Continuing with my look at the Telegraph's 2014 share tips, I thought I'd have a look at AstraZeneca, Barclays and Drax.
In truth, I'm not that interested in delving into the figures of larger companies, there are plenty of analysts out there who are paid handsomely to do that job. However, it is worth a quick look to see whether or not these companies are near there highs or lows, what the p/e ratios are and what sort of dividends they are paying, if any?
Starting with AstraZeneca. With the briefest analysis, I would say that AZN is a very solid buy for income. The dividend has steadily grown from 70 cents in 1999 to 280 cents presently. Whilst the dividend hasn't grown every year, neither does it appear to have been cut. The current dividend represents a near 5% yield. The p/e ratio is around 12 which is probably about right. I notice that this is one where the tipster refers to it being cheap against sector peers. I mentioned this in yesterday's blog, it may just mean that Glaxo and Shire are expensive? I would personally never use relative performance as any guide. How happy would you be if you invested in a fund that told you that they had done well relative to their sector peers because they had only lost 90% of your money whilst the others would have lost all of it? In conclusion, AZN looks like a relatively safe haven to park your money for a reasonable income stream, but I personally wouldn't expect fireworks this year.
I can't see anything particularly attractive about Barclays from a quick glance, although the financials appear to indicate plenty of cash and a tangible asset value somewhere around the current share price. The dividend is a miserly 2.4%. However, I usually steer well clear of the financial sector, particularly the larger companies. I once parked quite a large amount of money in Lloyd's Bank when it was paying a 7% dividend. I only left it there a while to collect the dividend and then sold for a modest profit. This was around 2003, it never for one moment crossed my mind that this was such a risky move. How foolish and how lucky I was in retrospect. You tend to hear a familiar mantra about very small companies being far more risky than the mega-caps. I tend to disagree, it's the nature of the business, the management and most of all (imo) the financials which dictate the risk.
Finally Drax. I can't see the appeal here, although for momentum traders the chart is in a clear uptrend. The valuation is not particularly attractive for me with a p/e of 18, and a dividend yield of just over 3%. Again I can't see any justification for substantial rises in it's share price this year since broker forecasts suggest EPS of 29p and 35p in 2013 and 2014 respectively putting the shares on forward p/e ratios of 27 and 23. In fairness, a recent trading update said that EBITDA would come in materially ahead of expectations for 2013.
In other news I notice that Debenhams have issued a poor trading statement today. Is this a portent of further disappointing news from some of the well known high street retailers? Perversely, it may be a company I'll add to the monitor since it states an intent to keep paying a dividend (currently getting towards 5%), although they are abandoning their share buyback programme which isn't such a good sign. I do wonder what the future holds for our high streets? The success of ASOS and others suggests that over the longer term, companies like Debenhams, M&S etc might be fighting a losing battle unless they can successfully execute substantial online operations whilst reducing their high street presence. This of course will be a costly process.
As ever, no advice is intended or given.
Tuesday, 31 December 2013
Monday, 30 December 2013
Monitise, Home Retail Group and Imagination Technologies
Following on from yesterday's share tips in the Sunday Telegraph, I thought I'd now add some numbers to Monitise, Home Retail and Imagination Technologies.
Starting with Monitise, it certainly appears to be in the right place at the right time, and according to yesterday's article it's now a FTSE-250 company which provides the technology for mobile banking to 350 financial institutions worldwide. Great story, however for me there is a big "BUT" coming with this one.
The market cap. is currently a staggering £1.1billion. That's an awful lot of expectation already priced in. Now I'll freely admit that sometimes growth companies early results are deceptive, and revenues and profits can suddenly jump very significantly justifying a seemingly ludicrous share price. However, the simple mathematics are these. At a market cap of £1.1 billion and were I to give it a very generous p/e ratio of 50, then this implies profits of £22million. Currently Monitise is loss making. Net tangible assets are around 3p compared to a share price of 67.5p.
Good luck with this one if you're a shareholder, but it's not for me. By the way, if anybody compares the valuation to Twitter (or something similar) then my reply would be so what? One silly valuation doesn't justify another. In fact sometimes you do hear share prices justified by comparison, for instance share xyz is cheap compared to it's sector peers. What a nonsense that is. It could just mean that the whole sector is grossly overvalued including company xyz.
As I've said in many previous blogs, I would never short shares because they can stay on very high valuations for many years (ASOS is a good example), but unless I'm very badly mistaken I can't see any justification in the numbers for the current share price never mind any further increases this year. I'm happy to be proved wrong though.
Home Retail group is more my kind of investment, although I do feel I've missed the boat to a certain extent with this one. Nobody wanted to know this company during the dark days of the recession for a variety of reasons, not least the business model of it's Argos stores. However, as the article says it is now sensibly using it's stores as collection points for online orders.
