Stephen Bland reviews figures from Moneysupermarket and A&J Mucklow.
Results were published recently on two of my value portfolio holdings, being interim figures for the six months to 31 December 2009 for A&J Mucklow (LSE: MKLW) and the full year to that date for Moneysupermarket (LSE: MONY).
Money first
Revenue was down a substantial 23% at Money while basic earnings per share (eps) was a near invisible 0.4p per share. But that compares pretty favourably with the loss of 11.8p recorded last year. The primary reason for this big improvement is that last year there was a massive £70m write down of goodwill, a non cash but nevertheless accountable charge in the profit and loss account.
If though I strip out that goodwill write down, a different picture emerges which shows that eps would have fallen very substantially in 2009, not surprising perhaps in view of the fall in revenue, the latter a victim of the major recession in financial services businesses like this. The company states that profitability has now stabilised and that they actually managed to increase their gross margin.
Cash and dividends next
But eps was never the primary key here as a value play. The value key to Money is money because the business is a quite spectacular producer of cash. As a result they remain debt free, have £54m in the bank and have declared another special dividend, this time of 4.91p. This makes a full-year payout of 13.34p, including two specials, and giving a huge historical yield if you had held throughout.
The normal dividends were 3.5p in total which still gives a perfectly respectable 4.9% historical yield on the current price of 71p. Dividends are set to rise in future to a forecast 3.9p in 2010 and 4.2p in 2011, making high forward yields of 5.5% and 5.9%.
Incidentally the normal final of 2.2p and the special of 4.91p totalling 7.11p both go ex dividend on 3 March, if you want to catch them, with payment on 1 April. That alone represents a 10% yield on the current price in just a few weeks, though the price may fall by a similar amount from whatever it is at the time immediately upon going ex dividend.
I like this attitude of rewarding shareholders with extra dividends from their cash, better than toileting it on buybacks or lousy acquisitions.
Like most service businesses, Money's assets are mostly intangible even after the big write down last year. So whilst the net assets are about £220m against a market cap of £364m, intangibles total £198m leaving only £22m of tangibles, though the latter includes the cash of £54m. Not an asset play then but at least it has some, unlike many businesses like this which are negative on tangibles.
Looking ahead, directorspeak comments that trading was slow in early January but picked up in February, with the current level of trading consistent with their view that business has stabilised with the worst behind them. They remain confident in prospects for this year.
Analysts are forecasting eps and dividend growth for 2010 and 2011 and I continue to see it as under rated so it's staying in the portfolio on cash and yield grounds. It came in at 77.6p, so is down about 8%.
A property play still doing well
The key to property share Mucklow, in contrast, is net asset value and they revealed that as at 31 December 2009 this was 288p, up 8% from the last figure of 266p recorded at their year end of 30 June 2009.
Borrowings, the other critical feature in valuing property shares, fell from £38m to £34m making gearing of 20%. One of the features that attracted me to Mucklow was its very low gearing, way under the norm for the sector and reflecting an innate conservatism which I find highly desirable. So with asset values up and debt down, both are moving in the right direction.
The interim dividend is a same again 8.03p. The total for the last two years was an unchanged 17.68p. Assuming a repeat for the year to 30 June 2010, and with the shares on offer at 303p, the yield is a nice 5.8%.
With property values likely to improve in future on the assumption that we have passed the bottom of the cycle, Mucklow remains a hold and at present is the best performer in the portfolio up about 17%, taking its bid price against the entry level of 250p.
Elsewhere in the portfolio little has changed since last week. My seriously unbalanced punt on Aviva (LSE: AV) hasn't yet done the business with the share only fractionally over cost. Dart (LSE: DTG) remains the worst performer down 18%, but BAE Systems (LSE: BA) has motored up a bit after its results which I reviewed here last week. As most will know, it is early days for these shares because value is not generally an overnight success and great patience is needed.
You never really know with the value strategy when a share will out. The market is so fickle on a short-term basis that a share which was unloved by brokers and commentators can suddenly be described as attractive. Then, by way of the herd instinct, they all start praising it and on the other hand, start condemning some share previously seen as attractive.
It's quite odd how this mood change can happen despite there being little real change in the fundamentals. And it's because of this, that shares with appealing fundamentals can still be seen by many as poor, that value exists.
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Of the shares mentioned Stephen holds Aviva and BAE Systems.
