"Not expensive, sure... but not nearly out and out "deep value" compared to a few other situations"
Bill - Correct, I bit the bullet and put 1% of my wad into Next at 4060 on 15 Jun -- partly to time the dividend + special which allowed me to collect £1.5 a share.
With a 24.5% gain in capital since then + the divi, I'm wondering if to call time after the two day spurt and forego the continued 45p per quarter special dividends.
I see WTB just received a sell rating from Citigroup and a £32 price target - but then again another day, another broker.
Thanks BW - all valid points! All good investors should be able to write the Bull case AND the Bear case for any stock they know well, and you cover a number of the clear Bull points... as I've always said, there are some real investment qualities and attractions here.
"... my personal opinion is there will be a base load reached from advertising... Letters loss ... will be parcels gain!... I also see international investment as risk reduction, that way any regional effects can be diluted.."
Yes, I agree on a base level of physical mail delivery - from things like cards as well as advertising - so we should see the rate of structural decline slow down at some point... albeit maybe not for a while? And parcels is a more competitive business, and only likely to get more so... though RMG has key structural assets and advantages which should mean they do at least fine here, assuming half-decent management performance.
I am less convinced by your optimism on overseas investment. Yes, this always brings potential rewards as well as risk, but too often it is skewed against you... people were justifiably optimistic when Tesco, at the top of their game, launched into the US market, given the skills and expertise they had shown in cleaning up in the UK market. Yet, just a few years later, they were forced into a humiliating exit, tail between legs, at a cumulative loss of over £2billion... a case study in corporate hubris, then nemesis.
Smaller, bolt-on acquisitions in areas synergistic with the existing GLS capability could well be a very good idea... but any major investment in new, unconnected territory would be highly dangerous IMHO - and be seen as such by the market, with the SP likely to suffer in the near term... however attractive the dynamics of the market being entered. Though of course, it would come down to the detail of the specific deal, and the price being paid, etc.
But "risk reduction"? For the overall investment case? Not likely ...
I am glad you agree that spin is an unnecessary requirement when debating shares at our 'amateur level', I am sick of seeing rampers and de-rampers spout off their opinions without any real facts.
I also appreciate you seem to be a knowledgeable guy, and from the brain picking you are getting from other persons on this board you are probably a successful share picker. Also from the sounds of some of your picks mentioned, our investing methodolgy may be very similar!
Therefore I won't childishly retort to any of your comments, but I will still debate/defend my stance on Royal Mail.
With respect to the UKPIL, obviously with E-mails and other messaging media the good old fashioned letter will decline, but to what extent is a guess, my personal opinion is there will be a base load reached from advertising. Advertising letters will stand out more than junk E-mail, I could quite easily reject any advertising from any company with one click of a button, which would automatically divert it into the Spam or trash bin. Physical letters, have to be viewed, even if it is to put it into the bin.
Letters loss due to technology will be parcels gain! The trend in buying online through companies such as Joules group, amazon etc is growing. Every parcel must be delivered somewhere! I have a friend who drives a royal mail arctic truck every day to and from Amazon distribution office to a regional office, that is one company (be it a large one) to a single region, multiply this up in an industry that is 'accelerating' (excuse the spin) and we see growth. Which if viewing the Q1 report UKPIL parcel revenue grew 3%. giving UKPIL fall of 1 % (not disastrous). In the same quarter GLS revenue grew 6%, giving an overall total revenue up 1%, now this is not dazzling, but it is revenue growth.
Now you seem to be nervous against foreign investment as it has some risk. GLS is a European business which seems to be performing very well. I also see international investment as risk reduction, that way any regional affects can be diluted, and to enter a market such as the California USA where tech is at its foremost I see as a great investment.
WTB - I remain a happy holder, but I don't consider it a true "value" play... more "inexpensive growth", with the well-invested core brands set to deliver decent incremental returns over time. Though you can always debate such 'labels'... it has undoubtedly been buffetted, and taken down to attractive levels, by many of the same factors which have driven many other stocks into true, compelling "value" territory.
NXT - I considered it, and it definitely deserved to be part of the conversation... as today's sharp spike unarguably proves, on the back of what are really no more than "not getting any worse... for now" results!
But I was unconvinced by NXT... sure, it had collapsed a long way, though I suspect the previously elevated valuation owed more to the hitherto management reputation than the outlook for the actual business. It's a pretty pure play on UK clothing, and as the UK economic picture cloudens, the road ahead could remain rocky for a while... with its earlier advantage as innovator in areas such as online increasingly historic as others catch up.
Not expensive, sure... but not nearly out and out "deep value" compared to a few other situations, both within its own sector and elsewhere, particularly when you adjust for differences in the operational and asset profile. And it doesn't have the portfolio balance of, say, a MKS, with its successful food operation. So it failed to quite make my "Value Top 10"... and if today's move suggests that was wrong (we'll have to see if it lasts!), I am certainly not going to include it now!
Of stocks I already own (can always buy more): MKS, IMB, ITV, AA, CNCT, BON, SGC (the latter a bit more doubtful)
Potential targets: WPP, CPI, BT
I include AA, though it is more of a "special situation", not a true value play. There are a number of others I could mention, mostly smaller caps, which are definitely "value" in potential, but higher risk. On balance, RMG doesn't make the list... a bit cheap, but not by much IMHO.
"... which non value companies do you consider over priced?"
