Voyager RNS Log WC 14/01/2018
This week has proved to be quiet a busy week after the lull over the festive season and things are picking up pace now including the arrival of those blasted new years resolvers in the pool at 6:30 am; are they a blasted nuisance or am I just getting grumpy towards them. Hang on, I have always been grumpy to such transient creatures but never mind a couple of really hard frosts by early February usually sees them retiring back to the comfort of the duvet for another 11 months. For me, the pattern stays the same every working day with a swift mile in the pool followed by initial interrogation on the iPhone of portfolio RNS’s; hopefully seeing no bad news then on with the day.
I have always found that ploughing length after length in the pool gives me a great quiet time to think things through. When I was part of the rat race it used to be work issues, now it’s more about writing footy or investment stuff or another passion, good quality food. I absolutely hate the world of convenience food; whoops, did I mention I own shares in Just Eat; no moral fibre me! Anyway, enough of this Jeremy Clarkson stuff, what’s been going on in the markets relevant to shares within the portfolio?
As ever, although I may get keen about a stock, what I put into print here is purely me sharing my rambling thought process and NOT INVESTMENT ADVICE to either buy or sell a particular stock.
Monday 15th January 2018: Spectra Systems (SPSY): Mkt Cap £39m: RNS: Licensing Agreement and Supply Agreement + Revised Expectations
Licensing Agreement and Supply Agreement
Spectra Systems Corporation, a leader in machine-readable high-speed banknote authentication and brand protection technologies, is delighted to announce that it executed on Friday an exclusive, worldwide, licensing agreement for one of its existing products which is in use by 18 central banks through an existing licensee, a major supplier of banknotes worldwide.
The licensing agreement will extend the rights to the underlying technology, which has been in use since 2003, in perpetuity and generate $11.2 million in royalty payments over the next five years. The payments will be settled in eleven equally spaced payments.
In addition, Spectra also executed a Material Supply Agreement with the same licensee to provide them with covert materials exclusively for a period of ten years at reduced rates relative to the current agreement. The Board anticipates that the supply of material, which does not incorporate minimum quantities, will generate a total revenue of approximately $1.5 million -$2.0 million over the next five years.
It is estimated however that the combined licence and supplied material sales will generate a contribution per annum from this product through 2023 which is approximately 2.7 times that of the current agreement, based on the minimum purchase requirements in that agreement and experienced in certain recent years.
Based on the execution of these agreements, Spectra is expecting that both its revenue and particularly its profit before taxes for the year ending 31 December 2018 will significantly exceed market expectations.
My View: simply put, how beautiful as the work has been put in, the product delivered and it’s now almost as simple as counting the cash as it arrives from the customer. It’s not a big company and usually, I draw a line about having any more than one investment below a Market cap of £50m as such stocks can be very illiquid when you want to make an exit and sometimes only quote to very small normal market size. However, I really took a like to this one last October and nabbed a few for my special situations portfolio. Incidentally, for those who like the highly regarded Stock Ranks (SR) approach pioneered by Ed Croft’s Stockopedia team, SPCS has an excellent SR of a 95 and nicely gaining momentum. I am happy to continue to hold and should there be a little pull-back, which I expect there to be, add a few more.
Monday 15th January 2018: Bodycote (BOY): Mkt Cap £1882m: RNS Us Tax Legislation & Trading Update
US Tax Legislation
Bodycote notes the enactment of the Tax Cuts and Jobs Act in the United States on 22 December 2017 reducing the statutory rate of US Federal corporate income tax to 21%. Whilst work is ongoing to review the full future impact of this new US tax legislation on the Group, it is expected to give rise to a significant non-cash tax credit for the Group in the year ended 31 December 2017 as a result of the revaluation of US net deferred tax liabilities.
Subject to final audit and confirmation of final tax computations, the effect of this one-off revaluation of US net deferred tax liabilities is expected to add c. 5p to EPS for 2017.
Bodycote also announces that trading in the final quarter of 2017 was better than anticipated and the Board now expects full year 2017 headline operating profit to be towards the upper end of market expectations (company compiled analysts' estimates range: GBP117 million - GBP126 million).
Bodycote intends to announce Full Year Results on Tuesday 6 March 2018.
My View: well any regular readers of this RNS log will know that I rather rate this high-quality business. Maybe it’s not the most exciting beast on the market, even possibly a touch boring but we now know that profits will be towards the top end of expectations and when you look at the range quoted above, that looks rather good to me. Again what a nice SR of 88, can’t be bad and I am very happy to continue to hold.
