Thursday, June 28, 2012

Thurs Morning Review

Good morning! So far so good - I've managed 4 days on the trot with a 7am start & market review published around 8am, not bad going as I'm the opposite of a morning person! I hope you find them useful, and judging by the number of page hits, it looks like you do! You can subscribe to this Blog by hovering your mouse over the black box on the extreme right of this page, and some buttons appear.

Also, sorry about the advertising, but it's a useful little side income (pays my mobile phone bill!) and the ads are actually quite interesting & relevant in my view, and there are only 2 ads in total. I've been blocking the dating website ads as they appear, so those should now thankfully be a thing of the past, as I don't want any ads on here that cheapen things. Feel free to leave feedback in the comments sections, or the feedback box that appears at the bottom right of the page.

This is what caught my eye this morning:

Being a former retailing FD, Debenhams (DEB) IMS (Interim Mgt Statement) comes first. It's really strong, considering the gloomy economic backdrop - LFL sales (exc. VAT) were running +0.3% in H1 (to 3 Mar 2012), but that has accelerated to +3.1% in the subsequent 16 weeks to 23 Jun 2012, giving an average of +1.2% YTD. That really is pretty impressive, and demonstrates that even in a recession, good companies can do well.

Very strong online sales growth this YTD, of +40.2. Wow! Mobile also growing strongly, and they offer free WiFi in all stores - v. good idea. Gross margins slightly (30 bps) down, but that's pretty insignificant, and down to the sales mix (isn't it always?!). A £20m share buyback is underway, that should help support the price (taking their lead from Next).

Overall they restate that they "remain comfortable" with forecasts for this year (I'm a bit surprised these figures do not trigger an outperformance outlook, but maybe they are keeping their powder dry just in case?).

The shares are 83p, giving a mkt cap of £1,071m.
Market consensus is for earnings of 9.1p this year and 10.1p next year, so a PER of 9.1, falling to 8.2 next year. Superficially tempting, until you remember that DEB has a lot of debt which was £312m at 3 Mar 2012, so the PER is nearer 12 when you adjust for the debt - which looks priced about right to me, for a mature business with limited growth prospects, even allowing for the fact it is trading well. So I'm not tempted to buy these shares.

Punch Taverns (PUB) IMS says they are on target to meet full year expectations. However it seems to me that the equity is virtually worthless because they have so much debt (although falling fast through disposals). This is very much a special situation, where the equity is either worthless or not. Might well be an interesting, high risk share to research - could multi-bag in an economic recovery, as highly geared companies that survive tend to be the biggest risers in the first wave of economic recovery. Or it could go bust, who knows? On balance, I might steer clear!

Results from Photo-Me (PHTM), the photo booth company are fairly uninteresting. Sales fell 5%, but profits rose 12%, and EPS rose 6% to 3.95p. At 40.5p that puts them on a PER of just over 10. Mkt cap of £147m, and net cash of £52m looks healthy, so might be worth a further look. Good divi yield of 2.5p, giving 6.2%.

Looks good value, although likely to be perceived as "old economy" company, so not likely to attract a high rating. Can't get excited about this one.

Construction company Morgan Sindall (MGNS) report a "satisfactory first half". It seems to consistently throw out about 75p EPS each year, and pays 42p in divis. So  at 615p it looks fair value. I don't like this type of company with huge turnover £2.2bn p.a., and wafer thin profit of around £40m p.a., as they are only one problem contract away from a profits warning & potentially insolvency. Although they seem a well-run outfit, as there do not seem to have been any significant problems of that nature in the last 10 years, judging from rock steady profits each year.

Greene King (GNK) report solid results, with EPS up 10% to 53p. Look good value to me at a share price of 533p, PER of 10 given growth & a stonking operating margin of 21%! Who said pubs can't make money?! LFL sales up a very impressive 7% in last 8 weeks, so I'm tempted to buy some of these (the shares, not the products!). Not too keen on the Balance Sheet though, as lots of debt, but also lots of freeholds. Hmmm, needs more research methinks, but long-term I see this as a brand which will crush the competition.

Beale plc (BAE), the independent department store business, which is a throwback from the 1960s, is still soldiering on, amazingly. Results are out this morning, a small H1 loss. At £5m mkt cap I really should have a closer look at these - there might be a property redevelopment angle on it, as they have some good town centre sites. Bank facilities renewed for 3 years, so that's reassuring - the Bank must be comfortable they'll get their money back.

In line trading update from Costain (COST).

All in all after reading these results this morning, one is left thinking, recession, what recession?! Just shows that good companies are still doing well, and that once recovery is underway as the Eurozone crisis eventually recedes, we could well see some excellent upside on equities which are the only strikingly cheap asset class - compare available earnings yields of 10-20% (equivalent to PER of 5-10) and divi yields of 4-10% with any other asset class! So I remain a long-term bull on smaller caps especially, where the deepest value exists. Although I have no idea what will happen in the short term.

Have a good day all!

Regards, Paul.

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