I say blue moon because apparently tonight is going to be a blue moon. This is commonly used to represent something which is not seen that often. Apparently in astronomy this relates to the second moon in a month (as per tonight) or the third of four full moons in a season, but don't worry the moon will not actually be blue.

Another saying is in for a penny in for a pound which apparently means if you are owed a penny you might as well be owed a pound. What is he going on about I expect you are wondering already. Well today's idea may be a rare opportunity to buy into a contrarian opportunity for both a short term trade and also for the long term as it is I would say a quality play. However it is not that rare, like a blue moon seemingly, as shareholders in this one have suffered several bad moons recently and in terms of the short term trading opportunity I think you could go in for 9.27 pennies of dividend and be in for a pound of upside.

So what is it I hear you cry. Well it is one of those many companies that reported yesterday so it may have got lost in the rush to the beach by corporate CEO's. Talking of CEO's this one, Rolls Royce (RR), has a new CEO - Warren East who interestingly was the former CEO of ARM Holdings. At least he comes from a technology background although clearly the technology on offer here is at the other end of the scale to that offered by ARM.

Any way I suspect the recent resetting of expectations carried out by the Company was probably done in conjunction with and with him prior to his start date. although I understand he will obviously be reviewing things further before he reports back by the end of the year. But nevertheless given they have had about three profits warnings in the last year I would hope that most of the bad news is now out of the way and that expectations have reached a floor.

Some indication of this came in the update yesterday when Mr East set out their current expectations for this year. In this he suggested they would make £1,325m - £1,475m Pre Tax profits and eps of 55 - 62p. Now obviously they have disappointed several times before so these are not guaranteed, but as least the market is already sceptical because current consensus is for 53.6p of earnings, so there could even be scope for upgrades if they can hit their targets this time.

The other encouraging thing was that the interim dividend was increased by 3% to the 9.27p mentioned above and this compares to consensus forecasts of a flat dividend so again it looks as though expectations had now go perhaps too pessimistic suggesting there could be an opportunity for a turn around in sentiment if they can start to deliver on their expectations.

The other aspects I like about this one apart from the technology they have and the R & D they do is the five year order book that they have plus the big market position they are carving out in the new wide body airliner market. The benefits of this will all be long term and the profits are going to be more back end loaded as they are changing the way the account for the new engines and the resulting spares business. Before this was all bundled and spread over the life which brought forward earning recognition from spares and maintenance, so that is also worth bearing in mind.

Looking at the valuation it is not actually in bargain basement bin, but given the nature of this one I don't think it is likely to get there any time soon. However, it is on a fairish looking 15x or so with a 3%+ yield which is around 2x covered. So OK but not outstanding, but I think this could be a good entry point for a longer term recovery and growth going forwards. They have for example grown their dividend by 9% per annum over the last five years and I see no reason why they should not be able to do something similar going forward given the order book and assuming the short term head winds can be over come.

So what about the short term opportunity? Well I mentioned already you can get the interim dividend of 9.27p (worth 1.24%) and looking at the chart this is where the pound comes in. As we saw earlier in the year when I suggested trading this one on a previous profits warning, this one has been quite volatile but also good at closing its gaps on the chart. The latest warning recently opened up another gap on the chart at just above 850p so at the current price of 750p this to me suggests that there could be 100p (13%) or more of upside too in the short term. I'm also encouraged by the fact that the sentiment is on the floor (see comments about forecasts above) and the shares are heavily oversold. In addition I note the positive divergence on the RSI recently with the stock making new lows but the RSI failing to confirm. This is usually a sign that downside momentum is slowing or is exhausted and after three of four goes like that it is often the pre-cursor to a rally.

So there you go this could be a blue moon opportunity to buy into this one, although like blue moons we have had a couple  of those this year already with this one, but in this case I think it could be a case of a Bad Moon Rising. What's that you do believe that's a song?  Oh go on then have some CCR at the end as well as RR - hope you enjoy them both!

...as I guess financial reporting is more efficient these days and lots of companies are getting their figures out before the holiday month of August. So many to go though and other things to do meant I didn't have time to write up any yesterday.

In passing I note that a few companies which feature in the Mechanical Compound Income Scores Portfolio have had updates recently. If that is of interest to you the names concerned have included Jupiter Fund Management (JUP), Renishaw (RSW), and ITV which all seemed fine. While Schroders (SDR) have reported today increased in flows of £8.8bn  a 21% increase in their dividend.

