The latest figures from Interserve justify its place in the value portfolio.
One of my value portfolio shares, Interserve, which I selected in November, has just reported results for the 2009 calendar year. They look good and I think vindicate this choice.
A yesbut play
Like most shares in this series Interserve was never a deep value play and I described it as a "yesbut" in the original article with a low forecast P/E of 4.8 and a very high yield of 8.6%.
The but bit was that it had the non-value features of negative tangible assets and debt of £83m against a market cap of £254m. That debt ratio is not exceptionally high by market standards but for me, to whom all debt stinks, it was borderline.
In the latest results though, the company has improved markedly just as I believed it would. Net debt has been reduced by 66% from the comparative, down to £37m.
Basic eps is up 26% to 54.9p and the dividend at 17.5p is marginally above the earlier forecast.
Even the pension fund deficit which concerned some investors has been improved substantially. It still has negative tangible assets though, can't win 'em all in this case.
The shares rose on what the market took as a positive surprise and now stand at 224p.
Looking ahead
Eps on the normalised basis used by analysts is forecast at 40.2p for 2010 and 43.3p for 2011 with dividends at 18.0p and 18.5p. That makes expected P/Es of 5.6 and 4.2, with yields of 8.0% and 8.3%.
That is still way too low in my view, especially considering the sharp improvements in debt and the pension fund deficit that Interserve has achieved.
The final dividend is 12p going ex div on 21 April with payment on 8 June, if you want to catch it. That alone represents about a 5.4% yield though, as usual with ex div dates, the price may open lower by about this amount on the day.
On the outlook, the directorspeak refers to 2010 as "challenging", that clichéd word found so often in corporate comment.
Even after several decades of reading company reports, I still remain amused at how the language used therein appears so similar across all shares, in line with whatever the prevailing fashion may be. The lack of any spark of originality is quite depressing.
Anyway, clichés apart, they say they have confidence in the group's future prospects, reflected in their continuing progressive dividend policy.
Pension deficits
Some investors agonise over pension fund deficits.
Obviously I'd rather see a company without this but they are a fickle feature of the times, subject to quite enormous fluctuations, rather than a permanent fixture. Low interest rates and depressed markets are two conditions which exacerbate deficits.
Similarly the reverse is true, but we have been living through the former state over the last year or two, with interest rates at an historic low and the market still below what it was around ten years ago.
In time, the likely direction of both interest rates and markets is likely to be up, which will do a lot to lower pension deficits in my view.
The value portfolio
Following the results I am keeping Interserve in the portfolio for the time being. It's been quite a good week overall for the portfolio which is about three clicks up on last week. Interserve is now up about 10% and my controversial disproportionate play in Aviva is also up.
Previous underperformer Dart has recovered somewhat though it is still one of two shares under cost, the other being Moneysupermarket which so far is disappointing, the worst by some way. I am keeping it in though because as far as I can see the value fundamentals haven't been blown.
Biggest percentage runner is Mucklow whilst the highest cash gain is from Aviva which I continue to think is way too cheap on yield.
Here's the latest position. I don't bother to record dividends though if I did the current value figure would be rather higher as most of these shares have quite high yields.
| Company | Cost
£ | Value
£ |
|---|
| Aviva (LSE: AV) | 20,092 | 21,104 |
| BAE Systems (LSE: BA) | 5,000 | 5,640 |
| Carillion (LSE: CLLN) | 5,000 | 5,693 |
| Cable & Wireless (LSE: CW) | 5,000 | 5,117 |
| De La Rue (LSE: DLAR) | 5,000 | 5,586 |
| Dart Group (LSE: DTG) | 5,000 | 4,869 |
| Interserve (LSE: IRV) | 5,000 | 5,514 |
| Mucklow (LSE: MKLW) | 5,000 | 5,843 |
| Moneysupermarket (LSE: MONY) | 5,000 | 4,318 |
| MS International (LSE: MSI) | 5,000 | 5,086 |
| Sub-total | | 68,770 |
| Cash | | 3 |
| Current value | | 68,773 |
| Originally invested | | 60,000 |
| Gain/(Loss) | | 8,773 |
More from Stephen Bland:
Of the shares mentioned Stephen holds Aviva, BAE Systems and De La Rue.
