There are plenty of stocks selling on pumped up ratings at well over 20x
which if there is a wider market plunge, may come back sharply.
I recommend TATE to my parents as view risk/reward
here looks (in my view) reasonable.
When a wider equity bear market develops(as it ultimately will) higher growth on
higher multiples tends to get hammered on any downward revision on
expectations. If a stock is priced for perfection, large downside exists on any disappointment.
Now whatever individual views are in TATE, I think I we can agree that priced for
perfection is not a concern here!.
Current NAFTA uncertainty has eclipsed good growth in SFI, this looks ta longer term value creation opportunity in the business.
A balanced view there, Essential. FWIW I do think that TATE will be a good long-term investment but I also think, as you've pointed out, there are potential pitfalls along the way - known knowns. But there are also other concerns I have.
Firstly, TATE seems out of favour with the market and although it might well be for the reasons you highlighted, what troubles me is what 'they' might know that we don't (yet).
Secondly, the long term chart for TATE concerns me. I know this is hocus pocus territory for some and I've taken some flack for it but for me it holds some weight. Each to their own.
Finally, I am increasingly concerned that a deeper fall in the market in general will occur before too long and if it does TATE will be dragged down with it. Nothing goes up or down in a straight line so there might be bounces along the way but I am sufficiently concerned about the wider picture that I'm holding off making new purchases for the time being. It's frustrating as I still have cash to invest but several stocks on my watch list are heading towards target prices but haven't got there yet, so I think this is pointing to a wider market fall.
I've not really got one. On fundamentals it looks dirt cheap at the moment, but as Essential points out there is a big concern over NAFTA. In the short term the dividend is almost certainly safe.
But I also thought this when the price was quite a bit higher. Whatever happens though they are market leaders in a niche market which is not going to go away, so there may be some stormy times ahead, but whatever happens I'd back them to keep making money for their shareholders.
"High dividend (maybe not sustainable at these levels)"
The ability to maintain the dividend is dependent on performance: profits & cash flow, which last we heard was improving., and was in line with expectations. Share price is dependent on emotions: concerns & hopes for the future.
Last time TATE hit those levels was during the financial crisis.
From memory, the SP was below £3.50 for about 9 months.
Net debt around that time was nearing £1.1 Billion, debt is very approx £700 million lower currently.
Now if NAFTA is dissolved, trading profit took a big hit resulting in a dividend cut,
then those levels are possible. I would hope that will not be the case.
However, the gift of prescience often eludes me for some reason ).
" ...remember the words of the sage of Omaha - be brave when others are fearful. "
Quite right. And with TATE I plan to start being brave below 350. Target is ~315. A long way to go yet...
As for tobacco - I could never invest in a company whose main product is known to cause cancer/heart disease/stroke/premature death. Many of us have known someone who died from the effects of smoking. Not a nice way to go. Maybe people are increasingly finding the industry unethical as an investment. I do hope so.
Lots of good points, essential, but remember the words of the sage of Omaha - be brave when others are fearful.
There is always good value somewhere. Problems in one area are opportunities in others.
Personally I'm pretty much out of all businesses reliant on the UK economy. I do have some Lloyds still; as the dividend looks fairly secure; and (if the high street is in trouble) I also have some H&T.
I don't understand the recent negative movements in the tobacco sector. (BATS as well as IMPS.) My feeling is this is exactly the sort of situation to apply Mr Buffet's philosophy; and I'm hoping TATE is being treated similarly.
Retailers and Utilities - I agree best avoided. it's no surprise that commodities are going up, with threats of tariffs, so the mining sector could be a place to look for opportunities.
There does not look much value to me in this market.
The debt laden UK utilities are being hammered, UK cyclicals look to be
rolling over, with some huge individual falls already. Much of UK retail looks dangerous.
We have seen huge price gains in the commodity space.
Increasing discruption poses a threat to multiple industries.
Even longer term divdend stars like IMB are being killed.
Sentiment towards TATE is currently on the floor, I suppose we could always
head for the basement!. At least the business looks Amazon proof.
Not sure about a historic PE of less than 10x. Last years EPS were 47.7p according to my reading. Having said that it is 'cheap' but is it good value?
Reported EPS was 54.2p, adjusted 47.8p so as Hardboy says, take your pick.
More important is what is the growth potential here, the mean forecasts say none for next 3 years.
48.9, 47.9, 48.8 (Digital Look or UK Webfg as it now chooses to be known)
46.7, 45.9, 46 ( 4-Traders)
That implies forward PE of nearly 12 with no growth.
Even the highest of 8 EPS forecasts for 18/19 are 49p and 50p. That would not give me much encouragement.
I estimate that growth needs to pick up to 3-4% pa after 2020 to justify 550p on a DCF basis, in the meantime flat EPS is hardly likely to excite the market.
I remember posting a positive view on TATE about a year back noting the company forecasts for new products growth. LKH, (now sadly missing in nautical action) came back with the response to the effect that he had found them to be a serial disappointment, I should have listened to his advice, selling at about 12% loss 6 months later.
Since releasing its Q3 update just over a month ago, the share price has been very weak, but it's hard to see why: here are relevant direct quotes:
"remains on track to deliver progress in adjusted profit before tax in constant currency for the year ending 31 March 2018, in line with guidance"
"In Speciality Food Ingredients, the core business delivered good volume growth"
"In Food Systems, profit improved"
"In Bulk Ingredients, sweetener volume in North America grew and profit growth is currently expected to be robust"
So basically all divisions have grown profits. What has caused the continued weakness? It's trading on a historic PE of under 10; and profits will have improved this year and currently offers a yield over 5% which is well covered. This is looking very good value for a recovery.
Yes Grey, I've had these share for three years now as a "value purchase". I buy mainly for dividends so regardless of the ups and downs , we shareholders are currently getting a 4.9% dividend.
I'm a " forever" holder so I don't keep tabs on the capital value. Of course, if there's no dividend at all (heaven forbid) I'd have to sell.
So who knows, I may be here in 10 years time. (I have shares in my portfolio from 24 years ago!!).
I understand the frustration Doug, but nowadays companies do not have to put out quarterly updates at all, so I am thankful for anything they give us; and they would have had to say if anything significant had changed.
"dial in" ? Nah - can't be bothered. If in 2018 a global company can't put a sound file on their awfully designed website then it's a pretty poor show. Also no numbers whatsoever in the trading statement. Things like this tend to really put me (and I'm sure others) off a company. Compare this with CPG who also had a trading update today with plenty of numbers. I think TATE need to get their act together a bit.
Sorry Doug, I haven't looked for it, but I would hope it would appear on the company website err too long.
Your analysis is good, but depending on time scales can be interpreted in different ways: positively or negatively. Over the last 3 years sales and profits have advanced quite nicely; and indications are this will continue for this year. Dividends were held but have increased a bit this year, so the promise of a progressive dividend is implied. Also it's a yield of over 4.5% at current levels, and comfortably covered by profits. At the interims they showed debt & pension deficit had reduced nicely, so everything appears to be moving in the right direction. And with a historic PE of around 11, this looks excellent value.
Of course as Essential points out, with such an international spread foreign exchange rates can have a significant effect on results, but if everything is going in the right direction, these tend to even themselves out more or less over time.
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