Tesco - trolley dodgems hurting

Tesco: Stop Press. The wheels are off the trolley. In advance of the accelerated arrival of the new Chief Executive on 1^st September we have had another profits warning and now a major dividend cut. Aldi and Lidl are increasing market share and hurting the established players badly. Tesco, in particular, has suffered from poor overseas expansion (especially Fresh ‘n’ Easy in the US) and finding itself over-spaced in the UK as home delivery and convenience stores negate the need for their hyper-markets. It has been expected that Tesco, in the face of shrinking market share (down to c28% from a peak in the low 30’s), would re-invest some margin in regaining the love of its disaffected shoppers. This now looks to be about the only major trading tactic available to the new CEO, Dave Lewis. The board (presumably with his full knowledge and agreement) have said that the interim dividend will be cut by 75% to 1.16p. If this is repeated for the full year the total dividend will be 3.69p, a yield of 1.6% at the 230p price level. The re-build of the dividend from there could be long and slow given the mountain of problems. So, from an income perspective, this is a stock to be very wary of for now. It is worth noting that dividend cuts at Sainsbury’s and Morrison’s (especially so in the latter case) are being debated in the business pages of the papers. It may well be that, for income investors, the whole sector is one to swerve past until the trolley dodgems calm down and a new equilibrium starts to emerge. (29th August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

McColl's Retail - FT, Beans and stamps....

McColl’s Retail: One of this year’s many new flotations. It got slightly lost in a flurry of other issues and had a low key debut, struggling to win attention and fans. However, it does have ‘steady Eddie’ qualities that merit a run through. Third quarter sales (to 24^th August) are up 4.3%, with year to date sales up 3.9%. Like for like sales metrics are more movable, being -0.5% for this period and 1.2% for the year to date. In part this seems to be weather related. Whilst we read much about the expansion of supermarket branded new convenience stores there is another fragmented tier of existing corner shops being snapped up by the likes of McColl’s, who also have new sites coming on stream. Of 1298 stores, 771 are Convenience and they now have 250 sites with Post Office counters. Having strengthened the balance sheet at flotation they are also adding sites to their network at a quicker rate. Margins are typically modest for this type of business at sub-3%, but for the year to November 2014 Factset reckon EBITDA will be £37.5m and debt £27.9m giving a very robust net debt to EBITDA ratio of 0.75x, for a cash generative company. Eps could be 16.8p rising to 18.1p the year after, a PE of just over 11x at 200p. With a dividend of 10.1p rising a reasonable 8% to 10.9p in 2015, that gives a yield of almost 5.5%. This all seems very sound value for the income investor and well worth a second look. (28th August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

 

Bunzl - no longer cheap

Bunzl: The group supplies everything from point of sales material in shops, to gowns for hospital workers, across 27 countries. The group tends to grow revenue slightly faster than GDP as it bolts on small-ish acquisitions on a very regular basis. So far this year alone they have acquired 12 businesses for £119m adding just over £140m of turnover. In these interim results to 30^th June 2014, revenue was up 7% at constant exchange rates, with group operating margins picking up from 6.4% to 6.7%. So, pre-tax profits were up 14% as were earnings per share at 39.0p, with the dividend being raised 10% to 11.0p. On translation there was a headwind to profits of 8%-9%, due mainly to sterling’s strength over the period. Cash conversion was good at 102% and net debt to EBITDA was a comfortable 1.9x.  Consensus forecasts for this year are around 82p with 86.5p for 2015, being PEs (@1640p) of 20x dropping to 18.9x. If the final dividend is raised 10%, the total for the year will be 35.6p, a yield of just under 2.2%, covered 2.3x. Bunzl is a very sound have and hold stock, but these valuations are getting stretched and it might be well worth waiting for better buying opportunities. (27th August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

