Monday 28 April 2014

Insuring a growing 6% yield with Amlin

Hunting for yield? Look no further than Amlin!

Want a 6% income that should grow? Like companies with long-term track records of growth and high profitability? Like “value” companies that trade on as P/E of 10x or less?

Then Amlin (code AML.L) is an excellent UK company for you to look at!

Who is Amlin?

Despite the fact that Amlin is a member of the FTSE Mid-250 index and sitting at a market capitalisation of £2.2 billion, you would be forgiven for never having heard of them.

Amlin is an insurance and reinsurance company that operates in Lloyds of London. It provides insurance cover to companies in the following areas: Catastrophe Reinsurance, Marine and Aviation Insurance, Commercial & Domestic Property & Casualty insurance as well as International P&C.

Geographically the company operates globally with main markets being North America, Continental Europe and also the UK.


Three reasons to Like Amlin: 6% Yield, growth record, profitability

First of all, the income – a prospective 6.1% dividend yield for this year based on the current share price of 442p. There is little reason to expect this dividend not to be paid at this level, given that:

The expected dividend of 26.9p is well covered by expected earnings per share of 42.7p;
Amlin has maintained or grown its dividend each year for each of the last 10 years (Figure 1), making it it is what I call a “dividend aristocrat”.


1. AMLIN HAS A STRONG RECORD OF DIVIDEND GROWTH


Source: Bloomberg

So if you like regular and growing income, Amlin is a good choice.

Secondly, long-term growth. Amlin grown its dividend steadily over time by an average of 27% per year since 2003, and is forecast by analysts to grow its total dividend further by 4% both this year and next.


To read the rest of this article and see further charts,
please click on the link below:



Tuesday 22 April 2014

AstraZeneca gets a Pfizer boost

I highlighted the potential value in AstraZeneca (AZN.L) back in December of last year (AstraZeneca: why it should defy the bears and perform in the long term) when it sat at just above £36, pointing to excessive bearishness on the part of professional analysts and investors, and the potential for a revaluation of its pipeline of new drugs under development.

It seems from the weekend press (The Sunday Times reported a mooted $101bn bid for AstraZeneca by Pfizer) that the US drug giant Pfizer would agree, as Pfizer is reported to have been recently in talks with AstraZeneca to merge their two companies.

Such a deal would bring Pfizer further drugs under development in the field of cancer treatments (oncology) that use the body’s own immune system to attack cancer.

This has taken AstraZeneca up this morning back above the £40 price mark, close to the highs around £41 hit back in late February of this year (Figure 1).

1. ASTRAZENECA GETS A PFIZER BOOST
Source: Bigcharts.com

Not the only Pharma deal today

Note that merger & acquisition activity is firmly back on the stock market agenda today, with not only this Pfizer/AstraZeneca talk, but also a big deal taking place between the Swiss company Novartis and the UK’s GlaxoSmithKline, with Novartis buying Glaxo’s cancer business for as much as $16bn, with Glaxo buying Novartis’ vaccines business in return for just over $7bn.

So after a long period where there had been little such activity, it seems that M&A is back on the Healthcare sector’s menu.

Highlights the latent value in Astra

Just to remind you, AstraZeneca is still relatively good value, offering a dividend yield in excess of 4% at the current £40.49 share price. At a forecast 11x EV/EBITDA valuation ratio, Astra is no longer as cheap as it was back at the end of last year, but nevertheless could offer further upside should a deal with Pfizer finally materialise.

Wednesday 9 April 2014

Snap up a DIY bargain in Home Retail

The UK home improvements sector has done very well of late, boosted of course by a combination of a recovering domestic economy, and in particular the feel-good “wealth effect”  which has enveloped home owners as property price inflation has roared back.

Unsurprisingly, retail sales volumes in furniture and lighting have been buoyant, no doubt also aided by purchases following the recent widespread flooding along the Thames Valley – terrible for home owners there and for their insurance companies, but home improvement and furniture retailers have benefited from resultant replacement needs (see UK: Winter storms impact the Home Improvement market). According to Figure 1, furniture & lighting retail sales are showing a 6+% annual growth rate, with a sharp acceleration since the middle of last year.


1. UK FURNITURE & LIGHTING RETAIL SALES TRENDING HIGHER





UK housing the biggest macro driver of DIY

The two biggest quoted UK DIY retailers are Kingfisher (code KGF.L: B&Q in the UK, Castorama in France) and Home Retail (HOME.L: Homebase and Argos in the UK).  The share prices of both of these companies have been somewhat correlated to the UK housing market, with Kingfisher (the green line) in particular following the Royal Institute of Chartered Surveyors UK house price balance index (the black line) very closely over the last few years (Figure 2).


2. KINGFISHER & HOME RETAIL ARE VERY EXPOSED TO HOUSING


Note that Home Retail (the red line) did not rebound in line with the bounce in house prices that started in late 2011, but rather only bottomed out in share price terms in mid-2012, due to company-specific issues in Argos, as it battled a slump in sales of consumer electronics (TVs, audio equipment) with the consumer switching to buying these items online.


To read the rest of the article and see why I find Home Retail attractive,
please click on the web link below: 
  
  
Even if you are not so adept at putting together Ikea flat-pack furtniture, this may still be a great way to get a benefit out of the burgeoning DIY trend! 
  
Edmund 

  


Thursday 3 April 2014

Three reasons not to rush into housebuying now

I came across these charts while trying to figure out the best places to hunt for houses in London on a value-for-money basis; I think they speak for themselves…


1. SLUMP IN NEW BUYER ENQUIRIES POINTS TO SLOWING HOUSE PRICES AHEAD
Source: RICS, Nationwide

To see the rest of the housing charts, please click on the link below:


Wednesday 2 April 2014

Three stocks to profit from a value rotation

Momentum takes a beating, Value remains near highs

So it is true: what goes up quickly, can also come down quickly! The month of March has seen US momentum stocks fall sharply, while in contrast value stocks have held up very well. 

Figure 1 shows that momentum stocks (the line in black) have hardly outperformed value stocks (the line in yellow) over the last half-year, after a torrid month of March.

1. MOMENTUM STOCKS TAKE A HIT, VALUE HOLDS UP WELL

Source: Bloomberg


Three sub-sectors in particular have been hard-hit (Figure 2):
  1. Biotech has lost 13% from its high at in February (line in yellow);
  2. Social media stocks such as Facebook and Twitter have lost 14% in aggregate from their peak (line in green);
  3. Recent IPOs retreat 6% from the peak, judging by the First Trust US IPO ETF (FPX; line in black).
2. BIOTECH, SOCIAL MEDIA AND IPOS CAUGHT IN THE MOMENTUM RETREAT

Source: Bloomberg

Yield back in vogue

Long-term government bonds have performed well of late. Both European and US long-term government bond funds have gained significant ground over the year-to-date. This, in spite of the poor yields being offered by both (2.1% for a UK Gilt ETF; 3.1% for a US 20+ year Treasury bond ETF).

We can see that yield is becoming very popular once again as an investing strategy; this is evident from the recent performance of both US high yield corporate bonds (in black) and also US real estate trusts (REITs; in orange)...
 
To read the rest of this article, please click on the Mindful Money link below:


Happy value hunting!
Edmund