Market moving average - update 3

The markets look like they are ending the week on a more positive note.  The will it won't it direction of the 20/50 day ma looks like it may be edging up again towards a crossover on the upside.  Next week should get us closer to confirmation or otherwise.

FTSE100

FTSE250

Dow

S&P

Ladbrokes fail the digital hurdle

I mentioned the other day the turnaround in the fortunes of William Hill, a UK bookmaker that had been struggling for some time, at least in the eyes of the City, but now seems to be on the road to recovery.  Not so the other big UK bookmaker Ladbrokes.

Ladbrokes had one of those investor meetings today which included some news that the markets took badly.

The investment in technology, digital capability and marketing has continued as scheduled in H1 with costs overall in line with plan. As stated previously, we anticipated that the phasing of our investment programme, increased marketing expenditure, planned operational losses associated with new international licences and the withdrawal from certain international markets would result in a decline in Digital profits year over year.

This decline has however been exacerbated primarily by a poor sportsbook margin in Q2 and by delays in the delivery of technology projects leading to lower than expected revenue in Q2. As a result we now expect Digital profits in H1 to be down further than anticipated at around half that delivered in H1 2011.

The market reaction has been instant and destructive, Ladbrokes shares down around 9% at writing, but is this the usual case of a knee-jerk city reaction that when the final figures come in is a setback but not a disaster?  


Should be noted that this is a "profits warning" on the digital/online takings of the company, an area where they have seriously lagged behind competitors anyway, but they did go on to say.

Despite this due to outperformance, particularly in the Retail businesses we expect to meet market expectations for H1 and remain confident that ongoing development of the Digital business will enable us to grow Digital profits in 2013 and beyond.

So, they expect to meet market expectations and unless more profit warnings are to follow, today's fall may well be overdone in the greater scheme of things, but for today Ladbrokes seems to be getting the Tesco treatment from the city.

Meanwhile, Ladbrokes rival William Hill seems to go from strength to strength despite falling in sympathy today.

William Hill completes US acquisitions

28 June 2012

William Hill PLC (LSE: WMH) (William Hill or the Group), the UK's largest bookmaker, confirms that the acquisitions of American Wagering, Inc. (AWI) (OTC:BB: BETM), Brandywine Bookmaking LLC (Brandywine) and the racing and sportsbook assets of Sierra Developments, trading as Cal Neva, have been completed

 Company announcements from DigitalLook.

Retailers under the cosh

No one should be surprised that retailers in the UK are struggling at the moment.  We are 4-5 years into "austerity" and other than the financial elite who have benefited from QE, there is little in the way of new money about for Mr and Mrs Average to spend. The market, at least in the way it looks at many retailing stocks seems to expect the type of pre-2007 spending, much of which was on credit anyway, to continue.  At least that's the way it looks if you look at some of the analyst expectations for FTSE stocks.

So, against this backdrop it is interesting to see that some retailers have actually done pretty well or at least held up in the face of austerity, while others have struggled and some gone under.  The market however, seems to have labeled them all the same, retailing to a large degree is an unloved sector right now almost regardless of performance.  Unless you think the world is coming to an end or that we are never likely to see another consumer boom, sooner or later things will turn around and good companies even in the retailing sector will be in demand again.  Here's a few that should be around for a long time and do well.  

Tesco has already been mentioned elsewhere here, but it really does look like an unloved giant right now.  It has mainly struggled to keep pace with others in the UK, but as it had built up a 30% take of the major retailers market, it did seem inevitable that this would be impossible to maintain.  The market has punished the company share price with a vengeance since it announced its first profit warning back in January.  A profit warning that basically said that profits would come in at the lower end of analyst expectations.  Profits for the company as a whole including overseas were actually up for the year, almost £200 million higher than the previous year at an impressive £3,835 billion.  Some FTSE350 companies would be happy with a £200 million profit on its own.  City analysts still expect Tesco to hit £4 billion in profits in the next two years or so despite all the negativity and falling share price.

On the back of recent falls, Warren Buffet has been a heavy buyer while UK fund manager Neil Woodford has been a seller.  Buffet likes to buy market leaders and ride the ups and downs of market sentiment.  Woodford saw better opportunities elsewhere.  Only time will tell which is right.  

