Announcements from companies in the CIS Portfolio this week included a positive trading update from recent purchase Mondi (MNDI). These suggested that their underlying operating profits are up by 15% in the half year to date. This includes the effect of some planned down time at some of their plants which overall they now expect to be a slightly greater drag on results this year than last at €115m v €95m and this is also slightly up on their previous estimates. They also flagged higher costs and a headwind from currencies, but despite these negatives they still say that the outlook for the business remains postiive as they continue to experience a strong pricing environment in a number of key product segments and also good demand. Thus they expect to continue to deliver what they describe as "value accretive growth", so it looks like a hold on that basis.
On a less positive note there was also a rather lacklustre set of interim results from Zytronic (ZYT) which in a mirror image of Mondi saw their basic eps decline by around 15% as their revenues fell slightly on the back of weak demand in the Financial area, primarily ATM's which they make flat screens for. On a more positive tack they did suggest that there had been a customary pick up in demand in this area in H2 so far, but went onto suggest that demand overall may be suppressed compared to recent years. This was disappointing and may help to explain the recent de-rating of the shares and prompted another sell off on the day of the results. One saving grace against this is the strength of the balance sheet with net cash of £13.7m against a market cap. of £65m. This allows them to pursue a progressive dividend policy. Thus although the earnings were down they raised the interim dividend by 100%.
This was however partly to address the split between the interim and finals so I wouldn't expect such an increase for the full year, but forecast growth of 20% in the dividend for this year and next puts it on potential yields of 5.6% and 6.7%. this is however at the expense of cover which will come down towards a rather low 1x if the current forecasts are achieved. Thus it looks good value on yield grounds with a fairish looking PE of 12 to 14x or less if you factor in the cash. So a dull hold for income at the moment but unlikely to excite on the capital side I suspect, until they are able to return to demonstrating more turnover and earnings growth. As it has drifted back towards it's recent lows this might be a good entry point for a patient contrarian investor if you believe they will be successful in returning to a growth path, otherwise might be worth waiting for evidence of an upturn.
The only other snippets worth mentioning were a contract win in Slovenia for Amino Technology (AMO) and a slightly unusual RNS from Taptica (TAP) which included a Q & A with the CEO which you can read here if that's of any interest and you haven't seen it yet.
Charts below left to right from top are; TAP, AMO, MNDI & ZYT
Just a quick note to say that the latest Compound Income Scores have been updated again today. Meanwhile as promised here are brief details about the trades that were carried out in the CIS Portfolio which is run using the scores. This month there were three potential sales, although in the end I gave VP Group (VP) the benefit of the doubt as they had issued an in line trading update and final results are due in June.
Consequently Central Asia Metals (CAML) and Portmeirion (PMP) whose scores had deteriorated both left the portfolio having delivered decent returns over about a year in the case of CAML & just three months in the case of PMP. CAML was replaced directly with a similar stock with a higher score - Rio Tinto (RIO) albeit that it is much bigger and more diversified in terms of its operations. While PMP was replaced with Mondi (MNDI) the much larger , international packaging group where the portfolio then picked up the final & special dividends which gave an immediate yield of 6.27%, although obviously the price will have adjusted down accordingly on the XD day.
Finally in a bit of portfolio tidying up I also topped up a couple of holdings which had lagged with some of the proceeds of the above sales and from some cash that had accrued from dividends. Thus holdings in Headlam (HEAD) & Ferrexpo (FXPO) were topped up. I know this goes against all the suggestions of running your winners and cutting your losers but in this case FXPO continues to score extremely well and HEAD's score is still quite good at 88 and the CIS portfolio will also pick up the final dividend of 17.25p worth 3.88% which goes xd towards the end of May.
That's all for now but don't forget if you would like to learn more about the Scores and how to gain access to them or learn more about the CIS Portfolio then do explore the navigation links at the top of the site if you are on a PC or in the three lines menu at the top if you are on a mobile or tablet or click the highlighted links in the first paragraph. Good luck with your investing and have a great weekend whatever you are up to.
I wrote about Mondi (MNDI), the global packaging group back in April 2014 here and here, which looked cheap at the time and has done well for me since then. More recently, in July this year, the Compound Income Scores (CIS) portfolio had picked up a holding in another smaller packaging company called Powerflute Oyj (POWR) at 70p thanks to its high score in the Compound Income Scores & the fact that it looked cheap in comparison to its bigger rivals like Mondi. This stock was in the news yesterday as the founding Chairman Mr Smurfit, who has a long history in the packaging industry, has decided to sell out his large holding and thereby facilitate a takeover bid for the whole company at the 90p level. Now while this still seems to be a bit cheap and not that great a premium to the recent price, it probably reflects Mr. Smurfits desire to sell his large stake and get the deal done. Thus being recommended and with over 50% of the shares either bought or where they have received irrevocable undertakings to accept it looks like a done deal.
This is the first holding in the CIS Portfolio to attract a bid, so what lessons can we learn from it? Well as ever value investing can be rewarding if you are prepared to look in out of the way places or be a bit contrarian. Now the Compound Income Scores are not necessarily contrarian as they do include estimate revisions, but they do otherwise tend to highlight stocks which offer good value, quality, financial security and which offer growing dividends. They also highlight stocks, like Powerflute, which may not be that palatable at first glance. At least in this case they prompted me to take a closer look and benefit from the recent move in this one.
More broadly given this looks like a done deal as Mr. Smurfit seems keen to exit this does give me pause for thought, given his experience of this cyclical industry. I also note that quite a few VC led IPO's (new issues) are opportunistically coming back out of the wood work again now which suggests to me that the market is getting quite fully valued and may be getting a bit toppy. Added to that are the concerns about the US Fed raising rates again, perhaps this month, or more likely by the end of the year at a time when US economic data has been a bit mixed. I continue to watch the US unemployment data closely to see if it breaks upwards through its moving average, but so far it has remained below, as this has in the past been a good lead indicator of a forthcoming recession. Thus I am also getting a bit more wary of more cyclical stocks and in light of that I reduced my Mondi holding recently when it was over 1600p.
As for the Powerflute holding in the CIS Portfolio, this will be reviewed at the next monthly re-screening at the end of this month and as it looks like a done deal I'll probably use it as a chance to lock in a decent 25% profit and move onto the next opportunity. So if you would be interested in finding out what that turns out to be or in getting access to the Scores yourself then you can read more about them and how to subscribe to the Scores here and the CIS Portfolio here.
....round up as there are lots of results and updates out today, but I'll cover briefly those that I have mentioned in the past or those that currently score well on the Compound Income Scores as they may be worthy of further research. So in no particular order we have had:
That's it for today as I'm trying to get a more in depth look at another stock done, hopefully might have that ready for you tomorrow or over the weekend.
We have had updates today from stocks I have mentioned in the past such as Mondi (MNDI) the international packaging and paper Company. I first wrote about this on and bought it back in April 2014 when it was trading in the 900's. At that time I introduced it as a mystery stock because I felt that if you knew what it was you would think boxes - what and move on, so how has it turned out.
Not too bad as they have continued to trade well since then and the IMS today generally read well and follows up from their recent credit rating upgrade. So all seem to still be going well but they remain realistic when they summed up by saying:
"Much depends on the macroeconomic environment. However, given the Group's robust business model and clear strategic focus, management remains confident of continuing to deliver industry leading performance and making good progress for the year."
As you can see from the chart below the shares have done pretty well in the last year or so, although they didn't really get going until this year when some industry consolidation took place which perhaps highlighted the value on offer here. The
shares are also up by about 9% this morning to 1423p at the time of writing, so the update seems to have been well received. I presume there could be some more upgrades on the way which is something else I like to see in a stock. So before any upgrades this leaves the shares today trading on a fullish looking 17x with a lowish 2.4% yield. Thus I probably wouldn't recommend chasing them up here, but I note they still have a Compound Income Score (CIS) of 92 driven by growth and estimate revisions despite the average value on offer. Thus it has now definitely become a Quality Momentum stock as reinforced by Stockopedia quality and momentum scores which boost it to a 90 Score on their VQM model.
Otherwise in brief we had a positive / in line update from Renishaw (RSW) which features as another QM stock in the Mechanical Score portfolio with a CIS of 96.
Finally catching up from yesterday there were results from Easyjet (EZJ) which has a recent CIS of 84. These were not that well received as they alluded to a hit from the recent French strikes and the fall out from the recent German Wings crash and perhaps diminishing benefits from oil prices and currency moves. There may also have been disappointment at not seeing better than expected results leading to upgrades, although they did unusually make money in the first half and came within the range of profits they had indicated.
When I first wrote about this I suggested they offered a trading opportunity having come back sharply to 1700p and indeed they had a modest rally from there. However with airlines having lots of unpredictable influence, as we saw in these results, the shares tend to be volatile. In my original post above I did also suggest that as they only pay dividend annually that you could afford to wait and that a price closer to the 200 day moving average might be a better entry point. You can see from
chart that this now comes in at just under 1600p and what looks like some support just below that between 1550p and 1600p. Technical analyst Nicola Duke on the ADVN podcast yesterday also highlighted this area and the fact that 1570p is the 50% retracement level for the move from 1200p or so to the February 2105 peak and this is often seen as a strong support too, but no guarantees obviously.
On valuation grounds at 1650p today it is on around 12.5x and yielding 3.6% and at 1570p it would be <11.8x and 3.8% which doesn't seem too bad as they continue to trade well, but the estimates will need watching. So if you can stomach the turbulence of an airline in your portfolio it might be worth getting your boarding cards ready before the EZJ flight <1600 takes off - groan and on that corny note I've got to fly.