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News flow Catch up

20/8/2015

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  A quick update for you today as there has been a bit more news around in the last couple of days since my note on Clarkson. Yesterday we had updates from Imperial Tobacco (IMT) who put out a 9 Month Interim Management Statement confirming they were trading in line with expectations and continued to be on track to deliver their 10% dividend growth target for the year. This will put it on a yield of around 4.75% for this year and it continues to look like an attractive income stock as it scores 90 on the Compound Income Scores (CIS).

Meanwhile in Insurance we also had interim results yesterday from Admiral (ADM) which edged up its chunky dividend by 3% as UK car insurance profits increased and overseas start up losses reduced. Their comparison business did however see a decline into loss put down to lower profits from confused.com in the UK and increased investment in overseas sites. This ones offers an excellent 6% yield thanks to their shareholder friendly approach of paying speical dividends to return surplus capital not required by regulations or to fund the growth of the business. Consequently it does not look so good on traditional dividend cover and balance sheet metrics and therefore only scores 52 on the CIS but nevertheless I think it is a good operator in this area.

Today we have had a couple of updates from stocks which feature in the Compound Income Scores Portfolio. Firstly WH Smiths (SMWH) had a pre close trading update in which they said that they expect their full year results to be slightly ahead of the consensus of analysts' expectations, which is nice. This one continues to confound expectations as they manage the decline of the high street business and the travel side continues to go from strength to strength and continues to expand.

Finally Rank Group (RNK) had some final results today which look very strong as UK punters appetite for gambling seems to be showing no signs of diminishing. Thus they beat forecasts across the board with turnover +4% to £738.3m v £731.7m, earnings +18% to 14.6p v 14.3p and the all important dividend +24% to 5.6p v 5.25p for a 6.66% beat although it was achieved via a reduction in cover from 2.8x to 2.6x which is still fine.

They saw growth in both the casino and bingo venues as well as on line despite the the introduction of Remote Gaming Duty from 1 December 2014, so a good result all round. They also flagged strong cash flow which allowed them to pay down debt too. On the outlook the suggest these strong trends have continued into this year and that they expect to launch a new online platform early next year.

The shares, before any upgrades post these numbers currently stand on a fullish looking 17x with a 2.5% yield for the current year to June 2016 and they still score well on the CIS with a score of 91. So I wouldn't put you off as the business seems to be trading well and the shares have momentum (see chart below), but I'm kicking myself for not buying them personally when I looked at them under 200p. So I'm reluctant to chase them up here (anchoring in action ?) but given the score the CIS portfolio will continue to run them, place your bets.

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Fags, Pensions and food today.

6/5/2015

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No not General Election policies but Company results in brief. First fags represented by Imperial Tobacco (IMT) which has announced interim results to 31 March 2015. The highlight for me is the delivery of the promised 10% dividend growth which is the main attraction of this one in addition to the current yield of 4.5% from this years expected dividend of 140.5p.
Otherwise it does not score so well on cover, operational quality (margins and ROCE) or estimate revisions.

Pensions come from Legal & General (LGEN) plus funds, annuities and other savings and other financial products. They saw continued strong growth and in contrast to Aberdeen yesterday, strong in flows to their asset management division. I continue to like this one and it has come back by around 10% from recent peaks and therefore now offers an expected dividend yield of just over 5% based on the forecast dividend for the year of 13.1p which represents growth of 16%.

On the food front we have had poor results, as expected, from Sainsbury's (SBRY) which included a slightly smaller than forecast reduction of 23.7% in the dividend based on their 2x cover policy. On this basis a further reduction in the dividend is therefore expected for next year too. On this basis and given the on going dividend cuts and the competitive nature of the industry with the main players being squeezed by the discounters, I continue to steer clear of this sector.

Finally on the food front I mention in passing  Finsbury Foods (FIF) the AIM listed £100m market cap firm which is
evolving into one of the largest speciality bakery groups in the UK. It is also one of the stocks that made it into the Mechanical CIS Portfolio which launched recently. They seem to be on a roll at the moment with their latest acquisition to follow on from the Fletchers acquisition they did late last year. The latest one is something called Just Desserts which they have bought from the receivers which sounds like a good idea, although may be concerning that it went bust in the first place?

