Thursday, 22 May 2014
Wednesday, 21 May 2014
Trading as the Utility Warehouse, Telecom Plus PLC provides a range of services to households and small to medium sized businesses. The Company is engaged in the supply of fixed telephony, mobile telephony, gas, electricity and Internet services through independent distributors. I have a holding in my growth portfolio (epic code: TEP).
Tuesday, 20 May 2014
Vodafone Group PLC is engaged in providing voice and data communications services for both consumers and business customers, with a significant presence in Europe, the Middle East, Africa and the Asia Pacific region. I have a holding in my income portfolio (epic code: VOD).
Vodafone are making some big investments in its network, with the intention of creating "clear blue water" between them and their competition on service and support. This is likely to hurt results and free cash flow (that's real FCF not some management adjusted figure) over the next two years, but if successful will provide superior returns for investors. Meanwhile the 5.2% yield makes it an attractive income share, providing they do not slip up with Project Spring along the way.
Monday, 19 May 2014
Announcements during the week 12-16 May 2014
During last week while I was away there were ten announcements of note for shares that I hold:
Anite issued a trading update on the 12 May and stated that trading in the final quarter of the year was encouraging and reflected the improvement anticipated at the time of the third quarter IMS. Management therefore expects to report full year results in line with expectations. They also stated that cash generation in the second half was stronger than expected, due to improved working capital management. Group net cash at 30 April 2014 stood at £6.0m compared to a net debt position of £6.0m at 31 October 2013. Diploma issued their interim results on the 12 May with revenue showing an increase of 6.4% to £148.6m, adjusting
for acquisitions and currency effects revenue increased by a very respectable 9%. Reported
operating profit increased by 0.8% to £24.4m, with adjusted operating profit
increasing by 3% to £27.8m. EPS grew by 1.4% to 14.9p, with adjusted EPS up 2.9%
to 17.5p. The interim dividend was increased by 8% to 5.4p. Free cash flow was strong at £14.8m compared to £12.7m last year, although £11.1m spent on acquisitions and a £12.1m dividend payment were the main causes for the net cash declining from £19.3m at the end of last year to £8.0m at this interim stage. The Board stated that they remain confident of future growth, as the
recent Investment for Growth programme provides the platform to benefit from
continued underlying growth, supported by attractive and value creating
acquisitions. Glaxo on the 13 May issued results of a phase III trial for Darapladib informing the market that it did not achieve the primary endpoint of a reduction of major coronary events, versus placebo when added to standard of care. Glaxo will conduct further analysis, but this looks like the end of the road for this drug. The drug comes from the Human Genome Sciences pipeline - a $3bn Glaxo acquisition from July 2012. Let's hope the rest of HGS's pipeline is more productive.
On 13 May Diageo announced that they had launched and priced €1.7bn of fixed rate Euro denominated bonds. The issue consisted of €850m 5 year bonds at 1.125% and €850m 12 year bonds at 2.375%. That's low-cost borrowing and compares to an average interest cost of 4.9% for the Group last year. NB I have been buying DGE for my income portfolio since late April when the share price dipped to below 1825p.
Melrose Industries issued an IMS on 13 May stating that trading remains in line with full year expectations with order intake in the period from 1st January to 13 May up 3% over the same period last year. The Elster Gas business has achieved a 10% increase in order intake, although underlying sales year to date were down 1% year on year. The Elster Electricity business shows encouraging signs of significant growth for the year though trading is, as usual, weighted to the second half and notably the final quarter. Elster Water continues to show a much improved performance since acquisition. Brush is trading in end markets for power generation which have been slow for a while; consequently revenue was down in the period as expected. The order intake for Brush though was up 8% in the period. Bridon is still being held back by a tough mining end market and consequently order intake is down 3% in the period. Continued current forex rates will likely have an adverse effect of 6% on Group profits. A bit of a mixed performance, but overall positive, although with the usual forex headwind for international companies.