AGA Rangemaster - a slow burner

AGA Rangemaster: With brands including AGA, Rayburn and Fired Earth, the group has some real gems to polish. Their interim results showed revenue up 3.3% to £123.5m, with a first half loss of £0.3m, reduced from £2.4m in the first half of 2013. There was no dividend again, whilst net debt was down to £2.4m against £6.0m a year ago. They are in the process of launching a new range of standard 60cm wide cooker/ovens which will take them into the world of normal sized kitchens. The UK operations are very tied to the higher end property market and with this buoyant, the backdrop here is good, although their overseas markets are patchy. Yet, AGA is hamstrung by a large pension deficit of £46.7m. (To put a scale on this the market capitalisation is around £108m, with debt of £2.4m giving an enterprise value of £110.4m.) This was up from a deficit of £35.8m at year end, despite shovelling £19.4m into the scheme, with liabilities up £21.3m. This rise was due to a change in the discount rate, used to calculate the liabilities, from 4.5% to 4.3%. (Indeed this time last year the deficit was ‘only’ £15.6m, all in all another corporate consequence of QE inspired low gilt yields.) They are due to pay a further £4m in December 2015 and then £10m per annum thereafter, subject to the December 2014 actuarial valuation. These are chunky payments in the context of expected pre tax profits of the order of £10m-£11m this year. Like many a firm they will be praying for a rise in gilt yields to take the pressure off. For now though, no dividends can be paid without the agreement of the pension trustee and none are likely. For this year, increased eps could be 11p-12p, so a conventional twice covered dividend of 5.5p at 158p would be a theoretical yield of 3.5%. For now though this won’t happen and these great brands are financially smothered in the pension issue. Dividend investors can bide their time before anticipating AGA’s return to the dividend lists. (26th August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

Quindell - Par for the Course

Quindell: Their interim results to 30^th June 2014 have been released reflecting another busy period for the group. Picking out a few juicy headlines, revenue (recognised in line with a fairly aggressive accounting policy) was £357.3m (up 119%), EBITDA was £156m (up 189%) and adjusted eps was 29.6p (up 79%). There is no interim dividend. There is a comment that ‘unadjusted statutory measures are all ahead of Adjusted KPIs primarily due to £14.5m statutory gain on re-measurement of acquisitions’, which hardly seems plain accounting speak. Adjusted operating cash outflow was £51.2m, with Quindell pointing out that this beats their guidance of a £60m outflow. This helped cash levels, which were £85m, to be ‘significantly ahead of plan’, offset by a £20.5m overdraft and £32.4m of borrowings, making a net figure of £32.1m. This is down sharply from the year end equivalent of £153.5m net, which was made up of £199.6m cash less a £19.6m overdraft and £26.5m of borrowings. Apart from the £51.2m operating cash outflow, there were items for corporation tax (£23.4m), intangible fixed asset bought (£16.9m) and subsidiaries acquired (£15.8m). Guidance for the full year is that they are ‘on track to meet 2014 targets’ with full year revenue guidance of £800m - £900m (i.e a further pick up on the first half run rate). They have increased the EBITDA margin range guidance from 30%-40% to 35%-45%, with the first half margin being 44%. Second half operating cashflow guidance is now £30m-£40m, with that for first half 2015 ‘up to £100m inflow’, showing a really sharp turnaround from the first half, as what might be termed new business strain eases off. There is no specific news on the long awaited RAC contract, bar a general reference to ‘certain contracts being restructured....’. The tone of all this is upbeat and designed to head off the naysayers. If second half eps merely match the first half then 60p of earnings at a share price of 200p is a bargain PE of barely 3.5x. The problem for Quindell is that many sensible investors are waiting and will continue to wait, for the cashflow improvements to come through, re-build cash balances and vindicate Quindell’s buy and build strategy. Whilst there was a modest maiden dividend (adjusted 1.5p) at the finals, higher dividends will only flow from an improved cashflow. If that cashflow comes through as guided, then dividends could increase rapidly, but, in such a controversial stock, waiting for further proof seems prudent. (22nd August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

