Growth and dividends through turbulent times

“Personally I think that the London Stock Market is about to enter one of the longest bull runs in living memory” is the bold statement I made in my last post. Of course I have no idea really, and I’ve never met anyone who can accurately predict the future gyrations of the Stock Market, although it won’t stop many of the so called experts having a go.

One consideration to ponder though is where else are you going to put your money for the next few years to get a decent return? Savings account, property, gold…..? None of these appeal to me.

At the same time, there are a number of companies that have prospered despite the economic turmoil, and pay a very decent dividend yield. It’s food for thought.

Let’s take one of my favourites – Avesco. It’s a company that is sensitive to economic conditions, but despite a less than ideal world economy (note the understatement), growth has been impressive. 2012 always promised to be a good year for Avesco because of the London Olympics, Diamond Jubilee and European Championships. In their recent interims they appear to be on track in achieving an impressive set of figures, and underlying growth bodes extremely well for the future.

Without going through all the details, the key features of the report (for me) include an improvement in margins over the 3 months from Jan- March. During this period last year, margins were 34% (2011) and now they are 37.5%. The 8% increase in revenues over this same period coupled with the margin improvement has had a dramatic effect on the bottom line taking them from a loss of £186,000 in 2011 to a profit of £1.6m. The sixth month improvement is equally impressive, and the even year effect hasn’t even kicked in yet. Analysts’ predictions of an EPS around the mid-teens look very conservative to me.

As a long term holder what also caught my eye in the report was the following statement,

“We have come a long way over the last few years and these results reflect that progress. In the past we have placed greater weight on organic growth and building a truly international business in order to create long-term value.

With our international platform now more developed, the Board believes that the future emphasis should be turned towards increased profitability and free cash flow.

The Group's operations are inherently cash generative and, after the major capital expenditure programme in 2012, we believe that we can continue to develop the business with a reduced level of investment. With improved profitability, combined with more modest capital expenditure requirements, Avesco is expected to generate surplus cash, which should enable funds to be used for debt reduction or to be returned to shareholders.

We believe that the successful execution of this strategy will optimise the financial performance of the operating business and enhance shareholder value.”

Avesco have re-introduced healthy final and interim dividend payments, and it looks like these are set to continue and increase.

The outlook statement is extremely encouraging.

When the world economy does fully recover, and it will eventually, a shareholding in Avesco appears even more enticing.

N.B. Also not forgetting that Avesco have net tangible assets of £1.46 per share, and may receive a pay-out from Disney of £1.40 per share (Disney’s appeal is due in the ninth court of appeals this summer).

Investing opportunity of a lifetime

Gloom, doom, disaster and despair. Will the eurozone ever recover? Personally I think that the London Stock Market is about to enter one of the longest bull runs in living memory......... More to follow.............

Shedding light on the debt crisis

Despite being married for nearly 20 years, I still have a nasty habit of trying to answer my wife’s questions knowledgably even when I haven’t got a clue what I’m talking about. I think it started in our early courting days when sub-consciously I might I have made the decision that to utter the words, “I don’t really know”, might have been seen as a sign of weakness.

Anyway, on Friday I briefly caught a news item which suggested that the speed of light might not be the universal speed limit that Einstein thought it was.

I made the mistake of mentioning this discovery to my wife. Quite reasonably she asked me what exactly had travelled quicker than the speed of light. Now at this point I hadn’t got a clue, but not wishing to show my ignorance I started to mutter something about protons, neutrons, and electrons that I vaguely recalled from ‘A’ level Physics. My wife looked suitably unimpressed, could clearly sense my discomfort, and in a slightly mocking way asked me if I was sure that it wasn’t perhaps some piece of fruit that they had managed to catapult at an extraordinary speed. 

In a mild panic I considered a stab at Higgs Boson, but fortunately stopped short when a better idea came to mind.  “I remember”, I said, and knowing that my wife has a total disinterest in athletics added, “They’re not entirely sure, but they’ve called it the Usain Bolt”. Unbelievably this seemed to do the trick, and fortunately the conversation moved on.