Otherwise in recent days we have had some big yielding blue chips like Glaxo SmithKline (GSK) and Royal Dutch Shell (RDSA & RDSB)  have had results updates and confirmed their plans to maintain their dividends and hence their current 6%+ yields. While expensive consumer stocks like Reckitt Benkiser (RB) and Diageo (DGE) have had mixed updates with Reckitt's raising guidance but cutting the dividend post their demerger of the pharmaceutical arm. While Diageo had a small miss on their earnings but raised their dividend by a better than forecast 9% reflecting their confidence in the outlook for 2016.

Finally in brief amongst many others too numerous to mention today we have had interim results from RPS Group (RPS) which I wrote up in the past and got into when it was sub 200p when the news flow on their oil & gas (O & G) operations was better than expected. However I traded this one out for a decent total return earlier this year when the O & G news unsurprisingly started to deteriorate.

In today's numbers the O & G division and effects of currency translation to a lesser extent have led to around a 7% fall in their earnings in H1, although they did increase the dividend by their "normal" 15%. Despite this they flag that the division, after some judicious cost cutting, has remained profitable with double digit margins. They also highlight the success of their diversification efforts via their "normal" add on acquisitions and suggest they have plans for more after completing a refinancing and extension to their debt facilities. Their net debt was actually slightly down by £0.5m over the period to £72.7m (gearing of around 20%) despite the spend on acquisitions in the period and reflects their strong cash flow, albeit bolstered by a big positive swing in working capital (debtors & creditors).

Looking at last years H1 / H2 split it looks to me, given the fall in the earnings today, that there could be a risk of perhaps 5% downgrades today, unless the acquisitions are expected to offset this in H2 perhaps? This could take earnings down to say 20p which together with the "normal" +15% dividend of about 9.75p would leave it at this mornings 215p (-2.3%) on a reasonable looking 10.75x with a 4.5% yield 2x covered. Thus it looks like it is worth holding / revisiting if you think they can continue to manage the decline in their O & G division and offset this with diversifying acquisitions as they have done recently.

On the chart if you were to do a school boy trend line from the February low that would come in around these levels. But if that fails to hold then the 180p to 200p range might be a good area of support for a purchase / repurchase where it would then be on around 10x with a 5% yield.

..good things can happen to the value of your investment. Today we had a half year report from Provident Financial (PFG) the home collected credit, on line loan, car finance and sub prime credit card provider which has a market capitalization of over £4bn and is therefore a member of the FTSE 250. The results today, as they have in recent periods, showed very strong growth with adjusted earnings up by 30% which was ahead of forecast growth of around 22% for the full year. The dividend was up by 15% which compares with full year forecast growth of nearer 19%, but I suspect they will make this up when they announce the finals.

All parts of the business seem to be delivering and are seeing good credit quality so they are therefore confident of delivering good quality growth for 2015 as a whole. However, as I wrote last time when the shares were over £30 they are starting to look more expensive these days on nearly 19x with a sub 4% yield. This compares to the 13 to 14x and 5%+ yield they were on in early 2014 when I first highlighted them and got into this one.

Thus as I said in the title of this piece when a value stock becomes a momentum stock good things can happen to the value of your investment - mine has nearly doubled here for example. Now some of that reflects the re-rating from 14 to 19x but also the fact that they have delivered better than expected growth as momentum in the business and management action have accelerated growth and shareholder returns. On the current rating, which is probably justified by the current strong growth forecasts of 10 to 20% for the next couple of years, they have become more of a growth / momentum play from here.

Summary & Conclusion
Another good set of results which help to support current growth forecasts, could lead to upgrades and also help to support the currently high rating the shares stand on. However, as a result of the the rating it is extremely unlikely the shares will double again in the next 18 months in the same way they have just done as a further re-rating seems unlikely to my mind.
Nevertheless the strong growth forecast averaging about 15% over the next couple of years together with the near 4% yield could still give total returns approaching 20% per annum, assuming they can at least maintain the current rating.

So a hold I would say if you are in them, but be aware that you are now relying on the growth and momentum continuing, as if it doesn't then you may run the risk of not getting the growth you expect and being hit with a de-rating which is always the risk with higher rated stocks which are expected to grow strongly. This is the  opposite to value / cheaper stocks which are generally expected to grow more slowly so if they disappoint the rating can take the strain more easily and if they surprise on the upside then good things can happen to the value of your investment as we have seen with Provident. 

Probably because most are trying to get their announcements out before they head to the beach in August. Note to self must take most of August off because I can!

However before I do I note in passing an unsurprising profits warning from Merlin Entertainment (MERL) blamed on the after effects of the unfortunate accident at Alton Towers earlier this year. Not one I hold having stagged it when it floated and it looks richly valued to me with downgrades to come, not a great attraction for me.

