brilliant!? Three brief updates today from seemingly boring stocks:
1) Berendsen (BRSN)- which with its subsidiaries is engaged in the laundering and maintenance of textiles. The Company provides service solutions to source, clean and maintain the textiles that the customers need to keep their businesses running.
2) Computacenter (CCC)- The IT service provider which I wrote up after its results last month.
3) Unilever - (ULVR) well everyone knows what they do, don't they?
Please note also that the chart above is a price chart and does not include the fairly decent dividends / yields paid by these Companies over the last five years.
Taking Berendsen first as this has been a longer term holding for me and one I have traded successfully over the years. It used to be called Davis Service Group and has generally stuck to what it knows which is textile rental, dust mats, wash rooms and work wear (uniforms) etc. It supplies these services to hotels, hospitals and other businesses so it tends to be a fairly steady business but with some economic sensitivity from the hotel, catering and industrial uniform side of things.
Any way their update today saw trading in the first three months of the year in line with management's expectations. Underlying revenue for the Group, at constant exchange rates, was up 3% compared to the equivalent period last year and in their Core Growth businesses, revenue increased 4%. Reported revenue for the Group, including the impact of currency translation, was similar to last year. Their margins increased again in their core business and this meant their operating profits were also up here. While in their ex growth bits or what they describe as manage for value businesses (cash cows),
as expected revenue was similar to last year here, but profits were lower as a result of the contract re-pricing in the second half of last year and start-up costs on a number of significant new contracts.
Cash flow remained strong and the group expects to deliver further growth this year. Given the rise in the shares over the last few years (see chart above) they are not such good value as they were, but in the context of the current market and with their strong forecast eps growth and dividend growth trending at around 7%, 2x covered by earnings they seem OK if not outstanding value on around 16.7x earnings with a yield of 2.9% forecast for this year with the shares at 1044p.
Next I'll briefly pick up on Unilever which I mentioned in my post earlier this week when I returned from my Easter break. This was because Diageo had flagged the effects of weak emerging market currencies and some weakness in consumer demand in some of those markets. Well Unilever talked about underlying sales growth of 3.6% overall and 6.6% in Emerging markets and pricing being up by 1.6% but overall turnover fell by 6.3% after an 8.9% currency hit - so the same effect there. However they talked about positive results in Home Care and Personal Care and a strong start to the year in Refreshment. Their food business declined which they blamed on the timing of Easter. The market does not seem to like the results as the stock is off 1.3% this morning in a market that is up 0.5%. Given it is on around 19x and struggling to grow I guess the price reaction is not that surprising for an expensive defensive stock. However as far as I'm concerned the most interesting bit in the announcement was that the quarterly dividend was up by 6% to 28.5 cents or 23.3 pence. This is around about the 7% growth that is forecast by analysts which puts it on a 3.5% yield for the current year at the current 2600 share pence price. So as a result I'll probably retain my small holding for the yield as part of a broader diversified income portfolio.
Finally - briefly, you'll be pleased to hear Computacenter can be summarised as UK business strong, Germany stable and France still struggling and providing a drag on performance with an exceptional restructuring charge of between £7 million and £9 million. They still have cash on the balance sheet and cash generation remains strong. If you want a more detailed review of the business then please click though (at the link above) to my write up from last month - it still seems OK having drifted back after the results as I expected to leave it on around 13x with a 3% yield @ around 650 pence. I'll leave it there and well done if you got this far - but as I said at the beginning boring can be brilliant!
This UK listed Support Service business is a provider of consultancy, engineering and project management services to its customers in the world’s oil and gas, minerals and metals, clean energy, environment and infrastructure markets. if you would like a key facts pdf then click on the logo to the left. They today announced a very brief Interim Management Statement in which they flagged good order intake and forward visibility with a record order book of £4.2 billion at 31st March 2014. This compares with their annual turnover of around £4 billion. AMEC Chief Executive Samir Brikho said:
"AMEC has continued to trade in line with expectations for 2014 and our record order book gives us confidence in our continued growth. The acquisition of Foster Wheeler remains on track, with integration planning well under way and completion expected in the third quarter. We believe the combination of AMEC and Foster Wheeler is a compelling one, for our shareholders, our customers and our employees."
