A couple of stocks which are in the Compound Income Scores portfolio reported updates today. Firstly we had a trading update from W.H. Smiths (SMWH) covering the 20 weeks to the 16th January 2016 and the all important Christmas trading period. Once again these pleasantly surprised despite ones natural scepticism about their format. They saw total sales up by 4% and like for likes (LFL's) of +2% over this period with the travel business again leading the way with 12% growth overall and +5% LFL's. The high street business was essentially flat and apparently continued to benefit from what they describe as the "colour therapy phenomenon" (colouring books for adults). As a result of the strong sales performance in High Street over the 5 week Christmas period, they say they now expect profit growth for the year to be slightly ahead of plan.
So it is good that they are at least ahead of plan so no need for downgrades like some other retailers, but whether it is enough to see estimates edge up a few percent remains to be seen. Therefore using current forecast with the shares up 6% to 1685p this morning in a weak market leaves them on a fullish looking 18x with a 2.6% yield which both come off the back of forecast growth of around 10% currently. Meanwhile with this continued growth and some other good operating metrics they continue to score highly on the Compound Income Scores (CIS) with a score of 99 so it seems likely that they will continue to be held in the portfolio.
The other holding that has reported a year end trading, product and technology update is the £150m market cap. fire alarm manufacturer Sprue Aegis (SPRP). These were also suggesting a performance slightly ahead of forecasts with sales at £88.3m some 2.2% ahead of forecasts for example. Otherwise the statement was a bit mixed covering as it did a slow down in France in h2 after a strong boost from regulatory changes in the first half, while the UK saw a good pick up on new product launches into the trade. Meanwhile they highlighted a big negative effect from the strength of £ v € and weakness of the £ v $, although I note the first of these has gone in the opposite direction recently which may help them going forward if that is maintained or extends further. The other negative was that they flagged higher stock levels, as expected, as a precaution when they moved some production facilities to a new site last year. Despite this they did however flag that they expect to still have £22.4m of cash up from £15.9m last year demonstrating their cash generation.
On the outlook they struck a cautious tone and while they said they expect to trade in line with forecasts they see the results being heavily second half weighted, which then leaves them at risk of disappointing if things slip. This seems a risk as they flagged a delay in launching some products this year in the carbon monoxide and hard wired fire alarm sectors but at least they should boost next year now they are launched.
Talking of expectations, forecasts are for earnings to fall from this years expected 21 to 22p to around 17p - probably as the boost from the initial boost from French regulatory changes drops out.
On this basis at this mornings price of 328p (down 3%) they trade on a full looking 19.3x with a decent 3.65% yield on a forecast 12p dividend, +20% from this years expected 10p. However on my preferred EBIT to Enterprise Value metric they trade on a decent 9.4% yield on this metric adjusted for the £0.5m of share based cost that they flagged in the statement. As a result of this, the decent growing yield and quality operating metrics it continues to score well in the CIS coming in with a score of 96 and as such it will likely remain in the portfolio.
Summary & Conclusion
So a couple of reassuring updates form stocks in the portfolio which are therefore holds, but I note that the market is continuing its slide today as the bearish mood of the market from the start of this year continues. Therefore probably no rush to get out there buying unless you have lots of cash to invest as the market seems to be trying to break its lows of last summer. It may however be worth watching out for opportunities thrown up by indiscriminate or forced sellers but always do your own research first to make sure you are comfortable with what the company does and how it makes its money.
I say makes it money as I would not recommend buying blue sky loss makers or those that do not pay a dividend, although I know some do - each to their own I guess. By the same token if you are fully invested or geared even, then definitely worth looking through your holdings and making sure that you are happy to continue holding them for the long term and think about weeding out any flaky or weak holdings and especially zero yielders unless you are really confident about their future prospects being reflected in the share price at some point.