BHP Billiton - all in a spin

BHP Billiton: The mining sector spent a decade re-shaping itself to reap the rewards of a Chinese inspired commodity boom. Mega deals were executed in a dash for size and reach, across continents and commodities. During this phase cash returns to shareholders were well down the list of priorities and many a capital expenditure programme was signed off in haste. However, Chinese economic growth has slowed leaving many commodity prices deflated and many mining company strategies in tatters. Many a Chief Executive has gone to be replaced by those tasked with tidying up and rationalising the store cupboards. In the case of BHP Billiton, it came into being as an Anglo-Australian dual listing in 2001 but Andrew MacKenzie has replaced Marius Kloppers as CEO and the corporate wheel has turned full circle. It has announced plans to hive off assets including aluminium, managanese, nickel, metallurgical coal and silver-lead-zinc mines into a ‘SpinCo’. In many respects this unpicks the earlier merger. One key point is that SpinCo will have its primary listing in Australia and no London listing, which will turn some mandate constrained holders into forced sellers. So what does this mean for income investors? Well for now it all seems to muddy the waters, with the demerger only slated to complete by the end of the first half of 2015. BHP Billiton has said that it will ‘seek to steadily increase or at least maintain the dividend per share in US dollar terms...implying a higher payout ratio’, which feels a bit lukewarm. For SpinCo, the only comment, at this early stage, is that it will ‘have the flexibility to consider a dividend policy that reflects its cash generating capacity’. With this announcement, we also had dull final results with the full year dividend up 4% to 121c (which doesn’t look great once you factor in sterling strength). On a 1950 p share price this is a yield of about 3¾%. Investors had been hoping that the new capital discipline sweeping the sector would see a share buy-back or special dividend announced but the SpinCo plan has put paid to that it seems. (The contrast to Glencore’s announcement of a $1bn buy-back is marked.) So there are now lots of spinning factors to consider and two dividend policies to try and nail down. My hunch is that both entities will give due focus to shareholder payouts but everyone is short on hard numbers and the SpinCo share price will have to weather any forced selling. Investing on hunches can work, but there is plenty of time between now and demerger for forecasts to become a lot clearer. (21st August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

John Menzies - please wait at gate

John Menzies: The company is an odd marriage of airport services based around cargo handling and distribution of newspapers and magazines. The strategic justification has always been that the stable cash generation of the latter can help finance the growth of the former. However, there has been a bit of a Left Twix and Right Twix going on at Menzies with each division having its own boss on the group board whilst there has been no overall Chief Executive. However, this is changing with the newly resigned aviation boss working his 12 month notice and the hunt for a Group Chief Executive just beginning. In these interim results for June 2014 the distribution side enjoyed a World Cup kicker from special editions, collectable stickers etc. whilst newspapers and magazines continued their gentle structural decline. After ongoing cost cutting, this left the division’s profits roughly flat. For the aviation division strong sterling was a headwind, whilst new contract wins came with start up costs. In addition the musical chairs at Heathrow, with the new Terminal 2 coming on stream, is leading to some ongoing churn, with some contracts being taken back in house by airlines, notably British Airways. In general Menzies resisted re-bidding on contracts at disadvantageous margins in a competitive environment. Despite this, revenues were up 7% (at constant exchange rates) and profits were held flat. The shares however never seem to get the yield that the mature distribution side justifies or the higher PE that the growthier aviation side merits. So you are left with a moderately rated (c11x) stock on a reasonable yield (4.1% historic), roughly twice covered by earnings. The interim dividend was raised 5.2% to 8.1p per share, with the possible 28.1p full year dividend on course to be twice covered. Cashflow conversion is strong and the balance sheet is stable with net debt at £111m, which is about twice EBIT. It is true that a demerger or break up would allow markets to value each component more clearly, but the market capitalisation is just under £400m. So each component piece could well be too small to attract investor interest. There is no obvious catalyst but there is long term value here, albeit it is a stock that requires patience and is a slow burner. (20^th August 2014)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk

Bovis Homes - riding the wave

Bovis Homes Group: Like other house builders, Bovis is benefitting from the strong market conditions engendered by the government. I do have my reservations that, with upward pressure on interest rates, cost inflation and a price bubble building in London, that 2015 (post the general election) will prove tougher for the industry. For now though, that seems churlish, especially in the case of Bovis. Their first half numbers showed revenue up 75%, pre-tax profit up 166% and eps up 167%. Net debt was almost flat at £45.3m against £48.4m, despite building the land bank from 14,638 plots to 17,702 plots (roughly six years worth at current build rates). They enjoyed a 54% increase in legal completions and 20% higher achieved prices (helped by a mix effect of selling bigger houses). They almost have their targeted sales for 2014 in the bag too. All the cylinders seem to be firing at the same time. The key bit for income investors is their new, more generous, dividend policy. They are planning to pay 35p for the 2014 financial year, against 13.5p last year. They will then pay at least the same again in 2015, before settling to pay out a third of earnings plus returns of any surplus cash. Even after the appreciative jump in the share price to around 840p, that gives a growing yield of 4.2% and a PE ratio not much more than 10x. Yes, UK house building is cyclical with potential interest rates rises and affordability issues casting a shadow. On the sunnier side, there is a structural undersupply of new housing to provide underlying support to the industry. If you want to play the sector, then Bovis seems to tick all the boxes right now.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

The Rank Group - chipping away

The Rank Group: The two main parts of the group are Grosvenor Casinos and Mecca bingo, whilst there is also a Spanish bingo based operation called Enracha. These full year numbers showed a recovery in the second half, after a poor first half and last October’s disappointment at losing their long-running VAT reclaim case. The next appeal in the VAT case is now scheduled for April 2015, so no one is holding their breath for that news. In the casinos business they are lobbying to be allowed more slot machines and the bingo side will benefit from the cut in duty from 20% to 10% effective June 2014, although the 15% remote gaming duty kicks in on 1^st December 2014. (As an aside, these results included the maiden contribution from the Gala casinos). A weakness that is being addressed is a poor digital presence as more and more gaming moves online, but it is too early to say if Rank have this right yet. Good news is that the balance sheet looks OK, with net debt to EBITDA of 1.18x (being net debt of £137m and EBITDA of £116m). The final dividend was 3.15p, making 4.4p for the year and a yield of 2.6% at 170p, up 10% and covered 2.75x by earnings. This all points to further dividend progress to come and with the underlying business looking more secure, the income stream should be attractive. However, many investors are put off because you would be a minority shareholder. The Malaysian conglomerate, Hong Leong Group hold 68.6% of the equity, so they set the odds and you have to trust that the rights of minority shareholders will be upheld. Indeed, Rank have had to apply to the FCA to be allowed to keep their premium listing on the LSE as their free float is below the 25% minimum now being enforced. Although the status quo should prevail, any loss of the premium listing could further reduce the interest of institutional investors.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Partnership Assurance - bruised and bandaged up

Partnership Assurance: You have to feel a bit sorry for Partnership Assurance. They set up a good model providing impaired life pension annuities, at a time when mainstream life assurers were applying a one quote fits all style approach and Partnership was set to become a key income stock for investors. Then George Osborne in the Budget announced wholesale changes to pension provision in the UK, with the classic individual annuity product rendered unattractive, to most pensioners, overnight. So, now, they are re-inventing themselves and their products. In these results new business premiums declined 35.2%, within which individual annuities declined by 43.4%, even though these results include the undisrupted pre-Budget first quarter. The company goes further and says that the individual annuities current sales are down over 50% year on year at present, but that it is ‘unclear whether sales will stabilise at this level’. The group has taken quick action to reduce their cost base, taking some 20% out, but job losses hits already shredded staff morale even further. Reassuringly, the embedded value of 136p per share supports the 126p share price and the economic capital surplus is healthy at £170m, with a debt free balance sheet. However the maiden interim dividend is just 0.5p, reflecting all the current uncertainties. The further comment is that the final dividend will be reviewed at the time of the Finals in early 2015. The adage that ‘what doesn’t kill you makes you stronger’ comes to mind, but there really seems no rush to get involved with Partnership shares just yet.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Ladbrokes - off the pace

