DPLM.L - director sales

The following transactions were recently carried out by directors of DPLM.L:

Traded	Action	Notifier	Price	Amount	Value
27-Jan-11	Sell	Nigel Lingwood	276.00p	20,051	£55,340.76
27-Jan-11	Exercise of option	Nigel Lingwood	0.000p	39,316	£0.00
27-Jan-11	Sell	I Henderson	276.00p	19,179	£52,934.04
27-Jan-11	Exercise of option	I Henderson	0.000p	37,606	£0.00
27-Jan-11	Sell	Bruce Thompson	276.00p	31,385	£86,622.60

That's quite discouraging, although it's perhaps a little reassuring that  Lingwood and Henderson are still retaining half their shares.

TMF: Re: Doughty Dozen, meet the Fallible Fifteen / High Yield - HYP Practical

TMF: Re: Doughty Dozen, meet the Fallible Fifteen / High Yield - HYP Practical

When taking significant amounts of debt into consideration I would do the following:

a) as mentioned above, ensure that debt is no greater than a certain multiple of earnings (I also use 5 times)

b) to ensure that the balance sheet is not window dressed, ensure that interest cover is adequate (say, 4 times)

c) Instead of using return on equity, use return on capital employed i.e. the returns that would be achieved with an unleveraged business. This would be the returns with interest excluded i.e. net operating profit after tax (operating profit x (1 minus tax rate)) divided by shareholders' equity plus debt.

DNO.L - Domino Printing Sciences - a weak buy

DNO is a bit unusual for - it's my first "growth" share - i.e. something on a high PE that isn't a cyclical in the dog house. DNO is one of the top 10 holdings of Aegon UK Smaller Companies, which has a five-star rating by Morningstar.

Here's the business activities of DNO:

Domino Printing Sciences plc is a United Kingdom-based company engaged in the research and development, manufacture and sale of industrial printing equipment, controllers and consumables for the printing of variable information. It develops, manufactures and sells a range of products and solutions, which enable manufacturers to code, identify, mark or personalize the products and packaging. The Company’s subsidiaries include Alpha Dot Limited, Domino UK Limited and Domino Printing Sciences QUEST Trustees Limited. On June 22, 2009, the Company completed the acquisition of Labeljet - Comercio e Industria de Etiquetas, S.A. (Labeljet S.A.) and it’s wholly owned subsidiary Marque TDI - Technologias de Codificacao S.A. (Marque TDI S.A). On May 20, 2009, the Company disposed certain assets of Domino (Australia) Pty Ltd to Insignia Pty Ltd. During the fiscal year ended October 31, 2008, the Company completed the acquisition of Alternative Printing Services GmbH. (APS).

 DNO is currently rated a "strong buy" by analysts. EPS growth is expected to be 4% in y/e 31-Oct-2011, and another 9% growth is expected in y/e 2012. It is currently trading on a PER of 17, although this is expected to be 15 for y/e/ 2012 (I think there's going to be more shares in circulation during that period).

It has a z-score of 7.46 - very high. It has negative gearing (-28%). It has positive net current assets, and non-current liabilities of 12.9m - amply covered by net profit of 37.1m for y/e 2010. For y/e 2010, it has a ROE of 22.9%. During the last decade, its maximum ROE was 22.9%, its minimum ROE was 14.5%, and the median was 16.8%.

Some highlights from their preliminary statement for the year ended 31-Oct-2010:

Record sales and our 32^nd consecutive year of revenue growth ... Investment in Research and Development increased by 36 per cent ... I am delighted to report that Domino has again achieved record results in terms of sales, profit and cash generation. ... Whilst economic concerns do remain in Europe, our strength in the fastest growing regions of the world, China, India, South America and Eastern Europe, gives us confidence as we enter 2011. ... The combination of an exciting range of new products and additional investment in selling and marketing, together with a strong balance sheet, gives us confidence in the future.

DNO is ranked 40 in a list of 377 companies over £300m by Greenblatt ranking, putting it in the 10th percentile.

