Yesterday was positive in terms of Ashmore (Final Results) coming in negatively along with Next (NXT) also performing well for the contrarian. For ASHM there's likely to be a benefit as the shorts close (aka buying back their positions) but do not get too excited unless of course the GBP gets kicked further by the USD, things will change but yesterday validates the sell side opinion.
It was surprising to read that NXT surpassed/beat expectations with their first half results, when it was a miss, along the same lines as Primark's (Associated British Foods (ABF) pre-close trading update . Again the shorts are actually swelling but no one confident enough to kick in with a decent position of any worth a disclosure, NXT have an issue this year with their "no pre-Christmas discount" policy is significantly under threat, more so than any other year. Of course, its very well managed, so they may have a better understanding than I of their business model. Will they hold their nerve?
The question the long only (LO) investor in NXT should be asking is, "how will the brand stack up without incentivisation during this peak period?" Last year NXT benefited by companies needing to maintain margins / profits to underpin their business model. This year, across all retail, grocery and services sectors there is a different theme, "price." Cheap is best perception, is mirrored in the grocery sector currently with a significant change in the dynamics of shoppers (currently reviewing this). NXT are offering more "non-own label" in comparison to previous years and the theme of "margin" erosion is already happening down to 14.2% from the previous years 15.6% albeit better than July 2013's half year update of a net operating margin this year 12.4%. I prefer to call NXT a financial leverage on the clothing sector in terms of their directory. So with that in mind I won't state the obvious, but have a look at their first half results yesterday:
Then compare than for the F/Y Results to January 2014:
Credit customers down (less credit account profit), cash up....albeit an increase numbers by 81,000, it's still not near the 3.1% comparative they're showing from the previous year. So with lower than expected growth and margins declining again, a more realistic prognosis for the future is required...positive but my view is not as bullish. The wonder boy (NXT) of the retailer sector is currently overpriced on fundamentals, albeit on the market (including NXT's historic performance) its a save haven coupled with a buyback and the rest of the sector will show support plus dividend / capital returns.
NXT's results are a miss, albeit small at around 1.5%...So just to cheer people up, I'm maintaining my shorts...that aren't purchases from NXT either. Its acknowledged that NXT is well managed and has performed well, however, its my view for the valuations to be maintained they need to consistently hit their targets, this is slowly being missed...it's by far terminal and as such I trade from peaks.
LO supermarket holders should question what the future brings, having had a look at the valuations of Supermarket land after Roddy's suggestions about the leases including the inflationary links to the rent, there's now a real risk there's a liability. Morrison's may actually fair this better (Disc currently: Long Equity Long Spreadbet and Long CFD purely on intra swings at the moment).
It appears Fresnillo (FRES) are on the expansion trail, with their acquisition of 44% stake in Penmont JV. FRES's net cash to June 2014 was US$327.5 million after short term funds of US$1,164.3 million net of the US$795.3 million interest-bearing loan (Senior notes issued in Nov 2013) and the US$41.5 million loan from Newmont. With Mega Centauro and Centauro Deep requiring $515M CAPEX its more than affordable on the 425K/oz promised production even at $1250 economics. Fresnillo Presentation & Phone in here. I'd recommend skipping to the Questions & answers section...for myself without having a full understanding of the deal, I have had to close my shorts currently to enable a better assessment. Its not a reason to buy the stock more so reassess, with a buy more than likely around December 2015...Silver's dire at the moment, more so for HOC.
Finally, the market reacting poorly to Aveva (AVV) and why has today's Aveva Trading Update taken the market by surprise when the writing was on the wall from the interim management statement. Perhaps a pro-Aveva fan club would like to explain it to me again. Ref: Bristol, over priced and deserving a sell/short. Now just to repeat what was concerning, from the IMS in July:
"The timing and phasing of rental contracts tends to result in the majority of rental renewals occurring in the second half, where we often see incremental licences purchased for existing software together with customers licensing additional products. This effect is likely to be somewhat more pronounced in the current financial year based on our expected schedule of renewals, which will see revenue geared more towards the second half compared to previous years. Our expectations for the Group performance on a constant currency basis for the full financial year remain unchanged." (Disc: Short)
Is today's news any surprise when looking back at past performance and the company informing the market 2+ months ago it's going to be more pronounced than previous years ? Evidently and to quote exactly I'm "an amateur with more luck than judgement and no city experience to back your thoughts or any qualifications. Your money & you will soon be departed with that outlook." This stands me in good stead for the future?!? You bet it does! That's another one for my scrap book.
Plenty to cover there is not time to cover including Thermal Coal, the China Effect, Gold still consolidating and Ocado; which should really move to a sensible valuation in light of the current market conditions in the UK.
Atb Fraser
(sorry no proof reading due to a teleconference).
Fraser- Hi- cant get to cricket today due to other duties- still Notts have tailed off in recent weeks so I don't expect it to go past lunch at TB.
ReplyDeleteRe NXT- yes, a small miss, so they dipped back below £70 but the story for me is still intact, albeit I do trust the team here and I love the way they try to calm expectations with each set of results, and then continue to outperform their main competitors, esp M&S who haven't turned non food around after years of trying. Im sure they will stay off sale in the pre Xmas period- they have done so forever and this includes some v v v grim years when everyone else hit the discount button. The key is correct stock levels and accounting for the weather, which they mentioned in their comprehensive update yesterday.
Re RGM and the Horse Hill buying spree- I like RGM for other reasons but they have joined in the HH moves again today, so adding below 0.4 over the last few days seems to have been not such a loony move after all. The first news re the drill should be next week- I will be in France but I expect to be sprayed with oil even there as the gusher predicted by some will surely cover the whole of the northern hemisphere in black gold :-)) I will probably take some off the table later today- I don't want to be too exposed to the rollercoaster here.
Cheers. The Leggie