Whitbread - Today here, tomorrow the world?

Whitbread: The momentum at Whitbread has kept going since Andy Harrison (ex Lex Services and easyJet) became CEO in 2010. The main eatery brands are Brewers Fayre and the venerable Beefeater, but most of the excitement is elsewhere. Costa Coffee has been a huge success and is all around us on High Streets, trains, stations, pubs and motorways. In this six months to August 2014 Costa like for like sales grew another 6.1% with top line growth of 16.9% and expansion abroad looks set to be the next leg of growth. Also doing very well has been Premier Inns, both through its own efforts and the self-inflicted financial straits at rival Travelodge. Premier like for like sales were up 9.6% within overall growth of 14.7% and record 84% occupancy. In the financial year to February 2015, £500m will be spent on growth (including £415m on Hotels and Restaurants), but cash generation overall is good with half year cash flow generation at £356.3m, leaving net debt up by £37.1m at a manageable £467.2m. Whilst the lodging business is capital hungry, the coffee side has far better cash characteristics and the debate over demerger (or similar) is never far away, although recurring good results have tended to dampen the flames of unrest. The debate though is how much all this is worth?

The interim results showed underlying profit before tax up 18.5%, with eps up 21.5% to 111.69p. The dividend was increased by 15.6% to 25.2p. So on consensus forecasts of about 205p, the PE is 20.5x at a 4200p share price. Dividend cover has been creeping up and if I look to a 2.6x cover the dividend would be 78.9p yielding 1.9%. Forecasts look to be leaving some scope for upgrades but at least 10% growth in FY2016 is expected. Whitbread are executing very well, but on these metrics it all seems a tad expensive, as has been the case for some time. From here, it seems difficult to see how extra value could be created by demerger, but the issue will never entirely go away. I would hold off from fresh purchases but would congratulate those who bought early and are still holding on happily.  (Neil Cumming, 21st October)

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  

Provident Financial - Knock, Knock

Provident Financial: Going back a few years, some were predicting the decline of door-step lenders such as Provident Financial. You have to take your hat off to them though. They have launched new products to suit new technology and new customer requirements and now they are set to benefit from the broom that is sweeping out the debris of the disgraced payday lending market. They have even started to expand abroad again having previously successfully floated off International Personal Finance in 2007. Vanquis was set up in 2002, concentrating on credit cards with low spending limits for those with impaired credit records and this now also takes retail deposits. This is now being rolled out in Poland. More recently they set up Satsuma, a short term on-line lender with APR’s in the hundreds not thousands of percent. Meanwhile they still operate the old style door step lending where competition is less since the emasculation of Cattle Holdings. The other main strand is vehicle finance (Moneybarn) for those with impaired credit histories.

The shares have done well in recent years and are now around 2050p. Digital Look cites consensus eps showing growth of 14% to 128p for this year to 31^st December, rising 15% to 148p next year, so a PE of 16x dropping to 13.8x. Good cash generation means a high dividend payout, with cover around 1.3x. Consensus dividend for this year is a rise of 12% to 98p and then 15% to 113p, giving a yield of 4.8% rising to 5.5%. As the likes of Wonga face their re-birth, the way ahead looks rosy for Provident Financial and on these numbers, despite the good multi-year performance, it may not be too late to buy. It is a strong hold at the very least.  (Neil Cumming, 20th October)

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  

Diageo - mine's a Serengeti please

Diageo: This huge international drinks group has an amazing array of brands under its umbrella. These stretch from Smirnoff, Bell’s, Johnnie Walker and Gordon’s Gin through to Guinness. You even almost have to forgive them for inflicting Blossom Hill and Piat d’Or on the populace through your local Spar.....or maybe not. So their aim in developed markets is to add brands, develop brands and move customers up the price points. In emerging markets they want to bring customers into the branded space using both their major brands and acquired local brands. For example, on my recent Tanzanian safari one debate was whether Serengeti or Tusker beer tasted better. Serengeti won, but Diageo own them both. So this recipe should all secure long term growth of global GDP plus a bit. There are plenty of missed beats over time, say when emerging market economies wobble, the Chinese turn against graft or somewhere like Russia becomes a pariah. So, I find it really difficult to get that excited about Diageo unless the share price is in a market driven heap. Otherwise, it feels almost quasi bond like in its stately progress over the years.

At the moment the share price is around 1700p, with historic eps around 95p and dividend of 51.7p, giving a PE of 17.9x and a yield of 3.0%, nearly twice covered and backed by a reasonable balance sheet. And you could expect very long term growth of maybe mid single digit percentages. This all looks very unthrilling, but maybe you should compare it to a gilt and then you might surmise that for a modest equity risk you are actually adding considerable long term cumulative upside. In that sense, perhaps, it is base load for long term equity portfolios. Mind you 1700p may just also get you two bottles of Johnnie Walker Red Label or Bell’s at a desperate supermarket sometime in the run up to Christmas.  (Neil Cumming, 17th October)

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  

Liontrust - a growing cub.....

