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By Chris Bailey | Tuesday 13 November 2018
Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
Too many interesting numbers today, so a quick three into one mash up...
First, Taylor Wimpey (TW.). Regular readers may well recall my piece back in May which concluded on the housebuilders: "sell 'em all". Well that worked out ok. Now I know a lot of hardened value investor types love the housebuilders here with big yields, low P/Es and - as again expressed by Taylor Wimpey's management earlier today - guarded optimism that the UK housing shortage stands them in good stead. All very reasonable points...except it is missing that house prices are generally falling.
This sector - with its correlation with consumer confidence, reliance on government pro-housing policy and expensive land banks - is desperately macro...and that outlook remains very patchy to say the least. Taylor Wimpey at least is towards the lower end of the price spectrum but it is not immune. I can still point to ten much more interesting 'Brexit deal bounce' UK domestic share stories. Still no need to hold the housebuilders here...and Taylor Wimpey shares off another couple of percent today tells you that negative macro overhang is starting to induce a bit of capitulation of the stale bulls.
Second, First Group (FGP), which I see got a real rollocking in the weekend press highlighting subsidies, write-offs, the new CEO's pay packet and why is xyz train always late. As is often the case, a real pasting by the weekend press sets up a share price bounce when the numbers are actually released and it is good to see First's shares up 10% - good particularly as my buy recommendation from back in early June was looking a touch sick. The key here is that the bus franchise continues rolling on and the cash from this - and a bit from the patchy train business - has helped nibble down the debt level further.
The debt is by far the biggest risk here and this combined with the company holding its full year hopes (although the results technically show a statutory loss due to some restructuring spend associated with the Greyhound bus brand in North America) has induced those oh-so-clever shorters to panic buy a few shares back today. As I noted in my previous article, the last CEO should have bitten off the private equity bid hand offered to him...but now the opportunity over time to chivvy debt down more and ultimately refinance it much more cheaply, falls to a new guy. I think he takes it and that pushes the shares nicely over a quid. I am still a buyer.
Finally, let's chat briefly about the temporary power company Aggreko (AGK), which I last wrote on in March when I noted I wanted to buy a few (more) shares. My timing was not perfect - step forward July - but it is good enough to show a decent double-digit profit here. Today's trading update is classic Aggreko with good bits (the core rental business, continued deleveraging) and patchy bits (currency headwinds, various issues in specific emerging markets) and overall profits (before the inevitable foreign exchange hit) are still only going to be inline with 2017. Mr Market knows all this though, hence the shares continued to climb up the wall of worry.
My heart hopes for a return to 10 quid (as it was a year ago) but my head says at the current level of newsflow and generalised emerging market uncertainty, I would trade out at something beginning with a nine. The key though is the emerging markets where power shortages continue and Aggreko has a wonderful network. These trends are not going away...and neither are the capex and know-how barriers to be a player in this industry. A continued hold for me here.
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