A quieter end to the week after the manic start on Monday. I have however noticed that the market is generally seeing more activity as M & A reaches levels last seen in 2009 as Melrose (MRO) went hostile on GKN this week. There has also been a flurry of placings as companies use the stock market for its purpose of raising capital and also take advantage of elevated share prices too. A couple of these were in the mobile advertising space where both Taptica (TAP) and XL Media (XLM) raised fresh funds to bolster their finances for further add on acquisition. Both stocks have fallen back as a result of these and Taptica is now trading below the placing price and actually comes out top of this weeks Compound Income Scores, so if they can keep the growth going and integrate their recent and any future acquisitions successfully then this could be a good entry point - perhaps.
Finally today and for this week we have had an AGM trading update from Character Group (CCT) which despite all the news flow noise of the finance director leaving and the Toy 'R' Us related warning has remained in the CISP despite this as it continued to score sufficiently well. Thus the portfolio didn't sell out at the bottom of this longer term holding and has benefited from the share price recovery since.
Today's update is of the in line variety, although they still see the current year being down on last year as previously flagged. They do however suggest that they will see a second half recovery and are confident that this will lead to a return to their growth trend in 2019. As the management here seem to have been pretty good at calling the trends in their business I would be inclined to take those comments at face value. If they deliver on that I guess that could mean say 50p of earnings in in 2019 with say the currently forecast dividend of 25p which at today's lower price of 432p (-5%) would leave them on a still cheap sub 10x rating with a 5.8% yield. So while they may not excite much in the short term & indeed could even drift off further, this one still looks like a reasonably well run business, albeit in a somewhat fickle industry. I also note in passing that some people seem to be upset by the levels of boardroom pay here so might be worth checking that out to make sure you are comfortable with that too if you are considering an investment here.
Any way that's it for this week and as I say the latest Compound Income Scores are out as usual today, so if you'd like to know how Character Group and the other 593 stocks in the Compound Income Universe score then head on over to the Scores page to learn more about them (if you're not already familiar with them) and to see how you can access them. Safe investing and have fun whatever you are up to this weekend.
A surprisingly busy even manic Monday today, or maybe even Blue Monday as I see #bluemonday is trending on twitter today.
As far as the Compound Income Scores portfolio (CISP) goes we have had positive US tax related update from Bodycote (BOY) where they say it will add 5p or around 10% to this years earnings thanks to a one-off revaluation of US net deferred tax liabilities. In addition they said that Q4 trading had been strong & therefore the Board now expects full year 2017 headline operating profit to be towards the upper end of market expectations (company compiled analysts' estimates range: £117 million - £126 million). So continued good momentum in the business and the shares here, although this has left it looking poor on the value front as it approaches the upper end of my normal comfort range at around 20x with a circa 2% yield.
Also on the US tax cut front Ferguson (FERG) outlined the effects of this and the reduced tax charge they will have going forward. They didn't give explicit guidance as to the effects but I would expect we will see upgrades here too. This should help to continue their strong momentum where the price has broken out to new highs. While they are good quality and offer slightly better value than Bodycote.
Away from US related tax changes we had an operational update from Central Asia Metals (CAML) which saw production towards the top end of their expectations. For the coming year they affirmed expectations of similar production levels at this stage and confirmed that as of 31 December 2017, CAML had cash in the bank of $46 million.
Finally XL Media (XLM) announced the acquisition of a number of leading Finnish gambling related informational websites from Good Game Ltd for a total cash consideration of up to €15 million. The Acquisition is expected to complete during the first quarter of 2018 and to be immediately earnings enhancing in the current financial year following completion. Seems fine and a continuation of their acquisition strategy, although on this occasion it is not diversifying but bulking up their original core operations.
That's it for the CISP today so I'll leave you with some music appropriate to today's title to choose from and cheer you up if you need it or not as the case may be. Happy Investing & listening.
XL Media (XLM) - the Israeli, Aim Listed on line performance marketing company has announced interim results today. These look pretty strong with revenues up by 33% driven by a similar level of organic growth in their highly profitable publishing division which makes up 44% of their business. This helped to make up for slower organic growth and lower margins in their media business & a fall of 25% in turnover from their partner networks operations which make up the remaining 56% (50% & 6% respectively) of the business. They also completed some acquisitions in financial & cyber security verticals in the US and in the mobile gaming area which helped to boost revenues in the media business.
The dividend was increased by 5%, which is a bit better than the marginal growth that is reflected in current consensus forecasts, so these could be upgraded if analysts bother to note that. More interestingly in the Outlook and headlines where they said: "The Board is therefore confident of comfortably meeting profit expectations for the full year..." which I take to mean they think they will probably easily beat current forecasts of 14c per share. This looks likely as even if the 2nd half was flat, then by my calculations, they would still come close to 14c. Thus there may be scope for some upgrades here if analysts share my opinion, but maybe the Company will steer them to keeping unchanged numbers so they can beat them later in the year? There will be a webcast of the results presentation which will be available on their website later today at: http://www.xlmedia.com/media/.
So overall a decent looking set of numbers which leaves the potential for some upgrades or a beat of full year numbers if upgrades don't come through in the short term. Of course being an Israeli company listed on AIM with a somewhat opaque business model, this is not one for everyone and indeed maybe one that the market loves to hate. Despite that it does have good financial metrics and has delivered growth of over 20% per annum in eps since 2011, although this may not be sustainable at this rate as they seem to be needing to make acquisitions now to keep the growth going which is potentially more risky. This new phase may well have been highlighted by big holders selling down in the last year or so, although I note the CEO still has a decent stake in the business. Given all that the quantitative scoring systems such as Stockopedia & our own Compound Income Scores continue to rate it highly at 97 & 98 respectively. So on about 12x with a 4.5% growing yield it will remain the CIS Portfolio and might be worthy of further investigation if you are not put off by the nature of it or think that the market will continue to love to hate it.
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.
Another busy day for announcements in another difficult day for the market on the back of Chinese stocks being down 6% and the oil price heading back down to $30. So I'll comment in brief on a couple of stocks I have covered in the past and which are currently held in the Compound Income Scores Portfolio. These are Easyjet (EZJ), Q1 IMS and possibly another chance to get on board perhaps and XL Media (XLM) launching a strategic review considering all opportunities for maximising value for shareholders.