Weekend Rebel Review 9th March, 2024

Budgeting for a rally

This is just some thoughts, it isn't investment advice or incitement to buy in any way, just my views - please do your own thorough research. I’m not an analyst, I’m just a private investor looking after my own money. Nothing I do or say is meant as advice or should be taken as such. Here I publish my ideas and research that I have done and discuss the way I invest.  Anything written here needs to be verified for its accuracy. Assume any stock I write about I likely own, so my views are biased. Inevitably I will get things wrong, everyone is responsible for their own decision making and what they buy and sell. Subscribing and reading this article means you accept the above and you take full responsibility for your own actions and decisions. Small Cap stocks can be illiquid and very hard to sell at times when demand is weak so caution is required.

So, as a nation we have survived another Chancellor’s statement and got through a budget without tanking the £ or the economy.  The press really build these things up but a few £billion tinkering in an economy of £3.3 trillion – is that really going to make much difference?  We need £50-£100bn of real changes and cuts.  Do the changes the Chancellor made not amount to peanuts in the bigger scheme of things? When you add up the winners and losers across the board and the total +/- sum is a tiny fraction of the economy.  What really matters is sentiment, can you create a climate where people feel positive and want to ‘have a go’ rather than drawing their horns in?  Sentiment certainly has changed in recent weeks and particularly days.  I’ve watched the market for a long time and over the past few months, while the UK opened up often as much as 1% in the morning, by the close most if not all of it has unwound. This week it has been noticeable how the FTSE250 has hung onto most of its gains.  It feels a bit like the market has just had traders skimming what they can, but of late either long term investors are moving in or traders are getting brave enough to hold overnight. Even on Friday, the FTSE250 was off all morning by quite a bit but closed up 17 points.  You see this on the S&P – when the S&P closes at the highs it’s a bullish signal that traders are holding for more. At the start of April the new living waged kicks in with most people getting £1 an hour pay rise if they are low paid. Differentials need to be maintained too, so those earning more need a pay rise to keep them about the underlings in the business. The state Pension rises around £20 a week too and recent NI cuts also kick in. That means a lot of people start feeling better of. See inflation fall a lot and interest rates start to fall and you have the start of a mini consumer boom-let imo. Instead of rambling on about the S&P this week and the US which is trundling on nicely, I’ll point out a few things about the UK market.  Firstly the FTSE250.

This is the 1 year chart of the FTSE250. I pointed it out last week and the bowl since the start of the year has continued. The vertical line is the January start.  There’s the big 20% rally from October to Jan, then the bowl.  If the horizontal line gets breached as I suspect it will then the pace of the rally will likely pick up sharply here in the UK in my opinion.  The 250 made a high for this year on Thursday and went positive for the year, all more bullish lately.  Next the FTSE Small Cap Index.

Similar to the 250, the trend is firming and it has broken through the recent resistance and close to being positive for 2024. It has broken out of a rising trend from early Jan and if it breaks that previous high the pace should pick up.  Very bullish indicators.  I wish I could be as positive about Aim but Aim shares are still weak. The FTSE Aim 100 and the Aim 50 are the places where there is greatest strength.  I currently hold a few Aim, AT., W7L, GAMA, JDG and JET2 and all are in the Aim 100. I feel very positive for the stock market in the UK after the budget but I’m a perma-bull remember. With a little bit of tailwind and some good luck, we may see the market finally start to look a little bit more exciting than it has done over the past three years, let’s keep our fingers crossed.

The under-performance in the UK is rather shocking as far as valuations go but what is now priced in?  The fear that we wouldn’t get a grip of inflation was a major fear, and a year after the hike in Corporation Tax, nobody can still be pricing that in.  I would say an election win for Labour is already priced in too, with the polls we have seen and Tory self-implosion, so what’s left to scare the market to the downside?  I would say shares are now priced for Max Gloom – that depressing guy that seems to have a grip of bears, the BBC and 95% of social media.  Can many companies really report now and disappoint?  A few Aim dogs and dreamer stocks may but really, on current valuations the risk has to be towards better than expected news and upside imo. I have definitely seem many co’s report and rally on news that has been pretty ordinary now.

In the market we have seen further takeover action over the past week or so. On Tuesday it appears that Wincanton is about to be taken over at a 100% premium approximately, after a short bidding war. It is little surprise that there is 100 percent premium, with the under valuations that’s in the market today. So many shares appear to be as cheap as I’ve seen but at last we’re starting to see the bids come in and this can only help drive the market higher. On Tuesday, Spirent SPT announced a cash bid for the company at a 61.4% premium. On Thursday, Virgin Money announced a 38% premium bids from Nationwide.  Listed companies are rapidly becoming an endangered species in the UK and if share prices don’t rise, expect an appeal from David Attenborough pretty soon.  It would be nice to see a big blue chip face a bid and really get the market excited.

On Tuesday, Keller KLR Posted its full year results and the market has responded nicely over the next two days with a 15% rally. This goes to show more interest in the market and investors willing to buy news which they haven’t been willing to do recently. As I said a number of times, I’m expecting March to show up lots of instances like this where shares rally strongly on results, like JUST reporting yesterday to see a 13% rally. So many companies have been undervalued but now we have people and institutions which want to buy the shares when they see some good results which shows a longer-term mindset is starting to build in my opinion. Galliford Try - GFRD also posted some great results and are from the same sector  as Keller, and while the response wasn’t as sharp as Keller for whatever reason, they finally hit a new high Thursday. On Wednesday LSL property services said that their operating profits would be materially ahead of expectations. They also said that market conditions had improved which is a positive for the building sector as a whole. House builders are now looking rather cheap but the thing that seems to be dragging on them is potential claims for various things like Raak. cladding and leaseholds and other stuff but as far as valuation goes even with that, they look like they should be due a rally sometime soon in my opinion. I don’t hold any housebuilders.