Monday 15th January 2018: Looking in another area we see the very sad news about Carillion a share that was valued at way over 300p for many years and now suspended at 14p and in what appears to be a terminal stare. The numbers have looked poor for a couple of years now yet I suspect some may have been sucked in by the generous and unsustainable dividend that has nowhere near been covered by FCF for the majority of recent years along with debts. This had a knock-on effect to a company within my portfolio: Galliford Try (GFRD) who mid-morning following the collapse of CLLN, put out the following RNS:
Joint Venture with Carillion plc
Galliford Try plc (the "Group") notes the announcement by Carillion plc this morning. The Group is in joint venture with Carillion and Balfour Beatty on the 550 million Aberdeen Western Peripheral Route contract. The terms of the contract are such that the remaining joint venture members, Balfour Beatty and Galliford Try, are obliged to complete the contract. Our current estimate of the additional cash contribution outstanding from Carillion to complete the project is 60-80 million, of which any shortfall will be funded equally between the joint venture members.
The companies will discuss the position urgently with the Official Receiver of Carillion and Transport Scotland, to minimise any impact on the project.
My View: firstly on CLLN where for investors caught up in the debacle one can only have limited sympathy as the signs were there for all if they cared to read the newsflow and look at the numbers. Yet the knock-on goes across many, many small businesses caught up in the web of subcontracting for the giant Carillion that CLLN lived within. Contractor business viability, jobs pensions all very sad stuff. Rather like being on a rowing boat being towed along by the Titanic; my sympathies to all innocent parties involved. Then we come to the knock-on effect for the likes of GFRD (Mkt Cap £970m) working with CLLN on major joint ventures. This casts a fair doubt on what hit there may be to GFRD’s bottom line this year and possibly also next year and it’s a doubt and risk I did not feel comfortable in carrying so an unemotional exit as soon as the GFRD RNS hit the market; funds intact and in fact exiting with a few % profit but, more importantly, reducing risk of further downside.
Whilst on the subject of CLLN, just a thought: Very predictably, history does repeat itself and we can learn from the past if we choose to do so. Any readers remember the collapse of the once £1bn valued company Jarvis back in 2010? There are lessons there and again with CLLN; the tipsters being so terribly wrong and the toxicity of unsustainable debt. I remember in the days when I used to look at what the experts had to say, the absolute number of well-followed experts who recommended Jarvis as a super stock “super stock”, one to hold forever. Yes, right: such things inspired the article I published in July 2017 about the “share detectives” titled Watching The Detectives.
Tuesday 16/01/2018: International Greetings: IGR: Mkt Cap £259m: RNS Trading Update
Strong trading delivers earnings upgrade
IG Design Group plc, one of the world's leading designers, innovators and manufacturers of gift packaging, greetings, stationery, creative play products and giftware, announces an update for the third quarter, which covers the Group's Christmas trading period to 31 December 2017.
The Group is pleased to report that following the positive performance reported over the first six months ending 30 September 2017, trading has continued to be strong up to and throughout the Christmas period.
In line with the strategy to further diversify the business, the Group expects to deliver record revenues in FY18 with the continued expansion of its global footprint outside the UK which the Board expects will account for over 70% of sales by destination. All regions are on track to achieve year on year revenue and profit growth and we are therefore pleased to upgrade the Group's full year performance with diluted earnings per share(1) expected to be ahead of current market expectations and delivering strong year-on-year growth. We continue to see strong cash conversion across the Group and expect average leverage for FY18 to follow the progress made in recent years and be significantly below an average of two times.
Latest initiatives highlighted in our Half Year Results Announcement remain on track to drive future revenues in FY19 and beyond. Additionally, as a result of the level of the Group's US earnings the Board expects earnings per share to benefit in FY19 and beyond from the recent US tax legislation changes. Furthermore, the US tax rate change is expected to translate into lower tax payments, thereby enhancing the cash generation of the Group.
My View: simply what’s not to like? As I said last week in this log, my view on this quality business has not changed since I commented on the interim results at the end of November 2017 and in fact are even more positive taking into account the quality acquisitions and a touch of tax generosity from our mate Trump. I am happy to continue to hold the investment which has delivered a return of well over 100% for me in the last 18 months. Personally, I think this very sound well-managed business will gain further investor support after this RNS and in my opinion, continue to appreciate in value. Again a very decent SR but I won’t quote numbers as I don’t want to offend Ed as I have already quoted two CRs above.
Wednesday 17/01/2018: RNS: Henderson Smaller Cos Investment Trust: HSL: Mkt Cap £672m: Half-year Report.
I do like good quality investment trusts and HSL is, in my opinion, a high quality IT delivering year on year, in fact, the half-year report shows that for the 5 years to 30/11/17 the share price appreciated by 159% and by 304% in 10 years. Not exactly sluggish and by far outperforming the FT All Share TR and that’s why I use it as one of my benchmarks to judge my own performance.
