Lots going on earnings-wise...and among all the scandals, political intrigue and nobbled confidence levels, three larger cap buy ideas… First Kingfisher (KGF), which I wrote about over the weekend. As expected many of the pessimistic points in the Sunday press reports...did not really occur. Certainly trading remains very, very patchy with a like-for-like sales decline of 1.3%, led on the downside by the still highly disappointing French business ('...weak footfall and the impact of transformation-related activity') and the continued impacts of the simplification/clearance programme on gross margin. Meanwhile in the UK, Screwfix continued to perform as new stores were opened whilst B&Q remained very dull (but far better performing than the equivalent French business). However there was some good news in the third quarter sales-only update.
Most notably was the observation from the CEO that 'I’m pleased to announce we are also returning a further £50m via share buyback which completes our £600m capital return commitment in the first three years of the plan'. That augurs well for cash flow generation from a company which - as I noted at the weekend - does have net cash on the balance sheet. One of the most out-of-favour large cap stocks out there currently, I talked about the asset-led case for the shares on Sunday and despite a current 2% fall I retain my buy rating.
Biffa (BIFF) shares have been a bit disappointing recently - and they have continued their decline with a 4% fall. The half-year numbers were described as 'solid' and the full-year expectations were held...but my other observation would be that earnings were slightly lower and debt slightly higher on a year-on-year basis. And the reason for earnings being slightly lower? Higher commodity prices. Well we all know what has happened to this trend in recent weeks...which is probably why the guidance was held. Looking through the statement all the big themes are still there such as tighter regulation, recycling and participation in energy from waste. The company also announced 'a c£15m investment in a PET plastic bottle recycling plant. We are proven players in this space and are excited about further growing our operations in this critical area of our industry'. I would agree. I might be waiting around for 300p a share as I hoped for in my last write-up but there are still theme attractions here, a barely double-digit EV/ebit ratio and a 3%+ dividend yield. I am a buyer here.
And finally...I said to readers to 'chill and enjoy the cleaner air' but to sell your shares in Johnson Matthey (JMAT) back in May and wait for a below £30 share price again. You can see the attractions of this view after a decent bounce post the publication of half-year numbers...which have lifted the shares back to that £30 level. Well the company did note that: 'the interim dividend was increased by 7% in line with medium term guidance, reflecting our continued confidence in the group’s future prospects. We now expect full year operating performance towards the upper end of our guidance of mid to high single digit growth'. Johnson Matthey - as I mention in the above link - is a clever and smart company, old in years, but with technology that plays well into themes such as tightening environmental legislation and advances in areas such as healthcare, fine chemicals and fuel cells. It is always a question of value. Today with a mid-to-high teens earnings multiple, a 3% yield and a bit of upward momentum in half-year numbers tell me again that buying on a shabby day below £30 a share is still a smart thing to do.
Filed under: Kingfisher, Biffa, Johnson Matthey, Bearcast, Urals Energy, Veltyco, Mothercare, Walcom
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