We have had strong looking numbers from three stocks that I have covered in the past. First up alphabetically is Bellway (BWY) the well managed national housebuilder which unsurprisingly osi doing well given the recent buoyant housing market in the UK. This meant that turnover, margins, profits and therefore earnings and dividends were all up by strongly. Indeed the 43% rise in h1 earnings and 36% rise in the dividend were ahead of the growth rates forecast for the full year so it looks like some more upgrades might be due here. Even without that they still look cheap on less than 9x with a yield of close to 4% and with a Compound Income Score of 99 it seems likely to remain in the CIS Portfolio at the next review.
Meanwhile there were also some strong looking Q3 numbers from a former CIS Portfolio stock IG Group (IGG), the financial services firm which was focussed on spread betting but has more recently expanded into stock broking too. Their numbers today also look strong and have probably benefited from the more volatile market conditions in recent months.
It fell out of the portfolio when it had got onto an expensive rating and as lack lustre markets and the costs of investing in their stock broking business led to flat earnings and dividends. With the more volatile markets and presumably some return on their investments in stock broking forecasts are for some modest growth in earnings and dividends, which with the fall in the share price recently has brought the rating back a little.
It does however still look fairly fully valued on a PE of around 18x for this year, although the yield is more attractive at around 4%. It still scores reasonably well on the Scores but probably not well enough to get back into the portfolio.
Finally we had full year results from S&U (SUS) the motor finance and specialist lender. Comparisons here are muddied somewhat by the disposal of their home collected credit business which led to a 125p special dividend. The earnings seems to have missed forecasts by some way, but I suspect this may be due to the effects of the disposal as the dividend ex the special seems to be in line or may be 1p ahead of some forecasts.
So I guess the miss could lead to some downgrades although they do say they see very significant opportunities to maintain and even accelerate the steady and sustainable growth which has been S&U's hallmark. They also flag a 2x dividend policy going forward which, on current forecasts suggests a dividend of around 88p which at the current price of 2260p would give a yield of 3.9%. The PE again on current forecasts is a reasonable looking 13x, although it is probably best to see where forecasts settle.
If there are some downgrades then that might afford a better buying opportunity for the medium term if you are attracted to their simple business model, with lows around 2000p in the last year appearing to offer some support. Not one that scores that well but still one I'm happy to hold for the long term.
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.
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.
This was the third quarterly re-screening since the portfolio was started and I have to say it was one of the hardest so far. Firstly I had to fight typical behavioural biases as I was tempted to apply some valuation constraints and thereby take some profits in some of the big risers. However, since I have not done this up to now and the behavioural bias I'm trying to avoid is selling winners too soon, I resisted the temptation again this time, although perhaps I will apply them with a full re-screening at the annual stage. Any way the other reason I avoided this was that using the 80 threshold on the Scores also suggested a rather excessive 6 sales, 2 of which seemed reasonable, 2 which seemed 50 / 50 and 2 which didn't seem to make that much sense. Thus for this quarter I went with 75 as the cut off which meant the 2 sales that seemed reasonable to me went ahead which I'll discuss in the next section.
The names are respectively IG Group (IGG), which had a Pre Close update, Aberdeen Asset Management (ADN) who announced their finals and Kingston Communications (KCOM) with interims. So I'll have a quick look at those in today's post.
Another positive month in terms of performance as the value of the portfolio increased by 3.13%. However, as you may re-call from yesterday's market update this lagged slightly behind the total return from the FTSE All Share Index which saw a +4.69% total return.
This is the first month in which the portfolio has been behind the index, but this is no surprise as up to now it has benefited from its bias towards mid and small cap / AIM stocks and a corresponding underweight in FTSE 100 stocks and some of the main sectors like Oils and miners which led the way down over the summer. As we saw in the market review it was FTSE 100 and some of these commodity stocks that led the way back up in October, while mid and small cap stocks overall recovered to a much lesser extent having gone down less beforehand. So therefore as I say no surprise that the portfolio lagged behind this recovery.
However it was pleasing to see the portfolio up by 3.13% which was more than the returns seen by the Mid Cap and Smaller indices. The winners that drove this performance this month were:
+26.7% 32 Red (TTR) the online casino & gambling business - a stunning performance from one of this months new holdings after the latest quarterly review at the end of September.
This just seemed to reflect a re-rating possibly in a belated response to their interims towards the end of September rather than any particular news flow this month.
+11.2% WH Smiths (SMWH) after well received results in the month.
+10.8% Maintel (MAI) - this smaller telecoms provider continued to respond positively to its results announced in September and broke out successfully from its trading range as I hoped it might.
On the downside the biggest losers were:
=5.4% RM Group (RM.) the education software provider a more subdued performance from another of this quarters new holdings, which sagged on no news but this may just reflect it closing at the bid rather than the offer last month.
-4.2% Renishaw (RSW) continued its de-rating from last month which has left this quality metrology Company looking better value on a mid teens PE.
-3.8% Howden Joinery (HWDN) the kitchen and joinery specialist is also de-rating but was probably down this month in sympathy with other repair and maintenance stocks as some of these reported weaker trading in recent months.
Summary & Conclusion
Another positive month for the portfolio with a +3.13% total return even if it was behind the broader index. This leaves it up by 11.62% since inception in April 2015. This compares to -3.73% from the FTSE All Share over the same time frame for an outperformance of 15.35%.
So a great start to the life of this portfolio but it is important to remember that given it only consists of 20 holdings and is completely different in construction from the index that we should expect the performance to differ widely from that of the index both in a positive and negative fashion. However if the Compound Income Scores are good at identifying attractive stocks then hopefully this divergence should be in a positive direction over time, so so far so good, but as I always say time will tell.
Meanwhile I have uploaded the updated Portfolio which you can view via the menu at the top of the website or via the drop down menu to the left on mobiles and tablets or by clicking here if that is of interest to you. Of note if I were doing a re-screen this month, which I'm not, the sell candidates on the back of post results down grades would have been IG Group (IGG) and Utilitywise (UTW) with scores of 64 and 71 respectively.
Finally If you are a new or recent reader - welcome and if you are wondering what the Scores are all about and want to learn more about them, then see the Scores heading in the menus mentioned earlier or click here to read & see more about them and how you can access them.