....as no doubt the news agenda will be dominated by the to bomb or not to bomb Syria debate and vote later today in the UK Parliament. Aside from that we have had a few announcements from stocks I have covered in the past, Matchtec, Greene King and Renewable Energy Generation.
Not much news around today, but a good US blogger called Eddy Elfenbein, who I follow on twitter and at his website crossingwallstreet.com, reminded me this morning that it was 28 years ago today that we had the Black Monday of the 1987 crash. Now hopefully we won't have another Monday like that today, although we do have the dreaded US import of the Black Friday shopping event to get through soon I believe.
Talking of the 1987 crash and US imports its funny how your brain works when you start thinking and reminiscing down Memory Lane. That got me thinking for some reason about another US import from that time - a TV show called Miami Vice which you can check out in more detail here if you are not familiar with it and enjoy the opening credits below to liven up a dull Monday.
My mind then went off at another tangent and got onto vice and and thinking about vice stocks after most of the favourites won in the Rugby World Cup over the weekend, which is probably good for the bookies. As an aside I had thought that Ireland might beat the Pumas and that Scotland would get thrashed but it turned out to be the opposite with Scotland so unlucky to lose out in the end. So probably good for the bookies and checking them out it looks to me like William Hill (WMH) might be interesting down here on a technical basis looking at the chart below.
It trades on 13 to 14x with a yield of around 3.7% including a 4.1p interim worth 1.2% which goes xd this week. It scores OK with a CIS of 65 and a Stockopedia rank of 78 so not too bad as the bookies tend to win in the long run. So...
...talking of vice stocks I personally don't mind investing in those, although some prefer not to and there are ethical funds available which screen out those type of stocks - armaments, drink, gambling & tobacco. With that in mind how have a collection of UK Vice stocks done in recent years? Well to find out I pulled together a quick chart to see how William Hill, Greene King (GNK), BA Ssytems (BA.) and BAT Industries (BATS) have done against the FTSE All Share over the last five years. As you can see on the chart, which shows percentage change over that period, they have all out performed the index and would also have had higher yields to boost returns further, with William Hill winning by several lengths.
So there you go if you don't mind investing unethically or in vice as it were then it seem it could be profitable for you. While in another strange mind tangent having coined the phrase UK Vice above I did a quick search and found that apparently there is a site / Company along those lines called Vice which describes itself as specializing in exploring uncomfortable truths and going to places we don't belong. Herein you will find people talking frankly about their hatred and love for various things, general heresy, the only culture, travel and news documentaries you'll want to watch, tons of exclusive new stuff, and probably not a lot of cats. So not sure I would recommend it but check it out if you dare and it has an accompanying twitter feed @VICEUK - so you really do learn something everyday by taking a mind detour down memory lane and here's an appropriate old song for the topic today.
Just a couple of corporate updates today from stocks that I follow, namely Greene King (GNK) the brewer pub and restaurant chain and Aberdeen Asset Management (ADN). As I'm feeling a bit lethargic post a long drab bank holiday weekend I'll not go into them in great detail.
But in passing I note the Greene King were flagging a second half which was tougher than the first half, with more difficult comparatives to last year and the additional impact of new drink driving legislation in Scotland. Despite this they also mention some modest growth across the business, a strong Easter and also potential benefits to come from the Spirit acquisition if it is approved by the Competition and Markets Authority.
Ahead of that and on the back of this update it seems fine on 12 to 13x PE and a yield of 3.7% to 4% for the year about to end and the year to May 2016 (Source: Stockopedia) who give it a Stock rank of 70 while it scores 72 on the Compound Income Scores. So seems like a strong hold to me rather than a raging buy although it has been marked up modestly first thing.
Meanwhile in the City Aberdeen reported a reasonable looking set of interims with an 11% increase in the dividend, just ahead of forecast growth, so I reckon they'll pay 20p for the full year rather than the consensus 19.8p. This was despite a small net out flow of assets under management, but they did flag the on going benefits of the Scottish Widows acquisition which completed about a year ago. They also saw good cash flow and also committed to a £100 million share buy back programme which suggests they have confidence in their cash flows and may be see this as a good way of returning extra value to shareholders at this time.
With the shares on just under 14x and yielding a little over 4.2% this is hard to argue with. I continue to like them as a beneficiary of financial repression forcing savers into more risky assets. in addition they are a top decile stock on the Compound Income Scores with a score of 93 thanks to their good yield, dividend growth, strong balance sheet and solid financial metrics. Mr Market doesn't seem that impressed though as he has marked them down this morning. The shares have also come back quite sharply recently after hitting new 12 month highs, presumably on some profit taking ahead of the general election?
While that makes sense and it would not be an obvious one to buy ahead of that, it's possible it could provide a good entry point for a post election bounce once the dust settles, although the market has been remarkably calm up to now. Nevertheless, I note the 200 day moving average is currently around 440p and there is a gap on the chart just above 430p from early February this year (see chart below). So if you are attracted by this one then I would suggest you could use that range as potential entry point given the likely support that should be coming in from the share buy back too, although no guarantees that it will get there or even stop its decline there, just a suggestion and as always make sure you do your own research.