Tesco have responded to city criticism by refocusing on its UK operations, but it will take time to turn around, especially when you take into account that the competition in the UK market are also good companies under the cosh.


Sainsbury and WM Morrison have both done well in the last 4 years despite austerity.  Both have more or less performed in line or bettered analyst expectations.  Sainsbury announced in January its best Christmas trading ever and promptly fell 5-6% a few days later on the back of Tesco's "profit warning".  


Sainsbury Pre-tax profits (year ending March)


2008  £479 million
2009  £466 million
2010  £733 million
2011  £827 million
2012  £799 million


Dividend yield for the same 5 year period 3.6%, 4.2%, 4.3%, 4.3% and 5.3%.  Dividend cover is currently 1.7, P/E 10.4. Sainsbury has seen its share price more than halve in value over the same period, the market no longer being prepared to pay any premium for mainly food retailers.

W M Morrison Pre-tax profits (year ending Jan)

2008  £612 million
2009  £655 million
2010  £858 million
2011  £874 million
2012  £947 million


Dividend yield for the same period, 1.6%, 2.1%, 2.8%, 3.6% and 3.8%.  dividend cover is 2.4 and next year the dividend forecast is over 4.0%, P/E 10.3.  Considering that Morrison has no online presence it has done well to increase its market share.  Share price has fallen recently not helped by the Finance Director saying that he will be moving on.  Still one to watch for future growth.


One to watch in the FTSE 250 is Brown (N) which has performed solidly increasing its profits from £78 million five years ago to £96.9 million in the latest financial year.  The dividend yield has also gone up from 3.6% to 5.5%, dividend cover 2.2, P/E 8.3.  There was also a report a week or so ago that ASDA might be looking at a takeover at 360p a share, current price 241.6p.  This was downplayed, but if market talk of 360p a share is to be believed then the company is seriously undervalued at current levels. While the bigger retailers tend to carry quite a lot of debt, they also have significant assets.  Brown on the other hand has very little debt and might be attractive to a bidder in the future.


http://www.telegraph.co.uk/finance/markets/marketreport/9339973/Asda-looked-at-1bn-N-Brown-takeover-deal.html


Data from DigitalLook

Market moving average - update 2

Will it, won't it?  The 20 day MA still uncertain on which way it is heading.  Dow and S&P looking more negative than FTSE right now, but London will ultimately follow the US.

FTSE100

FTSE250

Dow

S&P

William Hill, a firm favorite

UK bookmakers like William Hill and Ladbrokes have one big thing going for them which most companies would love to have, an almost captive consumer.  Gambling is a habit that a little like smoking is hard to shake once it gets you. William Hill would qualify as a sin stock, a little like tobacco and defense companies, it may not be to everyone's investment taste because of its business model, but there is money to be made from gambling.

On Friday, the company got the green light to start operating in the the US.

After being awarded the gambling licence, Hill will go ahead with the $55m (£35m) acquisitions of three sports books businesses: American Wagering, Brandywine Bookmaking and Cal Neva, which it announced some time ago. 

This will see William Hill running roughly two-thirds of the 180 bookies within Las Vegas casinos. They will be rebranded William Hill over time and the group has also applied for an online gambling licence. 

Ralph Topping, chief executive, said: "We are delighted to have been awarded our licence to operate in Nevada. This now enables us to establish William Hill's first-ever US operation."

 http://www.independent.co.uk/news/business/news/william-hill-wins-nevada-licence-7876685.html

The US is an important market for a company like William Hill to get into, in part because despite the country being seen as a land of risk taking and free enterprise, gambling seems to be frowned upon.  US law, as can be seen in recent actions against online poker sites, was and is pretty strict when it comes to gambling.  This might seem strange coming from the country where stock trading on Wall Street often looks like gambling, but quite a few individuals and businesses have found themselves on the wrong side of US gaming laws in recent years.  William Hill now has a foothold.

Even better for William Hill is that despite 4-5 years of austerity in the UK, their home market has held up quite well and only recently has this been reflected in the share price.

UK Pre-tax Profits

2008   £293.3 million
2009   £120.9 million
2010   £193.3 million
2011   £187.4 million

Dividend Yield

2008   5.1%
2009   3.9%
2010   4.8%
2011   5.1%

Dividend cover is currently at 2.5.

