Tuesday, October 2, 2012

Tue 2 Oct - WGB, SNCL, AND, TNI, IND

Good morning. Things seem much more relaxed this week, with most of the 30 June prelims & interims out of the way now, for reasonable sized companies, and I should think so after 3 months - which is ample time. Companies reporting at this point and beyond for 30 June, are not on top of their businesses in my opinion, which itself is a warning sign not to invest.

Very nice rally yesterday, driven apparently by stronger than expected US data, but it petered out towards the end of play in the US last night, so futures are now pointing to the FTSE opening down 25 points.

How pleasing to see a UK manufacturer doing well - Walker Greenbank (WGB), the up-market furnishings company, reports quite good interims to 31 July. Adj profit before tax is up 11% to £2.7m for the 6 months, on turnover up 2.4% to £38.3m. Adjusted EPS is up 14.8% to 3.8p.

They confirm confidence of achieving full year estimates, which according to DigitalLook (who I now use instead of the painfully slow & expensive Morningstar service) means full year EPS of 10.5p (there is clearly an H2 bias to profitability). At 70.5p that makes the shares look good value on a PER of just 6.7 - cheap for a company that is delivering decent profit growth in the current climate. Perhaps they are a beneficiary of the after-glow of the Olympics, increasing interest in British products?

(EDIT: Hemscott.net have broker consensus of 9.00p EPS for y/e 31 Jan 2013, which is lower than the consensus of 10.5p shown on DigitalLook. Although even on the lower figure, the PER is still low, at 7.8.
Furthermore, Edison have an EPS figure of 7.5p for this year, I'm told. So it's not entirely clear what the market consensus is).

On the downside, WGB does have a pension deficit, but it's only around £6m, which is not the end of the world for a £42m mkt cap company. Also I see they have reduced net debt to just £2.7m, so a tick there too. Overall, I like WGB, and it's difficult to see why the shares are trading on a PER below 10, which implies a more reasonable price would be around 105p, a decent 50% upside on the current price. I suspect these will go up today, so I might try to grab a few at the open if the price doesn't move too much.

Peat farmer William Sinclair (SNCL) has warned on profits, due to adverse weather, not for the first time. The final divi is being cut, but it's difficult to assess how the market will react, as it's clearly down to factors outside their control (widespread flooding in the North of the UK).

These shares don't look particularly good value (a PER of 13.5) and that is based on next year's earnings, allowing for a recovery in trading. This year looks to be around breakeven. So it's a question of whether the longer term prospects justify a valuation that's looking a little warm right now? Not for me.

Andor Technology (AND) has put out a positive trading update, and announced a maiden divi. Although a nicely profitable company with a mkt cap of £118m should be paying divis already! Fwd PER is 17 times this year's EPS, and 15 times next year's, according to broker consensus on DigitalLook. Bit pricey for me.

I'm having a storming week so far, with Trinity Mirror (TNI) looking strong, and possibly another leg up in the pipeline? It looks that way anyway, despite the fact that the shares have already doubled since August, they remain astonishingly cheap for such a cash generative business - the PER is less than 2, and by my calcs net debt will be fully repaid from cashflow by 2014. Their pension deficit is under control, and is in any case covered by an equivalent value in freehold property.

The star performer for me is IndigoVision (IND), a share I've held continuously for almost 10 years. Last week's results statement showed a transformation in the company's prospects, reflected in their returning substantially all their cash pile to shareholders via a Special Divi in Nov 2012. With 75p in total divis due in Nov 2012, that makes the net price of the shares about 375p now, and doing the maths from the indications in their statement last week (market growth of 20% being targeted) that means EPS should double to around 50p this year. Hence a PER of around 20 could be justified (or more) for this growth, so I see upside to 1000p on IND shares in the next 6-12 months. But obviously DYOR as usual.

Have a good day, bye for now.

Regards, Paul.

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