Probably because most are trying to get their announcements out before they head to the beach in August. Note to self must take most of August off because I can!
However before I do I note in passing an unsurprising profits warning from Merlin Entertainment (MERL) blamed on the after effects of the unfortunate accident at Alton Towers earlier this year. Not one I hold having stagged it when it floated and it looks richly valued to me with downgrades to come, not a great attraction for me.
Talking of richly valued I note that Reckitt Benkiser (RB) also announced H1 results in which they upgraded their guidance for the year which is welcome given they are on nearly 25x. They also cut their dividend as expected post the demerger of Indivor (INDV) & even factoring in the dividend from them shareholders if they still hold both will have seen a reduction in their overall dividend.
Of more interest to me as a holder was the half year report from XPP - which looked a little lack lustre at first glance. However they explain in the commentary that the fall in margins was due to start up costs for power converter manufacturing at their Vietnamese facility. They say more of their revenues (67.2%) is now coming from their own designs & within that ultra-high efficiency “Green XP Power” products now accounting for 21% up from 17%. They also acquired a 51% share in a Korean power converter company which brings them sales and engineering capability in an important manufacturing centre for industrial electronics.
The outlook commentary from the chairman was positive as it alluded to strong order book and backlog together with the developments above and a strong balance sheet giving him confidence that they should be able to continue to grow revenues in the second half of 2015 as designs won in 2014 and prior years enter their production phase. Thus with the earnings estimates having drifted back so far this year it seems they should be able to hit the modest 5% or so growth that is forecast. Perhaps as a sign of their confidence I note that they have increased the interim dividend by a useful 8% which is ahead of the current forecast of a 6% increase for the full year.
Therefore based on current forecasts the shares at around 1600p look like a fair value hold to me on around 15x with a 4% yield as they are nearer the top of their trading range over the last couple of years which has been between 1775p & 1300p. So I wouldn't suggest rushing out to buy them just now, but might be worth a look a bit lower down around 1500p and the 200 day moving average, if they should drift off again as they do sometimes. However I note it has a Compound Income Score of 94 and a Stockopedia StockRank of 94 too so it scores well according to The robots.
...which is XP Power, a stock I have written up a few times in the past year. They remain in the top decile of the Compound Income Scores with a score of 96. The results were in line to slightly ahead of expectations with earnings and dividends coming in at 101p (+6%) and 61p (+11%) versus forecasts of 100p and 60p. This was on the back of order intake which was up by 6%, in constant currencies, to a new record and they now design 66% of their products themselves. Their operating margins also increased from 23% to 24.2%, and they generated cash such that they had £1.3m net cash versus £3.5m of debt at the previous year end.
On the outlook the chairman said: "While the global economic outlook again looks mixed in the year ahead, we believe we can grow our revenues as the new designs won in 2014 and prior years enter production. We also plan to invest in additional sales and engineering resources in North America during 2015 to help drive further growth. We enter 2015 with a strong balance sheet having closed 2014 in a debt free position. This places us in an excellent position to make bolt on acquisitions to further broaden our product offering and engineering capabilities."
Summary & Conclusion:
Another good set of numbers and steady delivery from this one which has under performed in share price terms over the last 12 months as it has de-rated from a fullish rating back then and as smaller companies in general have struggled.
This has left it looking reasonable value on around 14x P/E but the dividend yield of 3.8% based on this years dividend just announced and a decent earnings yield of 8.5% gives it a value score of 84 in the Compound Income Scores, which remember mostly excludes zero yields and is based on those two metrics.
As a result I'm happy to run with this one on value and yield grounds as they seem to be making good progress having invested in the business. They also seem confident about the future and their strong balance sheet gives them scope to invest or acquire for further growth, although of course nothing is guaranteed. Brokers seem to be forecasting some growth for the coming year of around 5%, so hopefully we'll see a continuation of their growth trend, albeit probably at a slower rate than in the last 5 years when they have achieved 20%+ growth in earnings and dividends.
