As Martin Gilbert, the chief executive of Aberdeen Asset Management, says, his investors are being well paid to be patient. The last year may have been an awful one for emerging markets, but total dividends were raised by 8.3 per cent to 19.5p.
Factor in the 15½p fall in the Aberdeen share price to 319½p and this suggests a historic dividend yield of more than 6 per cent. Aberdeen can afford it; the fund manager ended the year with net cash of almost £570 million, £350 million ahead of regulatory requirements. It spent another £50 million buying back its shares as the price continued to fall through the summer.
It was a truly awful year for equities, where Aberdeen is 75 per cent invested in emerging markets. These had net outflows of £16.4 billion as nervous investors took out their cash and another £12.1 billion in negative market performance. The reasons are well enough rehearsed: the slowdown in China and the knock-on effect in economies where Aberdeen invests, as well as the effect on those economies of the strong dollar.
As Mr Gilbert admits, this emerging market weakness could have further to run. There seems no obvious catalyst to force a recovery; indeed, Aberdeen accepts that if the oil price remains low, central banks and sovereign wealth funds will continue to pull their money out. It is possible that an eventual rise in US interest rates might prompt some recovery out of sheer relief, but it is just as likely to have the opposite effect. Aberdeen is doing what it can. It is bearing down on costs, about £50 million a year coming out by 2017.
The fund manager is diversifying. The Scottish Widows Investment Partnership purchase is now in for a full year. There have been four smaller purchases, two of which will extend its exposure to American private equity and hedge funds.
The purported bid approach reported in October seems to have come to nothing. One analyst was suggesting that this was the best reason for holding the shares.
I would not be quite so negative, but would expect that dividend yield to provide some support at this level. Emerging markets will recover one day, but no one could claim to know when.
PBT £491.6m
Dividends 19.5p
£40.7bn Fall in assets under management
MY ADVICE Hold for income
WHY The dividend yield is among the highest in the sector, but there seems no reason why emerging markets should recover
Kcom Group is at an interesting place. This started out life as the old Kingston-upon-Hull telephone service. Then it moved into selling telecoms services to companies and now it is going further into a more complex, IP-based product. Its biggest customer for this so far is HM Revenue & Customs, for which it provides an automated call centre.
The company, therefore, is selling its fibre network, which covers 25 cities outside Hull. This is on the books for £41 million and there should be no shortage of buyers. The question is what it does with the cash. Kcom could accelerate the expansion of its fibre network in Hull, which supplies 53,000 premises out of a total of 180,000. It could spend the money on an in-fill acquisition, or use it to develop that IP product.
What the company will not do, in line with the wishes of its larger investors, is to hand the money back to them. However, it is committed to making annual dividend payments of 6p over the next couple of years, going out to March 2018.
This gives the shares, up 1½p at 98p, the support of a dividend yield of above 6 per cent, high for the telecoms sector, where the average is below 4 per cent, which gives those investors every reason to hold until further progress is made.
The halfway figures to the end of September showed the first revenue growth since 2008, on the back of those business services. The outcome may be uncertain and the new business model unproven, but that yield gives reason enough to buy.
Revenue £178m
Dividend 1.97p
MY ADVICE Buy long term
WHY Guaranteed yield will provide support
IG Group seems to specialise in short and pointless trading updates and the latest is no exception. The spread-betting operation, which has a stockbroking business up and running, did well enough in quieter markets over the past three months.
IG likes volatility, but not too much, as this encourages its clients to place bets. Too much uncertainty and they stay away, while many are nursing the losses they incurred on the surprise revaluation of the Swiss franc at the start of this year.
I have struggled to understand the valuation the market puts on IG. At yesterday’s price, unchanged at 774p, the shares sell on 17.5 times this year’s earnings. They have done little since the start of 2015; IG once offered a decent enough yield, but this is now about 4 per cent.
That multiple suggests that this should be a growth stock, yet analysts were not much inclined to alter their estimates for this year, which suggest a rise of about 10 per cent in revenues. Growth can come only from adding more clients or entering new territories— by definition, a slow business.
There is little forward visibility of earnings, either, which makes the shares even less attractive.
17.5 times’ earnings multiple
MY ADVICE Avoid for now
WHY Shares look expensive given slow rate of growth
And finally...
As a supplier of electronic products, Acal should be suffering from the same headwinds that have made the summer so difficult for the larger Electrocomponents and Premier Farnell, but moving upmarket and providing higher-margin bespoke components seems to have worked. There were further margin improvements in the halfway figures. On 17 times’ earnings, the shares do not look that cheap, but, as one analyst points out, this is a great result in such an uncertain trading environment.
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