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Alan Green talks Royal Mail Group #RMG, Destiny Pharma #DEST & ECR Minerals #ECR on the UK Investor Magazine podcast
Alan Green joins the Podcast with Jonathan Roy for the weekly instalment of UK equities and market themes.
With the FTSE 100 remaining stubbornly within a tight range, we look back at the appreciation we’ve seen in cyclical shares and whether investors should expect a greater proportion of their returns to be achieved from income in the form of dividends in the future.
Financials, tobacco and some commodity shares are now yielding significantly above 5% and present an attractive allocation possibility for investors.
Having secured promotion to the FTSE 100 we look at Royal Mail and the drivers behind the tremendous run in shares from below 150p to 600p. This was largely down to success inn parcel growth that could waver as the economy reopens so we question their growth strategy going forward.
We discuss Royal Mail (LON:RMG), ECR Minerals (LON:ECR) and Destiny Pharma (LON:DEST).
Dominos Pizza Grp DOM saw fourth quarter sales for the 13 weeks to the 30th December produce a strong performance in the UK but with some weakness internationally. Group organic system sales rose by 5.8% compared to 1.6% for international system sales. UK system sales rose by 6% and the company enjoyed its busiest week ever in the run-up to Christmas. For the statistically minded the Friday before Christmas broke all records with more than 535,000 pizzas sold, – equal to 12 every second. The UK delivered food market is described as vibrant is expected to grow at a compound rate of 8% a year to 2022.
Anglo American plc The value of rough diamond sales for De Beers’ first sales cycle of 2019 fell from $672m in the first cycle of 2018 to $505 million, due to higher than normal sales in the previous cycle (cycle 10 2018).
Crest Nicolson Hdgs CRST has faced some challenges in London and with sales at higher price points due to political and economic uncertainty which has adversely impacted customer demand. The impact is likely to continue pending Brexit resolution. Well that’s good at least it shows there is nothing wrong with management. its all due to external causes beyond their control.There is just one little problem in that pre tax profits fell by 15% to £176.4m. From memory I can not remember quite how that compares to the other housebuilders but perhap[s they were not quite as exposed to political and economc uncertainty or the impact of Brexit. It has however revented them from hiking the dividend which is being maintained at 33%. Forward sales were however up by 11% as at mid January.
Royal Mail Group RMG in the 9 months to the 23rd December the parcels business continued to perform well, with volumes and revenue both up 6% and GLS delivered another good performance with revenue up 13%. Total letter revenue fell 6% but overall group revenue rose by 2%. The outlook and other guidance for 2018-19 remain unchanged
PZ Cussons plc PZC On a like for like basis the figures for the half year to the 30th November were not all that brilliant. Cconditions in Nigeria remained extremely challenging and continued to have a significant negative impact on the overall Group performance.On a statutory basis revenue was down 10.4% and profit before tax by 20%. The interim dividend remains at 2.67p per share.
Royal Mail plc RMG finds plenty to highlight in its interim results for the half year to the 23rd September. A rise of 1% in revenue is one of the best. Apart from that, underlying adjusted profit before tax was down 27 per cent and· adjusted basic earnings per share fell by about a third from 20.1% to 13.6 pence. As if that was not bad enough the reasons for this dismal performance, were even worse. Poor productivity performance, lower cost avoidance in the UK and higher than expected cost pressures in GLS, where admittedly there was a ray of sunshine with a 9% rise in revenue. The most amazing thing about this report apart from the surpising rise of 4% in the interim dividend, is that not a single member of senior management or the board had the courage to come out and make a single comment about the results. From the CEO to the Chairman and all the other senior executives, they all appear to have been simultaneously struck dumb.
Bovis Homes Group BVS on the other hand displays no such reticence as the CEO proclaims that the transformation of its customer service and build quality has resulted in a significant improvement in its financial performance since the 1st July. Bovis is fully sold for this year and expects full year profits will be at record levels. As with all housebuilders it has to make obeyance to the government for its generosity to the industry in agreeing to extend its completely unjustifiable Help to Buy Scheme for yet another two years until March 2023.
