First up we have had results today from Primary Health Properties (PHP) which I wrote up briefly back in March. Not much has changed here since then as they continue to churn out slightly higher dividends which have grown by around 3.5% on average over the last few years and 2.6% in these figures. They achieve this off the back of a portfolio of health related properties in the UK leased principally to GPs, NHS organisations and other associated healthcare users.
The current 12 months of dividends including today's 9.75 pence interim comes in at 19.5 pence and offers a yield of 5.7% based on last nights closing price of 345 pence. Other points to note are that EPRA net asset value per share increased by 2.7% to 308 pence (31 December 2013: 300 pence) so the shares stand at a premium. It is also worth noting that the dividend is only covered 76% by earnings in these numbers but this was up from 52% last year, but they are aiming to get this to be fully covered. Also worth noting that net debt is quite high at £624.5 million which equates to a loan to value of (LTV) of 63.6%, although around 25% of this is now unsecured after debt refinancing recently.
So overall a decent growing yield from a property portfolio serving health related / government back tenants, albneit not especially cheap against its assets and with quite high levels of debt.
Next up is another stock I mentioned recently - The Renewable Infrastructure Group (TRIG) which has a portfolio of operational wind and solar assets diversified across weather systems, regulatory regimes and power markets. They recently had a C share issue to raise and invest in more assets and the shares have therefore drifted back to 103 pence as a result. With this years suggested full year dividend of 6.08 pence (Source: Company RNS today) they are yielding 5.9% and this would be expected to grow roughly in line with inflation going forward - which is nice. The NAV was 102.3 pence at the June 2014 reporting date so not too much of a premium right now. Not much else to say on this one but you can check out the results if you want to read more about it.
Finally going up the risk and complexity scale we had interim results from Phoenix Group (PHNX) which describes itself as the UK's largest specialist closed life fund consolidator. It is quite a complicated one to get to grips with but overall it is quite a simple business as they are mostly just running off and generating cash from closed life assurance books of business. It has been quite highly geared but this has now reduced to 35% pro-forma with about £1.5 billion of shareholder debt on the balance sheet and about £1.8 billion in total. They say they on track to generate £500 to £550 million of cash this year and £2.8 billion between 2014 and 2019 although I believe the latter figures include the £390 million they got for the dispsoal of their IGNIS asset management arm to Standard Life recently.
The dividend was unchanged at 26.7 pence and this was covered 2.7x by reported diluted earnings from continuing operations. This together with last years final of the same amount give a yield of 7.5% at a price of 712 pence this morning.
As they have now got their debt levels down and are talking of getting and maintaining an investment grade credit rating this suggests to me that the dividend should be well underpinned by the cash flow they are expecting over the next few years. It should also allow them to acquire more closed books (at a discount presumably) and or pay out surplus cash to shareholders. On this the Company said:
"The underlying strength of the business model and the stable and predictable long-term cash generation has enabled us to declare a 2014 interim dividend of 26.7p per share, in line with the 2013 interim dividend. Given the run-off nature of the group's business, the Board believes it is prudent to maintain a stable, sustainable dividend whilst the Group builds its financial flexibility to execute its growth strategy and will keep the dividend under review.
The first half of 2014 has delivered many successes for the Group. The balance sheet has been transformed, our structure has been simplified and our reliance upon bank financing has been reduced. We have created a sound platform for Phoenix to consider potential acquisition opportunities, enabling us to grow the business and strengthen our existing position as the UK's largest specialist consolidator of closed life funds."
So overall a rather complex situation based on what should be a relatively simple and hopefully predictable business of running of closed life books which have been bought at a discount to their future value. Thus if managed properly and if the assumption underlying the life books turn out to be prudent then the cash / profits should flow over the years. Obviously market movements and regulatory changes can upset this outlook. On regulatory changes they detailed some of the financial effect in their statement which you should probably read if you are interested in this one. They summarised the effects by saying the following:
"The first half of 2014 saw a number of key regulatory changes to the UK life assurance sector. The financial impacts of several of these changes are still uncertain but the Group continues to take actions to prepare for the possible range of outcomes, including possible changes to policyholder decision-making."
