Aberdeen Asset Management - Wheel of Fortune

Aberdeen Asset Management: Whilst wearing its tartan heritage with pride, this is now a well spread international fund management group. The pre-close update showed a marked improvement in net flows, with AUM at £331.2bn against £322.5bn at June 2014. The keystone Asia Pacific business moved back into positive flows as did the Global Equity strand. Having originally claimed that the buy and build days were over the temptation to buy SWIP proved too much for Aberdeen but that acquisition is bedding in well now and they saw modest outflows of only £0.7bn. Aberdeen is renowned for its Far East expertise, based around Hugh Young in Singapore. The recent strength of the dollar has raised concerns that the whole carry trade in emerging markets is coming to a crunch and this would not suit Aberdeen for one. But this is arguably already reflected in a share price that has fallen around 10% in the last quarter and they have weathered such asset class storms in the past. That leaves the valuation metrics to consider. Looking to the year just commencing Digital Look has consensus earnings at 33.75p, a PE of 11.9x at 400p and a yield of 4.9% on a dividend forecast at 19.6p (1.7x covered). Growth in earnings (and dividends) has the scope to hold above 10% and the balance sheet is ungeared with cash set potentially to reach £400m by September 2015 on the back of retained earnings. The EV of around £5.1bn is only around 1.5% of  AUM at £331.2bn, which is reasonable. So, Aberdeen at 400p looks to be offering an attractive (and growing) yield, coupled with a strong balance sheet and good market positions and is worthy of investors interest. (Neil Cumming, 30th September 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

Postcard from Tanzania

Tanzania: This is stretching beyond the Blog’s brief, but it eases me back in after a great safari to Tanzania. Many of the economic problems facing Tanzania are common to other countries and are often analysed, but there is nothing like seeing it first hand to concentrate the mind. The last population count was around 45m in 2012, up a half from the 30m in 1995. Population growth is around 3% per annum so 60m is in sight for 2022/3. Of the current population 45% are under 14 years old (a figure skewed by the grim toll of AIDs). Whilst GDP annual growth has been high single digits in recent times, GDP per pop is only $700. This puts the country very firmly in the bottom quartile of global economic wealth, (although the rich are very rich and the poor are very poor). The growing population is putting great stress on the land through de-forestation and over-farming. Water is a scarce resource, before you even worry about food, fuel, health etc. (Toothpaste and dental care barely gets a look in for many.) A legacy of President Julius Nyerere’s socialist principles is that the concept of freehold property has still not been rolled out, which appears to be putting off many foreign corporate investors. The most successful investors seem to be southern African (as a broad generality) who understand more of the local business practices (and probably have a pragmatic approach to ‘commissions’ and the like). At this stage Tanzania is too ‘small potatoes’ for many western companies, although SAB Miller and Diageo feature large in the beer market and the resources sector has attracted the likes of Ophir Energy and BG. Meanwhile, the Chinese are in evidence helping with infrastructure as part of their Africa ‘bear hug’. The wider point to take on board though is that a growing global population is going to demand more and more of the basics of water, power, food and health, with companies in those sectors facing huge opportunities (and responsibilities). It is worth noting though that technology can play a part in unexpected ways in such countries. The National Grid only covers 20% of the country and there are large voids in bank coverage and fixed line telecoms. However, in village after village, the main street could look ramshackle and dusty, but would have a Vodacom shop and M-Pesa (mobile payment) functionality.... Finally, there is that global phenomenon that you can be miles from tarmac roads and home, but there will be a bar with a satellite dish and someone sporting a football shirt (in this case mainly Man Utd or Arsenal) who can tell you the latest news and results!.  (Neil Cumming, 29th September 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

