Back in February, we ran a stock screen on UK stocks using some of the edicts of investment guru Geraldine Weiss, and now it is time to check on their progress.
The outsourcing specialist was rejected on the grounds of serious concerns about the future of the dividend.
Since then, the shares have risen from 197p to 241p, so rejecting it may have been a mistake, but we are playing the long game here.
The company cut its dividend at the half-year stage from 5.4p to 4.0p, and the suspicion must be that it will cut again when the full year results are announced on 24 May.
The fund manager has been doing all right since February, rising from 269p to 296p, thanks largely to the announcement in March that it is to be subsumed into Standard Life.
Half-year results released on 2 May saw the dividend maintained, and the stock has now gone ex-dividend.
The bid situation has pushed the price/earnings ratio above the 20 level that we used as a cut-off for the original stock filter, so bearing in mind the company is going to be taken over anyway, the signs point to a “sell”.
The student accommodation management and development firm UNITE still fits the bill in terms of Geraldine Weiss’s investment edicts.
When we ran the screen towards the end of February, it was trading at 631p, and has since risen to 649p, though it has plateaued over the last month.
In March it did one acquisition and one disposal suggesting business as usual.
The trading statement earlier this month indicated “excellent progress in the first four months of the year” and this one, as they say, remains a keeper.
New ingredients for the pot
While catching up on the previous selections I re-ran the filter a month ago to see whether new candidates were generated, and it came up with two stocks: auxiliary power generation specialist Aggreko PLC (LON:AGK) and cyber-security outfit NCC Group PLC (LON:NCC).
Since then, NCC has fallen back off the radar, as its current dividend yield is not towards the top end of its 10 year range.
Aggreko is still showing up on the stock filter, so let’s have a look at it in more detail.
Fallen glamour stock faces problems in Latin America and Asia
Last year the stock paid 27.12p per share, which means it is yielding 3.2%, against a 10-year average of 1.8%, assuming the divi is at least maintained, as it has been for the last two years.
According to data aggregator Factset, the market is actually expecting the dividend to rise to 27.67p this year, so the yield looks solid.
It’s a fallen glamour stock that has shed three-fifths of its value over the last five years but it is a genuine world leader in its field that now seems to be available to a deep-pocketed competitor for just 1.6 times book value.
The earnings multiple is a none too scary 13.6, but earnings per share are expected to stagnate this year, largely because of repricing and off-hires in Argentina; Margaret Weiss, whose investment principles the stock screen uses, would not have been too worried about the lower earnings as they are still forecast to cover the dividend pay-out more than two times.
The City does not like the stock, with the consensus being it is a “weak sell”, but if “dividends don’t lie” then the City’s opinion can probably be ignored.
Morgan Stanley was the most recent heavyweight broker to go negative on the stock, describing Aggreko as “a challenged business with a strong management team”.
That management team changed nine days after Morgan Stanley’s note came out, with Nicolas Fournier, managing director of the Power Solutions arm since November 2015, leaving with immediate effect and by mutual agreement.
He was replaced by former British Gas executive Stephen Benyon.
That suggests that all is not entirely well on the Power Solutions side, while the company is also racing to “right size” its businesses in Asia and Latin America in the face of difficult markets.
It all comes back to that dividend, however; it looks safe enough and while 3.2% may not be the most exciting return, it is better than you would get on UNITE Group (2.8%).