Starting to look at Dunelm Group again. I missed out a couple of years since when the newly floated company seemed to have a less than enthusiastic following and wallowed at under 200p. Since then it has increased almost threefold to 550p before falling in an almost straight line to todays 406p (still above the 52 week low of 325p) following a cautious half year statement into what could be a difficult year for retailers.
The company is still largely family owned and until recently was family controlled by the Chief Executive of 15 years, Will Adderly. Mr Adderly has announced that he intends to step aside but will retain a seat on the board. His place will be taken by Nick Wharton, a Dunelm board director since Aug 09 and currently Finance Director at Halfords which itself has undergone a significant renaissance in recent years.
It is very much of the "out of town mill" concept and offers bedding, homewares, and soft furnishings etc. "Simply Value for Money" is its selling point and the company has significant expansion plans to grow the business to 200 stores. Having opened 6 outlets in the current period the company now has 100 superstores and 10 high street outlets.
What I do like is the fact that thus far the company remains debt free and I wonder how far this prudent approach goes.
The dividend yield is 2.5%, at 8p : 27.1p is covered by earnings 3.39 times and has more than doubled in 3 years. With the family retaining a 59% stake I expect that this will continue to be well supported as long as the company continues to be as well run as it seems to have been.
Profits growth since 2007 has been double digit (2006 - 5%; 2007 - 22%; 2008 - 12%; 2009 - 44%) and is currently forecast to be low double digit for the next couple of years the risks being a dip in consumer spending this year which some analyst suggest might take 5% of revenues.
At 411p this puts it on a forward price to earnings of 13.8 falling to 12.4.
Since flotation in 2006:
- the no of stores has increased by 29% to 106 (82)
- contributing to an increase in turnover of 56% to £492.84m (£315m)
- but inventory has only increased by 11% to £62.58m (£56.35m)
- and profit before tax has doubled to £76m (£38m)
- Return on Capital Employed up from 44.46% to 71.37%.
Impressive numbers.
So there are macro economic short term risks but better to be holding a debt free company offering quality and value (Dormer is one of its product ranges), and maintaining its profit margins.
The addition of the destination "day out" element is also attractive.
It is a retailer but one to keep an eye on then with a clear view on the longer term.
Dunelm Group @ 398.5p, -13.8p (-3.35%),as at 12:37pm.
Monday, 28 February 2011
Centrica weathering the storm!
Centrica, the owner of British Gas (but not to be confused with BG Group), came back to the market with its final results last Thursday.
As ever, the results failed to impress the market and the shares subsequently dipped 8p to 327p at the open and traded in that range for much of the morning.
The flipside to this failure to meet market expectations is the political criticism that is always aimed at Centrica whenever it does make what is deemed excessive profits (its an easy day for the media when it does make a profit!).
So on one hand the company hasn't made enough profit but on the other hand it has made too much! This then is the fine line that Centrica has to tread.
The danger in this concentrated criticism for the company is that it continues to be seen as a takeover target (I can't see it ever being re-nationalised), but not by some benevolent charity, instead the cash rich Russian state backed Gazprom which has well publicised intentions of growing its UK market share (British Gas has approx. 42% market share).
It will be interesting to see how human rights organisation, pressure groups and charities (and of course the all powerful regulator) cope then with the possibility of price increases and unpaid bills leading to the shutdown of gas supplies as experienced by the Ukraine when it disputed price increases. Better the devil you know perhaps?
Also, what hasn't been picked up on are the year on year comparables.
In the last few years Centrica has invested heavily in nuclear energy with EDF at £2.272bn (remembering that it was the UK Government that sold British Energy to Energie de France), and the North Sea based company Venture Productions for £857m, as it seeks to preserve energy supply security for its operations and the UK. The EDF investment secured 30% of the Nuclear output and the second buying up oil and gas assets.
The sale of British Energy does raise an answer and and unrelated question though. The question (slightly off subject) being where has the money gone that the Labour Government raised from the sale? Apparently, £2bn was raised in 2006 from a 25% stake offloaded in the open market then the sale to EDF raised £10bn net of the Governments 30% plus stake which suggests another £5bn (if £10bn is 2/3rds).
The second point being that Government recognizes that it cannot afford to invest in the design, infrastructure and maintenance of such a venture. Ditto for other utilities such as Centrica, National Grid et al.
Looking at Centrica's results:
- pre-tax profits increased to £2.8bn (£996m), on almost flat revenue of £22.4bn (£22bn) but, as stated, note the comparable in 2009, a year of significant investment, is only £996m.
- £1.7bn invested in 2010; £1.5bn organic investment programme for 2011
- 163% production replacement ratio in UK upstream gas and oil.
- £450m investment approved to develop York and Ensign gas fields in the UK North Sea
- Full year dividend up 12% to 14.3 pence per share
On this years numbers the company is rated at 13.2 times price to earnings falling to 12.3 and 11.4 if single digit growth forecasts are to be believed.
In 2008 the company's capital was financed by just 16% of borrowings which increased to 80.77% in 2009 to finance investment programmes but has fallen to 61.33% in 2010. Concerning in comparison to 2008 but also an indication of why Centrica needs to make a profit. As it stands gross interest of £486m is well covered by profits (if maintainable) at 4.4 times.
Domestically, its increase in margins seems to have been achieved by its increase in services such as heating, boiler, and kitchen appliance cover (I have spoken to many people who think this to be value for money!).
Cashflow per share has been volatile through the last few years but for the last 2 years has been constant at around 50p per share. Put against the Earnings per share figure of 25.2p it suggests that Centrica is doing a good job at managing its revenues to minimise overdraft borrowings.
Traditionally, I wonder if this has been the case when, up to 2008 the company maintained an average cash balance of around £20m. The influx of financing funds in 2009 increased this to £2.9bn and it sits at £1.294bn in 2010's results.
Gearing at 16% was low prior to this period though so it could be a case of short term borrowings & cash flow v long term finance (but which is more expensive?).
The dividend is only covered 1.76 times by earnings (14.3p : 25.2p), and at 4.3% is not overly attractive for a utility but should be maintainable and Centrica is expected to continue to support the yield of 4.3%
Some concerns for me then.
The company does not always appear to have managed cash particularly well so that is something to keep an eye on going forward. I also wouldn't call 2 years a trend particularly with the exceptions: finance raising and investments undertaken.
If cash balances continue to deteriorate it will likely expose cashflow and increase short term borrowings which in turn will reduce the ability to increase the dividend, my key reason for holding Centrica.
However, the company has evolved somewhat in the last few years having secured part of its supply needs and added the service arm to its bow (where premiums are taken up front).
There will continue to be a "take-over" element although at current levels this does not feel to be priced in. Personally I would hope that this is blocked by the government as a strategic asset under energy security but I can't think of any cabinet in the last 20 years that has taken such a view with many assets being smoothly accommodated into foreign ownership (more fuss seems to have been made over BSkyB!).
So, Centrica then, well its a hold, watch and see for my Value and Income portfolio.
Centrica @ 337.1p, -2.1p (-0.62%), as at 11.17am.
As ever, the results failed to impress the market and the shares subsequently dipped 8p to 327p at the open and traded in that range for much of the morning.
The flipside to this failure to meet market expectations is the political criticism that is always aimed at Centrica whenever it does make what is deemed excessive profits (its an easy day for the media when it does make a profit!).
So on one hand the company hasn't made enough profit but on the other hand it has made too much! This then is the fine line that Centrica has to tread.
The danger in this concentrated criticism for the company is that it continues to be seen as a takeover target (I can't see it ever being re-nationalised), but not by some benevolent charity, instead the cash rich Russian state backed Gazprom which has well publicised intentions of growing its UK market share (British Gas has approx. 42% market share).
It will be interesting to see how human rights organisation, pressure groups and charities (and of course the all powerful regulator) cope then with the possibility of price increases and unpaid bills leading to the shutdown of gas supplies as experienced by the Ukraine when it disputed price increases. Better the devil you know perhaps?
