Vodafone IMS

Vodafone Group PLC is engaged in providing voice and data communications services for both consumers and business customers, with a significant presence in Europe, the Middle East, Africa and the Asia Pacific region.  I have a holding in my income portfolio (epic code: VOD).

Vodafone released their third quarter IMS yesterday.  Their group revenue in the quarter increased 13.5% to £10.9bn and 0.7% on an organic basis (excluding acquisitions and at constant currencies) and service revenue declined by 0.4% on an organic basis.  This is an improvement on the interim comparisons (see here ) where group revenues were down 3% and service revenues down 2.8% on an organic basis

The main areas of organic service growth were India 15%; Turkey 11.8% and Qatar 16.6%.  The UK has returned to growth with 0.9% and the rest of Europe declined at slower rates than last year.

Management stated that net debt increased by £0.5bn in the quarter to £22.3bn and with respect to the guidance for the year said: "...The performance of the Group remains in line with our expectations. Consequently we remain on target to deliver EBITDA for the 2015 financial year in the range of £11.6 billion to £11.9 billion, and expect free cash flow to be positive, after all capex. Guidance excludes Ono..."

         

GlaxoSmithKline finals

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). 

Glaxo released their final results yesterday declaring that turnover was down 13.2% at £23bn, but excluding disposals and at constant currency down 3%.  This is similar to the situation at the 9 month stage where turnover was down 14% and 3% excluding disposals and at constant currency.

Seretide/Advair, that represent 18% of GSK's sales, continue to decline down 18% in the quarter and 15% for the year.  In total respiratory drugs, that represent almost 27% of GSK's sales, declined by 10% in the year; management expect a return to growth for this segment in 2016. 

Core operating profit (excluding divestments) at CER was down 6% at £6.6bn, reported operating profit was £3.6bn a decline of 49%. Core EPS at CER was down 1% at 95.4p and reported EPS was 56.7p a decline of 48.7%, although on a continuing business basis down 47.7%.

A final dividend of 23p was declared making 80p for the year an increase of 2.6%, only covered 0.71x by earnings.  As stated at the third quarter results and confirmed in the statement, the 2015 dividend will be frozen at the 2014 level and there will be no share buy-backs.

Free cash flow (FCF) was disappointing at £3.2bn compared to £5.0bn last year and did not cover dividend payments of £3.8bn and share repurchases of £0.2bn.  Net debt increased by £1.8bn to £14.4bn, as there were further calls on cash flows for the increased holding in the Indian pharmaceutical subsidiary from 50.7% to 75%, the acquisition of the remaining 30% of GSK's Indonesian Consumer Healthcare business - a total of £0.7bn and £0.2bn for dividends to shareholders in non-controlled businesses.


Net debt ratios look unhealthy with gearing at 337%, debt to EBITDA at 2.6x and operating cash flow just 22% of debt.  This situation will be improved following the Novartis deal, as GSK will receive a net $10.75bn ($1.5bn conditional on the COMBI-d trial), equivalent to £7.2bn and pay-out to shareholders £4bn.  GSK is also selling its 7.9% stake in Danish biotechnology company Genmab A/S via a share placing to raise ~£0.2bn.

Fortunately GSK has a low weighted average cost of capital (5.6%) and even at these lower relative profit levels, they return a 19% ROCE and FCF over a three year period returns 19.5% on their average capital employed.

The return of capital commented on here will return approximately 82p per share and come with a share consolidation.  As I mentioned in my comment of the Melrose ROC scheme here the 2014 Autumn statement proposed that from 6 April 2015, special purpose share schemes will no longer be able to offer capital and income options - they will all be deemed to be income (taxed in the same way as dividends.  This will cause two problems in the future i) higher income tax shareholders will no longer be able to shield ROC as a capital gain, thereby using CGT allowances; ii) investors that shield their investment in an ISA and have their dividends distributed to them, will be at risk of having the ROC paid to them by their broker, in effect distributing capital from their ISA.  So if GSK's scheme is after April 5, it will be classed as a dividend and therefore income. 

Dillistone Group trading update

Dillistone Group Plc is a leading global provider of software and services to recruitment firms and recruiting teams within major corporations. I have a holding in my growth portfolio (epic code: DSG).

Dillistone issued a confident trading update yesterday, with some very positive news on their new product FileFinder Anywhere, launched in September 2014. 

 

Since the launch of FileFinder Anywhere the Dillistone Systems division has seen an improvement in incoming orders. Total order intake in quarter 4 of 2014 was more than 20% up on both quarter 4 of 2013 and on the average of quarter 1 to quarter 3 2014.  The Division enters 2015 with an implementation pipeline which is approximately 20% up on the equivalent date in 2014 and, has been further supplemented in January 2015, by the award of the largest mainland European new business contract that the Division has won since 2007.

 

The Voyager Software division also enjoyed strong orders for quarter 4, being the best single quarter for new business sales since 2007.

 

Managements expectations for the full year (pre acquisition related items) will be similar to that delivered in 2013 and in line with their guidance given at the time of their interims commented on here.

The share price responded well, up 12.7% to 102p, back to the level it was before the interim announcement on September 30.

Aberdeen Asset Management IMS

A global investment management group, managing assets for both institutional and retail clients from offices around the world. I have a holding in my income portfolio (epic code: ADN).

