Friday nibbles - SSE/Sainsbury/Liontrust/Quindell

Friday nibbles: SSE’s interim results saw the dividend raised by 2.3% to 26.6p, consistent with their target of “at least” RPI growth. But the company flagged that eps will be towards the bottom end of their guidance and that dividend cover could “temporarily fall below its target range of around 1.5 times and be closer to around 1.2x in 2016/17”. Net debt rose by £185.6m to £7.9bn, which is heavily asset backed but still some 3.5x EBITDA. Periodically analysts fret that SSE cannot meet its dividend ambitions and they won’t be calmed by this update.

J Sainsbury have launched a £190m convertible bond, maturing in 2019. The coupon is 1%-1.75%, with a conversion premium of 30%-35%. If you have any doubts about Sainsbury’s ability to thrive/survive then you won’t want to lend them money at a miserable interest rate for 5 years. If you think they will thrive/survive, then the current beaten up shares (down c35% in a year) still offer a (not cast iron) yield of 4.5% for this year. If things get really bad then the dividend might go amidst an equity issue, but the bonds won’t look pretty either. If you want to back a recovery then the shares look the better option, (displaying my equity bias here!).

I wrote favourably about Liontrust recently, since when the shares have moved up smartly, but still look attractive. Recently released first half numbers confirm good trading momentum and a surprise doubling of the dividend to 2p. For the year to March 2015, consensus eps of 20.5p is a PE of 12.2x at 250p. If the dividend is doubled for the full year to 6p, that is a yield of 2.4% with a healthy cover of 3.4x. 

Back in August, as confusion reigned over the fate of their flagship RAC venture, I observed that Quindell had too many uncertainties for comfort. An uncontested UK libel victory over Gotham Research, (with any penalty probably unenforceable under the US SPEECH Act), brought some respite for the shares. However, the recent collapse in the share price, on the back of some esoteric Directors’ share dealings involving ‘pawning’ shares to buy more, has confirmed that this is only for the most adventurous investor. (Neil Cumming^, 14^th November 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 or e-mail at info@dividendpower.co.uk