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By Robert Sutherland Smith
As a “stale bull” of Ladbrokes ordinary shares I opened Ladbrokes’ (LAD) preliminary results for the year to December 31st with much interest and some apprehension.
I am glad to say that on balance, I found things encouraging. Ladbrokes is a long established and widely recognised high street brand name and has been in the bookmaking business for many a year. I do not myself frequent the bookie shops - except Foyle’s in Charing Cross Road - but I understand that the company has a steadfast body of brand-loyal customers writing out their slips. Indeed, the latest figures seem to provide a clear indication of that.
The first attraction of Ladbrokes at the moment is the share price chart. You will see that the shares have been on a long, steep downtrend which began in early 2012. That downtrend was broken last month; so we have in ‘technical’ terms a breakout. That in turn leads to a second attraction in the preliminary results for the year to 31st December 2014, published on Thursday: they were not as bad as a first glance would suggest in three respects.
First, tip line sales revenue was up nearly 4%. Second, the underlying adjusted figures, which are meant to correspond with those contained in market consensus forecasts, were better than the bald statutory version which included some significant exceptional items which are unlikely to be repeated. Whereas the published statutory results showed operating profits down 29% and basic earnings per share down nearly 40%, the reported estimated underlying figures (to make them properly comparable with the previous year) were down only 9.3% and 13.7% respectively - still down but not horrifyingly so.
Third, a little analysis reveals that the published annual figures hid the fact that the second half was dramatically better that the first half, and that the solid second half result was masked by the annual result. The reported fact is that operating profit was up 30% in H2 and 34% down in H1. That has to be encouraging.
The most important thing was the fact that the dividend was held at 8.9p (a sign of management confidence?) with the expectation that it will be held this year as well. Add the fact that the annual dividend yield works out at 7.47% and you clearly have, on that basis, an undervalued share. The shares I add go ex-div the final dividend on the 26 March.
The other encouraging thing about the results was the firm and in my opinion (read it for yourself) positive tone of the statement that included confirmation that all objectives had been met on time; an improving customer profile in H2; clear and established operating objectives in 2015; and the fact that exceptionals in 2014 were reported to have been a significant, at £72 million. I also took note that digital sales – previously a problem area – rose 22% and telephone betting increased by 57%. (Digital and telephone are about one fifth of total sales with digital revenue being approximately 21 times bigger than telephone sales.)
Moreover, the shares have underperformed the FTSE100 Index by a relative 28% over the last year and have lagged the share price of William Hill (WMH) by about 20%. If you are looking for a recovery stock with an exceptionally high dividend yield that is showing signs of life, then have a look at this one. Personally, I think it undervalued and attractive.
At the London close the Dow Jones had slipped by 20.26 points to 18,194.16 and the Nasdaq was down by 3.78 points at 4,458.49.
In London the FTSE 100 closed down by 3.07 points at 6,946.66 but the FTSE 250 rose by 24.02 to 17,273.82. The FTSE All-Share slipped by 0.30 points to 3,744.26 and the FTSE AIM Index closed up by 0.76 at 713.59.
The major UK banks all report results over the next two weeks. This guide takes an in-depth look at how to trade on and around results day - a period during which share price moves can be particularly attractive.
It also looks at the highest and lowest price targets for each of the banks over the last 2 months, their 5 year historical performance and how their US counterparts fared in January. If you are looking to trade or invest in UK Banks, this guide is a must.
We operate on an execution only basis and this should not be taken as advice. If in doubt, please seek independent financial advice.
Shares in RBS (RBS) were knocked back by 19.4p to 367.2p after JPMorgan Cazenove cut its price target on the stock from 400p to 385p. The broker, which retained a “neutral” rating on the shares, said upside was limited with the stock trading in line with its tangible net asset value (TNAV). “Overall, we believe that management have chosen a strategy that provides a clear path to returning cash to shareholders over time,” argued the broker, albeit adding that “this is discounted at current levels (1x price/TNAV) with litigation risk.” The investment bank added that the restructuring will transform RBS into a significantly smaller bank but with higher return on equity and cash returns.
Westhouse maintained its “add” rating on Premier Oil (PMO) following yesterday’s 2014 results and raised its target price to 200p (from 171p) to reflect a more resilient pricing environment in Indonesia and a better medium-term production outlook in Indonesia and Vietnam. “While operating efficiency has improved and Premier Oil is now exceeding production guidance, some UK North Sea assets are proving to be a challenge and we believe that further upside is contingent on a successful exploration campaign in the Falklands in coming months,” commented Westhouse. Premier Oil shares finished up by 1.2p at 168.5p.