Any way they say this is part of the e
scalation of Finsbury's entry into the food service cake channel and in particular the high growth national coffee shop segment. This is in line with their channel diversification strategy, indicated at the recent acquisition of Fletcher's in 2014. So it seems like a sensible add on which also brings some more diversification by product and customer and helps to reduce their dependence on the main food retailers a little.

The shares appear to offer value with a sub 10x PE and a well covered yield of just over 3%, however they don't seem to be the highest quality business in the world operationally. I note also that they only recently reintroduced dividends, although they have been and are forecast to grow rapidly. In addition they have had a poor recent earnings revision trend which is something else I do not like to see and this has brought the score down on this one recently from top decile to 69 currently. So a bit of a mixed bag and it will be interesting to see if this latest acquisition can turn the estimate revisions around but it is hard to tell because they provide little in the way of financial detail on the deal.

Finally as we look forward (?) to the election and all the hours of TV coverage do look out for Charlie Brooker's Election Wipe tonight and Paxman on Channel 4 with David Mitchell the comedian for an alternative take on it on election night.

if you are really bored, as I touched on Finsbury Foods today you could always check out the new series on the BBC called
Inside the Factory: How Our Favourite Foods Are Made in which they looked at appropriately Bread last night and with Chocolate featuring tonight.
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Wednesday Write up

5/11/2014

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First up apologies for no post yesterday I just couldn't raise the enthusiasm to write about Legal & General's (LGEN) IMS, Greene King's (GNK) acquisition of Spirit or Imperial Tobacco's (IMT) results on the day. However having said that I suppose the 10% increase in the dividend and same rate of increase again for next year from Imperial Tobacco is good. Plus the shares have responded well despite the thin cover and high debt to approach all time highs. So it seems fair enough on around 13x
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with a 5% yield for the year to September 2015. I guess people who follow 12 month highs and breakouts might get excited, but it looks a bit over extended and nearly over bought in the short term so I personally wouldn't chase it up here. However, maybe one for the watch list to see if it does come back in the next couple of months to allow you to pick it up on better terms and collect the 89.3 pence final which goes xd on 14 January 2015 and offers a yield of over 3% on its own at the current price.

As for today I couldn't see much to get excited about although Schroder Real Estate (SREI) produced an impressive rise in their NAV although they still trade at a premium to this but do offer a gross yield of around 4% if getting exposure to commercial property is of interest to you.

Alternatively their was an update from Value and Income Investment Trust (VIN) which describes itself as investing in higher yielding, less fashionable areas of the UK commercial property and equity markets, particularly in medium and smaller sized companies. VIT aims for long term real growth in dividends and capital values without undue risk and offers a mix of 71% UK mid and small cap stocks, 27% UK property and 2% cash. They increased the dividend by just under 5% and offer a net yield of 3.3%. Given the unusual mix of assets it does tend to trade on a discount which is currently around 15% or 7 to 8% if you factor in the debt at fair value - so a way of getting some commercial property exposure plus mid and small caps at a discount. However, I guess you could get the same kind of exposure / discount by buying a pure small or mid cap trusts together with a property trust - so as ever I guess you pay your money and take your choice or not as the case may be.

Finally as I'm boring myself now just to flag AMEC which I have written up in the past, has announced that it is hoping to close the Foster Wheeler acquisition in the near future. I mention it because as I suspected the price has been weak into this, partly because of the weak oil price and I suspect also on technical grounds related to the deal. For example I note there are just under 7% short positions outstanding which I suspect will be arbitragers who are playing the usual time value discount in the bid terms. So once it completes and this unwinds I would hope we might see some recovery in the price. Talking of which this has strayed into my previously suggested buying range of between 950 pence and 1000 pence where it comes on around 11x next years earnings with a 4.5% 2x covered yield and it still cum the 14.8 pence interim until 26 November which is worth 1.5% at 980 pence. 

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PSN and IMT or more on houses and tobacco.

