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UK Investor Magazine podcast – Taylor Wimpey, China and UK Banks with Alan Green
Alan Green joins the UK Investor Magazine for a broad discussion of UK Banks, China and results from Taylor Wimpey.
We discuss Natwest #NWG, LLoyds #LLOY, Taylor Wimpey #TW. and Mode #MODE.
Natwest and Lloyds reported after we looked at Barclays results on last week’s podcast and where largely similar in terms of earnings growth driven by a reversal of COVID provisions that ravaged profit last year.
Taylor Wimpey released bumper half year results which demonstrated the robustness of the UK housing market and we look at what investors can expect going forward.
We also pay attention to China and how relevant their growth story is as we emerge from the pandemic.
Ian Pollard – M&S #MKS Admits Defeat
Marks & Spencer M&S Bad news for Waitrose, as the the bonds between the two behemoths grow ever closer. with M&S and Ocado announcing a new 50/50 joint venture which is intended to transform online grocery shopping for UK consumers.Significantly the new venture will trade as Ocado.com which must be a clear indication as to who will be holding the reins, although lip service is paid to the M&S brand and its leading food quality and innovation.Of course a major announcement like this can not come without the necessary jargon and the unintended admission. Thus the joint venture is seen as a strategically compelling route to unlock growth for M&S Food – an admission that growth in M&S Food has become blocked with the implication that it has lost its way as any Saturday afternoon shopper can tell. Steve Rowe and Ocado see it as combining the magic of two iconic and much-loved retail brands. We shall see
Taylor Wimpey TW claims 2018 as another strong year which produced record revenues, a very strong start to 2019 and continued strong demand for Wimpey homes. Profit before tax for the year to 31st December rose by 18.9% and basic earnings per share by 18.2%. A total dividend of c.£600 million will be paid in 2019, subject to shareholder approval and confirm the intention to make further material cash returns in 2020 and beyond.
Ted Baker plc TED updates that pre-tax profit for the Year to 26th January has been adversely affected by three non-cash impacts: Foreign exchange movements in the final week of the financial year, is the first. Systems upgrades have allowed the identification of additional costs which arose during the second half but will now provide robust controls to prevent a recurrence; Thirdly a more prudent view has been taken on aged stock, resulting in an unanticipated write-down in value of approximately £5m. Profit before tax is now expected to be in the region of £63m.
Avingtrans AVG Revenue from continuing operations increased from £26.9m. to £47.7m in the half year to the 30th November, whilst adjusted EBITDA from continuing operations more than tripled to £3.6m from £1.1m. Adjusted Profit Before Tax shot up to £1.6m following 2018’s half years loss of £0.1m and the interim dividend is increased by 7.7% to 1.4p per share.
Redde plc REDD Another set of good results showing further growth in earnings for the half year to the 31st December, claims the CEO, as earnings rise by 14.9% and profit before tax by 7.6%. It is anticipated that the second half will be a tougher comparison against the benefits which last years extreme weather, kindly generated for the company. The interim dividend is maintained at 5.5p per share
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Ian Pollard – Sainsbury #SBRY board reduced to Meaningless Twaddle.
Sainsbury J plc SBRY You know that Sainsbury has a serious problem when the best which it can find to say about Chistmas is that Convenience stores hit a new record on Christmas Eve. Management gives the impression that it is lost for words and so it should be. It has been absolutely trounced during the Christmas quarter by that Bradford upstart and arch enemy, Morrisons.The only explanation it can manage to offer is the stunning “Retail markets are highly competitive and very promotional and the consumer outlook continues to be uncertain.” I think most people apart, apparantly from Sainsbury’s management, already knew that.
For the 15 weeks to the 5th January total retail sales fell by 0.4% and like for like retail by 1.1%. Grocery did do better with a rise of 0.4%, whilst as a continuing sign of the times, Grocery online and Convenience positively surged by 6% and 3% respectively. The company has had to admit that it could not compete on General Merchandise because the market is highly competitive and promotional and sales declined by 2.3% with margins under pressure.
Sainsburys does however have a solution. It has a new priority. It is going to “further enhance its differentiated food proposition” – in other words management will, as usual in these circumstances, seek refuge in jargon in the hope that nobody will notice it has been reduced to meaningless twaddle as a first line of defence.
