Hits: 4

Annual Reports

  • I find history tends to repeat itself which can be a useful thing to bear in mind when investing. The first annual report of the Hudson River Railroad company in 1848 makes interesting reading. It starts off by berating shareholders the “uncalled for panic” and for sacrificing their stock below par value. The directors then concede they deem it proper to take note of some of the most “prominent and sinister” objections “urged” against the enterprise. Such as that the works will cost double the amount originally reported by Mr Jarvis.
  • While annual reports no longer read like this it reminds me of frequent conversations between companies and their broker. So history does repeat itself, just the conversation has moved from the annual report to the telephone line of the broker.  It makes an entertaining read https://archive.org/details/firstannualrepor00huds/page/n3

Just Group – Business Update  

Share Price 100p

Mkt Cap £941m

  • Update New Business sales were up 15% over the 12 months to Dec 18 at £2.83bn driven by defined benefit de risking sales which were up 32%. Annuities were down 4% and care plans up 2% while lifetime mortgages grew 18%. Importantly pricing discipline remains strong and another strong year is expected for DB de risking sales. The company reports it is increasingly selective in its pricing and following the publication of PS 13/18 the company reports it is considering the optimal capital base for its new business franchise.
  • Estimates Unlikely to change
  • Valuation PER 5.7 and yield 3.8% although as the board is considering its dividend policy ahead of the implementation of PS 13/18 in Dec 19 ther future dividend policy is unclear. What we do know is that net tangible assets are 180p per share, some 80% above the current share price
  • Conclusion  The PRA has shown it doesn’t wish to disrupt the back book by introducing transitional provisions to December 2031. However the capital requirements for writing new business are now onerous resulting in increased pricing for the pensioners.  Over the next two years the optimal dividend policy and capital structure will become clearer when it is possible (likely even) that the shares could trade towards the tangible asset value. 80% upside in two years looks appealing

S&U – Trading Update

Share Price 2110p

Mkt Cap £253m

  • Update Trading is said to be satisfactory with FY results expected to be in line with consensus. In Motor the impairments are said to be responding to their tighter underwriting requirements but the new lending has experienced an unusually strong slowdown towards the end of the year such that the loan book growth is 4% over the year.  The secondhand market remains strong. Aspen bridging loan book is now £18m and new business originations are encouraging such that it is expected to make a good contribution to group profits for the first time
  • Estimates Revenue estimates are expected to grow 15% in 2019 which in the light of the 4% growth in the motor loan book following the recent slowdown may be aggressive.
  • Valuation PER 8X and yield 6.2%. ROE is 17% and Price/Book 1.64X which is cheap. The shares are off 25% from last May
  • Conclusion Shares are cheap but this remains a play on the motor loan book.  My recollection from the slowdown early in my career was that used car volumes lag new car volumes by about 2 years.  That seems to be roughly the case this time round.  The next phase with perhaps a 6 month time lag is that used car values start to fall. And then impairments start to increase. That suggests we should wait a little longer before getting interested in this cheap share.