Monday, 30 December 2013

Amerisur update

Amerisur Resources is an independent full-cycle oil and gas company focused on South America, with assets in Colombia and Paraguay. I have a holding in my growth portfolio (epic code: AMER).

Amerisur today issued an update on its Platanillo-7 well in Colombia, the 10th new well of the current drilling campaign. The well has been successfully drilled, on time and under budget, to a total depth of 8,533ft (measured depth), achieving an offset of 1,181ft to the east of Platform 3N.  The well has been placed on commercial production at approximately 1,300 BOPD (on reduced choke).

CEO Wardle stated that "...The geological risk at Platform 3N was always higher than at previous wells simply because we were stepping out beyond the area where wells had been drilled previously. The fact that the structure at 3N and the flow rates surpassed our expectations bodes well for future development wells in the area, underlining the field potential going north..."

With respect to the on-going, but improving problems relating to the exportation of production, Wardle stated that "...We continue to work with all parties to resolve the constraints on our export processes, and I hope to be able to give an update on the Ecuador export option early in the New Year..."

Thursday, 19 December 2013

BAE Systems update on discussions

A global defence, aerospace and security company. BAE Systems delivers a range of products and services for air, land and naval forces, as well as advanced electronics, security, information technology solutions and support services.  I have a holding in my income portfolio (epic code: BA.).


After the market closed today BAE Systems announced that the United Arab Emirates have decided not to proceed with a range of defence and security capabilities including the potential supply of Typhoon aircraft. 

They also updated the market on negotiations with Saudi Arabia on the Salam Typhoon agreement.  They state that "...Whilst good progress has been made, a definitive agreement has yet to be reached.  A timely agreement in the new-year would be reflected in trading for 2013..." 

EPS guidance for 2013 would be affected by approximately 6 to 7p as a result of the Salam discussions not being concluded in the near term.  Current consensus EPS, including a successful conclusion to the negotiations, is 43.5p








Wednesday, 18 December 2013

GlaxoSmithKline FDA approval


GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

GSK announced today that the US FDA has approved ANORO/ELLIPTA to be used as a once-daily, maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease (COPD), including chronic bronchitis and/or emphysema. 
They stated that Anoro/Ellipta is not indicated for the relief of acute bronchospasm or for the treatment of asthma.
Theravance (NASDAQ: THRX) who jointly developed this medication with GSK is obliged to make a milestone payment of $30m to GSK following FDA approval. A further $30m payment to GSK will follow the launch of Anoro/Ellipta in the US, expected in the first quarter 2014.
I make this 5 FDA approvals this year:
May 2013 - Trametinib (Mekinist)
May 2013 - Dabrafenib (Tafinlar)
May 2013 - Breo/Ellipta
August 2013 - Tivicay
December 2013 - Anora/Ellipta
I understand that there have been 34 approvals this year, so GSK appears to have a good share, this compares to 43 approvals last year.  Although lower in number, a few analysts have said that the expected sales by their fifth year for 2013 approvals, will be up to 14% higher than last year

Monday, 16 December 2013

Synergy Health contract wins


Delivers a range of specialist outsourced services to healthcare providers and other clients concerned with health management. Such as hospital sterilisation services; applied sterilisation technologies for single-use medical devices; reusable surgical solutions for daily delivery of sterile reusable gowns and towels; clinical pathology, toxicology and microbiological services; chemical and microbiological analysis; linen management services for healthcare facilities and product solutions designed for infection prevention and control, patient hygiene, surgical procedures and wound care.  I have a holding in my growth portfolio (epic code: SYR)

Announced today six new contracts from the USA -  two Hospital Sterilisation Service contracts, two Reusable Surgical Solutions contracts and two Applied Sterilisation Technology contracts, totalling £230m. They state that the order book for HSS, RSS and healthcare linen services now stands at circa £1.1bn.
They also announced a partnership with the Center for Advanced Medical Learning and Simulation in Tampa, Florida to create a Learning Academy for Synergy Health.  Initially Synergy will be developing teaching and training programmes in order to certify HSS technicians to meet the compulsory standards being adopted in certain US states in 2015, but will expand its programme to include training and development for the full breadth of Synergy's services in 2014/5.  Synergy will also be providing a full HSS service to CAMLS processing all surgical instruments used in the training programmes.
Synergy announced their interims on 12 November, when they stated that earnings for the year will be in line with the Board's expectations see here for my comments.  I stated that the shares were worth holding for the opportunities in the USA and they do appear to be notching up success in that area.

