Nationwide BS - Full Year Results

Nationwide is the UKs largest mutual building society and Britain‘s 3rd biggest mortgage lender. I hold a couple of PIBS with the Nationwide and therefore keep an eye open for their results - the previous post related to their half year results last November.

The PIBS (permanent interest bearing shares) I hold are their 7.971% (NABA) which is due to be called (redeemed) in March 2015. If this is not called, the reset rate is prevailing gilt rate + 4.45%. The second one I selected was their 6% (NANW) - call date December 2016. The price of both has continued to increase over the past year.

The current yield is around 7.6% & 5.6% respectively - however, the yield is only as good as the institution issuing the security. PIBS holders rank behind all other lenders and depositors in the queue for repayment should the institution fail. PIBS are also non-cumulative, so any unpaid interest/coupons do not have to be made up later.

The Society has this week issued results for the 12 months to end April 2014 (link via Investegate). The numbers look very impressive with income up 16% to £2.9bn, underlying profits up 113% at £924m and core tier 1 ratio up from 12.3% to 14.5%  reflecting increased capital and reduction in risk weighted assets.

Commenting on the results CEO Graham Beale said:

"Our savings products have been competitive throughout the year and, as a result, we have increased our member deposit balances by £4.9 billion, a market share of 12.1%. We have sought to reward our existing members by offering our Loyalty Saver account, which now has balances of £17.1 billion and delivered value to our members of around £130 million during the year.

Over the past year there has been significant debate around the standards and reputation of the financial services sector. I am therefore delighted that we have been recognised as the strongest financial brand in the UK across a number of metrics. We have been voted the most reputable bank or building society; the best bank or building society to work for; first for customer satisfaction, trust and fairness in financial services and one of the top ten most 'Human Brands' in the UK.

In the recent Budget the Chancellor made substantial revisions to ISAs and announced proposals for National Savings and Investments (NS&I) to issue pensioner bonds in 2015. We believe that the changes to ISAs will result in more savings into cash ISAs, but that we may see some deposit outflows to NS&I if rates on the pension bonds are above the normal market range and we are therefore unable to compete.

Our business performance is strong, and we believe it will improve further over the coming year, with a further increase in margins and a continued growth in our banking products. The future is not without challenges; the whole industry needs to evolve its approach to delivering compliant solutions in a fast moving digital world, and the demand for further increases in capital requirements cannot be ruled out. However, we are very confident that we are in an excellent position to deliver more value to more members in the coming years, sharing the benefits of mutuality more widely and presenting the only truly national alternative to the established banks".

Given the problems with the Co-operative over the past year, its reassuring to see some encouraging results from the Nationwide and I am happy to continue holding their PIBS.

Edinburgh IT - Full Year Results

Edinburgh, previously run by star manager Neil Woodford is one of the largest investment trusts on the market with assets of over £1bn. The trust invests primarily in UK securities with the long term objective of achieving:

1. an increase of the Net Asset Value per share by more than the growth in the FTSE All-Share Index; and,
2. growth in dividends per share by more than the rate of UK inflation.

20% of the portfolio comprise overseas listed holdings including Swiss Pharma, Roche and US tobacco firms Reynolds and Altria.

Edinburgh has been one of the cornerstones of my income portfolios, held in both Sipp drawdown and ISA. There has been quite a bit of share price volatility following the announcement last October that  Neil Woodford’s was leaving to set up his own investment boutique. After some deliberation, the independent board decided to stay with Invesco and appointed Mark Barnett to take over as lead manager from end January 2014. It has today published its results for the full year to 31st March 2014 (link via investegate).

The Company's net asset value, including reinvested dividends, rose by 12.5% during the year, compared to a rise of 8.8% (total return) by the FTSE All-Share Index. The share price return was 8.0% due to the widening of the discount to NAV.

The board have proposed a final dividend of 8.5p making a total of 23.5p for the full year - an increase of 3.1% on the previous year. The current yield is 3.9% based on the current share price of 602p.

The new manager is departing from the overweight positions in big pharma favoured by Woodford who liked to hold around 18% of the portfolio between GSK and AZN. These two now account for under 10% whilst the weighting to financials has been increased. The top ten holdings now account for just 45% of the portfolio - down from Woodfords 60%+. Additions to the portfolio include Babcock, Beazley, N. Brown, CLS, Compass, KCOM, LSE, Reed Elsevier, Thomas Cook and Vectura. Tobacco shares still feature prominently and account for around 18% of the portfolio.