I bought in today at a price of 652.2p (inc. dealing charges), and the Footsie stood at 6030. DNO has a mkt cap of 713m.

DPLM.L - a buy

DPLM.L (Diploma) is engaged in the following activities:

Diploma PLC is engaged in the supply of specialized technical products and services. The Company operates in three business segments: Life Sciences, Seals and Controls. The Life Sciences sector businesses supply a range of consumables, instrumentation and related services to the healthcare and environmental industries. The Seals sector businesses supply a range of hydraulic seals, gaskets, cylinders, components and kits used in heavy mobile machinery and specialized industrial equipment. The Controls sector businesses supply specialized wiring, connectors, fasteners and control devices used in a range of technically demanding applications. The healthcare businesses are managed through Diploma Canada Healthcare Inc (DCHI). On January 12, 2010, it acquired 8.2% interest in Somagen Diagnostics Inc. On July 30, 2010, it acquired 80% of Big Green Surgical Company Pty Limited. On September 8, 2010, it acquired All Seals Inc. In December 2010, the Company acquired Carsen Medical Inc.

During 2010, it had an ROA of 9.6%.  Its current ROE is 15.7%, and its median ROE over the last decade is 14.9%. Its minimum was 12.8% and maximum was 17.3%. So, it has been earning consistently good ROEs. It is currently a top 10 holding of (BNY Mellon) Newton Smaller Companies, rated 4 stars by MorningStar.

I bought into DPLM at 307.5p today (inc. transaction costs), when the Footsie was at 6030. DPLM has a PER of about 15. EPS is expected to rise by 15% for y/e 30-Sep-2011, and another 8% in y/e 2012. Overall, analysts rate it a "buy", although on 12-Jan-2011 Numis Securitas downgraded it to "Add".

Some highlights from an interim management statement on 12-Jan-2011

The continuing strength in revenues and operating margins, together with contributions from recent acquisitions, provides confidence that the Group should achieve good progress in 2011. 

DPLM has a mkt cap of £340m, PBV of 2.5, Graham Gearing of 67%, ROC of 89%, and GEY of 10.8% (Greenblatt Earnings Yield).  It has a z-score of 6.10, and negative gearing. It has positive net current assets. Non-current liabilities amount to 10m, and it net profit for y/e 2010 was 21m. So it has an excellent balance sheet. DPLM is ranked 18 in a list of 377 companies over £300m by Greenblatt ranking, putting it in the 5th percentile.

BWY.L - a weak sell

I decided to sell my BWY shares today on the back of an RNS statement. Although BWY looks cheap on a PTB basis, two directors sold some shares. The shares, totalling 33.4k, were options granted under the employee share option scheme. They passed to the directors, who immediately sold them at 679.5p. That amounts to about £227k. I figure that if the shares were truly undervalued, the directors would have kept them. Two other factors influenced my decision. None of my respected fund managers hold shares in housebuilders, and I'm rather worried about the economy and what could happen to share prices.

I say it is a weak sell because PBV is on the historic low side, and housebuilders have had some encouraging results lately. On the theory that things seems to be picking up, shares should be a hold. Profit forecasts are also positive, so it doesn't look a terrible share.

However, I still sold due to my nervousness about economic outlook (which is admittedly rather fanciful), and the directors selling. Maybe the directors felt that they had enough shares in the company, but like I say, how comes we aren't seeing holdings by fund managers, and how comes the directors aren't holding onto their shares if the theory that we could see further significant pickup in housing?

I'm adopting a more cautious strategy now. I've chosen so many rubbish shares in the past, that I need to focus more on downside risk.

Here's my dealing history with BWY:

Om 18-Jun-2010, I bought shares at 628p. The footsie was at 5253. I sold them today at 663p, when the Footsie was at 6030. That gives me a gain on BWY of 5.6%, versus a return by the Footsie of 14.8%. Dealing costs are included in my buy and sell prices, but not dividends - which would have been quite small.

