of 6%, which is the main attraction with this one as it is struggling to grow its top line. It looks good value and somewhat oversold to me as you can see in the chart below. If it can get back to around 100 pence which it has done on four occasions in the last couple of years then it could provide a decent total return from here.
After last weeks move to unpeg the Swiss franc from the Euro we have had interim results from IG Group (IGG) today. This Company which helps to facilitate on line trading and which recently moved into stock broking where they have signed up 1700 accounts, 60% of them new clients, had already announced a £30 million hit from this. Overall they benefited from a volatile second quarter in the markets which helped to offset a quiet first quarter, but the Swiss move has taken some of the gloss off of this and meant that analysts have taken a Swiss army knife to their forecasts.
On the back of this they have seen revenues rise by 8% and within this the UK & Australia performed well but they flagged Europe as being disappointing. They also suggest that within this and more generally their mobile Apps need some improvement as they are not seeing good numbers of conversions from downloads to active clients. They are responding to this with the roll out of new apps which started with one for the I-Pad in December last year.
With regard to the dividend there is a confusing picture because of their decision to increase the pay out ratio last year and pay the interim as 30% of the previous years full year dividend. This was explained by the company as follows:
"Accordingly, we have declared an Interim dividend of 8.45p.This is up 47%, for two reasons. Firstly, the increase in the pay-out ratio last year was recognised entirely in the final dividend, meaning that last year's interim dividend was calculated on the basis of the previous lower pay-out ratio. Secondly, we have increased to 30% the proportion of the total annual dividend which is declared at the interim point in the year, where historically this was approximately 25%."
While this seem great news on the face of it there was a sting in the tail from the Swiss Franc move in the current trading and outlook statement. Here they confirmed that the revenue benefit had been offset by these events such that they expect profits and earnings to be hit by this from a combination of market (£12 million) and client credit (£18 million) exposure. Earnings estimates seem to have come down by about 5% so far this month to around 38 pence to reflect this, which is a forecast fall of about 5% year on year. On this the Company finished up by saying:
"If full year diluted earnings per share were to be lower than last year purely because of this highly unusual event, the Board's current intention would be to maintain the full year ordinary dividend at last year's level. Obviously the Board's final decision would take into account all relevant factors at the time."
Summary & Conclusion
So given where earnings estimates have moved to, this suggests to me, in the absence of a bumper second half, that the full year dividend may well now be flat rather than up by 3.2% which is currently being forecast and is slightly disappointing.
With the current 38 pence earnings forecast and an unchanged (perhaps) dividend of 28.2 pence to be conservative, this leaves it on nearly 19x this years earnings with a yield of 3.9% which is only 1.3x covered and which may not have grown this year. While it is a good quality well run business, given this recent hit, which has led them to look at their risk controls, it certainly seems a lot less compelling up here at 720 pence given its exposure to the vagaries of markets and their impact on IG's clients inclination to trade and their finances.
A cold and slow start to the week with some snow in the mix too, but then it is the middle of winter. Well today amongst other things we have had an interim management statement from the brewing and pub chain Greene King (GNK). This seems OK in a dull kind of way with retail like for likes (LFL) up by 2% over the Christmas period and by 0.6% in the year to date. The LFL's have been flat over the last 6 weeks but they did allude to tough comparatives from last year. They also referenced their own Leisure spending tracker which suggested a fall in this type of spending in November and an effect from tougher drink driving regulations that were introduced last Christmas in Scotland.
Meanwhile if anything their pub partners and own brewed bear seemed to have performed slightly better in growth terms.
They also touched on their proposed acquisition of Spirit Pub Company (SPRT) which is progressing having been approved by shareholders and which they hope to complete in the first half of this year. They also said that:
"this will create the UK's leading managed pub company and deliver significant shareholder value through material synergy generation and anticipated earnings accretion.
Summary & Conclusion
Overall it seems like a steady as she goes type of update from Greene King. However, with some hopes of an improvement in consumer spending after the fall in the oil price, inflation and some earnings growth the outlook for them could improve from here and they should have the benefits of the Spirit acquisition to add on in the second half. Therefore it may be a bit dull for now but with some hopes of an improvement as the year progresses.
In terms of the valuation they look pretty average with a Compound Income Score of 50 although within that the value is a bit better than average with a yield of 4% and an EBIT / enterprise value yield of 6.8%. On top of that they are forecast to grow their dividend by around 7% this year which in line with the longer term dividend growth that they have tended to achieve. Otherwise the P/E and yield seem to be towards the lower end of their range from the last couple of years although this (de-rating) has probably been driven by some steady down grades to earnings since last April.
Technically therefore the shares have been in a downtrend since then but have shown some signs of recovery since the end of last year as maybe some of the technical selling surrounding the Spirit deal has abated. However, I note there are still short positions outstanding of just over 8%, but I suspect most of this will relate to arbitrage trades on the deal. With the shares now above their 50 day moving average and having closed a gap on the chart just above 780 pence they look a little over bought short term and a falling 200 day is not too far away at around 810 pence.
Thus I suspect they may pause for breathe or a pint around here as the shares try to build a base in the months ahead, before better times and benefits from the Spirit deal in the second half which could brew up a more frothy share price. As I can hear the tumble weed and sense your silent groans - I'll get me coat (see video at the end if you don't get that reference) & if you do too. For a bit of balance here's a link to Dry January campaign.
Just a quick update on a stock which featured in my December Advent calendar as a Christmas cracker or a turkey?
Well the stock concerned Character Group (CCT) has had an update in which they said their turnover so far this year is up by 28% versus last year and this compares with forecasts of around 10%. On the back of this they have said that they remain confident that the Company can deliver another year of solid progress, resulting in achieving at least current market expectations for the year ending 31 August 2015. The stock is up again today and has risen by about 20% since I wrote about it (see chart at the end). However this one operates in the toy industry which can be quite fickle with fads and fashions. As a result they have had a volatile history, but currently seem to be on a bit of a roll, so certainly not one to buy and forget if you decided to play it, as they could well come crashing back down at some point in the future.
Having said that they still look reasonably cheap on around 8.6x with 2.5% yield although that is now towards the lower end of what I normally like to see. This however is based off of current forecasts which they say they can at least achieve. So I guess some brokers might upgrade given this update.
If you are wondering how I came up with some of the interesting stocks that I write about, they often crop up in my Compound Income Scores which I have been using successfully for some time. This one still comes out near the top of the list as it scores well on most of the metrics I use. I quietly launched these this week as a service to readers. These have been updated again and you can read about them here if you missed the launch and that is of interest to you. Have a great weekend and see you next week for another roller coaster week in the market.