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.
Had to check the calendar today to make sure it wasn't Thursday as there were so many results and announcements. Any way the ones that featured from stocks I have mentioned in the past were - Cineworld, which I trailered yesterday, Rolls Royce and Hill and Smith. While yesterday I caught up with the webcast of the Equity Development meeting with Matchtec and I include a few thoughts on that at the end of today's news.
As I have observed in the past Thursday seems to be popular day for corporates to put out results and consequently, like today, we often end up with a throng of results on a Thursday.
So I'll cover in brief a few that I have mentioned in the past which are in size order Rolls Royce, Restaurant Group, Safestore & Norcros. So if any of those are of interest then click the read more.
I say blue moon because apparently tonight is going to be a blue moon. This is commonly used to represent something which is not seen that often. Apparently in astronomy this relates to the second moon in a month (as per tonight) or the third of four full moons in a season, but don't worry the moon will not actually be blue.
Another saying is in for a penny in for a pound which apparently means if you are owed a penny you might as well be owed a pound. What is he going on about I expect you are wondering already. Well today's idea may be a rare opportunity to buy into a contrarian opportunity for both a short term trade and also for the long term as it is I would say a quality play. However it is not that rare, like a blue moon seemingly, as shareholders in this one have suffered several bad moons recently and in terms of the short term trading opportunity I think you could go in for 9.27 pennies of dividend and be in for a pound of upside.
So what is it I hear you cry. Well it is one of those many companies that reported yesterday so it may have got lost in the rush to the beach by corporate CEO's. Talking of CEO's this one, Rolls Royce (RR), has a new CEO - Warren East who interestingly was the former CEO of ARM Holdings. At least he comes from a technology background although clearly the technology on offer here is at the other end of the scale to that offered by ARM.
Any way I suspect the recent resetting of expectations carried out by the Company was probably done in conjunction with and with him prior to his start date. although I understand he will obviously be reviewing things further before he reports back by the end of the year. But nevertheless given they have had about three profits warnings in the last year I would hope that most of the bad news is now out of the way and that expectations have reached a floor.
Some indication of this came in the update yesterday when Mr East set out their current expectations for this year. In this he suggested they would make £1,325m - £1,475m Pre Tax profits and eps of 55 - 62p. Now obviously they have disappointed several times before so these are not guaranteed, but as least the market is already sceptical because current consensus is for 53.6p of earnings, so there could even be scope for upgrades if they can hit their targets this time.
The other encouraging thing was that the interim dividend was increased by 3% to the 9.27p mentioned above and this compares to consensus forecasts of a flat dividend so again it looks as though expectations had now go perhaps too pessimistic suggesting there could be an opportunity for a turn around in sentiment if they can start to deliver on their expectations.
The other aspects I like about this one apart from the technology they have and the R & D they do is the five year order book that they have plus the big market position they are carving out in the new wide body airliner market. The benefits of this will all be long term and the profits are going to be more back end loaded as they are changing the way the account for the new engines and the resulting spares business. Before this was all bundled and spread over the life which brought forward earning recognition from spares and maintenance, so that is also worth bearing in mind.
Looking at the valuation it is not actually in bargain basement bin, but given the nature of this one I don't think it is likely to get there any time soon. However, it is on a fairish looking 15x or so with a 3%+ yield which is around 2x covered. So OK but not outstanding, but I think this could be a good entry point for a longer term recovery and growth going forwards. They have for example grown their dividend by 9% per annum over the last five years and I see no reason why they should not be able to do something similar going forward given the order book and assuming the short term head winds can be over come.
So what about the short term opportunity? Well I mentioned already you can get the interim dividend of 9.27p (worth 1.24%) and looking at the chart this is where the pound comes in. As we saw earlier in the year when I suggested trading this one on a previous profits warning, this one has been quite volatile but also good at closing its gaps on the chart. The latest warning recently opened up another gap on the chart at just above 850p so at the current price of 750p this to me suggests that there could be 100p (13%) or more of upside too in the short term. I'm also encouraged by the fact that the sentiment is on the floor (see comments about forecasts above) and the shares are heavily oversold. In addition I note the positive divergence on the RSI recently with the stock making new lows but the RSI failing to confirm. This is usually a sign that downside momentum is slowing or is exhausted and after three of four goes like that it is often the pre-cursor to a rally.
So there you go this could be a blue moon opportunity to buy into this one, although like blue moons we have had a couple of those this year already with this one, but in this case I think it could be a case of a Bad Moon Rising. What's that you do believe that's a song? Oh go on then have some CCR at the end as well as RR - hope you enjoy them both!