There was an interview with the CEO Sam Brikho in the Telegraph recently which gave a good overview of AMEC and background on him, the company strategy and the recent Foster Wheeler deal in the US. On this in the full statement they said: "The acquisition is expected to be double-digit earnings enhancing in the first 12 months after completion. Further, the combination of Foster Wheeler and AMEC is expected to create sustainable value for shareholders for the long term, with ROIC expected to exceed the cost of capital in the second twelve month period after completion." However, they did flag that business mix this year would mean lower margins and that dollar weakness would hit revenues by £250 million and EBITA £25 million. This compares with the £3974 million and £343 million respectively that they reported for these measures in 2013.
I bought this one recently to recycle the proceeds from the disposal of a successful investment which had got onto an expensive rating. This one was in the middle of its sideways trading range that it has been stuck in for the last three years and is reasonable value (PE of 13 and yield of 3.8% for 2014) and quality (ROE and ROCE around 17%). It had a small net debt position of £27 million at 31st March 2014 versus cash on the balance sheet of £25 million a year ago, but this may well change once the Foster Wheeler acquisition completes - so worth watching. This is another one of those stocks that has suffered a little by missing some longer term earnings targets that they set themselves. However, if they continue to deliver the steady growth that they have in the past and which is forecast for the next few years, then I think this one could enjoy a re-rating. It is also cum the 28.5 pence final dividend which goes xd on 28th May 2014 for yield of around 2.4% on the final alone and offers a yield of 3.8% on this years forecast dividend of 45.4 pence.
Obviously the large US acquisition and integration is a risk, but as the CEO points out in his interview (see link above) it is something they have done many times before. It is also taking on a related company and adding midstream and downstream activities to the markets they serve and broadening their geographic footprint. Since the deal does not complete until later this summer I suspect there could still be some share price volatility from flow back of shares from US shareholders. If this is the case and if we should see some more market weakness, then there may be further opportunities to pick this one up towards 1000 pence and the bottom of its longer term trading range.
I'm not counting on that as I'm taking a longer term view on this one, which is why I opened my position, but if it does get down there again and nothing untoward has happened I will be looking to top up rather than panic out just because of a price movement. Certainly worth setting a share price alert for a price of less than say 1050 pence if the investment case appeals to you. It is also interesting to note it is currently a top decile stock on Stockopedia stock ranks and appears on seven of their guru screens . If you are not familiar with their service and want more information and a free two week trial then click on the highlighted link above.
Back from a few days in Dublin where I learnt more about their Viking history and the background to them becoming a Republic. If you are there I would recommend the Hop on Hop off bus tour as a good way of getting around and seeing the sights and learning more about them. On one of these I also heard that Bono, the lead singer of U2 got his stage name from a hearing aid shop in Dublin called Bonavox - which apparently means good voice in Latin.
Talking of which hopefully I'll be back now refreshed and in good voice. So with that in mind I've also gone all 21st century and added a Twitter feed just in case you want to follow my blog there or tweet about any entries.
Further on voices, thanks to all those who took the time to voice their opinions on the site in my survey. If you should still wish to leave feedback and take my short survey, you can still do this via the link on the right hand side of the blog page below my photo. That would be really helpful for me to improve the site and as they say in Ireland "thanks a million!"
With that in mind, I have now replaced the feedback page with a Portfolio page where I have posted some information on the performance of my Stocks and Shares ISA which I hope you will find interesting. You can also sign up there to be kept informed about future updates to this and any new services based on it that I may offer in the future.
While I was away there was not too much to worry about and as I have written about before - thanks to Investegate I was able to keep up to date with announcements from my holdings. Of these Persimmon reported some strong numbers in their IMS with total forward sales revenue 35% higher than in 2013 (£1.38 billion) as the UK housing market continues to bubble away. There did however seem to be some profit taking in some part of the the Mid 250.
