Thursday, 30 October 2014

Royal Dutch Shell 3rd qtr results

Royal Dutch Shell a global group of energy and petrochemical companies. I have a holding in my income portfolio (epic code: RDSB)

Royal Dutch Shell announced their third quarter results today with revenue for the third quarter down 7.4% from last year to $107.9bn and for the nine months down 3.9% to $328.7bn, reflecting lower prices and production for oil.
Third quarter earnings, on a CCS basis, were $5.3bn an increase of 26.2% and if we exclude identified items of $0.6bn, earnings were $5.8bn an increase of 28.9%.  This improvement was mainly due to better refinery margins in their downstream segment; lower exploration costs and higher margins for upstream production, despite lower volumes.
EPS on a CCS basis excluding identified items was $0.92 a 29.6% increase above last year and for the nine months period was $3.06 up 16.3%.  
The identified items of $0.6bn in the quarter included impairments, divestment gains and losses and restructuring costs. This follows on from $3.9bn of identified items in the first six months.

On a reported basis for the nine months EPS was $2.26 a reduction of -2.6%.  As expected a second quarter dividend of $0.47 has been declared, an increase of 4.4%.

Free cash flow for the nine months was $11.2bn up from $8.3bn last year and sufficient to cover dividends of $6.5bn and $2.4bn in share repurchases.  Net debt fell from $34.9bn at the year-end to $24bn, principally the result of asset sales and net divestments of interests in JVs and associate holdings totalling a net $10bn.  Gearing at the period end was 13.3%.

The progress on FCF is a positive sign, that highlights the new management's focus on costs and investment returns.  Exxon announce their results tomorrow, so it will be good to how they are performing in this low oil price environment.    

Friday, 24 October 2014

Pearson IMS


An international media and education company, providing educational materials, technologies, assessments and related services to teachers and students.  Owner of The Financial Times and part owner (47%) of Penguin Random House.  I have a holding in my income portfolio (epic code: PSON).

Pearson issued their nine months IMS today and at the same time informed the market that CFO Freestone has decided to leave the company sometime in 2015.  He has been with the company for ten years and has agreed to stay until a successor is in place.  Never good news when a well respected finance head decides to leave during a period of transition, even on good terms, as there will always be some uncertainty about the quality of the replacement. 

For the nine months reported sales are down 6%, but flat on an underlying basis. Their Core markets showed an underlying decline of 6%, North America grew by 2% and Growth markets were flat.

The full year guidance of adjusted EPS between 62p and 67p was reiterated, so on a SP of 1136p (down 2.8% this morning) a P/E rating of 17-18 with a 2014 yield of 4.5%.  On 2014 earnings this share is fully valued, but with an enticing yield and prospects of high double digit growth in 2015 if their plans in the US bear fruit.  So definitely a hold, but there may be better opportunities over the next few months to accumulate if the price continues to weaken.

Thursday, 23 October 2014

Unilever 3rd quarter trading

Unilever Logo

A manufacturer and supplier of fast moving consumer goods, with more than 400 brands focused on health and wellbeing, 14 of which generate sales in excess of €1 billion a year. I have a holding in my income portfolio (epic code: ULVR).

Unilever gave an update on third quarter performance today stating that underlying sales growth in the quarter was 2.1%, with volume growth of 0.3% and price up 1.8%; this produced nine months sales of €36.3bn a reported decline of -4.3%. 
Underlying growth for the nine months was 3.2% compared to 3.7% for the first six months; volume & price contributed 1.4% & 1.8% respectively.  Growth in emerging markets was 6.2%, this compared to 6.6% at the half year. 
The lower total growth was mainly the effect of a sharp slow down in China and negative price pressure in North America, France Germany and UK.
The third quarter dividend is €0.285 a 5.9% increase on last year, unfortunately due to the strength of sterling the pay-out to UK shareholders is a -1.2% reduction to 22.52p. 
On the outlook for the year CEO Polman stated "...We are confident that we will achieve another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow..."

GlaxoSmithKline 3rd qtr results

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). 