Not much news today so thought I would share with you a useful site called Value Walk which aggregates interesting news and research relating to value investing. The graphic below comes from one of their recent pieces which itself comes from an interesting blog called Base Hit Investing. It is an interesting article on the history of stock market returns and how to think about or not the markets ups and downs. You can click the graphic below to read the whole article, but the key observations from this that the author, John Huber, makes were as follows:
"Some anecdotes I find interesting by observing the results 189 years between 1825 and 2013:
One last observation: the market was 5 times more likely to be up 20% or more in a year (50 out of 189) than down 20% or more in a year (9 out of 189)!"
Today we have another set of results from a house builder, Persimmon (PSN), which as you would expect are very strong. No surprises here on the dividend as they made their second payment of £214m (70p per share), paid 4 July 2014, of surplus capital under the Capital Return Plan. This is a Berkeley Group (BKG) style plan to return surplus capital that they generate to shareholders over the next ten years. By way of reminder they describe this plan as follows:
"Our long term strategy is to deliver superior shareholder value through the housing cycle. This value will be delivered by growing the Group to optimal scale as markets develop and requires disciplined, well-judged capital deployment through the cycle. Management has given a long term commitment to shareholders that they will receive capital that is considered as surplus to the needs of the reinvestment requirements of the business through the cycle. This commitment is to return £6.20 per share, or £1.9 billion of capital, to shareholders over a ten year period to June 2021."
The first two payments of surplus capital totalling £1.45 per share, or £442 million, were made on 28 June 2013 and on 4 July this year. The third scheduled payment is 95 pence per share, or c. £290 million, in July 2015. This will be finalised and announced with the 2014 Full Year results of the Group scheduled for Tuesday 24 February 2015.
I'll not dwell on the results as they show lots of strong numbers which you can read in full at the link above if that is of interest to you. However I would highlight that the revenues were up by 33% to £1.2bn which compares to full year revenue growth forecasts of 18.4% (Source: Stockopedia). They also reported earnings per share of around 54 pence versus 34 pence at the same stage last year which in the event were around 42% of the full year earnings. If roughly the same h1 / h2 split is achieved this year then they could perhaps achieve closer to 128 pence of earnings against current forecasts of 111.8 pence which suggests some scope for upgrades on the back of these numbers. This is especially so as they say that current forward sales are up by 22% and that reservation in the traditionally quieter summer months since 1 July are running 9% ahead of last year.
Summary & Conclusion
Another strong set of numbers from Persimmon with further progress on their plans to return surplus capital to shareholders over the next few years. With next years payment of 95 pence this gives a yield of 7.1% at last nights closing price of 1335 pence. Meanwhile current trading looks strong and this leaves them well place to probably beat current forecasts which put it on 12x for this year, but this may turn out to be closer to 10x if they do see some upgrades and they are on just under 10x next years current forecast earnings. This one, like Bovis yesterday, also looks to have gone through a period of consolidation which it may also be breaking out from, but resistance from peaks earlier in the year is not far away at between 1400 and 1500 pence, so a strong hold for me for now. If you are not in it and are prepared to buy into the house builders then this seems like a good way to play it, but given the lumpy nature and timing of the dividend there may be better opportunities to get in along the way before the next payment is due.
Finally today I have for you an in line 6 month trading update from Imperial Tobacco (IMT) which they headlined as continued strategic progress and unchanged full year outlook. So steady as she goes with limited growth from their mature markets, but they claim their growth brands outperformed the market while specialist brands also did well. Their growth markets saw better growth of 8%. The main story going forward will be the integration of the US acquisition announced last month, the cost of which means they have suspended their share buy back programme.
