Too many names to possibly comment on, so I will keep my observations down to just four... First, Domino's Pizza (DOM), on which I said I would not be rushing to either buy its core product nor its shares back in December. After the latest update this certainly remains the case. Certainly the UK sales growth was half reasonable at 5.2% and selling 12 pizzas every second on the Friday before Christmas shows the UK populace's appetite for takeaway. However, all my fears about internal morale inside the UK franchisee network remain unaddressed. It should be a big Q&A focus at the capital markets day as if the franchisees are agitating then the prospects for 2019 and 2020 are much, much messier. Meanwhile outside of the UK, life remains very complex with warnings of losses reflecting both patchy weather (always the excuse of the rogue!) and Norwegian integration issues. That is not good...and I remain cautious.
I also still remain cautious on the housebuilders and the latest numbers from Crest Nicholson (CRST) - which I last wrote on in October - do not change my view. No surprises to see the combination of a modest volume growth (3%) and a double digit percentage profits decline (-15%), nor comments such as 'economic uncertainty has adversely impacted customer demand and this is likely to continue pending Brexit resolution'. Absolutely with house prices such a big multiple of underlying earnings. Dividend munchers will be excited that the high single digit percentage dividend is still covered x1.7 times...but I expect another profits decline this year. Note low down in the statement the comment that the plans to 'mitigate margin pressure...will take effect progressively over the next few years'. Still a desperate geared play on government support for the property market.
I should have been more cautious seemingly on Royal Mail (RMG), when I said back in early October that I saw some value creeping in. Its latest update included good comments about parcel deliveries levels over Christmas but a shabby update on the letters business which has been impacted by both lower growth and changes in regulation (GDPR) and now will see a worse decline than even the 7-8% expected. Additionally it is expecting less volume growth in the GLS (General Logistics Systems) business as it targets firmer margins (and reacting to the slower global growth too no doubt). As this was a trading update there was nothing about the dividend, which is now approaching 10% akin to Crest Nicholson's. Of course the difference I would wager is not that the Royal Mail is a pseudo utility (because it is not - logistics and parcel delivery is damn competitive) but that it has a debt-free balance sheet which always helps out with dividend sustainability (although not forever naturally). It also has aggressive unions and a management team struggling to find a direction...but it is not going to disappear, not with its embedded market position (and the benefit from being the last mile in e-commerce deliveries). I do not own shares in the company...but I can see myself owning them sooner rather than later.
Finally the one I do own (now loss-showing) shares in: PZ Cussons (PZC). As noted here, I really am going to have to pop down to West Africa to check out prospects because - once again - good performances in Europe and Asia by the Imperial Leather, Carex and St Tropez producer have been let down by tough trading in Nigeria. And the reasons? 'Weak consumer environment, higher supply chain costs and lower exchange rate contributing to lower prices, volumes and margins in Nigeria' and an 'Impact of significant port disruption in Nigeria (higher costs and lost sales) is estimated to be £5.5 million for the full year'. That's ugly...and also reflects a not-so-easy political backdrop down there too with elections due on the 16th February. All this means c. 30% of its turnover is basically making no money. Sensibly - as experienced operators in Nigeria - it is not cutting and running but protecting market positions (i.e. not making any money/keeping things tight). There is leverage once matters turn...whenever that may be. I remain a holder and given the brands and that debt is sequentially still going down, I am in for the long haul with this one but clearly - unlike some of its products - not a share for widows and orphans.
Filed under: Chris Bailey, Staffline accounting issues, Purplebricks, Avocet Mining, Alpha Growth, BBC Tesla
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