Savills (SVS) - Results look strong, as expected, given the property background last year. Thus eps came in at 63.2p versus 60.8p (F) and the dividend total for the year was 26p up 13% from 23p last year and versus 25.1p (F). Commenting on the results, Jeremy Helsby, Group Chief Executive, said:
"Overall in 2015, Savills delivered a record performance across the Group. Our US expansion programme continued well and our Asia Pacific business showed resilience in the face of changeable markets. In the UK the strength of our position in the commercial market offset market weakness in the residential sector. The Continental European business continued to build profitability and Savills Investment Management substantially enhanced its position with the acquisition of SEB Asset Management AG.
We have made a good start to 2016 with a solid pipeline of business carried over from last year in many markets, although the impact of global macro-economic and political concerns on real estate markets worldwide is uncertain. At this stage, we retain a cautious view on some Asian markets, particularly the Tier 2 Chinese cities, and we expect the UK residential and commercial investment markets to be subdued, for the former, as Stamp Duty reforms take effect and, more generally, in the run up to the EU referendum in June. However, the strength of our enlarged US operation, the increased size of our Investment Management, Property Management and Consultancy businesses and the breadth of our UK business together with further improvement in Continental Europe, all bode well for the future of your Company. Accordingly, the Board's expectations for the year as a whole remain unchanged."
The shares have come off sharply with the market correction this year and are looking oversold. They therefore now seem quite cheaply rated compared to their history trading on around 10x with a 4%+ yield for the current year. Thus given the unchanged outlook statement above and a CIS of 95, they seem like a strong hold to me.
Sprue Aegis (SPRP) - out out an update on a supply agreement. As a result of this they said that their operating profits would come in at £8.3m for this year which they say is slightly below market expectations. Looking at the forecasts it seems like it will lead to a 10% downgrade to earnings to me. The shares are off by that amount this morning so probably all in the price now in what looks like being a consolidation year for them. I do however note the recent weakness in the £ v the € as a result of the BREXIT debate which, if sustained, could help to boost their earnings. I note also that there is something about sharing the swings on the US$ with their supply partner more equally. The downgrades will no doubt reduce the current CIS of 97.
32Red (TTR) had their full year results which look like a miss on the adjusted earnings 6.97p v 8.7p (F) although dividend was better than expected at 2.8p v 2.5p (F) and they have already previously announced a 3p special dividend. I note also that the adjusted earnings also exclude all the bad stuff as follows from the statement: Adjusted Earnings Per Share is calculated on Underlying Earnings adding back exceptional items, share option costs, amortisation and losses from the Italian business and uses the weighted average number of ordinary shares for diluted earnings as calculated in note 6 to these accounts. Actual diluted eps including all the bad stuff was er 1.14p which would put it on an astronomical 136x at the current 155p. However taking the adjusted numbers and increased dividend puts it on an expensive looking 22.2x with a 1.8% yield. Thus it will need to produce the strong growth which is currently forecast, but given the miss on earnings today it will be interesting to see if we see any down grades on the back of these figures, which if we do, will not be helpful given the current rating. For now it remains a high scoring stock with a CIS of 98, despite a value score of only 14, so again if we do see downgrades I would expect the Score to fall.
Finally not one that is in the CIS Portfolio but I note in passing that Cineworld (CINE) had blow out results which were not only ahead of this years forecasts but also those for 2016 too. So unlike Restaurant Group yesterday, no sign of a slow down there, although I they did benefit from the steady stream of Blockbuster last year which is not expected to be fully repeated this year. CIS currently 72, but may improve on the back of these numbers and if it leads to upgrades.
We have had a couple of announcements from CIS Portfolio stocks today. Firstly Bellway (BWY) the housebuilder reported another strong trading update for the first half of their current financial year. As expected, given the recent background of rising house prices, this is again a strong update. This was boosted by stronger than average price rises thanks to the mix of houses they sold this period with more London apartments and fewer affordable homes.
