Quite an interesting and tricky month for the screening with four potential sale candidates coming up based on their Scores. VP the plant hire group again fell into this category, but as I kept it in last time awaiting their results, I am going to do that again this month as these are due this week on the 5th June. The shares have had a good run into this week and the prior update was of the in line variety. So it seems unlikely that there should be any surprises unless they have deliberately kept expectations low so they can pleasantly surprise, perhaps. Lets hope they don't disappoint and leave me regretting my decision to await the results rather than selling before, which might have been the lower risk option. Other than that with the acquisition of Brandon Hire late last year it will also be worth watching out for an update on how the integration is going there for any problems or increase in the expected synergies & cost savings.
Another sale candidate that I decided to give the benefit of the doubt to was Hays Group (HAS) the staffing company which had a positive trading update and looks set for a strong year which ends this month. The main reason the score has fallen is due to no changes to the forecasts in the short term and a decline in the cover ratio as they are expected to pay a much larger dividend via the payment of a special dividend. Thus with the year end approaching I thought I'd await the year end up date & see if that leads to upgrades and an improvement in the Score again and the possibility of hanging on to collect the final and special dividends too. Alternatively I could have switched into the better scoring and similar company Robert Walters, but this was not much cheaper so I dismissed that idea to keep the trading costs down, which is one of the few costs that an investor can control.
The remaining two sales candidates which I let go through were Headlam Group (HEAD) & Jarvis Group (JIM). Of these I had given Headlam the benefit of the doubt previously and indeed topped it up last month. But having taken the final dividend their score has deteriorated again after their trading update this month led to downgrades. While it remains lowly valued and they seem to be taking action to manage the business against a difficult background, they acknowledge that achieving their targets will depend on a customary stronger second half & no continuation of recent weaker trends, which leaves them open to the risk of having to warn on profits later in the year. Equally it may all pan out as they hope and the shares might then re-rate on the back of relief over there being no profit warning, but as ever we'll have to wait and see on that.
As for Jarvis Group the score has deteriorated here after their somewhat cautious statement that accompanied their bumper full year figures. Thus the expected growth looks pretty lack lustre and there is no dividend growth forecast. Thus although it is probably fine for the long term it doesn't seem to offer that greater value on around 15x earnings. In addition the CIS portfolio has a lot of exposure to financials any way, with two fund management companies, so out it goes, but personally I'll probably continue to hold it myself for the long term as part of a more broadly diversified portfolio.
In terms of the replacement candidates a few interesting ideas came up including Phoenix Spree Deutschland (PSDL) which is a property fund that is now specializing in Berlin property. While I toyed with the idea, it seemed a bit too off piste for what I'm trying to demonstrate with the CISP but I might treat myself to a few for a bit more diversification. Aside from that Howden Joinery (HWDN) came up again as a potential re-entrant to the portfolio. But having sold Headlam on around 10x I was reluctant to replace it with another similarly exposed consumer cyclical on 15x, although it may be better quality. Meanwhile Henry Boot (BOOT) also came up as another that could have re-entered the portfolio. But since the portfolio has a housebuilder (Bellway) and plant hire via VP I decided to give that a miss too.
In addition I could have picked Abcam (ABC), Renishaw (RSW), Patisserie Holdings (CAKE), Advanced Medical Solutions (AMS) & even Fevertree Drinks (FEVR) but I overlooked these due to my value bias. It does highlight the fact that the Compound Income Scores are not just for yield stocks, but can highlight attractive, quality growth stocks too - hmm perhaps I should rename them the Compounding Scores? Or maybe as I have suggested in the past perhaps I should run an unconstrained portfolio based on the Scores, but of course if you subscribe to them yourself you're able to do that if you want.
Any way in the end I decided on a couple of cheaper alternatives in Renew Holdings (RNWH) which may not be the highest quality outfit, but the nature of their business (essential maintenance in the main) should provide a bit of stability. In addition they have seen some upgrades post their recent interims and made a reasonable looking acquisition too. This bolsters their exposure to railway maintenance and is expected to be materially earnings enhancing with the return on investment also expected to comfortably exceed their cost of capital. So on this basis I think there could be more upgrades to come and a possibility that the share which have sold off this year, could may be return toward their previous highs around 480p, perhaps.
Finally the other stock I settled on was Forterra (FORT) a brick making company, which trades quite cheaply, but looks to be trading well given the on going push to build houses and shortage of bricks which is leading them to invest in more capacity funded from their cash flow. Obviously not without its risk if the housing market or economy should suddenly go into reverse, but for now it seem fine so into the portfolio it goes. It does also add to the housing and construction exposure on top of Bellway & VP. The portfolio will also pick up the final dividend of 6.4p which goes XD on 14th June for an immediate yield of 2% which will help recover the cost of these trades.
So after those changes that leaves the CISP on a forward PE of around 14.5x with a forecast yield of 3.25% on the back of expected dividend growth of 13.2% which all seems OK to me. Don't forget if you'd like to Score your portfolio or get more ideas like these on a regular basis then check out the Scores link here or at the main menu at the top of the site or in the three bars if you are on a mobile.