STOCKS TO WATCH 

 

 Persimmon – price £3.63

 Friday 27^th August 2010

 

 

The company reported very impressive figures on Tuesday showing revenue for the half year to end June of £776.6 million, against £611.8 million last year which represents a rise of 27%.  Completions increased by 16% to 4,657 with an average selling price of £168,936, 8.6% higher than the average of £155,524 last year.

 

Pre-tax profits were £101.4 million vs £9.8 million last year.  Net borrowings have been reduced from £494 million to £122 million and the dividend of 3p per share has been restored.

 

Forward sales at August 24 are £912 million as opposed to £638 million last year.  95% of the projected target has been sold so far for the current year.

 

The total land bank owned and controlled is 58,957 plots which equates to 4/5 years of plots relative to previous years.

 

Clearly these figures are better than expected and I would concur with the view of a number of leading brokers who are now suggesting that the shares look good value.

 

 Barclays – price £3.25

 Thursday 5^th August 2010

 

  

Credit where credit’s due for the driving force behind Barclays Capital - Chairman Marcus Agius, John Varley the CEO and Bob Diamond the President.  The Board was admired 2 ½ years ago for the way that it defended the robustness of its balance sheet, despite analysts and other observers being determined otherwise.  Barclays refused point blank to have anything to do with the government’s bailout facilities; instead they went to the Middle East for additional working capital.  This was admittedly at considerable cost, but it appears that it will stand the group in very good stead.  Buying the remnants of Lehman Brothers New York was the coup to end all coups.  There is no doubt that Barclays Capital has been the driving force behind the entire group for some years. In the past it has consistently contributed 40% of the profits and in today’s half yearly results it was rather higher - £2.5billion out of £3.95 billion posted.  If the one-off £850 million for revalued credit for Bar Cap is included, it represents too great a proportion.

  

Investors took a little money off the table this morning for two reasons.  Firstly, Barclays has enjoyed a decent run in recent weeks and secondly, investors were telling the board that perhaps Barclays needs to focus more on its retail banking operations as it appears far too reliant on Barclays Capital to contribute large profits.  Bob Diamond was very upbeat about the future and felt that third quarter revenues would improve.   Bar Cap are considered in the industry to be among the best bear market traders on bonds and interest rate products, which is a supreme accolade.  However, Barclays is still a significant high street operator and it needs to get a bigger market share of this and to be very aware of competition from the likes of Santander, Metro Bank, Tesco and Virgin Money.

  

Barclays increased its lending by £18 billion in the last trading period, which is quite modest when compared to Lloyds which increased its by £25 billion in the same period.  It did not go unnoticed that Mr Diamond felt that Barclays’ clients were growing in confidence regarding a recovery.  The drop in impairments from £3.5 billion to £3 billion was modest in comparison to some of its peers.  But the reduction came from a lower base than most, for which Barclays is due great credit.

  

Bar Cap’s significant profit was all the more laudable since trading volumes were down by 15%.  ABSA’s contribution to Barclays’ expansion plans in South Africa was not as disappointing as anticipated. Overall, Barclays is growing into a fantastic global brand.  It just needs to pay more attention to its businesses in the UK.

 

   ITV – Price 0.52p

 Tuesday 3rd August 2010

  

The UK media group has put forward a new 5 year turnaround plan and its first foray into Pay TV as it swung into a net profit for the first half of 2010. This is being driven by a vastly improving advertising market and the football World Cup.

ITV is by far the biggest terrestrial commercial broadcaster by sales and will spend an additional £75 million on its online operations, content and digital channels over the next 3 years as a result of its new strategy.  That is on top of an £800 million programming budget for its main ITV1 channel in 2011 and 2012.

ITV has made a net profit of £71 million against a net loss of £70 million a year earlier.  This is underpinned by an improving advertising market.

First half revenues have increased by 8.6% to £987 million, up from £909 million last time.

In addition, net debts fell to £437 million at the end of June, from £612 million at the end of Dec 2009.

With net advertising revenue up 18% versus a market up 15%, the new dream team of Archie Norman (Chairman)and Adam Crozier (CEO) must be very encouraged by their new start.

As I have said before, the shares do not look expensive at these levels. 

 

 Persimmon – Price £3.75

 Wednesday 7th July 2010

 

Historically, the housebuilders sector has stood out in the 6 month period following the last twelve General Elections.  Most investors will confirm that the best investment they have ever made is the house they live in.

Although I think far too much emphasis is put on the value of a house as I believe that it should be considered a home first and an investment second, I do understand why people get concerned and a bit carried away about the price of houses, given that it is almost certainly the biggest single purchase they will ever make.  The majority of people own only one house at a time and are not building up a portfolio of properties, so another way of being involved in the property market is by investing in property or housebuilding stocks.

My favourite housebuilder stock over the years and one with which I have done well, is Persimmon.  It has an excellent management team led by John White (Chairman and former CEO) and Mike Farley (CEO), both of whom have been with the company for over 25 years.  In addition the company has a very substantial land bank.

The company presented a trading statement yesterday which was very encouraging. 

Turnover for the 6 months to 30th June was up by 26% at around £785 million.  Operating margins for the first half, before exceptional items, appear to have increased to approx 7.5% against 1.5% in 2009.  Total sales for the year and forward reservations are about £1.5 billion against £1.3 billion to 30th June 2009.