Update: according to this graph,  the first time average house price to earnings ratio is about 4.5, compared to the long-term average of 3.5. First-timers therefore find houses very expensive. It is interesting that BWY recently said that it was building more expensive houses, where, IIRC, they were more affordable. This is interesting, because it appears that a two-tier system is developing. OTOH, according to another graph, average house prices adjusted for inflation appear to be below trend, indicating that houses are relatively cheap (actually about in line). This is counter-intuitive when you consider that interest rates are low. Maybe it is the lack of lending that is the real problem, rather interest rates per se. However, if rates are low, then affordability should also be good for first-timers. So there's a piece of the puzzle that I'm not understanding.

Update 03-Feb-2011: BWY is currently trading at 603p, so it looks like I was right to sell.

TD Waterhouse - Top 10 buys and sells

I took the top 10 buys and sells of clients at TD Waterhouse. I thought it would make interesting reading 6 months down the line to see how good or bad investors were.

11 January 11

Top Ten Buys and Sells - Weekly Retail Investor Activity Summary and Comment

The Top Ten buys and sells are measured as the total number of trades carried out in each stock by TD Waterhouse clients over the previous 7 days.
This report is not a recommendation to buy or sell these stocks.

	Top Ten Buys	Top Ten Sells
1	BP	BARCLAYS
2	LLOYDS BANKING GP	BP
3	EDENVILLE ENERGY	XCITE ENERGY LTD
4	ROYAL BK SCOT GRP	GULF KEYSTONE PETR
5	XCITE ENERGY LTD	LLOYDS BANKING GP
6	ARM HLDGS	ROYAL BK SCOT GRP
7	BARCLAYS	EDENVILLE ENERGY
8	AVIVA	RANGE RESOURCES
9	RANGE RESOURCES	BOWLEVEN
10	AMUR MINERALS CORP	MAX PETROLEUM

Darren Hepworth, Trading and Customer Services Director, TD Waterhouse comments:
“This week our customer buys surged by nearly 20% on last week’s as the FTSE 100 closed at 6014 points (on 11 January), buoyed by optimistic comments from brokers on the banking sector and the expected government retreat in its battle against big bonuses.
“The sound bites provided a catalyst for a series of rises in share prices with Lloyds Banking Group (LLOY) jumping over Royal Bank of Scotland (RBS) into second place on the buys from last week’s sixth position. In addition, Barclays’ (BARC) share price reacted positively to Bob Diamond’s comments at his meeting with the Treasury Select Committee, that it is not acceptable for tax payers to bail out banks.
Tempted by technology
“TD Waterhouse customers continued to hone in on banks, energy and miners, with these sectors accounting for more than 85% of the total top ten trades over the last seven days (ending 11 January). However, two exceptions to the rule appeared in the top ten buys this week as ARM Holdings (ARM) turned in the best performance on the FTSE 100, with its share price increasing 6% to 407.5p, following analyst remarks in the US that the company is a bid target.  Meanwhile, Aviva (AV) entered the buys in eighth place amid reports it is in talks with Norwich & Peterborough (N&P) Building Society to buy N&P’s advisory business.
Investors remain energised
“Our customer trading volumes in BP (BP) saw the company move up to second place in the sells and return to first place in the buys table, replacing Desire Petroleum (DES) at the top as oil explorers remained popular with our clients.
“New entry to the top ten tables this week, Range Resources (RRL), announced that it had snapped up a large stake in the East Texas Cotton Valley project increasing its interest to 21.75% this week while Xcite Energy (XEL) slipped in both the sells and buys tables on the back of news of its application for the admission to AIM of 100,000 new ordinary shares.”

VOD.L - VODAFONE - a weak buy

VOD is trading on a PER of 11, and a yield of 5.1%. It is liked by M&G Recovery, Fidelity Special Situations and Invesco Perpetual Income. At a PBV of 0.99, it is in the lowest quintile - a favourite value criterion. It has a z-score of 0.52 (ouch), but has steady streams of revenue. There are decreasing EPS projections, though. VOD has been making substantial buybacks lately.