Compass Group announced their interims on 14 May 2014. Although revenue fell by 1.6% to £8,659m it grew by 4.2% on an organic basis, driven by North America and Fast Growing & Emerging growing by 6.6% & 9.7% respectively, partially off-set by Europe & Japan declining by -1.6%. Operating profit at £634m was similar to last year, but on an underlying basis grew by 5.5% to £647m. EPS grew by 7.4% to 24.7p and on an underlying basis grew by 10% to 25.3p with the interim dividend being increased by 10% to 8.8p. Free cash flow was £319m for the six months compared to £265m last year. The Board stated that they believe it is appropriate to increase the balance sheet leverage through returning £1bn of cash to shareholders by way of a special dividend and share consolidation (that's a return of capital not a special dividend). Management state that following the proposed return of cash, the Group's pro forma balance sheet leverage as at 31 March 2014 would have been approximately 1.5 times, which the Board believes is consistent with its policy of maintaining strong investment grade credit ratings. Looking out to the second half of the year, management's expectations for the full year remain positive and unchanged, notwithstanding the translation impact of ongoing movements in foreign currencies. The return of capital will be about 56p per share, so depending on the share price at the time, might equate to a share consolidation of about 50 for 53.
Diploma issued their interim results on the 12 May with revenue showing an increase of 6.4% to £148.6m, adjusting for acquisitions and currency effects revenue increased by a very respectable 9%. Reported operating profit increased by 0.8% to £24.4m, with adjusted operating profit increasing by 3% to £27.8m. EPS grew by 1.4% to 14.9p, with adjusted EPS up 2.9% to 17.5p. The interim dividend was increased by 8% to 5.4p. Free cash flow was strong at £14.8m compared to £12.7m last year, although £11.1m spent on acquisitions and a £12.1m dividend payment were the main causes for the net cash declining from £19.3m at the end of last year to £8.0m at this interim stage. The Board stated that they remain confident of future growth, as the recent Investment for Growth programme provides the platform to benefit from continued underlying growth, supported by attractive and value creating acquisitions.
Glaxo on the 13 May issued results of a phase III trial for Darapladib informing the market that it did not achieve the primary endpoint of a reduction of major coronary events, versus placebo when added to standard of care. Glaxo will conduct further analysis, but this looks like the end of the road for this drug. The drug comes from the Human Genome Sciences pipeline - a $3bn Glaxo acquisition from July 2012. Let's hope the rest of HGS's pipeline is more productive.
Thursday, 8 May 2014
IMI is a global engineering group focused on the precise control and movement of fluids in critical applications and comprises five platform businesses - Severe Service, Fluid Power, Indoor Climate, Beverage Dispense & Merchandising. I have a holding in my income portfolio (epic code: IMI).
Tuesday, 6 May 2014
A global investment management group, managing assets for both institutional and retail clients from offices around the world. I have a holding in my income portfolio (epic code: ADN).
Aberdeen Asset Management announced their interim results to 31 March 2014 today, that continued to show a decline in Assets under Management (AuM). Although AuM were £324.5bn, if we exclude the £134.1bn added as a result of the SWIP acquisition, AuM were £190.4bn compared to £200.4bn at the end of the last financial year end and £193.6bn at 31 December 2013.
Revenue was down 2.4% at £503.5m, with underlying profit before tax (PBT) down 2.6% at £217m and reported PBT £168.7m down 10.4%. Underlying EPS was 14.32p down 3.8% and reported EPS at 10.67p was below last year by 14.2%. Although free cash flow was below last year's £220.1m, it was still relatively strong at £177.8m and net cash decreased only slightly from the year-end figure of £426.6m to £410.4m at the interim stage. The interim dividend has been increased by a very substantial 12.5% to 6.75p, this compares to the first interim dividend I received back in June 2007 of 2.6p.
Management stated that "...Towards the end of the period, there were indications of some pick-up in investor sentiment towards emerging markets, although we anticipate that some uncertainty could remain. More recently, an encouraging improvement in investment performance should improve the outlook for our equities strategies..."
There was reinforcement from management on their strategy of the use of free cash flow "...As we stated when we announced the transaction, the addition of SWIP will reinforce Aberdeen's progressive dividend policy and, while we will incur some one-off integration costs over the next year, it will enhance our ability to return surplus capital to shareholders over time..."
Friday, 2 May 2014
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).
Glaxo reported first quarter results on Wednesday with some disappointing news in their US market. Group turnover was down 2% on a constant exchange rate basis and excluding divestments to £5.6bn, on a reported basis turnover was down 13.3%.
Core operating profit was down 18% at £1.5bn and down 33% on a reported basis to £1.1bn. Core EPS was 20% down at 21.0p and on a reported diluted basis down 30.1% to 13.7p.