Looking forward they say they have a strong order book and land bank to continue to deliver on going volume growth of around 10% in the current year aided by the government initiatives to increasing housing output. So with government support on going and interest rates seemingly on hold until next year the shares, which have come back with the market recently, look good value on around 9x this years earnings with a well covered 3.7% yield and a top Compound Income Score of 100. They have more recently traded on up to a 10x PE, which suggests there could be scope for some upside from here towards recent highs around 2800p to 2900p, although this may of course be curtailed by the current economic and market malaise.
Meanwhile 32Red(TTR) one of the stars of the CIS Portfolio when it doubled in around 3 months recently, has come out with a pleasant surprise by way of a special dividend of 3p per share which goes XD next week to be paid in March. So that is worth a decent 2% or so on the current share price and will be in addition to the final dividend which they are due to be announced on 10th March 2016 which they have already said will be slightly ahead of expectations. This one is on a fuller looking rating of around 20x with a 2% yield for the year they are just about to report. That is however expected to fall sharply to more like 12x and it still Scores 99 on the CIS. Given the strong forecast growth it still looks reasonable on that basis despite the doubling in the share price.
Month End Update for January 2016.
So one of the worst starts to a year ever from equity markets around the world comes to a close with a sharp rally. This fall seems to have been caused or rationalized post event as being driven by fears of a global slowdown, especially in China and the effects it was having on commodity prices and in particular the oil price. In addition markets had been on a bull run for nearly seven years on the back of Central Bank support and as a result some markets, such as the US, had also got onto extended and historically high ratings.
Thus with the US Federal Reserve starting to tighten monetary policy in December it seems as though investors came into the New Year and suddenly feared that the Fed put may have been withdrawn and so like Wylie Coyote they suddenly looked down and had a panic attack.
Fast forward to the end of the month and we had a sharp rally seemingly on the back of the Japanese central bank introducing negative interest rates and some weak US growth numbers which probably firmed peoples expectations that the US Fed may now be one and done in terms of raising rates, rather than doing a series of rate rises this year, perhaps.
However, it does all beg the question of how dependent markets have become on central bank support as each time they try to start withdrawing it markets seem to have a fit. Thus I guess time will tell if the central banks have now blinked on the back of the markets sliding in January and if therefore this current sell off turns out to be another temporary affair or if it is the harbinger of something worse. Which brings me nicely onto a look at the monthly timing indicators and how the Compound Income Scores Portfolio has done in this difficult month.
Another busy day for stocks which feature in the Compound Income Scores portfolio. So in brief firstly EMIS the healthcare software provider produced a trading update which saw turnover held back by timing of contracts within Secondary Care so growth in revenues of 13% look about 3% light of forecasts. But they do say overall trading is in line as they saw further progress in the like-for-like operating margins. It will remain to be seen if the earnings can come in line or if we will see downgrades on the back of this. With a highly rated stock such as this, which has held up well in the recent sell off, it is therefore perhaps unsurprising to see it off by around 12% on the back of this announcement, but it does remain a quality company nevertheless, albeit highly rated to reflect this.
Meanwhile 32Red (TTR) announced a trading update for the full year with record revenues and EBITDA expected to be slightly ahead of expectations. They also said that the new year had started well with revenues for the first nineteen days in January up 27% on the corresponding period in 2015 and up 54% including contribution from Roxy Palace which they acquired last year. On the back of this the shares spiked over 150p first thing and the holding therefore hit the 10% risk control limit that I set the other day. I have therefore sold half the holding at this mornings price of 152p to rebalance and retained half as I note their brokers apparently put out a note the other day with a target price of 200p.
As for the proceeds I did discuss the other day topping up some losers, which is not generally a good thing to do and one of those has now slipped into the sell zone as far as the Scores go. So I have resisted the temptation to do that. While I could have done a full re-screen and sold another three stocks as a result, I decided in the end to just add another holding instead as given the current volatility doing lots of trading may prove to be counter productive.
