William Hill, Ladbrokes and 32Red, where next?

It's been a while since I looked at the UK gambling sector (for anyone interested in previous posts click on the labels below) and it seems to be a sector that continues to recover, although some companies appear to be hotter and more in favour than others. I came across this analysis today that is worth a read and it does save me the time of going into the fundamentals.

http://bulmerinvestments.com/betting-on-gamblers/

It covers William Hill, Ladbrokes and AIM tiddler 32Red, which was flagged up here some time ago as one of the few potential smaller company takeover targets left in the sector. Naked Trader Robbie Burns seems to have bought it with a view to holding it in the hope of a takeover at some stage.

These three can actually be compared to a three horse race, William Hill being the class of the field, Ladbrokes, the underachiever who promised so much but has failed to deliver and 32Red a complete outsider with bags of potential. Bookies would probably have William Hill as the odds on favorite, with Ladbrokes and 32Red vying for some long shot money.

William Hill's recovery in the last couple of years seems to go on and on. The share price is now heading towards 500p and there is a lot of good news and expectation in that price going forward. They are no longer cheap and it would be easy to imagine a bad set of results hitting the share price hard, but so far the company has delivered.

Ladbrokes is the opposite.  They have everything to prove and will hope that their deal with Playtech leads to an improved bottom line from their online offering. If they are finally putting things right then compared to William Hill they are cheap. The article above makes a case for the upside if Ladbrokes has finally got its act together.

32Red has the attraction of perhaps being an eventual takeover bid from one of the bigger players. In the meantime it is a decent company in its own right and from next Monday as an AIM share it can be put in an ISA. It's more of a gamble than the other two, but if it attracts the interest of a bigger player it won't be sold for its current forward P/E of around 10.

32Red - Final Results

32Red was first mentioned here when the share price was around 43-44p, since then it has been a steady riser to around 57p on the expectation that it would probably deliver good results in its final report. Well today we got those good results.

Commenting on the results Ed Ware, Chief Executive Officer, said:

"The Company has enjoyed another year of considerable progress thanks to the focus and drive of the 32Red team. Not only have we delivered our third successive year of record results in 2012, but we have also successfully launched the 32Red brand in the newly regulated Italian market. Our strategy of increased investment in marketing is delivering strong levels of new player recruitment.

"This year has started strongly and we are confident of further progress in 2013, both financially and operationally, as we continue to grow the 32Red brand in regulated markets"

http://www.digitallook.com/news/rns/20774871-134513/TTR-Final_Results_html

Certainly looks like a decent growth story in the sector and while the fundamentals now look a little stretched from a few months ago, the added attraction here is that it may eventually attract takeover attention. The numbers still look pretty good though.

The gambling sector is not everyone's idea of a good investment, but for those who don't object on morality grounds, 32Red looks a good bet. As always DYOR.

Update:

Just read that Naked Trader Robbie Burns is a fan of this company, he mentions it in his latest update and also talks about how nice it would be if only it could be put into an ISA. As an AIM stock the Government is still in consultation mode on this change and yesterday's budget made no reference to anything happening this year.

For example just recently as those who came to the last two seminars know I was keen on 32 Red (TTR) - results are good but mainly I would hope there is a good chance of it getting bought out by one of the main bookmakers.

I bought them up mainly for my pension as AIM stocks are allowed in there and got a nice lot at 41 and at 45, and a few more last week.

However as they aren't very liquid IG wouldn't let me have many although lucky for me spreadex did and I built a nice stake with them.

But.. if I could have put them in an ISA I would already be in a very nice tax free profit. So just one example this new freedom to put AIM into ISAs will give me. It reports tomorrow and it could be a down day on a sell on the news thing but I'd be tempted to buy more on any weakness.

http://www.nakedtrader.co.uk/

Wood Group produces, but what will Kentz Corp announce?

Wood Group announced pretty good numbers this morning and the market has responded positively with a rise thus far of around 7.5%.

International energy services company Wood Group, posted a 20 per cent rise in revenue from continuing operations in its full year ended December 31st, boosted by growth in all three divisions. 

Revenue from continuing operations totalled $6,821.3m (2011: $5,666.8m), while earnings before interst, tax, and amortisation (EBITA) from continuing operations came in at $461.1m (2011: $341.6m), up 35%. The EBITA margin increased from 6.0% to 6.8%. 

Profit from continuing operations before tax and exceptional items was $362.7m (2011: $254.1m), up 43%, and adjusted diluted earnings per share were 85.2 cents (2011: 60.2 cents), up 42%. 

The total dividend for the year was up 26% at 17 cents per share (2011: 13.5 cents), following a final dividend payment of 11.3 cents, reflecting the company's "confidence in the longer term outlook for the group". 

