Friday, 27 February 2015

Coventry BS - Final Results

I like this mutual building society and have been a saver with them for many years. They are the third largest BS in the UK (behind Nationwide and Yorkshire) and have assets of £31 billion.  Consumer champion, Which?, recently rated Coventry the highest scoring UK building society featured in the Which? results table for customer satisfaction.

I have held a significant percentage of their PIBS in both my SIPP and ISA for several years. They are due to be called (redeemed) in June 2016.

The mutual Society have today issued their full year results for 2014(link via Investegate).

Profits before tax are up once again, this year by £69m to £201.8m (2013 £132m) - an increase of 52%.

As a holder of their PIBS, the item I always look for is their common equity (formerly core tier) 1 ratio which is an indicator of the strength of the company. This ratio has increased yet again to 25.4% and continues to be the highest of any UK financial institution (bank or building society). By way of comparison, Lloyds bank, which issued final results today has reported a ratio of just 12.8%.

They have maintained their high credit rating throughout the financial crisis and are the only major high street bank or building society not to have been downgraded over recent years.

New CEO, Mark Parsons, commented on the results:

"While the general UK interest rate environment continues to favour borrowers, the Society has again delivered in supporting its savers. In 2014, the overall growth in savings balances was £2.1 billion, a 10% increase on 2013, compared with a growth in the UK market of 5%, resulting in a record of £23.4 billion total savings balances"....

"The Society's responsibility to protect the interests of members requires strong financial foundations. We expect the Society's risk weighted capital ratio to remain the strongest reported by any top 10 UK building society and also took steps to increase our leverage ratio to 3.9% (2013: 2.9%) at the end of 2014 well above the proposed minimum level of 3%.

This strong financial performance has been achieved whilst also delivering the right outcomes to our members. We believe this is evidenced by research undertaken in October 2014 by consumer champion Which? who ranked the Society as the highest scoring building society for customer satisfaction. We are also proud that we not only have one of the lowest number of recordable complaints per member of any top 10 building society, but only 3% of complaints referred to the Financial Ombudsman Service were changed in favour of the complainant, compared with an industry average of 57%".

Given the strength of the Company, I fully expect the PIBS to be redeemed at par 100p next June. I will then need to consider some options for reinvesting the proceeds in my SIPP and ISA.

IMI Group - Final Results

IMI Group is a global engineering group focused on the precise control and movement of fluids in critical applications. They work with leading international companies in over 50 countries to deliver innovative engineering solutions to address global trends such as clean energy, energy efficiency, healthcare and increasing automation.

IMI’s products and services are ideally positioned to respond to the key environmental and demographic trends that are shaping the future. Drivers for growth of the business include climate change, population growth and scarcity of natural resources, renovation of existing buildings and infrastructure and finally, healthcare related innovation for an increasingly ageing population.

They are a FTSE 250 company with a market cap currently £3.9bn.

I first acquired this company in my portfolio in 2011 at the price of around 830p and a yield of 3.3%. Early in 2013, I foolishly sold for a 50% profit as the yield had fallen - the shares rejoined my ISA portfolio following last years results as a replacement for Carillion.


IMI have today issued results for the year to 31st December 2014 (link via Investegate). As with many other companies, results have been impacted by the strength of sterling for much of 2014. As a result, adjusted profits are down 7% at £278m. However, basic earnings are up 7% at 78p (2013 72.6p) - this increase is mainly as a result of the 7 for 8 share consolidation, which occurred last February.

The full year dividend will be increased by 6.5% to 37.6p. Dividend cover based on adjusted earnings for the continuing businesses remains at 2.1x earnings.

Mark Selway, CEO commented: "Despite challenging economic and market conditions in a number of our key sectors, we delivered results in line with expectations while at the same time making significant investment which will drive future growth.  Our new strategic plan is now being executed across the Group and I am pleased to report that we are already starting to see early signs of tangible benefits.

"In 2015, based on current market conditions and excluding the impact of exchange rate movements, we expect the Group to deliver modest organic revenue growth weighted towards the second half with margins slightly lower than in 2014 reflecting the impact of the disposal of Eley and acquisition of Bopp & Reuther by the Critical Engineering division and the ongoing investments we are making in all our businesses as we ready them for accelerated long-term growth."