....for you today as we have had trading updates from XP Power (XPP) who provide the power and The Restaurant Group who can do a breakfast for you. So firing up the grill for RTN first we see:
Which is all very positive but the nasty surprise is when you get the bill as the shares are certainly not cheap. If we take current forecasts for next year of around 34 pence earnings and a 17 pence dividend which at this mornings price of around 680 pence leaves it on 20x with 2.5% yield. This is close to the rating it reached earlier last year when it went above 700 pence and hit my 2 & 20 sell trigger. Having suggested getting back into them in June 2014 at around 580 pence, they have served up a satisfying near 20% total return since then.
So on balance while I like the group and the quality of their operations I am starting to struggle again with the valuation. The previous high is close too (see chart below) which may either act as resistance or be bullish depending if they can get up to an through it. However, with the gap on the chart from the November update now having closed, the rich valuation and with the shares close to over bought and only offering an in line update today I think they may struggle from here. So I'm going to look to ask for the bill. Now for the switch to the power part of this note, see below the chart for comments on XP Power if that sparks any interest for you.
In case you are not familiar with this £275 million company here is how it describes itself:
XP designs and manufactures power controllers, the essential hardware component in every piece of electrical equipment that converts the power from the electricity grid into the right form for the equipment to function. XP typically designs in power control solutions into the end products of major blue chip OEMs, with a focus on the industrial (circa 45% of sales), healthcare (circa 30% sales) and technology (circa 25% of sales) sectors.
Once designed into a program, XP has a revenue annuity over the life cycle of the customer's product which is typically 5 to 7 years depending on the industry sector. XP has invested in research and development and its own manufacturing facility in China, to develop a range of tailored products based on its own intellectual property that provide its customers with significantly improved functionality and efficiency.
Headquartered in Singapore and listed on the Main Market of the London Stock Exchange since 2000, XP serves a global blue chip customer base from 29 locations in Europe, North America and Asia.
Their update today confirmed that revenues were up by 5% or flat after currency effects which is in line with forecasts, although these currency moves tend to boost their gross margins. They said that their North American business has shown strong momentum whereas trading conditions in Europe (unsurprisingly) remain subdued. Despite the mixed global economic conditions that prevailed in the year they achieved record order intake in 2014 and enter 2015 with a strong order backlog.
They also said that good factory loading at their Chinese facility should help to boost gross margins despite start up costs on their Vietnamese facility. This all helped them to generate cash and move into a small cash position from a small net debt position. On the back of this they confirmed that their 4th quarterly dividend would be not less than 21 pence to give 60 pence for the full year, up by just over 9% from 55 pence last year and this is also in line with forecasts.
Summary & Conclusion
Another steady if unexciting update from XP which at least suggests they will hit current forecasts of around 100 pence and 60 pence for earnings and dividends respectively. These are currently both forecast to grow by around 7% in the coming year which, with the shares at 1445 pence, would put them on a reasonable looking 13.5x with a 4.4% yield.
The quality seems good on this one (ROCE: 32.9% & 24.4% operating margin Source: Stockopedia) and they seem to deliver in a fairly steady fashion, although nothing is guaranteed. With the shares, in common with other smaller companies, having drifted back since the spring of last year when they got quite fully rated they have been languishing either side of 1400 pence for the last few months and the momentum is therefore not that great, if you look at that.
They are good quality and offer reasonable if not outstanding value down here so I'm happy to hold and wouldn't put you off buying if you are prepared to be patient as it seems to be a stock that moves in fits and starts sometime moving up dramatically and then drifting off as it has done more recently, maybe reflecting the limited volumes that get traded and small caps being in favour and then falling out of favour perhaps? (See chart). Still you pay your money and take your choice as I always say.
Finally Restaurant Group's American diners got me thinking...puts me in mind of an old comedy series from my youth - see the video and hear the tune at the end of this post as it's Friday already - Hey - Happy Days!