GlaxoSmithKline announced their third quarter results yesterday, showing sales declining by -13.3% to £5.6bn, although excluding divestments this was -10% and -3% at constant exchange rates (CER).  For the nine months sales were down -14.2% to £16.8bn and -7% at CER.
US pharmaceutical products were the major contributors to the sales decline, falling by -13% as the respiratory segment fell -17%.  Advair lead the way with a -24% decline, as generic competition took market share from GSK and also forced through price reductions on contracts.
Operating profit was £2.9bn, down 36.6% from last year with underlying operating profit at £4.8bn down 16.1%.  Reported EPS was 35.3p for the nine months a decline of 41.5%; on an adjusted basis the decline was 14.2% to 66.9p.  The quarterly dividend was maintained at 19p and management have said that the fourth quarter dividend will also be maintained at 23p, producing a full year pay-out of 80p - a 2.6% increase on last year.  The company have also stated that the 2015 dividend will be maintained at this year's level. 
Free cash flow was down substantially for the nine months from £3.5bn last year to £1.5bn, reflecting lower profitability in the business and weaker trading currencies.  Consequently after dividend payments and stock repurchases totaling £3.2bn and £0.7bn spent increasing their shareholding in their Indian pharmaceutical subsidiary from 50.7% to 75% and the acquisition of the remaining 30% of their Indonesian Consumer Healthcare business, the net debt was increased by £2.1bn to £14.8bn.
For the current year management have stated that "...In 2014, GSK expects to deliver full year core EPS on a CER and ex-divestment basis broadly similar to last year..."

The key message from the company is the freezing of the dividend for next year, which probably reflects their view of the execution risks associated with the changes the company is embarking on.  To list just a few:

Respiratory drug transition - as their new drugs gain traction and the decline in Advair/Seretide stabilises.  Management have targeted growth for this segment by 2016.

Novartis deal - which is expected to complete in the first half of next year - embedding in the purchased Vaccines business and managing the Consumer Healthcare JV.  In addition the sale of the Oncology business to Novartis this will entail the return of £4bn to shareholders, approximately 80p per share.

Cost savings - seeking to deliver £1bn over the next three years, 50% of that saving in 2016.

ViiV IPO - management will seek a listing of a minority stake in this business.

Divestments - They are continuing to seek a divestment for certain North American and European pharmaceutical products within their Established Products Portfolio.

Include some of the regulatory and legal issues and it is clear that Witty has a lot on his plate.  Management may have felt pressured to embark on such a large number of initiatives, as a catalyst for change in the direction of momentum of the SP, but it will require some strong execution skills.

Bhp Billiton qtr1 operational review

BHP Billiton

A diversified natural resources company and among the world’s largest producers of major commodities, including aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and has substantial interests in oil and gas.  I have a holding in my income portfolio (epic code: BLT).

Bhp Billiton updated the market yesterday on first quarter production.  They stated that Group production increased by 9% during the period and production guidance remains unchanged and are on track to deliver Group production growth of 16% over the two years to the end of the 2015 financial year.

By major resources:

Total petroleum production increased by 7% in the quarter to 67.4 MMboe and guidance for the year remains unchanged at 255 MMboe a 5% increase.

Total copper production (excluding operations sold last year) decreased by -1% in the quarter to 389 kt and guidance for the year remains unchanged at 1.8 Mt an increase of 5%.  The reduction in production was due to a 12% decline in ore grades, two days of industrial action and a power outage throughout Northern Chile.

Iron ore production increased by 17% in the September 2014 quarter to a record 57 Mt. and is forecast to increase by 11 per cent in the year to 225 Mt in line with their prior guidance.

Metallurgical coal production increased by 25 per cent in the September 2014 quarter to a record 13 Mt. Total metallurgical coal production is forecast to increase by 4% in the 2015 financial year to 47 Mt, consistent with their prior guidance.

For the other resources, that will form a planned demerged company sometime in the early part of 2015, had the following changes to production: energy coal -9%; alumina -1%; aluminium -16%; manganese ores +10%; manganese alloys +25% and Nickel -12%.

This is a solid performance from BLT, but production performance is not driving the SP, it's commodity prices, with downward pressure across all their major resources.  It is likely that increased production and reduced costs through improved efficiency will partially offset the commodity price reductions.  This in addition to the planned reduction in capital expenditure will drive higher free cash flow - financing an improved pay-out to shareholders.