The new holding I decided to add was XL Media (XLM) which I mentioned the other day and which looks good value to me and has a CIS of 88 v 86 for TTR. They have also announced today a final dividend today which means their full year payout, which is based on a 50% payout policy will be 24% ahead of forecasts on Stockopedia. This statement therefore also suggests to me that their eps will also therefore be around 4% ahead of forecasts at just over 10c. So this one has been added to the portfolio at this mornings 63.3p price and therefore effectively keeps exposure related to a similar industry to 32Red but in a stock which looks much better value (94 value score v 14 for 32Red) and comes with a 5%+ yield versus 2% for 32Red. Whether this proves to have been a good idea or reduces the risk and increases the returns remains to be seen!
Talking of returns, I note that after this update that the portfolio seems to be down by around 5.7% since the year end which compares with -9.3% from the FTSE All Share year to date. So at least it seems to be holding up reasonably well in a down market too, although no doubt helped by continued lack of exposure to commodity sectors and the astonishing running streak from 32Red. Obviously if a market bounce back comes about and should be led by the commodity sectors then it would obviously then lag that.
I chose the title for today's blog as it relates to 32Red (TTR) the on line gaming company which is held in the Compound Income Scores portfolio and has been a stunning success since it was put into the portfolio on 1st October 2015 at 74p. Now regular readers may recall that I set this portfolio up to test the efficacy of the scores and also to test a more mechanical or automatic process against my own decisions and to overcome typical behavioural biases. Fighting these biases at the year end I resisted the temptation to implement some sales on valuation grounds to facilitate the running of winners and also given the fact that there were potentially quite a large number of trades on the scores themselves.
32 Red was therefore retained in the portfolio, despite starting to look somewhat expensive on some metrics, after it had risen to 117p at the year end. So yesterday I was sorely tempted to trade the shares for the portfolio as it hit 148p bid and therefore achieved a doubling in the share price since purchase in just over three months. This meant that it had grown to be over 9% of the portfolio which seems like a rather outsized position for such a small and relatively expensive stock. I say expensive as at that level it trades on over 33x historic earnings and dividend yield of just 1.6%. This does however drop on the back of strong forecast growth for the year to 31st December 2015 to a still full looking 22.8x and a yield of 1.8% and it also has an earnings yield of less than 5% so certainly expensive and in sell territory as far as my own book is concerned. However their broker Numis, who make the only forecasts out there, see their earnings progressing from this years 6.5p to 10.5p in 2016 and 13.2p in 2017 with the dividend seen rising from 2.6p to 2.9p followed by 3.2p. I note Numis had a price target of 160p and that the all time high was just above 170p way back in 2006 so I guess these levels could provide some technical resistance if it should carry on rising from here. If we accept the current year forecast for now and assume that they meet them, this would bring the rating (at 148p) down to a more reasonable 14x and bring the yield up to a just about acceptable 2% in my book. I also note that the directors hold fairly large stakes in this one and consequently the free float is only around 50%, which might help to explain the volatile share price. Obviously given the high historic rating, the strong forecast growth and the illiquid nature of the shares any disappointment or surprise on this front could lead to a sharp move in the price.
Thus having resisted the natural human urge to book profits early on this winner at the turn of the year, I now find myself sorely tempted to do the same again just 12 days later with the shares up another 31p or 26.5% and with the share price looking over bought again and the chart looking like it has gone exponential (see chart at the end). I therefore thought about halving this one and recycling the profits into rebalancing the portfolio by adding to the losers and now lower weighted stocks, Renishaw (RSW) 1777p, Schroders (SDR) 2648p and Utilitywise (UTW) 177p or a new holding of high scoring Qinetiq (QQ.) at 255p. However as this is supposed to be a largely mechanical quarterly process, interfering like this would go completely against that philosophy and also go against the old adage of running your winners and cutting your losers, although if I had added another name that might have helped with diversification.
So for now 32Red remains in the portfolio, but it will again be interesting to see how this pans out. However, it does highlight the fact that so far I have not articulated any risk / portfolio controls in terms of maximum position size etc. So with that in mind I shall hereby declare an upside limit of 10% for an individual stock which ordinarily would allow for the doubling of a share if the rest of the portfolio remained unchanged. Thus if this one or any other stock should cross that threshold then I reserve the right to do an intra quarter re-balancing.