Friday, January 4, 2013

Fri 4 Jan - COST, JSG, CKN, MMC

Another quiet day for RNSs. Engineering group Costain (COST) issues a good solid pre-close trading statement (since their results are due to be issued on 6 March, then the Close Period starts 2 months before that, so 6 Jan).

They finished the year in line with expectations, order book slightly down on last year £2.4bn vs £2.5bn, and with over £700m of work secured for 2013 (presumably up from the "in excess of £650m secured for 2012" at this time last year, although the wording could be ambiguous, since both are in excess of a stated number).

They also have a "strong cash position and no significant borrowings".

This looks a nice steady company, churning out reliable EPS of around 30p on average each year, and a steadily rising divi (10p last year). So the expected EPS of 30p this year puts them on a PER of 8.3, and a divi yield of 4.2%.
At first glance that looks fairly attractive to me, for a company which should benefit from the cyclical upturn in the economy which will happen at some point. So could be worth a further look?

Dry cleaning outfit Johnson Service (JSG) puts out an in line trading statement for y/e 31 Dec. Results will be issued in early March. Interestingly, they say that the dry cleaning estate has shown LFL sales growth, "the first such increase for a number of years".

If dry cleaning is a proxy for the overall health of the economy, then this could be a reassuring sign. Although a trend I have noticed, is that with many people feeling insecure about their jobs, people are tending to dress more smartly in the office, in order to project a more professional image. When I turn up for meetings without a tie these days, I'm usually the only person in the room tie-less. Whereas a couple of years ago there were more open-necked shirts.

So perhaps JSG are benefiting from a trend towards smarter office dress?
Anyway, the shares look fully priced to me, EPS forecast of 4.4p means they are on a PER of about 8.5 at 38p. Cheap? Not really, when you consider they have £59m of debt (which is 62% of their market cap of £95m). So that would take the PER up to almost 14 if you add back the debt. There are better bargains out there in my view.

Shipping broker Clarkson (CKN) issues a brief statement saying that despite challenging markets, trading continues to be in line with expectations. Nice company, but the shares look fairly priced to me (whereas I'm looking for bargains!)

Management Consulting Group (MMC) issues an in line trading statement, and a share repurchase programme. It looks fairly cheap on a PER basis, with 2.7p EPS expected for 2012, so at 23p a share I make that a PER of 8.5.

However, I don't like the balance sheet - loads of intangibles, and too much debt. They note that y/e net debt is £30m, and has reduced well in the last few years. There is a reasonable divi yield of about 3.5%. It's not for me, due to the balance sheet being too weak for my preference.

OK that's it for this week, should be busy next week with lots of trading statements I would imagine, so be sure to check back here every day.

I always Tweet to announce when articles are published here, so if you follow me on Twitter, @paulypilot then you will be amongst the first to know when reports are published (which saves checking back multiple times).

Oh, also want to mention that there is an interesting "meet the management" event being organised by Equity Development on 17 Jan in London, in the evening. The 3 companies presenting all look interesting; Regenersis, Tracsis, and VP Group.

I'm told there are a few spaces left, so if you would like to attend then check out the contact details here.
I shall be attending, so say hello if you also attend! I'll be the guy with no tie!

Regards, Paul.

Thursday, January 3, 2013

Thu 3 Jan - NXT, TED, DLC, SNCL

Interesting RNSs are starting to appear again at long last, and should build into a tidal wave of trading statements over the next couple of weeks, especially from retailers (which I take a particular interest in, as I spent 8 years as the FD for a ladieswear chain).

Fashion bellwether, Next (NXT) is the first fashion retailer to report. I so admire this business, both as an analyst, and as a customer. They just execute consistently well, at everything. Even their trading statements are a model of clarity, giving precise profit & EPS guidance (if they do it, why can't everyone? I often hear company management say, "we can't give forecasts, that's your job", at analyst meetings. My answer from now on will be, "well, Next give precise forecasts to the market, so why can't you?!"). We're only talking about current year forecasts here of course, not future years.

There are no surprises within the Next figures, just slight out-performance against previous guidance, and the trend of Next Directory growing strongly has continued, with sales growth year to date of 10.5%, versus only 0.6% sales growth in Next retail.

They see the outlook as "subdued but steady". Interestingly, Next buys back a hefty chunk of its own shares each year, so a hidden benefit in that EPS has risen in spectacular fashion over the years. It's a clever strategy that has helped drive a remarkable share price performance. As usual, I can't bring myself to buy the shares now that they have already risen so much. The fwd PER is 13.5, which looks about right.

Ted Baker (TED) announce that their trading statement will be issued next week, on Wed 9 Jan.

CAD/CAM software company, Delcam (DLC) puts out a strong trading update, indicating that they finished the year with record orders, saying that they have, "ended an already strong year on a new high". Impressive stuff!

It's always pleasing to see a British company succeeding out there on an international level. The shares have reacted positively, as you would expect, and have punched through 1000p. The PER is getting close to 20, so it's a bit warm for me, but I can see the attraction for growth investors who believe that the growth will continue.

Trouble is with toppy ratings, you're only ever one profit warning away from losing your shirt, which makes it difficult to sleep at night. Personally I'd rather look at fundamentally good companies which have had a temporary slip-up, and are priced for failure, but go on to recover. But each to their own!

Horticultural products group, William Sinclair (SNCL) had a lousy year in 2012, due to the exceptionally wet weather, which hampered harvesting of peat. This more or less wiped out profits for the year, which fell over 90% to just £261k. It's got debt, and a significant pension fund deficit of £13m (compared with £20m mkt cap), and isn't particularly cheap on a PER basis, even if you look at a more normal prior year's trading, so I won't be following up on this one. Too messy.

On a final point, I'm doing another little thing for charity, this time it's Cancer Research's "DryAthlon". The idea is that you don't drink any alcohol for the whole of January, and instead you donate the money you save to Cancer Research. What a great idea! And you can get people to sponsor you too. It is still open for new joiners, so if you fancy having a dry January & helping charity at the same time, then why not sign up?!

I've already tapped my friends here for sponsorship to my Half Marathon on Feb 17th, so am not expecting any more donations to the DryAthlon, but if anyone does feel like giving me a bit of encouragement for a dry January, then my Cancer Research fund-raising page for DryAthlon is here. Why not donate a virtual pint (of diet coke!)?!

Incidentally, my training runs were going very well, got up to 10 miles just before Xmas (although the last 3 miles of that were hobbling/walking/spurts of jogging), but the effects of Xmas food & booze, and a Cold, mean that there's still a lot of work to do. But I went back outside yesterday evening, and managed 4 miles, so am getting back into my stride. Will keep you updated.
A dodgy right ankle is the main problem, rather than stamina (I badly sprained my ankle in April 2012, and it's not fully recovered unfortunately, so seizes up when I run on it). But we'll get there, where there's a will, there's a way!

We're back to daily reports here now, so do check back here every trading day from now on, should be a very busy month for trading statements, then we'll start to get into the mega-busy period of Feb-Mar for 31 Dec year-ends.

Regards, Paul.

(Paul does NOT hold shares in any of the companies mentioned today)