Interserve (IRV) which I wrote up recently and talked about on a Podcast, served up their final results today which were mixed against the consensus. This was because the turnover was slightly light at £3204.6m v £3321 (F) although the earnings did come in ahead at 67.9p v 63.8p which they said represented 15% growth and suggested that margins may have been slightly better than expected. While on the income side we saw 6% increase in their full year dividend to 24.3p which was 0.1p behind the consensus.
Here is a link to the podcast I mentioned and it is Episode 396 if you are visiting the site at a later date. I added a write up of my notes and some charts below if you prefer the written word.
It's a bit quieter on the news front today although we have had a Q3 trading update from Interserve (IRV). The shares have been quite weak and trending gently downwards since they peaked at over 750p 18 months ago. So with the shares down to 535p at the time of writing they might be offering an interesting trading opportunity down here.
....from Interserve (IRV) & Utilitywise (UTW). I say curates egg because on the face of it both of them seemed OK but there were parts of their statements which were not so good.
In the case of Interserve the FTSE 250 construction and support service company they reported good looking numbers with revenues, profits and headline earnings all up by double digit percentages against 7% or so growth expected for the full year. There was also a good increase in their future workload. Meanwhile the dividend was up by 5% which is just shy of their historic growth rate and the 7% growth forecast for the full year, although they could make this up in the second half with the final.
However, the bad part of the statement came when they highlighted their initial estimate of the impact of the new National Minimum Wage announced in the recent Budget at £10 - 15m from April 2016. This looks like it could be around 10% of their likely profits forecast for 2016 and thus I would expect to see downgrades coming though on the back of this. I also note that the debt also increased to nearly £300m as they spent more on capital expenditure (£28.9m v £24.9m) with continuing investment in the Equipment Services fleet, particularly in the Middle East. There was also an increase in working capital. This takes the debt to about a third of the market cap. and while not excessive it needs watching as the balance sheet is not as strong as it was before the Initial acquisition, although some gearing can also be beneficial for shareholders.
Given the possible downgrades today, the more geared balance sheet and the relatively low margins this one makes means it is not one of my more typical stocks. As the CIS has come down to 58 and the outlook for next year is clouded by the new Minimum Wage then I would say it is just a hold here for now, although it should still be OK as it does trade on just 10x this years expected earnings with a yield of around 4%. But the growth next year may now be constrained, so as ever you pay your money and take your choice.
Meanwhile Utilitywise had a mixed trading update in which they started off by saying that revenues were ahead of expectations but then went onto say later in the statement that EBITDA would be behind expectations. This was due, as I feared earlier in the year, that their "investment" in recruiting lots of new sales staff did not pay off sufficiently quickly. However, I guess as the new staff get up to speed they may become more productive and allow them to meet their forecasts going forward.
The shares have slumped below 200p again on the back of this, which in the past has been a good support level and an area from which they have bounced quite often. This one does tend to be volatile and I did manage to trade it successfully earlier this year selling out at just over 250p. It is also still held in the Mechanical CIS portfolio as it currently scores 97 on the CIS but it will be interesting to see how the Score moves on the back of the likely downgrades today. Thus I guess in the short term I can put that down as a victory for me against the machine. I guess time will tell who has the last laugh but in the meantime I might look at it again for a trade down here.
..as despite EU leaders trying to tell Greek voters that a No vote would be a No to the Euro here we are again with another last chance to do a deal by this weekend, although supposedly they have a plan B which allows for a Grexit. I guess we'll have to wait and see again. Or it could be Georgehog day as we have another budget today from George Osborne.
Meanwhile in the UK stock market all the on going concerns over Greece forced the FTSE down into the support zone between 6200 and 6400 that I suggested recently. We also had an in line update from Interserve (IRV) who saw a slow down in construction in the UK but did flag some big orders they have won recently. There was a slightly better than expected updated from Connect (CNCT) bolstered by their acquisition last year. Both look good value but weak finances somewhat detract from the bull case and may help to explain the low ratings.
The other more interesting announcement yesterday came from S&U (SUS) who revealed an unsolicited approach for their home credit business from the new business Non-Standard Finance which was set up by the former Chairman of Provident Financial and back by Woodford Asset management among others. This is quite a big move for S&U as this has been the core of their business for years and their plan is to reinvest some of the proceeds into their more recently established and rapidly growing car finance business. The other effect will be to leave them with cash on the balance sheet and once they have worked out their capital requirements and investment plans they say they will consider a return of capital to shareholders after consulting with them.
This was quite well received with the share up a few percentage points in a soggy market yesterday. However, they did suggest that it will dilute their earning in the second half so it will be interesting to see if it can sustain a re-rating on the back of this given the higher growth and returns that they get from the car finance business. I just hope they are not going nap on it just as the latest UK consumer debt fuelled boom gets back into top gear again and car sales hit record highs.