This leaves them on around 12x with a 5% yield based off of the 10% dividend growth for this year which they have reiterated in these numbers. So OK in a dull way although the balance sheet is more geared than I would like, but I can just about live with it given the strong and predictable cash flows they generate - still beats cash in the bank if you are prepared to take the risk.
Quick heads up that analysts are now looking for a big dividend cut from this one to invest in price reductions when the new Chief executive joins. Click the image above to read more at Investment Week, although you may have to sign up for free to read.
Apart from another dull set of figures from an insurer, this time Amlin (AML), the highlight of which was the 3.9% increase in the dividend. See the link above for full details and the insurance category to the right for more background on it. The only other thing that aroused my interest today was another set of strong numbers from a house builder. This time it was Bovis Homes Group (BVS) who reported profits and earnings up over 100% and a 200% increase in the dividend. Now of course it was the increase in the dividend which piqued my interest.
This is another well managed national house builder and they set out in the results they way they look to manage their activities over the cycle and they summarised market conditions in the first half as follows:
"The UK economy is recovering positively. In the first half of 2014 the UK housing market has continued to perform robustly with increased housing transaction activity. Home buyers have good access to mortgages and are confident about buying a home. This has been supported by the greater certainty provided by the extension of the Government's Help to Buy shared equity scheme."
On the back of this and their confidence in achieving their targets for this year and next they have announced an increased interim dividend of 12 pence and an intention to pay 35 pence for the full year in 2014 and at least 35 pence in 2015. This compares to forecasts of 22.3 pence and 28.4 pence (source:Stockopedia) prior to these numbers. Thereafter, in this phase of the cycle the Board plans to operate a regular payout ratio of one third of earnings with supplementary dividend payments to shareholders of cash surplus to requirements as they move towards optimal scale. This should still mean around 35 pence though as the eps forecast for 2015 was around 100 pence any way before any changes on the back of these figures.
Other points to note are net assets of 624 pence and a pension surplus of £1m. Their optimal scale is 5000 to 6000 units a year and by managing the housing cycle they seek to maximise returns, while effectively stewarding shareholders' capital, targeting ROCE of at least 20% by 2016. The Group held 17,702 consented plots in its land bank at 30 June 2014. The average consented land plot cost at the start of 2014 was £48,900. This has decreased to £45,900 at 30 June 2014 and compares to their average expected selling prices for 2014 of £210,000 to £215,000 forecast in these figures.
Summary and Conclusion:
Another set of strong numbers from a house builder, no surprise there, but the dividend increase was. Given the market was previously happy to put this one on a 3.5% yield based on the previous 2015 forecast dividend, you could argue for a 1000 pence price target if you applied the same yield to the new 35 pence dividend. This would also put it on around 10x the current expected earnings for that year.
Looking at the chart (see below or visit the website if you can't see it on the e-mail). it looks as though the shares have been in a trading range between 720 pence and 820 pence and they have this morning moved to the top end of that range on the back of these numbers in a stronger market which has also recovered from its recent lows. As they now look over bought you might therefore want to hold off and wait and see if it sags back into the range or finds support from its 200 day moving average at around 807 pence to confirm a bullish trend.
However, with the Bank of England back tracking on raising rates again last week and the consensus now shifting to no rate rise until next year you could argue for a continuation of the recent recovery in the price and a possible break out from the recent range. If this were to happen then technical analysts would argue for up to 100 pence of upside (the width of the range) which would also take it up towards its recent highs around 920 pence (resistance?) for a potential 13.5% return if you include 1.5% from the interim dividend.
On the downside if you are more worried about a housing market bubble rolling over or popping then I guess chartist could see the chart as what they call a head and shoulders which if the neck line at 720 pence were to break would theoretically target 100 pence more downside or 200 pence from current levels and take the shares back to around their book value at 620 pence where I would suggest it would look very cheap and be fundamentally suppo
So as I always say you pay your money and take your choice but for my money I would be looking for this one to break out on the upside for a move towards 900 to 1000 pence in the medium term.