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=48822&action=news&story_id=20737594

It is often the case that share price will jump on the announcement of a good result, especially if it comes in ahead of expectations. This can also be the start of a new trend as the share price goes higher. Often however, the market will anticipate the good news so to some degree it may well be priced in. Wood Group has been another steady riser, with dips along the way, for a few years. After today's price move there may be more to come, but are there others in the same sector who just might come in with decent numbers when they announce them and so far it isn't totally reflected in their share price?

Trading serious numbers

There is an old saying that you have to speculate to accumulate and in the game of trading if you are ever going to make serious money then ultimately you have to be prepared to risk serious money.

It might be possible, actually desirable, especially if you are new to trading or a day trader placing hundreds of trades a week that the amounts you are trading are relatively small. After all, if you are spread betting the FTSE100 and placing 10 trades a day, a few pounds a point can return you a decent amount if you are actually good at it.

However, if you are trading more long term and placing fewer trades in the process, then ultimately the chances are that a pound or two a point isn't going to return you big money. Yes, it can still be very profitable, but to make the big money, sooner or later the chances are that bigger stakes will have to be used.

Trading bigger amounts does require a psychological requirement that you do not fear doing this. Trading and investing probably has the same psychological effect on us as other things in life. If our experience is bad it effects us to the negative and warns us off next time. If our experience is good, the effect on our future actions is more positive. In trading terms this negative and positive reaction to prior events will play out in how we act in the future.

Which brings me to a couple of stories that I came across this week.  The first is a trade placed by the Naked Trader Robbie Burns, which chances are many of us would not have made. I mentioned in this post on Greencore Group how the share price had been affected by the horse meat scandal, at one stage falling nearly 30% in the day. I also mentioned that Burns had indicated on his site that if the company fell into the 80p region he would buy it big time. At that stage the horse meat scandal news had not hit the company, the following day it fell to below 80p on that news.

If you want to know the full story of what happened next, then I suggest you download the latest addition of Spreadbet Magazine (it's free - link here along with other free online trading magazines). Needless to say, the Naked Trader did buy big time and in the article he talks about how he made so far around £10,000 (on paper) on the bounce that came from what was essentially a falling knife of sorts. Accept that in his mind it wasn't really and he gives the reasons in the article.

Of course, to make that much money in such a short space of time requires the type of stakes that most spread bettors would probably shy away from. It requires a willingness to take on a level of risk which many probably couldn't handle, but in the case of the Naked Trader we are talking about someone who has already made a large amount of money from trading shares. As his returns got bigger he has clearly increased his stakes.

Which brings me to the second story which can be followed in this blog, Barefoot Spread Betting. Again serious amounts are being staked in the experiment and thus far serious returns being made.

Now, such stories should always come with a financial health warning. Anyone starting out in trading or investing should start with amounts that you feel comfortable handling. There is nothing wrong in starting small and building up, in fact in 99.9% of cases it is probably advisable. Trading and investing is a confidence game, which will often only come with experience and time. Trading big amounts is not advisable for those without the experience to take on that risk. It is great to read about those having success, but the trading game is also full of those that have lost big and it's not something we should forget.

Greencore Group joins the horse meat controversy

Despite all of the media talk surrounding horse meat being found in the products of many beef ready meal products, so far it has had little effect on the share price of those selling the products. Tesco seems to have survived the initial fallout from the scandal, although it would seem the issue is far wider than first thought and could continue for some time as investigations get under way. Today, news emerged that Greencore Group is the latest to be hit and as a supplier it has arguably more to lose.

Greencore shares fell the most in more than 14 years today, dropping as much as 22 percent to 79.5 pence. The drop reduced the company’s market value by as much as 89 million pounds ($138 million) to 313 million pounds.

Separately, Tesco’s Clarke said in a blog on the grocer’s website that he has ordered a review of the company’s “approach to the supply chain.” Tesco will set a new benchmark for the testing of products, he said, adding that new processes won’t mean more expensive food for customers.

Shares of Tesco, Sainsbury and Morrison fell today, though “that may be due to the noise surrounding the horsemeat issue” rather than “many concerns that it’s going to really hurt long- term business,” according to Andrew Gwynn, a food retail analyst at Exane BNP Paribas in London.

http://www.bloomberg.com/news/2013-02-15/u-k-food-industry-chiefs-determined-to-restore-consumer-trust.html

I've been following Greencore for a while, through its recent bullish upward trend, and noted that Naked Trader Robbie Burns gave it a mention yesterday (he's bought it before and done well out of it), however I suspect that he was not up to date with events when he indicated he would buy big time if it got down to around 90p. It currently stands a little under that having fallen over 22% at one stage today.

