An overdue first quarter appraisal of my 2018 pick

Well 2018 has certainly been off to a rocky start for the equity markets. Frequent interest rate rises from the Federal Reserve in the United States with similar rises expected from the Bank of England later this year, Donald Trump’s tariffs igniting fears of a trade war, and finally the Brexit negotiations that are struggling to make any kind of headway have all contributed to the FTSE 100 decline of around 7% from the start of the year to the end of March.

With this in mind, here are the performance results of my pick of 5 from 2018:

Hollywood Bowl (BOWL), starting price 206p

Hollywood Bowl’s shares have had a blistering start to the year. Its share price has risen by 14% to 235p on the last close; in addition a final and special dividend of 3.95p and 3.33p respectively have been paid out. This brings a total return on investment of 17.6%, so I’m very pleased with how this pick has performed.

It has been a solid year for Hollywood Bowl. Like for like sales are up 3.5% on the previous year as customer visits have risen on the previous year; this is all the more impressive considering peoples’ incomes have fallen in real terms over the course of the year due to high inflation.

The dividend paid was covered twice by full year earnings per share, leaving plenty of room for increases to support the company’s progressive dividend policy. With 10 refurbishments having been completed in line with the objective stated in the half year report, and further refurbishments are planned for 2018. Hollywood Bowl’s focus is providing entertainment that is family-friendly, hence attracting a wider array of customers of all ages who are increasingly spending their disposable income on experiences rather than material items. With further refurbishments planned in the new year, this should bode well for investors with greater returns expected going forward.

Lloyds Banking Group (LLOY), starting price 68.06p

Lloyds share price performance has been disappointing so far. Since the start of the year it has subsided to a previous close of 66.07p, which is a decline of 2.9%. The full year dividend is yet to be paid but it will be received by the end of the month, which will offset this loss to a certain degree.

At full year 2017, Lloyds has performed even better than in 2016 which was already a very strong set of results. Profit before tax has jumped a staggering 24% on the previous year, reflecting lower costs and higher receipts. This has been achieved despite the additional £1.7bn being placed aside for Payment Protection Insurance claims, for which the regulator has extended the deadline for these claims.

The normal dividend has been increased by 20% to give a full year payout of 3.05p, leading to a yield of 4.6%. In addition, the bank has announced a share buyback of £1bn. Analysts from Credit Suisse expect this buyback to reach £15bn over the next 3 years. This will lead to rise in earnings per share should profitability remain stable, and should therefore be accompanied by an eventual share price rise in such an event.

The simple reason why these impressive results have not translated into share price gains is precisely due to the fact that the bank is focused on the UK. The economic future is now highly uncertain as it is still unclear what relationship Britain will have with the EU after Brexit is formally completed. However, once we have a clearer idea of what relationship will be had, I expect the reduction in uncertainty to be reflected in the share price, which should hopefully prove more buoyant.

Legal & General (LGEN), starting price 273.3p

Legal & General’s share price performance has been reasonable, although unspectacular. Since the start of the year the share price has closed at 280.2p, representing a growth of 2.5%.

The full year results have been a solid set of results. Pre-tax profit has risen up up 32%, which has enabled the firm to grow its full year dividend by 7% to 15.35p. This corresponds to a very nice yield of 5.5% which is expected to increase in future.

The company is one of the largest participants in the rapidly growing bulk annuities market as companies aim to de-risk their final salary pension schemes through transferring their liabilities to willing insurance firms; Legal & General is also being heavily active in lifetime mortgages. With an ageing population in the UK this focus should continue to bode well for Legal & General Retirement, which is the largest contributor to the firm’s profits. The firm also is well capitalized to mitigate financial risks it may face, with a Solvency II capital ratio of 196%.

Taylor Wimpey (TW), starting share price 206.4p

The share price has slumped to 200.8p as of the last close, representing a fall of 2.7%. A dividend of 2.44p has been paid out since my recommendation, reducing the blow to a drop of 1.5%.

The housing market is currently softening, which has impacted Taylor Wimpey’s revenues, leading to a fall in pre-tax profit of 5.8%. Despite this, the full year dividend has been increased by 38%, and is well covered by over 4 times profit. In addition, a very handsome special dividend of 10.4p is set to be paid out in July; combining these payments leading to a very handsome yield of 7.5%!

Taylor Wimpey can also expect to benefit from government intervention that aims to get more young people on the property ladder, through stamp duty relief and the Help to Buy scheme, with 40% of the firm’s sales going to first time buyers.

House price drops still are a risk to the firm, but the firm remains stable and is expected to be able to award shareholders with progressive dividends for the time being.

Moss Bros (MOSB), starting share price 90p

This pick has been by far the worst of the 5 picks, having plummeted 45% to 49.1p.

Moss Bros has been hit by a shock drop in Christmas sales, leading to a profit warning being issued during the first quarter. Current trading conditions remain challenging with uncertain consumer sentiments, government interventions through minimum wage hikes and other employee related costs.

This has ultimately led to a reduction in the bottom line. The dividend has been cut, in line with the new policy of having dividends covered by profits. Going forward the firm is expecting adverse profits in 2018 and 2019 although are hopeful things will improve from now. With real wages increasing this year, I think there is scope for the results to beat investors’ expectations.

 

So the overall performance of my pick of 5 has been a disappointment in comparison with the overall market. My pick has on averaged dropped by 5.86% from the start of the year to now, compared with the FTSE 100 rising 1% in the same period. The comparatively poor performance of my pick is primarily due to the nosedive of Moss Bros. However, I remain hopeful that this average will lift over the course of 2018 and I will update you all in the end of June.

 

 

 

Some high level considerations I make before buying shares

When deciding which shares to buy, many considerations need to be made in order to help you decide whether you not you think the shares will be profitable. This will normally involve a combination of fundamental analysis, review of annual reports and broker views as well as the views of investment writers (from publishings including The Motley Fool, Investors Chronicle and Shares magazine). Here are some metrics I tend to use to screen a list of shares before shortlisting for more detailed analysis. Read More

A reflection on some of my earlier share picks

As the year draws to a close, I feel now is the perfect opportunity to assess how some of my earlier picks have performed.

2017 has been a very good year for the equity markets, with the FTSE100 and FTSE 250 indices all performing very well in the year, returning 7.1% and 14.25% respectively.

Prior to my picks of shares for 2018, I have written analysis on 3 companies, namely Lloyds Banking Group on the 17th of September, Greene King on the 11th of October and Easyjet on the 15th of October. Performances since then are as follows:

Read More

My pick of 5 shares for 2018

The New Year is a great opportunity to think on your goals for the year ahead. For the equity markets, various investor magazines including Investors Chronicle and Shares magazine pick their shares to buy each year, and in keeping with this I have decided to do the same. I will also aim to track the performance of these shares quarterly, comparing them with the key indices such as the FTSE 100 and FTSE 250.

 

As of the start of 2018 my picks are as follows:

Read More

Why Easyjet could turn out to be a shrewd investment

At the time of writing, Easyjet is trading at a price of approximately £13 per share. Its 3-year average adjusted earnings per share gives a retrospective PE ratio of 10.7, which suggests the equity is cheap (compared to a FTSE 100 average of 22).

In addition it has a dividend policy of paying out 50% of its net profits, which means dividends will be volatile. Analysts’ estimates of net profits average out to around £400m, which will mean a dividend cut to around 50p per share, leading to a yield of 3.8%, which is reasonable although unspectacular. Read More