We have interim results from a couple of small cap growth stocks today. First was a long time favourite of mine S&U plc (SUS) the £237m market cap. motor finance group. Despite all the talk recently of potential problems in the car finance area and in particular the PCP area, they point out that they have no exposure to that type of lending. In addition the 20% or so growth that they reported today is a continuation of the growth trend they have seen for the last 17 years in this business. See the full RNS announcement for more detail on this in the commentary from the Chairman Anthony Coombs.
Talking of the Chairman's statement there were a couple of things in there that did give me some cause for concern, although on balance I'll give them the benefit of the doubt given their track record up to now. For the record though these were the fact that bad debt provisions were up sharply despite the strong employment background that was referenced in the statement. This was explained by Mr. Coombs as follows:
"Although a return, for competition reasons, to Advantage's traditional customer mix has seen an increase in impairment to revenue, risk adjusted yield has been protected by good interest rates. Indeed, current levels of impairment are significantly below those experienced just five years ago following the financial crisis, when the business continued to increase profits and maintained very good returns on capital employed."
Not quite sure what they mean by for competition reasons, may be they had tried to go up market & found more competition and so had to return to lower scoring higher risk customers to maintain the growth perhaps? The other thing that bothered me in this part of the statement and allied to that was mention of the fact that a refined Delphi 10 based scorecard system had been introduced. This might be a better explanation for the sharp jump in bad debts perhaps? I think this will need watching after the Provident Financial debacle recently where they messed up by changing a long standing way of doing business, although in this case the change does not seem as dramatic as in that case.
Aside from that the dividend was up by a pleasant 16.7% but the debt continues to rise to fund the growth, but remains relatively low for a finance business. Meanwhile the nascent Bridging Loan business is looking like it will be second half weighted after a slower start than expected. Assuming there is nothing in these numbers to change the forecasts dramatically this should therefore leave it on a reasonable looking sub 10x PE with a 5%+ yield with strong growth. The shares are up this morning back into the 2000 - 2600p range that they had been trading in, so it will be interesting to see if they can sustain a move back into this range in the short term. Or if they will be sold off again this might confirm the recent break down into a new lower range of 1500 -2000p perhaps, although be aware I don't claim to be a chartist.
Second up today, in brief was another Small Cap growth stock, the £213m Market Cap. Taptica (TAP) which is Israeli based and provides mobile advertising and has recently made an acquisition to move into the Video area too. In addition to this recent acquisition they have in the past made some other smaller acquisitions in their core area of mobile advertising to expand their geographic reach into Japan in addition to the UK, China, US & South Korea. In the statement they say they have ambitions beyond these areas to expand into ten hubs worldwide in the next three years to make it Russia, China, Germany, San Francisco, New York, Korea, Japan, India, South America and the UK. Thus it seems there should still be plenty of growth potential from geographic expansion in addition to their move into video advertising more recently & growth in advertising moving more onto mobile channels from more traditional areas like print and broadcast media.
Any way if it is of any interest I suggest you read the RNS and visit their website for more details and there was a conference call this morning too. The shares also look cheap for the growth they are delivering trading on about 12x falling to 10x for 2018, although the yield is lower than I normally like to see at just 1.7%.
The only other reason I mention it is that this is another example of one of those potentially unpalatable looking stocks which therefore trades cheaply and therefore scores well on quantitative systems like Stockopedia where it has a StockRank of 88 and on our own Compound Income Scores where is scores a maximum 100. So if you can get your head around the business and are not put off by it being a foreign company then it might be worth a look, but there's probably not enough in these numbers for it to challenge recent highs I suspect, although the shares are up this morning after recent weakness prior to the figures.
XL Media (XLM) - the Israeli, Aim Listed on line performance marketing company has announced interim results today. These look pretty strong with revenues up by 33% driven by a similar level of organic growth in their highly profitable publishing division which makes up 44% of their business. This helped to make up for slower organic growth and lower margins in their media business & a fall of 25% in turnover from their partner networks operations which make up the remaining 56% (50% & 6% respectively) of the business. They also completed some acquisitions in financial & cyber security verticals in the US and in the mobile gaming area which helped to boost revenues in the media business.