Tuesday, 21 October 2014

Reckitt Benckiser 3rd qtr IMS

Reckitt Benckiser Group is a manufacturer and marketer of branded products in household, health and personal care products, sold into nearly 200 countries from operations in over 60 countries.  I have a holding in my income portfolio (epic code: RB.) 

Reckitt Benckiser announced their third quarter IMS today and looked to be at the lower end of expectations and continue to suffer from foreign exchange headwinds.

For the nine months revenue increased by 3% at constant exchange rates to £7,037m and excluding RBP increased by 4% to £6,532m.  Adverse foreign exchange translation affected sales by -10%. 

By territories LFL growth was:

ENA (Europe/North America) +2%; (+2% at the interim stage)

LAPAC (Latin America/Asia/Australia & New Zealand)  +5%; (+7%)

RUMEA (Russia/Middle East/Africa/Turkey)  +9%; (+5%)

Food +3% (+3%)

Pharma -8% (-8%)

The big growth drivers in RUMEA were Russia, Turkey and South Africa, with Brazil behind the slowing growth in LAPAC

By product groupings like-for-like sales growth (excluding Food and Pharma detailed above) was:

Health +9% (10%)

Hygiene +2% (3%)

Home +1% (0%)

Portfolio -2% (-6%)

Management have stated that they expect to be in a position to demerge the Pharmaceutical business prior to 31 December 2014.

Expectations are now for full year revenue growth to be at the lower end of their total revenue growth target of 4-5% (ex RBP), although they expect continued improvement in operating margins in the second half.  

Thursday, 16 October 2014

Diageo IMS

Diageo is the world's leading premium drinks business, I have a holding in my income portfolio (epic code: DGE)

Diageo released their first quarter IMS today stating that their performance was in line with expectations, with organic net sales down 1.5%, volume down 3.5% and on a reported basis net sales down 1.7%.
During the period net assets increased by £0.8bn from to £8.4bn and net borrowings increased £2.0bn to £10.8bn; so gearing was similar to last year's year-end at 129%.
Management stated that emerging markets' performance remains weak with further currency weakness in a few markets and specific geopolitical situations in some areas.  Performance has been strong in Turkey, East Africa, India and Colombia and management expect the full year top line growth to improve on last year's performance.  

Bhp Billiton London listing

BHP Billiton

A diversified natural resources company and among the world’s largest producers of major commodities, including aluminium, coal, copper, iron ore, manganese, nickel, silver and uranium, and has substantial interests in oil and gas.  I have a holding in my income portfolio (epic code: BLT).

BHP Billiton today confirmed that it will pursue a Standard LSE listing for the demerger of its aluminium, coal (energy), manganese, nickel and silver assets, in addition to the listing on the Australian and Johannesburg Stock Exchanges. 
This is certainly good news and makes the demerger a whole lot simpler for us UK holders.

Monday, 13 October 2014

Synergy Health trading statement & offer


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)

Today Synergy Health issued a trading update for the six months to 28 September and details of a business combination with Steris Corporation (NYSE: STE).
The company's underlying trading was up 7.4% on a constant currency basis, with a strong performance from Applied Sterilisation Technologies with sales up 17.5%.  Reported revenues were £197.6m, up by 2.9%, being affected by £8.8m of adverse currency translation effects. Management stated that performance was in line with expectations.
Net debt during the period increased from £147.6m at 30 March 2014 to circa £172m on 28 September 2014, principally as a result of the ~£23.6m Bioster Group acquisition which completed in May 2014.

The trading update was overshadowed by the announcement of an agreement to combine Synergy Health and Steris Corporation of the US.
Under the terms of the Combination, SYR shareholders will be entitled to receive £4.39 in cash and 0.4308 New STERIS Shares, representing a value of £19.50 per Synergy Share.  A 39% increase on SYR's closing SP on Friday of £14.00 and a very full price at 35x historic earnings and 26x expected earnings for this year.
The SP rose 31.4% today to 1840p and  STE in New York was down marginally at $56.37.  Interestingly in a tax inversion scheme STE will be moving its HQ to the UK and reducing its current US 35% tax rate to 25%.  This currently is a political "hot potato" and comes with some execution risk, as the US Treasury Department has threatened to introduce new rules to limit the use of tax inversion schemes.

