Just to let you know that this is it for this week and indeed this month as I'm off for an Easter break now and should be back in April. So in the meantime may I wish you all a Happy Easter and I hope that you have a great time whatever you are up to.
Otherwise a couple of lacklustre updates from stocks which feature in the Compound Income Score Portfolio today. Firstly there were final results from Next (NXT) the high street and mail order clothing retailer. These on the face of it were fine with the earnings being slightly ahead and the dividend as far as I can tell with all the specials they have paid this year, being roughly in line.
Despite this though the shares are off this morning as the statement was relatively cautious as they flagged the coming year as being as tough as 2008. In the outlook they also said that the outlook for consumer spending does not look as benign as it was at this time last year. In this respect they highlighted a fall in the rate of growth of real consumer incomes from 3% or so down to closer to 1.5% to 2% and suggested that perhaps consumers were spending their increased income on other things. It is interesting that Next have joined Restaurant Group in warning about slowing consumer spending, but it does beg the question of who or what is seeing the benefit or is everyone seeing a slowdown as consumers have turned more cautious on the back of all the recent Brexit / global slow down scare stories?
Any way on current forecasts for this year after the fall in the price of the share this morning to around 6070p, they may trade on around 13x with a 5%+ yield although both of those could change on the back of downgrades and more buy backs rather than special dividends, given the lower share price.
At this level though, having fallen out of the 7000p to 8000p range it looks like it has broken down into the 6000p to 7000p range with some possible support towards the bottom of that range where it is now sitting and the rating being more reasonable now too. So they are probably a hold down here although I note on the Compound Income Scores, before today's results, they were coming out in the low 80's which means they will be at risk of dropping out of the portfolio at the next quarterly screening, especially if they see some downgrades post these numbers, which may not be ideal but that's the nature of a mechanical screening process.
Meanwhile Renishaw (RSW) a metrology and CAD business has as far as I can tell put out an unscheduled trading update because it seems they have seen a slowdown since they reported in January which could lead to a short fall in their profits of up to 10% based on the range of £67m - £83m for Pre tax profits which they have included in this statement.
This therefore explains why they have put the statement out and it is unsurprising to see them off by around 10% as a result. It does however potentially leave the price exposed to further falls if investors worry that there could be more downgrades to come and as it is quite an illiquid share. The rating is also relatively high at around 18 to 19x with a yield of only a little over 2%. Thus while it is probably a quality Company for the long term, the rating doesn't leave much room for further disappointment if sales and growth in the global economy should continue to disappoint. While on the chart below I note recent lows were around the 1600p level.
On the CIS prior to this, given the quality and growth historically it scored in the 90's but the resultant downgrades could spike the score down in the short term which may also leave it vulnerable to exiting the portfolio too at the forthcoming review. This may be no bad thing in the short term though as I also note that, despite the recent relief rally in the shares after in line interims, the 12 month price momentum as well as the estimate revisions are negative which is not a great combination for a highly rated growth stock.
We have had strong looking numbers from three stocks that I have covered in the past. First up alphabetically is Bellway (BWY) the well managed national housebuilder which unsurprisingly osi doing well given the recent buoyant housing market in the UK. This meant that turnover, margins, profits and therefore earnings and dividends were all up by strongly. Indeed the 43% rise in h1 earnings and 36% rise in the dividend were ahead of the growth rates forecast for the full year so it looks like some more upgrades might be due here. Even without that they still look cheap on less than 9x with a yield of close to 4% and with a Compound Income Score of 99 it seems likely to remain in the CIS Portfolio at the next review.
Meanwhile there were also some strong looking Q3 numbers from a former CIS Portfolio stock IG Group (IGG), the financial services firm which was focussed on spread betting but has more recently expanded into stock broking too. Their numbers today also look strong and have probably benefited from the more volatile market conditions in recent months.
It fell out of the portfolio when it had got onto an expensive rating and as lack lustre markets and the costs of investing in their stock broking business led to flat earnings and dividends. With the more volatile markets and presumably some return on their investments in stock broking forecasts are for some modest growth in earnings and dividends, which with the fall in the share price recently has brought the rating back a little.
It does however still look fairly fully valued on a PE of around 18x for this year, although the yield is more attractive at around 4%. It still scores reasonably well on the Scores but probably not well enough to get back into the portfolio.
Finally we had full year results from S&U (SUS) the motor finance and specialist lender. Comparisons here are muddied somewhat by the disposal of their home collected credit business which led to a 125p special dividend. The earnings seems to have missed forecasts by some way, but I suspect this may be due to the effects of the disposal as the dividend ex the special seems to be in line or may be 1p ahead of some forecasts.
