Another busy Thursday with a throng of results and updates as the New Year reporting season gets into full swing. Of interest to the Compound Income Scores Portfolio were trading updates from Jupiter Asset Management (JUP) and Hays Group (HAS) the international recruitment Company. While also of interest was a sponsored note from Hardman & Co. on Alliance Pharma (APH) - covering the background and benefits from their recent add on acquisitions which you can read or download from here if that is of any interest, or click below if you want to read more.
A quick catch up and update on a couple of stocks (Howden Joinery and Jupiter Fund Management) which are held in the Compound Income Scores Portfolio before the month end and the latest performance update on this later this week.
A busy day for announcements today and catching up from yesterday, Aberdeen Asset Management (ADN) had a trading update which showed the expected outflow of assets. This however was perhaps not as bad as feared and reflects their efforts to diversify into what they describe as solutions (alternative assets and hedge funds etc.) is now 43% of the business. They seem to accept that things will, unsurprisingly, remain tough for them given market volatility, their emerging markets exposure and performance issues, but they did flag cost cutting plans to offset the effects of these. Thus this one may be interesting as a contrarian play if you were bullish on the market recovering in the short term from here as it now trades on around 10x PE with an 8%+ yield, although the Scores tend to favour the likes of Jupiter Asset Management (JUP) & Schroders (SDRC) given their better trading.
Meanwhile yesterday RPS Group (RPS) flagged that it's full year results will be within the range of forecasts despite the big downturn, as expected, in their oil related businesses. They did however take a non cash write down on that side of the business, but more seriously they also saw a write off for bad debts of up to £7m which hit the shares hard yesterday. So again another one that is struggling against difficult market conditions, but again it might be worth a look again once the dust has settled given their efforts to diversify the business via on going acquisitions which is what they have tended to do over the years. Whether they can maintain their record of 15% dividend increases remains to be seen.
Today we had a trading update from Matchtec (MTEC) - which was a bit difficult to interpret because of last years Networkers acquisition and while some of the like for like numbers looked mixed year on year, they did say that they are trading in line with expectations. There also seemed to be an improvement in most lines against h2 last year so it seems like a steady improvement is on track as is the integration of the acquisition and a couple of former Networkers executives are due to leave later in the year as this process completes. They continue to look good value on around 10x with a 4.65% yield, but the shares themselves continue to lack momentum and it doesn't seem like there is enough in this announcement to get them going. So a strong hold, but without a catalyst for a re-rating in the short term continued patience will probably be required.
Paypoint (PAY) - also had a trading update today via a downbeat interim management statement. I say down beat as they are again flagging the effects of the mild winter on energy top ups going through their system, extra costs for their Parcel+ JV and the delay in and lower proceeds from their on line business disposal. So it seems like a year of consolidation for this one in terms of the business with earnings now forecast to be slightly down year on year. This has had a knock on effect on the share price, which continues to languish and is down again this morning on the back of this statement. Thus, despite appearing to be a quality business, they seem to be continuing to de-rate as they seem to be struggling to demonstrate growth in the short term. It may however be getting more interesting as on current forecasts for next year it is coming down to less than 13x (still not bargain basement) but with a growing 5%+ yield, but again patience will be required on this one and probably worth waiting to see if there are more downgrades again after this update.
Renishaw (RSW) - another Compound Income Scores portfolio stock reported half year results. These are also difficult interpret, but this time because of a boom that they experienced in the Far East last year. Consequently headline profits are down sharply, but adjusting for last years boom they say that underlying figures are, in the main, ahead on a like for like basis. The bottom line was that on the outlook they reiterated their profits guidance of £85 to £105m that they had set out back in October last year and that they remain confident about the outlook for this year and the future. I note however, that they left the interim dividend unchanged, although they did this last year before increasing the final. I guess they may do the same this year but forecasts are for only around 1.5% growth in the dividend on the back of earnings falling back so I guess it could also be flat at the full year too.
