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A few large caps that look good for gains ITV, SPD, MKS, SBRY, NXT,


rimmy2000

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ITV
SPD

MKS

SBRY

NXT

 

Cannot write up in full now, but will add some follow up details on some or all of these later in the week. Worth checking these out in my opinion.

 

- I do currently hold shares in all of those mentioned above, but can see opportunity to increase holdings in some

 

Best,

 

Edit: 04/Jan, my position in MKS was reduced by about 30% this morning after a grim retailer read-across from DEB Christmas Trading Update RNS

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Hi 

I think you made a good call, as ITV seems to be on a bit of a run. Also, I noted it has been tipped in the press several times as tip of 2018 (if you find any sources for this then do relay them here)

 

I ahve posted a chart below. On fundamentals ITV is attractive and I will add more to that later. 

167p has been broached and now we have a trend line on the weekly chart. If this is broached then the next targets are 188p and 210p. 210p also coincides with the 200ma so I think we could see a reversion to this over the next couple of months.

itv.JPG

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Marks and Spencer plc

 

MKS has been on my watch list (shopping list?!) for some time now. It is a great British retail institution. I was in one of its stores Christmas shopping and realised just how busy the place was, how the tills were all bustling and isles bustling with shoppers.
Price 311p
Mcap £6.13bn
Sales £10.6bn
PTP £176m

 

MKS has struggled of late with its clothing offering, and this has been dragging on performance. People now have more clothing choice and are increasingly shopping online, and also MKS lost is way somewhat and its clothes are/were seen as old, dated, frumpy and uninspiring. It listed in 2002, by the way, so we have several years of historic data at our fingertips.


By way of split, clothing (includes ‘home’) accounts for 35% of sales (3.8bn) and food is now the largest share of turnover at 53% (£5.6bn) Total sales equate £9.4bn in the UK and 11% derived from international at £1.18bn (think airports etc)
I guess the first point I want to make is to echo the above, that MKS is ostensibly a UK company but has global reach and has prestige attached to the brand, this gives MKS the opportunity to increase its expansion into new markets overseas and, again, making the prospect of a takeover a distinct possibility in the future. (I like to look for takeover targets and have done so successfully in the past on several occasions)


How is it performing?
Well performance has not been good the last few years. Whilst sales have been growing, it appears that profits are reducing, which suggests something is going wrong, somewhere. We can see the Operating margin has been reducing year on year since 2009. Meaning profit margins are being squeezed.
mks op mgn.JPG
And directly, we can see that profits are also coming down in line with the above. From an average of £700m to most recently £176m
MKS PROFIT.JPG
So this is a case of can the company change its own fortunes, and compete with the modern world. We know its popular because each year more and more money goes into their tills
mks turnover.JPG
Subsequently MKS sits on a forecast PE of 11, which is a lowly valuation in my opinion for a great British retailer.


How healthy is the company?
Cash balance of £468m, which is 7% of the market cap. Stock equivalent of £758m, and tangible assets of £4.85bn, Short term debt of £518m, long term debt of £1.7bn, and ongoing but reducing liabilities on the pension scheme of £337m.
To simplify let’s look at Net Asset Value: NAV/share= 193p and Net Tangible AV/share=150


What is the forecast?
In a word: ‘mixed’ 24 brokers cover the stock: 8 buy, 5 hold, 11 as sell or underperform.
Financial Year 2018 estimates are for profit (pre tax) of £577m obtained from sales of £10.76bn sales.

I think these outlooks are erring on the low side. 11-17 hy results indicated £5.1bn sales, which means the FY 18 target of £10.76 is not inconceivable. Pre-tax profit in this period leaped 371% to £118.3m, and adjustments take the reported figure to £219m (due to exceptional items inc. Strategy spend, Depreciation and PPI payout)


How will it turn around?
Recovery is being led by international operations which is growing at 1% per quarter. Sales were £488m in H1 16/17 and now amount £506m in H1 17/18. Conversely, spend is being reduced with £47m saved between comparable H1 16/17 and H1 17/18
Looking at the most recent half-year results http://corporate.marksandspencer.com/investors/7cf2c31eaf2e48cc95cfcf59b868637e
M&S has identified a strategy and is executing on it. This is beng led by Steve Rowe over the next five years as it seeks to transform the group. Steve’s profile (https://corporate.marksandspencer.com/aboutus/our-leadership-team/team-folder/steve-rowe) suggests he knows the group inside out, from store level upwards, into homewares and e-commerce.

 

Takeover?
Well the idea has been around for some time. Quatar was cited in 2013, for an £8bn figure, equating to £4.92 per share. The Qatar Investment Authority, of which Qatar Holdings is a subsidiary, already has significant interests in retailing. It has a 26% stake in Sainsbury's, owns the department store Harrods, and has small shareholdings in the luxury brands Louis Vuitton and Tiffany & Co.

I used Google Trends for this chart looking at frequency of the searched terms "marks and spencer takeover"

mks takeover.JPG


Merger?
Ideas such as this in the FT are very recent:
https://www.ft.com/content/dec6ee64-bfe5-11e7-b8a3-38a6e068f464

In short, a company of this scale and heritage is a sitting duck. At some point, something has to give.

mkspriceline.JPG

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Hi Thanks for the chart comment. Looks good. I like ITV's new CEO - I owned shares in Easyjet for a while, immediately after they feel post Brexit referendum - so hopefully she'll do good things in her new post too. Regarding MKS, I see that Meghan Markle was reportedly wearing an M&S jumper today. Should help your holding! Tanya

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I want to follow up with MKS update to the market today, for the Christmas period, Q3.

 

In a word was underwhelming, and the price is marked down 18p or 5% as I write. I will not yet exit (stakes are small at this stage) but will monitor how it closes into the week. 
It may be a case of get out and look to re-enter another time, maybe at a lesser and more favorable price. But I do think the downside is somewhat limited. 

Total sales down -1.4%

Online sales increased around 3%

International down 9% (attributed to planned disposals)

 

 

We watch for now.. 

EDIT: position has gone. Book a small loss, I think we will have opportunity at a lower price. Goes to Watchlist.

 

 

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NXT

 

I cannot really decide what to do here. I am about (edit: 9%) in profit, and it is certainly one of my larger positions.

On the 3rd January we got the post Christmas trading statement.

For me the main takeaway was this:

'Better than expected full price sales means that we are marginally upgrading our profit guidance'

 

 

The share sort of lurks in the middle ground right now. Valuation is not particularly attractive, but not expensive either. 

 

Just looking at my account, I have received over the last 12 months £345 in dividend income. This is a seriously good paying company, and despite all the gloom on the high street Next continues to do very well. I believe NXT was the only retailer over the Christmas period that actually increased expectations.

So well, inf fact, that NXT has been paying special dividends with the surplus cash it holds. And I am due to receive another 45p per share at the end of this month, on the 25th.

nxt.JPG

 

All this is great, but if the share price stagnates or does not ignite (Next has traded as high as £80/share in late 2015) then I have a lot of capital tied up that could be deployed elsewhere.

 

Next has however switched stance from special dividends to Share Buybacks. I pulled this from the latest trading statement:

nxt2.JPG

The plan being to use surplus cash £300m to buy back shares from the market, then annul those shares. Fewer shares in distribution gives an enhanced EPS figure.

The next update from Next is 23 March 2018 for the full year. FY 2018 EPS forecast is 409.5p and now this has been guided up 1.1% = 414p

On a 3yr average PER of 15 = we get a share price of £62.10p, 25% higher than the current close (12 Jan £49.90p)

 

On balance, I will probably continue to hold.

 

 

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