Penguin owner Pearson (PSON) said its two-year restructuring programme is starting to bear fruit, as it announced an 8% rise in adjusted operating profit to 720 million pounds for 2014, on revenues up by 2% at 4.9 billion pounds. The 171-year-old company, which also owns the Financial Times, said it expects a return to earnings growth in 2015, for which it reiterated its earnings guidance of 75-80p per share. “As I said when we started this process two years ago,” commented CEO John Fallon, “we would emerge a faster growing, more cash generative and leaner company, and I feel more confident of that than ever.” Pearson shares rose by 24p to 1,420p.
Lloyds Banking Group (LLOY) hailed a return to the dividend list for the first time since the financial crisis in 2008, it revealing a payment of 0.75p per share for 2014. The announcement came alongside the firm’s 2014 results, which saw the bank record statutory profits of 1.8 billion pounds, with underlying profits even better at 7.8 billion pounds. Lloyds is now 23.9% state-owned after the government sold another parcel of shares in the bank earlier this week, raising 500 million pounds. The return to the dividend list opens up Lloyds to a potential wave of new investment from institutions where the payment of a dividend is a key prerequisite for investment. Shares in Lloyds finished up by 0.5p at 79p.
Shares in International Consolidated Airlines (IAG) gained 20.5p to 580p after the British Airways owner raised its 2015 profit forecast by more than 20% to 2.2 billion euros, mostly on the back of good cost control and a better performance at its Iberia subsidiary. This came alongside 2014 results, which showed operating profit up 81% at 1.39 billion euros and revenue up 8% at 20.17 billion euros. Already the biggest European airline by market capitalisation, IAG is looking for further growth through the potential acquisition of Aer Lingus, but its 1.36 billion euro approach is yet to get the backing from the Irish government.
Anglo-South African insurer Old Mutual (OML) said adjusted operating pre-tax profit for 2014 rose by 16% to 1.6 billion pounds on a constant currency basis, against a forecast of 1.56 billion pounds in a poll provided by the company. Net client cash flow came in at 4.9 billion pounds, with funds under management rising by 6% to 319 billion pounds. The firm, which went on something of a hiring and spending spree last year, said it is now keen to focus on extracting value from its existing businesses. Shares in Old Mutual finished up by 1.9p at 225.1p.
Bookmaker William Hill (WMH) saw pre-tax profits slip by 9% to 233.9 million pounds in 2014, despite revenues growing by 8%. The bookmaker was hit by significant exceptional costs relating to store closures and brand amortisation but enjoyed a record breaking World Cup and saw online gaming revenues rising by 17%. HIlls has increased the dividend for the year by 5% to 12.2p per share. However, the firm flagged that a significant loss making week in the current year leaves it behind internal expectations for the the first quarter of 2015. The shares fell by 12.8p to 377.7p.
Rightmove (RMW), the online property portal, grew underlying earnings by 24% after seeing revenues grow by 19% to 167 million pounds in the year to December. Driving the numbers were a 10% rise in traffic growth to 15.4 billion pages, leads up by 19% to 42.8 million and average revenue per advertiser rising by 13% to 684 pounds per month. Rightmove further pleased investors with a 25% increase in the dividend to 35p per share. Trading has continued to be strong in the current year with a record 100 million visits and 1.5 billion pages of property viewed in January. Rightmove shares surged by 357p to 3,029p.
Final results from The Restaurant Group (RTN) showed pre-tax profits up by 7% at 78.1 million pounds in the 52 weeks to 28th December, boosted by 40 new sites being opened during the year. The owner of Frankie & Benny’s and Chiquito saw revenues rise above 600 million pounds for the first time in the year and increased its portfolio to over 470 sites. Restaurant Group added that it has seen a strong start to the new financial year, with total sales up by 9.5% and like-for-like sales up 2.5% for the eight weeks to 22nd February. The full year dividend will be increased by 10% 15.4p per share. Restaurant Group shares moved up by 9.5p to 738.5p.
Fruit business Fyffes (FFY) saw its shares stay flat at 87.5p despite announcing its sixth consecutive year of earnings growth. Earnings grew by 26.6% in 2014 on the back of EBIT rising by 28.1% to €40.1 million, with the full year dividend up by 10%. Revenues benefitted in the year from organic volume growth in the pineapple and melon categories, offset by price deflation in bananas and pineapples. The firm’s target EBIT for 2015 is in the range of €36-€42 million, with it pursuing necessary increases in selling prices in response to the significant strengthening of the US dollar against the euro and sterling.