GlaxoSmithKline open offer


GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

Today Glaxo announced an open offer to increase its stake in its publicly-listed pharmaceuticals subsidiary in India from 50.7% to up to 75% at a price of INR 3,100 per share. 

The Offer is at a premium of approximately 26% to the company's closing price on Friday and values the business at just over INR 263bn.  The cost to Glaxo is approximately INR 64bn (£629m).

The Indian company's earnings in the financial year ended 31 December, 2012 were approximately INR 5.6bn (£66m at 2012 average exchange rates).  The price Glaxo are offering values the business at a P/E of 47.

This follows on from Glaxo's purchase last year of 28.3% of their other Indian subsidiary - Consumer Healthcare for INR 48bn (£568m), bringing their ownership to 72.5%.

Glaxo also purchased 33.6% of its Nigerian subsidiary for NGN 15.4bn (£62m) to bring its holding to 80%.

To retain a public listing in India the minimum free float must be 25% and in Nigeria 20%.

It will be interesting to see whether the current offer achieves anywhere near the target of 75%.  Unilever recently acquired 14.8% of its Indian subsidiary Hindustan Unilever bringing its holding to 67.28% compared to their target of 75%, see comment here.

Friday, 13 December 2013

S&U growth portfolio candidate

S&U PLC Logo

S&U plc is engaged in the provision of consumer credit and motor finance operating as Loansathome4U and Advantage Finance respectively.  I do not have a holding in this company (epic code: SUS).

FTSE Small Cap
Banking Services
Market Cap
Share Price
Norm. EPS
Historic P/E
Est. 2014 growth
Prospective P/E
Est. 2015 growth
Prospective P/E
Rolling PEG
Historic Yield
Operating Margin
5 yr BV + Div return
5 yr FCF return on BV

The Business
S&U was founded in 1938 and floated on the stock exchange in 1961; the company is a consumer and motor finance provider, with over 140,000 customers.  Loansathome4u provide valued home credit facilities to customers via over 500 agents across the UK and Advantage Finance provides non-prime finance for motor vehicles through brokers and dealers.

S&U appears to have been a conservatively run business, with the levels of impairment on loans made, being at an acceptable level and well under control.  It is not uncommon for operators in non-standard personal lending to see impairment levels in the mid to high 30 per cent of revenue range:

Click on graph to enlarge
S&U typically will charge interest rates that would appear very high compared to standard lending, but is a fraction of that charged by payday lenders.  A typical customer may have had some credit problems in the past, but a recent good history and an income in the range of £17-27k pa., borrowing £500 from Home Credit over 9 months or £5,000 over 4 years from Motor Finance, for interest rates that may range between 40-90% pa.  Home Credit is managed by local agents who visit borrowers on a regular basis, many are repeat customers over many years.  Motor Finance is managed through brokers and agents and approximately 20% of applicants for loans are approved and of those about 20% agree to convert.

Competition for the Home Credit division is Provident Financial, Shopacheck, Morses and a large number of small localised operators.  The largest competitor for the Motor Finance Division is Secure Trust Bank.

Home Credit represents 57% of group revenue and 36% of pre-tax profits and Motor Finance 43% and 64% respectively.  Motor Finance is the growth engine in the business, with Home Credit supplying steady profits and cash generation.

The management of the business is conservative in nature and the consistency of this approach & culture is made possible by the tenure of the members of the board, who have been with the business from 14 to 38 years.  The directors own just over 13% of the business, although the Coombe family in total own a declared 52% with a charity (Wiseheights Ltd) owning just over 20%, so the level of free float is quite small and therefore low levels of liquidity.

The company does run a small defined benefit pension scheme, but at their previous year-end at 31 January 2013 had a small surplus of £20k.

S&U's trading performance has been consistent, with earnings & EPS increasing by almost 13% pa over the past 5 years and just over 18% pa over the past 3 years.  Over the past 5 years ROE has improved each year from 13.7% in 2009 to 19.8% for the trailing twelve months to 31st July 2013.

Free cash flow has historically been strong, but over the past 18 months has decreased, this is due to the substantial expansion in the Motor Finance loan book increasing from £55.6m in 2011 to £82.8m at their interim results, with the loan loss provision increasing by just £3.6m.

Operating margins have consistently been above 20%, increasing from 21.9% in 2009 to 26.9% last year and 31.8% at the interim stage this year.  This increase is due to an improving impairment charge, most especially in the Motor Finance division (see chart above) and good cost control on admin costs supporting the rising income.