ULVR and DGE most obviously... RB was until recently, but no longer (just shows how quickly things can turn when you are priced for perfection?) After that... probably TSCO still... otherwise not many I am looking at that look clearly over valued in absolute terms, though quite a few are notably expensive relative to immediate peers (e.g. BATS).
That is all from a UK stock perspective ... easier to come up with a longer list of expensive stocks when you throw in the US market too, though most I haven't looked at closely enough to express a properly informed opinion.
"My point is that this business is as steady as a rock... to add the spin of 'the decline might be accelerating' is the unnecessary negativity I am talking about."
I certainly agree that we shouldn't make the usual mistake of getting too gloomy at the bottom.. . Likewise with getting too bullish at the top! It's what too many investors do - and indeed, what this market is currently doing, to excess. Cheap stocks being shunned and just getting cheaper, stocks on historically top-end ratings just getting even dearer...
And as I said, I am not particularly gloomy down at 376p... there are some clear, attractive qualities, but you have to balance these against the risks and uncertainties. My point about accelerating decline is not spin - not something I indulge in, wherever possible... the company itself is flagging that the ongoing decline in core letters volumes is likely to be at the top end of the forecast 4-6% pa. range this year, due to business uncertainty. So, higher than it has been... and I am sure you'd agree that business uncertainty might well be a multi-year issue from here? So, where is the spin??
I'd also be nervous about buying businesses overseas. Historically, this has been difficult to deliver value from, for most companies... and where are the synergies, with core assets, distribution networks, etc? They may make a success of this, but it's a risk, unarguably... and businesses that need to buy abroad to offset pressures at home are not "steady as a rock".
"I did not say the stock was cheap..."
Well, you did say the equity was worth £5 a share... so is that not saying the stock is over 30% undervalued? If that's not "cheap"... what is?!
I actually DO think it's cheap... but only by a much smaller amount. People have been trying to call the bottom in this all the way down, citing yield support principally- and yes, this is first and foremost a yield stock, and likely to remain so. At £5, the current yield is 4.6%, on a dividend that is safe enough for now, but not growing much... this is not enough for me, not nearly, in a UK market already yielding around 4% on average. I can get plenty of 5%, even 6% yields with better risk reward profiles (IMHO of course).
So I think the "conversation" range is 5-6%... the yield is pushing over 6% at the current SP so I am prepared to say this is potentially attractive - but not by a massive degree.
And I'm with you, I am all for such debates... healthy indeed, and hopefully informative - to a number of people, with any luck? And ultimately, it takes two opposing views to make a market... only time will tell who is right!
You seem to agree with me on most points, but with a negative point of view attached.
My point is that this business is as steady as a rock but seems to be falling like one recently, and peoples sentiments on this board match the way the share price is going.
I agree the business isn't fancy, and maybe its core business is slowing (UKPIL < 2%), but this is offset by a 9 % growth in GLS, GLS revenue is now almost a third and growing. The company is adapting itself to become more cost competitive with investment in new sorting mechanisms, which will allow costs to come down. I also see purchasing of overseas companies in Spain and California, so from my opinion the company is not standing still hence is not in a structural decline, so to add the spin of 'the decline might be accelerating' is the unnecessary negativity I am talking about.
I did not declare the stock was cheap, I merely stated there was ~£5 in equity per share (which is growing ~ 10 %/annum since going public), and there are no real nasty surprises in the cupboard, so in my opinion this is a safe defensive stock.
I also sent the message to get other peoples opinions as well, to see if I am missing something major, and to create such debates which are always healthy to have.
"Revenue is growing... it is a very dominant player within its sphere... it pays a good dividend... to me this is a safe defensive stock..."
BW - revenue is only growing in the highly competitive parcels biz, where margins will always remain under pressure... it is only dominant in one part of the business, the one that is in long term structural decline - and this decline might be accelerating. Underlying operating profits are on a downtrend, though ongoing cost cutting is at least keeping that profile relatively flat.
The dividend is indeed decent, though not growing that fast, and nor is it likely to... there is definite yield support now, with the yield hitting 6%, but there are plenty of other big yields elsewhere in the market.
Defensive stock for sure, though not as "safe" as some... there are a number of sentiment issues (e.g. workforce militancy) which may well dissipate over time, though I fear the spectre of a Labour government under Corbyn may be with us for a while yet. And ultimately, while RMG is undoubtedly a relatively cheap stock (on some metrics at least), we are in the paradoxical situation where we supposedly have an "expensive" market, yet there is no shortage of equally cheap stocks in a number of sectors, and not all of them with the same structural concerns.
So 380p is not far off "fair value" to me... perhaps £4 at a push. But I'd definitely need a yield closer to 6% than 5%, at least for the moment.
There is a real negativity behind Royal Mail shares. To fall out of the FTSE 100 is a bad blow, but what I cannot understand is the sentiment that has caused the shares to fall to a value that allowed it to happen.
In my opinion the company is worth ~ £5 per share in equity, of which a large percentage is tangible assets. The pension pot seems to be in a healthy state, which is more can be said than for a lot of other FTSE companies. Revenue is growing, given not at a start-up rate, but nevertheless growing. It is a very dominant player within its sphere, and could use its muscle to expand into other countries. It pays a good dividend etc.
The fact that is was a government run institution has its downfalls, but as time progresses the competitive nature of a company will remove any of the inefficiencies left over, thus reducing costs and increasing profits.
To me this is a safe defensive stock but recent price falls contradict this and I can't see a reason for the initial poor sentiment
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