Views on Carillion [CLLN] ?

[Dod1010]

Hi Dod,

I'm can't remember if I've asked you this before (actually, I can't remember much before yesterday, these days) but what would you do if one of your shares began to give the sort of yield you believe is risky. Given that there was no other news around other than the feeling that something hadn't yet come to light, and perhaps much shorting of the stock, would hold or fold? Supposing LGEN was yielding something similar, for example.

Arb.

That is of course a very difficult question. As you have indicated, it would depend on how well I thought I knew the share, the culture, its history, and so on. The nearest I can think of has been Shell and HSBC in the last year or so and I think at least in the case of Shell that there was (is?) a distinct possibility of a dividend cut but on balance I decided to stay on board. Both of these shares are well over my median level of holding so I would feel a cut. Again, with LGEN it would depend on how I felt about the situation so I have no rules for this sort of situation. On the whole, I would continue to hold and that would be my bias.

Buying into a share with a very high yield is really quite different and as I have indicated I would be unlikely to do that. People of course make a lot of money by getting it right but the advocates of buying when others are fearful or whatever the phrase is seem to mean when there is a market slump not an individual share slump. It is very difficult, with an individual share, to identify a falling knife from a market aberration. That seems to me to be the problem with the likes of Carillion, a well known and widely researched share. The market may have got it wrong but Mr Market usually knows better than me.

Doesn't really answer your question I'm afraid.

Dod

[Arborbridge]

Dod,

Doesn't really answer your question I'm afraid.

No, because there is a logical inconsistency at the heart of it, and I fall into the same trap myself. We hang on to shares which have become suspiciously high yield, yet we would not advocate buying the same share if we didn't already have it.
We hold on to shares with which we've developed a "feeling", but faced with a new share, we have nothing to go by except the figures.

So, someone who had held CLLN for years might conclude that it was OK to hold, whereas others wouldn't touch it - all based on the same set of numbers and history.

It comes down to rationalising what we do in each case- it isn't always logical.

Arb.

[Dod1010]

And of course what my answer illustrates is the difficulty in having 'rules' in investing. So much of it depends on 'feel' or gut instinct which is why I tend to shun mechanical top up tables and the like.

Dod

[idpickering]

And of course what my answer illustrates is the difficulty in having 'rules' in investing. So much of it depends on 'feel' or gut instinct which is why I tend to shun mechanical top up tables and the like.

Dod

Likewise from me Dod, with a touch of common sense thrown in. I make each decision on 'feel or gut instinct' as you say. Without going overboard in any given sector. Going back to Carillion though. I'm going to wait for the results before I add to my CLLN holdings. To do anything different would be folly IMHO.

Ian.

[monabri]

The consensus seems to be "wait and see".

ps - I started the post and this comment now gives me 2 Lemon pips

[moorfield]

While the Grauniad is reporting "World stock market hit record heights" today, CLLN just keeps on tanking. 213p heading towards a 9% yield. 1 March is going to be an interesting day ...

[toofast2live]

I don't own it, but none of the news recently has been negative and even the most pessimistic broker has a price target of 195 - a downside of 10%.

What mystifies me is no sign of director buying in the last year or so. I don't like that. I don't like that at all. The CEO is on a basic of £1m. And yet he hasn't even bought £50k's worth of shares. That smells bad. Very bad. CEOs are confident, arrogant animals and if they think their shares are undervalued they ACT.

I'll wait until the next announcement before taking action. But lack of director buying over the last year or so at these very cheap levels is disturbing.

The sniff test says rotten feet. All the information I can see says bargain.

[Crazbe7]

Carillion position themselves as a support services company and compare themselves with Atkins, Capita, Amey, Babcock, Interserve, Compass, Serco, Sodexo and Balfour Beatty. Most of this bunch have hardly wowed the stock market over the last six months.

For me Carillion just sit in an unloved broad-based sector with poor performing companies all around, struggling with a strategy to move on having failed to take-over Balfour Beatty and suffering from the uncertainty of Brexit.

A bargain or basket case? - I hold and have recently topped-up. Let's see what the dividend is in five years time!!

Crazbe7

[Bouleversee]

I seem to remember that they had secured a big contract recently so hopefully things may start to buck up. However, I have lost a lot of money in this sector and don't feel inclined to buy more, esp. in view of the comment about directors' share purchases.