Taylor Wimpey TW produced another strong performance in the year to the 31st December. Home completions increased by 3% and 3,416 affordable homes were delivered as against 2809 in 2017. What happened to the unaffordable homes, nobody bothers to say. Presumably they were dumped in Barnsley. The overall average selling price remained flat at £264k which is never a sign of a boyant market.The order book did however rise strongly during the year from 7,136 homes in 2017 to 8,304 homes in 2018.
Ted Baker TED increased sales by 12.2% in the five week period from 2 December 2018 to 5 January 2019. E-commerce sales did even better with an increase of 18.7% and now account for 25.7% of total retail sales. The company regards this as a good performance attained despite the “continuing challenging external trading conditions across its markets.”
Greggs plc GRG With fourth quarter total sales up 7.2% Greggs claims a very strong finish to a year of significant strategic progress.. Many managements are beginning to learn that they can make themselves look really good by stressing how serious market problems, which they have to overcome, are. So Gregg’s achievements were achieved despite the well-publicised challenges in the consumer sector but In 2019 things will get even better. In 2019 it will execute the “supply chain change programme” despite ( chorus please,altogether now )”the many economic and other uncertainties hanging over the consumer environment.”
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Ian Pollard – Vodafone #VOD gets its ‘Comeuppance’
Vodafone Group plc “challenging competitive conditions” are words which bring a chill to the boardroom of any company and Vodafone is no exception. Quite simply the impact of its problems turned it from a profitable company in 2017 to a loss making one in the first half of 2018. Group revenue declined by 5.5%, impacted by those troublesome foreign exchange headwinds, the adoption of IFRS 15. and the sale of Quatar. With all these impacts the loss for the half year came in at €7.8 billion, including the further impact of a €3.4 billion loss on the disposal of Vodafone India. Impairments of €3.5 billion in Spain, Romania and Vodafone Idea, added to the company’s woes. Some of its customers may say that this is the year when at last Vodaphone got its comeuppance.
Taylor Wimpey TW Claims delivery of a strong performance during the second half of 2018, with very strong sales, a supportive lending environment and of course huge and completely unjustifiable support from the taxpayer. The order book remains strong, with a 12% rise on last year and customer demand is robust. Shareholders naturally get their rewards with the return of £600 million by way of total dividends promised for 2019, a 20% increase on 2018.
IQE plc IQE confirms it was notified yesterday, following an announcement made by a major chip company in the VCSEL supply chain , that the chip company had received notice from one of their largest customers for 3D sensing laser diodes that they would materially reduce shipments for the current quarter. As a result IQE expects revenues for the full year 2018 will be approximately £160.m.compared to £154.6m for 2017, whilst adjusted EBITDA is expected to be approximately £31m as against £37.1m for 2017. The slowdown in shipments will therefor materially impact expected year end revenues and profitability at IQL.
AdEPT Tech Group plc ADT is delighted by the continued progress being made by the Group in its transformation.Total revenue for the six months to the 30th September rose by 9.5%, EBITDA by 10.7% and the interim dividend is to be increased by 15.3% to 4.9p per share.
James Cropper plc CRPR Produced revenue growth in all divisions with total revenue up 6% in the half year to the 29th September. Profit before tax however at £1.4m, fell by 39% compared to 2017 and earnings per share were down by 44% as profitability was impacted by higher pulp prices over the year.
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Ian Pollard – Taylor Wimpey Sees Surge In Profits
Taylor Wimpey TW With profit before tax surging by 46.8% during the six months to the first of July Taylor Wimpey saw demand for its homes remain strong in the first half despite some wider macroeconomic uncertainty.The interim ordinary dividend is to be increased from 2.3p per share to 2.44p. The number of homes completed fell slightly by 151 to 6,497 due mainly to bad weather during the first quarter and the average selling price rose at a more modest rate than in the recent past, from 287,000 to 295,000. Profit before tax rose from 205m. to 301m. A special dividend for 2019 of £350 million is re confirmed.
Rentokil plc RTO claims continued positive momentum during the first half to the 30th June and is increasing its interim dividend by 15%. Profit before tax fell by 81.5% and basic earnings per share by 85.2%, unless you prefer your statistics on an adjusted basis in which case the figures were a more acceptable 1.5 and 1.9% respectively. Full tear guidance remains unchanged.
Greggs plc GRG claims to have delivered a resilient performance despite challenging market conditions during the six months to the 30th June. The ordinary interim dividend is to be increased by 3.9% but it is anticipated that underlying profits before exceptional costs for the full year will only be at a similar level to 2017.