Liabilities are also heading in the right direction.

2008   £1478.30 million
2009   £1094.10 million
2010     £972.60 million
2011     £908.70 million

Current net assets, £899.60 million.  Five years ago net assets were listed at approximately £233 million against total liabilities of almost £1500.00 million.

Its clear that William Hill is heading in the right direction, but it has had a good run recently, the share price being around 180p last December, 279p at time of writing.  Back in 2007 it almost got to 700p peaking out at around 670p. There may be a better buying opportunity ahead although the share price has held up quite strong despite the market volatility of recent months.  The company is one to watch, most gamblers would probably be better off buying into this than having a bet on the horses or football.

Data from DigitalLook

A market round up - video

Occasionally I will post videos which may be of use both for analysis and educational purposes.  A while back I found this YouTube channel which gave a weekly round up of a number of markets including the FTSE100.  Well worth a look to see analysis over different timeframes.  FTSE100 is covered first, with some company and sector analysis from around 29 minutes.

Market moving average - update 1

An update to the 20/50 moving average charts posted a couple of days ago.

Looks like the current downward trend is continuing with big falls overnight in the US.  20 day moving average now looking weaker.

FTSE100

FTSE250

Dow

S&P

Why dividends should count

While some are arguing that further stock market falls or a bear market lies ahead, a strange thing has been happening on the FTSE in that dividend payments for many companies have been on the rise the last 3-4 years and in a low IR, especially for savings, relatively high inflationary environment, ultimately good solid companies with a reasonable history of rising dividends should be in demand.  If the market falls further, the dividend yield will rise.

For anyone who is a long term buy and hold investor, the ideal scenario is one where over time you get both capital appreciation in a rising share price and a rising dividend payment.  The earlier in terms of their growth that you catch such companies the better.  Robbie Burns, AKA The Naked Trader, often finds future big dividend payers in the smaller company sector, but often the FTSE350 will throw up anomalies in the potential dividend payment of well established stocks especially during times of crisis.

Current FTSE100 dividend yield payers over 5%.

Resolution  9.75%

Aviva  9.32%

RSA  8.60%

BAE Systems  6.44%

AstraZenica  6.43%

National Grid  5.98%

ICAP  5.84%

SSE  5.72%

Sainsbury  5.49%

Vodafone  5.36%

Legal & General  5.15%

British Land Co  5.10%

Marks & Spencer  5.02%

The FTSE100 throws up 16 other companies paying between 4-5%.  In total, 58 companies as of writing have dividend yields in excess of 3%, which beats the best rate of interest you will get for cash on deposit in an online account with a bank, currently around 3% and only a few offer that.

FTSE 250 top 5

Man Group  17.88%

Cable & Wireless Communications  17.36%

First Group  10.86%

Beazley  8.96%

Halfords Group  8.87%

In total, 109 companies pay dividend yields as of today in excess of 3%.

So, if the markets fall further these yields are likely to rise and barring a major world depression or deflation in money printing that results in good companies across the world going under, there is great value to be had, assuming you are prepared to wait, in buying quality as early as possible.

It's not all plain sailing though.  The lists above are full of companies in unloved sectors, like Aviva and Sainsbury, while some have a high dividend yield for the wrong reason, the company is in decline for one reason or another.  Hedge fund Man Group, until recently in the FTSE100 has had its fair share of problems and a share price that has been in freefall for some time, the dividend to some degree has been maintained, but they are unlikely to pay 17%.  A few years ago, HMV was a FTSE250 stock regularly paying a 5-7% dividend, it now languishes as a penny share small cap stock, the capital value wiped out by a decline in its core products.

As always, fundamental research needs to be done in finding the best companies that are likely to not only survive, but also continue to grow both in terms of their share price and dividend.  However, technical analysis can also help in finding these companies.  It is best to start with the monthly chart to see what the long term trend is.  If it is down, as for instance it is right now for Sainsbury, you may want to wait for a sign of an upturn.  I find that the MACD indicator to be one of the better long term trend indicators available.

Data from DigitalLook 

A simple moving average

Sometimes keeping things simple can tell you the story that you need to know.  Where are the markets heading right now?  The truth is no one really knows regardless of whatever fancy analysis, technical or otherwise, might say.  The question should be more one of probability and a best guestimate.