It seems to me the results are pretty much in line with expectations. At the time of posting, the share price is down around 3% at £13.80 giving a yield of 2.7%.

As ever please DYOR.

Tuesday, 24 February 2015

Temple Bar - Final Results

I hold this investment trust in my ISA - it was the 3rd best performing trust in 2013 from my portfolio of ITs behind Aberforth and Bankers.

TMPL has been managed by Alastair Mundy since 2000. He takes a contrarian view on the timing of buy and sell decisions, buying the shares of companies when sentiment towards them is thought to be near its worst and selling them as fundamental profit improvement and/or re-evaluation of their long-term prospects takes place. This contrarian approach centres on long-term investment in cheap, out-of-favour companies in the belief that over time, these will be affected by reversion to mean.

This approach has proved very successful over the longer term with a total return CAGR of 10% p.a. over the past 10 years.

They have this week published full year results for 2014 (link via Investegate). Unfortunately, they have not been able to quite replicate the out-performance of previous years - total return of net assets fell by -1.7% compared to a small gain of  +1.2% for the FTSE All Share index. This underperformance was mainly due to share selection. The contrarian approach often requires long periods before the benefits for the trust are realised.

Interestingly, the underperformance has not prevented them from hiking the management fee by 14% to £3.25m! Having said that, the admin expenses have reduced and the total expenses remain reasonable at around 0.65%. The trust does not pay a performance fee.


The trust is committed to paying a rising dividend year on year and has met this commitment for the last 30 years.

The board are recommending a final dividend of 23.33p making 38.88p for the full year - an increase of 3% on 2013. The dividend is covered by earnings of 39.82p - an increase of 10% on 2013. The surplus income has bolstered dividend reserves which represent around 17 months of the current payout.

In line with most other income trusts, TMPL are now moving to quarterly dividends.

At the current share price of £11.95 the trust yields 3.25%.

Slow & steady steps as they say....

BHP Billiton - Interim Results

As the largest mining company in the world, BHP Billiton is essentially a one-stop commodity shop. Unfortunately, its size cannot protect it from a collapse in commodity prices - its portfolio is based on iron ore, oil, coal, and copper and the price of all four are back to the levels of 5 or 6 years back.

As a result BLTs share price has retreated from a high of £21.00 last August to a low of £12.75 by December - at which point I topped up my holding.

BLT has today issued results for the half year to 31st December 2014 (link via Investegate). Underlying earnings came in better than expected at $14.5bn - a reduction of 12% on 2013. Underlying eps fell 31% to 100.7c (145.9c 2013)

Commenting on the results, chief executive Andrew Mackenzie said:
"Despite significant falls in the prices of our main commodities over the last six months, group margins remain healthy, free cash flow has increased and we have strengthened our balance sheet. We started to prepare for a sustained period of lower prices almost three years ago by increasing our focus on efficiency and lowering our investment. Since then, we have achieved annualised productivity gains approaching US$10 billion and reduced capital spending by almost 40 per cent. "

Over the past 6 months, capex and exploration expenditure reduced by 23% to $6.4bn. Over time, this choking off of supply should serve to reverse the commodities price decline.

Over the past couple of months the share price has seen some upward momentum - around 20% - but I suspect it may be a little while before we see a return to £20 and above. There’s no getting away from the fact that Billiton is a cyclical play and the share price will always fluctuate with global supply and demand.


Whilst the share price may be akin to the ultimate rollercoaster ride, the reason I hold the shares is for income. The Company have an enviable record of paying an increased dividend for well over 10 years - since 2004, CAGR is 16.6%. Over the past 5 years the pay-out has been slowing a little - (from 2010) - 57p, 66p, 73p, 75p and last year 79p an increase of 39% and CAGR of 8.5%. Earnings are in US dollars so there will always be FX considerations.

BHP Billiton has a progressive dividend policy. The aim of this policy is to at least maintain or steadily increase the base dividend (in US dollars terms) at each half-yearly payment.

CEO Andrew Mackenzie said : "We are confident that we can maintain our progressive dividend policy and continue to selectively invest in projects that offer compelling returns".

The interim dividend has been lifted by 5% to 62c - which translates to around 40p at current exchange rates. I have pencilled in a figure of 82p for the full year. BLT say that following the proposed demerger of South32, which is due to be completed by June, they will maintain a progressive dividend policy and any dividends from the new spin-off company will represent additional cash returns to shareholders.