In his report, Mark Barnett said : “Under my management the portfolio will continue with a strong preference for companies that have proven ability to grow revenues, profits and free cash flow in what is a fairly low growth world. We favour management teams that are fully cognisant of the need to deliver sustainable, long term, dividend growth. It is this type of investment opportunity that forms the majority of the portfolio and that I believe offers the potential to deliver good risk adjusted returns over the long term.”

Shareholders have benefited from a reduction in charges - £12.5m compared to £18.2m the previous year. This is largely due to a reduction in the performance fee. For the coming year, performance fees have been abolished and there will be a flat fee of 0.55%. TER for the year was a more modest 1.0% (2013 1.6%).

Shareholders should also benefit from the significant savings in borrowing costs as the £100m 11.5% debenture is replaced from next month.

I took the opportunity to top up my holding in my ISA last November - all in all, I am happy to continue holding Edinburgh with its new manager and lower charges and borrowing costs.

Booker Group - Final Results

Booker Group is the UK’s leading food wholesaler, offering branded and private-label goods which are sold to almost half a million customers including independent convenience stores, grocers, leisure outlets, pubs and restaurants. They employ around 10,000 people.

The shares were added to my portfolio last month (link). They have now announced final results for the full year to end March 2014 (link via Investegate). This merely confirms the numbers put out in April which looked pretty impressive to me.

Charles Wilson, CEO, said:
 "Our plan to Focus, Drive and Broaden the business remains on track.  Customer satisfaction continued to improve and we achieved our best satisfaction ever.   We grew the Group to £4.7bn of sales.  Most importantly we teamed up with Makro to become the UK's leading wholesaler to caterers, retailers and small businesses.  We strive to provide our customers with improved choice, prices and service via the internet, delivery and cash and carry.  We have a great team at Booker and Makro and together we will help our customers prosper in the year ahead."

They have announced an increase of 22% in the full year dividend to 3.2p (2.63p 2013) - the cover is 1.85x - and also propose an additional return of 3.5p per share at a cost of around £61m.  It is proposed that this is achieved by the issue of a new class of "B" shares which shareholders will be able to redeem for cash. They also indicated the return of capital to shareholders of a similar amount next year.

This therefore provides a total investment return of 6.7p equivalent to a yield of around 4.9% at the current share price of 137p. Of course, as some of this return will be capital, it is not strictly accurate to talk in terms of yield which relates to dividends.

The balance sheet looks solid with an increase in net cash to £149.6m (£77.2 2013). Free cash flow remains a steady 2.2x.

Midcap shares generally have seen a significant sell-off in recent weeks. I am fairly confident Booker will start to resume its upward share price trajectory in the near future - hopefully this will become one for the long term and I would certainly be very happy if the 22% uplift in dividend were to be repeated over the coming year!

"DIY Income" - my new ebook just out!

For the past few months I have been working on a third book “DIY Income” which I self-published yesterday on Amazon Kindle - here's a link for preview.

It is a guide to those people who are looking for a little more income from their savings than they can currently get from the traditional high street bank or building society.

For those who are seasoned stockmarket investors, its easy to overlook how confusing and difficult it can seem to those looking at such things as investment trusts, bonds and ETFs - not to mention TER or is it OCF?

The introduction of the Retail Distribution Review last year will mean fewer, but probably better qualified, advisers who will probably be targeting those who can more easily afford their upfront fees. Those with more modest savings of a few thousand will be increasingly left to fend for themselves and this means - DIY.

I briefly touched on income from the market in the final chapter of my first ebook ‘Slow & Steady Steps..’ so have expanded this as well as drawing on some of the areas I have covered in the blog over the past 15 months or so.

Whist doing some research for the book, I came upon an interesting statistic that whist around 1 in 3 adults in the UK have a cash ISA, only around 5% have a stocks & shares ISA. I was wondering what percentage of that 5% run their own DIY stocks & shares ISA - probably quite a low figure.

Unfortunately, the diy investor blog has not received as much attention as I would have liked in recent months, but hopefully content and frequency of posting can now get back to normal - well, perhaps after the pending house move (June fingers crossed!).