So, here's a few charts with a simple daily moving average of 20 and 50.  All look like they are turning upwards, but there is still enough of a gap between the MA's to suggest the downward move could continue.  The next week or so will determine whether this new short term upward trend is firmly in place or not.

FTSE100

FTSE250

Severn Trent Special Dividend update

As reported here yesterday, Severn Trent goes ex-dividend today including a special dividend.  Share price today reflects the payment of the dividend + special dividend and is down around 112p, 6.4% as of writing.  Sometimes these dividend payment falls can be overdone, but it is worth waiting for the dust to settle for those interested in buying.

Severn Trent's Special Dividend

Occasionally companies pay a special dividend, an extra payment over and above the half year and full dividend.  On June 20th Severn Trent are to pay a special dividend of 63p a share on top of their normal dividend of 42.06p.  Anyone looking to take advantage needs to buy the shares before they go ex-dividend.  However, upon paying the dividend the shares of companies will often fall in the immediate period after to reflect the payment and the fact that the company is now worth (slightly) less.  Whether Severn Trent falls by over 100p once it goes ex-dividend remains to be seen, but the chances are that there will be some short term fall out.  Potential buyers should note that since April 10th the shares have increased in price from around 1500p to almost 1750p today, the recent high being 1812p, so there is a fair degree of good news already in the price.

Severn Trent has also seen profits slip this year, in a large part due to it selling off its Italian and Spanish water services business.  Profits came in at a pre-tax £156.7million, take away the Spanish and Italian sell off and it is estimated it would have been £288.6million.  So, once things settle down Severn Trent should probably expect its profits to continue the somewhat up and down but mainly increasing trend of the last 5 years.

Yearly pre-tax profits


Mar 08 £192.40 million
Mar 09 £167.60 million
Mar 10 £334.40 million
Mar 11 £253.00 million
Mar 12 £156.70 million

Dividend Yield for the same 5 years has been 4.6%, 6.8%, 6.1%, 4.5% and 4.5%.

However, buyers will pay at the current price a pumped up, at least for a water company, P/E of 17.4.  Back in 2010 it was 9.7.  At the moment this P/E is similar to other companies in the utilities sector, but suggests that the city is prepared to pay a premium for such companies at least for now.

On the monthly chart Severn Trent has been in an upward trend since November 2009 when the share price bottomed out at around 950p.  That trend is still up, but buyers could be buying into a late rising trend which could turn down.  The good thing here is that as this is on the monthly chart the turn to a downtrend is likely to be reasonably slow, barring some dramatic bad news about the company or an event that leads to a major market correction.

Further article worth a read.


http://www.telegraph.co.uk/finance/markets/questor/9329899/Questor-share-tip-Severn-Trent-is-a-hold-despite-special-dividend.html

Data from DigitalLook.

Severn Trent Monthly Chart

Tesco, is the market missing something?

It used to be the case that you couldn't go wrong investing in a safe, boring old company like Tesco.  It is a cash cow which until recently had around 30% of the supermarket pound in the UK.  Then in January Tesco delivered its first profit warning, the shares fell off a cliff losing around £5billion in value in a day.  However, it was a strange profit warning as it was mostly a reflection of a relatively small decline in its UK market, overall Tesco is still doing well if you include its impressive overseas growth.  Profits for the year were actually up.

Tesco Pre-tax Profits.

2008 - £2830 billion
2009 - £2917 billion
2010 - £3176 billion
2011 - £3641 billion
2012 - £3835 billion

What about dividend yield?


2008 - 2.7%
2009 - 3.6%
2010 - 3.1%
2011 - 3.6%
2012 - 4.6%

Share price performance?

6 months = -21.43%
1 year = -25.12%
3 year = -15.37%
5 year = -34.13%

So, if you look at the fundamentals, Tesco profits, dividend yield, revenue and Earnings Per Share are all up despite 4-5 years of austerity.  Just about the only thing going down is the share price.  The January profit warning was basically a city response to "not meeting expectations" which were set quite high for a company like Tesco.

The knock on effect of the decline in Tesco's share price was seen elsewhere in the sector.  Sainsbury announced its best Christmas trading ever, and has put up consistently good figures since the financial crisis started in 2007, yet in the last five years its share price has fallen from around 600p to 285p at the time of writing.