Young & Cos Brewery YNGA produced another strong performance for the half year to the 1st October, with profit before tax up by 19.5% and basic earnings by share by 19.4%. The interim dividend is to be increased by 6% making it the 22nd consecutive year-on-year interim dividend increase. Summer results were exceptional – average like-for-like sales growth of 5.6% over the past seven years, with this half year producing a revenue rise of 8.8%, helped by the hottest summer on record. Drink sales enjoyed a particularly strong summer with double digit growth of just over 7.4% on a like-for-like basis. Accommodation sales rose by over 18% and EBITDA by 4.7% to record levels. The strong trading has continued in the first six weeks of the second half.
Dart Group DTG Group operating profit for the half year to the 30th September surged by 68% after a 36% revenue rise. Basic earnings per share rose by 56% and the interim dividend is to be increased by 87%. Bouyant demand led to a particularly strong season for the Leisure Travel business although increased losses are to be expected in the second half of the year as further investment is made in additional aircraft and marketing.
Royal Mail RMG Letter revenue in the 3 months to the 24th June fell 7% but GLS continued to perform strongly, with volumes up 10% and revenue up 11%. The Quality of Service performance has been so bad and has impacted the company to such an extent that on the 1st June Ofcom commenced an investigation into it for the 2017-18 financial year. The outlook for addressed letter volume is not good and the expected decline of between 4-6% per annum may be exceeded and in GLS margins may be impacted by continuing labour market pressures. One brighter area was parcels where revenue rose 6% and volume 7%.
Talk Talk Communication Group TALK delivered strong customer and Headline revenue growth in the first quarter to the 30th June as momentum continued. Performance and demand in the various divisions is described as being strong or solid. Taking into account the ongoing cost reduction programme,this is expected to produce annual EBITDA growth of 15%.
Dairy Crest Group DCG updates that sales of its four key brands in the 3 months to the 30th June were 6% higher than last year. The two largest brands, Cathedral City and Clover, continued to outperform with revenue growth of 10%. This was true generally for spreads which continued to go from strength to strength, whilst the butter market remains challenging. The full year outlook remains unchanged.
Galliford Try GFRD expects to report strong pre-exceptional results, after a strong underlying performance for the year to the 30th June. At Linden Homes the average private sales price, rose 4% to £367,000.and a further significant improvement in margins is expected. A total of 3,442 units were completed, up from 2017’s 3,296 units.
Clinigen Group CLIN has performed strongly in the year to the 30th June, with reported revenue rising by 26%. Commercial medicines had an excellent year. It is anticipated that results will be in line with market expectations and that in the coming year there will be further growth across all parts of the business.
Countryside Properties CSP The half year to the 31st March saw excellent progress and robust trading in all regions. After strong growth the interim dividend is to be increased by 24% with reported revenue rising by 14%, operating profit by 19% and basic earnings per share by 23%.
National Grid plc NG produced a strong operational and financial performance for the year to the 31st March On a statutory basis profit before tax rose by 24% and earnings per share by 116%. On an underlying basis the figures were 4% and 3% respectively. Medium term growth is expected to beat the top end of the 5-7% range.
Royal Mail plc RMG With parcel volume the best in four years and a resilient letter performance, the year to the 25th May was another successful one for Royal Mail, despite a challenging environment., Revenue rose by 2% and profit before tax edged up from £559m. to £565m. whilst basic earnings per share rose from 41.1p to 45.5p. The dividend for the full year is to be increased by 4%.
Experian EXPN put in a strong finish to the year with fourth quarter total revenue growth of 12% or on a like for like basis, 8%. The strong performance came despite profit before tax falling by 7% which is deftly transformed to a rise of 7% at actual benchmark rates, enough to justify a 10% rise in the second interim dividend.
Thomas Cook Group TCG The half year to the 31st March saw like for like revenue rise by 5% and following a strong airline performance coupled with a reduction in net finance charges the seasonal winter loss before tax was improved by 16m. Summer demand is strong with bookings up by 13%.
Churchill China CHH is making good progress in the current year, with trading since March ahead of last year. Further progress is being made in both export markets and in the UK.
Whitbread WTB is forced to delve deep into the excuses and jargon drawer to try and explain away its weak UK performance during quarter 3. It concentrates on total sales growth figures which look quite reasonable until one looks at how it fared on a like for like basis.Thus group sales growth came in at 5.6% with the UK performance lagging far behind with a like for like rise at a miserable 0.3%, market conditions being blamed, for continuing to get tougher. Hotels were flat and worst of all at Costa they actually fell by 0.1%. Here blame is allocated to “weak retail market footfall negatively impacting high street stores.” The role of management in all this does not even get a mention. Gone are the days, it would seem when management accepted responsibility for a company’s affairs, provided they have gone well.
