Dialight trading update

Supplier of light emitting diode (LED) solutions for industrial users. Applying leading edge LED technology, it produces retro-fittable lighting fixtures designed specifically for hazardous locations, obstruction signals and traffic signalling.  I have a holding in my growth portfolio (epic code: DIA). 

Dialight issued a trading update today which confirmed further weakening of their order intake and overall trade. 

The Industrial Lighting division sales grew by 50% in the year, which although an impressive number, was down on the 60% achieved at the 10 month stage. They state that this is due to the late receipt of almost £3m of Lighting orders, that will now be delivered in 2014 and decisions by certain US customers in December to defer Lighting orders.  

They had previously commented on order delays for the Obstruction business during the year, but there is now in addition to this, a worse than expected performance from the Traffic business in both the USA and Europe which was down £3m in revenues on the prior year.

Management say that they now expect underlying PBT from continuing operations to be not less than £14.5m, compared to £19.7m last year.  At today's price of 700p the stock is still rated on a P/E above 23, which would suggest that holders have not given up on the company just yet and 2013 may just be an isolated awful year.

My purchase in November was obviously poorly timed, but I still feel that the industrial LED market will support substantial growth, but some of the shine has been taken off the track record of Dialight and raises a few questions over the management of the business. 

Portfolio change

A manufacturer and distributor of reinforced polymer products. It operates in two segments, conveyor belting and advanced engineered products and is considered a world leader in reinforced polymer technology.  I no longer have a holding in my income portfolio (epic code: FENR).

On 17 December I took the decision to sell the balance of my holding in Fenner.  I first bought Fenner on a 9.5% yield, back in November 2008 for 68.5p and top sliced my holding on six separate occasions as the price recovered from November 2009 to February 2012, obtaining prices that ranged from 180p to 474p.  The balance remaining, that represented about 16% of my original purchase, was sold at 439.63p (including costs).




During the 5 years I had an interest in the company it returned 108.5% pa (dividends not reinvested), a truly excellent performer.  Some may say that had I not top sliced the investment, my returns would have been substantially higher, but then I would breach one of my cardinal rules of capital preservation.  None of my investments will be allowed to breach 15% of my portfolio and no dividend from one company will exceed 20% of my total dividends (special dividends excluded).


Whether you are a long-term investor, short-term investor, trader or a gambler the same principles apply.  Some professional gamblers use the Kelly formula:




K= (((B+1) x P)-1)/B


Where,
K= the amount to be risked from your total capital at any time,
B= the ratio of the amount won on a winning bet to the amount lost on a losing bet,
P = the probability of a winning bet.




Professional traders may follow Dr Alexander Elder's rule of limiting any single trade to 2% of your trading capital, which he calls "protection from sharks" and the 6% rule (stop trading for a period, for say a week or the rest of the month, if your total losses exceed 6% of your trading capital), which he calls "protection from piranhas".




The point is that it is important to develop your own set of rules that you are comfortable with, to protect your capital.  If professional gamblers and traders are careful with their own capital, we as investors should certainly take time over portfolio and risk management.




My reason for selling the balance of Fenner is due to the low yield of 2.6%, with a likely growth for the foreseeable future of around 6-7%.  I have invested the proceeds in topping up my investment in Unilever with a 3.8% yield and an expected dividend growth of 5-6% and topped up Bhp Billiton with a 4.2% yield and dividend growth of 6% plus the expectation of special dividends, as they fulfil on their promise to ration capex and return additional cash to shareholders.




 

Amerisur update

Amerisur Resources is an independent full-cycle oil and gas company focused on South America, with assets in Colombia and Paraguay. I have a holding in my growth portfolio (epic code: AMER).

Amerisur today issued an update on its Platanillo-7 well in Colombia, the 10^th new well of the current drilling campaign. The well has been successfully drilled, on time and under budget, to a total depth of 8,533ft (measured depth), achieving an offset of 1,181ft to the east of Platform 3N.  The well has been placed on commercial production at approximately 1,300 BOPD (on reduced choke).

CEO Wardle stated that "...The geological risk at Platform 3N was always higher than at previous wells simply because we were stepping out beyond the area where wells had been drilled previously. The fact that the structure at 3N and the flow rates surpassed our expectations bodes well for future development wells in the area, underlining the field potential going north..."

With respect to the on-going, but improving problems relating to the exportation of production, Wardle stated that "...We continue to work with all parties to resolve the constraints on our export processes, and I hope to be able to give an update on the Ecuador export option early in the New Year..."

BAE Systems update on discussions

A global defence, aerospace and security company. BAE Systems delivers a range of products and services for air, land and naval forces, as well as advanced electronics, security, information technology solutions and support services.  I have a holding in my income portfolio (epic code: BA.).