Ladbrokes: As the gambling industry moved to embrace on-line and mobile betting, Ladbrokes was left behind. The group addressed this last year by partnering with an Israeli-based technology group, Playtech, who had previously helped establish William Hill Online. However, they still lag their online peer group at a time of fierce competition. At the recent World Cup you will have seen that every ad break featured someone’s online offering, from Paddy Power to Bet365. (Ladbrokes state that overall they spent 31% of net revenue on marketing.) In addition, high street gambling has experienced steady declines with punters having an ageing demographic and horse and greyhound betting becoming less popular. Even the cushion of Fixed Odds Betting Terminals is now wearing thin as politicians and regulators question the alleged addictiveness of these machines, amid tighter regulatory controls. As a result the physical estate is being shrunk with some 50 shops (out of a group total of around 2,800) closing this year. In addition, although a variable factor, sporting results have not been going the way of the bookies in 2014. Further ahead, changes to taxation (primarily the new Place of Consumption tax system being introduced in December) pose further challenges across the industry. Against this background of internal change and external challenge, net revenues were up 1.6% and group operating profit was down 33.7%, with underlying earnings per share down 38.6% at 4.3p, just covering the maintained interim dividend of 4.3p. The board has re-iterated its commitment to pay a total dividend of 8.9p for 2014. However, earnings per share in the next couple of years seem stuck in the 11p-12p range, providing dividend cover of under 1.5x. Net debt was £425.9m, just under twice expected EBITDA of the order of £216m. So the balance sheet is not overly stretched but dividend growth (if any) is not likely to be exciting. Although the yield, with the shares around 135p, is just over 6.5%, other income stocks may provide better dividend growth and total returns.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Serco - suspended sentence

Serco: The group has had a terrible time of late with contract losses, poor trading and a schism in the relationship with key customer, Her Majesty’s Government. This led to the arrival earlier this year of the well-regarded Rupert Soames as CEO, from Aggreko. He has started to re-build the executive team and has now brought in his former Aggreko moneyman, Angus Cockburn, as CFO. Their reunion will greatly encourage Serco shareholders, as the group re-engages with HMG and other key customers. When Rupert Soames arrived, he very quickly launched an equity issue of 10% of the issued share capital, in order to buy himself time and breathing space. The deterioration in profits had meant that the Group’s leverage ratio, 2.25x at the end of 2013, was heading towards its 3.5x ceiling. Post the equity raise it is now 2.41x (net debt of £559m). Guidance for 2014 has been re-iterated, subject to a strategic review, with early pointers for 2015 suggesting another challenging year of transition. The strategic review, which is under way, should be complete in time for the full year results and a new finance man could mean that further contract write offs will be identified. So there is a good chance that a further equity raise will be required, to bolster the balance sheet and manage the key covenant limits. At these results the interim dividend was held at 3.1p, but the fate of the final is undecided to say the least. So shareholders can see that the building blocks for a recovery are in place. However, with Angus Cockburn only starting at the end of October, the ‘kitchen sink’ moment has not yet arrived. With a good chance of further equity being issued and a dividend at risk, there seems to be no rush, for all but the faithful, to commit fresh money just yet.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Balfour Beatty - A Labour of Love

Balfour Beatty: The group’s CEO left in May and they have yet to appoint a successor. They were recently approached by Carillion regarding a proposed nil premium merger. These talks foundered when Carillion then requested that Balfour’s proposed sale of their Parsons Brinckerhoff subsidiary be halted. We have now had Balfour’s interim results to 27^th June 2014. These seem less than sparkling with Group revenue down 3% and underlying pre-tax profits down 53%, due in part to operational issues at their UK mechanical & electrical engineering business. However, the order book was only down 1% in constant currency to £13bn. Total debt (including PPP subsidiaries) was £588m against £553m a year earlier. The interim dividend was held at 5.6p, on course for a maintained annual dividend of 14.1p. But this is likely to be covered less than 1.5x by earnings. They say that the sale of Parsons is ongoing, with up to £200m of proceeds due to be returned to shareholders, significant in the context of a £1.67bn market capitalisation. When this return happens, the board will review the dividend in the light of ongoing dividend cover and group debt. To me this looks like a dividend just waiting to be cut and is not the driver for owning these shares. The reasons for owning Balfour Beatty are if you think that Carillion or someone else will end up acquiring them, or if the Parsons sale is the first step in a group break up that might release value. Whilst the sum of the parts may well be more than the current 240p share price (I have seen 305p mentioned) the underlying businesses need attention and that may put suitors off. Balfour Beatty has been a labour of love for shareholders for many years and that is still the case.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Bellway - hot to trot?