Tesco has announced today that it is to sell 50% of its Japan operations to Aeon, following on from an earlier announcement to cease operations in that country.  The other big problem area for Tesco overseas has been its US operations.  Profit expectations are behind the curve, but heading in the right direction.  Overall, Tesco performs well overseas and is a market leader in many of the countries in which it operates.

At a little over 300p, Tesco is on a P/E of around 8, with a dividend yield getting towards 5%.  The dividend looks reasonably safe despite the slight decline in UK figures.  However, a word of warning on Tesco and other retailers like Sainsbury.  The UK retailing sector is basically unloved by the market at the moment, sentiment is against it.  Long term monthly charts show that both Tesco and Sainsbury are currently in a downtrend.  Share price performance is unlikely to improve until that sentiment changes.

Figures from DigitalLook.

Markets rally on Greece vote

At least for now the markets seem to be happy with the result of the Greek election.  It looks like the pro bailout parties will form a coalition and seek to "re-negotiate" the terms if not the conditions of the debt repayment.  There was talk over the weekend of Greece perhaps being given more time to bring in the austerity and bailout policies, but whether there is any new agreement on this or not, Greece will probably fail to hit its targets in future anyway so the EU may have little choice but to play the long game.

So, disaster and crisis for the markets has at least been avoided for now and those seeking doom and gloom will probably have to look elsewhere.  It will probably be Spain.

Will Greece leave the Euro or the EU?

There has been a lot of talk around the web that it is only a matter of time before Greece exits the Euro and maybe even the EU, especially if this weekend produces another election result with no one with overall control or able to put together a coalition.  The trouble is that despite the popularity within Greece of a further relaxing of the bailout conditions, or not to pay at all and default, other than the Communists, none of the political parties with any chance of power are arguing to leave the Euro let alone the EU.  Thus far the political will is not there within Greece even within the anti-bailout parties to argue for an exit.  There is also no process within the EU to evict a member state.

Greece could have a referendum on whether to stay in the Euro and/or EU, but all polls suggest that the Greek population are reasonably pro-Europe and want the Euro.  So, on the one hand the Greeks pretty much don't like the bailout conditions that have been set, but on the other they want to stay within the EU and keep the Euro.  Whether a compromise will be reached, a further relaxing of the bailout conditions, remains to be seen, but it seems to be a case of both the Greeks and the EU wanting to have their cake and eat it.

Whatever happens on Sunday, it isn't as clear as some are suggesting that it is inevitable that Greece will leave the Euro leading to others following suit.  I fancy that some sort of patched up compromise will eventually be reached, because no one wants the crisis that is likely to follow the alternative of a Greece exit.

What does a Greek earn?

The UK FTSE seems to be heading into the weekend with a reluctance to give back the gains of recent weeks.  Aided by fresh announcements from Government and Central Banks that further "money printing", which may be as much as £140 billion is on the cards to reflate the UK economy, it was only a matter of time given the quantitative easing ( a fancy technical name for money printing) so far has failed to do the job.  They have taken an overnight lead from the US, where expectations of further relaxing of the printing presses, the Bernanke asset bubble, seem to be more in the spotlight than fears of what may come after this weekend.

Fears?

Markets seem fairly relaxed considering that the Greeks go to the polls on Sunday and it looks like the result will be about as inconclusive as the last time.  The markets will no doubt be hoping for a coalition to come out of the election in support of the bailout conditions previously set by the EU.  The alternative is a step into the unknown, or at least an unknown that could either result in another market crash, or at least a fall that gives back all the gains of the last few weeks.  It is reported that traders have been keeping their powder dry awaiting the election result from Greece.  Pretty good advice right now.

Then there's the little matter of Spain touching the uncomfortable 7% interest on Government borrowing.  The Germans are still very much against the proposed Eurobonds, which is basically just another QE type reflationary exercise that the markets would probably be happy to support.  Given this backdrop the market seems to be in one of those play it by ear moods, the more positive approach of the last few weeks could be a distant memory by this time next week.  Maybe the Greeks will surprise us?  Actually, I suspect no surprise, no overall majority, more uncertainty, for both Greece and the markets.