The problem with this issue, other than the obvious health concerns, is that the suppliers of the products may well find that regardless of their previous reputation, buyers will simply cut them off because they need to be seen to be doing something and distancing themselves from suppliers of the "horse meat" products.

Greencore may well be a good company, but the share price might be more volatile until the whole issue is sorted out and this is one falling knife where you need to be really confident that the underlying bad news won't keep coming back. No one knows right now where it will end.

Profit warnings jump

Perhaps as a timely warning that despite the euphoria in the markets since the start of the year it isn't necessarily a one way ticket, yesterday there was a report that profit warnings from UK listed companies are at the highest level since 2008.

The number of UK stock market listed companies warning over profits leapt to 86 in the fourth quarter from 68 in the previous three months, taking the total to 287 or 15% in 2012 - the highest since the credit crunch and banking sector meltdown in 2008.

http://www.independent.co.uk/news/business/news/profit-warnings-jump-to-highest-level-since-height-of-financial-crisis-8468045.html

This isn't a disaster, but reminds us to be careful and perhaps suggests that looking for key words in company reports is just as relevant now as before. This is a system that the Naked Trader, Robbie Burns talks about in his book for finding both long and short opportunities which can be quite profitable. Companies announcing a profit warning often deliver more than one, a case in point being HMV before its demise, while companies that produce a good trading statement that exceed expectations will often deliver again and again. It is always worth looking out for positive or negative trading statements ahead of results as often the trend will continue in the direction of expectations, good or bad.

Investors still lacking market confidence?

As we head towards 2013 with the FTSE approaching another attempt on 6000 and US politicians still talking over their fiscal cliff, it shows how much a confidence game investing and trading in shares is that a recent report suggests that investors still haven't totally bought into the recovery in markets since 2009 regardless of how strong it may look.

Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor’s 500 Index’s 94 percent advance, according to data compiled by Bloomberg and Morningstar Inc.

The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in U.S. equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.

“Our biggest liability in the stock market has been the total destruction to confidence,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. “There’s just so much evidence of this recovery broadening.” 

http://www.bloomberg.com/news/2012-12-24/americans-miss-200-billion-abandoning-stocks.html

What applies to the US could equally apply to the UK. The FTSE may be knocking on the door of 6000, but that is still some way off the 6750 or so back in 2007 and a long way off the almost magical 7000 mark back in 1999. So, it has been a tough 12 years or so for UK shares and tougher to make money when there are so many bigger issue economic matters that always seem to put a stop on the possibility of markets going higher, they seem to be in a constant state of trying to get back to where they once were mode.

The fact is, and the internet, forum and blog comment is often a good guide to this, many people will have missed this bounce since 2009 because they probably thought worse was to come, the financial and economic world was at an end, never ending crisis to follow. Plenty of evidence shows how poor shares have been as an investment in recent times in the UK.

Ignore the "experts"!

I've long been a follower of Robbie Burns Naked Trader website.  Here is a trader who has had amazing success over the years, who has managed to find a system that works for him and is reaping the benefits of joining the 10% or so that manage to make money trading. One of the amazing things about Burns is that he has consistently managed to be successful even during the financial crash.  If anything he has had his best years since 2007 and most of the time he has been on the long side. He doesn't claim to know anything about economics either and hasn't let the prevailing doom and gloom of the last 4-5 years get in the way of trading well.

Occasionally he comes up with little gems of sound advice which everyone should take heed of.  Take this from his latest update.

I got some Direct Line shares (DLG) in the IPO picking up 2,800 shares at the offer price of 175. Turns out this IPO is going to turn out okay.

One of the reasons I decided to go for Direct Line was that Investors Chronicle, Shares Magazine and most of the newspapers said not to buy it or sell it at the opening.

Doing the opposite of what so called "experts" tells you usually works out well so I bought! Going well so far! Might keep them longer term and there is a nice dividend.

Same with bulletin boards - just do the opposite of what anyone puts on those and you'll make some dough!

http://www.nakedtrader.co.uk/

Rookie Trader video series

Below is a short video from a series called Rookie Trader, which while basic does give some useful information. Naked Trader Robbie Burns does one of his rare interviews and talks about how to be successful at trading you have to be like Mr Spock of Star Trek.

Key words in company reports, still effective indicators?

In his book The Naked Trader, how anyone can make money trading shares, Robbie Burns highlights the secret Naked Trader traffic light system using a tool available on the financial site ADVFN.  In brief what this does is to look for key words in company news, statements, reports, announcements, etc with the intention of looking for positives and negatives.  This can then be used to find companies to both go long when positive and short when it is negative.  NT has apparently used it over the years to great success and using such words when searching for trading and investing opportunities is a useful weapon for all investors and traders to take note of and make use of.