I hope some of you can help spread the word - please click on the twitter/facebook button below this article to share on social media.

Many thanks.

easyJet - interim results

easyJet have today announced interim results (link via Investegate) They show a loss before tax of £53m for the six months to March 31 - better than the £55m-£65m range forecast by the airline earlier this year.

Airlines traditionally make losses over the winter months before moving into the black during the lucrative summer season. Total revenues rose 6.3pc to £1.7bn. As previously signalled, last year Easter fell on 31 March resulting in £25 million of additional revenue in the first half of 2013. This year Easter fell in the second half  - mid April.

Commenting on these results, CEO Carolyn McCall said :
"easyJet has delivered a solid first half performance despite the less benign capacity environment.  The results reflect our on-going progress against our strategic priorities, and demonstrate the structural advantage easyJet has against both legacy and low cost competition in the European short haul market.
By continuing to deliver our strategy of offering customers lower fares to great destinations with friendly service while focusing upon costs, we can continue to deliver sustainable growth and returns for our shareholders.  There continue to be a number of attractive opportunities for easyJet to grow profitably in Europe and we look forward to making further progress in the second half of the year."

easyJet returned £308m or to shareholders through the payment of an ordinary dividend of 33.5p per share (at 3x earnings cover) and a special dividend of a further 44.1p - both paid March 2014. I was half hoping there may have been some mention of the introduction of an interim dividend but nothing announced so looks like just the final dividend to be announced at the time of the final results. I have a figure of 36p pencilled in which would put the forward yield at around 2.2% at current prices.

Net cash as at 31 March 2014 was £449 million compared to £433 million at 31 March 2013.

In an interview with the BBC R4 this morning, Carolyn McCall hailed the introduction of allocated seating on flights as the low cost airline's most popular initiative ever with passengers. In the full year to 31 March 2014 the Airline carried 12 million business passengers for the first time.

The share price has seen a strong run over the past few months. As far as I can see, these results were pretty much in line with expectations. At the time of posting the share price however was down over 3% at £16.60. Happy with my decision to purchase and happy to continue holding.

Sainsbury - Final Results

Last month I posted after the final results for Tesco -  sales flat, profits and earnings down and no increase in the full year dividend.

Sainsbury reported full year results yesterday (link via Investegate) - sales increased 2.8% to £26.3m, underlying profits were up 5.3% to 798m and earnings were up 6.5% to 32.8p per share supporting a proposed lifting of the full year dividend to 17.3p covered 1.9x (last yr 16.7p).

These impressive results did little however to convince Mr. Market that all was well with this supermarket and after a brief surge in early trading, the share price slumped back. The sector as a whole is under pressure and despite the impressive results, Sainsbury is finding it difficult to overcome this negative sentiment.

Experts predict a bitter price war will escalate, as discounters Aldi and Lidl drive up the ante. In his final full-year update before stepping down in July, chief executive Justin King was upbeat however and said that Sainsbury's was no longer vulnerable to a price war. "The assorted profit warnings of our competitors mean it’s no longer true," he said. "Their price investments have largely been PR rather than audited announcements. We are sharper on price than we’ve ever been."

Most effort went into the convenience store opening programme was stepped up in the year with 91 new convenience stores which brought in annual sales of over £1.8 billion.

In the past five years, the Company’s property portfolio has grown by £4.5 billion, and its market value is now £12bn.  Activity during the year delivered property profits of £52 million and, over five years they have raised £1.2bn through disposals, realising property profits of over £335m.

I think it may be worth pointing out that at current share price level of £3.30, SBRY is valued at around £6.3bn. Private equity firms looking to gain exposure to UK real estate could, for example, buy for circa £8.5 billion and get their property assets at a very large discount, with the retail business thrown in for free.  It is worth noting that the Qataris still retain a 26% stake from their attempted takeover of the business for £6.00 per share in 2007.

UK food retailers are becoming more appealing on valuation grounds and I believe SBRYs is possibly the top pick in the sector given their recent performance. I have considered topping up my current holding as the share price has come back around 15% in recent months however, as I also hold Tesco, I think any additional weighting in the sector would be a little too much so have resisted the temptation.