Associated British Foods plc ABF For the 16 weeks to the 6th January all businesses delivered revenue sales growth of 4% on a continuing basis although at actual exchange rates this dropped to 3%. Primark sales grew by 7% at constant currency rates, as selling space was increased and Christmas week broke previous records. In grocery, progress has been made in reducing the loss and in sugar the UK crop will be significantly larger but prices will be lower. No views are expressed about the future in 2018.
Halfords HFD expects retail sales for 2018 wil be subdued as the retail environment continues to be difficult but for the 15 weeks to 12th January it enjoyed good trading especially over what it calls “peak including Xmas”. Third quarter sales revenue rose by 2.7% compared to 1.9% for the 41 weeks of the year to date. Car maitenance led the way with with rises of 2.1% whilst he quarter 3 laggard was travel solutions with a drop of 4.1% as against a rise of 4.2% for the year so far. Cycling took a clear lead with a rise of 7.8% for the quarter compared to 3.9% for the year.
Royal Mail RMG delivered a good performance over Xmas and over the 9 months to the 24th December parcel volumes rose by 6% producing a reveue increase of 4%. Addressed letter volume fell by only 5% which was better than expected and overall group revenue was up by 2%.
Eddie Stobart ESL Revenue for the year to 30th November rose by 12% with E commerce sales more than doubling to £103m. Operating margins were strong and improved across all sectors and for the current year growth is ahead of the prior year, again, across all sectors
3i PLC (III) Claims another good first half performance for the six months to the end of September during which it invested in some attractive and well priced businesses in private equity. Total return in this “good” first half fell by some 35% from 1006m. to 655m. and the percentage return on opening shareholder funds virtually halved from 23% in 2016 to 11% in 2017. The dividend remain at 8%.
Mediclinic International plc MDC reports that one of the features of its first half performance was a turnround getting underway in its troubled Abu Dhabi business. Total revenue for the half year rose by 10% but underlying earnings per share were down by 12% and revenue from its Middle East operations in both Dubai and Abu Dhabi fell 5% in constant currency terms. Despite this the Middle East is expected to produce a strong second half. The interim dividend is maintained at 3.2p. The group added that in accordance with Rule 2.6(a) of the City Code on Takeovers and Mergers, by not later than 5.00 p.m. on 20 November 2017, Mediclinic will be required to either announce a firm intention to make an offer for Spire Healthcare in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer. Although discussions have continued, no agreement has yet been reached on any of the key terms of an offer.
Royal Mail Group RMG Revenue per share rose by 2% in the half year to the 24th September but transformation costs reduced operating profit from 148 to 26m. Profit before tax was well down from 110m. to 77m,. although basic earnings per share almost doubled from 8.6p last year to 17.1p this year. The interim dividend is being raised by 4% to 7.7p per share. The group is prepared for a decline of between 4% and 6% in addressed letter volume but parcels are performing well in a highly competitive market. Anybodywho has attended RMG’s jargon specialisation course (JSC) will be able to understand that GLS has performed strongly and UKPIL parcels revenue rose by 5%.
Coats Group COA continues to perform strongly and the 2% rise in group sales for the quarter to 31st October would have been much higher but for the decline in the crafts division increasing to 12% and bring the average over 9 months up to 10%. The problems there are due to tough market conditions and a major customer moving to own brand retailing. The Industrial division produced a strong performance with growth of 5% which was closely matched by the other divisions which, apart from crafts continue to perform well.
Experian EXPN produced revenue growth of 6% in the quarter to the 30th June. On an organic basis the growth was 4% and for business to business on an organic basis it was a sturdy 7%. But Experian is yet another company producing appalling figures for the UK which suffers more and more from the devastation wreaked on the country by politicians who regard a weak currency as the greatest benefit they can give to the nation and deliberately pursue policies aimed at destroying the value of the pound. Revenue in the UK & Ireland fell by 13% during t he quarter and even at constant exchange rates there was a decline of 3%.
Royal Mail RMG CEO Moya Green believes that a 1% revenue rise in the three months to the 25th June can fairly be described as “another strong performance” in GLS. Total letter revenue fell by 4% but she remains silent as to whether that is weak or strong. Parcels did better with revenue up by 3% on volume up by 5%. Star performer was Royal Mail Tracked Services with growth of 39%. Despite miserable figures in some areas, she claims that the overall trading performance for the quarter was good.