One of these, the Restaurant Group is receiving £7m of cash proceeds in respect of the disposal of its interest in the Living Ventures Group following the sale of the Gusto business and the resulting profit on disposal will be treated as an exceptional item in TRG's next results announcement. The net proceeds of the disposal will be distributed by way of a special dividend of 3.45 pence per share to shareholders on the register as at 20 June 2014. This special dividend will be paid, together with the 2013 final dividend of 8.75 pence, on 9 July 2014 and the shares will be marked ex-dividend on 18 June 2014. This helped to support their shares but they still look a bit expensive, albeit with a slightly better yield now (2.7%) because of the special.
Finally in a strange quirk of timing, while I was at the Guinness Storehouse Brewery (see picture below taken from the bus), their parent company Diageo reported some disappointing sales on the back of weakness in emerging market currencies and consumer demand. This is a slightly concerning trend since consumer demand in emerging markets has been the bull case for many stocks with exposure to these markets. It will be interesting to see what Unilever have to say in this regard when they report this week.
....and I'm taking a break and doing some travelling. So while I'm away it would be great if you could take a very short survey and let me know what you like and don't like about the content here. You can also let me know what else you would like to see more of and if you would be interested in seeing a portfolio feature on the site. This would be really helpful as I don't always know at what level to pitch things or what readers really appreciate.
You can take the survey here - or on the Feedback tab above - thanks, Happy Easter and don't eat too many Easter eggs!
XP Power, one of the world's leading developers and manufacturers of critical power control components to the electronics industry, today issued an Interim Management Statement for the quarter ended 31 March 2014. In this they said the positive trend from the second half of their last full year had continued into Q1 of this year with robust order intake. Specifically they said:
"Group revenues in the three months to 31 March 2014 were up 7% from those achieved in the same period a year ago. Similarly, margins also improved, due primarily to increased factory utilisation. In constant currency revenues increased by 11% on the same period in the prior year." Net debt roughly halved to £1.6 to £1.7 million and the quarterly dividend was increased by a useful 9% to 12 pence and they say given the current trading they expect to report a rise in turnover this year. So all looks good with turnover, margins and dividend all on the up.
Last time I wrote on this one on 24th February 2014, it was on around 17x and about a 3.3% yield and I decided to run with it even though it was not such good value as when I bought it. Since then the shares have been quite weak and now look oversold (see chart below) and as a result they now look reasonable value on around 15x with a yield of nearly 4%. Technically, apart from being oversold it has recently closed a gap on the chart from December 2013 and is possibly bouncing off the 200 day moving average. Consequently if they don't go up too much today I might top up my holding given the positive trading background and improved value on offer today from Mr. Market. See also below a brief update from Edison today who suggest they look cheap compared to competitors / peers.
Meanwhile a couple of days ago another stock I wrote up recently called Fairpoint (FRP) announced a £9 million acquisition of a consumer legal business. This is reasonalby significant given the market cap. is only £60 million on this one. It is in line with Fairpoint's stated strategy to diversify its income streams into new sectors such as legal services.
The acquisition is expected to accelerate the growth of the Group and be immediately earnings enhancing on an adjusted basis. They also talked about an enlarged financing facility to fund the groups future growth. You can read the whole announcement if that is of interest to you.
The acquisition seems to be quite well received by the market and this one has done well since I last wrote on it on 13th March 2014 (see chart below). This has helped to offset the decline from XPP, which neatly demonstrates the benefits of diversification in a portfolio. You also have to be prepared to accept prices bouncing around and try and only deal when it makes sense for your portfolio or if Mr. Market is offering what you consider to be a reasonable or silly price. In this case the stock looks somewhat overbought in the short term after the run it has had so I'll not be rushing out to buy more of this one today and I wouldn't be surprised to see some profit taking. However, it does still look cheap on around 10x with a 4%+ yield although this probably reflects the slightly chequered past and nature of the business. This plus the small market cap. make me slightly uneasy about holding this one, but on balance I'll hang on especially as it is still cum the 3.85p final dividend which gives a 2.5% yield at the current 150p share price. Any traders out there holding this one might want to exit here?