Briefly mention that we had a positive IMS from Provident Financial Group (PFG) so they still seem worth holding. While during my rummaging around I came up with a few interesting looking situation in some stocks I have written on in the past.
These included XP Power (XPP) which despite an decent IMS recently now looks interesting, although perhaps the business could be vulnerable to a slow down hitting their orders? However, they do tend to be on longer term programmes so I think they should be OK on around 13x with a 4%+ yield. The shares look oversold in the short term so could be one to watch if the market should come back again or if it can regain its poise.
If you wanted something a bit more defensive then you could do worse than look at Britvic (BVIC) which has also come back with the market and now sells on a reasonable looking 13x and 3.7% yield to September 2015 with this year's juicy final dividend to come in the near future which should itself offer a yield of around 2.2%. Technically, for what that's worth, the shares are over sold on RSI and there has been some positive divergence (see RSI link for explanation) on this as the shares fell recently (a positive sign) and I note that the gaps on the chart from earlier this year and late last year has now closed, as they often do, so I like the look of these down here.
XP Power which is a leading international provider of essential power control solutions has reported interim results today. These seem fine although like many other Companies that report in Sterling the figures have been impacted by the strength of the Pound when converting their overseas turnover and profits. In this case it reduced an underlying 9% increase in revenues to just a 2% gain.
Conversely it did help to reduce their operating costs by £0.3 million which in addition to their own cost cutting efforts enabled them to improve gross margins from 48.6% to 49.8%. This fed through to an increased operating margin of 24.5% versus 21.6% last year although I note they did capitalize £1.2 million of product development expenses. Their own products do now however account for 66% of revenues with lots of new immature products developed over the last few years yet to have fully contributed to results.
This rise in turnover and margins together led to a 17.3% rise in Pre Tax Profits and a 20.8% increase in earnings and strong cash flow which reduced debt from £8.5 million to £1.5 million. On the back of this they increased the first half dividend by 9% which is now being paid quarterly and I note that they say this has compounded dividends at the rate of 15% over the last 10 years.
Summary and Conlusion
In summary a reasonable set of numbers despite headwinds from currency effects which also demonstrated their operational gearing and the benefits of their moving up the value chain with new products and support offerings. The group seems reasonably well placed to benefit from its historic investment in its own manufacturing facilities and new products that they have developed. In addition the business is reasonably diversified by end industry with in the first half healthcare representing 31% (2013: 30%), industrial 49% (2013: 48%) and technology 20% (2013: 22%). While the customer base continues to be highly diversified with the largest customer accounting for only 5% of revenue, spread over 100 different programs / part numbers. In terms of the outlook the Company sounded cautiously optimistic when they said:
"While global capital goods markets remain subdued overall, our order intake remains encouraging and we believe that we continue to take market share. We expect to grow revenues in 2014, although this underlying growth is expected to be impacted by the currency translation effects.... Predicting the likely performance of the US Dollar relative to Sterling in the coming period is difficult but the high proportion of our costs that are also Dollar-denominated will mitigate the impact on earnings.
A broad, up to date product portfolio and the development of an industry leading in-house manufacturing capability are at the core of our strategy and, when combined with excellent service and support, are leading to continued new program wins which should drive our future growth. This greater penetration of a Blue Chip customer base and significant design win success bode well for the future of XP."
in conclusion I like the steady delivery here and the moves they have made to increase the value added in their business plus the fact that it is reasonably well diversified by customer and industry. The shares in common with some other small and mid cap stocks have come back by around 20% from their peak earlier this year and seem to be finding some support between 1400 and 1500 pence on the chart. They have however lost some momentum as a result and currently trade below their 200 day moving average which may put some people off. I see Edison have left their earnings estimates unchanged and they are just below consensus of 101.6 pence so probably nothing to get too excited about in these numbers. However I think they look reasonable value on around 14x with a 4% yield backed up by strong cash flow and little or no debt so on that basis I'm happy to run with it.