Aberdeen Asset Management released their first quarter IMS today.  Assets under management at 31 December were £323.3bn down £1.1bn from the 30 September 2014.

The fall of £1.1bn was due to net outflows of £4.8bn that were partially offset by £1.3bn of market performance and £2.4bn of foreign exchange movements.

In their outlook management stated:  "...As this quarter has demonstrated, investor sentiment remains fragile and we expect global markets and demand for investment products to continue to be volatile. Despite the headline net outflow, we are winning new business at good fee margins and we remain disciplined in managing costs..."

Despite a difficult quarter, although probably just December from CEO Martin Gilbert's comments "...October and November were encouraging... However, December was a reminder that investor sentiment remains fragile...", I remain satisfied with ADN as a core holding in my income portfolio and my views are unchanged from my comments here after their preliminary announcement.                 

Melrose return of capital

Melrose Industries, an engineering company that seeks to acquire businesses it understands, improve them by a mixture of investment and changed management focus, realise the value created and then return it to shareholders. I have a holding in my income portfolio (epic code: MRO).

Today Melrose announced details of their proposed return of capital (ROC), following the sale of Bridon for £365m in October 2014.  The company will return to shareholders £200m, equivalent to 18.7p and institute a 13 for 14 Share Capital Consolidation. 

 

Shareholders will have the option of whether to receive the ROC as either income or capital; the default option is income and there will be no deferred capital option. 

 

The deferred capital option, has been used in the past, to enable capital gains to be split between two tax years.  The 2014 Autumn statement proposed that from 6 April 2015, special purpose share schemes will no longer be able to offer capital and income options - they will all be deemed to be income (taxed in the same way as dividends.  This will cause two problems in the future i) higher income tax shareholders will no longer be able to shield ROC as a capital gain, thereby using CGT allowances; ii) investors that shield their investment in an ISA and have their dividends distributed to them, will be at risk of having the ROC paid to them by their broker, in effect distributing capital from their ISA.

 

The ROC will be distributed on 16 March 2015 and the share consolidation will take place on 23 February 2015. The ex-distribution date is 20 February 2015.

Amerisur outlook & guidance

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).

Following the ~50% reduction in the oil price over the last 4 months, Amerisur has updated the market on actions they are taking.  Management have decided to optimise production from the Company's low lifting and transportation cost platforms in the Platanillo field.

This will mean that in the interim 4,500 bopd will be produced from Pads 5 and 9; the oil is able to be lifted at a cost of approximately $12 per barrel and transported and commercialised through Orito and the OTA pipeline at approximately $12 per barrel.

Production from more expensive pads are to be temporarily suspended and transportation to Rio Loro at a cost of $23 per barrel is to be reduced to a nominal daily volume, so preserving this delivery option.

The Ecuador pipeline, that is expected to have transportation costs below $5 per barrel, has been delayed mainly due to expansion of the technical scope.  Management expect to be operating it in the second half of this year.  

Capital expenditure guidance for 2015 has also been reduced to ~$45m from $95m.

Elsewhere in the statement they state that 2014 production averaged 6,242 bopd, compared to 4,730 bopd last year and 6,561 bopd for the first 6 months of this year.  At 6,242 bopd for 2014 and the reducing oil price from September, I would estimate turnover would be ~$200m for the year, with earnings around $50m and an EPS of $0.047.

Management say that they are working with an average oil price of $48 for 2015 and $65 for 2016 in their plans and expect to exit 2015 producing 8,200 BOPD.

Using just the 4,500 bopd and a price of $48 a barrel, turnover would be just $72m with earnings of $12.5m (using lift and transport costs of $24) and EPS $0.012.  Obviously this would be substantially higher if the Ecuador pipeline was operating early in the second half of this year.

For 2016 with output at the exit rate of 2015's 8,200 BOPD and reduced costs from the Ecuador pipeline, profits should be back to last year's $50m even if the oil price stays at these levels.

So clearly two events will drive the share price in the short term, sustained improvement in the price of oil above $60 and news that the Ecuador pipeline is operational.

Globo trading update

A technology innovator delivering mobile, telecom and e-business software products and services. I have a holding in my growth portfolio (epic code: GBO).

 

Today Globo released a full year trading update, declaring that revenues for the full year from continuing operations grew by 48.3% to €106m.  This compares to 46% growth at the 9 month stage, so this looks like a strong fourth quarter. Profits are anticipated to be broadly in line with market expectations, so €29m or €0.08 per share.

 

Globo's year-end net cash position was €40.3m down from €42.0m last year, this included the payment of $12.0m and associated costs for the acquisition of Sourcebits Inc., in July 2014 and receipt of €1.2m from a further instalment due on the sale of 51% of their Greek subsidiary . Therefore free cash flow looks to be about €7m, this is a slight improvement on last year's FCF of €5.2m and the third year the company has produced FCF.

 

For this current year management stated "...Trading in 2015 has started strongly and we anticipate that as IT budgets from customers start to be deployed and BYOD (Bring Your Own Device) and demand for mobile apps increases, Globo will have the opportunity to deliver another year of strong growth and increased market penetration..."

 

The shares ended the day up 0.25p at 42.25p, valuing the company at ~7x historic earnings.  Although the company is generating FCF, it is at such a low level compared to the size of the business, that it is still acting as a drag on the shares.