Thomas Cook Group plc TCG produced strong revenue growth in the third quarter whilst for the year as a whole so far, growth in both new and retained customers has been strong, at 12% and 5% respectively. Bookings for this summer have risen by 11%. The company anticipates that growth in full year underlying operating profit will be at the lower end of market expectations as continued margin pressure in the UK and continued aggressive pricing in the Spanish Islands from the competition plus bed cost inflation from hoteliers, will impact results..
Just Eat plc JE. Has produced a strong first half performance, with revenue for the six months to the 30th June rising by 45 %, orders by 30% and adjusted basic earnings per share by 13%. Despite these figures, profit before tax fell by 3% because of the additional costs incurred in the acquisition of Hungry House. Revenue guidance is raised for for the full year to between £740 – £770 million, up from £660 – £700 million.
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Ian Pollard – ITV – 7% Organic Growth, Excluding Currency!
ITV PLC ITV If you can bother to fight your way through the meaningless jargon with which the preliminary 2017 results are littered you may end up with an idea that Carolyn McCall and her team are very pleased with themselves. They should be because one of their star achievements has been to produce 7% organic growth excluding currency. Not many companies can manage that. For the future they are excited that they have a strategic refresh underway and not only that, they are very focused on it. The main headline is that they produced a strong operational performance which included such successes as falls of 10% in statutory profit before tax, 9% in statutory earnings per share, 6% in adjusted earnings per share and 5% in adjusted EBITDA. External revenue did show a rise of 2% driven by double digit growth in non NAR. Revenue for ITV studios rose by 13%. Family SOV was up by 2% and online viewing continued to grow strongly with a rise of 39%. All this was achieved despite the impact of an uncertain economic environment. The board has decided not to pay a special dividend because there have been five and also because the dividend is now more normal. Make what you like of that, Presumably they know what they mean. The final dividend , presumably the “more normal” one, is to be 5.28p, leading to a full year dividend increase of 8% to 7.8p per share.
Informa plc INF The year to the 31st December saw growth in all four divisions leading to a 30.7% rise in revenue. The adjusted profit before tax rose by 29.4% and the final dividend is to be increased by 6%.
Taylor Wimpey TW 2017 was another strong year with revenue up by 7.9% and profit before tax rising by 10.7% profit for the year. Basic earnings per share fell by 6.1% and he average selling pice was increased by 3.5%. A good start has been made to 2018 and he order book is strong.
Safestyle plc SFE The Board’s worries for 2018 which were explained in detail in December have now been exacerbated by the impact of what it describes as an aggressive new entrant into the market. Order intake for 2018 has been disappointing and below its expectations. Group revenue and underlying profit before tax will now be materially below both 2017 and current market expectations.
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Ian Pollard – Sainsbury Beats The Pessimists
Sainsbury J plc SBRY expects full year underlying profit before tax will be moderately ahead of published consensus after a strong third quarter produced a rise of 1.1% in like for like sales, excluding fuel, for the 15 weeks to the 6th January. Groceries online and convenience saw growth of 8.2% and 7.3% respectively leading to a rise of 2.3% in total grocery sales. The icing on the cake was that general merchandise and clothing outperformed the market in challenging conditions. Online now accounts for 20% of total group sales lending support to those who expect families to continue replacing the car for shopping, in favour of the armchair. The size of the turnround in Grcocery can be seen from the fact that last years third quarter rise over 2015/16 came in at 0.3% compared to this years 2.3% rise over last year.
Page Group PAGE was held back in quarter four by a miserable performance in the UK which showed a fall of 2.8% in gross profit compared to growth well into double digits in the rest of the world. Those old UK favourites of challenging market conditions and the impact of macro economic factors are held responsible for the UK letting the side down.For the full year 22 countries produced record gross profits with an average rise of 9.9% in what was a record year.Nor only was the UK not one of the 22, it produced, again, a comparatively abysmal perfornance with a fall of 3.8%.
Ted Baker TED produced a good retail performance over Christmas, with retail sales for the 8 weeks from the 12th November to 6th January showing growth of 10.5% at constant currency rates. This was however overshadowed by a particularly strong performance from e commerce which produced growth of 35%.