Completions increased by 16% to 4,657 homes against 4,006 homes in 2009 and perhaps surprisingly, the average selling price was up by about 8%.  These figures are even more impressive when viewed in the context of problematic mortgage availability and the current financial climate.

There can be no guarantee that history will repeat itself but, if you want to be in a housebuilding stock, Persimmon looks interesting.  Given that we are 2 months into our 6 month period, it will be intriguing to see where the share price will be at the end of the year.  Certainly with a very experienced management team in charge of what is the largest quoted housebuilder on the UK stock market, this may be the one time when biggest is actually best.

 

 ITV – price £0.71

 Friday 26th April 2010

 

 

With Adam Crozier officially starting his new job as CEO of ITV today, one of his first big decisions will be whether to sanction a shock takeover of rival broadcaster Five.  As I have said on many occasions, there are only two ways to grow a business – by acquisition or organically.  If it does acquire Five, ITV would gain at least another 8% of the TV advertising market, taking its share to nearly 53%.

If it does make a bid, the main attraction is that ITV would cut its costs by about £100mm, a saving that would go straight to the bottom line.

Whether ITV makes a bid for Five or not, what is not in doubt is that advertising revenue has bounced back and a record rise of 15% is now expected for the first half of the year as it benefits from comparisons with last year when advertising revenues plummeted.

In the first quarter advertising growth was 7% but has shot up to reach 22% this month and should also benefit from the World Cup in June.

Since our last comment on this page on 25^th March the stock is up 22% and is 36% up since our first mention on 5^th February.  As I’ve said before, interesting times ahead look likely indeed!

 

 

 ITV – price £0.52

 Friday 5th February 2010 

 

 

At long last ITV have put in place the team that they believe will lead the company through transformational change to a digital future.  The appointment of Adam Crozier as Chief Executive from Royal Mail was a decision that has been widely accepted as a clear declaration by the Chairman Archie Norman that he is planning to execute big changes at the UK’s largest commercial broadcaster.  Although on the face of it Adam Crozier’s appointment might appear strange, given his lack of media experience, this may prove to be a positive rather than a negative.  He is regarded as a good salesman as indeed is Archie Norman and this will be a valuable attribute in attracting advertising, especially in the run-up to the World Cup next year.

 

What is certain is that the financial package where Mr Crozier could make up to £17 million in pay and perks over a 5 year period, is giving him every incentive to make it work.  Also, given that the recession appears to be over at least in name, then perhaps advertising budgets will increase and ITV will benefit.  Let’s not forget that when Mr Crozier joined Royal Mail the business was losing nearly £1 million a day and it is now making profits of £9 million per day.

 

Given that BSkyB have been told that they must reduce their stake from 17.9% to 7.5% by the Competition Commission, it is possible that ITV could be vulnerable to a bid, especially if the holding to be disposed of goes to a single buyer.  The trigger for Sky to get involved started when Virgin Media took an interest in the company.  The shares were £1.35 when Sky bought their holding so they have a long way to go to recover those levels.  However, any bid interest could easily move the shares significantly higher very quickly.

 

ITV have a wonderful platform for recovery, particularly given their basket of very successful programmes including Coronation Street and X Factor.

 

My own feeling is that the shares do not look expensive at these levels for investors who are prepared to a take a ride on ‘new management’.  This stock is not for those who require income as the company does not currently pay a dividend.

 

To give you an idea of the potential upside of the shares, they have already risen by 222% since 10^th March 2009.

 

Interesting times ahead look likely!

   

 

 V.T. Group – price £5.85

 Tuesday 15th February 2010

 

 

Having identified VT Group as an exciting opportunity, I was delighted to see that Babcock International shares my enthusiasm.  Having seen V.T. increase their bid for Mouchel - to a price which equates to 305p per share based on the 1-month average share price for V.T. of 527p per share - Babcock decided to put the cat amongst the pigeons with their own bid for V.T. of 633p per share, made up of a combination of cash and shares in Babcock.

 

It is ironic that Babcock has made a bid for V.T. given that four years ago V.T. Group and BAE Systems made a joint takeover approach for Babcock.  As they say, revenge is sweet, even if it is as a dish served cold.  It is quite clear that Babcock have made their move now as they do not want to take control of Mouchel.

 

Both Babcock and V.T. are steeped in expertise in the military world with Babcock best known for running submarine bases at Plymouth and Faslane, whereas V.T. sold its shipbuilding interests to BAE Systems last year to focus exclusively on the support services sector.

 

V.T. has a strong balance sheet and in these markets more than most, cash is king.  It is difficult to be sure of the outcome of the current situation, but it may well be best to sit back and enjoy the ride that the share prices of all three companies will enjoy over the next few days.

 

The indicative offer which has been rejected by V.T. sets the scene for a takeover battle between two of the most outspoken and respected chief executives in the support services sector.  One thing that is for certain is that our clients are currently very pleased.  Whether Peter Rogers, CEO of Babcock or Paul Lester, his opposite number at V.T. will win the day will ultimately come down to the shareholders.  The two companies share several large shareholders including Fidelity, Artemis and Scottish Widows.

 

Whatever the outcome, existing shareholders are obviously the winners.

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