..after no posts for a couple of days - sorry about that but had a technical glitch on Tuesday which meant I lost my note so I gave up in frustration and there wasn't much of note yesterday morning.
By way of catch up I was writing about Talk Talk's (TALK) update on Tuesday which seemed positive in the main. However they did reduce their guidance to the bottom of the range on the back of their cost reduction plans being impacted by the recent Blinkbox acquisition and other costs associated with that. This has been a familiar pattern with this one over the last few years as they have been either investing in their network or building their TV business. Despite this they have during this period continued to pay a generous dividend and increased it by 15% per annum.
This was the main attraction plus a low rating when I first got into this one back in 2012. I have enjoyed the rapidly rising dividends since then and the shares have been re-rated despite the limited earnings growth on the back of the investment in the business. Thus it now looks a bit stretched in valuation terms, but the yield remains attractive at 4.3% for this year, although the cover is now pretty thin given the limited earnings growth since 2012.
Consequently I did reduce my holding recently ahead of this statement with the shares close to resistance levels from previous peaks and given the valuation, estimate revisions trend and now thin cover. I did however, retain some as the yield looks like it will continue to grow for now despite the cover and hopefully one day the profits will flow to support it further. The other unknown factor which could be a positive for them is the on going consolidation in the telecoms market with BT buying EE and Sky looking to offer mobile. As a smaller player in the market is would seem Talk Talk could be a good merger or acquisition partner for a bigger group.
Talking of bigger groups we did have Final results from GlaxoSmithkline (GSK) yesterday lunch time which seem to have been well received and they confirmed a 3% increase in this years dividend to 80 pence. They also confirmed that they intend to maintain this level of payment for the coming year and they are also intending to pay a special dividend to return net capital proceeds realised from a corporate transaction which is expected to complete in the first half of this year. This could equate to around another 80 pence or so, providing an income boost for GSK shareholders.
However, as I have warned before this could be the last hurrah on the income front for GSK. After the business disposal and as the new Chairman gets to grips with the business and look at re-shaping it further going forwards, I suspect the dividend may be re-based as a result after this year.
Today we also had results from another big yielding stock in the pharmaceutical sector Astra Zeneca (AZN). They continued their progressive dividend policy and thereby maintained their dividend at 280 cents despite lowish earnings cover. The yield here is lower at 3.8% versus the 5.5% for GSK probably reflecting the higher cover at AZN and therefore less risk of a reduction going forward, but I note that the shares are still below the level of the Pfizer bid that they rejected last year.
On balance these are good quality companies with decent yields, but they are not especially cheap and the lowish cover and lack of growth in the dividends going forward make them less attractive now in my book and on the Compound Income Scores.
Finally, regular readers will know that I have a penchant for adding music tracks to my Blog posts and in recent weeks and months I have been exploring a day of the week theme with such songs as Blue Monday, Ruby Tuesday and Black Friday.
So with today being Thursday it set me thinking about an appropriate song for today. Now while David Bowie did do a song featuring Thursday it was unusually awful for him, so I will not inflict that on you. Instead I've come up with something that I think is more appropriate given my more lackadaisical approach to my blogging this week. So enjoy a laid back - Thursday (Here's Why I did not go to work today) by Nilsson. Must admit I'm never too sure if people like or appreciate these songs I add onto my blogs, so do get in touch with a comment or a tweet and let me know either way.
Kingston Communication is a small (£500 million or so) telecommunications service provider to both domestic and corporate sectors. They are centred in Hull where they were previously owned by the local council as a local monopoly before they converted to a plc in 1987 and partially floated in 1999 (See here for the full history), although they compete like every one else these days. They do this nationally by offering their own network with value added services and a wholesale partnership with BT, they also carry out consultancy work and offer IT support to businesses.
They describe the results themselves as being in line with expectations which seems about right although they seem to have matched next years earnings number this year given that only very modest growth had been forecast. Meanwhile the dividend was in line with their guidance being up by 10% to 4.88 pence in total with the final dividend being 3.25 pence. Within the numbers debt came dwon to be 1x EBITDA from 1.2X as they have strong cash flow. They did however flag that this will go back up to around 1.5x next year as they have some capital expenditure requirements on some contracts, but this reflects timing differences rather than a step up in capital expenditure requirements. There is also a pension deficit of £59 million which seems manageable. They have also agreed some new facilities with which they hope to pursue some new organic and inorganic growth opportunities especially in value added services to businesses to help offset some declines in traditional network revenues. They are also apparently seeing a good consumer uptake of fibre services.
Overall a fairly small, dull but solid company in a fairly competitive field. However, the rating reflects this with it being on around 12x current earnings and offering a yield in excess of 5% which is expected to be increased by a further 10% this coming year and next as they have committed to this rate of growth until March 2016. So the yield is the main attraction with this one as the shares have been weak recently, having come down from 100 pence to the low 90's where I would have thought they should be well supported by the valuations discussed above. Thus there could even be a trade in it as I wouldn't be surprised to see it back up towards 100 pence or above in the not too distant future plus you have a yield of 3.5% to come from the final dividend alone which goes xd on the 25th June 2014.
According to a website that tracks analysts recommendations called wkrb (sounds more like an American FM station) two research analysts have rated the stock with a sell rating, one has issued a hold rating and three have assigned a buy rating to the company. KCOM Group PLC currently has a consensus rating of “Hold” and a consensus target price of GBX 103.67 ($1.74). The range of their price targets is 75 pence to 130 pence for what that is worth.