We had interim results from Character Group (CCT) yesterday, which I last wrote up here back in September last year. Then I suggested it could provide 20%+ returns if it managed to make it back to the top of its trading range at 550p. It managed this in March so you would have been able to lock in a decent return if you managed to sell them up there. Since then they had OK final results & a slightly disappointing trading update in January when they flagged that their H1 numbers would be down due to US$ cost effects. Despite this they said they were confident of meeting full year numbers.
The interims yesterday confirmed this fall in profits in H1 as expected and they reiterated their confidence in meeting full year estimates despite this and backed this up with a 28.6% increase in the interim dividend from 7p to 9p. Looking at the pattern of their recent dividends these have gone sequentially 5, 6, 7, 8, & now 9p so with a bit of straight line forecasting I think they might do a 10p final given their progressive policy, cash balances and high cover levels. This would give 19p for the full year versus current forecasts of 16.8p for this year and 19.5p for next year. This would give a yield of around 4% at current prices.
I also note in the chart below that the management have been fairly active buyers of the stock on dips and they were buying again recently and after yesterdays interims, suggesting they have some confidence in their forecasts / prospects as they seem to be able to forecast the swings in their business quite well.
Summary & Conclusion - This appears to be a well managed company which has developed quite a good record of delivering decent profits, earnings, cash flow and dividends in recent years, although longer term it has had its ups and downs. Consequently the market seems reluctant to afford it a decent rating and therefore a dramatic re-rating (outside of a bid) does not seem to be on the immediate horizon. They have however achieved a rating of between 10 & 12x in recent years, so if they do manage to hit forecasts for this year then this would suggest the price could get up into a 520p to 620p range, so a return at least to the top of its range / resistance at 550p / 560p does not seem too much of a stretch.
On the downside it could drift off further to the bottom of its range around 430p in the short term in response to these numbers, but I think that would be an even better buying opportunity if it happens. Of course they may be over optimistic and miss the full year numbers, in which case it would probably break down out of its range.
If you enjoyed last years Mr. Markets Alternative Christmas Present and you wanted to hang up your stocking on that one. Then here's another quick suggestion for you.
The stock concerned is an old favourite of mine Restaurant Group (RTN) which I exited early last year as I felt the rating had got extended. Since then they have generally traded sideways before coming off by around 100p or nearly 14% to their current 635p or so (see chart at the end). They have been quite volatile recently, probably with the market, despite their in line trading update in November.
So why look at it now? Well like Alternative Networks, we have a news event which may act as a catalyst, in this case their post close trading update. While this may well just confirm their previous in line guidance I think there's a chance they could surprise and beat downgraded numbers given the mild weather we have had and the big cinema releases over the Christmas period. This may have encouraged more shoppers and cinema goers (where a lot of their sites are based) to dine out more, especially with the falling petrol prices and wage rises leading to rising consumer incomes.
Obviously no guarantees on that of course, but the share price doesn't seem to be factoring in anything too positive down here where it is looking over sold. While on the fundamentals for the longer term it looks better value if not an outright bargain at around 17x with a 3% yield on the coming years numbers. I also note that the Compound Income Score had risen back up to 93 as of last Friday - hmm tasty, bon appetite?
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!
On a quiet day today just a quick update on Easyjet (EZJ) which I have written up in the past. Today they have put out one of their regular traffic stats announcements which show passengers up 6 to 7% or so over the last 12 months and in May this year, while the load factors were between 91.2% and 91.6% over the same time periods. These are not that significant but at least they continue to move in the right direction.
Last time I commented on this one I suggested that it might be interesting in the 1550p to 1600p range which might offer some support, with 1570p being the 50% retracement of their rise over the last year and which often acts as a strong support. Their most recent update was not that well received and led to some downgrades to earnings which has sent the share down into this price range and they did see a recent intra day low of 1574p.
I also note that the downward momentum or loss of altitude in this case is slowing and there is positive divergence on the RSI (lower price not matched by a lower RSI). This is often a precursor to a bounce or a turnaround and I not the gap on the chart around 1800p. So given that this is a volatile share, but it seems to be in a support area, I think this might be a good point to get your boarding card and get on board for a trade on the Easyjet <1600p flight to 1800p - perhaps.
Finally here is a short video about the most efficient way of getting people on board a plane. It turns out that the low cost airlines...no I won't spoil it for you bon voyage.