Gearing is just 39% and interest is covered almost 30x; this low level of gearing offers the business the ability to leverage additional business over the coming years and bridge the expected 20% growth from a sustainable growth rate (SGR) of 9.8% (see table above).

I would judge that the Home Finance business has a narrow economic moat due to switching costs associated with moving to a new provider of finance and network effects due to "word of mouth" locally and the positive effect of the local agents within a community.  The Motor Finance business has a narrow economic moat due to switching costs associated with moving to a new provider of finance.  These switching costs provide a very narrow economic moat as it only applies while the loans are in place.

On a prospective P/E for the year ending 31 January 2015 of 11.7, a P/BV of 2.87 and EV/EBIT of 12.8, S&U is reasonably priced for a stock that is growing EPS at 20% pa (2009 to 2015 estimates).  Compared to Provident Financial on a P/E of 12.8 for 2014 earnings growing at 12% pa (2010 to 2014 estimates)

On a discounted cash flow valuation I would judge that the business has an intrinsic value of 1850p an 18% premium to today's price.

Add to this an expected dividend yield of 3.6% for next year and it makes for an interesting prospect.

As with any stock, if there is little SP momentum, then it may take some time for demand to exceed supply and push the SP up to its true value.  S&U does seem to have good momentum though with a 1yr relative strength of 54% and good SP momentum over the past 2 years as demonstrated by the chart below:

Click on chart to enlarge

A reasonably priced share, with good growth prospects and strong financial returns.  They have a committed management team with a good stake in the business, but the family ownership along with a long standing investor in the form of a charity, does create an illiquid share.  One to ponder on as a long-term investment.

Thursday, 12 December 2013

Growth portfolio candidates

Candidates for the growth portfolio

These are the current candidates for the growth portfolio using the filters that I detailed in my post on 26 April here.  This will produce companies that have a recent record of managing good growth, are expected by the market to grow over the next 12 months at a rate of at least 15% and are reasonably valued.

Click on table to enlarge

I have ranked the top three in each criteria above green, orange & yellow for 1st, 2nd or 3rd.  The companies I have shaded in blue also appeared in a previous screen, GBO and BKG on 3rd May 2013 and BRK on 10th June.
The performance to date of those two previous screens are detailed below:
Click on table to enlarge
As always the screen should be just the start of the due diligence that is required to ascertain whether a stock is worthy of investment.
I am currently looking at S&U (SUS) and if I have the time will I will post the results of that analysis, or at least a summary of it.

Monday, 9 December 2013

Anite interims

Anite plc

Anite is a global provider of hardware and software solutions, systems integration and managed services within its core markets of Wireless and Travel. I have a holding in my growth portfolio (epic code: AIE).


Anite released their interim results today and were in line with the trading update in October, commented on here.

Group revenue fell by 6% to £57.5m due to a 21% reduction in Handset Testing revenue.  Like-for-like revenue declined by 17% for the group due to a 33% decline in Handset Testing if we exclude the Propism acquisition.

With the Handset Testing just breaking even in the period the Group adjusted operating profit declining 63% to £5.3m. 

Adjusted profit before tax was £5.1m down from £14.3m last year and adjusted diluted EPS reduced 65% to 1.2p and statutory diluted EPS reduced from 27p to 0.2p.

Despite the lower earnings, free cash flow (FCF) was £3.8m compared to £3.5m last year.  The FCF generated was spent on - acquisitions £1.8m, dividends £3.6m and purchase of own shares for an employee trust £3.4m, resulting in net debt of £6m compared to £0.9m at the start of the year.

The interim dividend has been maintained at 0.575p as management state that "...despite the reduction in year on year profitability... the Board believes that trading in the first half of the year reflected temporary market conditions..."

Looking at sales and orders in more detail, there was some positive news as can be seem from the table below and with the book to bill ratio above 1 for the Handset Testing division this possibly marks a turning point in its fortunes.

Click on table to enlarge


Management believe that with a tenfold increase in mobile traffic between 2013 and 2019 (see Ericsson mobility report here) there will be no let-up in cellular network overload and this will drive the need for continued technology innovation in handsets and therefore the testing that they require from the Handset Testing division.

Mangement expect that the roll-out of LTE 4G networks will continue to benefit the Network Testing business in the second half and over the next few years.

The Travel business has a £75.2m order book and this is expected to be mined over the next 5-10 years.  The long term prospects for continued growth will be dependent on the ability to land new and renew existing maintenance contracts.

My expectations for the full year are unchanged from my previous estimates here that produced full year underlying EPS of 4.9p.