In particular after a day when there were revelation about VW fiddling their emission tests in the US it is perhaps worth starting with bumper interim results from S & U (SUS). This saw a continued strong performance from their Advantage car finance business which saw profits up by 32% on the back of a strong car market in the UK. The other significant feature of these results was their disposal of the home collected credit business in the period with the proceeds of £82.5m being used to fund a special dividend of £1.25 which equates to 5% at the current share price of 2500p. The first interim dividend (they unusually pay three dividends per year) was also increased by 18% from 17p to 20p. Current forecast are for only 11.7% underlying dividend growth to 73.8p, so if the current rate of increase is replicated in the rest of the year then a total of 78p looks possible which would leave them on a reasonable 3% or so yield at 2500p.
I estimate this will leave them with no debt and may be a small cash position versus the £65m or so debt that they had previously. The management say the disposal is transformational as it allows for further investment in the rapidly growing and profitable consumer motor finance business and by taking it into the SME market. In addition to this theyare also talking of investing into what they describe as other specialist finance businesses with growth potential. Of course it remains to be seen what other areas they choose to invest in which does introduce an element of uncertainty and risk but also opportunity for earnings enhancement as cash / debt facilities are utilised.
As you can see from the chart below the shares, which are up 5% or so this morning to around 2500p, has been something of a ceiling on the share price in recent months. So it will be interesting to see if this will continue to be the case before any further details of how they are investing the cash emerges or if there is enough in these numbers to prompt a break out. I guess time will tell but on around a mid teens PE maybe it too early for a break out just yet especially
once it goes ex the special dividend.
Meanwhile we have had updates from two more stocks which feature in the Mechanical Compound Income Scores Portfolio. First was a positive Q1 update from IG Group (IGG) who benefited from a strong August against a weak comparative as nervous financial markets gave clients much more reason and opportunity to trade. Perhaps the poor weather in August also encouraged domestic customers to trade more rather than being distracted by nice weather and out door pursuits.
The shares like markets have been trading sideways this year as their earnings were down slightly and the dividend was flat at their last year end in May and they were looking fairly fully valued as a result on a 20x+ PE. However with this good start to the year and a resumption of growth forecast as their new broking business gains clients then they may be more interesting again now with a prospective rating is closer to a mid teens PE and with a dividend forecast to grow again to give a yield of just over 4%. Looking at the chart though it looks as though 740p to 800p or so may be the trading range for now until we see how the rest of their financial year develops, but so far so good and it has a Compound Income Score (CIS) of 84 before any changes on the back of today's update.
I mentioned the weather above because the other announcement of interims today from AG Barr (BAG), the Scottish drinks producer, included a weather related profits warning and as a result they now expect their full year results to be broadly flat, which probably means slightly down. So this could take earning from the current forecast of 30p back by around 7% to last years 28p. The dividend was however raised by 8% in line with current forecasts suggesting that they will still deliver the expected 13.1p dividend. The share have fallen by 5% or so to 532p this morning to reflect this set back which will leave them on a fullish looking 19x with a lowish 2.5% yield. So not a lot to get excited about on the rating front although this is a quality business so it may be worth watching to see if they drift off more as this is not really a fundamental problem with the business as such and they will have weak comparatives next year as opposed to tough comparatives this year.
It still has a CIS of 87 reflecting the quality and growth, but after today's results and growth set back this may slip a little once the down grades are reflected in the data although dividend growth still seems likely. Technically it has just broken below its 200 day moving average and 500p looks like the next medium term support level so probably no rush but worth watching and revisiting perhaps if it should get down there or even into the 450 to 500p range.