On Wednesday, ITV announced that they had sold half of their BritBox business for £255m pounds to BBC, it’s joint partner, and set ITV onto a rally which was further boosted on Thursday’s results. I don’t know about you but I have never watched BritBox and I wouldn’t know where to look for it. I don’t see it on Sky anymore, I never see it advertised on telly. What it’s got to be worth £500 million beats me, but obviously they wanted to blow some license payer’s money on it.

Tuesday also saw an upgrade for MKS by Redburn at 305p Buy. This sent MKS shares into a nice rally and the bowly bottom they have been making recently has strengthened. The company’s year end is at the 31^st of March and I would not be surprised if there’s an unscheduled positive trading statement from the company sometime towards the end of their financial year or going into April. Markets are weird things driven by emotion.  Punters get over excited and drive a share ahead of itself at times. Then punters get cold feet when the share comes off so they sell and exacerbate the fall.  It’s easy to conjure up all sorts of false demons in your mind just because traders have set a selling trend off that is feeding on itself to a great extent.  The stock then goes way oversold.  It’s at this point a co puts out news and the shares rocket again.  I can’t say that has happened with MKS but it wouldn’t surprise me.  MKS still ranks as the most exciting stock I hold here.  If thy are ahead of forecasts, the upgrade to next year’s earnings would put them on a stunningly low PE for the growth.  I keep hearing Archie Norman’s words at the Capital Markets Day, echo in my ears ‘We are only at the foothills of what we could achieve’. What I keep asking myself is, having done 12.7p adjusted eps in H1, can a retailer with the momentum they have, do less in H2 which includes Christmas?  I don’t believe they will do lower, and Archie’s ‘note of caution’ at the Christmas statement was just to stop analysts getting ahead of themselves, as he said ‘we want to under-promise and over-deliver.  So if I’m right, 25.4p eps is likely to be the minimum they do in my opinion with scope for more, versus forecasts of 23p.  Whatever the result, they will do 50% eps growth this year on a fwd PE of 9 or less.  They will also pay a 2.5% yield going forward. With 100+ new stores being opened in the next two years (while they close older stores) they reduce the floor-space by 30% and the rental cost, while increasing sales by 30%.  That’s a huge amount of self-help to boost sales and profits imo.

On Thursday, one of my largest holdings, Keir KIE, reported their results and the shares rallied 7% on news of a reinstated dividend of 1.67p for the interim and results which seem to be pretty much in line. They pay a yield of 4.7% going forward. This is the third construction company this week to report and the third one to have a positive response to the results, hitting an 18 month high. The chart has a cracking bowl on it still. I hold KIE. Having bought my first tranche around  84p in September, I trimmed 30% of my holding to bank 70% in 6 months, leaving my average carry cost much lower and de-risked. I see some good places starting to show up for me to put more money into.

I have increased my holding in LionTrust LIO with that cash as the bowl is on the brink of a breakout and the market has firmed a lot. I think if the market continues like this the rally in LIO could be much faster and stronger. The CFO bought 20k in January and anecdotally it seems that outflows in the industry are turning to inflows, which if correct, means these could be a highly geared recover play.  Further spice was added in the budget with the Chancellor announcing new All British ISAs – a “Brisa” I suspect they will be called.  With a £5k per annum allowance, something like LIO would make an ideal way for punters to invest in their Brisa and spread their risk while potentially giving a highly geared return I feel.

That’s the main highlights of the market action that I have been paying most attention too.  As for changes to the portfolio, well apart from trimming KIE to add more LIO, I have bought a position in 4imprint FOUR, ahead of their results this coming week.  A real class act with a fantastic long term record.  Not sure if it will be a buy and hold or just a trade till I see the numbers but I suspect will be more inclined to buy and hold, we will see. 3.2% divi yield forecast and some great stats:

A PEG of 0.69  over the trailing 12 months is very attractive too imo. I bought FOUR at just over £1 over 20 years ago – and sold way too early – as always.

Talking at buying shares 20 years ago at just over £1 and selling too soon – another I did that with was JDG – I have just been buying these too at over £100.  Were there ever two shares I should have just bought and held but that is hindsight for you. Recently, JDG said they will meet expectations of 361p eps, despite the rise in corporation tax.  This will not only be eps growth of 56% but means the co did over 200p eps in H2, meaning the 383p eps forecast for the coming year looks more than doable imo.  The shares have firmed to £111 a share and if 450p eps can be hit or beat then the PE is just 24 for EPS growth of nearly 30% p.a compound over 6 years and a low, genuine 5 year Jim Slater PEG way under 1. A very low PEG for a great co and the chart curving up and going parabolic. Final results on March 21^st.

There are a lot of results and trading statements due out this week, these are the results and updates I’ll be looking out for this week.

12^th       COST   Finals Confirmed

12^th       DOM    Finals

12^th       PSN      Finals

13^th       KWS     Finals

13^TH      FOUR  Finals

13^th       GYM     Finals 

14^th       BPT       Finals

14^th       VTRY    Finals

14^th       ROO     Finals

14^th       MOON trading update

14^th       ROO     Finals

14^th       TRN      trading update

14^th       OCI       Finals

14^th       BPT       Finals  confirmed

14^th       IGG       Q3 update

15^th       BKG      trading update

And that’s just about it for this week.  Enjoy the weekend, next week looks like being a busy one and remember – these are just the thoughts of a private investor, I’m not an analyst and I could be wrong very easily, so do your own research and don’t trust me, I wouldn’t!

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