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.
...as it has been a busy day for results today. Most of these I have covered recently when they announced year end trading updates so I'll just give brief comments today.
Firstly was Provident Financial (PFG) - the home credit and sub prime credit and instalment lender (click the name for previous posts or see the categories list at the side of the blog). They reported results which were probably just shy of best expectations with the dividend at 98 pence rather than 99 pence forecast, but then it was up by 15.3% which was better than expected at the start of the year. Thus not surprised to see the shares off a little first thing as they have had a great run and only look about average value albeit with a decent and strongly growing yield of around 4% which remains the main attraction of this one. The only real point of note is that I see they are scrapping their Polish Credit card pilot at little cost this year having seen start up losses of £10m there last year - so a small boost there.
Next onto boxes and firstly the cardboard variety as manufactured by Mondi (MNDI) amongst other things. In contrast to PFG their numbers seemed to be slightly ahead of expectations at the earnings level and as such the share have responded positively first thing. I note the dividend was perhaps 1c light of forecasts but was nevertheless up by 17% and well covered by earnings and cash flow. This one is obviously sensitive to general economic conditions (cyclical) and they say that the outlook for this to remain below average. They are also affected by exchange rate moves but these have tended to help them recently. They summed up by saying "Furthermore, the recently completed capital investments and ongoing projects should contribute meaningfully to our performance going forward. As such, we are confident of making further progress in the year ahead." The only other point I noted was that they flagged a little extra cost from planned outages this year which are expected to total €80m versus €55m last year. The shares have done well in the last year out performing by around 20% and they have re-rated somewhat as a result. Thus they look less compelling on around 15 to 16x next years earnings with a 2.7% yield, before any changes on the back of these numbers. The latest declared operating margin also leaves it on a fairish 7% earnings yield. Consequently the CI score has drifted back into the 60's as the shares have re-rated and as such they look like a hold up here and if you hold them I would suggest you need to keep an eye on economic developements for signs of weakness / recession emerging given their cyclicality.
Persimmon (PSN) was the other box provider that reported today and as expected reported very strong results and a welcome early payment (April rather than July) of this years planned return of capital of 95 pence. The problem here is that the share had travelled well before today's numbers so probably not surprising to see some profit taking as perhaps people think this might be as good as it gets perhaps. They are however committed to further capital returns over the next few years, although next years is only currently expected to be 10 pence, although this could be upgraded.
So with a fullish looking (for a house builder) PE of nearly 12x this years earnings and more limited yield support given the lower return of capital planned for next year I can see whey people would be taking profit up here ahead of the General Election uncertainty. Despite this the company say the year has started well and they still seem well place to prosper in the medium term so as I always say you pay your money and take your choice.
Finally digging deep into my reserves of endurance and as the coffee pot beckons just a quick mention for BHP Billiton (BLT) which reported half year results today. Not being a mining analyst I'll not get into analysing or debating the various possibilities for commodity prices. But in passing I note that they still expect an average investment return of greater than 20% for their portfolio of high-quality development options. In addition they say they expect to maintain or not "re-based" as corporates like to say these days, the dividend even after the planned demerger. This suggests that the 5%+ yield is safe for now but I note that earnings have been downgraded steadily in recent months and the cover is diminishing and will diminish further post the demerger. So if economies and commodity prices continue to struggle then this dividend could come under pressure in the medium term.
as we have had reasonably positive trading updates from Bellway (BWY) the house builder and Mondi (MNDI) the packaging group which amongst other things produces cardboard boxes. I note that both of these are top decile stocks on the Stockopedia ranking system.
Bellway are talking about 15%+ volume growth and margins approaching 20% although they do talk about volumes being first half weighted. I guess this is understandable given the election coming up and given the rise in house prices we have seen in some areas. So something to watch out for there in the second half. However the shares, which have come back a little since the year end still look good value with a PE of 8.5x and a yield of 3.5% and they still appear near the top of the Compound Income Scores. So it seems there is nothing in the statement to suggest any action is required unless you are worried about a second half slow down.
Meanwhile Mondi seem to have come in slightly ahead of consensus which is for 101c as the basic underlying earnings per share (euro cents) is forecast to be 106-109 (2013 95.0), increasing between 12% and 15%. These shares have done quite well being up by around 20% since I wrote them up last April. This leaves them looking more fairly valued now on around 14.5x with a 3% or so yield and a 6% earnings yield. This leaves it just outside the top quartile of the Compound Income scores so OK, but may be not worth chasing up here given a strong rally recently has left them looking overbought in the short term. However I note there has been some corporate activity in the sector recently so maybe investors are anticipating some action here too?