...that is the question as November proved difficult for investors as a new variant of Covid-19 was discovered. This was in addition to concerns about inflation, supply constraints, governments debt mountains and the Central Banks response to these. Consequently as shown in the table at the start the FTSE All share has produced a total return of -2.2% for the month and 13% for the year to date.
The Compound Income Scores Portfolio (CISP) outperformed again this month with a smaller negative total return of -1.6% and has delivered +25.3% for the year to date. Since inception in April 2015 the CISP has compounded at just under 15% compared to 5% from the FTSE All Share Index which I use as a benchmark.
Total returns over various periods and each year for both are shown in the table above, while this performance against the FTSE All Share plus the Mid 250 and Small Cap are shown in the graphs at the end. In addition, while not particularly relevant to this portfolio (as it is only invested in UK stocks) I also had a quick look at how the performance since inception compared with an I-Shares All World Tracker (SSAC). It was pleasing to see that it was also ahead of this with the 250% total return versus the 211% from the All World Index especially as the UK market seems to have performed better recently and remains substantially cheaper than many others, having underperformed badly in recent years.
Largest Positive contributors:
Airtel Africa (AAF) after excellent results late last month led to more upgrades plus further positive news flow this month on tower sales, granting of a banking licence and second closing of another investment round in their mobile payments business which has brought in $500m so far for further investment in their mobile businesses in Africa.
Safestore (SAFE) which responded positively to an excellent Q4 trading update which led to a continuation of their positive earnings estimates trend as occupancy levels and rates charged both increased further.
Jarvis Securities (JIM) bounced back from an oversold position as they announced another increased dividend this month.
Largest Negative contributors:
Sylvania Platinum (SLP) sold off after their bounce last month after the results late last month led to earnings downgrades and the platinum price sold off in the second half of the month.
Luceco (LUCE) also sold off again after a bounce last month & a trading update late in October.
Barclays (BARC) fell after their CEO was forced to resign and as the Bank of England unexpectedly decided not to raise base rates which might have been positive for banks in the short term if they had.
After a fairly active October I only decided on one sale this month as Qinetiq (QQ.) fell into the sell zone with a Score of 67, while a few others I gave the benefit of the doubt to. In the case of Qinetiq on further consideration of their recent update I was a bit spooked by the write off on a large complex contract. I recall they have got into difficulties like this in the past so perhaps it is not as good a quality company as I thought and perhaps has not changed its spots. It does look reasonable value and towards the low end of their trading range, so if you trust the management then you may be OK down here. Nevertheless on that basis I let it go and replaced it with an equally boring industrial stock which subscribers will be able to see the details of in their Scores sheets. See here if you’d like to become a subscriber to get the power of the Compound Income Scores working for you in generating new quality income growth stock ideas for your portfolio.
Summary & Conclusion
A tricky month for investors due to inflation & other concerns was capped off by the possibility of a new Covid strain taking hold, although as yet it is unclear how widespread or dangerous this might become. It is also unclear if current vaccines will work against it. I am encouraged however that virus manufacturers seem confident of coming up with a vaccine for the new variant within 100 days. So either way it doesn’t seem that much to worry about as either it will or won’t be a bad and dangerous variant and if it does there should be another jab along shortly. In addition I thought viruses were supposed to become less dangerous the more they mutate, but I'm not a viroligist so maybe I’m being complacent there? I don’t know and I don’t think anyone else does either but as Corporal Jones in Dad’s Army used to say in Dad’s Army and as Coldplay sang – Don’t panic or if you're more of a Smiths fan then I guess you could Panic.
The CISP continues to perform well in both an absolute and relative sense this year to date even if it had a negative return in November. Having limited the trading this month I may undertake more trades and rebalance the portfolio a little when we move into next year.
Seasons greeting to any one who happens to be reading this & I hope you get to have a great Christmas with all your family and loved ones if that proves possible.
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.
If you have been following my posts you should have had today in your diary and also you cannot fail to have missed it in the media that today is the day when Super Mario has to come up with the goods, or rather Euros, to avoid upsetting investors everywhere. The latest thinking seems to be that they will announce €50 billion a month starting in March until the end of 2016 perhaps to give a total of €1.1 trillion. Whether this will be the case and if it does any good or not I guess we'll have to wait and see at 1.30 pm UK time today and beyond.
Otherwise today a couple of stocks that I have covered here in the past put out updates / results. Firstly there was the software provider to the healthcare industry EMIS which gave a trading update saying they expect to be in line with their expectations and that they are confident about the outlook for EMIS in 2015.
That all sounds good so lets see how its done since I first did a check up on it back in March 2014, see link for original write up, or the category list here for updates since then. Well not too bad as you will see from the graph below which has seen the shares rise from their depressed 600 pence level to their current 836 pence or so today for a rise of nearly 40% against a fairly flat market over the same time period.
