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Kingfisher – Increased Transformation Activity – Profits Fall

Kingfisher plc KGF The jargon filled half year report claims that the six months to 31st July saw a significant increase in the level of transformation activity but it can not hide the fact that sales continued to fall and profits slumped. An increase of 2.5% in the interim dividend will not fool anybody. Sales appear reasonable with a rise of 4.5% until you look at them in constant currency terms which shows a fall of 1.3% Profit figures are given in a variety of guises, all of them bad. In constant currency terms they fell by 4.6%.  On an adjusted basis they were down 5.7% and  basic earnings per share followed suit with a fall of 4.4%  On a statutory basis pre tax profits fell by 5.9% and post tax profits by 8.1%. To add to the misery the company is cautious about what it calls the second half :”backdrop” in France and the UK.

Diageo DGE has issued a trading commentary ahead of its AGM asserting that it is expecting mid single digit top line growth for the current year, relying on the strength of its  marketing, innovation and commercial execution but it expects to be impacted by a late Chinese New Year and an expected motorway ban in India, hardly signs of unbridled confidence.

600 Group plc SIXH updates before todays AGM that its current machine tool order book is up by 60% and industrial lasers by 36%, on the same time last year, which augurs well for trading in the second half of the year.

Cello Group CLL Despite a slight fall in revenue Cello claims an encouraging first half, producing a statutory profit before  tax of £2.7m for the 6 months to the 30th June, compared to a loss of £0.8m last year whilst basic earnings per share came in at 2.16p compared to last years loss of 1.08p per share. The interim dividend is increased by 5%

Science in Sport  SIS experienced continued strong growth in the half year to the 30th June, with revenue rising by 28% and e commerce delivering 87% growth, followed by International with a rise of 55%. Whilst still producing operating losses, profitability at EBITDA level is expected for the full year.

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Sainsbury’s Lesson in Retailing

Sainsbury J. SBRY put in a strong performance during the quarter to the 1st July with retail like for like sales growing by 2.3% and grocery sales by an even larger 3%. Online grocery sales surged by 8%. In General merchandising and Clothing, Sainsbury outperformed the market and this was not a one quarter flash in the pan. Clothing sales rose by 7.2% which is enough to make most clothing retailers turn green with envy, especially as this is the third consecutive quarter in which Sainsbury has stormed ahead on clothing sales, the second half of the previous financial year having produced growth of 15.2%.

The secret to the strong overall performance is put down to three simple things, quality, choice and value. Most of the big retailers would claim the same. The difference with Sainsbury is that it is not just more tired old jargon, it is actually giving it to the customers.

Hunting plc HTG expects to remain loss making as a group during the first half but with positive EBITDA. Its Perforating Systems Business has produced results ahead of management expectations, having benefited from the increase in onshore drilling in the US. Elsewhere conditions in Europe and in US offshore drilling remain weak as a result of the continuing law oil price. Hopes for the future hinge at present on US onshore drilling.

Imagination Technologies IMG completed its restructuring in the year to the 30th April and ended up producing a strong set of results. Group revenue rose by 19% and the adjusted loss per share fell from 9.2p to 0.9p whilst on a reported basis the decline was from 29.8p to 10.1p The impact of the dispute with Apple continues.

Apple no doubt, sees no reason why it should seek a resolution. All it has to do is sit tight and wait for the dawn of the new era when it no longer needs the technology provided for  so long by Imagination Technologies. And if Apple is wrong on that, it won’t matter a jot by then. The damage will have been done and were Apple not a completely scrupulous and honest company, it would probably be able to pick up the bits and pieces and buy them for next to nothing. Meanwhile Imagination continues preliminary discussions with potential bidders for the whole Group.

600 Group plc SIXH now conducts over 60% of its activities in the US with only 12% of group sales being made to the EU in the year to the 1st April. Profits for the year rose by 79% and earnings per share by 50%. Current order books at the year end were 29% up in industrial lasers and 50% in machine tools compared to the same time last year.

