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By Rob Davies (TMFEssex@aol.com)
I skip a week on the Qualiport board and what happens? The market has a correction that inflicts collateral damage to the Qualiport. Most affected was Glaxo Wellcome (LSE: GLXO), which isn't in there yet, but is a potential Qualiport stock, and was probably mainly responsible for the market retracement in the first place. In its interim results, announced yesterday, the company said it would not be able to meet its promise of double-digit growth this year. A profit warning is bad news for any company. A profit warning from a company on a price to earnings ratio (P/E) of 31 is especially worrying.
The actual numbers were not too bad. Sales grew 6% despite a 19% fall in Zantac sales. Profits before tax increased 7% and earnings per share were up 8% at 25.7p. What spooked the market was the statement about the growth potential and that profits would only grow in line with revenue. One other factor that has received less attention in the last week or so has been the weakness of the dollar. A fall of 6% in the spot rate has serious implications for a company like Glaxo if it is maintained. Glaxo derives 41% of its revenue from the US.
Bruce is aware of the concerns about Glaxo and set 1500p as his buying level. A fall of 199p took the shares to within 50p of that target. Last time I discussed the stock I suggested that the Qualiport could write the January 1500 put. That would take in 50p a share and mean that the portfolio would pick up stock for an effective price of 1450p if exercised. After the recent falls those options are now trading at 100 to 124p. In other words to buy them back would cost 124p. But as we are looking to buy the stock this shouldn't concern us. We want the shares to dip below 1500p so that the shares are put on to us. Let's wait and see.
Dell (NASDAQ: DEL) has not received much attention recently, so just to remind you it is trading happily at $41, on a P/E of 71, and is increasing sales in the UK at the rate of 43%. Twice the P/E and 6.5 times the growth rate of Glaxo.
There has been no news on Misys (LSE: MSY) since the results apart from a slide in the share price from 560p to 530p. Despite this trend brokers still like the stock and ten recommend buying it, two are holders and none of them advise selling the stock. Bruce is right, I can't figure out what they really do. TMFEagle is writing a special on the upcoming float of The eXchange plc, which is a competitor to the Screentrade site run by Misys. Don't miss this in-depth incisive report. Read it and you will at least understand part of Misys's business.
It will surprise few Fools to read that Rentokil Initial (LSE: RTO) was the worst performer in the FTSE 100 over the first seven months of this year. Brokers have a wide range of opinions on this stock, with 2 actually recommending selling the stock. Nevertheless, six are still buyers and another 2 are holders.
In the process of digging out the performance data on Rentokil I discovered that Powergen (LSE: PWG) had been another poor performer in the FTSE 100 this year. It has fallen 23% in contrast to the 48% fall of Rentokil. But the striking thing about Powergen is how cheap it looks. A prospective P/E of 9 and a yield of 3.6% is in sharp contrast to the P/E of 17 and 1.6% yield offered by Rentokil.
Of course they are quite different businesses, and Powergen is going to have a tough time in the next few years until the new rules for the electricity pool pricing structure are determined. But the other reason for the fall is the unseasonably warm weather the UK is enjoying. That surely can't last! Just a thought, Bruce.
This week has seen Internet frenzy reach new peaks with the listing of Freeserve (LSE: FRE). Now priced at 233p, it values the company at £2.3b, but the sector is getting increasingly crowded. There are now over 100 companies offering free Internet, access ranging from banks to sporting clubs. However, many informed observers (i.e. Maria, the office cleaner) think the key to success will be content on the Internet, not the mechanics of getting on to it. EMAP (LSE: EMA) has joined this growing band by offering its own free Internet access service using content from its FHM magazine for its readers. Although the magazine sells 500,000 copies a month, the site receives 12 million impressions a month. So it is pretty popular already. The access will be a joint project with Internet Technology Group (LSE: ITH), an AIM stock capitalised at £73m. EMAP is capitalised at £2.9b and it could be argued that, say, £2b of that is for the Internet access leaving the rest of the group's activities valued at a mere £900m. And that buys £880m of turnover and £74m of net profits.
Which Internet sites do Fools think will be most successful: fashion comments on FHM, or Dixon's sales staff on Freeserve? Tell us on the Qualiport message board
Company Change Bid DELL(US)-0.90 41.10 EMA +0.32 11.66 IIG 0.00 2.95 MSY +0.35 5.45 PIZ -0.01 7.37 RTO +0.03 2.38 ULVR +0.20 5.92 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 27/10/98 755 Indep Ins 2.58 2.95 14.3% 17/04/98 169 EMAP 11.34 11.66 2.8% 22/04/99 347 Misys 5.76 5.45 (5.4%) 19/12/97 783 Rentokil 2.55 2.38 (6.7%) 04/11/98 245 Pizza Exp 7.93 7.37 (7.0%) 27/01/99 74 Dell (US) 44.63 41.10 (7.9%) 17/07/98 266 Unilever 7.53 5.92 (21.3%) Last Rec'd Total # Company In At Value Change 27/10/98 755 Indep Ins 1972.64 2249.90 277.26 17/04/98 169 EMAP 2341.32 2355.32 14.00 22/04/99 347 Misys 2028.71 1891.15 (137.56) 04/11/98 245 Pizza Exp 1966.34 1805.65 (160.69) 27/01/99 74 Dell (US) 2007.42 1843.27 (164.15) 19/12/97 783 Rentokil 2046.53 1863.54 (182.99) 17/07/98 266 Unilever 2052.00 1574.72 (477.28) Cash: £3,371.66 Current Total : £16,932.56 Total Invested: £18,184.62 Profit/(Loss) : (£1,252.06) Value Per Share Day Month Year Qualiport 1.32% -0.83% -9.96% FTSE 100 1.87% -1.37% 5.94% FTSE All Share 1.56% -0.71% 9.40%