... results today from Jarvis Investment Management (JIM) the small (£60m Market Cap.) stock broking outfit. The results were excellent, as expected, with the headlines of a 22% increase in profits and earnings together with a 34% increase in the dividend, although the Chairman's statement rather managed to snatch defeat from the jaws of victory. This was quite downbeat in tone given the increased regulatory requirements that their industry is facing. He said that considerable time and resources have been, and continue to be, spent preparing and satisfying the requirements of MIFID II and GDPR (General Data Protection Regulation). He went onto say:
"That these all come at a commercial cost for the firms' required to implement and enforce them. In the latter half of the year, and going forward, we will be incurring higher costs on software, data feeds and higher staff numbers to ensure policies are correctly implemented and monitored."
He then went onto talk about the growth the business has seen over the last few years and how it has now represents the maturing of Jarvis from small company beginnings. He finished off by saying:
"With that in mind I am urging investors to be realistic about near term results. As highlighted above our cost base has increased, so revenues will need to increase at a higher rate to maintain the growth of the past. That is not to say it cannot be done, especially if interest rates increase."
So he seems to be trying to dampen expectations after such a stellar year and suggesting that some growth will be required just to cover the extra costs and I guess if it doesn't materialise this year then the profits could even go backwards given the higher cost base.
It is however worth bearing in mind his comment about interest rates as they can and do earn quite a bit from cash on deposit with them and you never know the B of E might one day raise base rates from their emergency level of 0.5% given the inflation & employment situation.
So a bit disappointing to say the least and to see the shares off first thing, but probably not surprising given the statement, although the initial fall seemed a bit over done to me. We will have to wait and see where the forecasts come out given these figures probably beat expectation but the statement has probably tempered the potential for any upgrades or could even lead to downgrades. This should be clearer by the time of the next monthly re-screening of the CISP so will have to see how it looks then once the dust has settled.
Jarvis (JIM) has announced a Q1 dividend of 5p per share , which is up by 17.9% on last year.
I would expect they have continued to trade well in light of this and if anything the recent volatility may have meant they saw more trading activity too. This plus their previous positive updates leads me to suspect they will beat market forecasts for this year as these do not seem to have been updated. Just talking next years numbers as currently forecast leaves it on a reasonable looking 16x with a yield of likely over 4% as they have come back recently with the market.
There was also a trading update from Bellway (BWY) a long standing member of the CISP. This was for their first half which appears to suggest revenue growth in excess of 13%, which is roughly in line with rates of growth factored into current forecasts for the year as a whole. This came from a combination of 6.3% higher completions and increased selling prices of 7.8%, while they say the outlook is still positive despite the rise in interest rates in November. They also say they expect margins just above 22% for H1 and at that level for the full year if the market conditions remain the same.
In this positive trading environment, they say "interest from customers remains high, with website traffic and visitors to sales outlets both ahead of last year. Reservations have followed their usual seasonal trend, with the quieter, albeit positive, summer period followed by an increase in activity over the autumn months. The Group has taken 178 reservations per week (2017 – 166), an increase of 7.2% compared to the same period last year and the cancellation rate, a barometer of customer confidence, remains low at under 11% (2017 – under 12%)."
So overall sounds like a steady as she goes kind of update which probably won't lead to many changes in forecasts. The shares, as ever, look excellent value on around 8x with a 4% yield having come back £3 or so from their 12 month high recently which has left them looking a bit oversold.