..to a new high on FTSE 100, although personally I wouldn't get too excited about that. I guess we might see it consolidate it's recent gains to try and confirm a break out, but in the meantime I'll be continuing to focus on individual stocks.
Talking of which, while I was away last week I see we had amongst other things like the budget, final results from EMIS the healthcare software provider, Phoenix Group (PHNX) the closed life consolidator and a Q3 trading update from IG Group (IGG). I also note that there were the usual strong results from Next (NXT) although marred somewhat by a more downbeat / realistic assessment of the growth prospects for the current year from their highly regarded CEO Simon Wolfson. This probably makes sense with the forthcoming election and the associated uncertainty given the range of possible outcomes.
Of the others IG Group seemed fine ex the hit from the Swiss Franc move, while Phoenix Group results seem to have been well received with the shares moving up further, although I note they only maintained and talked about a sustainable dividend on the back of cash flows from their closed books of life policies. They also paid down some debt and are targeting an investment grade credit rating, although I note their debt pay down is expected to slow this year. Thus it seems OK so maybe my concerns on this one are misplaced, but as I'm not desperate for yield I'd rather focus on stocks with lower yields and better growth prospects.
EMIS results seemed fine and the outlook statement struck a positive tone, but the shares were largely unmoved on the back of this. This probably reflects the re-rating the shares have enjoyed in the last year as they have risen from around 600 pence when I first wrote them up. With the shares now closer to 900 pence and not far off their all time high, they now look less attractive as the rating has moved up close to 20x this years forecast earnings and the expected yield is only just over 2% at 2.24% which leaves it close to being a sell on my 2% & 20x sell discipline. That being said it seems set fair and the quality is reasonable and they seem to have been able to grow the dividend by around 10% over the last 5 years including the latest 18.4p dividend. So the returns should be acceptable, it is just the price you have to pay now is getting quite high, so probably not one to chase up here.
Today in brief I note that Matchtech (MTEC) which I wrote up in February has announced some contract extensions and a new contract with Southern Water which as Keith Lewis, Chief Operating Officer of Matchtech Group plc, said: "These contract wins clearly demonstrate how the breadth and knowledge of our specialist recruitment teams is enabling the Group to meet the demands of new and existing clients alike in sourcing high quality candidates across both the engineering and professional sectors." These shares have not moved much and still look good value on around 13x with a 4%+ yield and the benefits of the acquisition of Networkers International still to come. Apart from that finally I note that Pennon Group (PNN) have confirmed a continuation of their RPI+4% dividend policy to 2020 after the recent regulatory review completed.
So on a yield of close to 4% that doesn't seem too bad if not outstanding, cheers.
...but a 12 year low against the US dollar, you might want to think about the currency exposure of stocks in your portfolio. Those that have large exposure to Europe will be likely to see translation related downgrades if this strength in Sterling lasts and conversely those with dollar earnings will see a benefit. Also simplistically if they are exporting to Europe or the US from the UK then they will be likely to either become more or less competitive and gain or lose business or perhaps suffer a margin squeeze as they may have to cut prices to stay competitive.
However having said that the market is quite good at anticipating and looking through these type of effects, especially as Companies are better these days at highlighting results in constant currencies and often use average rates and some undertake hedging too in any event, so worth bearing that in mind. It is also quite beneficial for the UK markets overall dividend growth as a number of large dividend stocks declare their dividend in US dollars.
So when looking at earnings revisions it is also important to discern those which are more driven by fundamental changes in the business rather than just driven by currency fluctuations, although clearly at the margin currency moves can affect the prospects of a business if they are exporting as mentioned above.
Any way other than that it is a pretty quiet news day but I see that Dart Group (DTG) a Leisure Airline, Package Holidays and Distribution and Logistics company has had a positive profits surprise this morning which may well have been helped by the € move which I highlighted recently as possibly helping Easyjet (EZJ). I guess there should also be a positive read through from this to TUI who also have merger benefits on top too.
Finally talking of travel and holidays with excellent timing I'm driving off to the airport soon to fly with Easyjet to enjoy a relaxing City break in Europe, so no posts next week. So I'll leave you with a couple of classic 70's tunes appropriate to this, au revoir.