Also, what hasn't been picked up on are the year on year comparables.
In the last few years Centrica has invested heavily in nuclear energy with EDF at £2.272bn (remembering that it was the UK Government that sold British Energy to Energie de France), and the North Sea based company Venture Productions for £857m, as it seeks to preserve energy supply security for its operations and the UK. The EDF investment secured 30% of the Nuclear output and the second buying up oil and gas assets.
The sale of British Energy does raise an answer and and unrelated question though. The question (slightly off subject) being where has the money gone that the Labour Government raised from the sale? Apparently, £2bn was raised in 2006 from a 25% stake offloaded in the open market then the sale to EDF raised £10bn net of the Governments 30% plus stake which suggests another £5bn (if £10bn is 2/3rds).
The second point being that Government recognizes that it cannot afford to invest in the design, infrastructure and maintenance of such a venture. Ditto for other utilities such as Centrica, National Grid et al.
Looking at Centrica's results:
- pre-tax profits increased to £2.8bn (£996m), on almost flat revenue of £22.4bn (£22bn) but, as stated, note the comparable in 2009, a year of significant investment, is only £996m.
- £1.7bn invested in 2010; £1.5bn organic investment programme for 2011
- 163% production replacement ratio in UK upstream gas and oil.
- £450m investment approved to develop York and Ensign gas fields in the UK North Sea
- Full year dividend up 12% to 14.3 pence per share
On this years numbers the company is rated at 13.2 times price to earnings falling to 12.3 and 11.4 if single digit growth forecasts are to be believed.
In 2008 the company's capital was financed by just 16% of borrowings which increased to 80.77% in 2009 to finance investment programmes but has fallen to 61.33% in 2010. Concerning in comparison to 2008 but also an indication of why Centrica needs to make a profit. As it stands gross interest of £486m is well covered by profits (if maintainable) at 4.4 times.
Domestically, its increase in margins seems to have been achieved by its increase in services such as heating, boiler, and kitchen appliance cover (I have spoken to many people who think this to be value for money!).
Cashflow per share has been volatile through the last few years but for the last 2 years has been constant at around 50p per share. Put against the Earnings per share figure of 25.2p it suggests that Centrica is doing a good job at managing its revenues to minimise overdraft borrowings.
Traditionally, I wonder if this has been the case when, up to 2008 the company maintained an average cash balance of around £20m. The influx of financing funds in 2009 increased this to £2.9bn and it sits at £1.294bn in 2010's results.
Gearing at 16% was low prior to this period though so it could be a case of short term borrowings & cash flow v long term finance (but which is more expensive?).
The dividend is only covered 1.76 times by earnings (14.3p : 25.2p), and at 4.3% is not overly attractive for a utility but should be maintainable and Centrica is expected to continue to support the yield of 4.3%
Some concerns for me then.
The company does not always appear to have managed cash particularly well so that is something to keep an eye on going forward. I also wouldn't call 2 years a trend particularly with the exceptions: finance raising and investments undertaken.
If cash balances continue to deteriorate it will likely expose cashflow and increase short term borrowings which in turn will reduce the ability to increase the dividend, my key reason for holding Centrica.
However, the company has evolved somewhat in the last few years having secured part of its supply needs and added the service arm to its bow (where premiums are taken up front).
There will continue to be a "take-over" element although at current levels this does not feel to be priced in. Personally I would hope that this is blocked by the government as a strategic asset under energy security but I can't think of any cabinet in the last 20 years that has taken such a view with many assets being smoothly accommodated into foreign ownership (more fuss seems to have been made over BSkyB!).
So, Centrica then, well its a hold, watch and see for my Value and Income portfolio.
Centrica @ 337.1p, -2.1p (-0.62%), as at 11.17am.
Friday, 25 February 2011
Shortlived optimism
Nearly fell of my seat this morning seeing Lloyds share price up 39% to 91p! Seemingly following final results which saw the group back in profit and speculation that the Qataris want a stake in Lloyds and RBS.
Then I noticed that technical glitches have resulted in some suspension of trading due to problems with sets.
As I speak Lloyds has corrected to 62p.
Then I noticed that technical glitches have resulted in some suspension of trading due to problems with sets.
As I speak Lloyds has corrected to 62p.
Tuesday, 22 February 2011
"Oil price turmoil 'threatens world recovery'"
FTSE 100 @ 5926.9, -87.90 (-1.46%)
Wow, bit of shock this morning. I can't recall having a skinful last night but had to rub my eyes at the sea of red in my watch list this morning. Unfortunately, my watchlist really was a sea of red across the board (funny I always think that a blue sea is prettier) so I would have preferred the hangover and bloodshot eyes that a night on the tiles brings.
The virtual portfolio is down around 1.7% this morning as a result (as at 9:30) but reading some of the media reports everything is focused upon the possible symptom as seen in the headline of this article on thisismoney.co.uk Oil price turmoil 'threatens world recovery'.
Lets get some perspective guys as I am not sure that you are focusing on the right issues? People are dying and the potential wildfire effect of civil unrest across the Middle East is the issue as opposed to the oil supply being affected and our lifestyles being inconvenienced.
Although minor in the context of peoples lives, this should be just one of many incentives to offer diplomatic help and assistance to the region (whether it is accepted or not is a different question). Thinking about it the UN also seem to have been very quiet throughout recent events, which I find strange.
As to the markets, well they just don't like uncertainty do they, and then the herd instinct kicks in. So until a possible solution can be envisaged they will remain volatile but, if you believe that things will stabilise again, then, perhaps for the braver amongst us, the question is when do markets, sectors, or companies become oversold?
thisismoney.co.uk: Oil price turmoil 'threatens world recovery'
bloomberg.com: Asian Stocks Retreat as Political Upheaval, Surging Oil Threaten Recovery
Wow, bit of shock this morning. I can't recall having a skinful last night but had to rub my eyes at the sea of red in my watch list this morning. Unfortunately, my watchlist really was a sea of red across the board (funny I always think that a blue sea is prettier) so I would have preferred the hangover and bloodshot eyes that a night on the tiles brings.
The virtual portfolio is down around 1.7% this morning as a result (as at 9:30) but reading some of the media reports everything is focused upon the possible symptom as seen in the headline of this article on thisismoney.co.uk Oil price turmoil 'threatens world recovery'.
Lets get some perspective guys as I am not sure that you are focusing on the right issues? People are dying and the potential wildfire effect of civil unrest across the Middle East is the issue as opposed to the oil supply being affected and our lifestyles being inconvenienced.
Although minor in the context of peoples lives, this should be just one of many incentives to offer diplomatic help and assistance to the region (whether it is accepted or not is a different question). Thinking about it the UN also seem to have been very quiet throughout recent events, which I find strange.
As to the markets, well they just don't like uncertainty do they, and then the herd instinct kicks in. So until a possible solution can be envisaged they will remain volatile but, if you believe that things will stabilise again, then, perhaps for the braver amongst us, the question is when do markets, sectors, or companies become oversold?
thisismoney.co.uk: Oil price turmoil 'threatens world recovery'
bloomberg.com: Asian Stocks Retreat as Political Upheaval, Surging Oil Threaten Recovery
Monday, 21 February 2011
Jan 2011: Portfolio update
Busy week last week what with company news flow and mundane things like work, so I took a little time out over the weekend to revisit my virtual portfolio, which I have called the "Merchant Adventurer's" index (see earlier post: 2010 Virtual Porfolio Performance!), and check out its performance through January.
I also made some changes in February which I will show in an update for February (see earlier post: Portfolio housekeeping and additions: Talk Talk, Invesco Perpetual, Vodaphone, and Tesco.).
