An interesting article in the Telegraph yesterday. See link below. Essentially it is about Britain's best performing fund manager, and some of his stock picks for 2014. Not surprisingly he is backing a number of Aim listed shares. I say not surprisingly because not only can Aim listed companies be held in ISA's now, but in April trading on the Aim market will be exempt from Stamp Duty. For frequent traders this could potentially save them a not inconsiderable amount of money. There is quite a bit of rubbish listed on Aim, but with all stock picking it's a matter of choosing judiciously. Here's the article and some of his stock picks for 2014:-
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/10542145/Britains-best-performing-fund-manager-picks-his-favourite-shares-for-2014.html
A happy, healthy and prosperous New Year to all.
Tuesday, 31 December 2013
Astrazeneca, Barclays, Drax and Debenhams (trading statement)
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.
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.
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.
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