Below I have included a listing of the 60 largest holdings in the HSL investment trust and whilst there is the odd dud, it contains a lot of quality stocks: again a demonstration of the benefits of a basket of stocks: see an earlier blog I did about me being a basket case. Just click/tap on the listing to enlarge the view.
Thursday 18/01/2018: RNS: NewRiver REIT: NRR: Mkt Cap £977m:Third Quarter Company Update
Convenience-led portfolio remains well positioned to deliver growing and sustainable cash returns
Paul Roy, Chairman, commented: "NewRiver had a good third quarter, with our convenience-led, community-focused portfolio again performing well and significantly outperforming the wider UK retail market.
Our occupancy has remained strong at a record level of 97%, supported by affordable average rents of GBP12.70 per square foot.
Finally, our like-for-like footfall was up over the quarter by 0.5% and 1.9% during December, significantly outperforming the national benchmark. The strength of our key metrics underpin our growing dividend, which increased by 5% in the third quarter.
Looking ahead, our conservatively geared balance sheet is strongly positioned to exploit accretive opportunities over the coming months and we remain confident in our ability to deliver growing and sustainable cash returns to our shareholders from our convenience-led, community-focused portfolio."
My View: regular readers will know that I really like some boring businesses that do some of the unexciting work within my portfolios. In this case, NRR forms part of my high yield portfolio offering a 6.7% yield together with an attractive capital appreciation. It’s been trading at the bottom end of its trading range in the last couple of weeks and I am tempted not only to continue to hold but also bag a few more to the high yield portfolio: Edit: added more.
Thursday 18/01/2018: Air Partner: AIR: Mkt Cap: £79m: RNS Trading Update
TRADING STATEMENT - AIR PARTNER HAS GOOD SECOND HALF PERFORMANCE
With two weeks to go before the end of the financial year, Air Partner is pleased to report that it has had a good second half. This has been driven by continued performance across all product lines within the Broking division, including strong results in the US and in Freight. In Consulting & Training, the forward pipeline remains encouraging.
Underlying pre-tax profit for the financial year ending 31 January 2018 is expected to be not less than GBP6.4m, which compares to GBP5.1m reported in the same period last year and ahead of market consensus of GBP5.9m. The Group retains a strong net cash position.
The acquisition of SafeSkys, a leading Environmental and Air Traffic Control services provider to UK & International airports, announced in September, is performing in line with expectations and we are excited about the long term prospects for this business under our ownership. SafeSkys operations relocated to our London Gatwick HQ in November 2017 and integration has now completed.
Air Partner has had another encouraging year and the Board is confident about future prospects.
My View: AIR is one of my top 10 holdings and it continues to perform very well after a sluggish period from July 2015 to July 2016 but sometimes apparent quality takes time to be proven and recognised by the markets. AIR like all shares does not move up in a straight line and in fact, suffers far more turbulence than most other stocks within the folio. I rate it as a very attractive business and one which has had a very good share price appreciation of over 50% in the last twelve months. Maybe even after such a decent trading update, it will again consolidate for a while before hopefully making further strides forward. I will continue to hold.
Friday 19/01/2018: Bonmarche: BON: RNS Trading Update:
Sales for the 13 weeks ended 30 December 2017 decreased by 5.5% against the corresponding period in FY17. Store LFL sales decreased by 9.7% and online sales increased by 28.5%. Sales for the 39 weeks ended 30 December 2017 increased by 0.9%; store LFL sales decreased by 2.8% and online sales increased by 35.5%.
The clothing market became more challenging during the quarter
There remains uncertainty as to how trading conditions will evolve as we enter our final quarter. We do not anticipate material changes in the underlying market conditions, and in this short term outlook, the weather represents the most significant uncertainty due to its effect on consumer shopping behaviour, with the risks equally weighted on the up and downsides. At the end of the third quarter, the Board's view of the likely outcome for the full year remains in line with previous expectations.
We have a number of self help initiatives in progress or planned for FY19, which are expected to deliver profitable like for like sales growth in stores, and the continuation of strong sales growth online.
My View: well not the best of trading updates I thought whilst sitting still wet in the changing room at the pool; best do my usual stuff and sell at the bell and hopefully escape with a handy total return. The store's sales were not at all pleasing, however, the online increase is quite encouraging. However, going back to the interims, the online sales only accounted for about 11% of the total turnover and therefore whilst the % increase look great, we are working from a fairly low base. Now this small holding (less than 0.5% of the folio) sits with IG and my attempts to sell at the screen prices of 117, 116, 112 all failed and within 10 minutes the stock was off by -30%. Time to sit on hands and wait until the panic is over and then exit hopefully still on the profit side. Sometimes Mr Market just will not let you sell easily as a stock is taking a tumble. I will update next week.
