If you are a global larger cap investor like me, this time of year is a bit of a gird your loins moment with too many different companies reporting results at the same time. A busy but exciting time...so let us dive straight in and look at some UK-listed names worthy of observation. First up is the oil behemoth Royal Dutch Shell (RDSB). This is so big, so macro and normally, frankly, so dull that I do not comment on it and those of you who have been reading my musings for a while may remember I concluding 'you can shoot me if you see me recommending them (either BP (BP.) or Royal Dutch Shell), because you should rightly conclude I am out of ideas...or have aged 40 years overnight'. Anyhow my minor ramblings are not Shell's biggest issue currently...
That would be the observation in its third quarter numbers that 'the prevailing weak macroeconomic conditions and challenging outlook inevitably creates uncertainty about the completion of the share buyback programme by the end of 2020'. Given it also announced results which showed a profit decline and a rise in gearing influenced by lower profits and cash flow due to lower oil, gas and LNG prices, correctly the shares are down as it potentially pulls a rug from under the total return story investors use to self-justify a position. In a week where the aforementioned BP has had to make a public statement about when it talks about its dividend, I reiterate you can do so much better than the largest cap oil stocks in the UK market. And don't forget your corporate pension fund is stuffed full of them...so you don't need to double up. Frankly if you want a 5%+ dividend yield, I suggest you are much better off looking at Lloyds Banking Group (LLOY)...
Amusingly, Lloyds actually stopped its buyback programme a couple of months ago due to the pesky PPI finale which bumped up required provisions in this space. As I noted, these are likely to be hugely inflated but - for the time being - the banks including Lloyds have to take it on the provisions chin. Still, it still generated capital, confirmed that cost cutting is going better than expected and reiterated its tangible return on equity targets. Yes, net income growth was small negative and we all know that banks are geared plays on the economy (and hence from the perspective of the average fund manager out there, some kind of certainty-enhancing Brexit outcome tactically) but I still see value here north of the 70p level. Buy. I have gone a bit quiet on BT Group (BT.A) recently but another set of numbers, another opportunity for the newish CEO to cut the dividend has...passed. Once again the revenue and the profit lines were tremendously dull and - due to ongoing investment at Openreach and other areas to try to boost the company's credibility and competence in areas such as next generation superfast broadband - cash flow generation took a whack too. However...talk about investment, reducing other costs and not slamming the 7% odd annual dividend have pushed the stock a little north. It is still a share that has a fairer value, based on its current c. 10% (normalised) free cash flow yield, in the upper half of the 200-300p range and not lurking at the bottom of this range.
I see one of my least favourite housebuilders (I don't like any of them particularly) Crest Nicholson (CRST) has had a bit of a woopsie blaming a weird combination of legacy write-downs and sluggish trading conditions...but still trying to convince everyone the world is alright. Obviously still an avoid...and can you imagine what might happen if Help To Buy ever disappears, which for the space accounts for over 50% of profits? Well start imagining...the pulling away from this policy kicks off next April, although elements of the policy will be maintained until 2023 unless governments learn sooner that improving the supply side of the housebuilding equation is the key. Liberalise planning I say. And finally - to end on a high - the trading update from packaging company DS Smith (SMDS) was suitably solid. Now here is a company to believe in as I previously noted here. Pricing power, strategic internet economy growth options, capabilities in doing deals and pushing out its intellectual property to a broader range of geographies and clients. The share price should start with a '4'. Oh, and you get a 4%+ dividend yield. Still a buy for me...and good to end on a positive note.
Filed under: large caps, Petra Diamonds, Xeros, Woodford, Lookers, Iconic Labs, TomWinnifrith.com
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