19/8/2014

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Today we have another set of results from a house builder, Persimmon (PSN), which as you would expect are very strong. No surprises here on the dividend as they made their second payment of £214m (70p per share), paid 4 July 2014, of surplus capital under the Capital Return Plan. This is a Berkeley Group (BKG) style plan to return surplus capital that they generate to shareholders over the next ten years. By way of reminder they describe this plan as follows:

"Our long term strategy is to deliver superior shareholder value through the housing cycle. This value will be delivered by growing the Group to optimal scale as markets develop and requires disciplined, well-judged capital deployment through the cycle. Management has given a long term commitment to shareholders that they will receive capital that is considered as surplus to the needs of the reinvestment requirements of the business through the cycle. This commitment is to return £6.20 per share, or £1.9 billion of capital, to shareholders over a ten year period to June 2021.
"

The first two payments of surplus capital totalling £1.45 per share, or £442 million, were made on 28 June 2013 and on 4 July this year. The third scheduled payment is 95 pence per share, or c. £290 million, in July 2015. This will be finalised and announced with the 2014 Full Year results of the Group scheduled for Tuesday 24 February 2015.

I'll not dwell on the results as they show lots of strong numbers which you can read in full at the link above if that is of interest to you. However I would highlight that the revenues were up by 33% to £1.2bn which compares to full year revenue growth forecasts of 18.4% (Source: Stockopedia). They also reported earnings per share of around 54 pence versus 34 pence at the same stage last year which in the event were around 42% of the full year earnings. If roughly the same h1 / h2 split is achieved this year then they could perhaps achieve closer to 128 pence of earnings against current forecasts of 111.8 pence which suggests some scope for upgrades on the back of these numbers. This is especially so as they say that current forward sales are up by 22% and that reservation in the traditionally quieter summer months since 1 July are running 9% ahead of last year.

Summary & Conclusion
Another strong set of numbers from Persimmon with further progress on their plans to return surplus capital to shareholders over the next few years. With next years payment of 95 pence this gives a yield of 7.1% at last nights closing price of 1335 pence. Meanwhile current trading looks strong and this leaves them well place to probably beat current forecasts which put it on 12x for this year, but this may turn out to be closer to 10x if they do see some upgrades and they are on just under 10x next years current forecast earnings. This one, like Bovis yesterday, also looks to have gone through a period of consolidation which it may also be breaking out from, but resistance from peaks earlier in the year is not far away at between 1400 and 1500 pence, so a strong hold for me for now. If you are not in it and are prepared to buy into the house builders then this seems like a good way to play it, but given the lumpy nature and timing of the dividend there may be better opportunities to get in along the way before the next payment is due.
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Finally today I have for you an in line 6 month trading update from Imperial Tobacco (IMT) which they headlined as continued strategic progress and unchanged full year outlook. So steady as she goes with limited growth from their mature markets, but they claim their growth brands outperformed the market while specialist brands also did well. Their growth markets saw better growth of 8%. The main story going forward will be the integration of the US acquisition announced last month, the cost of which means they have suspended their share buy back programme.

This leaves them on around 12x with a 5% yield based off of the 10% dividend growth for this year which they have reiterated in these numbers. So OK in a dull way although the balance sheet is more geared than I would like, but I can just about live with it given the strong and predictable cash flows they generate - still beats cash in the bank if you are prepared to take the risk.
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Imperial Tobacco - Intention to float Logista announced

10/6/2014

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In another quiet news day Imperial Tobacco, which I wrote about recently, has announced its intention to float a minority stake in its Spanish tobacco distribution and logistics arm on the Spanish stock exchanges. This should bring in some much need cash as their balance sheet was looking quite highly geared last time I covered it and this was one source of funds that I hoped they might utilize to reduce it. Other than that we'll have to wait to see what they get for their stake to assess what the other financial effects of this might be.

In addition to this, if you are invested in tobacco stocks and in case you missed it, you may be interested in a two part series on the industry, plain packaging and e-cigarettes etc. featuring access to British American Tobacco which was shown on the BBC recently. It included some interesting statistics in the first part including the fact that the UK treasury earns twice as much in tobacco duties compared to the cost of treating smoking related diseases in the NHS. 

While I do not approved of smoking I have never actively discouraged smokers as I always figured they were keeping my taxes down! I've not caught up with the second part yet but it looked as though they would be covering e-cigarettes which is a developing threat / opportunity to the industry. If that appeals you can click on the picture below to visit the associated website and watch the programmes on the BBC i-player where they are available for the next 3 and 7 days respectively. 
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Burning Desire: The Seduction of Smoking
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