It is also easy to forget about some of the less publicity seeking holdings that make up the virtual portfolio given the more attention seeking share prices such as BP, now seemingly the Katie Price of the FTSE 100 complete with celebrity wedding to Rosneft and disgruntled partner, TNK-BP!
So, here it is:
| Merchant Adventurer's Index | Forecast | 1 month | |||
| % holding | Div. yield | % gain | |||
| R-R | 30.04% | 2.66% | 2.41% | ||
| National Grid | 17.31% | 6.59% | -0.09% | ||
| Invesco Perpetual High Inc. Acc. | 6.74% | 0.00% | -1.99% | ||
| BP | 5.06% | 4.07% | 4.14% | ||
| Aviva | 5.36% | 5.80% | 12.67% | ||
| IG Group | 3.41% | 4.32% | -11.37% | ||
| Apple | 3.89% | 0.00% | 3.56% | ||
| Centrica | 2.86% | 4.30% | -3.53% | ||
| BG Group | 2.91% | 1.06% | 8.10% | ||
| Microsoft | 2.56% | 1.92% | -2.22% | ||
| Scottish and Southern | 2.28% | 6.40% | -5.39% | ||
| Morrisons | 2.39% | 3.47% | -0.41% | ||
| BAE Systems | 2.43% | 4.97% | 3.64% | ||
| William Hill | 2.41% | 4.38% | 6.33% | ||
| Cisco | 2.29% | 0.00% | 2.92% | ||
| Talk Talk | 1.96% | 3.50% | 0.81% | ||
| Cash | 6.10% | 0.00% | 7.10% | ||
| 100.00% | 3.33% | ||||
| 1 Month | 13 Months | ||||
| Virtual Portfolio gain incl. dividends | 1.71% | 28.58% | |||
| FTSE gain excl. div. | -1.81% | 8.31% | |||
- 1 month - 5971.01 to 5862.94
- 13 months - 5412.88 to 5862.94
I have also tried to plot the performance of the virtual portfolio relative to the FTSE 100 in the following chart.
More luck than management but it seems that the MA index has edged up slightly in Jan as opposed to the FTSE 100 falling back slightly. This is probably down to the portfolio having little or no exposure to Mining and Banking at this stage although, I did have a nice little dividend from National Grid in January.
Swings and roundabouts though, and I fully expect that, with the Mining and Banking sectors being heavily geared to recovery (and on newsflows alone), the FTSE 100 is reversing that situation in February.
The forecast dividend yield for the portfolio (if held for a full year) has also edged up slightly due mainly to the welcome resumption in BP's dividend payment.
Anyway, onwards and upwards (hopefully!).
see earlier post: 2010 Virtual Porfolio Performance!
see earlier post: Portfolio housekeeping and additions: Talk Talk, Invesco Perpetual, Vodaphone, and Tesco.
Friday, 18 February 2011
BAE Results and R-R Update.
BAE @ 335.5p, -5.4% (-1.58%) as at 10:15
Disappointed in the reception to BAE's results but serves to highlight how analysts are often wrong. You would have thought that after all the communications from the company and media articles detailing cuts in Defence spending etc. (see earlier post Rolls-Royce / BAE Systems: Britain reviews defence contract rules.) that there would have been some hardening of expectations towards reduced numbers ( I seem to recall their being something around the Coalition Govt and spending cuts!). More public still has been the scrapping of the Nimrod and Harrier programs.
As it is, there was a sharp spike in the few days prior to the results and then a pretty big deflation after the results were announced.
Against the backdrop of global spending cuts and much publicised legal wrangles the company has increased sales by 1.8% to £22.4bn and profits improved to £1.44bn (£266m last time ex. £1bn impairment charge).
The company is also part way through a restructuring program aimed at costs.
But, with the company on a forecast Price to Earnings ratio of 7.9 for the coming year it seems to me that there has never been a particularly enthusiastic expectation for the company's prospects.
However, the very fact of it having a PE tells you that the company is forecast to make a profit and, despite the cuts from the US and UK Governments, it does not seem to me that Governments are about to stop spending. BAE is a major global player and is still forecast to increase sales and profits albeit by single digit amounts. In the meantime, the 5% plus dividend is a real return to shareholders and the final dividend, at 10.5p per share, was raised by 9.4%.
Slightly concerned about the reduction in cash flow (despite the company's statement that "Good cash generation has been achieved"), and it seems that an increased usage of "current" financing, such as overdrafts, may be the symptom but not 100% sure of the cause, although it may be that pension contributions, acquisitions and regulatory penalties are all factors.
Cash balances were lower but are still very healthy at £2.81bn.
Interest payments of £194m are easily covered by operating profit of £1.636bn as is the dividend which amounts to £574m.
Also concerning, but understandable, is the reduction in the order book to £39.7bn (2009: £46.3bn) but the company is restructuring and continues to look for acquisition opportunities such as the recent cyber security purchases.
At 335.5p, the investment has given me a 5% capital gain (after charges) plus 5.1% in dividends which gives me a total of 10.1% for an investment held since 29/10/09 (14 months).
BAE seems to be a reasonably predictable company then (including the regulatory and legal issues), with low growth expectations and a dividend that has grown by approx 10% per annum for the last 5 years. Steady as she goes then and a hold for my portfolio.
BAE @ 335.5p, -5.4% (-1.58%) as at 10:15 (ex dividend date is 20 Apr. 2011)
Rolls-Royce update.
Elsewhere, R-R has taken another hit in the short term as the US Senate voted to eliminate the $450m 2011 spend on the the F-35 engine alternative being developed by R-R and GE (see selftrade.co.uk: Gates urges Senate to kill funding for F-35 engine).
The shares have been driven down despite the potential for F-35 disappointment being well publicised and ongoing for a number of years now. Elsewhere, broker upgrades from Nomura (sharecast.com: Broker snap: Rolls-Royce to see strong growth in 2011), and UBS (sharecast.com: Broker snap: Rolls upgraded but upside risk limited), appear to have gone unnoticed.
If I wasn't already a holder then I would be looking at this as a buying opportunity due to a short term dip based upon sentiment.
Rolls-Royce @ 627.5p, -3.5 (-0.55%) as at 10:32.
Rolls-Royce: -
- selftrade.co.uk: Gates urges Senate to kill funding for F-35 engine
- sharecast.com: Broker snap: Rolls-Royce to see strong growth in 2011
- sharecast.com: Broker snap: Rolls upgraded but upside risk limited
Disappointed in the reception to BAE's results but serves to highlight how analysts are often wrong. You would have thought that after all the communications from the company and media articles detailing cuts in Defence spending etc. (see earlier post Rolls-Royce / BAE Systems: Britain reviews defence contract rules.) that there would have been some hardening of expectations towards reduced numbers ( I seem to recall their being something around the Coalition Govt and spending cuts!). More public still has been the scrapping of the Nimrod and Harrier programs.
As it is, there was a sharp spike in the few days prior to the results and then a pretty big deflation after the results were announced.
Against the backdrop of global spending cuts and much publicised legal wrangles the company has increased sales by 1.8% to £22.4bn and profits improved to £1.44bn (£266m last time ex. £1bn impairment charge).
The company is also part way through a restructuring program aimed at costs.
But, with the company on a forecast Price to Earnings ratio of 7.9 for the coming year it seems to me that there has never been a particularly enthusiastic expectation for the company's prospects.
However, the very fact of it having a PE tells you that the company is forecast to make a profit and, despite the cuts from the US and UK Governments, it does not seem to me that Governments are about to stop spending. BAE is a major global player and is still forecast to increase sales and profits albeit by single digit amounts. In the meantime, the 5% plus dividend is a real return to shareholders and the final dividend, at 10.5p per share, was raised by 9.4%.
Slightly concerned about the reduction in cash flow (despite the company's statement that "Good cash generation has been achieved"), and it seems that an increased usage of "current" financing, such as overdrafts, may be the symptom but not 100% sure of the cause, although it may be that pension contributions, acquisitions and regulatory penalties are all factors.