The major decline in sales came from the US which was down 11%, caused mainly by a 30% slide in Advair sales to £455m. Although loss of market share has been expected, due to loss of patent protection, this is a larger than expected decline in just one quarter. GSK have introduced Breo/Relvar, Anoro and Incruse to their respiratory portfolio and they state that there are six other drugs in late stage development, but it will take some time for these new drugs to compensate for the Advair/Seretide decline against generic competition.
It may well be that 2-3 years from now Glaxo will be a better balanced business, less reliant on just two or three block-buster drugs. The recent Novartis deal where Glaxo sell them their oncology business, take a 63.5% majority stake in a combined consumer healthcare business and buy Novartis's vaccine business, is a step in this direction.
Free cash flow for the quarter was down substantially to £522m from £897m last year, due to the decline in profitability and the effect of Sterling's strength against their trading currencies. After dividend payments and the purchase of increased shareholdings in their Indian pharmaceutical business and Indonesian consumer healthcare business, net debt increased £1bn from 31 December 2013 to £13.7bn.
I am not convinced by management's continued commitment to share buy-backs with a target of £1-2bn for this year. At a share price that is over 11 times book value, it will further distort the financing of the balance sheet and expose the company to eventual interest rate risk. I would judge the equity to debt cost differential for Glaxo at about 3% net of tax (GSK does have a much lower tax rate than many other large international companies).
For 2014, management continue to target core EPS growth of 4-8% CER ex-divestments. They also continue to expect to grow sales at CER and on an ex-divestment basis. Finally, reflecting management's confidence for the full year, the dividend was increased by 5.6% to 19p.
Thursday, 1 May 2014
A technology innovator delivering mobile, telecom and e-business software products and services. I have a holding in my growth portfolio (epic code: GBO).
Globo announced their preliminary results yesterday with revenue up 55.4% to €71.5m and operating profit up 53.6% to €27.3m, although operating margin down slightly by 44bps to 38.2%.
EPS increased by 42.3% to €0.074 and importantly free cash flow (FCF) was €5.2m up from €1.7m last year. Net cash increased by €28.6m to €42.8m following net proceeds of €27.3m from a placing and €3.9m of the FCF spent on an acquisition. Although these FCF amounts are small in comparison to the earnings, the last two years are a substantial improvement on the company's history of burning cash. Globo will need to continue this trend in a more substantive way, before the share price reflects the true worth of the business; which will also dissuade some traders from taking short positions in the stock on the basis that they believe the business model is unsustainable.
Management commented on the outlook for the business stating that the current year trading has started strongly and they anticipate that as IT budgets from customers start to be deployed and BYOD and mobile app needs increase further, Globo will have the opportunity to deliver another year of excellent growth and market penetration.
At 57p Globo is rated at about 7 times 2014 expected earnings, which does look good value, but the risks still remains until stronger cash flows are generated.
The leading bakery retailer in the UK, with almost 1,700 retail shops throughout the country. I have a holding in my income portfolio (epic code: GRG).
Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)
Shell announced first quarter results yesterday and they seem to have been well received by the market. Revenue at $109.7bn was similar to the fourth quarter and 2.8% below last year. Earnings were $4.5bn compared to $8.2bn last year, although excluding exceptional items earnings were $7.3bn down 2.7%. Basic EPS was down 44% to $0.71, but excluding those exceptional items again adjusted EPS was down 1.7% to $1.17.
The largest item included in exceptional items of $2.9bn during the quarter was $2.3bn for impairments to refineries in Asia and Europe.
Oil production was down 10% and gas production down 8%. This compares to production at Exxon in their first quarter (announced today) of oil down 2.1% and gas down 9.1%.
Capital expenditure was $7.4bn approximately 6% lower than last year. Exxon managed a 28% reduction in their capital expenditure.
With operating cash flow up almost 20% to $13.7bn and the reduced capital expenditure, free cash flow at $6.3bn showed a substantial improvement of 75.6% compared to last year. This and the confirmation that $15bn of divestments are still planned for 2014-15, was the reason for the positive market reaction.
It is important that capital expenditure is tightly controlled as promised, last year Shell spent in excess $40bn consuming all of the operating cash flow, despite starting the year in relatively modest fashion.
A 4.4% increase in the first quarter dividend was declared taking it to $0.47.