THIS IS NOT A TIP OR RECOMMENDATION. I AM NOT A TIPSTER. PLEASE DO YOUR OWN RESEARCH. PLEASE READ THE DISCLAIMER ON THE HOME PAGE OF MY WEBSITE. IF YOU COPY MY TRADES, YOU WILL PROBABLY LOSE MONEY COS SADLY I DON‘T HAVE PERFECT ABILITY TO PREDICT THE FUTURE, AND BEAR IN MIND THAT I AM A LONG TERM INVESTOR USING MANY RISK MANAGEMENT TECHNIQUES. UTW IS A SMALL HIGH RISK COMPANY AND NOT ONE TO PUT YOUR LIFE SAVINGS IN !!
I must say it is really nice to be writing this blog. It seems that recently I have barely done any blogs specific to individual companies and it is really refreshing to have to get my Research & Analysis head on and get stuck into thinking hard about a business.
While I am getting the number of Stocks in my ‘Trading ISA’ down to the WD40, I am being pretty strict with myself about not buying any new Stocks (despite me seeing a few opportunities that I expect to do very well) and this has meant I have been pretty inactive on the Stock buying front this year. However, I am at 42 Stocks now and with ARM being taken over and ETO looking like it might go soon, I should be down to 40 pretty soon and then I will be instigating a ‘One Out, One In’ policy and I can hopefully resume doing some in-depth and critical Research & Analysis of some interesting Stocks.
I have held UTW for years and years and know the business pretty well. It was very much in growth mode until about a year ago where it stumbled when the usual bunch of ‘Bear Raiders’ got stuck into its Accounts Policies regarding Cash Flow and since that the scepticism of many people has really held the Share Price down - this was not helped on August 8th when a Trading Update contained a Profit Warning but as usual the Short Termers have focused on the Immediate History and are completely missing the Future Potential (and the long history of achievement) which is the main reason we should be buying any Share (the History is largely in the Price, although it does help set a course for the likely Future).
My intention in this blog is to give my current view on UTW and to try and do a balanced and objective commentary on what is going on as far as I can tell - obviously we can never know what is really going on inside a Company unless we get a job there (and that usually brings its own set of biases with it). On the subject of bias, I think UTW has become one of those Stocks where the vast majority of people take the lazy, knee-jerk, way out of just quickly relying on their Kahneman ‘System 1’ Fast Thinking Brains and instantly dismiss it as an investment. I think this is a huge Cognitive Error and it is worth turning on ‘System 2’ and doing some careful, attentive, focused, unhurried, thinking and above all using the Slow Brain.
Of course, it is probably my biases screwing my judgement up with regard to UTW (but at least I am in good company as Neil Woodford now holds 27.18% of the Shares).
I topped up on UTW many, many Moons ago and I wrote a pretty detailed Blog about it - most of which still applies today and it is certainly worth reading I think. Don’t dwell too much on the numbers because of course they are pretty irrelevant now and I will look at the Valuation and stuff later in this blog. You can find the previous blog here - it will particularly help with the background around what UTW does:
Well, there is no doubt the Ugly part of UTW is the Share Price performance in recent Months/Years - check out the Chart below:
This goes back a couple of years and shows a very clear and Nasty Downtrend Channel (marked with my Parallel Red Lines) - we need the Price to escape this Downtrend to the upside to know that things are changing with regards to the Price Action. I guess a move above 160p would indicate that things are on the mend.
Note my Blue Horizontal Line at 112p. This is a critical level of Support and we really need it to hold - if this fails, then expect the Price to go lower (maybe down to around a Quid) but at some point the Valuation here will get Buyers interested.
2012 - £14.69m
2013 - £25.26m
2014 - £48.95m
2015 - £69.1m
2016 - “not less than £82m”.
I haven’t worked out all the % growth figures here, but they are obviously very strong. For instance, just between 2014 and 2015 it was 41% - that is a rapid growth rate. If they meet the new Expectation of £82m, then the Growth Rate this year will be 18% (and note this is not driven by acquisitions). I think I mentioned this elsewhere in the Blog, UTW has proved in the past that it can produce Profits and Cash (which it has paid me lovely Dividends with) and with the actions they are taking to address the problems, I fully expect them to move back into Profit Growth very soon. Note, the Dividends have also grown every year since 2012 when it was 1p a Share, and this year it should be 6.2p per Share - when everything is boiled down to bare bones, the Value of any Company is really the Stream of Dividends it is expected to pay to Shareholders over time.
The ScreenShot below is from the ShareScope ‘Details’ screen for UTW:
If you look in the Top Right Hand Corner you should see ‘Norm EPS(p)’ for ‘Jul 2017 Forecast’ of 19.67 (this is next year and I think that is appropriate to look at for Valuation purposes - obviously there is nothing to stop Readers running the numbers on any years shown).
With today’s Share Price of 127p, this gives a Forward P/E Ratio of 6.5 (127p divided by 19.67p) - that is exceptionally cheap for a Growth Company.
From the ScreenShot, you can see that the Expected Dividend Yield for 2017 is 5.51%. That is very nice as well.
In terms of Targets, I see no reason why UTW couldn’t be trading on a P/E Ratio of at least 15. On that basis, a Target around 300p (19.67p x 15) within the next couple of Years wouldn’t be ridiculous - and I have not really taken must notice of future Growth exceeding expectations and any Cash Pile that will most likely appear.
I hope this helps with Reader’s UTW Slow Brian thinking,
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.