A busy day for announcements from holdings in the Compound Income Scores Portfolio (CISP) today, so much so I had to check the calendar to make sure it wasn't Thursday today. So any way here in brief is a summary of the relevant news announcements.
Alliance Pharma (APH) - the acquisitive group which buys mature licences to drugs and medicines etc. has, in line with this strategy, announced that it has agreed to acquire the marketing rights in the Asia-Pacific region for an anti-dandruff shampoo (Nizarol) for £60 million ($79.5 million). This is being acquired from a subsidiary of J & J & is being funded by an underwritten placing of shares at 91p which will therefore raise £34 million with the balance of the cost being funded from their existing debt facilities. They say that it had a Pro Forma EBITDA of £7.1m in 2017 on sales of £18.5m, so it seems quite profitable and the multiple they are paying does not seem too high. Consequently they say that it expected to generate material earnings enhancement in the first full year of ownership. This is quite helpful as the shares were starting to look a little stretched in valuation terms, although the placing and the recent rapid rise in the share price resulting in a re-rating may mean the shares are capped out for a while now. Thus I suspect they may go back into one of their customary sideways trading ranges, but I could be wrong of course.
Ferguson (FERG) - the specialist plumbing and heating distributor announced its Third quarter results for the 3 months to 30 April 2018 which saw revenues up by just over 10% in total and 7% on an organic basis. Most of the growth was driven by the strong US economy while the UK operations are undergoing a restructuring. They also said that the fourth quarter has started well with organic revenue growth in line with the third quarter and that given the third quarter out turn, the Group is well positioned for a successful outcome for the year.
Taptica (TAP) - the data-focused marketing solutions company announced a trading update which, after the profits warning from XL Media (XLM which was sold back in March on a deteriorating Score prior to their warning) was a pleasant surprise as they said they expect to report adjusted EBITDA for FY 2018 moderately ahead of market expectations and revenue growth in line with market expectations demonstrating a moderately higher-than-expected EBITDA margin.
This was helped by the fact that they have also continued to work closely with the Tremor Video DSP team to implement operational and cost efficiencies and have been able to achieve further improvements in gross margin in that unit. They also said that they continue to evaluate acquisition opportunities, which remains a key element of the Company's growth strategy. Thus with the current trading going OK and the integration of Tremor Video DSP delivering improved margins if they can do some more successful add ons then this should help them to continue their more recent successful growth streak, which the rating of around 9x PE doesn't seem to give much credit for.
Just a quick update to the recent post on Alliance Pharma (APH) about the welcome news of their anti emetic drug being approvable. At the time I thought it might be positive for earnings but not until next year and since I wrote that I saw reference to a broker saying it could be worth 10 to 15p onto the share price.
Since then the shares have moved up from the 90p they were at the time to around 100p having gone xd the final dividend of 0.888p on Thursday this week. Having seen the shares double in under a year I think the re-rating has probably nearly run far enough as it is now trading on around 20x December 2019 earnings, although of course given the above these may at some point be upgraded if the launch goes well. The yield is also now well below my usual 2% threshold too at 1.5%.
Thus following my valuation discipline and ignoring all the suggestions of running your winners, I have reduced my own holdings this week post the XD for risk control and to rotate into a better value higher scoring stock. I note that the current CI Score would also mean it being sold for the CISP if it were being screened this week.
In addition on the chart the shares are overbought (although they could of course still get more overbought) and there is negative divergence on the RSI which normally pressages a correction. They are also very extended above their moving averages and have had a very large one month return. It is also well known that there is a tendency for mean reversion of big one month moves which is why price momentum indicators (including the one available in the CI Scores) tend to be based off of 12 month - 1 month performance to correct for this effect. I also note the gap on the chart at 90p and I have noted in the past that these usually tend to get filled if you are patient. So I'll set myself an alert to perhaps revisit it as and when or if it should get back down there at some point.
Finally in case you are wondering I started a holding in Ramsdens Group (RFX) with the proceeds which is a high street currency provider, pawn broker and jewellery retailer. This is on around 11x with a 3.5%+ growing yield & a clean balance sheet and scores very well on the CI Scores and the Stockopedia Stock Ranks too. I do note however that recent support is closer to 180p and there's also a gap on the chart here at about 145p which might be a more interesting longer term entry point if you are patient and of course depending on how the shares have come to get back there if they should.
Alliance Pharma (APH) - has today announced that Diclectin, a prescription treatment for nausea and vomiting of pregnancy has been given approvable status. This means that they should now be able to go ahead with marketing this in the UK & Europe as they had previously hoped. See their RNS for full details.
This should be good news ultimately and comes at a good time as to my mind the shares were starting to look a bit stretched in terms of their price and resultant valuation of 18 to 20x earnings and a sub 2% yield.
So it will be interesting to see how the share react to this and what, if any, updates we get to the effects of this on their earnings. I suspect this will only be beneficial for 2019 onwards as they have a December year end ans it is unlikely to be launched until the autumn and no doubt there will be up front costs associated with that.
Computacenter (CCC), the independent provider of IT infrastructure services that enables users and their business, today provided an update on trading for the year ended 31 December 2017. This turned out to be acurates egg of an announcement as they started out by saying: "The adjusted pre-tax results for the year are anticipated to be ahead of the Board's expectations as at the time of our trading update on 14 November 2017 and which have been upgraded a number of times throughout 2017." They did however go onto say in the outlook that a number of one-off costs and investments within the Group in 2018 that will not repeat in 2019, will hold back the enhancement of profitability in 2018. As a result they disappointingly said that at this early stage they therefore expect 2018 to be a year of "stable profitability", hence my curates egg comment. Looking at the forecasts I see there was only modest growth suggested for 2018 so maybe this won't be such a shock but could lead to downgrades of around 3% which is not great. This leaves them on a fairly full looking 18x with a well covered yield of around 2.2%, so probably up with events for now.
Alliance Pharma plc (AIM: APH), the specialty pharmaceutical group, announced its pre-close trading update ahead of the announcement of its preliminary results for the year ended 31 December 2017.
This was of the in line variety with the main features being a strong performance from their growth brands, a boost from FX & a reminder about recent acquisitions that they made. They also highlighted that this had led to debt levels rising to 2.5x EBITDA at the year end, but they also flagged their strong cash flow generation and therefore that they expect their debt ratio to decline to 2x EBITDA by the end of 2018. This strong cash flow and good levels of earnings cover (3x) should continue to underpin their progressive dividend policy of about 10% per annum growth. On this basis and assuming no changes on the back of this update they trade on around 15x earnings with a yield of just over 2%, in summary not that exciting a bit like the business.
Another busy Thursday with a throng of results and updates as the New Year reporting season gets into full swing. Of interest to the Compound Income Scores Portfolio were trading updates from Jupiter Asset Management (JUP) and Hays Group (HAS) the international recruitment Company. While also of interest was a sponsored note from Hardman & Co. on Alliance Pharma (APH) - covering the background and benefits from their recent add on acquisitions which you can read or download from here if that is of any interest, or click below if you want to read more.