...or cinemas, computers, convenience stores & CCR. The cinemas part is the final result from Cineworld (CINE) which look very good and in fact the adjusted eps of 24.4p was close to the 25.8p forecast for 2015 and the bumper dividend of 13.5p (+33%) was ahead of the 13.1p forecast for the year to 2015. With the shares up by about 4% to 465p this morning, this leaves them on a fullish looking historic 19x PE with a reasonable 2.9% yield.
The shares had a good run prior to these numbers but they seem well placed with a strong film release schedule for this year, benefits from the merger with Cinema City the Israeli and eastern European cinema chain being upgraded to £5m from £2m and with 20 new cinemas (about 10%) planned.
Thus while they have done well and look a bit expensive now, with consumer confidence and incomes improving, the prospects looking good and upgrades likely they seem like they should be well supported or could still show some further momentum to the upside. Late morning update I see that Numis have upgraded to £90m Pre Tax for this year which I estimate would translate to around 27p of earnings for a 17.5x P/E @ the now 473p price.
The second C today came from Computacenter (CCC) the independent provider of IT infrastructure and services that enables users which reported final results today. These are somewhat difficult to interpret due to the recent return of capital and resulting share consolidation. Thus the numbers which are adjusted for this don't seem to square with the forecasts, which presumably were not adjusted. Nevertheless there seems to be underlying progress here in the UK and Germany but continued losses in France on the back of poor older contracts and they say a return to profit here is still some way off and it has led to a write off.
These shares have also risen recently ahead of and post the return of capital and as a result they have enjoyed something of a re-rating. So taking the reported adjusted numbers of 46.8p eps and 19.8p dividend (although confusingly they also mention 19p in the headlines) this leaves them on a fair looking historic PE rating of 15.4x and a yield of 2.75%, although with the overall operating margins being up to 2.77% the earnings yield comes in at a decent looking 10%.
On balance it seems like a well managed group with a shareholder friendly management, although the operations in Germany and France continue to struggle, they seem confident of making further progress this year. As such I can't honestly say you should rush out and buy it here as I suspect forecasts may reset downwards as the confusion surrounding the consolidation clears, but it would seem like a solid hold as part of a diversified income portfolio.
The final C is C-Stores or convenience stores as mentioned in Morrison's (MRW) final results today. They have taken a write off and are closing some of these which seems bizarre given they were charging into this last year as they played catch up, obviously they were not discerning enough about the sites they were buying. Apart from that the headline numbers all seem to be reasonably in line with the guidance they set out about a year ago, which is quite an achievement given the industry background.
This saw a big drop in profits as they invested in lowering their prices and it seem this will be on going when the new Chief executive joins next week. It also means, unsurprisingly that they are also cutting the dividend from this years promised 13.65p to a minimum of 5p for next year for a 2.4% yield. So on that basis and given the on going price war etc, in the industry I'm not tempted to buy this one here, although I could see that some might want to buy it as a recovery / new management turnaround play or maybe there's a bad moon rising so here some CCR for you?
...for a wet Wednesday. First the good news from Picton Property Income Trust (PCTN) which I wrote up at the start of 2014 and again in June when it had produced a 50% total return over 12 months for me. Since then this one has been more about the income as, in common with most property trusts and REITS, it has moved onto a premium to its NAV or book value which is one of the more important metrics for property related companies.
So the good news today is that they have announced a dividend policy review which will see the quarterly payout rise by 10% from 0.75p to 0.825p for a full year indicated dividend of 3.3p. At today's price of around 72p this will give it a gross yield (as it is based offshore) of 4.6%. This is on the back of them having raised a fair amount of new capital and having invested this successfully plus a reduction in their vacant or void properties in the portfolio. This has all helped to boost their income and cover the existing dividend, hence the rise today.
Meanwhile the bad news, as I had feared towards the end of last year, came from N.Brown (BWNG) who announced their Q4 trading statement for the 13 weeks to 28th February 2015 and effectively a profits warning. This came as they failed to secure sufficient sales in the 4th quarter to hit their targets and consensus forecasts. They blame this primarily on Financial Services revenue being weak, driven by measures to further improve the quality of the debtor book.