I have to admit I was pleasantly surprised that the result were OK and the outlook maintained as given their operational gearing and all the talk of economies slowing in China and elsewhere I feared that they might have come out with poor results and reduced guidance. The shares are nevertheless off this morning, having bounced ahead of the announcement as this appears to be another quality stock under going a de-rating which has thus far brought it down to a still not cheap 15 to 17x depending on which year you look at and a not too generous but reasonable yield of 2.7 to 2.9%. So again a quality hold for the longer term I would say, but given the rating and the possibility of an economic slowdown being in the offing, there may ultimately be better buying opportunities for this one along the way.
Finally SSE the energy utility business which is in the news today for finally cutting it's gas prices from March, also announced an IMS. The main point of interest in this was that they confirmed their intention to raise their dividend this year and beyond by at least the rise in RPI, which is nice but may not be that much this year given low inflation. It is quite good though on a starting yield of 6% and although the cover is pretty thin that is probably more acceptable on a utility business.
Phew that's it for today, off to prepare for a podcast with Justin Waite at Sharepickers tomorrow. I will try and put something up about the stock I'll be talking about and a link to the podcast tomorrow afternoon once it goes live, if I have time. Otherwise look out for a month end update on the CIS portfolio and the market timing indicators over the weekend or early next week.
Well a busy day for company announcements today so I'll keep it brief. First up of course is the post close update from Restaurant Group (RTN) which I flagged up yesterday. The figures themselves which show total sales growth of 7.9% and LFL of 1.5% show a slight slow down from their last update at 45 weeks and suggest that Christmas maybe wasn't so strong for them and as a result of this they suggested that they expect their figures to be in the middle of the current range of market expectations.
So probably what could be described as an in line update, however they are also flagging in the statement a slow down in consumer demand as the year went on and talking cautiously on the outlook on the back of things like potential BREXIT vote, the living wage and global uncertainty all being mentioned. As a result they say are more cautious than previously on the outlook for 2016 and are talking about openings being broadly in line with this years 44 new sites, which probably means a few less. They finished up by saying:
"TRG has an excellent portfolio of businesses with strong market positions. The Company's move towards a more balanced portfolio is paying dividends and we have a proven track record established over many years of delivering strong financial returns and excellent cash flows, even through more difficult trading periods. Therefore, notwithstanding some of the uncertainties described above, we are confident that TRG is well positioned to deliver further profitable progress in 2016 and subsequent years.
Thus on balance it looks like a bit of a slowing in their growth is likely this year, but they still seem confident of making progress nevertheless, as they have done in the past. The market seems to have taken this very badly first thing and marked the shares down by around 14% to 550p at the time of writing. I have to say I am surprised by this and it seems like a bit of an over reaction to me in the short term. If we take the current forecasts for 2016 which show double digits eps growth and trim this to say 7% that might suggest something like 35.7p of earnings and a similar rise in the dividend could give something like 18.2p which at 550p would put it on 15.4x with a 3.3% yield which seems reasonable to me. However, I guess it might be best to see where the estimates actually move to to get a better handle on the valuation and see if the market wants to de-rate it some more.
Meanwhile Jupiter Fund Management (JUP), which is held in the Compound Income Scores Portfolio and which came close to be sold at the year end re-screening has announced a trading update and funds under management (FUM). These totalled £35.7bn at the year end having seen decent inflows of £0.5bn in Q4 and £2.1bn over the year. On this they said this reflected their strategy to diversify by product, client type and geography, all supported by strong investment performance. Across the whole of 2015, these combined to deliver organic mutual fund flow growth of eight per cent. and to increase total AUM by 12 per cent, despite broadly flat markets. So looks like they should be able to report the strong expected results, but in current markets fund management companies may not be top of everyone's buy lists, although this one looks reasonable value too with PE of around 15x and a yield of 5.5%+. May be one for brave contrarians who think the sell off in the market is over done?
That's it for today off to plough through all the other statements and watch the carnage in the markets at the moment, be careful out there as it seems even in line statements and note of caution can be treated savagely.
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.