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In a fairly quiet news flow day today we have had some acquisition, disposal and directors dealing news from a few stocks I have written on in the past. Firstly there is another acquisition and associated rights issue from RPC Group the £2bn rigid plastic container manufacturer which wrote up in detail some time ago and updated on it here. This latest in a long line of deals from them, which have historically been successful, again looks sensible and given the price, expected synergies of €15m per annum and the financing arrangements looks as though it will be earnings enhancing, like previous deals. They are paying £470m for GCS Group which is a leading global manufacturer and provider of closures and dispensing systems for consumer products in more than 100 countries worldwide. They are funding this with a mix of cash from a 1 for 5 rights issue at a discounted 460p and debt which is expected to leave their debt at a highish but manageable 2x EBITDA. In summary on the benefits of the deal they say it will see:
 Meanwhile we had a disposal of the national network assets from KCOM the Hull based telecom operator. This has raised £90m for them and pays down most of their debt. I estimate this will be roughly neutral as the £4m net cost of using the network going forward will roughly match the interest cost savings. However as they say it does give them capacity to accelerate investment in their plans to transform the group, without the need for any material increase in debt, while at the same time as providing shareholders with a clear medium term dividend commitment. The shares had been suspiciously firm in the run up to this and have now moved to the top of their trading range over the last few years where they now also appear over bought in the short term. Thus it will be interesting to see if this deal and perhaps details of their  investment plans can prompt a further re-rating, although I note this is very much like a sale and leaseback deal that a retailer could undertake and as I don't see it enhancing earnings I'm not sure it really changes the story that dramatically. Thus given it is on a fairish looking 14x with limited growth and a low EBIT /EV yield the main attraction remains the 6% or so yield which has been growing strongly but is scheduled to be at least maintained at 6p after the current year as indicated by the Company in their interims recently,
So on that basis I would be tempted to suggest locking in some profits up here, although maybe I could be missing something here. But worth noting if you are in need of income the shares are due to go XD the 1.97p interim on 24th December. Finally further to the bullish update from S&U which I mentioned on Friday. I note that the Chairman Anthony Coombs backed up his bullish comments with a purchase on Friday of 1,000 S&U Ordinary Shares at £24.05 per share which takes his total beneficial holding to 1,335,027 Ordinary Shares representing 11.2% of the total voting rights of the Company.
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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.
First a quick update on Kingston Communications (KCOM) which I highlighted back in January this year as offering value and at that time I suggested that they could perhaps return to around 100p from the 80p level they were trading at around the time. I updated on this after the final results earlier this month when they reported a further 10% dividend increase and I concluded that there didn't seem to be enough in these numbers to me to justify it breaking our from its range at this time. I note that in the last week it has hit my 100p target, although it has just nosed above that briefly in the past. I note also that forecasts for the dividend to March 2017 are now out and these show the slow down I expected to around 2% or so. The yield of around 6% should still support them up here, but I'm not sure they will re-rate much more for now. Thus with the shares due to go XD the final dividend of 3.58p this Thursday, I suspect this may help to maintain the resistance at the 100p level for now. So if you are not bothered about income, now might be a good point to lock in a decent 25% or so capital gain in the space of 6 months against a market that has been flat. Otherwise it seems like a solid hold for the 6% yield, but I wouldn't expect much more from it in capital terms for now though.  The second 6% or so yield stock today is one I mentioned briefly back in early November 2014 as a way of playing a recovery in the Japanese market by investing in a fund manager that was big in Japan. While the idea was a reasonable one as the Japanese market has gone up by around 20% since then, sadly Polar Capital (POLR) the suggested stock has lagged this. In my defence though at least the Sterling Hedged I-Shares MSCI Japan GBP Hedged UCITS ETF I also suggested as a purer way of playing it has outperformed. Polars under performance was due to the fact that their Japanese fund suffered a poor performance run and saw large outflows and consequently in today's results they suffered their first outflow of funds since the financial crisis. Despite this they did maintain the level of the full year dividend payment as they are confident about their business going forward having added a few new teams and product areas to diversify the business. They look OK value on around 16x with a near 6% forecast yield for the current year, but their larger more established competitors like Jupiter and Aberdeen look more attractive on the Compound Income Scores right now. Thus again it is probably one that is supported by the yield, but will need the underlying business to improve to move it on in price terms. They seem optimistic on this front and the Chairman's outlook statement in today's results is worth reading as it includes sensible comments such as: "Markets are by no means cheap and are susceptible to a meaningful correction if central banks cannot manage to deflate at a measured rate the various bond market bubbles they have created in Western economies. Overall debt levels remain uncomfortably high in too many countries although there has been notable progress in some such as the US." In conclusion, probably not one to chase after the recent share price move and on the back of these slightly disappointing results. However, if you are sanguine on markets medium term and Polars ability to continue outperforming and attracting assets then this could be one to consider on weakness as they seem to be finding good support between 360p and 400p. Finally, if Greece manage to pull off another great escape (for now) from default then I guess markets could have a relief rally too in the short term.  ...no not E.T but today we have final results from KCOM, the telecoms provider and a trading update from Bellway (BWY) the house builder. You can visit their corporate sites and read the full announcements by clicking the highlighted names above. Otherwise my take on them is as follows. Firstly Bellway is one that I have been in since the end of 2013 when it was trading around the 1400p level and it also features in the Mechanical Compound Income Scores Portfolio ( which henceforth I'm going to refer to as the MCIS Portfolio to save my fingers). Any way they reported a update today to the end of May 2015 with some guidance for what they expect for the full year. The key points from this were:
Thus the outlook still seems fine at the moment and the company seem confident of delivering further value for shareholders with it focus on disciplined growth as they seek to roll out some further division in places like the South West of England for example. However, as you can see from the chart below the shares have done exceptionally well in the medium term and also more recently after the Tories were returned with a majority in the election.  This has left the share looking over bought and on a fullish looking rating, for a house builder, of 10 to 11x depending on which years earnings you want to look at. The income attractions remain though as the yield (which is 3x covered) is expected to be 3% this year and 3.3% next year on the back of strong growth. Summary & Conclusion While I am happy to run this one for the medium term given the on going low rates and government support helping to sustain strength in the housing market. However, in the short term after such a strong run and with the first signs of renewed austerity early in this parliament yesterday, before the budget next month, I think they may be vulnerable to some profit taking now given the wobbly market at the moment. So I wouldn't rush out and buy them now and I'm not that surprised to see them off today. I guess it is always possible they could close the gap on the chart around 2000p which would leave them less extended in price terms and put them on a more attractive looking 8x and 4% or so rating for the year to July 2016. I would suggest this is not impossible as they have seen sharp corrections in the past and If they should get down there this might then offer a more attractive entry point. Meanwhile KCOM announced in line results which saw their adjusted eps up by 5% and the dividend up by 10% which is in line with their policy to increase it at this rate until March 2016. In brief they say this is the second stage of their transformation as they move away from legacy business to more focus on fibre products and serving enterprise and small and medium sized businesses. Summary & Conclusion A dull in line performance from KCOM is not enough to get the shares going today. This is especially so since they have moved up nicely from the 80p level when I flagged them back in January this year. They have now all but hit my 100p target so I wouldn't suggest chasing them up here as they tend to be a bit of a trading stock. However the yield for the year to March 2016 remains the main attraction at 6%. The main question is whether their transformation can lead to more growth in earnings which might then support more dividend growth beyond 2016. I say this because the cover is forecast to have been run down to a low 1.3x or so as they have struggled to grow earnings. But the Company did say in the statement today: "Last year we began the second stage of the transformation of our business. I am pleased to report that there has been continued progress in our focus areas. In Hull and East Yorkshire, the strong demand for our Lightstream fibre-based services has been maintained and in the Enterprise and SMB markets, we continue to see growing interest in our cloud and collaboration related capabilities. These are the key opportunities for future growth. "In the coming year, we will seek to accelerate that progress, particularly in the Enterprise space where we see significant opportunity." So the question will be can they grow this side fast enough to offset the decline in traditional business and maintain some dividend growth. I would assume on that basis that the dividend growth will slow to no or low growth given the cover, unless their comment about accelerating progress can translate into say 10% earnings growth from 5% this year. The shares on a yield of 6% are probably pricing in little or no dividend growth so I would say it is a hold for yield but I wouldn't expect much more upside to the price from here as there doesn't seem to be enough in these numbers to me to justify it breaking our from its range at this time but i guess time will tell.  I thought I would feature a few of these for you to think about. I have written in the past about on one called Alternative Networks (AN.) (£219m market cap.) which had a trading update for the half year ended 31 March 2015 today.This read quite well giving the Board confidence that its full year expectations for the Group will be met, which is always a good start. They did talk about a second half weighting to the profits this year, which can be a concern, but they seemed to be suggesting this was due to them winning lots of new larger contracts. Their Advanced solutions and mobile offerings did well and this helped to offset the expected decline in fixed line business. Meanwhile they are busy integrating and rationalising two recent acquisitions. On the back of this they flagged strong cash conversion and reductions in debt both actual and expected and they reiterated their 10% to 15% dividend growth expectations. The only slight negative tone was on one of the acquisitions where they said ControlCircle's performance has been satisfactory. So with that caveat and the second half weighting to profits I guess the H1 numbers may not look that great when they are reported, but I would be confident that this one will deliver in the second half. The shares have drifted back from their highs recently and they have just bounced from an oversold position on the RSI (see chart below - comments continue after chart).  Summary & Conclusion The shares look reasonable value on around 14x & 3.5% yield based on current forecasts to September 2015 with a Compound Income Score (CIS) of 65 . This is expected to go to 13x and 4% with the growth forecast for 2016. Seems fine to me but as I say may be the interim may not look that great so other than it being a bit oversold there may not be much of a catalyst for the price in the short term. Otherwise there is a surprising large amount of choice in the Small Telecom company space in the UK. I have also written in the past about KCOM (£470m market cap.) which I flagged up back in January this year when it had fallen to less than 80 pence and offered a yield in excess of 6%. Just to note it has now risen towards my 100p target to reach the low 90p's but still trades on around 12x with a yield around 6%, CIS = 82 Others have mentioned to me Manx Telecom (MANX) (£200m market cap) which has reported Final results today. Not one I have looked at in detail but as the main provider in the Isle of Man I can see the attractions as it also trades on around 14x with a 5.5% yield for this year, CIS = 14 (maybe reflecting short history as it only listed recently). Other choices in this area include the much smaller Adept Telecom (ADT) (£36m market cap.) which seems to be on around 11x with a 3% or so yield, CIS = 93. It is expected to grow strongly and favoured by former colleague John Rosier in his Investment Portfolio which you can read about here. Finally another small one that has scored well for a while with a CIS of 96 is Maintel Holding (MAI) (£71m market cap.) which is also on around 11x but with a 4% yield and strong forecast growth although when I checked it out it didn't seem that liquid and the spread was horrendous. So there you go plenty to choose from in this space and as I always say you pay your money and take your choice and do your own research. Puts me in mind of an old song and as 70's retro is all the rage these days look out for some classic clothes and disco dancing oh yes and Debbie Harry in this video to brighten up an otherwise dull Tuesday. |
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