Cash balances were lower but are still very healthy at £2.81bn.
Interest payments of £194m are easily covered by operating profit of £1.636bn as is the dividend which amounts to £574m.
Also concerning, but understandable, is the reduction in the order book to £39.7bn (2009: £46.3bn) but the company is restructuring and continues to look for acquisition opportunities such as the recent cyber security purchases.
At 335.5p, the investment has given me a 5% capital gain (after charges) plus 5.1% in dividends which gives me a total of 10.1% for an investment held since 29/10/09 (14 months).
BAE seems to be a reasonably predictable company then (including the regulatory and legal issues), with low growth expectations and a dividend that has grown by approx 10% per annum for the last 5 years. Steady as she goes then and a hold for my portfolio.
BAE @ 335.5p, -5.4% (-1.58%) as at 10:15 (ex dividend date is 20 Apr. 2011)
Rolls-Royce update.
Elsewhere, R-R has taken another hit in the short term as the US Senate voted to eliminate the $450m 2011 spend on the the F-35 engine alternative being developed by R-R and GE (see selftrade.co.uk: Gates urges Senate to kill funding for F-35 engine).
The shares have been driven down despite the potential for F-35 disappointment being well publicised and ongoing for a number of years now. Elsewhere, broker upgrades from Nomura (sharecast.com: Broker snap: Rolls-Royce to see strong growth in 2011), and UBS (sharecast.com: Broker snap: Rolls upgraded but upside risk limited), appear to have gone unnoticed.
If I wasn't already a holder then I would be looking at this as a buying opportunity due to a short term dip based upon sentiment.
Rolls-Royce @ 627.5p, -3.5 (-0.55%) as at 10:32.
Article links:
BAE: -
- independent.co.uk: BAE warns of lower sales as UK and US cut spendingRolls-Royce: -
- selftrade.co.uk: Gates urges Senate to kill funding for F-35 engine
- sharecast.com: Broker snap: Rolls-Royce to see strong growth in 2011
- sharecast.com: Broker snap: Rolls upgraded but upside risk limited
Monday, 14 February 2011
Portfolio housekeeping and additions: Talk Talk, Invesco Perpetual, Vodaphone, and Tesco.
Well, I have binned Talk Talk from my Value and Income portfolio. Truth be told the only thing keeping it there was the dividend yield but the customer complaints, uninspiring management and a lack of clear strategy outweighed it.
Looking back, I originally bought Carphone Warehouse purely on the decision to split the company and realise the value in its diverse parts hence it being in my Value side. Anyway having previously sold out of Carphone Warehouse (as Charles Dunstone reduced his stake), I have since decided that Talk Talk would be next (mainly after starting this blog and seeing the remnants of previous strategies!).
Putting the 2 sales back together, the original investment in Carphone Warehouse has given me a capital gain of 44% after charges, and then a further 1.8% from dividends. So 45.8% in total.
My thinking was also that I would use the funds to replace it with Vodaphone (for a more foucssed telecoms holding) but haven't yet run the numbers to my satisfaction.
As it stands Vodaphone is a company that, on current forecasts, has gone ex. growth. The dividend is a decent 5% plus but being greedy I would also like to see it generate growth (to grow the dividend) due to the industry that it is in: mobile networks, smart phones etc.
Further Housekeeping: Invesco Perpetual?
In terms of further housekeeping, my holding in Invesco Perpetual's High Income Fund (Accumulation units) is also under scrutiny, as I become disillusioned with its lacklustre performance and some of the more publicised decisions (albeit brave decisions) of its highly rated manager, Neil Woodford.
His timing on BP (sell), banks (sell), and pharmaceuticals (buy), appears to have been nigh on perfect but I have not recognised the benefit in the funds value. It fell significantly during the credit crunch (despite selling banks before the crunch), and has since recovered only slowly.
How would the fund have performed if it had been caught by Banks (and then BP) like the majority of investors?
It could be that my expectations are too high but with such a focussed fund and with holdings of 3, 4, and 5% or more per company (never mind sector), I am disappointed not to have seen more protection through the tough times and better performance as markets have recovered.
Similarly his recent decision to significantly reduce his holdings in water utilities (due to over regulation and capital spend restricting returns), is a brave one but then to invest in Zimbabwe seems bizarre and very risky (citywire.co.uk: Woodford snaps up 29% stake in Zimbabwe investment fund).
Finally, having bought to diversify my own portfolio (as well as on Neil Woodford's reputation), I have occasionally found holdings that mirror my own, so it is questionable if it is giving me the diversification I want particularly if I go on to buy Vodaphone, Glaxo or Astrazeneca. Perhaps bonds, or a bond fund would be more appropriate.
Growth Portfolio: New Purchase - Tesco.
Aside from tidying things up in one portfolio, I have also taken the plunge on Tesco @ 394.65p, (as discussed in a previous post Supermarket Sweep: Tesco; Morrisons; or Sainsburys?) and added them to my Growth portfolio.
As a company, Tesco has shown a dedication to growing the dividend by a near 10% per annum and has too much going for it not to generate further growth in revenues and profits.
This investment will also double my holding in UK supermarkets as I also hold Morrisons.
Again, my thoughts are that supermarkets are also an industry able to increase revenues during times of inflation as much of their product is essential.
My thinking is also to buy the shares as opposed to the Tesco Bank bond issue although, I may yet take that up as well for my Value and Income portfolio.
As ever, I am always a little nervous after an investment as it would be nice to catch the bottom of a dip, pat myself on the back, and just watch the share price rise from hereon in.
It doesn't always work like that though.
But, having bought after the unenthusiastically received results (giving management a little wake-up call), at least I can content myself knowing that I have benefitted from a dip and that I am in it for the long term.
At least that is the plan!
Looking back, I originally bought Carphone Warehouse purely on the decision to split the company and realise the value in its diverse parts hence it being in my Value side. Anyway having previously sold out of Carphone Warehouse (as Charles Dunstone reduced his stake), I have since decided that Talk Talk would be next (mainly after starting this blog and seeing the remnants of previous strategies!).
Putting the 2 sales back together, the original investment in Carphone Warehouse has given me a capital gain of 44% after charges, and then a further 1.8% from dividends. So 45.8% in total.
My thinking was also that I would use the funds to replace it with Vodaphone (for a more foucssed telecoms holding) but haven't yet run the numbers to my satisfaction.
As it stands Vodaphone is a company that, on current forecasts, has gone ex. growth. The dividend is a decent 5% plus but being greedy I would also like to see it generate growth (to grow the dividend) due to the industry that it is in: mobile networks, smart phones etc.
Further Housekeeping: Invesco Perpetual?
In terms of further housekeeping, my holding in Invesco Perpetual's High Income Fund (Accumulation units) is also under scrutiny, as I become disillusioned with its lacklustre performance and some of the more publicised decisions (albeit brave decisions) of its highly rated manager, Neil Woodford.
His timing on BP (sell), banks (sell), and pharmaceuticals (buy), appears to have been nigh on perfect but I have not recognised the benefit in the funds value. It fell significantly during the credit crunch (despite selling banks before the crunch), and has since recovered only slowly.
How would the fund have performed if it had been caught by Banks (and then BP) like the majority of investors?
It could be that my expectations are too high but with such a focussed fund and with holdings of 3, 4, and 5% or more per company (never mind sector), I am disappointed not to have seen more protection through the tough times and better performance as markets have recovered.
Similarly his recent decision to significantly reduce his holdings in water utilities (due to over regulation and capital spend restricting returns), is a brave one but then to invest in Zimbabwe seems bizarre and very risky (citywire.co.uk: Woodford snaps up 29% stake in Zimbabwe investment fund).
