Stocks to watch in September
But the 700-strong pubs chain never lost its capacity to make decent profits throughout the recession. The pre-tax figures recovered from a low of £45 million in 2009 to £61 million in 2011. For the year just ended the returns are expected to come in at £67 million.
This unspectacular performance has been enough to give the shares a solid performance. The latest trading statement in early July from chief executive John Hutson suggests this will continue in the current year. The company's trade has received a welcome fillip from the Euro 2012 football championship and the Diamond Jubilee. Analysts feel any form of growth in the current gloomy retail climate is quite an achievement.
The government's search for extra revenues from higher VAT, excise duties and carbon taxes will force founder Tim Martin to slow the rate of expansion of his pubs chain this year. Last year he opened 40 new outlets. This year it may only be 20 to 30. The shares now sell on a forward earnings multiple of 11 and a yield of 3.15.
Dechra Pharmaceuticals, for a long time a favourite of this column, continues to grow impressively through the ups and downs of the economic cycle.
Profits for the year to June are expected to leap from £18 million to £32.5 million as the benefits of expanding its high-margin veterinary drugs activity continue to show through. A chirpy update at the beginning of July from chief executive Ian Page indicated strong revenue growth particularly in the US division.
Looking ahead to the current year brokers are already confident of another impressive rise in profits to £43 million implying the shares sell on less than 12 times earnings. An attractive rating for a genuine growth business.
Housebuilder Redrow should be back paying dividends this year for the first time since 2008. After three years heavily in the red, the group got firmly back into profits in 2011, and for the year to June 2012 the pre-tax returns should be £10 million higher at £35.3 million.
Hopes are high among the analysts that progress can continue in the current year with profits expected to be £50 million. But that is still a long way from the boom days of 2007 when profits hit £121 million and the company was at least twice the size it is today. In those days the shares were trading over the 500p mark. In the bear market they sank to 100p. Now at 120p they still struggle to find investor support.
Pan African Resources
Pan African Resources is that rarity among AIM-listed mining companies in being both profitable and paying dividends. Profits for the year just ended are slated to top the £50 million mark (£26.4 million last year) reflecting continued expansion of its gold and platinum mines in South Africa and its Manica Gold project in Mozambique.
It is now in the process of further major expansion in gold production through the acquisition from Harmony Gold of the Evander mine in South Africa, which will have the effect of doubling Pan African's production to around 200,000 ounces a year.
This game-changing deal emphasises Pan African shares as a pure play on the gold price. Many believe the yellow metal price may soon run out of steam after its exceptional 'bull run' over the past few years. Analysts' forecasts of profits for the current year of £70 million may prove a major undershoot if gold does hold at anywhere near present levels. The forward earnings multiple of 4.9 and the projected yield of 4.5% look attractive.
This article was written for our sister publication Money Observer.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.
This refers to a market situation in which the prices of securities are falling and widespread pessimism causes the negative sentiment to be self-perpetuating. As investors anticipate losses in a bear market and selling continues, pessimism grows. A bear market should not be confused with a correction, which is a short-term trend of less than two months. A bear market is the opposite of a bull market.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.