Savills (SVS) - Results look strong, as expected, given the property background last year. Thus eps came in at 63.2p versus 60.8p (F) and the dividend total for the year was 26p up 13% from 23p last year and versus 25.1p (F). Commenting on the results, Jeremy Helsby, Group Chief Executive, said:
"Overall in 2015, Savills delivered a record performance across the Group. Our US expansion programme continued well and our Asia Pacific business showed resilience in the face of changeable markets. In the UK the strength of our position in the commercial market offset market weakness in the residential sector. The Continental European business continued to build profitability and Savills Investment Management substantially enhanced its position with the acquisition of SEB Asset Management AG.
We have made a good start to 2016 with a solid pipeline of business carried over from last year in many markets, although the impact of global macro-economic and political concerns on real estate markets worldwide is uncertain. At this stage, we retain a cautious view on some Asian markets, particularly the Tier 2 Chinese cities, and we expect the UK residential and commercial investment markets to be subdued, for the former, as Stamp Duty reforms take effect and, more generally, in the run up to the EU referendum in June. However, the strength of our enlarged US operation, the increased size of our Investment Management, Property Management and Consultancy businesses and the breadth of our UK business together with further improvement in Continental Europe, all bode well for the future of your Company. Accordingly, the Board's expectations for the year as a whole remain unchanged."
The shares have come off sharply with the market correction this year and are looking oversold. They therefore now seem quite cheaply rated compared to their history trading on around 10x with a 4%+ yield for the current year. Thus given the unchanged outlook statement above and a CIS of 95, they seem like a strong hold to me.
Sprue Aegis (SPRP) - out out an update on a supply agreement. As a result of this they said that their operating profits would come in at £8.3m for this year which they say is slightly below market expectations. Looking at the forecasts it seems like it will lead to a 10% downgrade to earnings to me. The shares are off by that amount this morning so probably all in the price now in what looks like being a consolidation year for them. I do however note the recent weakness in the £ v the € as a result of the BREXIT debate which, if sustained, could help to boost their earnings. I note also that there is something about sharing the swings on the US$ with their supply partner more equally. The downgrades will no doubt reduce the current CIS of 97.
32Red (TTR) had their full year results which look like a miss on the adjusted earnings 6.97p v 8.7p (F) although dividend was better than expected at 2.8p v 2.5p (F) and they have already previously announced a 3p special dividend. I note also that the adjusted earnings also exclude all the bad stuff as follows from the statement: Adjusted Earnings Per Share is calculated on Underlying Earnings adding back exceptional items, share option costs, amortisation and losses from the Italian business and uses the weighted average number of ordinary shares for diluted earnings as calculated in note 6 to these accounts. Actual diluted eps including all the bad stuff was er 1.14p which would put it on an astronomical 136x at the current 155p. However taking the adjusted numbers and increased dividend puts it on an expensive looking 22.2x with a 1.8% yield. Thus it will need to produce the strong growth which is currently forecast, but given the miss on earnings today it will be interesting to see if we see any down grades on the back of these figures, which if we do, will not be helpful given the current rating. For now it remains a high scoring stock with a CIS of 98, despite a value score of only 14, so again if we do see downgrades I would expect the Score to fall.
Finally not one that is in the CIS Portfolio but I note in passing that Cineworld (CINE) had blow out results which were not only ahead of this years forecasts but also those for 2016 too. So unlike Restaurant Group yesterday, no sign of a slow down there, although I they did benefit from the steady stream of Blockbuster last year which is not expected to be fully repeated this year. CIS currently 72, but may improve on the back of these numbers and if it leads to upgrades.
Month End Update for January 2016.
So one of the worst starts to a year ever from equity markets around the world comes to a close with a sharp rally. This fall seems to have been caused or rationalized post event as being driven by fears of a global slowdown, especially in China and the effects it was having on commodity prices and in particular the oil price. In addition markets had been on a bull run for nearly seven years on the back of Central Bank support and as a result some markets, such as the US, had also got onto extended and historically high ratings.
Thus with the US Federal Reserve starting to tighten monetary policy in December it seems as though investors came into the New Year and suddenly feared that the Fed put may have been withdrawn and so like Wylie Coyote they suddenly looked down and had a panic attack.
Fast forward to the end of the month and we had a sharp rally seemingly on the back of the Japanese central bank introducing negative interest rates and some weak US growth numbers which probably firmed peoples expectations that the US Fed may now be one and done in terms of raising rates, rather than doing a series of rate rises this year, perhaps.
However, it does all beg the question of how dependent markets have become on central bank support as each time they try to start withdrawing it markets seem to have a fit. Thus I guess time will tell if the central banks have now blinked on the back of the markets sliding in January and if therefore this current sell off turns out to be another temporary affair or if it is the harbinger of something worse. Which brings me nicely onto a look at the monthly timing indicators and how the Compound Income Scores Portfolio has done in this difficult month.
We have unsurprisingly had strong updates from housing and property related stocks recently, with Taylor Wimpey (TW) reporting today being the latest house builder to report strong trading.
Meanwhile we have also seen a trading update from Savills (SVS) the global estate agents, facilities management and property investment manager which has been in the Compound Income Scores portfolio since inception in April last year. In the update they said that the Group experienced a strong finish to the year with the completion of some significant commercial transactions in several of their businesses around the world. In addition they also flagged a stronger than expected year for their investment management operation on the back of some disposals occurring sooner than expected.
As a result they said that they expect underlying results for the year to 31 December 2015 will be ahead of their previous expectations, so this may lead to some upgrades to this years numbers in the short term. However they sounded a note of caution about the current year on the back of heightened uncertainty over global economic prospects and rising interest rates. Consequently they said that they expect a tempering of the strong transaction volumes seen recently in certain markets, but nevertheless they felt that market fundamentals remain sound. Accordingly they retained their original expectations for 2016 suggesting no changes to forecasts for next year despite the strong performance this year.
The shares are up modestly by around 1.5% today at pixel time and by just over 5% from the price last April when they were purchased for the portfolio. They now trade on 14x with a 3% yield for the year just ended which falls to around 13x with a 3.3% yield on the back of forecast dividend growth of 11%. This seems fair enough and they currently score 81 on the Compound Income Scores which therefore leaves them close to the automatic sell zone between 75 and 80, but we'll have to see where they sit when it comes to the next quarterly review due at the end of March. On the chart the shares had come back toward their lows of last Spring recently, while on the upside, moving averages and price peaks between 900p and just shy of 1000p look like they may provide some resistance. So like the update not too much to get excited or worried about either way for now, hold.