Finally, having bought to diversify my own portfolio (as well as on Neil Woodford's reputation), I have occasionally found holdings that mirror my own, so it is questionable if it is giving me the diversification I want particularly if I go on to buy Vodaphone, Glaxo or Astrazeneca. Perhaps bonds, or a bond fund would be more appropriate.
Growth Portfolio: New Purchase - Tesco.
Aside from tidying things up in one portfolio, I have also taken the plunge on Tesco @ 394.65p, (as discussed in a previous post Supermarket Sweep: Tesco; Morrisons; or Sainsburys?) and added them to my Growth portfolio.
As a company, Tesco has shown a dedication to growing the dividend by a near 10% per annum and has too much going for it not to generate further growth in revenues and profits.
This investment will also double my holding in UK supermarkets as I also hold Morrisons.
Again, my thoughts are that supermarkets are also an industry able to increase revenues during times of inflation as much of their product is essential.
My thinking is also to buy the shares as opposed to the Tesco Bank bond issue although, I may yet take that up as well for my Value and Income portfolio.
As ever, I am always a little nervous after an investment as it would be nice to catch the bottom of a dip, pat myself on the back, and just watch the share price rise from hereon in.
It doesn't always work like that though.
But, having bought after the unenthusiastically received results (giving management a little wake-up call), at least I can content myself knowing that I have benefitted from a dip and that I am in it for the long term.
At least that is the plan!
Article links:
Sunday, 13 February 2011
US Investment update: Cisco
A little concerned about the Investor relations of Cisco, one of my US purchases. The company's quarterly reporting (last week)again seems to have been poorly received and the share price has again been punished.
That's 2 quarterly reports in a row that this has happened and the company seems unable to manage the high expectations of markets and investors.
This time the company reported revenue growth of 6% over the same period a year ago and despite the statement that things panned out as expected, analysts were expecting 13% and have duly punished the share price with a drop of more than 10%.
The fear is that Cisco, despite being the market leader in the networking equipment required to keep the internet up and running, may be under pressure from competitors which could subsequently impact margins.
With the growth of the smart phone market, and the related data traffic, I am still hopeful that the market for the company's products is significant particularly with the many reports that networks are slow and creaking under the exponential growth in data traffic.
On the upside there is anticipation that Cisco will start to pay a dividend this year which could support the share price but being bought for growth I will have to keep an eye on the company and its apparently naive investor relations particularly for any confirmation that margins and market share are under pressure.
Cisco @ $18.71, -11.6% v.original investment (incl. exchange rate impact)
mercurynews.com: Cisco Systems: Earnings beat expectations, but stock slides after hours
That's 2 quarterly reports in a row that this has happened and the company seems unable to manage the high expectations of markets and investors.
This time the company reported revenue growth of 6% over the same period a year ago and despite the statement that things panned out as expected, analysts were expecting 13% and have duly punished the share price with a drop of more than 10%.
The fear is that Cisco, despite being the market leader in the networking equipment required to keep the internet up and running, may be under pressure from competitors which could subsequently impact margins.
With the growth of the smart phone market, and the related data traffic, I am still hopeful that the market for the company's products is significant particularly with the many reports that networks are slow and creaking under the exponential growth in data traffic.
On the upside there is anticipation that Cisco will start to pay a dividend this year which could support the share price but being bought for growth I will have to keep an eye on the company and its apparently naive investor relations particularly for any confirmation that margins and market share are under pressure.
Cisco @ $18.71, -11.6% v.original investment (incl. exchange rate impact)
mercurynews.com: Cisco Systems: Earnings beat expectations, but stock slides after hours
Thursday, 10 February 2011
BG Update
BG Group @ 1472.50p, +0.5p (+0.03%)
BG Group announced its full year results for 2010 this week and the share price continues to power on to new highs.
Although, profits before tax, at $5.73bn, are slightly down on last year on higher revenues, the main highlights are the company's 3 year reserves replacement ratio at 223% which basically means they are finding more oil and gas than they can sell at present. Total reserves and resources increased in the year by 1.7bn barrels of oil equivalent (boe) to 16.2bn.
Exciting for me as an investor is the company's update on its long term strategy which is to achieve growth of between 6 and 8% per annum up to 2020. In it the company states that growth of 7% can be achieved from existing finds up to 2011 (which is bang in the middle of their strategic target of 6 - 8%). In the short term horizon the company thinks it will achieve a growth of 7% for 2011 but that this will increase above that beyond 2011 as new production ramps up in Brazil, Australia and the US. Any new finds could lead to these targets being upgraded.
The dividend was also increased by 13% to 11.78cents per share resulting in a full year increase of 10% to 21.6cents or 13.66p. Not much in comparison to a share price of 1472.50p, in fact just under 1%, but the company does have quite a progressive dividend policy as shown by the following declaration on its website:
Taking a short term view there has been a downgrade or two (to hold), on the back of the current share price high and visibility of the company's increased capital spend but I am quite comfortable with the results being achieved by a capable management team and the progress being made towards the company's long term strategic goals.
At a price to earnings ratio of 17.6 the company does carry a premium based upon its capability and assets but also on the ongoing speculation that the company could be acquired by one of the oil majors to bolster its reserves and exploration programs.
Finally, BG has been a patient investment in my Growth portfolio which is now showing a 35% gain but with the company being a successful player in the Oil and Gas industry I am still a long term holder.
The ex dividend date for the final dividend entitlement is 13 April 2011.
To download the full results from BG's website: bg-group.com: 2010 FOURTH QUARTER & FULL YEAR RESULTS
BG Group announced its full year results for 2010 this week and the share price continues to power on to new highs.
Although, profits before tax, at $5.73bn, are slightly down on last year on higher revenues, the main highlights are the company's 3 year reserves replacement ratio at 223% which basically means they are finding more oil and gas than they can sell at present. Total reserves and resources increased in the year by 1.7bn barrels of oil equivalent (boe) to 16.2bn.
Exciting for me as an investor is the company's update on its long term strategy which is to achieve growth of between 6 and 8% per annum up to 2020. In it the company states that growth of 7% can be achieved from existing finds up to 2011 (which is bang in the middle of their strategic target of 6 - 8%). In the short term horizon the company thinks it will achieve a growth of 7% for 2011 but that this will increase above that beyond 2011 as new production ramps up in Brazil, Australia and the US. Any new finds could lead to these targets being upgraded.
The dividend was also increased by 13% to 11.78cents per share resulting in a full year increase of 10% to 21.6cents or 13.66p. Not much in comparison to a share price of 1472.50p, in fact just under 1%, but the company does have quite a progressive dividend policy as shown by the following declaration on its website:
"The Board’s dividend policy is to increase the dividend in line with the long-term underlying growth in US Dollar earnings. Interim dividends are usually one half of the total dividend paid in respect of the preceding financial year."
Taking a short term view there has been a downgrade or two (to hold), on the back of the current share price high and visibility of the company's increased capital spend but I am quite comfortable with the results being achieved by a capable management team and the progress being made towards the company's long term strategic goals.
At a price to earnings ratio of 17.6 the company does carry a premium based upon its capability and assets but also on the ongoing speculation that the company could be acquired by one of the oil majors to bolster its reserves and exploration programs.
Finally, BG has been a patient investment in my Growth portfolio which is now showing a 35% gain but with the company being a successful player in the Oil and Gas industry I am still a long term holder.
The ex dividend date for the final dividend entitlement is 13 April 2011.
To download the full results from BG's website: bg-group.com: 2010 FOURTH QUARTER & FULL YEAR RESULTS
Rolls-Royce 2010 Final Results
As at 11:00am:
Rolls-Royce @ 647.5p, -8 (-1.22%)
Well the scores are in and Rolls-Royce has just about beaten consensus expectations for the last financial year.
Headline numbers read as follows:
- Underlying profit before tax £955m (+4%) v. expectations of £940m
- Underlying revenue £10.8bn (+7%)
- Balance sheet cash £1.533bn (+£258m)
- Dividend increase of 6.7% to 9.6p bringing the full year payment to 16p
- Quantas incident charged to 2010 at £56m although "a modest level" of additional cost is expected to be in the 2011 results.
Not the most thrilling results but given the faltering global economy and the Quantas A380 / T900 incident, it seems churlish not to be pleased that the company has consolidated its financial strength in the last 12 months in spite of the potentially damaging incident. Increasing cash balances and a modest increase to dividends provide support to the promise of more to come from the company's position on the wide body programs for: Boeing 787, Airbus A380, and Airbus A350.
The following statement taken from the results is quite promising and gives me some confidence in the long term that Rolls-Royce can continue to grow:
On the downside, the company quotes continuing uncertainty around some of its defence work particularly the F135/F136 second engine option.
The results come on the back of widespread industry optimism with the airframe manufacturers: Airbus and Boeing, both looking forward to increasing production in the next year. In turn, both GE and United Technologies (P&W), reported recently and were positively received.
So it still seems to me that the company is in a position to benefit from the recovering aerospace cycle which may take a little time to be fully appreciated. It is also unfortunate timing to coincide with the BoE's Monetary Policy Committee meeting to determine interest rates which is pressuring the FTSE today.
Still a hold for me.
FTSE 100 @ 6006.02, -46.27 (-0.76%)
To download the full results from Rolls-Royce's website:rolls-royce.com: Rolls-Royce Group plc 2010 Full-Year Results
Rolls-Royce @ 647.5p, -8 (-1.22%)
Well the scores are in and Rolls-Royce has just about beaten consensus expectations for the last financial year.
Headline numbers read as follows:
- Underlying profit before tax £955m (+4%) v. expectations of £940m
- Underlying revenue £10.8bn (+7%)
- Balance sheet cash £1.533bn (+£258m)
- Dividend increase of 6.7% to 9.6p bringing the full year payment to 16p
- Quantas incident charged to 2010 at £56m although "a modest level" of additional cost is expected to be in the 2011 results.
Not the most thrilling results but given the faltering global economy and the Quantas A380 / T900 incident, it seems churlish not to be pleased that the company has consolidated its financial strength in the last 12 months in spite of the potentially damaging incident. Increasing cash balances and a modest increase to dividends provide support to the promise of more to come from the company's position on the wide body programs for: Boeing 787, Airbus A380, and Airbus A350.
The following statement taken from the results is quite promising and gives me some confidence in the long term that Rolls-Royce can continue to grow:
"Group prospects:
.... The strong order book and balanced portfolio gives us confidence that the Group will double revenues organically over the next decade. We continue to have the management and financial capacity to accelerate growth through acquisition and partnership."On the downside, the company quotes continuing uncertainty around some of its defence work particularly the F135/F136 second engine option.
The results come on the back of widespread industry optimism with the airframe manufacturers: Airbus and Boeing, both looking forward to increasing production in the next year. In turn, both GE and United Technologies (P&W), reported recently and were positively received.
So it still seems to me that the company is in a position to benefit from the recovering aerospace cycle which may take a little time to be fully appreciated. It is also unfortunate timing to coincide with the BoE's Monetary Policy Committee meeting to determine interest rates which is pressuring the FTSE today.
Still a hold for me.
FTSE 100 @ 6006.02, -46.27 (-0.76%)
To download the full results from Rolls-Royce's website:rolls-royce.com: Rolls-Royce Group plc 2010 Full-Year Results
Monday, 7 February 2011
ISA's, Bonds and Tesco Bank.
I see that Tesco's banking operations are raising funds through a bond placement with a face value yield of 5.2%.
The objective is to raise between £50 and £100m through this placement which is aimed at individuals rather than institutions.
Offer date is from 3rd Feb to the 18th Feb (unless demand is higher than anticipated), the minimum purchase is £2000 (then £100 increments), and the Maturity date of the bonds is August 2018.
I guess the appeal is the apparently decent rate of interest in comparison to savings interest. In addition the bonds are tradeable so might also appreciate slightly (or depreciate), depending upon other economic factors influencing demand and supply.
The biggest factor at the moment is inflation which will obviously deteriorate the face value of the investment if held to maturity. At maturity you would get back the £2000 invested as the bond is effectively a loan to Tesco for which you will get a 5.2% annual return.
So still much like a savings account then albeit one that pays 5.2% which is just ahead of RPI at 4.7%.
The bonds can also be held within an ISA and I note that the offer is on my brokers website.
If interest rates rise then there could well be high st offers that rise to match it but there are possibly some disadvantages here such as:
- income tax on interest from a normal account
- or only £5100 allowed in a cash ISA.
But, (and this needs checking), my understanding on the situation with bonds and gilts held within an ISA is that the interest is effectively tax free! So if you were opening a new Self Select ISA with £10,200 you could invest the whole amount in this issue (subject to availability of course), and earn 5.2% tax free! (Ah, those were the days when I could get that on a high street ISA!).
Other than that, for an investor such as myself, it is a means of diversification which should run counter cyclical to shares. For example:
- funds and investors moving out of shares would probably move into bonds for safety.
- as inflation allows companies to boost profits with price increases it pushes up interest rates and makes fixed interest investments less attractive
- inversely, low inflation (and low interest rates) can be a constraint on companies and individual savings so bonds and a higher fixed interest can be more attractive.
The first question as ever is strength of the issuer to determine if you will get your money back.
Gilts are government backed so are about as solid as we can hope for but companies are a different category. In this case, Tesco Bank is a subsidiary of Tesco so I cannot see them defaulting.
I have often considered Gilts as an investment to diversify my portfolio but never yet taken the plunge (by the way a bond or gilt needs to have 5 years left on it for it to qualify as an ISA acceptable investment). Mainly this is a case of missed opportunities but when considering an equity ISA it needs to be remembered that bonds and fixed interest securities can also qualify so again risk can be managed.
So, potentially a tax free 5.2%, 7.5 year term, backed by Tesco's. Hmmm.
thisismoney.co.uk: Midas: Should you buy Tesco's 5.2% bonds?
The objective is to raise between £50 and £100m through this placement which is aimed at individuals rather than institutions.
Offer date is from 3rd Feb to the 18th Feb (unless demand is higher than anticipated), the minimum purchase is £2000 (then £100 increments), and the Maturity date of the bonds is August 2018.
I guess the appeal is the apparently decent rate of interest in comparison to savings interest. In addition the bonds are tradeable so might also appreciate slightly (or depreciate), depending upon other economic factors influencing demand and supply.
The biggest factor at the moment is inflation which will obviously deteriorate the face value of the investment if held to maturity. At maturity you would get back the £2000 invested as the bond is effectively a loan to Tesco for which you will get a 5.2% annual return.
So still much like a savings account then albeit one that pays 5.2% which is just ahead of RPI at 4.7%.
The bonds can also be held within an ISA and I note that the offer is on my brokers website.
If interest rates rise then there could well be high st offers that rise to match it but there are possibly some disadvantages here such as:
- income tax on interest from a normal account
- or only £5100 allowed in a cash ISA.
But, (and this needs checking), my understanding on the situation with bonds and gilts held within an ISA is that the interest is effectively tax free! So if you were opening a new Self Select ISA with £10,200 you could invest the whole amount in this issue (subject to availability of course), and earn 5.2% tax free! (Ah, those were the days when I could get that on a high street ISA!).
Other than that, for an investor such as myself, it is a means of diversification which should run counter cyclical to shares. For example:
- funds and investors moving out of shares would probably move into bonds for safety.
- as inflation allows companies to boost profits with price increases it pushes up interest rates and makes fixed interest investments less attractive
- inversely, low inflation (and low interest rates) can be a constraint on companies and individual savings so bonds and a higher fixed interest can be more attractive.
The first question as ever is strength of the issuer to determine if you will get your money back.
Gilts are government backed so are about as solid as we can hope for but companies are a different category. In this case, Tesco Bank is a subsidiary of Tesco so I cannot see them defaulting.
I have often considered Gilts as an investment to diversify my portfolio but never yet taken the plunge (by the way a bond or gilt needs to have 5 years left on it for it to qualify as an ISA acceptable investment). Mainly this is a case of missed opportunities but when considering an equity ISA it needs to be remembered that bonds and fixed interest securities can also qualify so again risk can be managed.
So, potentially a tax free 5.2%, 7.5 year term, backed by Tesco's. Hmmm.
thisismoney.co.uk: Midas: Should you buy Tesco's 5.2% bonds?
Week ahead: BP ex dividend; RR Final results; Interest rates
BP @ 482.15p, +5.9 (+1.24%). On Wednesday (9th February), BP begins to trade without the entitlement to its recently re-instated dividend (ex-dividend), so all things being equal the value of the dividend will come off the share price at the start of trading.
The announced dividend for the quarter is 7 cents per share which, at an exchange rate of $1.6169 equates to around 4.3p. Depending on market sentiment on the day (and how many investors bail out after receiving the entitlement), the shares could lose more, or less than this, a situation that can sometimes yield a buying opportunity as trading is concentrated potentially resulting in an oversold situation.
There is generally a pattern of gains in a share price ahead of a dividend entitlement as investors buy in for the rights but I am not sure you ever truly gain from such a short term view so prefer to see the dips as an opportunity for the longer term. But I don't think I will be adding to my BP holding at this point.
I would just like a period of calm around BP's shares as it seems to be a company that cannot keep out of the news. Which would be fine if it was all good news but the company seems to court political controversy at every turn. At times this tip toeing through the minefields seems more risky than actually exploring and extracting oil, as everybody seems to want to score points.
Rolls-Royce @ 642.5p, -1 (-0.16%), reports final results on Thursday (10th Feb), so it is fingers crossed for no unpleasant surprises and positive updates on the aerospace cycle, and Quantas T900 resolution.
Remember, these will be the last results with Sir John Rose at the helm so, rightly or wrongly, I am hopeful that there will be plenty of positivity about the future built upon the foundations of a strong, clear, proven strategy.
It may be that reception to R-R results will initially be subdued given the wait (until Thursday lunchtime), for the Bank of England's decision on interest rates which, could be interesting given the news, data, and opinions swirling around.
The announced dividend for the quarter is 7 cents per share which, at an exchange rate of $1.6169 equates to around 4.3p. Depending on market sentiment on the day (and how many investors bail out after receiving the entitlement), the shares could lose more, or less than this, a situation that can sometimes yield a buying opportunity as trading is concentrated potentially resulting in an oversold situation.
There is generally a pattern of gains in a share price ahead of a dividend entitlement as investors buy in for the rights but I am not sure you ever truly gain from such a short term view so prefer to see the dips as an opportunity for the longer term. But I don't think I will be adding to my BP holding at this point.
I would just like a period of calm around BP's shares as it seems to be a company that cannot keep out of the news. Which would be fine if it was all good news but the company seems to court political controversy at every turn. At times this tip toeing through the minefields seems more risky than actually exploring and extracting oil, as everybody seems to want to score points.
Rolls-Royce @ 642.5p, -1 (-0.16%), reports final results on Thursday (10th Feb), so it is fingers crossed for no unpleasant surprises and positive updates on the aerospace cycle, and Quantas T900 resolution.
Remember, these will be the last results with Sir John Rose at the helm so, rightly or wrongly, I am hopeful that there will be plenty of positivity about the future built upon the foundations of a strong, clear, proven strategy.
It may be that reception to R-R results will initially be subdued given the wait (until Thursday lunchtime), for the Bank of England's decision on interest rates which, could be interesting given the news, data, and opinions swirling around.
Wednesday, 2 February 2011
Rolls-Royce swinging low ahead of Preliminary Results.
At 4:15pm:
Rolls-Royce @ 625p, -13.5 (-2.1%)
With Rolls-Royce due to report its preliminary results on the 10th Feb 2011 it is a bit disconcerting to see the share price continuing to see-saw quite wildly.
Down another decent chunk today but stabilising at 625p.
Couple of bits of good news weighed down by one not so good (but should it have been anticipated?).
- First the good news, an order from Sichuan Airlines (announced by R-R website) has been won by the International Aero Engines consortium of which Rolls-Royce is a senior shareholder. The order, to equip 12 Airbus A320's with V2500 engines, is worth $100m to Rolls-Royce.
- A Total Care agreement has been set up with Malaysia Airlines (also on R-R website) to support a fleet of 17 Boeing 777 aircraft equipped with T800 engines.
And now for the not so good. Embedded at the bottom of a general article on the Centre for Asia Pacific Aviation is a segment which forecasts Quantas profits to be 10% lower. The segment is based upon an analysts note from our friends at RBS but goes on to suggest that the A380 incident will cost Quantas AUD80m and that it is expected that R-R will cover 75% of that cost at some point in the next year.
At present Sterling is weak against the Aussie dollar at AUD1.60793 so that translates to £49m for a company forecast to make £1.08bn pre tax in 2011-12 and at 31 Dec 2009 had £2.96bn of cash on its books.
Hopefully this is a another case of short term sentiment v long term outlook.
I have also brought up an updated version of the chart that I used in a previous post (Rolls-Royce / BAE Systems: Britain reviews defence contract rules. ) to illustrate the trend and trading range that R-R shares appeared to be following.
Despite the volatile swings this appears to be still intact (although I am not a Technical Analysis expert) but it remains to be seen what the results might bring on the 10th Feb.
rolls-royce.com:Rolls-Royce share of Sichuan Airlines V2500 order worth $100 million
rolls-royce.com:Rolls-Royce signs TotalCare services agreement with Malaysia Airlines
centreforaviation.com: airberlin, easyJet, Tiger Airways Australia and Virgin Blue lower profit expectations
Chart courtesy of Digital Look
Rolls-Royce @ 625p, -13.5 (-2.1%)
With Rolls-Royce due to report its preliminary results on the 10th Feb 2011 it is a bit disconcerting to see the share price continuing to see-saw quite wildly.
Down another decent chunk today but stabilising at 625p.
Couple of bits of good news weighed down by one not so good (but should it have been anticipated?).
- First the good news, an order from Sichuan Airlines (announced by R-R website) has been won by the International Aero Engines consortium of which Rolls-Royce is a senior shareholder. The order, to equip 12 Airbus A320's with V2500 engines, is worth $100m to Rolls-Royce.
- A Total Care agreement has been set up with Malaysia Airlines (also on R-R website) to support a fleet of 17 Boeing 777 aircraft equipped with T800 engines.
And now for the not so good. Embedded at the bottom of a general article on the Centre for Asia Pacific Aviation is a segment which forecasts Quantas profits to be 10% lower. The segment is based upon an analysts note from our friends at RBS but goes on to suggest that the A380 incident will cost Quantas AUD80m and that it is expected that R-R will cover 75% of that cost at some point in the next year.
At present Sterling is weak against the Aussie dollar at AUD1.60793 so that translates to £49m for a company forecast to make £1.08bn pre tax in 2011-12 and at 31 Dec 2009 had £2.96bn of cash on its books.
Hopefully this is a another case of short term sentiment v long term outlook.
I have also brought up an updated version of the chart that I used in a previous post (Rolls-Royce / BAE Systems: Britain reviews defence contract rules. ) to illustrate the trend and trading range that R-R shares appeared to be following.
Despite the volatile swings this appears to be still intact (although I am not a Technical Analysis expert) but it remains to be seen what the results might bring on the 10th Feb.
 |
| R-R Trend and Trading Range |
rolls-royce.com:Rolls-Royce share of Sichuan Airlines V2500 order worth $100 million
rolls-royce.com:Rolls-Royce signs TotalCare services agreement with Malaysia Airlines
centreforaviation.com: airberlin, easyJet, Tiger Airways Australia and Virgin Blue lower profit expectations
Chart courtesy of Digital Look
Is Android a reason to invest in Google?
