29 August 2007

Those Magic Words Again

On 20th August Keller announced its interim results for the period ending June 30th 2007. They were very impressive (see here) :

• Revenue of £465.2m up 3% (9% on a constant currency basis)

• Record first-half operating margin of 9.0% (2006: 7.9%)

• Profit before tax of £40.1m up 20% (28% on a constant currency basis)

• Basic earnings per share up 23% to 37.2p (2006: 30.3p)

• Recent major contract wins contribute to a record order book

• Interim dividend per share increased to 6.0p (2006: 4.2p)

This, from a company where Brokers' consensus was for 72p earnings for the year - that is, DOWN from 77p in 2006. These interim results blasted that fiction away. These were the magic words from the Chief Executive:

'In these favourable conditions, and with an all-time high order book, the Board
now expects that the full-year results of the Group's continuing operations
will significantly exceed last year's outstanding results.'
The above had, in fact, been presaged by an optimistic trading statement on the 21st June 2007 (nine days before the end of the first half). But in the July/August turmoils Keller had been badly buffetted. From a peak of 1135p on 10 July, it got as low as 770p on 10 August. At the Friday close on 17 August it was 918p.

How did the market react to these results? By marking Keller down to 899p (it got as low as 873p that day). Here is how the market has reacted since to the magic words:
29-Aug-07




1,060.00
28-Aug-07




1,029.00
24-Aug-07




1,001.00
23-Aug-07




1,020.00
22-Aug-07




987.00
21-Aug-07




923.50

The point I have attempted to demonstrate here is (1) the potent effect of results exceeding market expectations, and, more important, (2) the opportunities available to the private investor to make money, given that the market often reacts rather slowly to the change in expectations. I have seen this happen so many times. Of course, there were great opportunities also in the market panics of late July and August.

Keller is now one of my largest holdings.

19 August 2007

My subprime crisis

Oh, dear! Already badly wounded in July, this private investor repeatedly had chunks bitten off him in the first half of August. His geared play on the FTSE100 has, thus far, been a loser. He is now barely above water for the year. And all because of the difficulties of credit markets in anticipation of spreading contagion from the subprime crisis in the US. There are some bad packages of loans out there and nobody's sure of the degree of the toxicity of the packages and who's holding them. The resulting uncertainty set off a lurch for liquidity and this has resulted in some strong selling of the most liquid larger stocks, at least until late last week. I fancy this was reinforced by selling by leveraged hedge funds and investors on the long side as margin calls hit.

But are many FTSE100 companies short of liquidity? Are they near distress? No, no, no! Many of them are awash with cash and every day for months have been buying back substantial quantities of their own shares. Unlike in the late 1990s, they are lowly rated and with high earnings yields. So, I have spent the first two weeks of August repositioning my portfolio towards the FTSE100 (AstraZeneca, Barclays, Hays, HBOS, iSharesUKHighDividend, Kazakhmys, more Northern Rock, more Royal Bank of Scotland) and some FTSE250 companies whose prices seemed stupidly battered (Inchcape, Keller, Paragon). I had to say goodbye to some old friends to finance this (Inveresk, more Soco Intnl., Premier Farnell, SmallerCosDividendTrust, WHIreland). It's been an extraordinary quantity of transactions for me ... I hope that it's unltimately as profitable as my shift to SmallCap value shares in 1998-2001. The FTSE100 is down for the year. I still expect it will end the year quite a bit higher.

2 August 2007

July: Even Wetter and More Turbulent

Lucky enough to be out of Birmingham most of July and, thus, missed most of the biblical rain experienced here and in the West of England. But the market turbulence got me, and I'm £30,000+ lighter at the end of the month. Nevertheless who wouldn't be pleased with this end-of-the-month summary of relative performance so far in 2007:

Me: +8.0%
FTSE100: +3.7%
FTSESmallCap: +2.3%

Luckily I had some cash when I got back and on 29 July I bought £50k+ of shares. I reckon at this level there are bargains around. My buys were: FTSE100Index (£37k), Northern Rock (Mortgage Bank), more Bellway (housebuilder), Glaxo (Pharmaceuticals). During the month I took some profits on Miners, Antofagasta and BHP Billiton. I hope to update on my portfolio's top holdings shortly.