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Feel the Yield - Charles Taylor Consulting (CTR)
21/12/2009
(119264)
Feel the Yield
Out of the blue, there has been a nasty wobble in the price of Charles Taylor Consulting (CTR) in the past fortnight. At one stage last week, it had dipped to around 185p, virtually back to the level at which it was first recommended here (High Returns, June 24), and well below the 232p it touched late in September.
A little flurry today saw it rise to 192.5p – 198p, and it looks well worth buying. There was a confident interim management statement on November 19. Had there been any material change since then, the board would have been obliged to say so (they know that, believe me). House broker Altium commented on the management statement in bullish fashion, recommending buying the shares with a price target of 330p. That position is unchanged.
It is not clear why the shares fell below 190p. It is probably due to the thin market. The real daily volume is often well below 30,000, and a trade of 10,000 a time looks on the large side generally. So the sale of a few thousand shares can lop a few pence off the price. When there is a lull between news announcements, and the price drifts gently down. Perhaps the slide then starts to trigger precautionary stop loss selling and that snowballs. In a few weeks, without any great drama, a big chunk gets knocked off the market capitalisation without any real reason.
A falling share price is not to be ignored, however, and though I responded last week to a question on the bulletin board about what it meant, it has taken me a while to complete my research and to conclude that the fall looks drastically overdone. No guarantees, of course, but it does appear that Taylor is trading comfortably and – above all – should meet predictions of a modestly increased 14.6p dividend for the year.
That is crucial. Whatever reason there might be to buy Taylor, the prime attraction is the prospective yield (at 195p) of 7.4%. The company is heavily committed to a progressive dividend policy, and has raised the payout each year since flotation in 1996. That should mean a rise from 13.9p to 14.6p in the 2009 dividend total, and again to 15.3p in 2010 (for a prospective yield of 7.8%).
Since Taylor is listed on the main market, the shares can go into an ISA where all but 10% of the dividend is protected from tax - a nice return in these uncertain times.
Beyond that, the shares are cheap in earnings terms. At 195p they sell on 6.9 times 2008 earnings, and 6.8 times projected 2009 earnings, with a price earnings ratio of about six for possible 2010 earnings, taking the broker forecasts. On a notional pe of ten for 2010, the share price would need to be about 330p, which accounts for the broker’s price target. Back in 2007, they hit 440p, and even touched 253p early in 2009, so such heights are not too wild.
Taylor is relatively small (market capitalisation about £77m) and it is not especially easy to comprehend the range of services it provides to the insurance industry. But it is important to realise that it is not an underwriter, so avoids the highest risks. There is a fuller explanation of what the company actually does in my original June note.
Go back to the mid-November statement and it is clear that Taylor is actually doing rather well. The snag is that though pre-tax profits should ‘exceed significantly’ forecasts, there will be a rise in minority interests and tax charges will increase because of adjustments in prior years and the geographical business mix. This means earnings per share will be slightly down (this modestly lower projection is taken into account in the pe forecasts mentioned earlier).
There is a more detailed explanation in the November 19 statement. What matters is that the overall mood is confident and the board promises that the financial position remains sound, with trading within banking facilities and covenants, and prospects for the group as a whole are robust across all four divisions.
Intriguingly, it looks as if expansion plans are in hand for insurance support services, with a presentation promised shortly. And a number of new acquisition proposals are under review in the run-off division.
It is unclear when the promised support services presentation will arrive, but the group normally gives another trading statement late in January/early February, with preliminary results for the full year announced at the end of March.
That ought to mean that the current quiet period when the shares languish might not to last too long. Modest buying can move the price up quite sharply, so there ought to be room for a useful capital gain over the next three or four months. Longer term, the high yield and low pe look attractive. Obviously in such a thin market it might not be a good idea to chase the price in the short term.
Merry Christmas and a happy and prosperous New Year.
Ends
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