A cold and slow start to the week with some snow in the mix too, but then it is the middle of winter. Well today amongst other things we have had an interim management statement from the brewing and pub chain Greene King (GNK). This seems OK in a dull kind of way with retail like for likes (LFL) up by 2% over the Christmas period and by 0.6% in the year to date. The LFL's have been flat over the last 6 weeks but they did allude to tough comparatives from last year. They also referenced their own Leisure spending tracker which suggested a fall in this type of spending in November and an effect from tougher drink driving regulations that were introduced last Christmas in Scotland.
Meanwhile if anything their pub partners and own brewed bear seemed to have performed slightly better in growth terms.
They also touched on their proposed acquisition of Spirit Pub Company (SPRT) which is progressing having been approved by shareholders and which they hope to complete in the first half of this year. They also said that:
"this will create the UK's leading managed pub company and deliver significant shareholder value through material synergy generation and anticipated earnings accretion.
Summary & Conclusion
Overall it seems like a steady as she goes type of update from Greene King. However, with some hopes of an improvement in consumer spending after the fall in the oil price, inflation and some earnings growth the outlook for them could improve from here and they should have the benefits of the Spirit acquisition to add on in the second half. Therefore it may be a bit dull for now but with some hopes of an improvement as the year progresses.
In terms of the valuation they look pretty average with a Compound Income Score of 50 although within that the value is a bit better than average with a yield of 4% and an EBIT / enterprise value yield of 6.8%. On top of that they are forecast to grow their dividend by around 7% this year which in line with the longer term dividend growth that they have tended to achieve. Otherwise the P/E and yield seem to be towards the lower end of their range from the last couple of years although this (de-rating) has probably been driven by some steady down grades to earnings since last April.
Technically therefore the shares have been in a downtrend since then but have shown some signs of recovery since the end of last year as maybe some of the technical selling surrounding the Spirit deal has abated. However, I note there are still short positions outstanding of just over 8%, but I suspect most of this will relate to arbitrage trades on the deal. With the shares now above their 50 day moving average and having closed a gap on the chart just above 780 pence they look a little over bought short term and a falling 200 day is not too far away at around 810 pence.
Thus I suspect they may pause for breathe or a pint around here as the shares try to build a base in the months ahead, before better times and benefits from the Spirit deal in the second half which could brew up a more frothy share price. As I can hear the tumble weed and sense your silent groans - I'll get me coat (see video at the end if you don't get that reference) & if you do too. For a bit of balance here's a link to Dry January campaign.
...as we have had results from Greene King (GNK) the brewer / pub & restaurant chain and from TUI Travel (TT) the package and specialist holiday company. I'm not going to comment on TUI though as it is currently going through a merger with its German partner and a share consolidation is due so I would need to do more work on that one to get my head around it, but there is apparently a web cast today which may shed some more light on it. I see they are saying that the merger "future proofs" their proven business model - hmm I'm not really sure how any business can say that?
Greene King's results however saw:
· Record sales; retained business growth of 5.3%.
· Retail lfl sales +0.8%; Pub Partners like-for-like net income +3.7%; Brewing & Brands own-brewed volume +5.9%.
· Retained business adjusted eps growth of 5.3% with strong cash flow, lower leverage & 4.6% dividend growth.
· Return on capital employed was up 20 basis points on the first half of last year to 9.2%.
On current trading the said that after 30 weeks, Retail LFL sales were +0.8% and +1.5% last 12 weeks, while bookings for Christmas across Retail are +7.2%. They are also in the process of buying Spirit Pub Company which assuming the deal is completed, would add around 800 managed pubs and 430 tenanted and leased sites to their estate. They hope it will complete before the end of this financial year. Aside from this they continue to manage their estate by selling poor performing sites and opening new ones to leave them with 1,040 sites at the period-end. On this combination and their estate they said:
"The combined entity would comprise an estate of over 3,100 pubs, restaurants and hotels including over 1,000 pubs in London and the south east. A combined managed estate of over 1,800 pubs will create the UK's leading managed pub operator and will allow us to extract significant operational synergies including benefiting from enhanced purchasing and distribution scale. Overall, we expect to realise operational efficiencies and cost savings of at least £30m per annum, supplemented by potential further revenue synergies from brand optimisation and sharing best practice."
Summary & Conclusion:
Greene King is a well managed group which continues to deliver reasonable growth against a mixed albeit possibly improving consumer background. The shares, having come back by over 15% from over 900 pence (see chart below) they look quite good value on around 12x with a near 4% yield which is more than 2x covered by earnings. Thus, assuming they can continue to churn out 5%+ dividend growth (the long term trend has been 6 to 7%) then on an unchanged rating total returns could be 9% per annum or so, which would be around 7% real if inflation is assumed to remain around 2% - not too bad and raise a glass to that.
Finally don't forget to open today's Compound Income Advent calendar window which follows on nicely from yesterdays for a possible beneficiary of the Chancellors Autumn Statement - nudge, nudge, wink, wink, not a recommendation just a suggestion as it is quite small, you'll probably hate it and you should of course do your own research.