I have since discovered that the “thing” that appears to have travelled faster than the speed of light is a subatomic particle called a neutrino. To be honest, I think I’ll stick with the “Usain Bolt”, since I’m sure I took a couple of neutrinos recently to cure a nasty headache.

Now you might be wondering what I’m going to say to my wife when Usain Bolt is all over the news in 2012.  Simples.  “Look darling, there’s a bloke running the 100m who’s changed his name to that “thing” which travels faster than the speed of light”. 

You may also be wondering why I’m relating this particular story at all.

Well it strikes me that there’s an awful lot of blaggin’ (http://onlineslangdictionary.com/meaning-of/blag) going on at the moment about the global debt/financial/economic problems that appear to be pushing the world towards another “great depression”.

I have a theory that nobody really fully understands what’s going on, and most worryingly that includes the politicians and financial experts that are supposedly attempting to come up with the solutions.

You see here’s what I don’t get. Since most countries appear to have huge debts, not least the US and ourselves, just who the bl**dy hell does everybody owe money to? Is it the banks and other institutions?

For arguments sake, let’s say it’s largely the banks, and assume that our government has borrowed money from say, Lloyd’s bank. Hang on, didn’t we bail out some of our banks including Lloyd’s. Does that mean we’ve borrowed money from ourselves?

Of course it doesn’t end there, because haven’t we lent Greece a sizeable amount of money that we clearly haven’t got?

Effectively, we might have borrowed money from ourselves to lend to someone else who can’t pay us back. Surely that can’t be right? Confused? Me too.

Anyway, all is not lost. Tim Geithner’s got a plan, although correct me if I’m wrong, doesn’t he represent the US which has just had to raise its debt ceiling for the first time in its history?

Never mind, perhaps Dave and George can sort it out in true Bruce Willis fashion; why do I get the impression that they’ve both been watching too many action movies? Dave believes “…we’re staring down the barrel….”, and George is issuing ultimatums to Eurozone leaders. Don’t be such a pair of drama queens!! Pssst…, I hate to remind you boys, but there are a few issues to sort out back home first of all.

“The blind leading the blind?”

Mind you, it’s either them or Mr Bean. By the way, would anybody care to ask Labour whatever happened to the “Goldilocks economy”? Not too hot, and not too cold.

Oh yes that’s right it didn’t actually exist, in fact the pot was bl**dy boiling over, it’s just that nobody even noticed.

I’d bet that if you took anybody and gave them a good grilling about what exactly is going on, they wouldn’t be able to tell you, so here’s my final theory. Everybody owes money to an internet based debt collection agency called “payusbackorwe’llbreakyoureffinglegs.com”. Hence the global panic.

If the world economy does manage to steer itself away from another great disaster then I’d guess it will be more by luck than judgement.

Anyway, whatever happens, “Bu da geçer”, and whılst world financial and economic systems are constantly changing, we’ve always got the certainty of E=MC².

Changing the subject totally, a month has passed since I started the FTSE-250 vs. “they can’t really be that bad surely” portfolio.

I have taken the mid-prices from Friday’s close, and here are the results so far:-

Firstly, the FTSE-250 stood at 9815.50, a drop of 2%.

Individually the porfolio shares have performed as follows:-

Cable and Wireless Comm.         39.54p   (+23%)

Man Group                                   231.4p   (+12%)

ITV                                                57.75p  (+3.4%)

Vodafone                                      161.6p   (-1%)

Game Group                                  21.75p  (-5.5%)

Aviva                                             277.3p   (-13%)

Cable and WW                               29.75p  (-14%)

Thomas Cook                                 36.09p  (-17%)

I’m not aware of any individual company news that may have caused the share price of Cable and Wireless Communications to increase by 23%, or indeed Thomas Cook’s share price to decline by a futher 17%. I have noted that one or two Directors at Aviva have been purchasing stock. If AV. hold the dividend then they’re offering a hugely attractive payout.

Assuming an equal amount was originally invested in each of these companies, the portfolio is showing a loss of 1.5%.

In other words it’s neck and neck at the moment, although it’s very early days.

I’ll try and update you on the relative performance of the porfolio on a monthly basis.