Because of the cyclical nature of the business, holders of BLT should always expect it to be a bit of a rollercoaster ride. For those who can stomach the ride, I believe it continues to offer value for the income seeker. At the current share price of around £16.00 the yield is just over 5%.

As ever, please DYOR.

Monday, 23 February 2015

DS Smith - Duropack Acquisition

DS Smith is a leading provider of corrugated packaging in Europe and of specialist plastic packaging worldwide. They operate across 25 countries and employ around 21,500 people. It is the UK's leading producer of recycled paper board and manufacturer of corrugated packaging

The company has grown to become a European leading provider of consumer packaging with emphasis on state-of-the art packaging design. It is a market leading recycling and waste management company and now the largest paper recycler in Europe, collecting circa 5.4m tonnes annually.

Customers include Nestle, Unilever and Procter & Gamble.

DS Smith rejoined my portfolio following the final results last June - here’s a link.

Following on from the strong interim results reported last December, the company has today announced its intention to buy Vienna-based Duropack, a recycled corrugated board packaging business for around €300m (link via Investegate). The acquisition is being funded from existing debt facilities and will expand the group's geographic footprint in South Eastern Europe. The group expects to secure the deal during the second quarter.

CFO, Adrian Marsh said: "The main driver is Duropack's business in Hungary, Croatia,
Bulgaria, Bosnia, Slovenia, and Macedonia where DS Smith has limited presence, if any, and Duropack has a very strong market leading presence,"

DS Smith also said it continued to perform in line with expectations during the last three months to 31st January due to high volumes.

The announcement was well received by the market and at the time of posting, the share price was up over 3% at 360p - and an increase of over 20% since the interims.

More on this following the final results in June.

Thursday, 19 February 2015

Centrica - Dividend Cut!

Centrica - owner of British Gas - is a  FTSE 100 company with a market cap. of around £13bn. It operates predominantly in the UK and USA (Direct Energy) and has 35,000 employees serving 30 million customers.

I purchased Centrica for my shares ISA in November 2013 - here’s a link to the post

They have today reported results for the full year to 31st December 2014 (link via Investegate). Although total revenues increased 11%,  adjusted EPS over the year fell by 28% to 19.2p (2013 26.6p) . CNA reported a 35% reduction in operating profits to £1.75bn (2013 £2.69bn).

Newly appointed Chief Executive Iain Conn said:  '2014 was a very difficult year for Centrica and the recent fall in the oil and gas prices creates further challenge,'

'We are cutting investment and costs in response. However, it is with regret that, along with reducing capital expenditure and driving efficiency beyond planned levels, we have taken the difficult decision to rebase the dividend by 30%, commencing with the final distribution for 2014.'

The full year dividend has been cut to 8.4p making a total of 13.5p for the full year - a reduction of 21% (2013 17p). Not what an income investor wants to hear but it looks like the management had few options given the reduction to profits and earnings.

Management actions to address the situation include a 40% reduction in exploration and production capital expenditure to £650m by 2016, with a  focus on competitiveness, service and efficiency in the downstream business, as well as a new group-wide performance improvement plan, with a particular focus on costs. The longer term strategy is currently under review and the Company will announce their plans at the time of the interim results in July.

The results were not well received by the market and at the time of posting the share price was down 8% at 257p. So far, not one of my better purchase decisions!

Wednesday, 18 February 2015

Hargreaves Lansdown - New Sipp Charges

Founded in 1981, they have grown rapidly and currently have over 675,000 clients and employ around 800 staff. In total, as at December 2014, Hargreaves Lansdown has almost £50 bn of assets under administration or management on behalf of private investors. HL is the largest direct investment company in the UK, with 32% of the market.

Most readers will be aware of the significant changes to pensions which are due to be introduced in April 2015. Since the changes were announced almost 12 months back, I have been reviewing my SIPP drawdown plans - here’s a link to my post last March.

With half an eye on the opportunities which were likely to arise, I purchased a stake in both HL and Charles Stanley last year. Today, Hargreaves have announced significant changes to their sipp drawdown product which is likely to be the first of many as other providers announce their own plans.

