Rolls Royce–Are the shares as attractive as the company?

It’s hard to argue with Rolls Royce if you want a company which can produce steady income growth over the long term with limited risks, but how does it stack up as a value investment at almost 830p a share?

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Is British American Tobacco more than just an income investment?

If you’re not worried about the ethical implications of investing in tobacco companies, then being a shareholder of British American Tobacco over the last decade would have been a very profitable experience.

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Review of GlaxoSmithKline Shares

Glaxo is a popular stock.  It’s often among the most traded stocks on any given day, and it’s a favourite of Neil Woodford, the current Master of the Fund Management Universe. 

Not only is it one of Woodford’s top holdings, but according to the Citywire website, it’s a top five holding for four out of their five ‘top fund managers’.

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Using an investment checklist to value Shell

We’re all feeling the pain of high petrol and diesel costs at the moment, with prices at the pump hitting more than 150p per litre in some places.  I know that some investors like to hedge their bets and own shares in companies that do well at the expense of the rest of us, so today, I’ll be putting Royal Dutch Shell through my investment checklist to see how it stacks up.

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Does Prudential’s Asian growth story make it a good investment?

The stock market can be a funny old place.  One day (last week actually), you might look at the price of Prudential, the FTSE 100 listed, multi-billion pound global insurance and financial services giant, and see that it’s valued at £17.8 billion. 

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HSBC: A bank worth investing in?

HSBC has taken a bit of a beating over the past few years, just like all the other banks, but I think this one has done a solid job of steering through the crisis. 

Earnings and dividends may be down substantially from the peak years of 2007/8, but things are not remotely as bad as they are at some of the other banks.

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AMEC – A recent restructuring generates impressive growth

I thought I’d have a go at building up a database of info on companies, so I’ll be starting with the FTSE 100 from A to Z, and we’ll see how it goes.

The first company is AMEC, an engineering, project management and related services company that works with companies in the oil and gas, energy, infrastructure and related industries.

Market-leading, highly prosperous, robust

At first glance, this looks like a pretty solid company.  There have been no losses in the past decade, no cuts or suspensions to the dividend and the earnings and dividends have grown fairly steadily for as long as I care to look back (over 10 years).  On top of that, the balance sheet has net cash, so in theory, it should be relatively bulletproof.  This is my kind of company, at least on the face of it.

But not cheap

In terms of valuations and drivers of equity returns, it’s a mixed bag.  The dividend yield is around 3% which is below that offered by the FTSE 100, so I would expect higher growth to compensate for that, and that’s what I see.  The company has grown earnings at something like 7% a year over the past decade, handily ahead of the 5% or so managed by the index.  More recently, growth has taken off, post-2007 to be precise.

Recent major changes

Around this time, there was a major restructuring in which some non-core assets were dropped as they were generating empty revenue (i.e. no profits), and a project called ‘STEP change’ was brought in to cut costs in core businesses.  The target was an increase in the margins from 2-3% up to 7% and more.

They seem to have hit these targets and earnings have since been increasing by around 10% and more after an initial jump of 60% in 2008.

Of course, this is all good for existing shareholders; in 2007, you could have bought the shares for 500p, and now they trade at over 1,000p, and this is part of the reason why I wouldn’t consider investing in AMEC at the moment.

Recent growth results in high valuation

The higher levels of growth haven’t yet been shown to be sustainable.  Since this step change in the structure of the business only started in 2007/8, there are only four years of evidence to go on.  I like to see growth being consistent over as many years as possible, ten or more and the more, the better.  So while recent growth has been high, longer-term growth is still around that mildly impressive 7% rather than the more impressive 10% plus.

It’s probably because of this recent good growth that the valuation level is high, which shows up partly in the low-ish dividend yield.  The PE is around 14, which, while not high, isn’t exactly low either.  More importantly, the PE10 figure is north of 30, reflecting the relatively low earnings in the early part of the last decade and before the step change in 2007/8.

Perhaps once the current structure has settled in for a few more years and the recent growth has also settled into a sustainable rate, then I might be more tempted.  What I’d really need, though, is a lower price.  If it were trading at perhaps half the level it is today, then I think AMEC would deserve serious consideration.

Happy hour or hangover for SABMiller investors?

It’s not easy being picky.  I’ve just spent the morning looking at Mothercare and still can’t decide whether I like it or not.  It’s either a speculative screaming bargain or a value trap with a UK business that could suck cash out of the good part of the business (the high growth international bit).

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Scottish and Southern Energy – A Wolf In Sheep’s Clothing?

Utilities are often seen as boring investments.  They’re never going to be sexy, they’re never going to cure cancer or have their products at the top of a teenager’s Christmas wish list.  That may well be true, but value investors have a history of liking boring companies and Scottish and Southern Energy (SSE) has a lot to like.

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UK Mail – Can A 9% Yield Ever Be Sustainable?

I know I’ve written a lot lately about big cap, solid growth companies like Vodafone, BHP Billiton and MITIE, and I guess some people who read this stuff might think, “What sort of value investing is this?  Where are the obscure, the unloved and the unfashionable?”.

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More Mega-Cap Value with BHP Billiton

A lot of value investors talk about how you have to look for the unloved, the obscure, the boring and the small. That’s fine if you want to invest in those sorts of companies but personally, I sleep better when I’m invested in big, well-known, highly profitable businesses and fortunately, these can be value investments too.

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Tullett Prebon – Terry Smith joins the portfolio

Tullett Prebon is an inter-dealer broker, which basically means they act as a middleman between commercial and investment banks and other parties.  If somebody wants to trade in treasury products, interest rate derivatives and fixed income, they go to Tullett Prebon.

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