The dividend was increased by 5%, which is a bit better than the marginal growth that is reflected in current consensus forecasts, so these could be upgraded if analysts bother to note that. More interestingly in the Outlook and headlines where they said: "The Board is therefore confident of comfortably meeting profit expectations for the full year..." which I take to mean they think they will probably easily beat current forecasts of 14c per share. This looks likely as even if the 2nd half was flat, then by my calculations, they would still come close to 14c. Thus there may be scope for some upgrades here if analysts share my opinion, but maybe the Company will steer them to keeping unchanged numbers so they can beat them later in the year? There will be a webcast of the results presentation which will be available on their website later today at: http://www.xlmedia.com/media/.
So overall a decent looking set of numbers which leaves the potential for some upgrades or a beat of full year numbers if upgrades don't come through in the short term. Of course being an Israeli company listed on AIM with a somewhat opaque business model, this is not one for everyone and indeed maybe one that the market loves to hate. Despite that it does have good financial metrics and has delivered growth of over 20% per annum in eps since 2011, although this may not be sustainable at this rate as they seem to be needing to make acquisitions now to keep the growth going which is potentially more risky. This new phase may well have been highlighted by big holders selling down in the last year or so, although I note the CEO still has a decent stake in the business. Given all that the quantitative scoring systems such as Stockopedia & our own Compound Income Scores continue to rate it highly at 97 & 98 respectively. So on about 12x with a 4.5% growing yield it will remain the CIS Portfolio and might be worthy of further investigation if you are not put off by the nature of it or think that the market will continue to love to hate it.
Summer is over as we roll into September and the weather certainly seems to think so too. Any way the normally quiet August passed off in its usual fashion with low volumes and only a modest positive return of 0.77% for the FTSE All Share Index. The Compound income Scores (CIS) portfolio continued its strong run of outperformance in August with a total return of 1.25%.
For the year to date this makes 7 out of 8 months so far in which it has outperformed the broader FTSE All share index and leaves it with a total return of 25.71% year to date & 52.18% or 19.81% annualised since inception at the end of March 2015. You can see a full table of the performance history by clicking here if that is of interest to you. There is also a chart of the portfolio performance against the other FTSE UK indices such as the Mid 250 and Small Cap available on the website and this is reproduced at the top of this post. The only thing missing from this chart, which is worth pointing out, is that I don't have data for the total return of the All AIM index which as shown in the following chart has been the best performing UK index this year.
Now this is worth bearing in mind as the CIS Portfolio currently has 40% in AIM stocks and is also skewed towards Mid 250 Stocks & Small Caps with 35% and 12% respectively and only has 12% in FTSE 100 Stocks which have brought up the rear this year. So this has been beneficial to the portfolio and will help to explain a large part of the outperformance this year, although obviously selecting the right stocks within in that, thanks to the Compound Income Scores, will also have been necessary. No doubt if we see a return to FTSE 100 stocks leading the way then some of the recent performance could reverse.
With that background I wanted to highlight to readers the broader benefits of the Scores as they are not just for dull income stocks but cover the breadth of the market with over 600 stocks drawn from FTSE 100 down to small caps and 200 under researched AIM stocks too. Now you may not be that interested in income stocks in particular, but it is worth bearing in mind that given the focus of the Scores on quality and growth metrics as well as yield, value and financial security, they can and do also flag up attractive quality growth stocks such as ARM before it was taken over and more recently the likes of Fevertree. These do however tend to be on expensive looking valuations, which given my value bias and limits, tends to mean that they get excluded from the CIS Portfolio. If you are that way inclined or more willing to tolerate highly rated quality growth stocks for capital compounding then the Scores can also help you to identify these type of stocks too, although they do exclude those that do not pay a dividend so you would have to look elsewhere for guidance on those. Hmm, makes me think perhaps we should launch an unconstrained Scores portfolio.
The other feature of the Scores is that hitherto they have up to now only been delivered via Google Drive. We understand that not everybody has or wants one of these or even know how to use it and it may therefore not be their cup of tea. So talking of tea - for around the cost of a cup of tea each week (£1) we would like to offer access to more people on a more user friendly basis. Therefore we are delighted to be able to announce that henceforth the Scores will now available via the following services:
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