Johnson Services Group JSG has traded very well during the half year to the 30th June and expects that results will be slightly ahead of management expectations.

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Weak New Car Sales Cast A Cloud

600 Group SIXH 60% of group activities are now in the US giving the company considerable protection against any damaging consequences from Brexit.  Only 13% of group sales go to Europe and the company is now concentrating on building up its presence in South East Asia.The year to 2nd April was not a good one with profit before tax nosediving from £3.68m. to £1.01m and earnings per share more than halving from from 2.66p to 1.26p. Machine tools is a challenging market and the company did well to show a 3% rise in revenue and it is contuing to implement structural changes.

Hays plc HAS claims an excellent financial performance for the year to 30th June, with like for like net fee growth of 7%, producing an 11% rise in profit before tax and a 14% rise in earnings per share. The final dividend is to be increased by 5%.  Both earnings and cash were ahead of market expectations, although on net fee growth the UK and Ireland lagged behind the rest of the world. The broad geographical spread of the company’s activities saw more than 22 countries producing growth in excess of 10%.

Safestore Hldgs SAFE saw its strong trading performance continue during quarter 3. to the  Like for like revenue to 31st July rose by 6.6% at constant exchange rates, the UK being particularly strong with a rise of 7.5%. Closing occupancy rates were up by 2.6% and again the UK put in a strong performance. The weakness of sterling helped results from the Paris operation. Pricing during the quarter was robust with the average rate up 0.6%. Tax adjusted earnings were ahead of current market expectations.

Vertu Motors VTU Expects that full year results will show robust trading with profitability ahead of last year and revenue and profitability both reaching record levels. There is however the odd cloud or two looming on the horizon in that new retail vehicle registrations have been weak since April and the company expects this to continue.New vehicle orders for September are reflecting the changed situation.

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Machine Tools And 600 Group – Rich Pickings

Machine tool orders are a prime indicator of the health of a country’s manufacturing sector and the machine tools  industry is an economic bellwether and one of the best and most reliable friend an investor could have. It will be the first to warn  of a manufacturing downturn and the first to indicate a coming upturn.

Capital expenditure on machine tools is hit as companies draw in their horns in expectation of a coming recession.  Similarly it is the first to rise as companies see signs of confidence beginning to return. Companies order machine tools when they expect to be manufacturing and selling a lot more goods.

2014 was a good year for the machine tool sector in the US. On the other hand 2015 was a disaster which has continued into 2016. In August 2015 US machine tool orders hit a 5 year low, dropping 10.2% on July and by  a whopping 21% on the previous August. By October it was even worse, with orders down 28% on October 2014. The causes were the strength of the dollar, the collapse in oil and commodity prices and slower growth in China.  For the UK and Europe replace the dollar with the pound and the Euro and the story is repeated. By the end of 2015 European orders were down 18.8% on the year.

600 Group (SIXH) is a UK engineering company whose main area of activity is machine tools. Its fortunes and share price have rigidly followed the cyclical pattern of statistics for machine tool orders. In a trading update issued today it  describes 2015 as a difficult year with the difficulties continuing into 2016 in both its European and US markets. Full year results are expected to be below current estimates which is very bad news, when one considers that those estimates were themselves made in the middle of a year of recession.

And this is where the company is the investors friend because its share price  faithfully, one could say almost rigidly, follows the pattern of machine tool orders. In 2011, for example the share price plummeted from 38p to less than 7.5p in August 2012.

In 2014, a stronger year for machine tool orders, it recovered to 23p but then went into decline again as orders collapsed in 2015. Last night it closed at 13p. and then responded to this mornings bad news with a 23% nosedive to 10p.

The same pattern has been repeated previously with a collapse in 2008 from a high of 57p. to a lowly 9.75p in early 2009.

So bull or bear, keep an eye on those machine tool order statistics, and rich pickings are there to be made.

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