...amongst other things today. As there are lots of announcements I'll try and keep it brief. First up on the topic of money is a year end trading update from a stock I covered last year called Provident Financial (PFG) who describe themselves on their website as providing simple, manageable financial services for people whose needs are not always met on the high street. When I first wrote it up / bought it back in January 2014 it was offering a yield of 5% with 10% expected dividend growth.
Today they have updated on the year to 31st December 2014 and the unfortunately named Peter Crook commented:
"I am pleased that the group is expected to report 2014 results in line with market expectations. Vanquis Bank and CCD have both traded well through the final quarter of the year and Moneybarn has made a very good start under the group's ownership. Our funding position remains strong."
Within this they saw continued growth on the Vanquis Bank / credit card side as they manage the consumer side for cash while also modernising it and cutting costs. Against that they have started an on line lending operation called Satsuma and invested £10 million in a new credit card operation in Poland and bought a car finance business (Moneybarn), so quite a busy year.
Thus one would expect that they should hit current forecasts of around 130 pence of earnings and 98 pence or so of dividend, although I guess they could be tempted to round that up to 100 pence if they are feeling flush. This would actually represent 15%+ dividend growth compared to the 10% which was expected at the start of the year. This reflects steady upgrades to earnings through the year which is something I look for in my scoring system. A similar rate of growth (15%) is now also expected for the current year ending 31st December 2015 which after a 50% rise in the share price in the last year, leaves it on a fullish looking rating of around 17x with a still useful 4.5% yield as the shares have been re-rated somewhat. This leaves them just in the second quintile of my scores, so I wouldn't chase them up here, perhaps one to consider on weakness if you are not in it, but otherwise I'm happy to hold for now for the yield and the on going growth as the management continue to reshape the business.
Next up is newspapers as Connect (CNCT) the distribution group has also announced a trading update today at the 19 week stage. This is one I wrote up last year as a value idea and I traded it successfully. In their statement they said they had traded "broadly in line with management expectations". I am never that keen on seeing this phrase as I always take it to mean slightly below what we had hoped before but not dramatically so. The divisions including newspaper and books were all a bit mixed and total group revenue fell by 1.5% over the year.
They did an acquisition towards the end of last year as they continue to try and use the cash flow from the declining newspaper distribution business to diversify the business. It look good value on around 8x with a 6% yield for the current year to August 2015, although given the broadly in line comment I guess their could be some small downgrades. In addition the momentum is terrible on this one as you can see from the chart below and there is a gap to potentially close around 130 pence which, if they get down there, might leave them over sold and make a good entry point for a trade.
I say trade, which is not my main modus operandi, but I use it here because although it is cheap it can be dangerous to invest in businesses facing serious decline in their core business. in deed it puts me in mind of HMV and how they got into staging concerts to diversify into a related business and started selling all sorts of stuff in their stores. As we know that did not end well, although here they do have quite a few contracts extending out for 5 years for newspaper distribution which gives some reassurance for now.
it seems good value, top decile for value and overall on my scores, but oversold with poor price momentum and not without its risks as they try to manage the decline and diversify. So the success or otherwise of the diversification will need watching closely and could be the key to unlocking a re-rating.