Home retail has solid tangible asset backing at around 130p per share, and although the current dividend yield is less than 2%, they do have a track record of paying decent dividends and if retail conditions improve further dividend hikes are possible.
I'm not tempted to buy the shares at the current price, but certainly missed out when they were hovering around their lows at about 50p. Experience has taught me that if a company has solid tangible assets, and it begins to show recovery or (better still) signs of growth then the share price more often than not catches up with asset value and normally moves above it in the longer term.
Finally, Imagination Technologies has been in the doldrums this year and the share price has come back from over £5 to under £2. I'll stick my neck out here and guess that the share price will recover the ground that it has lost. I like these types of companies. Why? Although I can't justify the share price on the metrics I have used above, gross margins are around 86% which has a massive effect on the bottom line as revenue growth really starts to kick in. It's fantastic if you can spot these success stories when they are starting out.
As ever, no advice is intended or given, and in particular I have not researched these companies in any depth, just a quick glance at the financials.
N.B. For balance I should add that Monitise also has high gross margins. Around 76% in their latest set of prelims. It depends how quickly that they can grow revenues I suppose, but £1.1 billion is still a very hefty valuation at this stage in my opinion.
Starting with Monitise, it certainly appears to be in the right place at the right time, and according to yesterday's article it's now a FTSE-250 company which provides the technology for mobile banking to 350 financial institutions worldwide. Great story, however for me there is a big "BUT" coming with this one.
The market cap. is currently a staggering £1.1billion. That's an awful lot of expectation already priced in. Now I'll freely admit that sometimes growth companies early results are deceptive, and revenues and profits can suddenly jump very significantly justifying a seemingly ludicrous share price. However, the simple mathematics are these. At a market cap of £1.1 billion and were I to give it a very generous p/e ratio of 50, then this implies profits of £22million. Currently Monitise is loss making. Net tangible assets are around 3p compared to a share price of 67.5p.
Good luck with this one if you're a shareholder, but it's not for me. By the way, if anybody compares the valuation to Twitter (or something similar) then my reply would be so what? One silly valuation doesn't justify another. In fact sometimes you do hear share prices justified by comparison, for instance share xyz is cheap compared to it's sector peers. What a nonsense that is. It could just mean that the whole sector is grossly overvalued including company xyz.
As I've said in many previous blogs, I would never short shares because they can stay on very high valuations for many years (ASOS is a good example), but unless I'm very badly mistaken I can't see any justification in the numbers for the current share price never mind any further increases this year. I'm happy to be proved wrong though.
Home Retail group is more my kind of investment, although I do feel I've missed the boat to a certain extent with this one. Nobody wanted to know this company during the dark days of the recession for a variety of reasons, not least the business model of it's Argos stores. However, as the article says it is now sensibly using it's stores as collection points for online orders.
Home retail has solid tangible asset backing at around 130p per share, and although the current dividend yield is less than 2%, they do have a track record of paying decent dividends and if retail conditions improve further dividend hikes are possible.
I'm not tempted to buy the shares at the current price, but certainly missed out when they were hovering around their lows at about 50p. Experience has taught me that if a company has solid tangible assets, and it begins to show recovery or (better still) signs of growth then the share price more often than not catches up with asset value and normally moves above it in the longer term.
Finally, Imagination Technologies has been in the doldrums this year and the share price has come back from over £5 to under £2. I'll stick my neck out here and guess that the share price will recover the ground that it has lost. I like these types of companies. Why? Although I can't justify the share price on the metrics I have used above, gross margins are around 86% which has a massive effect on the bottom line as revenue growth really starts to kick in. It's fantastic if you can spot these success stories when they are starting out.
As ever, no advice is intended or given, and in particular I have not researched these companies in any depth, just a quick glance at the financials.
N.B. For balance I should add that Monitise also has high gross margins. Around 76% in their latest set of prelims. It depends how quickly that they can grow revenues I suppose, but £1.1 billion is still a very hefty valuation at this stage in my opinion.
Sunday, 29 December 2013
Share tips for 2014
I notice that the Sunday Telegraph have published their share tips for 2014 in today's paper which include the following companies:-
Barratt Developments
Monitise
AstraZeneca
Drax
Chemring
Home Retail Group
RSA group
Firstgroup
Imagination Technologies
Barclays
I must confess that I generally ignore tips in newspapers, and anywhere else for that matter, but in fairness their picks for 2013 did well with an average gain of 54.53%.
http://www.telegraph.co.uk/finance/markets/10540409/The-Telegraphs-share-tips-for-2014.html
The rational for each tipsters choices are generally well written, but as with all newspaper articles they rarely refer to the all important underlying figures that are always my first point of call before I delve further into their businesses and prospects.
