In this article I’ll take a look at today’s market-moving news from three popular stocks.
Shareholders in financial trading firm Plus500 (LSE: PLUS) nudged the firm’s shares 4% higher this morning after the group’s 2015 results were published.
Revenue rose by 20% to $275m and customer numbers rose by 29%, despite last year’s problems. Although the firm’s gross profit margin fell from 63.6% to 48.2%, earnings per share were ahead of expectations at $0.84, or 58p, versus forecasts of $0.71 per share.
The group plans to return all of these profits to shareholders through ordinary and special dividends totalling $0.8405 per share. That’s equivalent to a massive trailing dividend yield of 10.9% at the current share price.
Looking ahead, Plus500 said it plans to maintain a 60% payout ratio for future dividend payments, with the option to pay additional special dividends or buy back shares. The shares now trade on 9.2 times trailing earnings, with an ordinary dividend yield of 6.6%.
My view is that these shares are probably quite fairly valued. Earnings visibility is always likely to be poor for Plus500, as customer activity is strongly influenced by market conditions.
Utilitywise (LSE: UTW) received a lot of investor criticism last year due to its poor cash flow, which has lagged far behind its fast-rising profits.
In a trading statement today, Utilitywise confirmed that business is performing in line with expectations. Customer numbers have risen by 32% to 29,288 over the last year, while the group signed £40m of new orders during the six months ending 31 January.
Utilitywise said today that progress is being made with restructuring its energy supplier contracts to improve the firm’s cash generation. However, net debt has risen from £6.7m to £10.4m during the last six months, despite the firm receiving a £3.6m back payment from a supplier in October. This suggests to me that cash generation may remain poor.
Although the 2016 forecast P/E of 9 and prospective yield of 3.5% look superficially attractive, I’m not tempted by Utilitywise. I will wait for the next set of accounts before reviewing this stock again.
UK Oil & Gas
UK Oil & Gas Investments (LSE: UKOG) has released two updates in two days relating to the current flow test of the Horse Hill-1 well near Gatwick Airport.
Today’s update reports that the well flowed good quality oil for a further 9.5 hours at a rate of 456 barrels of oil per day on Tuesday. UKOG has a 20.163% interest in this well, meaning that the firm’s share of this oil is 91bopd.
The early success of this flow test does suggest that Horse Hill might be commercial. However, we don’t yet know how much oil will be recovered from Horse Hill, nor how many wells it will need to drill to maximise recovery. If the performance of these wells is comparable to similar wells in the US, production rates could decline fast.
Even if the price of oil rises to $40 per barrel, 91 bopd from Horse Hill-1 would only equate to revenue of $1.3m per year for UK Oil & Gas. That’s peanuts given the firm’s current £45m market cap. In my view the good news is already reflected in the share price, so this isn’t a stock I’d buy.