Compound Income

Some cheap stocks bouncing?

19/1/2016

Sorry for the lack of posts in the last few days, but with the markets being so unsettled there seems little point in putting out too much at the moment. Today we have however, had a few updates from stocks that I have written on in the past which may be of interest, so here is a brief review of the key points.

IG Group (IGG) - Interim results. A stock which had featured in the Compound Income Scores portfolio before being sold at the start of this year. These results seemed a bit lack lustre as despite an 8% rise in revenues they reported profits and earnings down by 2.8% and 2.5% respectively and an unchanged dividend. This however is on the back of them investing in the business for future growth to open new offices around the world and grow the more recently introduced stock broking business. So given that they make good returns on capital, this is what shareholders would want them to do, if they can, so I guess we shouldn't criticise them for that. However I see that forecasts are for a strong growth in earnings this year as they are expected to bounce back by 18% from last years 10% decline. Given that they have seen a fall in earning in H1 that will leave them with a lot to do in H2 to hit those numbers so I guess we could potentially see some downgrades? Having said that though they do suggest that most of the big investment will be done this year as previously guided and they should have done well on the back of the recent market volatility so I guess time will tell. It is a good quality business, but I feel the rating looks full on over 17x this years earnings with a 4% yield which is predicted on forecast dividend growth of 6.4% to 30p which may not come about if the earnings should disappoint again in the second half. I note the Compound Income Score (CIS) has recovered recently to 87 so it still has a lot to recommend it for the longer term.
Fairpoint (FRP) - the £63m market cap debt and legal services group put out an in line trading update which is not therefore that significant. However they did clarify that the amount of their legal business exposed to the potential clampdown on whiplash claims was just 8%. Furthermore they suggested that the legislation, if it is introduced, will not apply retrospectively. So given that the shares had fallen heavily on concerns about this change when it was announced, this may provide the market with some relief. Thus the shares, although they are AIM listed and not the highest quality in the world, I have bought back in recently at lower levels but they may still be worth another a look as they still only trade on around 7x with a 5% yield and have a reasonable (CIS) of 74.

SCS Group (SCS) - the sofa retailer somewhat surprisingly, given some talk about weaker consumer sentiment over Christmas, has come out with a positive profits warning. So as I say somewhat surprising but them maybe the buoyant housing market is encouraging new buyers. Any way this is one I traded successfully last year, but I'm not sure there is much to go for on the back of this update as they have bounced by 20% from the bottom of their recent trading range to the top today where it trades on around 13x with a 7.7% yield before any upgrades today. I guess if these were substantial and the housing market remains strong then they could continue to do well and the shares could progress, but it's not one for me for the long term.

XL Media (XLM)- finally, not one I have written up in the past, but one which has come onto my radar recently and also into my portfolio in a small way yesterday and some more today after today's positive update, as it has a CIS of 87 and was looking good value and oversold.. This £125m market cap. online performance marketing company which mainly directs leads to gambling web sites, as far as I understand it, announced another positive trading update. This confirmed that they also expected to be ahead of current market expectations on the back of strong organic growth and an acquisition last year when they report their finals. The shares had come back to the same level they were at after their earlier positive trading update in November and thereby closed a gap that had opened up on the chart at that time and this had left them looking oversold. Therefore this one may also still be worth a look down here as they trade on around 10x with a near 5% yield and seem to be growing strongly, but may not be everyone's cup of tea I guess, but maybe therein lies the opportunity?

So just goes to show, even in what feel like horrible markets there are always opportunities around if you focus on the fundamentals of the Companies and are prepared to dip your toe in despite the gloomy mood.

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Two AIM stocks at opposite ends of the Spectrum.

Some cheap stocks bouncing?

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Two AIM stocks at opposite ends of the Spectrum.

Some cheap stocks bouncing?

Archives

Categories