Liontrust: This group has enjoyed great momentum in recent years. The latest FUM was £3.8bn, with the market capitalisation at £97m. They have announced that they have won a £320m institutional UK equity income mandate which was lost by Miton Group recently, being run on behalf of SWIP (now owned by Aberdeen Asset Management). The UK equity income team is led by Stephen Bailey, whilst the UK equity team is led by Anthony Cross and on the multi-manager side they employ John Husselbee and Paul Kim.  So, with a good fund factory in place and some good performance the future looks rosy for the group. For the year to March 2015 forecast eps could brush 20p, meaning that at 215p, the PE is 10.8x. Meanwhile the dividend is on course for around 4p, giving a yield of 1.9%, but this is growing at a clip (having been 1p in the year to March 2013). With eps set to grow well and a dividend cover of 5x, dividend growth is set to be very good. I know that with equity markets in upheaval it is a brave man who buys an asset manager, but fortune supposedly favours the brave. The other risk is an unexpected upheaval in the fund manager ranks, but all seems to be a stable ship at present. For income growth investors this looks to be a smaller market capitalisation stock worthy of a second look. One other small cloud to be aware of is that the Chief Executive John Ions has been off-loading stock recently, although he still has £2m and options so still has plenty of skin in the game.  (Neil Cumming, 16th October)

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  

Ashmore Group - fashion victim?

Ashmore Group

Ashmore is a very successful manager of emerging market funds, with a bias towards debt and bond offerings. Due partly to their specialist brief they enjoy high margins with EBITDA margin of around 65%. However all is not well at the moment. The impending end of QE in the USA as tapering comes to its conclusion is making investors fret about the immediate future for emerging markets. The lure of being out of the dollar and enjoying a ride on the ‘carry trade’ of an emerging currency is fading. In their first quarter update Ashmore have revealed AUM of $71.3bn, somewhat weaker than the $72-76bn range that analysts had been forecasting. The worry is that AUM could face further pressure as investors cash out and that the handsome margins may end up being squeezed, despite having held good for many years so far.

Having fallen some 25% over the last year the shares are around 294p. On reduced expectations of say 21p earnings for June 2015, this is a PE of 14 and the likely 17p dividend is a yield of 5.8%. The balance sheet is strong with spare cash on board, so despite low dividend cover of 1.2x there is no reason to fear for this year’s dividend. So this all looks attractive enough, but I am fretting about the apparent loss of momentum at the group. Investment fads are very fickle and emerging markets look well set for the medium and long term, but just now there seems little rush to buy Ashmore. (Neil Cumming, 14^th October 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                                  info@dividendpower.co.uk

N Brown Group - In the brown stuff

N Brown Group 
A nasty set of interims that caught the market with its big pants down. The group is well known for catalogue based selling to the old and the large and the old who are large, with an element of credit through instalment payments. Under the guidance of new CEO, Angela Spindler, the group has been moving towards more on-line selling, de-emphasising catalogues, opening High Street sites and raising their fashion content. You may even have seen Lorraine Kelly looking happy to be amongst JD Williams clothed customers, or previously Freddie Flintoff wearing Jacomo. Unfortunately for N Brown they seem to have launched their autumn winter slightly later than previously, with a delayed mailing and managed to coincide this with the unfavourably mild weather of late.

The shares have fallen heavily, not helped by soggy markets, to 290p. For the year to February 2015, eps could be 25p, with a well covered dividend of 14.4p. These equate to a modest PE of 11.6x and a yield of almost 5.0%. If this is the bottom of their fortunes then these may seem attractive metrics, however the concern is that trading may stay tough and that the CEO has changed too much too quickly. It looks as if there is no great rush to commit money to these shares unless their fortunes and or those of the market start to improve. (Neil Cumming, 13th October 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         info@dividendpower.co.uk 

Cape(d) Crusader

Cape: This oil and gas centric support services group was only a few steps from being a financial basket case when Joe Oatley arrived as Chief Executive in 2012. He had performed very well in his previous CEO job at Hamworthy plc, but at first it looked rather like Cape was a step too far. However, Oatley tackled the ‘kitchen sink’ list which included a disastrous contract in Algeria and an ill-disciplined Australian market. Gradually the group has pulled round and stabilised although profits are still well shy of the 2011 levels, before all the problems emerged. They are exposed to key markets in the Middle East and North America and have expanded into new territories, whilst adding more specialist services to their offering. Whilst some fret about capital expenditure squeezes across the energy space, Cape are better placed as a significant maintenance provider. Pre-tax profits for the year to 31^st December 2014 are in the range £37m-£41m giving an eps of the ball park of 27p, with 10%+ growth seen in 2015. With good cash generation now in place, these eps can support a dividend this year of almost 14p. The recent good Capital Markets’ Day has seen the share price move up to 280p, but that is still only a PE of 10.4x, with a yield of 5% and growing. Given the recent history of the company I acknowledge that there are still risks of further problems, but at these valuations income growth investors must be tempted.  (Neil Cumming, 10th October)

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