There was a full year trading update from Matchtec (MTEC) the international staffing company which specialises in Engineering, Telecoms & IT staff globally. This was of the in line variety which I have to say was a pleasant surprise as given the price action (see chart above) and the general consensus that staffing companies would be the first to be hit by any downturn post the BREXIT vote I assumed we would see a profits warning. On the EU referendum they said that "demand for skilled engineers remains strong in the UK and, notably, we have yet to see any impact on vacancy flow in the six weeks since the EU Referendum."
So that is encouraging in the short term and suggests that forecasts for the current year which has just finished and will be reported in November should as they suggest be around current forecasts of around 46p of earnings with a 22.8p dividend. At this mornings price of 352p (+4.3%) this would put them on 7.7x with a 6.5% yield which seems like good value as they continue to integrate last years acquisition of Networkers and see strong demand for engineers. I note however that demand for IT personnel was weaker and they are having to restructure this area, but at least the deal last year has brought them more overseas exposure which they are also building on which should help to offset some of the likely domestic downturn when the expected domestic slowdown hits.
Thus the most important thing will be the outlook for next year which we should get an update on from them when they report in November. At this stage forecasts are still for a rise in earnings and dividend to around 47p and 24p respectively as further benefits from the deal accrue. Thus it will be worth watching earnings forecast ahead of November as I suspect it is quite likely that next years outcome could well end up being lower if the forecast economic slow down comes to pass. So if you were to conservatively (?) slice say 20 to 30% off the earnings this would put them on more like 10 to 11x with a 6 to 7% yield with a lowish level of cover. I also note that they have paid down some of the debt taken on when they made the acquisition as net debt at 31 July 2016 was £27.5 million, down £6.1 million on 31 July 2015, which compares to a market cap. of just £105m - so worth bearing in mind too as there are not many tangible assets here.
In conclusion a pleasantly surprising update but I suspect it will not fly away from here as concerns will now probably switch to worrying about next year, but it does leave them looking cheap if you are prepared to give them the benefit of the doubt. Mind you they have looked cheap when I have covered them in the past and that has not stopped them sliding all the way down here so apologies if you have bought them and are sharing my pain too. Finally note that subject to shareholder approval they will be changing their name to Gattaca plc.
Matchtec (MTEC) - the £142m recruitment business has announced in line interim results in which they reported further progress in integrating the Networkers acquisition which they now expect to largely complete by the summer of this year, with the full synergy benefits realised by mid 2017. Demand remained strong in engineering and telecoms but the IT area was weak, although improving in the second half. Energy was also a weak spot on the lower oil price, but they have reduced their exposure to oil and gas to just a third of the energy business with their recent diversification. They also continued to invest to expand their overseas operations to further this diversification. Despite this investment the cash conversion was strong and this saw net debt (which some have worried about) reduce in the period by £8.8m to £24.8m (31 July 2015: £33.6m).
Overall they reported some modest 6 to 7% growth on the back of this and this was matched by a 6% increase in the interim dividend to 6p which suggests to me they will probably pay 23p for the year rather than the current 22.8p consensus. At the current 470p this morning they trade on around 10x with a near 5% yield which still seems cheap, although this seems like another one that the market is reluctant to re-rate. If they do continue to successfully integrate Networkers and expand there operations internationally while producing some modest growth then the shares should be able to make some progress in the medium term, but I suspect continued patience will be required.
Norcros (NXR) - the £106m bathroom fittings and tiles group has announced a year end trading update today. While not showering the market with good news they did at least say that Group underlying operating profit for the year is expected to be marginally ahead of market expectations. Aside from that their suggestion for turnover looks a little light versus forecasts, so given their comments on operating profits presumably this means margins might be slightly better than expected.
They alluded to tougher conditions in the UK market and strong growth in South Africa was negated by movements in the Rand. They did however get a boost from their acquisitions last year and this is part of their plan to double revenue to £420m by 2018. Which seems ambitious and I hope they don't go all out to get the turnover but at the expense of profits because as Warren Buffet said "turnover is vanity and profits are sanity."
The spending on acquisitions meant a cash outflow for the year and leaves them with £33m of debt versus £14.2m last year, so they may still have a bit of headroom on the borrowing front for more acquisitions. Having said that though the other liability they have is a large Pension fund which saw an increase in the deficit to £73.5m (2012: £61.9m) representing an 84% funding level (2012: 85%) in the latest triennial review. The increased deficit was driven predominantly by historically low gilt yields. A revised deficit recovery plan has been agreed with the Scheme Trustee, with a cash contribution of £2.5m per annum starting in April 2016, and increasing with CPI, payable over the next 10 years. This compares to a deficit recovery payment of £2.1m in the year to 31 March 2016 under the previous plan. So an extra £0.4m per annum hit to the bottom line.
The shares continue to look good value at 170p which puts them on around 7.5x with a 3.5% yield for the coming year assuming no changes to forecasts on the back of these numbers based on forecast eps of 23.5p to 24p. So it is on a zero growth type of rating so if they can deliver growth in their turnover, profits, earnings and dividends over the next few years then they could well be cheap and one could argue for a re-rating to say 10x which would give a price target of around 22 to23p which is close to the highs they reached last year. It may however continue to be one of those frustrating value stocks that just sit there on a low rating if the market continues to ignore it on the basis of its chequered history, pension deficit and South African exposure.
As the bear market continues to roar on there were a few snippets of news from stocks that I have covered in the past. I'll keep it brief as no doubt you might want to get back to watching your portfolio, although that may not be good for your well being and blood pressure. First up we had an in line trading update from what is now just a car finance company S&U (SUS). This included a 19% increase in the dividend which is probably in line with forecasts, although this is a bit hard to discern due to the special dividend paid this year on the back of the disposal of their home collected credit business. This also means they have a strong balance sheet with only low gearing and therefore plenty of scope to grow their business and consider acquisitions. On acquisitions quite topically they said:
"We continue to examine potential acquisition and start up opportunities in a rigorous and painstaking way and have added to our development team. The recent reverses in stock market values have confirmed our impression of unrealistic pricing last year and may lead to better value in the coming months. Our search continues, but against a background of continuing investment in Advantage, and our determination to maintain shareholder returns in areas where we have experience and expertise."
Seems like a sensible and cautious approach and I would continue to trust the management to deliver value for shareholders. As such with that in mind the shares look good value having come back with the market recently and are close to potential support from lows in April / May last year. At around 2000p they now trade on around 12x with a 4%+ yield which seems fine to me, although if the market carries on falling then no doubt this one may be dragged down further with it.
Meanwhile Rolls Royce (RR) have announced their results and the on going restructuring being undertaken by the new CEO. As a result of this, probably unsurprisingly, they become the latest blue chip, after Rio Tinto (RIO) yesterday, to announce a dividend cut. In this case it is a 50% cut to this years final and next years interim. So looks like the turnaround here will be a long haul, but it does at least have a large order book to tide it over.
Finally I noticed that the recently appointed finance director at RM has picked up an initial 35,000 shares and a director of Matchtec (MTEC) seems to have done a bed and ISA transaction so probably nothing too significant in those. That's all for now, I hope your portfolio's are not being too badly hit by the current turmoil. If you are on the look out for bargains in the stock market flash sale then just to let you know the latest Scores are out today, right now where's my tin hat.
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.
....as no doubt the news agenda will be dominated by the to bomb or not to bomb Syria debate and vote later today in the UK Parliament. Aside from that we have had a few announcements from stocks I have covered in the past, Matchtec, Greene King and Renewable Energy Generation.