Standard Life - Location, Location, Location

Standard Life: They recently announced the unexpected disposal of their Canadian businesses for £2.2bn (a price to book value of 1.9x), with £1.75bn to be returned to shareholders (chunky when measured against a market cap of £9.9bn). This equates to 73p per share (the shares trade at 415p) and will be offered as a capital or income payment. As an income payment it is a yield of 17.6%. The analysts seem unperturbed that these businesses are being sold with most feeling that they were not as attractive as Standard Life’s core operations. Alongside the earlier acquisition of Ignis this all seems designed to lock into a key asset management role in the UK, focused on lines producing better cash generation as opposed to old style life assurance derived products. The board intends to maintain the ‘progressive dividend policy of growth’ on a per share basis. Following the share consolidation there will be fewer shares, so the overall dividend cost for Standard Life will decrease. So you can elect to receive your 73p as income, but it is a one off. For income investors you are looking to long term dividend flows and growth. This disposal does not impair dividend levels per share or dividend growth, indeed a slightly slower growing part of the group has been hacked off. So if you were happy to hold Standard Life before, you should be just as happy now. Just now though, the increased concerns over Scottish independence are clouding prospects for Scotland based companies. Standard Life has stated that it has contingency plans in place and the speculation is that they would flee south to England. This would involve one off costs, but should not negate the investment story.  (Neil Cumming, 10th September 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

BP - Who Loves Ya, Baby?

BP: In general, I have used official Regulatory News Service announcements as the trigger/source for my comments. This comment is slightly different and is really just chucking a few thoughts around on BP’s dividend. The market capitalisation is about £85bn and the dividend cost is of the order of £4.25bn (the 5% yield). They account in dollars and last year the dividend was 37c per share, covered easily by earnings that have, in recent years, been between 58c and 135c. However, BP is facing severe challenges on two fronts, in USA and Russia. Historically, that is a tough ask however big your army is. In the US, the Deepwater Horizon oil spill has left them as public whipping boy (and local business charity) number one. The compensation process has seemed to them deeply unfair, with BP citing over generous (and even spurious) awards aplenty. Now, they are facing a maximum fine of $18bn, having been found guilty of ‘gross negligence’. The pain just goes on and the legal battle has years left in it, but this is clearly a big number, even for BP, to stump up. Looking to the east their near 20% stake in Rosneft is worth some $13.5bn. But Rosneft is Russian, 69.5% government owned and western economic sanctions (especially on access to capital debt markets) are biting. Igor Sechin, their CEO, has asked the government for $40bn in funding. If this was fashioned through a rights issue (it is Vlad’s house, so Vlad’s rules), BP’s share would/should cost $8bn. Even worse, the possibility that any further deterioration in West/East relationship might ever lead to Russia confiscating western owned assets (Vlad’s rules again), must make the BP board’s blood run cold. For now, BP have announced a second quarter dividend of 9.75c, up from 9.5c the previous quarter and making 39c for the year possible. So it is business as usual on the dividend declaration front. The niggling worry though, is whether cash drains in the US and maybe Russia would make the board feel that current dividend expectations are too generous and that a pause (or worse) might be prudent. The company’s dividend policy (in part) states: ‘The company intends to grow the dividend level over time, in line with the improving circumstances of the company. BP directors decide the level of each dividend based on each quarter’s results.’ So the quarterly declaration is not a ‘gimme’ and can you really say that their circumstances are improving at the moment? The next quarterly results (and dividend declaration) are due on 28^th October. (9th September 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

