UK Edition
Questor: yet more bad news from Royal Mail. Were we wrong to say ‘hold’ last year?
Questor Income Portfolio: after another downbeat trading statement and fall in the share price, is it time to give up on the postal operator?
After a quiet time over the festive period, companies whose shares we hold in our Income Portfolio are now announcing results or publishing trading updates. This week we heard from Royal Mail, Crest Nicholson, the housebuilder, and Dairy Crest, the cheese maker.
We cover the bad news from Royal Mail below and will report on the better tidings from Crest Nicholson and Dairy Crest next week. Today we also publish our regular performance table.
Update: Royal Mail
Shares in the postal operator plunged again this week after a downbeat trading statement and readers must be wondering whether Questor was right to hold on when we covered the stock in October and November last year. We have always focused on the sustainability of the dividend. What does the latest update have to say on that subject?
Royal Mail’s statement did not mention the divi by name but some of the figures it quoted were significant. In particular it said it expected operating profit before transformation costs of £500m to £530m for the current year.
We had already assumed that it would make the lower figure when we tried in October to establish whether the company could afford its dividend. The conclusion of that exercise, which admittedly included some assumptions on our part, was that Royal Mail would generate £250m in cash against a £240m cost of the dividend – a slim safety margin. And that was before the 4pc rise in the interim payment was announced.
However, we also pointed out that the company had £2bn in “distributable reserves”, which could be used to make up the shortfall if cash generation fell short of the cost of the dividend. This sum gives the company some breathing space to solve its various problems, such as poor productivity, declining letters volumes and cost pressures.
The shares stood at 631p just seven months ago. That reflected excessive optimism – but the current price of 268.1p may equally reflect undue pessimism. As before, we will hold but will remain alert for any sign of a concrete threat to the dividend.
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Update: performance table
A reader kindly pointed out that the income received from Regional Reit reported in our table each month appeared to be too low. We have checked and he was right. This month’s table reflects the correct dividends paid since we added the stock to the portfolio.
We also spotted a rogue duplicate dividend from Next. This too has been corrected.
- Questor archive: telegraph.co.uk/questor
IHT Portfolio update: Anpario
A year ago Questor tipped Anpario, which makes natural animal feed supplements, for readers generally and in June we added it to our Inheritance Tax Portfolio of Aim shares. Earlier this week the company published a trading statement that sent the shares 8pc higher, although they remain below our purchase price.
Chris Hutchinson, who holds the stock in his Unicorn Outstanding British Companies fund, acknowledged that the shares had been weak. He said they were now valued in line with their average price-to-earnings multiple of the past five years.
He added: “We expect to continue adding to our position opportunistically, based on valuation. As with all our holdings, we take a long-term view and continue to believe that Anpario will grow surely but steadily over the next 10 years.”