UK based marketing services group Communisis (CMS.L) helps in the communication process between brands and their customers by creating and delivering content across multiple customer touch-points in digital, broadcast and print channels. It operates in three segments: Design, Produce and Deploy. The Design segment offers marketing expertise, communications consultancy and creative services specializing in customer relationship marketing, shopper marketing, brand activation and financial services content. The Produce segment includes its outbound transactional services for billing and statements for financial services and utilities. The Produce segment includes its capabilities, such as document composition, workflow management, and digital output, such as e-mail. The Deploy segment offers brand deployment support with service lines, such as campaign management, studio services, supplier sourcing, governance, in-store activation, and warehousing and logistics.
On March 9th 2017, CMS reported a solid set of results for the year ending 31st Dec 2016. Adjusted profit before tax rose 15% to £16.7m on revenues 2% higher at £361.9m. Adjusted earnings per share rose 17% to 6.07p, and with net debt down £9m to £30m (2015 £39m), CMS raised the full year dividend by 10% to 2.42p. CEO Andy Blundell said CMS had succeeded in strengthening its position as the leader in UK transactional communications and further extended its Brand Deployment services in overseas territories. “These twin themes will continue to underpin our growth strategy going forward.”
The solid growth in earnings, profitability and cash generation flagged across a number of VectorVest metrics back in August 2016. Today, CMS continues to score top marks, with the VST-Vector (the master indicator for ranking every stock in the VectorVest database) recording a rating of 1.30 for CMS.L, which is very good on a scale of 0.00 to 2.00. VST is computed from the square root of a weighted sum of the squares of Relative Value, Relative Safety, and Relative Timing. In addition, for longer term investors, the YSG-Vector, (an indicator which combines Dividend Safety, Dividend Yield and Dividend Growth into a single value), records a rating of 1.22 for CMS, which is good. Stocks with the highest YSG values have the best combinations of Dividend Yield, Safety and Growth. These are the stocks to buy for above average current income and long-term growth. It is worth noting that the Relative Safety of CMS.L is low and thus the opportunity should only be considered by those well versed in position sizing and proactive risk management.
The chart of CMS.L is shown above with the price charted in weekly candlestick format. The share is undervalued as calculated by VectorVest and the valuation is plotted as the green line study above the price. The down trend in the share as defined by the falling trendline shown above was broken at the start of 2017. From a technical perpective the trendline was broken and then the share succesfully tested the trendline in a process that technically orientated traders call “resistance beconing support”. The share has been on a Buy recommendation by VectorVest since the middle of December 2016.
Summary: The raft of positive news in the full year results effectively echoed the CEO’s statement in the interims last August, when at 36p the stock first came to the attention of VectorVest scanners. CMS has nearly doubled in value since that time, but with the ongoing pace of debt reduction and the prospect of continuing dividend growth, VectorVest fully expects CMS to continue delivering. The share is in the throes of a strong upward trend and looks highly likely to continue its move towards the high of 2014 which is similar to the present VectorVest valuation of 71.5p.
March 29th 2017
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