 

After the market closed today BAE Systems announced that the United Arab Emirates have decided not to proceed with a range of defence and security capabilities including the potential supply of Typhoon aircraft. 

They also updated the market on negotiations with Saudi Arabia on the Salam Typhoon agreement.  They state that "...Whilst good progress has been made, a definitive agreement has yet to be reached.  A timely agreement in the new-year would be reflected in trading for 2013..." 

EPS guidance for 2013 would be affected by approximately 6 to 7p as a result of the Salam discussions not being concluded in the near term.  Current consensus EPS, including a successful conclusion to the negotiations, is 43.5p

 

 

 

 

 

 

 

GlaxoSmithKline FDA approval

GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

GSK announced today that the US FDA has approved ANORO/ELLIPTA to be used as a once-daily, maintenance treatment of airflow obstruction in patients with chronic obstructive pulmonary disease (COPD), including chronic bronchitis and/or emphysema. 

 

They stated that Anoro/Ellipta is not indicated for the relief of acute bronchospasm or for the treatment of asthma.

 

Theravance (NASDAQ: THRX) who jointly developed this medication with GSK is obliged to make a milestone payment of $30m to GSK following FDA approval. A further $30m payment to GSK will follow the launch of Anoro/Ellipta in the US, expected in the first quarter 2014.

 

I make this 5 FDA approvals this year:

 

May 2013 - Trametinib (Mekinist)

 

May 2013 - Dabrafenib (Tafinlar)

 

May 2013 - Breo/Ellipta

 

August 2013 - Tivicay

 

December 2013 - Anora/Ellipta

 

I understand that there have been 34 approvals this year, so GSK appears to have a good share, this compares to 43 approvals last year.  Although lower in number, a few analysts have said that the expected sales by their fifth year for 2013 approvals, will be up to 14% higher than last year

Synergy Health contract wins

Delivers a range of specialist outsourced services to healthcare providers and other clients concerned with health management. Such as hospital sterilisation services; applied sterilisation technologies for single-use medical devices; reusable surgical solutions for daily delivery of sterile reusable gowns and towels; clinical pathology, toxicology and microbiological services; chemical and microbiological analysis; linen management services for healthcare facilities and product solutions designed for infection prevention and control, patient hygiene, surgical procedures and wound care.  I have a holding in my growth portfolio (epic code: SYR)

Announced today six new contracts from the USA -  two Hospital Sterilisation Service contracts, two Reusable Surgical Solutions contracts and two Applied Sterilisation Technology contracts, totalling £230m. They state that the order book for HSS, RSS and healthcare linen services now stands at circa £1.1bn.

 

They also announced a partnership with the Center for Advanced Medical Learning and Simulation in Tampa, Florida to create a Learning Academy for Synergy Health.  Initially Synergy will be developing teaching and training programmes in order to certify HSS technicians to meet the compulsory standards being adopted in certain US states in 2015, but will expand its programme to include training and development for the full breadth of Synergy's services in 2014/5.  Synergy will also be providing a full HSS service to CAMLS processing all surgical instruments used in the training programmes.

 

Synergy announced their interims on 12 November, when they stated that earnings for the year will be in line with the Board's expectations see here for my comments.  I stated that the shares were worth holding for the opportunities in the USA and they do appear to be notching up success in that area.

GlaxoSmithKline open offer

GlaxoSmithKline a global healthcare company that develops, manufactures and markets pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products.  I have a holding in my income portfolio (epic code: GSK). 

Today Glaxo announced an open offer to increase its stake in its publicly-listed pharmaceuticals subsidiary in India from 50.7% to up to 75% at a price of INR 3,100 per share. 

The Offer is at a premium of approximately 26% to the company's closing price on Friday and values the business at just over INR 263bn.  The cost to Glaxo is approximately INR 64bn (£629m).

The Indian company's earnings in the financial year ended 31 December, 2012 were approximately INR 5.6bn (£66m at 2012 average exchange rates).  The price Glaxo are offering values the business at a P/E of 47.

This follows on from Glaxo's purchase last year of 28.3% of their other Indian subsidiary - Consumer Healthcare for INR 48bn (£568m), bringing their ownership to 72.5%.

Glaxo also purchased 33.6% of its Nigerian subsidiary for NGN 15.4bn (£62m) to bring its holding to 80%.

To retain a public listing in India the minimum free float must be 25% and in Nigeria 20%.

It will be interesting to see whether the current offer achieves anywhere near the target of 75%.  Unilever recently acquired 14.8% of its Indian subsidiary Hindustan Unilever bringing its holding to 67.28% compared to their target of 75%, see comment here.