There are no plans to list Steris on the London market, so UK shareholders have to decide whether they wish to hold a US stock or sell in the market before the deal completes, currently the SP is ~5% below the total being offered.  I am inclined to sell in the market before completion.

Melrose disposal

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).

Melrose Industries announced  today that it has signed an agreement for the disposal of Bridon to the Ontario Teachers' Pension Plan.  The total consideration of £365m on a debt and cash free basis is payable in cash on completion and management have stated that they currently intend to use the proceeds to pay down existing borrowings and to finance a return of capital in due course.
This follows on from the return of capital announced in January and completed in March of this year that totaled £600m ( see here ).  I would assume it would follow the same principles as the earlier return of capital.

Friday, 10 October 2014

Telecom Plus trading statement


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).

Telecom Plus issued today a positive trading statement in advance of its half year results, that will be announced on 19 November.

Customer numbers were up by 34,733 to 565,372 and service numbers were up by 126,537 to 2,033,697.  Management say they are on target to achieve 70,000 new customers by the year -end.  Underlying churn of the customer base has continued to fall, management state that this reflects the steady and continuing improvement in the quality of their customer base and maintaining high levels of service. 

Management state that performance is in line with market expectations for the full year.  They expect that their interims will show adjusted pre-tax profit and EPS that are significantly ahead of last year.

For the year as a whole they expect to achieve market expectations of adjusted pre-tax profit of £63m, an increase of almost 50%.  Management intend to increase in the interim dividend by 19% to 19p.

Net debt will rise by £10m by the year-end as the company continues with the refurbishment of their new HQ.

Following on from the announcement in early June that Chris Houghton, FD, will leave in October, the company announced that Nick Schoenfeld will join the Board as CFO in the New Year, he is currently Group FD of Hanover Acceptances, a private company with holdings in the food manufacturing, real estate, and agri-business sectors; a position he has held since 2006.  Schoenfeld has no public company experience and there is no hand over from the previous FD, so he will have a steep learning curve.  It is a little disappointing that a £1bn market cap FTSE 250 company, was unable to attract a finance executive with some public company experience.

The SP has responded well to the trading statement and is up over 7% this morning to 1343p.


Saturday, 4 October 2014

Dillistone Group placing

Dillistone Group Plc is a leading global provider of software and services to recruitment firms and recruiting teams within major corporations. I have a holding in my growth portfolio (epic code: DSG).

Dillistone announced yesterday the further placing of 526,316 new shares at a price of 95p, the same price as the first tranche on 30 September (see here for details) raising an additional £500,000 (before expenses) which will be used by the Group for working capital purposes. 
It is always good to see directors "eating their own cooking", so current holders of the shares will be comforted by Dr Mike Love (Chairman) and Mr Jason Starr (Chief Executive) who respectively subscribed for 252,632 and 10,526 Placing Shares. 

Friday, 3 October 2014

Anite acquisition

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 announced today the acquisition of Xceed Technologies Inc., in what is the first use of the £45m proceeds from the sale of their Travel business back in May.

Xceed is a US based wireless network data analytics software company based just outside Washington DC.  They reported $11.8m revenue and $1.6m EBITDA in their financial year ended 31 December 2013.

Consideration for the purchase is $30m paid in cash upon closing on a cash free/debt free basis and up to $5m additional deferred cash consideration dependent on the achievement of performance targets in the years ending 30 April 2015 and 2016. 

So on completion this values Xceed at 18.75x EBITDA (21.9x including potential deferred payments), compared to Anite's multiple of 10.3x, so dilutive, but management state that "...The acquisition is expected to enhance Anite's adjusted earnings per share in the current financial year before transaction and integration costs..." as the acquisition will be replacing the low returns from the equivalent amount of cash.

It is likely that acquisitions will be highly priced in Anite's market space, but this does look as if it is at the top end, that will only prove to be a wise purchase if its growth profile is first class.