The Changes

The main change is the scrapping of the flexible drawdown ‘set-up’ fee of £295 + vat (the existing capped drawdown set-up is free), they will also scrap the £25 one-off payment charge as well as the £10 payment alteration fee.

Hargreaves has introduced an exit fee of £295 +vat that will be charged if someone goes into drawdown and takes out all their cash in the first 12 months.

The net effect will be to levy the standard platform charges which currently applies to all SIPPs whether drawdown or build phase. For those investing in funds, this could work out expensive as the charges are tiered - the first £250,000 attracts a charge of 0.45%, the next £750,000 charged at 0.25% and the next £1m charged at 0.1%.

For those invested in shares, investment trusts, ETFs or bonds, the charge is a straight 0.45% but is capped at a max. of £200 p.a. Obviously this is attractive to those with larger pension pots - for example, a pot of £250,000 would attract annual charges of just 0.08%. The calculation for a more modest pension of £50,000 would be 0.4%.

Tom McPhail, head of pension research at the fund supermarket, said the product has been made ‘accessible by stripping out any upfront charges’ and that investors should be ‘reassured to see this first product launch in good time for the new pension freedoms’.

These changes have been well received by the market with the share price closing up 3.5% at £10.53

I am now waiting to see how the other main players respond - especially my current sipp provider, AJ Bell Youinvest.

Wednesday, 11 February 2015

Reckitt & Benckiser - Final Results

RB is a global consumer goods leader in health, hygiene and home. Its 19 Powerbrands, in high growth categories, take a disproportionate share of RB's top end marketing investment. Powerbrands drive over 70% of growth. Innovations launched in the last 3 years generate around 30% net revenue.

Their range of Powerbrands include many familiar names - Cillit Bang, Durex, Dettol, Finish, Gaviscon, Strepsils & Nurofen - recession or no recession, people keep cleaning their kitchens, getting sore throats and suffering headaches.

Having been a stalwart of my sipp for several years during the build phase RB are now firmly entrenched as one of the cornerstones of my S&S ISA.

Reckitt have today reported full year results for 2014 (link via Investegate). Stripping out the pharmaceuticals arm RBP which was spun off as a separate company, Indivior at the end of last year, operating profits rose 11% (constant exchange) to £2.19bn on revenue of £8.8bn.

Reckitt chief executive Rakesh Kapoor said:
"We have achieved a lot in the past three years - but there is more to do. In true RB spirit of outperformance, we need to sharpen our organisational agility and efficiency.  

I am therefore announcing our new "Supercharge" project focused on:
-     Creating a simpler, more agile organisation
-     Reducing cost and driving efficiencies

This will make RB a leaner, faster and more coordinated business.  It will also drive cost savings that will enable us to deliver sustainable earnings growth as we enter the second half of the decade. Our strong margin expansion in 2014 provided a step up in operating margin, which our Supercharge project should make sustainable. In 2015, we continue to expect tough market conditions.  Therefore, we are targeting LFL net revenue growth of +4%, which is broadly similar to 2014 "

They are proposing a 2p uplift in the final dividend from 77p to 79p which is again a little disappointing but better than the 1p reduction last year. This will mean a full year dividend of 139p and yield now falling to just 2.4%.

The balance sheet remains robust with borrowing falling to just £1.5bn.

The results have been reasonably well received and at the time of posting the share price is up 3% at £57.70. Over the past year the share price has increased  by £9.00 or 18%.

There is no doubt that RB is a quality company which has provided a very good return for me over the past 4 years. However, I am just beginning to look at the falling yield and wonder whether there may be better income opportunities elsewhere. A nice problem to contemplate and currently in no hurry to make a decision.

I would be interested to hear the views of others on this one - leave a comment if you have a view on Reckitt.

Thursday, 5 February 2015

Next - Special Dividends Update

Further to the positive trading update at end December 2014, Next have today announced its intention to return around £360m surplus cash to shareholders.

It is likely this will be in the form of four special dividends of 60p - a total of 240p. The first of these will be paid 1st May and news on subsequent payments will be announced at the time of their final results next month.

Last year the Company paid out 129p in normal dividends and an additional 200p in specials.

I have pencilled in a regular dividend figure of 145p for the coming year which would make a total of 385p. At the current share price of around £71.00, this gives a forward yield of 5.4%.

More on this following the results 19th March.