..including RPS which I have mentioned recently who have come out with their final results for the year to 31 December 2014. After the recent positive trading update these still managed to pleasantly surprise with the adjusted eps of 22.04p coming in slightly ahead (3.5%) of the consensus of 21.3p probably helped by the tax charge being a few points lower than last year. Meanwhile the dividend was increased by their normal 15% which was therefore in line with forecasts at 8.47p.
This was achieved despite the factors outside their control such as the strength of sterling, the rapid fall in the oil price and unrest in the Middle East.
They also made £58 million of investment committed to acquisitions, further increasing the strength of their international platform and they recently completed their first acquisition of 2015, BNE in North America. They say these will enhance performance in 2015 and that they anticipate further transactions during the coming year supported by what they describe as their strong balance sheet, which saw year end net bank borrowings at £73.2m and facility headroom of £87m at the year end against their market cap. of just over £500m. They say their facility with Lloyds runs out next year and that the Board intends to refinance the Lloyds facility during the course of the next few months, which is likely to involve an additional bank providing part of their total facilities.
On the back of this they said "We believe our positioning and business model should deliver a successful outcome and further growth in the current year." While on the key energy part of their business they said:
"Recent market conditions have been unusually volatile. As a result, clients are likely, in the short term, to continue focusing on cost management; we are, therefore, reducing our cost base and concentrating on those parts of the market and projects likely to receive investment. There are, however, already some signs of stabilisation. With the global economy set to grow substantially in coming years, we are well positioned in what continues to be an attractive, long term market."
Summary & Conclusion
So looking forward RPS seems to be on around 10x P/E with a 4% yield and offers a reasonable earnings yield of around 8.4%, before any changes on the back of today's figures. So with that caveat and with that dividend yield reflecting a further 15% growth, the rating should still leave scope for upside if they can continue to deliver, so it looks like a strong hold.
Meanwhile we had final results from another support services stock - Interserve (IRV) which also reported better than forecast numbers. The turnover was stronger than expected at £2913m v £2711m forecast, eps came in at 58.8p (+23%) v 55.8p forecast and the dividend came in at 23p (+7%) v 22.8p forecast. They mentioned that they had grown this by 5% per annum over the last 10 years which might be useful information for longer term forecasting. They also flagged £4.1 billion of new business won in 2014 and a record future workload of £8.1 billion, up 26 per cent which provides quite a bit of visibility for the future.
Chief Executive Adrian Ringrose commented:
"2014 was a landmark year for the business in which we advanced our strategy and delivered 35 per cent operating profit growth including strong organic growth despite continuing challenging conditions in a number of our markets. We made two strategic acquisitions (Initial Facilities and the Employment & Skills Group), each of which deepened our presence in core outsourcing markets.
Our focus on providing high quality services to both new and existing clients resulted in strong work winning during the year, with our future workload rising 26 per cent to a record £8.1 billion.
Looking to the future, we are encouraged by the growth potential of the business. Our attractive positioning in our core markets and our ability to identify, invest in and deliver on attractive project and corporate opportunities is a powerful differentiator."
Summary & Conclusion
A busy year for Interserve with a potentially transformational deal to buy Initial which may help to boost underlying organic growth for the next year or so as it is integrated. I note that Interserve only scores in the 50's on the Compound Income Scores being dragged down by poor scores for dividend cover and financial security. The low cover scores is driven by poor cash flow cover & I note the cash flow / conversion looked weak in these numbers too. While the financial security score is dragged down by a low Piotroski score of 2 which is not good and I note that Stockopedia also have them down with a borderline Altman -Z Score of 1.79 (this measure bankruptcy risk), although interest cover seems fine at 11x. So a mixed picture on some of the financial and security aspects as far as the dividend and balance sheet are concerned, but probably reflecting the gearing up they did to buy Initial and an investment phase they say they have been through. This hopefully will be reduced in the years ahead and should return their cash conversion back towards the 100% which they normally target and thereby reduce the debt.
So with that caveat the shares look quite cheap on a P/E of around 9x and a forecast yield for the coming year of 4,3% while the current earnings yield of around 11% based on these latest numbers and a 4% operating margin. With forecast dividend growth of around 6% for the current year and their longer term 5% growth rate mentioned in the statement it seems they could offer a reasonable 9 to 10% total shareholder return (TSR) in the medium term ex of any re-rating or de-rating so again a strong hold I would suggest.
Finally a quick mention for British American Tobacco (BATS) who also reported finals today. I'll not dwell on the detail as it is all a bit of a drag, but I note the dividend was up by a better than forecast 4% in total which they say is in line with their intention to grow dividends in real terms. Earnings were down which meant the cover reduced and this is the main area of weakness in BATS CI score, otherwise it scores overall in the 70's - so a reasonable income stock as you would expect.
With the current 4% yield and trend dividend growth that seems to have slowed to 4 or 5% in recent years this one should also provide a reasonable TSR of around 9 to 10% if you don't mind investing in tobacco.
Talking of which I have been reading this week the excellent Credit Suisse - Global Investment Returns Year book 2015.
This features an interesting piece on Sectors and how they have changed in terms of their weightings as fashions and technology have come and gone. Tobacco featured throughout and had in fact been one of the best performing sectors over the century or more of returns that they cover - who would have thought it hey?
So I attach a copy of this for you below, as I'm kind like that, for some further reading and homework on Discount Rates and Equity Risk Premium as I planning a post based on those and an enhancement to the Compound Income Scores so see you back here soon.