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Fishing Republic – The Competition Fights Back as CEO Departs
Fishing Republic FISH Gone has all the hype of just a couple of months ago when Fish appears to have expected that its major competitors and independents would just roll over and let it take their business. How wrong could they be. Well so wrong that the CEO is departing today without notice after having been forced to admit that the competition had fought back so aggressively, to keep their market share, that sales at Fish plummeted in October by 13%, compared to the growth of 16% which it had been experiencing in the nine months to the end of September. Customers also stubbornly remained loyal to their existing suppliers and did not migrate to Fish’s web site in anything like the expected numbers. Trading for the full year will not now meet expectations and even worse, the company expects to make an overall loss.
Ultra Electronics ULE has been experiencing difficulties in the UK market and these have got worse as the second half has progressed, mainly due to the Ministry of Defence which has faced mounting problems in funding UK defence programmes. The result has been seen in numerous delays, cancellations and pauses. In addition increased investment has been required for new contracts which have been awarded, with the result that underlying operating profit for the full year is now expected to be about £120m. The board is now pondering on paying a final dividend of about 35p. per share.
Ladbroke Coral Group LCL produced an overall rise of 3% in net retail revenue for the 4 months to the end of October, which he company claims saw positive trading and a strong digital performance. Europe took on the bad habits of the British with a 17% rise in net revenue followed by a strong performance from Digital with a rise of 12% but the UK lagging behind with a fall of 1%, which at least was an improvement on the year to date’s drop of 4%.
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Rolls Royce & BP Seeing Light At The End of The Tunnel
Taylor Wimpey TW is increasing its special dividend from last years 9.2p per share to 10.4p payable in July 2018 after profit before tax for the half year to 2nd July fell by 23.7% and basic earnings per share by 22.7%. The company claims that trading has been very positive with good consumer confidence, especially in central London.Homes completed during the half year rose by 9.3% and the average selling price was increased by 6.3% to £253,000. The target is for £1.3bn to be returned to shareholders as dividends over the period 2016-18. Revenue over the half year rose by 18.5%. For the first time for many years mention is made of the fact that the housebuilding industry is subject to a cycle.
Rolls Royce RR received a higher than expected benefit during the six months to the 30th June from accounting adjustments to long term contracts. These helped to transform last years thumping half time reported loss of £2.15m. into a reported profit of £ 1.941m. On an underlying basis profit before tax rose by 148% and earnings per share by 167%.
BP plc. BP can at last see light at the end of the tunnel with second quarter underlying replacement cost profit of £0.7bn after a rise in upstream production of 10% to make a total of 6% for the half year. Last years first half loss of $2002m has this year been turned into a profit of $1,593m. The first half performance is described as solid with a strong operating performance and strong cash flow. The dividend remains unchanged.. More relief will appear in the second half which will see a decline in payments relating to the Gulf of Mexico .
4imprint Group FOUR continues to prosper with revenue rising by 11% in the six months to 1st July, profit before tax up by 41%, basic earnings per share by 39% and the interim dividend being increased by 11%.
Elementis plc ELM The half year to 30th June proved to be a positive period as the company focused on its growth strategy. Sales rose by 24%, profit before tax by 17% and basic earnings per share by 15%. The interim dividend remains unchanged.
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Lloyds Admits To “Positive Operating Jaws”
Lloyds Bank LLOY admits to having “positive operating jaws” which helped it to produce a strong first quarter financial performance and a significant improvement in statutory profit before tax, despite disagreeing with the house builders (see below) about the state of the UK economy, which the bank says still presents a challenging operating environment. As for those jaws, I never thought I would see the day when a bank would agree so openly that the widely held view about a banks resemblance to a certain type of large and very dangerous fish, appears to be correct !
Persimmon PSN claims that its continuing operational performance is excellent, helped by the resilience of the UK economy. does this mean that at long last challenging market conditions have disappeared. Forward sales revenue has risen by 11% on a year ago, whilst private sales rater per site are 12% ahead. The average selling price has, so far, been increased by 4.1%.
WPP plc WPP First quarter revenue net sales and operating profit are all well above budget and well ahead of last year – at least until you strip out the helping hands provided by acquisitions and the weakness of sterling. On a like for like basis the picture looks far less impressive, with revenue rising by 0.2% and net sales by 0.8%. WPP regards net sales as the true test of its success or otherwise. In this respect North America was under pressure but the UK and continental Western Europe both grew strongly.
Weir Group WEIR is on track for a strong recovery in 2017, with first quarter order input up by 15%, oil and gas orders up by 50% and continued strong cash generation.