What I have decided to do then is have a brief look at the figures for these companies.
I'll start with Chemring, a company I mentioned at about this time last year:-
http://michae1mouse.blogspot.co.uk/2013/01/new-year-resolution.html
The share price looks like it hasn't moved much during that time, although savvy traders might have made double digit profits as the share price originally moved above 300p before a rather abrupt retrace.
So what are the figures for Chemring? Do they back up the reporters optimism for 2014? Well firstly this is a company that has paid regular dividends to shareholders in the past. In fact they have paid out as much as 50p per share in 2010 which is almost a quarter of the current share price (special dividend?). Last year's dividend was less generous at 9.5p or 4.4%, not bad, but of course it may fall further this year. Nevertheless, I do like companies that have tried to adopt a progressive dividend policy. If the good times roll again then you can expect dividend hikes.
The NAV (from Advfn figures) is around 224p which is above the current share price. However, if you strip out the intangibles then TNAV is just 10.5p. In a fire-sale intangibles are absolutely worthless, and hence if Chemring were to get into real trouble then don't expect to get any of your money back.
They also have high levels of debt, although I notice that net debt fell by £45m in the quarter to 31 October, at £249m it is around the same levels as last year.
Heavily indebted companies with little asset backing are not really my cup of tea, although in certain circumstances and with the right conditions and some good fortune these companies can turn out to be an excellent punt. A recent example would be Thomas Cook Group which at one point looked in real trouble. A risky strategy, but it can pay off handsomely at times.
Overall, it appears to be a highly cash generative company, although I did notice there was a small cash outflow reported in the interims.
It's the sort of company that would possibly interest me if the share price were to fall much further since the risk/reward would be far more attractive to me, but at present I'll not be investing. I could quite easily see the share price moving upwards though with some strategic disposals and improved trading. As the report suggests there is also the possibility of a suitor, although I wouldn't like to guess the price that any offer would be pitched at.
As ever, no advice is intended or given.
P.S. I don't have holdings in any of these companies.
Barratt Developments
Monitise
AstraZeneca
Drax
Chemring
Home Retail Group
RSA group
Firstgroup
Imagination Technologies
Barclays
I must confess that I generally ignore tips in newspapers, and anywhere else for that matter, but in fairness their picks for 2013 did well with an average gain of 54.53%.
http://www.telegraph.co.uk/finance/markets/10540409/The-Telegraphs-share-tips-for-2014.html
The rational for each tipsters choices are generally well written, but as with all newspaper articles they rarely refer to the all important underlying figures that are always my first point of call before I delve further into their businesses and prospects.
What I have decided to do then is have a brief look at the figures for these companies.
I'll start with Chemring, a company I mentioned at about this time last year:-
http://michae1mouse.blogspot.co.uk/2013/01/new-year-resolution.html
The share price looks like it hasn't moved much during that time, although savvy traders might have made double digit profits as the share price originally moved above 300p before a rather abrupt retrace.
So what are the figures for Chemring? Do they back up the reporters optimism for 2014? Well firstly this is a company that has paid regular dividends to shareholders in the past. In fact they have paid out as much as 50p per share in 2010 which is almost a quarter of the current share price (special dividend?). Last year's dividend was less generous at 9.5p or 4.4%, not bad, but of course it may fall further this year. Nevertheless, I do like companies that have tried to adopt a progressive dividend policy. If the good times roll again then you can expect dividend hikes.
The NAV (from Advfn figures) is around 224p which is above the current share price. However, if you strip out the intangibles then TNAV is just 10.5p. In a fire-sale intangibles are absolutely worthless, and hence if Chemring were to get into real trouble then don't expect to get any of your money back.
They also have high levels of debt, although I notice that net debt fell by £45m in the quarter to 31 October, at £249m it is around the same levels as last year.
Heavily indebted companies with little asset backing are not really my cup of tea, although in certain circumstances and with the right conditions and some good fortune these companies can turn out to be an excellent punt. A recent example would be Thomas Cook Group which at one point looked in real trouble. A risky strategy, but it can pay off handsomely at times.
Overall, it appears to be a highly cash generative company, although I did notice there was a small cash outflow reported in the interims.
It's the sort of company that would possibly interest me if the share price were to fall much further since the risk/reward would be far more attractive to me, but at present I'll not be investing. I could quite easily see the share price moving upwards though with some strategic disposals and improved trading. As the report suggests there is also the possibility of a suitor, although I wouldn't like to guess the price that any offer would be pitched at.
As ever, no advice is intended or given.
P.S. I don't have holdings in any of these companies.
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