Bellway: The UK housing market has recovered well from the post banking crisis slump, helped by various Government initiatives such as ‘Help to Buy’. However, it seems that there is a two speed market with some areas of the country doing well, including London which is ‘running hot’, whereas much of the country has seen far slower price appreciation. There has to be an increasing chance that London boils over, but the timing is as tricky as ever. Overall, housebuilders have benefited from better demand, whilst planning constraints and reduced build capacity have helped maintain a natural control on the volume of houses and flats hitting the market. On the cost side, pressures are increasing with lead times on bricks, for example, stretching out. In the case of Bellway’s pre-close update, volumes were up 21.2% to 6,851 and the average selling price was £213,000, up 10.3% over 12 months. Forward sales are up 36% and the balance sheet has net cash of £5m even after a £460m land spend (up from £300m). London accounted for 18% of sales by volume and achieved prices exceeded their expectations. Bellway is well placed for current positive market conditions and the outlook comment is upbeat talking about ‘further enhancements to shareholder value’.  The company has a July year end and for next year the PE is heading towards 8X and the yield rising smartly to around 4%. However, 2015 will see the General Election and whoever wins may want to take some heat out of the housing market, whilst Mark Carney at the Bank of England and his MPC colleagues are edging nearer to the moment when interest rates start to rise, albeit gently. This will all make for a somewhat more challenging new house market and it may well be that this is about as good as it gets for the industry. So despite all the positivity around Bellway, it could pay to start cashing in some chips on a share that is up around 150% from the depressed levels of three years ago.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Randgold Resources - shiny, shiny

Randgold Resources: Mining companies can be very tricky beasts for income investors. Whenever they bring a resource on-stream, their initial temptation is to re-invest in further exploration and development rather than hand cash back to shareholders as dividends. The problem then, is that any project is subject to the assault course of proving a resource, sorting out local politics, taxation and practicalities like actually getting product to an end market. Even then you are at the hands of the commodity’s price (for them gold) unless you double-guess the market by selling forward production. In Randgold’s case the main operations are in the Ivory Coast, Mali and the Democratic Republic of Congo. Not impossible jurisdictions but still volatile as we saw with the 2011 Civil war in Ivory Coast whilst the DRC struggles to overcome patchy infrastructure and corruption. Randgold’s stated aim is to produce 1.1m to 1.3m ounces of gold per annum with a cash cost of $650-$700 per ounce. These latest results show that they are well on course to meet this production target. Randgold is one of the best gold operators, but this is reflected in a higher market capitalisation to book value than many peer companies. You will get more gearing to the gold price in a smaller gold company, but if just buying physical gold seems unimaginative then Randgold may well be the third way to consider, although a sub 1% yield is clearly not going to be the main temptation.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Legal & General: making plans with Nigel

Legal & General: The group is well placed to serve the needs ageing populations, who require financial security and planning for lengthening retirements. The Chief Executive, Nigel Wilson, has done an excellent job improving the financial track record of L&G over recent years and described these results as ‘strong’. Since joining L&G, he has switched the emphasis from old style products which only produce cash profit after many years, into areas such as fund management with nearer term cash generating abilities. This seems all the more sensible after the 2014 Budget, which has revolutionised the pensions market and made old style individual annuities passé. Indeed, Individual Annuity sales were down 49% at the half way stage, with the group forecasting further major declines. In contrast, Bulk Annuity Sales were up 368% bolstered by a huge contract for the old ICI pension scheme. The group continues to make good progress in fund management with assets under management up 7% to £465.1bn, with the US asset management business of increasing importance. In this half year net cash generation was up 13% to £567m, with the interim dividend up 21% at 2.9p. This is consistent with the guidance at the 2013 Finals to move dividend cover from 1.8x to 1.5x. This is all backed by a strong balance sheet with an IGD surplus of £4.7bn (up from £4bn at year end). Last year’s dividend was 9.3p, but if the final is up the same 20% as the interim, then 11.16p of dividend gives a yield of 4.8% at the current share price of 232p. So, overall, these are a very pleasing set of results for L&G’s shareholders.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Aggreko - ticking over

