Thu 2 August 2012 - Morning Report

Morning! Apologies for yesterday's lack of morning report, I overslept.
This morning my main focus will be on Trinity Mirror (TNI) Interim results, as it's my 2nd largest position.


All I can say is, "wow!". They have delivered a superb set of results, and not only that, have given an "ahead of current expectations" outlook for the full year. It's going to be a very good day I suspect, with a large increase in share price now justified from the ridiculously low valuation here, which I've been banging on about for months (search for earlier article here giving chapter & verse).


The interims show adjusted EPS is UP from 11.8p to 14.6p, so we should be on track for EPS of c.30p for the full year. So that puts the shares on a PER of just one. Yes, one!


Turnover only dropped 4% to £356m, which combined with £20m in cost savings, allowed adjusted operating profit to rise 11% to £52.5m. And just look at that profit margin (no calculator to hand), but it's well into double figure percentages of turnover. For a sector supposedly in terminal decline, it's one helluva profitable decline!


Is it swamped with debt? Actually no. Net debt has reduced dramatically in the last 6 months, from £221m to £181m. Hopefully now the market might wake up to the reality that net debt is being rapidly repaid, which will leave TNI debt-free and able to pay potentially huge dividends from around 2 years' time. That is the big opportunity here.


The pension funds deficit is under control, having fallen from £230 to £210m in the 6 months. It's a long-term liability, with overpayments of only £10m p.a. being paid at the moment. In any case, the impact of QE on reducing bond interest rates has artificially raised all pension fund deficits, as the discount rate has fallen, leading to the present value of future liabilities rising sharply. In time that could correct itself as interest rates rise again.


Scare stories in the FT about the pension fund trustees and Pensions Regulator preparing to play hard-ball and even bankrupt TNI have turned out to be malicious nonsense. Shame on them for printing it - which halved the share price from 50p to 25p back in March 2012.


It looks as if someone in Canary Wharf was texting their family & friends (and their brokers) from the toilets yesterday, because these results show why the share price suddenly rose 17% yesterday afternoon! Based on these superb figures, and insane valuation of a PER of 1, it wouldn't surprise me to see TNI shares double in price from their current 30p, and still be cheap. My long term target is 100-200p/share, which is only a PER of around 3-6, hardly demanding!


There is no news on a new CEO yet, and dividends also remain under review, but not done yet. That is the priority, even a 1p dividend (3.5% yield - not to be sniffed at) would only cost about £2.6m, and trigger an additional £2.6m overpayment into the pension funds. That is easily affordable, and shareholders are getting cheesed off at being left out in the cold whilst other stakeholders (bond owners, pension funds) are looked after.


Moving on, £70m mkt cap promotional products company 4imprint (FOUR) has put out respectable-looking interims today.  Underlying EPS is up an impressive 25% to 8.6p. Looks like they must have an H2 weighting, as full year broker consensus is for 22p this year, and 27p next year. So the shares look reasonable value at 267p (10 times next year's forecast). It has £11.4m net cash too.


I'm meeting the management today, at their 9am analyst meeting, so I'll post more about this company later. But it looks potentially interesting.


Poor results from Robert Walters (RWA), with interim profits more than halved to just £3m. Difficult to justify a £139m mkt cap on the back of these numbers.


Right, that's it folks. I'll be trying to buy more TNI at the open, but I suspect lots of other people will be too!