In a brief statement the residential and urban regeneration specialist Sigma Capital (SGM) announced that the first tenants are moving into the first completed new homes under its Private Rented Sector joint venture with Gatehouse Bank. The initial units are part of a 100 million pound development of 927 new homes, with additional developments expected to create one of the first large scale PRS platforms in the UK. Sigma shares were flat at 61p.
Everyman Media Group (EMAN), the cinema operator, announced the opening of a new venue, Everyman Mailbox in Birmingham. The luxury cinema is a three screen 12,000 sq ft venue and the group’s first in the Midlands. Everyman now operates 11 cinemas across London, the South East and Leeds and has confirmed new openings in Canary Wharf, Bristol, Harrogate and Cirencester. The shares remained flat at 83.5p.
Agricultural bioscience company Plant Impact (PIM) has raised 6.2 million pounds in a placing at 41.5p per share - a slight premium to yesterday’s closing price. The money will be used to invest in the development of new products and technologies to improve the yield and resilience of soy and wheat production. The firm added that it is trading in line with market expectations for its current financial year ending in July 2015. Plant Impact shares rose by 0.375p to 41.5p.
Evil discusses Ithaca Energy, Afren and Quindell…
My correspondent in the matter of Ithaca (IAE) opines:
”- Ithaca’s $300m 2019 note was given a Caa1 rating by Moody’s in December (i.e. very high credit risk), and this used a base case of an initial production date for Ithaca’s Greater Stella Area in Q3 2015, which is now delayed until Q2 2016 . Quote: “The successful start up is critical to Ithaca’s ability to ramp up production, reduce unit costs and provide cash flow to reduce debt and fund further development.”
- Ithaca’s Reserve Based Loan matures in June 2017, with $476 million drawn as of Sep 2014. The amount made available here is due to be reviewed in April 2015, and under the current agreement it is supposed to start being paid down at the end of 2015.
- the RBL has certain covenants, which, if any of them are breached, may result in accelerated repayment.
*A corporate cashflow projection showing total sources of funds must exceed total forecast uses of funds for the following 12 months.
*The ratio of the net present value of cashflows secured under the RBL for the economic life of the fields to the amount drawn under the facility must not fall below 1.15:1
*The ratio of the net present value of cashflows secured under the RBL for the life of the debt facility to the amount drawn under the facility must not fall below 1.05:1.
- the undrawn $100 million Corporate Facility, if they need to use it, has strict earnings-related covenants (you’ll find them in the financial statements).
- A P/E is being talked about on the message boards but it is obviously irrelevant. Net financial debt is currently c. $830m (i.e. £540m), so the enterprise value is now £690 million (based on the current share price of 46p). The balance sheet also includes decommissioning liabilities of $220 million.
Ithaca is dependent on the review of the RBL in April and may require an extension of the associated prepayment schedule and/or the relaxation of various debt covenants. Moody’s are likely to review the credit rating for the 2019 notes, which currently yield 14% and were on negative outlook prior to the GSA delay.
Ithaca has a successful hedging programme of 6.3k barrels/day at $102 through to mid-2016, but is exposed to critical factors which are now beyond its control. Even in the best case scenario, the GSA delay means that financial debt will remain elevated for an extended period of time. On that basis, shorting the equity remains attractive.”
Elsewhere on the oils pitch, I presumed that Afren (AFR), 9p, would have been suspended by now in the light of no news on its refinancing. However, 4.30 p.m. awaits and what seems inevitable may yet come to pass.
Finally, Quindell (QPP) continues to muddle me. There is still no bid from Slater and Gordon for part of the business or the whole shebang. I do not know how to play it.
Although in theory it makes no difference to a technical analyst whether they call a stock or market long or short – the method is fine for both directions - I have to confess I am usually biased to the upside. This doesn’t necessarily mean that I always look on the bright side of a situation, but rather that when I am picking out what are hopefully the better opportunities in the market, they will be those which will hopefully rise.
This is of course a relatively easy philosophy to go with in the wake of the latest new record high for the FTSE 100. However, the bullish perspective is also one which is mindful of the position of most private investors, who are long in their portfolios and via pension funds. The temptation to shock or scare them with horrific downside targets is one which is resisted, only if this truly looks to be the case. In fact, in this article we are following up on a recent piece where I highlighted the short positions of hedge funds as opposed to bloggers/those attempting to drum up traffic/views.
Having said all that, today’s selection of stocks of possible technical bear situations do appear to be highly bearish from a chart pattern perspective. First up is Nanoco (NANO) where post January we have the infamous “Angry Cat” double top pattern which worked its magic last year by more than halving the share price of Quindell (QPP) – a company which is still high on the list of the most shorted stocks by hedge funds. So far it has not done the same for Nanoco in such spectacular fashion. But it should be noted that at least while there is no weekly close back above the 200 day moving average at 110p we are in a very negative setup. A retest of the sub 90p January support looks to be the minimum on offer, even if the stock manages to rehabilitate itself after that.