Aggreko: Supplying temporary power through portable (just about) generators is an attractive long term growth business and the end markets are varied. These include countries with under-developed electricity grids, such as parts of Africa, as well as countries with creaking old grid infrastructure (which includes increasing areas of Europe). Even the UK is facing the prospect of unreliable electricity supplies as old coal power stations are retired before new green energy and nuclear stations can take up the slack. There is also a multitude of sporting and entertainment events to support such as football’s World Cup, the Commonwealth Games or the vibrant music festival scene. A concern at present is that the boardroom is in a state of flux, with the highly regarded Rupert Soames having set off to rescue Serco and his wing man Angus Cockburn also heading off to pastures new, with Chris Weston recruited from British Gas to be the new Chief Executive. Profits have reached something of a plateau in the last couple of years with a strong sterling currency not helping reported profits. However, at these interims fleet capital expenditure guidance was increased from £215m to £235m, which can be a good lead indicator for future sales and profit trends. Yet, with profits on that plateau, the PE of around 20x looks full and there is only a skinny yield of 1.5%. There just seems to be a lack of a catalyst for the share price to move much higher at present. So, whilst the long term fundamentals look attractive, it may be that there are better buying days to wait for.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

HSBC: Gulliver's Adventure

HSBC: Let’s face it, navigating bank results is like sailing a dinghy through an ice floe....in the dark. You get lots of large numbers, which are often many miles away from the underlying movement of pound notes, moving around and threatening to crush shareholders’ equity. HSBC has its fair share of historical issues including poor money-laundering controls in Mexico, a poor record in North American consumer lending and a good whack of PPI compensation to pay. But it is huge (the market capitalisation is £122bn, roughly the size of Hungary’s GDP) and its balance sheet is strong with core tier 1 a comfie 11.3%. It has a good footprint in Asia, which will see good economic growth over the long timeframes that corporate super-tankers like to think in. The CEO, Stuart Gulliver, has re-iterated that they have a strong balance sheet and a progressive dividend policy, although they declare results and dividends in US dollars. This means that with a strong pound against the dollar at the moment, sterling dividends received face a headwind. So you start with a historic yield is 4.7%, for a bank in some of the right places, which is more alluring than many of its peer group navigating the icy financial ocean.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

Quindell: on the hard shoulder?

Quindell: A controversial stock this one, with fans and critics aplenty. It has expanded very rapidly from its corporate roots as a Hampshire golf course into technology based out-sourcing solutions for the insurance industry. Its problem is that it has been expanding so fast that it is in danger of tripping over its own feet. Earlier this year Gotham City Research produced a note pulling apart Quindell’s accounting policies and questioning the value of many of its acquisitions. Whilst Quindell vigourously denied the accusations and produced research to counter the claims, much of the corporate mud stuck. Now, we have the news in the press that a major new joint venture with RAC has run into problems before it got going. The base of the plan was to place telematic devices in cars, but part of the value for RAC was the right to exercise warrants to buy shares in Quindell in the future. However, after the damage to the share price post Gotham City, the subscription price of 750p is way above the current price of around 200p (and falling today) and RAC seems to be unhappy. Even if the deal does go ahead, it will be another cash consumptive start up for Quindell. This only adds further grist to the critics who say follow the modest cash pile rather than the burgeoning top line. A stock that I would avoid until some of the dust storm settles.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about.

UBM

UBM: Interim results for the six months to 30^th June 2014 have been announced. These are the first results under the stewardship of Tim Cobbold, who is generally well regarded from his time at De La Rue. Later this year he will host a Capital Markets Day to unveil his long term plan for the group, so that may herald changes. For now though, the interim dividend has been raised 1.5% to 6.8p, going XD on 22^nd August. This is only around a quarter of the total dividend expected for the year. FactSet have the full year dividend consensus forecast at 27.67p, covered 1.7x by earnings per share of 47.12p. With net debt to EBITDA at 2.2x at the interim stage, with 101.8% cash conversion, the dividend looks safe enough. There are no near term debt re-scheduling issues and a manageable IAS19 pension deficit of £23.5m. At the current price (1/8/14) of 620p, the dividend yield of 4.5%. So overall, a well established company with a decent yield at an interesting stage of its corporate development under new leadership.

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest.