Friday Reading
Eyes Forward
Rather unsurprisingly, my Twitter newsfeed today has been filled with stories of a rather unusual variety - far from the serene UK value bliss (I hope I'm painting a pretty picture!), Facebook's IPO and the surrounding media commentary has grabbed much of the attention. I look on with mild interest and a sense that it's a sign of our times - I remember one tweet earlier in the week (sorry, I forgot who) wondering whether price to book value really has any relevance any more, given how much of what makes a successful company - especially an internet one - is weird intangibles that are essentially impossible to value. It's pretty easy to get into the cyclical argument of saying 'Facebook's intangibles can be calculated by doing a DCF on their cash generation' - fair enough, but working out the value of the future cashflows of a business is exactly the role of the markets, and not accountants. There's a reason markets do it - they do it best.
I should say that my opinion is probably to be expected given all I blog about - I think there's serious question marks over its ability to generate substantial amounts of cash for investors, and operating in what is almost certainly the fastest moving sector the world has ever seen, it's somewhat unsurprising Facebook has to make expensive acquisitions to stay on its game. I don't think it can possibly generate enough of a return to justify a $100bn price tag.
On more UK based news, I was rather surprised to see French Connection issuing a pretty negative trading update yesterday. Like-for-like was down 12%, with no real positives in sight barring their still strong balance sheet. Entertainingly for my recent dip into trend forecasting, the results for the LFL period this year to last year match up pretty nicely. Maybe it does have some value! Either way, Mark Carter provided some commentary on the strikingly mixed looking value characteristics of the share, and Richard's 2 minute summary provides a good basis for anyone interested in the share. Since the trading update was accompanied with something like a 30% drop in price, it always strikes me as rather shortsighted that investors are so turned off by stocks having recently issued some bad news. I suspect the underlying story is the same as before, just the specifics are slightly more questionable.
Continue readingBritish Polythene / Dairy Crest / Marston’s
The three big question marks
They say that the best investment cases are simple ones, and I suspect there's probably a good reason the three companies I've listed above keep popping up in both my screening and my reflections. I still have no desire to move anything around in the portfolio, especially given the prohibitive trading cost in the small caps among them, but it seems prudent to keep track of a few stocks I like in case I want to sell and move around while staying fulling invested in stocks.
British Polythene
I discussed British Polythene in more detail here, and I note that the price is more or less flat (down ~3%) in that time. Along with the price movements, we haven't really had any major news - though there was an IMS released which more or less exactly chimes with my overall pros and cons of the business. The business appears to be a reasonably stable and consistent performer, with growth prospects in a number of different markets (its products have several different applications) and locations - it still does the vast majority of its business in the UK. If results come in as the board have indicated they would do - 'broadly equivalent to 2011' - the group will have maintained net profit of around £15m. This is a strong figure for a group with a low level of debt and puts it on a P/E of around 6, given the market cap of £88m. The dividend of just shy of 4% is still substantially lower than pre-crisis, even though the company's position looks stronger now - but they may have reason to be more cautious given the current uncertainty. The two major blemishes, it seems to me, are the remaining question marks over input costs through the business (and therefore margins) and a rather ugly pension scheme with several assumptions that raise my (admittedly novice!) eyebrows.
Continue readingBarratt Developments (BDEV)
A tug-of-war
It's been a few months since I posted on Barratt, still by a considerable margin the largest holding of my portfolio, and you probably won't be surprised to hear that the time I've been holding has been a rather volatile one. After having initially bought around 110p, the price promptly dropped to 85p - where I bought some more, because I still liked the business - only to see the bottom continue dropping out and Barratt to hit a low of under 70p in the middle of August last year. Since that, they rose to peak at 150p in March '12 - a profit of over 100% for the hypothetical genius market timer and have now drifted back down with the general market malaise.
I called this post a 'tug-of-war' because that's what it feels like; we have two competing factors, pulling in different directions, affecting Barratt's share price. Both are fairly obvious! The first is Barratt's operating performance; something which has actually been holding up rather well. Since my first post in July 2011, Barratt have reported continually improving margins, sales and reservations (an important indicator of future sales). Against that, though, you have exactly the sort of wider macro factors which housebuilders are so suspectible to - they are, I guess, the definition of a 'high beta' stock. Their performance is viewed to be so intrinsically tied in to the tribulations of the banking system and the macroeonomy that whiffs of panic quickly erase any stock-specific good news.
That specific news I'm referring to is Barratt's trading update last week, which was really rather good in the whole:
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- Strong spring selling season with average weekly net private reservations up 25.3% against the prior year, driven by higher sales rates per site and increased site numbers
- Private average selling price (“ASP”) on completions during the period up by c. 5% against the prior year to c. £202,000 reflecting continuing positive changes in mix
- Overall underlying prices continued to be stable, with greater robustness in London and the South East
- Value of private forward sales up 16.1% to £827.9m (2011: £713.2m)
- We expect to agree terms on c. 10,000 plots of higher margin land in the full financial year
- Reducing overall Group indebtedness remains a key objective, with net debt as at 30 June 2012 now expected to be £75m below previous guidance at around £275m (30 June 2011: £322.6m)
N Brown / Supergroup / French Connection
Google trends for fashion trends
I like data! It's nice to have things to look at and analyse, which is probably why I'm so interested in investing. I like weighing things up, seeing how x and y variable performs, and trying to find ways of using data that other people haven't thought of. I remember a colleague a while ago showing me Google Trends - something which struck me as interesting, but nothing I'd found a use for. Now I find myself pondering the intricacies of the fashion world and wondering how I can possibly decide what was going up and down - Google Trends may just have found a curious application.
What does it do? Well, it basically just tots up how much interest Google is getting for a particular search term. That may not sound like much, but given that Google is the first port of call for the vast majority of the internet - and, I suspect, much of the online shopping - the amount of searches something gets in Google may perhaps be correlated to just how hot a particular company is at the moment. I say may, because I'll be the first to throw my hands up and say I'm wildly speculating in the realm of data fantasy! Hopefully, though, you'll at least find some of the results it throws out thought-provoking.
Superdry - Supergroup (SGP)
A true rising star - Superdry, Supergroup's flagship brand, has seen rapid growth in the last 5 years, something which we already know from having looked at their income statements last post. The questions of whether that momentum is slowing down or not are rather pertinent, and judging from the first 4 months of this year the answer would probably be yes. The data is pretty volatile, though, and in all three of the graphs I'm presenting today I'm only looking at the UK - so Superdry's international growth is another story. On that front, GT tells us Superdry gets a lot of interest from Belgium, Ireland, Denmark and the Netherlands. Also note the extreme Christmas spikes - something that probably goes hand in hand with a brand aimed at young people. The poor relatives get stuck with the brand price tag!
Supergroup (SGP)
A different angle
You may be forgiven for thinking you're visiting Grazia instead of Expecting Value with the recent spate of fashion, but if you're looking for handbags and casual style you're out of luck - the recent tilt towards the sector is more coincidence than intent from me. I have no particular love for the up and coming brands and the ins and outs of the cloth world (just ask anyone who knows me!) - but potential investments are always interesting. Of course, calling it coincidence is a little generous. It's no coincidence that more than a few of the stocks in the sector are on the wrong end of the investor confidence barometer, as you hardly need me to tell you it's not plain sailing for businesses in the realm of discretionary spending.
Supergroup produce clothes for mainly the 15-25 age bracket, with expanding international operations (including franchising), a revenue/profit profile that looks rather out of place on a website discussing value stocks and, bizarrely, no debt. I say bizarrely because it would seem the most likely explanatory factor for the stock trading so.. cheaply relative to both last years earnings and the apparent growth potential. In this post, though, I'll take a slightly different approach to my usual analysis and peruse the saga of Supergroup stock - as it has had a rather bumpy few years - because of the interesting questions it raises for investors to take into future decisions.
As the graph suggests the group is relatively young - they had a few years prior to their March 2010 flotation, which saw a similar pattern to those after; rapid growth, both in profit and revenues, and rapid expansion. Indeed, they've grown sales between 64 and 87 percent for each of the periods they've published on - an impressive record. As you'll probably have guessed, then, they weren't always trading at the multiple they are now - that's more a reflection of recent bad news. Consider the graph of their share price below, with some key events highlighted.
Continue reading
Friday Reading
A wealth of information
3 different sources this week, which in a (completely tangential!) way drive home just how difficult it is to take anything that happened in the past and extrapolate into the future. That may seem a strange conclusion to draw simply from the fact that I have three different sources - a blog, an online newspaper and an ebook - but when you think about the lightspeed rise of those forms of communication, and compare to what was available say, 15 years ago, it seems a pretty startling difference. The consumption of information has (and is) changing dramatically. I wonder what effect that will have on the market - whose role, essentially, is to be an information aggregator.
Anyway, in an article which read rather like a rallying call for value investors, I loved a piece in Money Observer entitled 'How to invest in equities and stay sane'. I suppose the thread running through it is the core of value investing revealed - don't be taken for a ride, have faith in judgements if they're based on sound principles, and be critical and analyse evenhandedly all information. I liked the ending, which asked:
Can high streets and malls survive in anything like their current form? Do professional services have to be carried out in high wage countries? Do we have to travel to work? It does not take any specialised technological knowledge to play this game: the inventions which set these changes in motion were made years ago.
When you put it like that, I wonder too. These are the sort of things which, if they happen, will in 20 years leave us scratching our heads and saying 'it was so obvious!'. I guess they're obvious in foresight to be better options, too; outsourcing, working from home, buying on the internet - but they're still around. Habits seem, to me, to be very entrenched beasts.
Continue readingExpecting Value
Disclaimer
Twitter Updates
- Friday Reading - http://t.co/hDemtajT - on French Connection, banks and some other thing that sold some shares today1 day ago
- FCCN's warning reports UK/Europe sales down 10% - well, that's one noisy data point for the Google Trends bandwagon.. http://t.co/1kRZzmrr3 days ago
- Marston's with a strong interim report - http://t.co/l196BY1s - and trends seem positive too. Tempting!3 days ago
- British Polythene/Dairy Crest/Marston's - http://t.co/InL41zgP - The three that are lingering in my mind; stability, low P/E, good dividends3 days ago
- Decent trading update from confectioner & snacks group Zetar - http://t.co/a6jCXIXw - positive platform for growth5 days ago
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