Go-Ahead: the line is clear

Go-Ahead Group: They have released full year results to 28^th June 2014. Revenue was up 5.1% and underlying pre-tax profits were up 25.4%. Adjusted earnings per share were 148.6p, up sharply from 117.6p and there was a surprise 4.3% dividend increase to 84.5p. The slightly long dividend policy is detailed as ‘progressive dividend growth whilst maintaining dividend cover of approximately two times adjusted earnings, on a pre IAS19 (revised) basis, through the economic cycle’. They declare that the bus division is on course for their £100m operating profit target in 2015/6 having posted £83.5m this time, whilst the rail division has been awarded the new (and UK’s largest) seven year franchise (Thameslink, Southern and Great Northern). On the back of good cash conversion, adjusted net debt has come down from £299.6m to £260m, leaving a conservative net debt/EBITDA of 1.45x. For the current year to June 2015, Digital Look have consensus eps increasing 10% to 163p, so the dividend is up another 4% it  would be of the order of 88p; so at 2290p the shares are on a PE of 14.0x and a potential yield of 3.8%. Rail franchise financial projections can be derailed (groan) and margins in the rail industry can be very skinny (Go-Ahead’s were 1% last year). Put alongside contracts of finite length, this all limits the value that investors will ascribe to a UK rail business and this limits the scope for PE expansion. For now, Go-Ahead is well placed and has the forward impetus from the new rail franchise, but much of that could be already in the share price. (8th September 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

Spirit Pub Company - same again please!

Spirit Pub Company: They have released their fourth quarter trading update to 16^th August. The good news is that ‘full year results are expected to be ahead of market expectations’. Their managed pubs are cited as trading ahead of the market, with like-for-like net sales up 2.1% over 12 weeks and +4.4% for the year. This is despite tough comparisons from the previous year and a deteriorating weather pattern in August this year. They are now acquiring pubs/sites in this division with 11 added, maybe as many again in process and a long term target of 400 additions mentioned. These additions are expected to ‘generate returns materially ahead of our cost of capital’. The more troubled leased division also traded well with like-for-like net income up 4.8% for the twelve weeks and +4.2% for the year. Gradually the spectre of their onerous lease provision has faded and the debt pile has come under control. At the interims debt was £726m and net debt to EBITDA was 4.7x, since when it will have improved further. So eps for the year just finished of maybe 6.8p is a PE of 11.5x at 78p, with a yield of 2.8% on a 2.2p dividend. For August 2015 eps could be 7.5p , with a three times covered dividend of 2.5p, giving a PE of 10.4x and yield of 3.2%. The valuation discount perhaps reflects lingering concerns about its ancestry within Punch Taverns and the intricacies of some of its debt, but that all feels increasingly harsh. These metrics seem very good value for a company trading well, with good free cash flow and improving its balance sheet. (5th September 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

Stobart Group - one for the Fan Club

Stobart Group: The pre-close trading statement was confident in tone, although lacking in too many hard numbers. The Investments Division is largely the remaining 51% of the original lorry business, where William Stobart now works. This leaves Andrew Tinkler to concentrate on the other four divisions of Infrastructure, Energy, Aviation and Rail. The trading of assets between entities employing these two gents has been a regular occurrence over the years and for some investors is a reason not to invest, full stop. In recent years, the rapid and frequent changes to the board, has not helped investor nerves either. In this statement Stobart notes that the Energy division has seen over 50% tonnage growth but at lower (unspecified) margins. The other three divisions sound on track, as is the lorry stake. Having paid down £168m of bank debt (helped by the lorry stake sale proceeds) interest costs will be significantly lower. The problem for analysts is that this is now a year of transformation and re-structuring, making forecasting trickier. Edison have a forecast to February 2015 of 3p, followed by 5p to February 2016. That is a hefty PE (at 125p) of 42x dropping to 25x. The dividend for both years is a long-maintained 6p, being a yield of 4.8%. Whilst the dividend is not covered by earnings the strengthened balance sheet means that is should not be in danger. The share price upside could be in the newer, growthier, activities at airports, rail and biomass, meaning that a sum of the parts valuation may be a better metric. On this basis Edison have a calculation of 166p rising to 186p. However, if you are looking for moderately rated stocks, in equilibrium, with growing dividends, then Stobart is not that stock. (4th September 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