It’s Glad I am Not There time CLLN, CAR, UTW, DTY : well we have already discussed CLLN above. So how about the once upon a time popular stock Carclo (CAR):
Trading Update and Board Changes 15/01/2018
Carclo plc ("Carclo" or the "Group"), the global manufacturing group, announces a trading update for the year ending 31 March 2018.
The stronger second half performance across the Group, anticipated at the time of the Interim Results in November last year, is not now expected to be achieved. Accordingly, the Board now expects the Group's performance for the current financial year to be significantly lower than previously planned.
The Board expects the Group's profits for the year ending 31st March 2018 to be significantly lower than its previous expectations. In addition, as a consequence of some of these delayed projects and lower customer orders, the Board has now reduced its profit expectations for the 2018/19 financial year albeit these revised expectations will still represent healthy year on year growth.
The Board announces today that, after 14 years as Group Finance Director, Robert Brooksbank is leaving the Group on 31 March 2018 to pursue other career and business opportunities.
In addition, the Board announces that Michael Derbyshire will retire from the Board at the Group's Annual General Meeting in July 2018 after nearly six years as Chairman and over 12 years as a Non-Executive Director.
My View: Thankfully not one I came anywhere near holding. Couple of things that I don’t like and rightly or wrongly, send alarm bells slightly ringing. Firstly I get a bit touchy when a CFO leaves at the time of bad news being released to the market; might he pure coincidence but who knows for sure. Also the term “ to pursue other career and business opportunities”, simply says to me that he has been given the push. Secondly, over the years I have become acutely aware that when companies say “things will improve in the second half of the year” or words to that effect, then unless it’s signed up contracts in the bag, the improvement stands a fair chance of not happening at all. Now I should say that I am not a Carclo in-depth follower as the numbers simply don’t attract me and even when they paid a dividend it was for the most part hardly ever covered by FCF. Just not one for me.
Of course, we then have perennial disaster prone UTW announcing on Wednesday 17/011/2018 that announced a final results update. Well, hang on, no real numbers as such but rather an announcement that they have a further delay in respect of its full-year results for the year ended 31 July 2017 ("FY17"). Honestly, sounds like there was more cooking going on there than in Breaking Bad. Incidentally, I did look at this share a couple of years back but was rather put off by the smoke & mirrors feel of their approach to accounting. Surely if the business were really to be that attractive and revenues/profits were genuine, then the directors would have much more skin in the game would have been mopping up shares at the depressed values that have plagued the business, particularly over the last twelve months. Also having had some exposure to such companies when working with a utility business, I struggled to visualise the sustainability of the business model; enough said.
Also on Friday 19/01/2018, we have a stinker of a trading update from Dignity: DTY a stock I sold at the bell on 13/11/2017 when they released a trading statement I just did not like; not a disastrous statement but nevertheless one that just did not make me feel in the slightest comfortable. I did have a medium sized position in the stock and thankfully escaped relatively unscathed: if in doubt, get out!
Pre-close Trading Update and Market Positioning
Dignity, the UK's only listed provider of funeral related services, confirms that its results for the period ended 29 December 2017 will be in line with market expectations. Its preliminary results will be published on 14 March 2018.
While the pre-arranged and crematoria businesses are performing strongly with no change to the Board's expectations for these businesses, the Board is keen to address the continuing acceleration of price competition facing its funeral business. The Board is therefore taking decisive action on its funeral pricing strategy with a view to protecting market share and repositioning the Group for future growth. Consequently, the Board believes that the results for the period ending 28 December 2018 will be substantially below the market's current expectations
My View: well it’s obvious that they are facing stiff competition, cough, cough, and thankfully my unemotional selling side save me from any horrible loss having sold on 13/11/2017 when the share price was £23 about 150% higher than at the time of writing these notes. A company that a few years ago had impressive numbers but things are subject to change.
I will repeat of a few golden rules mentioned in earlier whittling on, apologies if it gets a bit boring:
Before closing, I should mention that I have made two new purchases this week and also a top-up of an existing holding NewRiver REIT. The new purchases are of stocks that I have previously owned and discussed on the whittler.
Firstly Gear4music, G4M was repurchased after previously selling for a decent profit at the end of May last year. A few days ago they released a very upbeat trading update which was followed by rather bullish brokers note. One for the special situations pot.
Secondly, I bought back into Portmeirion PMP a stock I had previously sold when they were experiencing sales challenges in Korea. Since that time my worries have been somewhat quelled and certainly, the Wax Lyrical acquisition appears to be bedding down nicely. It’s not a big initial position as I still have a few reservations about their Korean market but we will see.
Have a good weekend and as ever, happy investing.