This has been achieved on the back of slightly upgraded forecasts 40 pence of earnings and 18 pence of dividend and a more significant re-rating from 15x and 3% to 20x and 2.2% for the current year which makes it start to look expensive in my book, although still good quality. Some mid single digits growth for the current year to December 2015 is forecast which still leaves it on a fairly full looking 19.3x and 2.3%. The EBIT / EV yield is also only currently around 4.8% which combined with the yield puts it in the bottom quartile of value on my CI Scores, confirming my impression that it is starting to look expensive. Otherwise the quality metrics and the earnings revisions trend help to improve its overall score and put it just outside the top quintile. However, given the valuation and more limited growth forecast for this year I wouldn't suggest it as a new money buy and in fact it is only just about a quality hold for me given the rating.
The other stock which reported today is Safestore (SAFE) which I mentioned briefly in passing back in November 2014 when they updated and said they expected to be slightly ahead of the top end of the consensus range. It seems that analysts were too lazy to upgrade as they have today reported earnings and dividends about 4% and 10% ahead.
They seem to be doing well as they seem to be successfully filling more of their vacant space. I am kind of regretting selling this one but hey ho must move on.
Any way that's all for today while we wait like Pavlov's dogs for Draghi to ring the bell on QE in Europe but does it mean that the Euro will be a safe store of value going forward and will investors be in investing Heaven until '17 as a result?
Talking of which reminds me of an appropriate song for Mario Draghi today which appropriately saw Heaven 17 going all Eurotrash and trying to do a Kraftwerk with a track called I'm Your Money. So see and hear the video above which just seems so appropriate for today.
Lots of updates and items of news relevant to stocks that I follow today so I'll try and keep it brief in the main.
· a good strategic fit with the Connect Group's existing core competencies in time sensitive specialist distribution;
· a business with a strong track record, well positioned for further growth, and able to build upon its leading position in a market with sustainable growth characteristics;
· in line with the Group's ambition over the medium term to derive at least 50 per cent. of profits from outside of newspaper and magazine wholesaling;
· adds value to the organic revenue growth opportunities for the Enlarged Group, in particular via provision of a national distribution network;
· the opportunity to achieve pre-tax cost synergies across the Enlarged Group of £2.0 million per annum within three years and the potential to generate revenue synergies from shared infrastructure;
· creates significant value for shareholders:
o EPS accretive in year 1 and substantially accretive by year 3
o Post tax ROIC above cost of capital in year 1 (9%)
· in addition, the strong cash generation of Tuffnells supports the Group's progressive dividend policy.
I would say it seems like a reasonable deal which moves them to 38% of profits from outside their news distribution business on a pro forma basis and well on the way to their goal of 50%, plus it adds onto their other recently announced distribution business. The rights issue may also help to make the balance sheet look more healthy (depending on the assets it brings versus the price paid) and provide more distributable reserves to help maintain their progressive dividend policy.
However on the dividend they are unusually paying it on the rights shares too and as a result adjusting the final payment due next year. They explain this as follows:
Connect paid dividends per Ordinary Share of 9.3 pence and 8.6 pence for the years ended 31 August 2013 and 31 August 2012, respectively. The proposed final dividend of 6.6 pence per Ordinary Share for the year ended 31 August 2014 announced on 15 October 2014 in Connect's Preliminary Results Announcement will be adjusted to reflect the impact of the Rights Issue in connection with the Acquisition. The proposed final dividend will be adjusted to 6.0 pence per Ordinary Share to reflect the bonus element associated with the Rights Issue and both Existing Ordinary Shares and New Ordinary Shares will be entitled to receive this dividend.The proposed final adjusted dividend of 6.0 pence per Ordinary Share is subject to approval by Shareholders at the Annual General Meeting on 4 February 2015 and, if approved, will be paid on 6 February 2015 to Shareholders on the register of members of at close of business on 9 January 2015.
Following the Acquisition, Connect intends to maintain its existing progressive dividend policy, having regard to the availability of distributable reserves and cash, and taking into account the Enlarged Group's working capital and investment requirements.
Seems like a reasonable deal which furthers their strategy and should boost their earnings down the line and potentially bolster the balance sheet too so all in all seems sensible. But in contrast to Essentra I'm a bit surprised they are issuing equity at such cheap levels. So if you didn't get in before I suspect the usual fall on the back of it going ex rights and in the run up to the payment may give you an opportunity to get in at levels around 150 pence again and may even close the gap on the chart in the low 140's - something to watch out for I would say.
Finally, if you have made it this far and having spoken earlier about a hospital pass, as a reward to you if you are reading this on the web I offer a video of Top 5 Rugby Tackles gone wrong at the end of this post.