Talking of richly valued I note that Reckitt Benkiser (RB) also announced H1 results in which they upgraded their guidance for the year which is welcome given they are on nearly 25x. They also cut their dividend as expected post the demerger of Indivor (INDV) & even factoring in the dividend from them shareholders if they still hold both will have seen a reduction in their overall dividend.

Of more interest to me as a holder was the half year report from XPP - which looked a little lack lustre at first glance. However they explain in the commentary that the fall in margins was due to start up costs for power converter manufacturing at their Vietnamese facility. They say more of their revenues (67.2%) is now coming from their own designs & within that ultra-high efficiency “Green XP Power” products now accounting for 21% up from 17%. They also acquired a 51% share in a Korean power converter company which brings them sales and engineering capability in an important manufacturing centre for industrial electronics.

The outlook commentary from the chairman was positive as it alluded to strong order book and backlog together with the developments above and a strong balance sheet giving him confidence that they should be able to continue to grow revenues in the second half of 2015 as designs won in 2014 and prior years enter their production phase. Thus with the earnings estimates having drifted back so far this year it seems they should be able to hit the modest 5% or so growth that is forecast. Perhaps as a sign of their confidence I note that they have increased the interim dividend by a useful 8% which is ahead of the current forecast of a 6% increase for the full year.

Therefore based on current forecasts the shares at around 1600p look like a fair value hold to me on around 15x with a 4% yield as they are nearer the top of their trading range over the last couple of years which has been between 1775p & 1300p. So I wouldn't suggest rushing out to buy them just now, but might be worth a look a bit lower down around 1500p and the 200 day moving average, if they should drift off again as they do sometimes. However I note it has a Compound Income Score of 94 and a Stockopedia StockRank of 94 too so it scores well according to The robots.

...on my own (hmm I do believe that is a song) - as I'm about to suggest going Against the Grain (RIP Rory) and over ride my Compound Income Scores. Before that an apology for the late post today. This was due to a fault on my Broadband which I had to get sorted with an engineers visit this morning hence no internet. This explains the poor quality of my interview on the podcast yesterday with bits dropping out.

Any way the stock concerned today is one I got into recently thanks to the Compound Income Scores and the fact that it had made it into the Compound Income Scores Mechanical Portfolio. This was Alliance Pharma (APH) which I wrote up a few months back when I suggested it as a buy on weakness below 40p. Fortunately I followed my own advice and bought into this one when it then dipped below 40p. I must admit I was not expecting much from it in the short term apart from collecting the final dividend as it has been a pretty pedestrian stock in recent years. However, I was hopeful that it might be able to re-rate gradually and perhaps hit 50p.

So I was pleasantly surprised in recent weeks when it not only went XD the final but has stormed through 50p without much in the way of new news apart from a positive sounding in line trading update earlier this month. They have however continued to talk about doing more deals, so perhaps a deal is on the way and they have ramped up ahead of this or perhaps it is just a genuine re-rating – I guess as ever time will tell.

Looking at the chart however it is now quite extended and overbought. So with the shares now also looking more fairly valued on 15x with a 2.2% yield plus given not much has changed and this one does have a habit of flat lining like its earnings, I have exited up here. However, as it continues to score well with a CIS of 96 so it is likely to remain in the Mechanical portfolio for now. So I'll be able to see how it does and repent at my leisure for selling a winner and going against momentum and the Scores if it goes onto deliver much greater returns!

So with the title of this piece in mind here is another music video for you to go with the Rory Gallagher link at the beginning. For younger readers he is no relation of the Oasis brothers but was a great Irish guitarist who sadly died too young but is worth checking out if you like rock music and you are not familiar with his work.

Talking of music I saw reports on some "interesting research” from professors in Cambridge about how your personality type might explain the music you like. It seems analytical types might be expected to like rock music and this report about it seems to confirm that I almost certainly fall, unsurprisingly, into the analytical category as the Spotify play list included within it mostly rocks as far as my analysis is concerned, although I draw the line at The Prodigy & I'm not too sure about Art Ensemble of Chicago (too jazzy for my taste) or Red Velvet (too poppy).

Finally, on the subject of play lists I have found the BBC play lister gadget on their on line radio service quite good for saving tunes you like and new music which you might otherwise hear but not have a clue who it was by. I have discovered quite a few good new artist this way – so if you like music too then it might be worth checking this out as you can also then share it with Deezer, Spotify and I-tunes and playyour saved tracks there too, which is quite cool.

Any way sorry about all this chat about music as I'm sure most of you are not here to hear about that  - perhaps I should set up a sister site to talk about music? But just to show I'm not completely stuck in a rocky rut as far as my music is concerned check out this fine new album called Pageant Material from a country singer called Kacey Musgraves – yea ha have a great weekend ye' all.