Interactive Investor

Insider: BP, Dunelm and a real Treatt

24th February 2017 12:03

Lee Wild from interactive investor

Dunelm going cheap

This month's half-year results from Dunelm went down badly. Both like-for-like sales and profits fell as the cushions-to-curtains chain invested heavily and spent £3 million opening a new warehouse. Analysts downgraded forecasts and the shares plunged over 10% to a four-year low.

There's been some sniffing around at current prices with a number of directors among the keen buyers. Non-execs William Reeve and Marion Sears spent over £36,000 between them at 626-650p, and chairman Andy Harrison coughed up £197,000 for 31,527 shares at 624.7p.

Now, Harrison's at it again. This week he's twice as bullish, finding the £397,000 needed to purchase 63,272 at 627.5p. That almost doubles his holding since the results to nearly 203,000, currently worth almost £1.3 million.

If chiefs think the worst is over, this could be a smart move. November's acquisition of online homes and garden retailer Worldstores has been disruptive and a short-term hit to profits, but, by 2019, broker UBS thinks the business should be chipping in £10 million a year of operating profit.

Analyst Andrew Hughes forecasts an operating profit of £117 million for the year to June, down from £129 million in 2016. But, as non-recurring costs fall away, he predicts a recovery to £140 million in 2018 and £164 million after that.

On downgraded estimates Dunelm shares trade on a modest 11.7 times estimates for adjusted earnings per share (EPS) of 54.5p in 2018. There's a prospective dividend yield of 4.5% too, and Hughes tips the shares to hit 890p in time. Harrison will be pleased.

BP's bargain hunter

BP is having something of a wobble. Full-year results earlier this month failed to prevent further selling, which had begun a few weeks previously after the shares had risen two-thirds to a new multi-year high.

They're currently down around 15% from that peak and over 6% since the results to currently sit on the 200-day moving average. We said this month that there's "nothing to panic about" yet, and that remains the case.

Clearly non-executive director Nils Andersen is not put off. Spying a bargain and a prospective yield of 7%, he's just paid nearly £134,000 for 30,000 shares at 446p.

That acquisition comes a week before BP gives a strategy update in London, its first since March 2014.

"Investors want a clear performance and financial target framework. Historically, BP delivers this," says UBS analyst Jon Rigby. "The changes at 4Q16, raising 2017 capex and cash neutrality guidance negatively surprised and some reassurance over medium term objectives is required."

"The medium term framework needs to emphasise something more akin to a $50 a barrel neutrality figure at the bottom end of BP's previous target range. We do expect some reassurance that the creeping cost of Macondo is coming to an end."

Profitable Treatt for this director

Typically, Treatt issues a trading update late March/early April ahead of interim results in May. This year, the maker of flavours and fragrances, has been doing rather well. In fact, it's doing so well the update was brought forward to 23 February.

Momentum since January's Annual General Meeting - one of the best AGMs, according to our companies analyst Richard Beddard - has "gathered pace," said management in a statement.

Results for the six months to March will now "show substantial progress" on the year before, and a combination of strong revenue growth and better margins mean pre-tax profit for the year to 30 September "will substantially exceed its previous expectations".

However, clearly no one told non-executive director Richard Illek.

The former PepsiCo man, a Treatt director for less than a year, bought 40,000 shares in the company at 257p on Monday.

After rallying to a record 322.5p on the surprise statement, that £103,000 investment is now worth over £128,000, giving a paper profit of £25,600 in just a few days.

I understand that non-execs had received no business updates since the eve of the AGM, and that this trading update was brought forward at less than 24 hours' notice.

In that case, well played Mr Illek.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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