Dairy Crest DCG Volume sales for Dairy Crests four key brands in the quarter to 30th June are 7% ahead of last year, Cathedral City leading the way with a rise of 15%. There is a cloud on the horizon in the form of increased input costs, which have increased substantially for the butter business and led to a reduction in the promotion of Country Life in order to try and save money. Overall however trading for the quarter has been in line with expectations.
Ideagen plc IDEA is increasing its final dividend to 0.142p per share making a total increase for the year of 15%. Revenue for the year to 30th June rose by 24%, profit before tax by 22% and underlying organic growth by 10%. Trading since the year end has been robust with strong demand from new customers.
Alliance Pharma plc APH Sales in the six months to the end of June grew by 8% with help from a weak pound adding £2.6m part of which was offset by higher import costs. The cp,[any’s international growth brands have been successful with sales growth of 50% or more.
Royal Mail Group RMG One can adjust ones view of Royal Mails results for the year to 31st March, according to whether one prefers ones results on a reported or on an adjusted basis.Whichever one prefers the final dividend of 15.6% means a rise for the year of 4%. On a reported basis, profit before tax has risen by some 50% to £335m and basic earnings per share have risen from 21.5p to 27.5p.
Its main achievement for the year has been to respond to a challenging operating environment. No explanation is given as to what management found challenging in managing to deliver parcels and letters on time but these days no self respecting company misses the opportunity to say it operates in challenging conditions, which helps to make management look better than it actually is. On a positive note for the current years performance, RMG says it is past the peak of its investment spend.
Burberry Group BRBY tried to elevate its business in the year to 31st March, using key revenue drivers to enable it to gain the necessary height. It also had growth in digital as it invested in omni channel – the ignorant amongst us may ask “omni channel” what ? Elevating the brand appears to have resulted in profit before tax falling by 21% on an underlying basis and 5% on an adjusted and reported basis, Dividends for the full year are to be increased by 5%. A new CEO will also come on board soon. Let us hope for the sake of Burberry that he will have and keep his feet on the ground.
Greggs GRG has made a good start to the year with sales up by 7.5% on the first 19 weeks to the 13th May. There is growing demand for its £2 breakfast and for Balanced Choice but what may one ask will happen to the good old sausage sarnie – will that too become just a symbol of a bygone age? 87 shops have been refurbished during the year
Thomas Cook TCG enjoyed strong winter demand for Spain and long haul destinations led to a 3% revenue rise for the six months to 31st March. Online UK bookings have risen by 15%, way behind the Germans who are showing a rise of 35%. summer demand is strong for Greece and smaller European destinations,with bookings from Northern & Continental Europe showing double digit growth and confirming that there is real momentum behind managements strategy for growth. Greece has proved to be the outstanding destination for the coming summer.
Royal Mail plc RMG How can any company be taken seriously when its CEO’s English appears to be so bad that she has to express herself in internal company jargon – thus ones breakfast reading of the goings on at Royal Mail includes – “movements in foreign exchange, ASM and GSO in GLS” Can the Board not send her for re training so that she can speak the same language as the rest of the country.
More jargon follows with the update for the 9 months to the end of December claiming 9% growth in GLS and a 2% decline in PIL. Is that good or bad, one must ask oneself. Parcel revenue rose by 3% whilst letter revenue was down by 5% as overall business uncertainty continued to affect letter volumes in the UK.
Chemring Group CHG appears to have rebounded from 2015’s problems and turned last years loss of £9.1m into a profit of £8m. for the year to 31st October. Earnings per share came in at 2.5p after last years loss of 2.4p. whilst total evenue for the year rose by 26.5% and operating profit soared from £5.5m to £ 26.2m.
Finsbury Food Group FIF suffered from flat sales in the in the 6 months to the 30th November, with the bakery division down by 2.9% as the UK retail market continued to suffer from price deflation. In contrast the European division which is 50% owned by FIF rose by 31.7%. Sterling induced commodity inflation and increases in the national living wage are expected to lead to cost inflation in the second half.
1 PM PLC OPM continued to experience high levels of demand in each of its three subsidiaries for the half year 30th November. Revenue rose by 52%, profit before tax by 23% and basic earnings per share rose from 2.91% to 3.08%