Thus they now say they expect full year 14/15 continuing profit before tax to be slightly below the range previously guided to and current market consensus of £88m. They have also taken a further write-off of £11 to £13m for closing something called the Gray & Osbourn catalogue business. In addition the guidance for the current year seems to be flagging quite a few potential negatives like possible gross margin decline, increasing costs and extra capital expenditure, but they say further details to come with the full year results and there is no mention of the dividend which I think may well be flat.
Overall I like the business here and mail order seems to be in the sweet spot of the internet age. However, I still have concerns about the newish Chief Executive and her strategy to open more stores and re-organize the mail order side. So far there has been lots of talk and action, but the effect on the bottom line has been mostly negative as far as I can see.
Thus I'll continue to watch this one from the sidelines for evidence that the new strategy and all the investment might be bearing fruit.
Finally, as regular reader know, I have a habit of including some music with my posts on occasions. In the past I have included tracks appropriate to the day like Blue Monday, Ruby Tuesday and Black Friday. That set me thinking that the only day I hadn't included a track for was Wednesday. Looking this up didn't give a great deal of choice, so rather than clog the post up with a video I'll provide some links below for you to check out if you like depending on your mood, or ignore if music is not your thing.
An Easy Listening Classic for Night Owls or early birds - Wednesday Morning 3 A.M.
Laid back - Wednesday Morning.
Rock on with - Spring, Summer and Wednesdays.
Or have you got the - Wednesday Evening Blues?
..or Hill & Smith Holdings (even their name is dull) knock it out of the park unlike England's cricketers in the World Cup!
Yes final results from HILS today and they were well ahead of forecasts for the year to December 2014 and even came in close to this years forecasts of 46.1p of earnings and 18.3p dividend as they reported 45p (+11%) and 18p (+12.5% not the 16% stated in their bullet points in the results) respectively for this year.
Hill & Smith is a £466m market cap.international group with leading positions in the manufacture and supply of infrastructure products and galvanizing services to global markets and is well known for crash barriers and is a beneficiary of the current governments road investment strategy. They acknowledge this and say they are in the sweet spot of this and as a result they are making capital investments at 2.4 x depreciation, to capitalise on specific growth opportunities in UK roads and also in US galvanizing.
The balance sheet is geared but with Net debt reduced to 1.5 x EBITDA and a key financing facility extended to 2019 on more favourable terms apparently. This was achieved thanks to what they describe as record results, despite some currency headwinds and saw margins up by 0.8% to 10.8%. Despite this the Chief Executive was his usual cautious self when on the outlook he said:
"Trading conditions in many of our end markets continued to improve throughout the second half which, together with the implementation of strategic initiatives to increase returns, delivered strong year on year profit growth. Overall, although some markets remain challenging, 2015 is again expected to be a year of good growth."
Summary & Conclusion
It might be dull and the management are often cautious / realistic but nevertheless it has produced steady dividend growth over the last few years. This has seen the dividend rise by 80% from 10 pence in 2008 for a compound growth rate of 10.3% per annum over that period. The current 18 pence dividend leaves it on a yield of around 3% based on this mornings price of around 610 pence.
Meanwhile on the earnings front the P/E is a fairish looking 13.6x (2014) and it has a decent looking current earnings yield (EBIT/EV) of 8.75% which suggests it might be better value than it appears. There should also be some upgrades on the back of today's earnings surprise which is something else I like to see. Prior to today's numbers is had a Compound Income Score of 81 (100 is best) so I would probably expect this to improve once these numbers and presumably some upgrades are included.
Technically, as you can see from the chart below the shares are approaching their recent 12 month and all time high which may put some off, but can also be positive ultimately as it tends to put new buyers off, despite the positive news, which then ultimately gets reflected in the share price. So it is a tempting one to buy on that basis, but it might be worth waiting to see if it relapses perhaps after the gap up today and once we have a better feel for where this years numbers are likely to settle.
Finally as a reward for getting this far see the video at the end which seems appropriate to Hill & Smith - its Car Crash Compilation 2015 March - Accidents of the Week #47 - enjoy?