Serving up an Interesting ingenious trading Idea?

I have held this one for a while and seen the shares double since 2012. It has been on my value, yield and quality screens for a long time. However, recently I noticed that it was coming up in the bottom decile on my oversold overbought ranks. This prompted me to revisit it and I saw that it has pretty much sold off like a ski jump ramp in Sochi since mid January shortly after they announced their trading update for the year. Now this is slightly odd given that the trading update, albeit brief, was of the in line / reiterating guidance for 2013 variety and talked about good revenue visibility for 2014 to boot. Now the market did itself suffer a setback at that time on emerging market concerns and I guess this one was also ripe for some profit taking at the time and estimates have nevertheless continued to drift down.

Thus I suspect a clumsy or big seller has been in operation and as a result, even though the market has since recovered most of its losses since January, this one has continued to languish under performing FTSE by around 18% in the process. I had not found any evidence of this until holdings in the Company were announced yesterday showing that JPM have gone below 5% and it looks like Standard Life have been increasing above 5%, I guess that's what makes a market - for every seller there has to be a buyer. In addition I note that three Short Interest Positions were opened in the last month totalling about 2% of the equity, which will have done quite well up to now.

Now this is where it gets interesting as a trade as the Company have reminded the market in an announcement today that their final results are due out next Friday 28th February 2014. Thus unless the shorts know something is fundamentally wrong with this one (in which case they could increase their shorts down here) I would have thought they would be tempted to close their positions next week ahead of the results. 

So what can we look forward to next week? The interim dividend was increased from 6.4 to 6.8 pence and increase of 6.25%. Factoring the same rate of increase to last years final of 14.1 pence gives me a forecast of 15 pence which would be a nice round figure for the  board to announce and therefore give a full year total of 21.8 pence which would be 2.3% ahead of the current consensus. This would represent a yield of 3.9% @560p with a 2.7% yield on the final alone. This is also more than two times covered by the expected earnings of around 46 pence. In terms of the P/E it is on around 11x forward based on current forecasts of around 51p, which is below the lowest 2013 P/E it has traded on this year.

The company is slowly transforming itself from being reliant on construction related activities to a more support service and facilities management operator. A good overview of prospects and outlook was given by the Company in their Capital Markets Update last year. The balance sheet was not that leveraged at the last year end with £215m of a £250m facility still available and this runs to 2017 so no funding issues. Their covenants are Net Debt : EBITDA <3x and Interest Cover > 3.5x, this was 38x at last year end. There was a Pension deficit of £77.8m  under IAS19 last year.

So what are the prospects for this one. Well I guess we will have to wait for the results (which the Company have already set expectations for) and more importantly the outlook. Technically the shares were looking oversold and are trading around their 200 day moving average and near a support level they rallied from last Autumn. If all is well with that then I wouldn't be surprised to see the shares heading back up above 600 pence in the near term and if they can get back to around 650 pence that would be around a 16% return from the 560 pence they got down to yesterday when I topped up my holding, plus the final dividend to come. Of course the market and the short sellers may know more than I do so please do your own research and don't take my word for it.

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