I am happy to continue holding - be good to hear what others think about supermarkets. Leave a comment below if you have a view.

Legal & General - Q1 Results

LGEN was added to my income portfolio just 5 weeks ago (link).

I was pleased to read the Q1 results issued today (link via Investegate). They reported a record first quarter of 2014  and reassured that the axing of the obligation to buy an annuity in this year's March Budget will not impact the business as much as many predicted. However, around £15m was lost through annuity cancellations during the extended cooling-off period which was offered to customers post-Budget.

Operational cash rose by 6% to £297m and net cash generation was up 21% to £301m, with total new business up 67%. Assets under management (AUM) hit an all-time high at £463bn, and IFA platform Cofunds increased its assets under administration by 25% to £66bn.

L&G were a pioneer of the simple low cost tracker fund. I remember buying their FTSE All Share Index fund in the early 1990s as a PEP (later to become ISA). The insurer is therefore well placed in the retail investment market because it has particular expertise in passive funds - this has helped its UK retail business to grow with net flows of £300m as passive funds become more popular after the introduction of RDR in 2013.

Workplace savings net flows were up 66% on the same period last year at £500m (2013 - £300 m). This continued on a steady upward trend benefiting from incremental enrolment into pre-existing schemes and new schemes in the quarter. In the pension auto-enrolment market, DC pension AUM increased 11% to £31.8bn, up from £28.7bn the previous year, after last year's big win with the M&S pension contract. This is likely to be a growing sector for the Company as the roll-out of workplace pensions gets underway.

Nigel Wilson, Group Chief Executive, said: "There is strong demand for our pension de-risking and protection products in both markets - the £1.8 trillion of UK DB liabilities will provide substantial future business. We believe the UK DC market will grow from around £250bn today to £3 trillion by 2030. LGIM's recent agreement to acquire Global Index Advisors (GIA), a US based DC provider will accelerate our US growth."

The company said it is on course to meet the guidance it gave at the full-year results. The results have been well received and at close of business, the share price was up 3% at 220p.

Berkeley Group - New Portfolio Purchase

Some readers may recall the advice of Charlie Munger to Warren Buffett to buy great companies at reasonable prices rather than trying to grab middling companies for a song.

If you can buy and hold  those rare firms that combines managerial excellence, a clear strategy, financial success, and a strong balance sheet, then you can enjoy excellent progress over the years without having to worry too much about the inevitable rollercoaster of the share prices.

I believe house builder Berkeley falls into this category and it has been on my watch list for some time. The company is led by astute chair Tony Pidgley who is well respected in the sector.

The company is focussed on developments in London and the south east. Seeing how the wind was blowing back in 2004, Pidgley moved Berkeley out of volume housebuilding and into more specialised urban regeneration projects. Berkeley has possibly benefited more than most from the sudden resurgence in the high-end SE housing market in recent years.

In its half-year results last December the company reported strong progress in all areas including a 19% increase in profits and 22% uplift in earnings to 100p per share. They said "The long-term challenge for the country is to deal with the significant housing shortfall which continues to grow. Over the last five years Berkeley has doubled the size of its business, investing over £1.5bn into land and over £2.5bn into build, sustaining 16,000 direct and indirect jobs each year and building over 15,000 homes of every tenure in vibrant new places". In the current year it anticipates completing some 30% more homes than at the peak of the market in 2007.

Of particular interest for the investor seeking income - the company have a 10 year plan to return £1.7bn to shareholders - the first milestone is to return £568m by September 2015. So far, they have paid 164p per share including the interim dividend of 90p in January 2014, which leaves a further 270p to be paid over the next 18 months or so.

The second milestone will be the payment of a further £568m to shareholders via dividends of around 145p per annum over the 3 years to September 2018.

In its latest trading update to end February, the Company reported strong sales and  "reiterates its previous guidance that full year earnings are likely to be towards the top of the range of analysts' current expectations".

Following payment of the dividend of £117.9 m (90p per share) in January 2014, the Group remains ungeared.

5 yr comparison v FTSE 250
courtesy of Digital Look (click to enlarge)

In recent weeks, the share price has retreated from a high point of around £27.50 in March - yesterday I made an initial purchase @ 2415p - P/E is around 12 and yield should be 7% per annum or so for the next few years.

More on this following the final results due next month.