With sterling strengthening against the dollar and various industry reports re. Android v. Iphone (mercurynews.com: Apple and Google have turned smartphone market on its head), I find myself once again considering Google as an investment. The basic idea being to cover "arguably" both bases in the smartphone / tablet market as well as buying a "handy little search engine" and advertising company at the same time!
Google has recently reported its fourth quarter operating performance (investor.google.com: Google Announces Fourth Quarter and Fiscal Year 2010 Results...) which highlighted:
- fourth quarter revenues increasing to $8.44bn (up 26% year on year).
- an operating profit of $2.98bn (35% margins), for the final quarter
- net income of $2.54bn for the final quarter
- a net increase in cash of $3.4bn for the year as a whole resulting in
- a cash balance of $13.6bn as at 31 Dec 2010.
Big numbers which leads to the company being rated at a forecast P/E of 20.6 on this last year dropping to 17.7 and 15.3 for the following years.
This prices in an estimated 16% growth for the two subsequent years which isn't much when compared to historical numbers. But, having said that this last year was forecast (eventually) at 44% earnings growth which raises the question "how much of that growth was priced in at the beginning of the year and is the company still capable of huge suprises on the upside going forward?"
The question of growth is an important one at this stage as the company does not currently pay a dividend. This is why the cash pile continues to grow and theoretically at least, is because the company's management still have good reason to think that it can be better invested to the benefit of the company and its shareholders.
Well, that seems likely to come from its growing presence in the Tablet and Smartphone markets with its Android operating system.
But, the big question is how does Google make money on Android when it effectively supplies the operating system for free. Well, apparently, the company aims to increase the number of users of its systems and then makes its revenues from the apps being purchased as it appears that all App creators must be licensed with Google in order to supply them (pocketnow.com: How Does Google Make Money with Android?).
This contrasts with Apple who provide their own handsets in addition to the apps licensing etc. As a result Apple pulled in 43% of the global handset industry's profits, with only 4% of handset sales.
Can't just see how much Google pulls in from Android though, there is obviously some kind of exponential income linked to buying the phone, then buying the apps, using Chrome, Google search and Gmail, which then exposes you fully to the company's advertising processes from which it makes money!
Much like Apple there is a "lifestyle" being bought into with Google.
Again it is another company with pots of cash at the forefront of technology, leading change and influencing billions of people. I would suggest that it is impossible not to use a Google service in some form if you are an internet user (unless you are based in China), this blog service for example.
Lots to consider but the main thing is I am only indirectly looking to buy into "the lifestyle" through an investment as opposed to buying the products and the emotional attachment and loyalty that goes with it.
Google @ $611.04
Sterling : Dollar @ £1 : $1.6135
mercurynews.com: Apple and Google have turned smartphone market on its head
investor.google.com: Google Announces Fourth Quarter and Fiscal Year 2010 Results...
pocketnow.com: How Does Google Make Money with Android?
Google has recently reported its fourth quarter operating performance (investor.google.com: Google Announces Fourth Quarter and Fiscal Year 2010 Results...) which highlighted:
- fourth quarter revenues increasing to $8.44bn (up 26% year on year).
- an operating profit of $2.98bn (35% margins), for the final quarter
- net income of $2.54bn for the final quarter
- a net increase in cash of $3.4bn for the year as a whole resulting in
- a cash balance of $13.6bn as at 31 Dec 2010.
Big numbers which leads to the company being rated at a forecast P/E of 20.6 on this last year dropping to 17.7 and 15.3 for the following years.
This prices in an estimated 16% growth for the two subsequent years which isn't much when compared to historical numbers. But, having said that this last year was forecast (eventually) at 44% earnings growth which raises the question "how much of that growth was priced in at the beginning of the year and is the company still capable of huge suprises on the upside going forward?"
The question of growth is an important one at this stage as the company does not currently pay a dividend. This is why the cash pile continues to grow and theoretically at least, is because the company's management still have good reason to think that it can be better invested to the benefit of the company and its shareholders.
Well, that seems likely to come from its growing presence in the Tablet and Smartphone markets with its Android operating system.
But, the big question is how does Google make money on Android when it effectively supplies the operating system for free. Well, apparently, the company aims to increase the number of users of its systems and then makes its revenues from the apps being purchased as it appears that all App creators must be licensed with Google in order to supply them (pocketnow.com: How Does Google Make Money with Android?).
This contrasts with Apple who provide their own handsets in addition to the apps licensing etc. As a result Apple pulled in 43% of the global handset industry's profits, with only 4% of handset sales.
Can't just see how much Google pulls in from Android though, there is obviously some kind of exponential income linked to buying the phone, then buying the apps, using Chrome, Google search and Gmail, which then exposes you fully to the company's advertising processes from which it makes money!
Much like Apple there is a "lifestyle" being bought into with Google.
Again it is another company with pots of cash at the forefront of technology, leading change and influencing billions of people. I would suggest that it is impossible not to use a Google service in some form if you are an internet user (unless you are based in China), this blog service for example.
Lots to consider but the main thing is I am only indirectly looking to buy into "the lifestyle" through an investment as opposed to buying the products and the emotional attachment and loyalty that goes with it.
Google @ $611.04
Sterling : Dollar @ £1 : $1.6135
mercurynews.com: Apple and Google have turned smartphone market on its head
investor.google.com: Google Announces Fourth Quarter and Fiscal Year 2010 Results...
pocketnow.com: How Does Google Make Money with Android?
Tuesday, 1 February 2011
BP starts the day down on Final results (but finishes up!)
Well the market hasn't taken that too well has it. As expected BP resumed paying its dividend but apparently surprised the market with news that it plans to sell half of its US refining business.
Must be that news thats pushing the shares down and not Egypt's situation as BG is up.
Apparently, BP (and partners) produce more than 40% of Egypt's oil output and BG approx 35% of all gas.
Could still be an effect I guess, as the oil price is booming over concerns about transporting oil through the Suez, and the market for natural gas is depressed.
But, there is also the TNK-BP issues where their Russian partners have blocked the dividend but surely that just means that profits are being retained within the joint venture?
Anyway, not quite off the day I was looking for with BP's results but there must be good news in the results somewhere?
At 9:25am:
BP @ 477.3, -7.55 (-1.55%) ex dividend date is 9th Feb
BG Group @ 1415p, +15 (+1%)
But finishes up!
More questions that answers though. Some analysts questioning whether or not BP can return to being the dividend payer it has been following the divestment program. In addition, many were disappointed with the underlying performance and elsewhere, BP's Russian partners in TNK-BP have successfully raised an injunction in a London court that prevents the share swap until the 25th Feb.
BP @ 492p, +6.15 (+1.27%).
Must be that news thats pushing the shares down and not Egypt's situation as BG is up.
Apparently, BP (and partners) produce more than 40% of Egypt's oil output and BG approx 35% of all gas.
Could still be an effect I guess, as the oil price is booming over concerns about transporting oil through the Suez, and the market for natural gas is depressed.
But, there is also the TNK-BP issues where their Russian partners have blocked the dividend but surely that just means that profits are being retained within the joint venture?
Anyway, not quite off the day I was looking for with BP's results but there must be good news in the results somewhere?
At 9:25am:
BP @ 477.3, -7.55 (-1.55%) ex dividend date is 9th Feb
BG Group @ 1415p, +15 (+1%)
But finishes up!
More questions that answers though. Some analysts questioning whether or not BP can return to being the dividend payer it has been following the divestment program. In addition, many were disappointed with the underlying performance and elsewhere, BP's Russian partners in TNK-BP have successfully raised an injunction in a London court that prevents the share swap until the 25th Feb.
BP @ 492p, +6.15 (+1.27%).
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