Berkeley Group - a smidge on the Pidge

Berkeley Group: Arguably unique amongst house builders, with Chairman Tony Pidgley, a doyen of the industry, presiding over a fierce capital discipline. Central to this discipline are the regular plans to return capital to shareholders by way of large dividends. This ‘in line’ Interim Management Statement confirms the payment of an already XD 90p dividend on 26^th September, with a further 180p due, as part of the September 2015 434p commitment. The next dollop is then 433p by September 2018, through a mixture of special and regular dividends. These are backed by Berkeley’s measure of £1.5bn of gross profit embedded in the land bank, (the market capitalisation is £3.25bn). Whilst cooling London trading conditions have been widely noted in the press, Berkeley Group are immensely experienced in riding the London market and are sounding as confident as ever. Digital Look have eps for April 2015 forecast at 232p, a PE of 10.3x at the recent share price of 2395p. The 180p of dividend due by September 2015 equates to a yield of 7.5%, whilst the 434p over the next three years averages out at a 6% annual yield. If you are happy that the London housing market may slow but will not burst, then this stream of special dividends is attractive. Being partly returns of capital, the visibility on these dividends (or any growth) beyond 2018 is hazy, but the fan club won’t care.  (3rd September 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

STV Group - Foreign Telly?

STV Group: Over recent years the group has been steadily working its way back into financial health after a nasty bout of debt and pension fund flu. Back in July this year they announced that a new revised pension deficit funding plan had been agreed with the pension trustees. From a deficit of £83m (on an actuarial basis) at 31^st March 2014, they will instigate a ‘recovery plan period’ of 11 years (down from 18) by paying in £5.5m in 2014 and between £7.0m and £7.75m from 2015 to 2025 inclusive. (On an IAS19 basis the schemes are showing a surplus of £5.3m.) These interim results to June 2014 show revenue up 7% to £54.7m, pre-tax profits up 25% to £8.4m and eps up 31% to 18.7p. So, you can see that the pension payments are still very significant in scale but they are now manageable. Net debt is £40.1m, down from £43.4m this time last year and further reductions mean that net debt to EBITDA is forecast by the company to be less than 1.5x by year end, having been dangerously high in the late noughties. The bank facility has been extended to 2019 giving certainty on their debt funding. This better financial health is being reflected in a new enhanced dividend policy. The interim dividend has been doubled from 1p to 2p with 6p total forecast for the year. The group is on course for eps this year of the order of 38p (and maybe over 40p in 2015) according to Digital Look, so a 6p dividend is still covered over six times. The company have forecast a further 33% increase to 8p in 2015. This still leaves ample scope for further substantial dividend increases to come in the medium term as the balance sheet recovers further and the pension fund deficit comes down. Whilst the share price has been strong, at 375p, the stock is on barely 10x eps. The yield might only be 1.6% for 2014 and 2.2% for 2015, but given the likely further dividend growth over coming years this looks to be a really interesting stock for income investors. The Scottish independence issue is an uncertainty, but is unlikely to derail the investment case. (2^nd September 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 Laing Infrastructure - steady and reliable track record

John Laing Infrastructure: This type of infrastructure fund should never set the pulse racing, but has its attractions as a form of ‘index-linked’ equity. Their assets (domestic and international) are spread across several sectors including hospitals, schools, social housing and street lighting, with an average contract life of around 20 years. These are the interim results to 30^th June 2014. The net asset value per share was 107p, up 0.2%, with the shares trading at 119.25p, around an 11.5% premium to NAV. (The NAV would have been up 0.8% except for sterling’s strength.) The interim dividend has been declared at 3.25p, making 6.625p likely for the year, an increase of almost 4% and resulting in a yield of just over 5.5%. So if the NAV creeps ahead at 2-3% with a starting yield of 5.5%, the implied total return per annum is a respectable 7.5% to 8.5%. There is a £150m revolving credit facility to allow a swift response to any acquisition opportunities, but this is currently undrawn. The main quibble at the moment is that it would be better to buy the stock when the premium to NAV is less than the current 11.5%, with the twelve month average being 8%. Overall though it is not surprising that the stock has a fan club amongst more cautious minded income investors. (1^st September 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