Just to let you know that this is it for this week and indeed this month as I'm off for an Easter break now and should be back in April. So in the meantime may I wish you all a Happy Easter and I hope that you have a great time whatever you are up to.
Otherwise a couple of lacklustre updates from stocks which feature in the Compound Income Score Portfolio today. Firstly there were final results from Next (NXT) the high street and mail order clothing retailer. These on the face of it were fine with the earnings being slightly ahead and the dividend as far as I can tell with all the specials they have paid this year, being roughly in line.
Despite this though the shares are off this morning as the statement was relatively cautious as they flagged the coming year as being as tough as 2008. In the outlook they also said that the outlook for consumer spending does not look as benign as it was at this time last year. In this respect they highlighted a fall in the rate of growth of real consumer incomes from 3% or so down to closer to 1.5% to 2% and suggested that perhaps consumers were spending their increased income on other things. It is interesting that Next have joined Restaurant Group in warning about slowing consumer spending, but it does beg the question of who or what is seeing the benefit or is everyone seeing a slowdown as consumers have turned more cautious on the back of all the recent Brexit / global slow down scare stories?
Any way on current forecasts for this year after the fall in the price of the share this morning to around 6070p, they may trade on around 13x with a 5%+ yield although both of those could change on the back of downgrades and more buy backs rather than special dividends, given the lower share price.
At this level though, having fallen out of the 7000p to 8000p range it looks like it has broken down into the 6000p to 7000p range with some possible support towards the bottom of that range where it is now sitting and the rating being more reasonable now too. So they are probably a hold down here although I note on the Compound Income Scores, before today's results, they were coming out in the low 80's which means they will be at risk of dropping out of the portfolio at the next quarterly screening, especially if they see some downgrades post these numbers, which may not be ideal but that's the nature of a mechanical screening process.
Meanwhile Renishaw (RSW) a metrology and CAD business has as far as I can tell put out an unscheduled trading update because it seems they have seen a slowdown since they reported in January which could lead to a short fall in their profits of up to 10% based on the range of £67m - £83m for Pre tax profits which they have included in this statement.
This therefore explains why they have put the statement out and it is unsurprising to see them off by around 10% as a result. It does however potentially leave the price exposed to further falls if investors worry that there could be more downgrades to come and as it is quite an illiquid share. The rating is also relatively high at around 18 to 19x with a yield of only a little over 2%. Thus while it is probably a quality Company for the long term, the rating doesn't leave much room for further disappointment if sales and growth in the global economy should continue to disappoint. While on the chart below I note recent lows were around the 1600p level.
On the CIS prior to this, given the quality and growth historically it scored in the 90's but the resultant downgrades could spike the score down in the short term which may also leave it vulnerable to exiting the portfolio too at the forthcoming review. This may be no bad thing in the short term though as I also note that, despite the recent relief rally in the shares after in line interims, the 12 month price momentum as well as the estimate revisions are negative which is not a great combination for a highly rated growth stock.
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.
The title refers to a stock which has featured in the Compound Income Scores portfolio since its inception in April 2015. At the time it was one of those quality income growth stocks which was trading relatively expensively and only just passed the valuation caps that I apply when selecting stocks for the portfolio. Therefore it only just made it into the portfolio and I had not bought any myself as a result.
Since then however (like Diploma which I looked at recently) it has drifted off by around 25% and as a result it is starting to look more reasonably priced for the qualities it offers. In addition its Score has now improved all the way to 100 as it scores pretty well across the board. It also scores reasonably well on Stockopedia with rank of 83 & passes 7 of their guru screens too.
As a result of the price move it does not have much price momentum being roughly flat on 12 months and it currently looks oversold. So with all that in mind I think it is time to take a closer look and see how this one measures up.
Another positive month in terms of performance as the value of the portfolio increased by 3.13%. However, as you may re-call from yesterday's market update this lagged slightly behind the total return from the FTSE All Share Index which saw a +4.69% total return.
This is the first month in which the portfolio has been behind the index, but this is no surprise as up to now it has benefited from its bias towards mid and small cap / AIM stocks and a corresponding underweight in FTSE 100 stocks and some of the main sectors like Oils and miners which led the way down over the summer. As we saw in the market review it was FTSE 100 and some of these commodity stocks that led the way back up in October, while mid and small cap stocks overall recovered to a much lesser extent having gone down less beforehand. So therefore as I say no surprise that the portfolio lagged behind this recovery.
However it was pleasing to see the portfolio up by 3.13% which was more than the returns seen by the Mid Cap and Smaller indices. The winners that drove this performance this month were:
+26.7% 32 Red (TTR) the online casino & gambling business - a stunning performance from one of this months new holdings after the latest quarterly review at the end of September.
This just seemed to reflect a re-rating possibly in a belated response to their interims towards the end of September rather than any particular news flow this month.
+11.2% WH Smiths (SMWH) after well received results in the month.
+10.8% Maintel (MAI) - this smaller telecoms provider continued to respond positively to its results announced in September and broke out successfully from its trading range as I hoped it might.
On the downside the biggest losers were:
=5.4% RM Group (RM.) the education software provider a more subdued performance from another of this quarters new holdings, which sagged on no news but this may just reflect it closing at the bid rather than the offer last month.
-4.2% Renishaw (RSW) continued its de-rating from last month which has left this quality metrology Company looking better value on a mid teens PE.
-3.8% Howden Joinery (HWDN) the kitchen and joinery specialist is also de-rating but was probably down this month in sympathy with other repair and maintenance stocks as some of these reported weaker trading in recent months.
Summary & Conclusion
Another positive month for the portfolio with a +3.13% total return even if it was behind the broader index. This leaves it up by 11.62% since inception in April 2015. This compares to -3.73% from the FTSE All Share over the same time frame for an outperformance of 15.35%.
So a great start to the life of this portfolio but it is important to remember that given it only consists of 20 holdings and is completely different in construction from the index that we should expect the performance to differ widely from that of the index both in a positive and negative fashion. However if the Compound Income Scores are good at identifying attractive stocks then hopefully this divergence should be in a positive direction over time, so so far so good, but as I always say time will tell.
Meanwhile I have uploaded the updated Portfolio which you can view via the menu at the top of the website or via the drop down menu to the left on mobiles and tablets or by clicking here if that is of interest to you. Of note if I were doing a re-screen this month, which I'm not, the sell candidates on the back of post results down grades would have been IG Group (IGG) and Utilitywise (UTW) with scores of 64 and 71 respectively.
Finally If you are a new or recent reader - welcome and if you are wondering what the Scores are all about and want to learn more about them, then see the Scores heading in the menus mentioned earlier or click here to read & see more about them and how you can access them.
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.