So I guess the miss could lead to some downgrades although they do say they see very significant opportunities to maintain and even accelerate the steady and sustainable growth which has been S&U's hallmark. They also flag a 2x dividend policy going forward which, on current forecasts suggests a dividend of around 88p which at the current price of 2260p would give a yield of 3.9%. The PE again on current forecasts is a reasonable looking 13x, although it is probably best to see where forecasts settle.
If there are some downgrades then that might afford a better buying opportunity for the medium term if you are attracted to their simple business model, with lows around 2000p in the last year appearing to offer some support. Not one that scores that well but still one I'm happy to hold for the long term.
As it is a quiet Friday for news, just a quick note with some news about the site.
The free sign up for access to the Compound Income Scores has now closed due to high demand and therefore, with effect from 6th April 2016, the Scores will become a subscription service. Existing users will still be able to access the Scores for free until that date but should look out for a special launch offer in their inboxes soon if they want to maintain uninterrupted access to them. So if you don't see an e-mail from us and you want to retain access then do check your junk mail folder or get in touch if you don't see the offer.
Thus this quarter end update on the associated Scores portfolio will also be the last that is publicly available for free, as going forward details of this will also only be available to paying subscribers. However, the Blog will remain free for now so if you enjoy the commentary and analysis here then you'll still be able to access that in the usual way, you just won't get updates on the portfolio, apart from perhaps performance updates.
In addition to broaden the appeal of the Scores in their new paid for form we will also be offering the ability to have them delivered via Microsoft OneDrive for Microsoft account holders to also get automatic updates and be able to use them with their office software.
Finally if you are not currently a subscriber to the Scores or are unfamiliar with them then please use this highlighted Scores link above to visit the page on the site which explains what they are where you can register for a free sample and get details sent on how to subscribe when the new subscription service starts in April or use the box below.
We have had results from two AIM listed stocks today which I have written up in the past. One is a EMIS a high quality healthcare software business which has a large amount of recurring revenues and is growing strongly but as a result is expensively rated . While the other is Fairpoint (FRP) the debt service business which is diversifying into legal services.
Legal & General (LGEN) announced their final results today (click image above for full details at their investor relations) which seemed to be broadly in line with forecasts. I say broadly in line as the earnings looked slightly light, but that is not so important with this one as it is mostly about the dividend. On that front the 19% increase to 13.4p was in line with forecasts and marks the last year of bumper dividend growth as they finish running the dividend cover down to a lowish 1.4x for a 5.8% yield.
Going forward they talk about pursuing a progressive policy which presumably means more in line with earnings growth assuming they manage to deliver growth. Their future growth rest on five spokes to their umbrella as it were which they highlight as being ageing populations (pensions, annuities and equity release), globalisation of asset markets (L&G is 15th largest in world with 1% market share), creating real assets (infrastructure and housing), welfare reform (DC Pensions) and digital (servicing and cost reduction).
Current forecasts seem to indicate an expectations for 6 to 7% growth in both the earnings and dividends. Based on this mornings share prices which seems underwhelmed by these results and is therefore down by 5% to 232p leaves them on a yield of 6.1% for the coming year, assuming those forecasts are not downgraded. It doesn't look like that will be the case to me as they said for 2016 that they expect to deliver a further increase in operational cash generation of 6-7% across the areas that they provide guidance for: LGR, LGA, LGC, Savings and Insurance excluding General Insurance. I also read a report that UBS are suggesting that they now see 6% dividend growth between 2016 and 2019.
Summary & Conclusion
An in line set of results from L&G with the last in a line of bumper dividend increases as they finish running down their dividend cover. Given the outlook for continued 6 to 7% growth, the fall in the share price this morning leaves them looking attractive on a 6%+ yield which should in the absence of a de-rating provide potential for a double digit total return in the next twelve months which seems like a reasonable return for the risk here.
The contrary view and the scope for a de-rating would rest on a rout in bond and equity markets which they and their businesses are exposed to (as evidenced by the collapse in the share price this year shown in the chart below). The fall in share price this morning seems to tie into this as apparently according to some reports I have seen suggests that some analysts are flagging that their capital position is somewhat weaker than other UK competitors, although they describe their model as capital light.
As ever you pay your money and take your choice, but I am happy to choose this one as part of a broadly diversified income portfolio. If you agree with the sentiment it might be worth putting on your watch list in case we do get another bout of market weakness before they go XD the final (9.95p / 4.3%) on 28th April 2016.