With shares of Tungsten Corporation (TUNG) it can be seen how in theory one could have given the benefit of the doubt to the recovery argument as recently as the beginning of this week. However, the brutal break of the initial February support around 200p has unleashed the power of the post May head & shoulders pattern, one that promised a measured move to the downside of as much as 150p from the neckline zone of 250p. This gives us a target area of as low as 100p while there is no break back above 200p. I would venture to suggest that most observers of this situation would not be expecting a rebound back above 200p any time soon.
What is perhaps most interesting about the exercise of following the hedge funds’ shorting activity is the way that while one may mostly agree or at least see where they are coming from on a technical or fundamental basis, now and again the logic is not so apparent. In the case of GW Pharma (GWP) it can be seen that it is still possible to draw a rising trend channel on the daily chart from April last year. The floor of the channel currently runs level with the 50 day moving average at 406p. From a technical perspective it can be said that only a break of the 50 day line/2014 support line would be a clear trend break/shorting opportunity on a momentum basis. Indeed, above the 50 day line the notional 2014 resistance line projection is as high as 700p.
By Dave Evans of Binary.com
This week there have been numerous newspaper headlines riffing on a similar theme – “Stock markets party like its 1999”. If only Prince received royalties for such headlines!
FTSE 100 Monthly Chart
After the bursting of the tech bubble, the financial crisis and the Euro troubles, the FTSE 100 finally surpassed the closing highs it set on the eve of the Millennium. As important as this milestone is, it should be put into context as the German Dax has long since said goodbye to its 2000 and 2007 highs, while the broad S&P 500 seems to have been making new record highs virtually every month since 2013.
Nasdaq 100 Monthly Chart
Perhaps the greatest milestone is the Nasdaq 100 currently trading at its highest ever monthly close (though still a little way off its all time high). The Nasdaq was home to the frothiest of technology companies, with college graduates receiving eye watering sums of money to do wonders with ‘this internet thing’. That this bastion of technology hyperbole is back at the highs surely speaks the most about current highs.
So should we be worried that we’re heading for disaster, just like we were the last time the Nasdaq and Co. were at these levels? Sadly there are some signals that the party has got a little out of hand.
While most people were ready to pop the Champaign corks, Harvard professor Robert Shiller quietly reminded everyone that markets are running hot with a tweet about the latest valuation levels from his Cyclically Adjusted Price Earnings ratio.
Shiller’s CAPE or PE/10 now stands at 27.85 using the most up to date data, which is the highest since 2002 when the S&P 500 was still trying to shake off the worst excesses of the tech bubble. In terms of eras, it’s the third highest valuation phase behind the tech bubble and 1929 great depression.
Are the current state of affairs the new normal?
There are some criticisms of the Shiller CAPE method in that it doesn’t take into account recent accounting changes, but this isn’t the only valuation that’s flashing red right now.
Market statistics website AdvisorPrespectives.com keeps track of not one, but four such valuation metrics including the CAPE, the Crestmont Research P/E ratio, the Q Ratio (market price divided by replacement cost) and the S&P 500 compared to its regression trendline.
Each of these metrics is distinct, yet all four are at elevated levels.
Dshort.com valuation metrics
The chart is essentially saying that current market valuations are currently 77% above their averages, or around two standard deviations higher than typical levels.
There are of course many things that we could be worried about besides how expensive stock markets are – the escalating tensions with Russia at the very least. Yet there is a current train of thought that we are in uncharted territory – and this much is true. Never before have central banks supported liquidity in this way and never have interest rates been so low for so long.
There is also the fact that an expensive valuation is not a clear cut sell signal. Indeed, markets can remain overbought and still keep going up for a good while, just like the UK housing market did in the run up to the 2008 crash.
While the momentum remains bullish, it could pay to not fight the trend, but when this trend turns – run. Don’t walk.
A good way to play this situation is to play on a short sharp rise rather than sustained growth. A ONE TOUCH trade predicting that the S&P 500 will TOUCH 2,250 within the 90 days could return 195% if successful. Or put another way, betting that the S&P 500 will touch 2,250 before May 27th could return £29.49 from every £10.00 put at risk.
Disclaimer: This financial market report is intended for educational and information purposes only. It should not be construed as investment or financial advice and you should not rely on any of its content to make or refrain from making any investment decisions. Binary.com accepts no liability whatsoever for any losses incurred by users in their trading. Fixed odds trading may incur losses as well as gains.