Why I’d Dump Quindell Plc & IGAS Energy Plc But Buy Dunelm Group Plc

With our access to almost endless information online, it’s quite easy these days, to come across companies being promoted by individuals who want to make sure that everyone knows just how much money they could make by buying the shares.  In stark contrast, I believe that you should take a step back and look for the companies that don’t get the media attention: the ones that continue to make profits, generate cash and pay growing dividends to their shareholders.

So, fellow Fools, today I shall explain why I think you should dump IGAS (LSE: IGAS) and Quindell (LSE: QPP), then buy Dunelm (LSE: DNLM).


In simple terms, IGAS — as the name would suggest — is a play on gas and oil.  As many readers would have noticed, the price of oil has tanked in recent weeks and whilst it seems to have regained its composure, with Brent Crude currently trading around $61 per barrel, I can’t help but wonder whether this is enough for a company with £80m of debt (as at 30/9/14 interim results) to be able to make enough to service that debt.  Indeed, it is forecast to make a loss in the next two financial years to 31st March 2016…


This company needs no introduction, sadly, for all of the wrong reasons.  The former darling of private investors, this company — along with its chairman — has had a dramatic fall from grace.  If it isn’t bear raids from Gotham, it is the chairman stepping down under a rather grey cloud…  Couple that with a soon-to-be published report from PricewaterhouseCoopers (PwC), and you have a perfect storm that means that this stock trades on a forward P/E ratio of less than one (yes, you read that right!).  The only question I pose is: where is the cash?  At these prices, shouldn’t the company be buying back its shares?  Shouldn’t it be doing something to increase shareholder value?


So, what can I can I say about a company that is never mentioned on the boards?  Well, quite a lot actually.  At the interim results announced last week, revenues were up by 14%, gross margin was maintained at just over 50%, home delivery sales were ahead by 76%, the interim dividend was increased by 10% and — as the icing on the cake — a 70 pence per share special dividend was announced.

If that isn’t enough, the company also announced plans to grow sales by 50% over the medium term with investment in new stores as well as focusing on the opportunity online.  And whilst this will come at a cost and free cash flow will reduce whilst the company invests in its future, I think that shareholders will do well over the next three to five years.

The Bottom Line

Whilst it is fair to say that the future can’t be predicted and I can’t tell you where the price of oil will be next week, next month or next year, or whether PwC will find some cash in the books of  Quindell, I can tell you that I sleep sounder at night, safe in the knowledge that not that many people are talking about Dunelm.

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Dave Sullivan owns shares in Dunelm. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.