[CommissarJones]

For me Carillion just sit in an unloved broad-based sector with poor performing companies all around, struggling with a strategy to move on having failed to take-over Balfour Beatty and suffering from the uncertainty of Brexit.

Agreed. My two most recent HYP additions are CARD and CLLN, and while I am down on both in capital terms, both companies are performing well in terms of their operating businesses and also doing the job as far as income. In my view, some shares will have negative perceptions attached at any time for reasons that might or might not be warranted, and that is what's happening here.

As has been noted elsewhere in the thread, CLLN is in the support-services sector, which has seen a number of very public screwups at other companies. As for CARD, it seems that retailers are out of favor at the moment for reasons including rising business rates, the imposition of the National Living Wage and concern about the outlook for consumer spending. Are the doubters correct? Time will tell.

[Bouleversee]

I'm also losing on CARD. Hope you're right CJ; I don't feel too optimistic myself.

[monabri]

CLLN will be ok - I just bought the shares at the wrong time such that there's a capital loss on paper at the moment. I think the best course of action is just to sit back and take the dividends over the next n years (where n is a big number). I'd go as far as to say that HYPers who buy into CLLN now will be patting themselves on the back in the future. Sit tight - "pay day" comes in June & Nov!

or...another way to look at it ...after holding them for 13 years we will hopefully have recovered our initial cost via divis and still have a share that generates a good return.

[toofast2live]

CLLN will be ok - I just bought the shares at the wrong time such that there's a capital loss on paper at the moment. I think the best course of action is just to sit back and take the dividends over the next n years (where n is a big number). I'd go as far as to say that HYPers who buy into CLLN now will be patting themselves on the back in the future. Sit tight - "pay day" comes in June & Nov!

or...another way to look at it ...after holding them for 13 years we will hopefully have recovered our initial cost via divis and still have a share that generates a good return.

Strange. You give no reason for your views. Is it just faith in the company, or what?

Many people have bought similar high yielders and have been rewarded with a resounding reduction in dividends. As I have said in my previous post all the reported evidence seems to me to indicate an undervalued company but lets see what the imminent announcement provides by way of news. I certainly cannot summon the optimism you have, but maybe I would if I held them.

Oh, and its not a capital loss "on paper". It's a capital loss you choose not to realise.

[monabri]

You're correct ..my post amounts to an "unsubstantiated stock tip". The comment is based on reasonable dividend cover going forward/ net gearing of ~31%/flattish profits (well, as detailed in Stockopedia). I don't see a reason for a dividend cut. The estimates are for a slight dividend increase. I think there are worse stocks out there.

[idpickering]

You're correct ..my post amounts to an "unsubstantiated stock tip". The comment is based on reasonable dividend cover going forward/ net gearing of ~31%/flattish profits (well, as detailed in Stockopedia). I don't see a reason for a dividend cut. The estimates are for a slight dividend increase. I think there are worse stocks out there.

I agree. I'm 30% down on share price wise, but I intend topping them up next month, depending on the results.

Ian

[cshfool]

Decembers' trading update talked about "meeting expectations" - flat profit growth (increased revenue) and small dividend increase and some debt reduction. Unless there has been a major change (and the price was sliding for a while before that update) then that's (ie flattish trading) what would be reasonable to expect. There does seem a large short interest in this one (FWIW) - be fun if an old fashioned corner was being worked on momentum bears as the bounce-back could be sharp in the scamble to close. Or not of course, in which case trousering, hopefully uncut dividends seems the order of the day, as usual.

csh

[JohnnyCyclops]

Um, yes.

[monabri]

Not sure what the comparison is meant to show ( other than the obvious that clln seems to follow the all share curve until recently due to shorting). It's a graph of 2 halves, pre 2008 when clln yield was below the average and post 2008....But that is 9 years since the "cross over". Are you expecting a correction down ? ( If so, what could you infer about a similar plot for BP or VOD).

[JohnnyCyclops]

Are you expecting a correction down ? ( If so, what could you infer about a similar plot for BP or VOD).

Not expecting anything. I had that chart to hand, as I'd first compiled CLLN's in 2014, so it didn't take much to update and post here. Just sharing for other Fools to ponder, should they so wish.

We bought CLLN two years ago at 368p at 5.1% TTM yield.

I've just re-read the pre-close statement from early December 2016. From Google Finance it looks like that dropped the share price 4%! General gist was revenues up, absolute profits up (on increased revenues) but margins down. References to some debt financing costs being in USD and thus impacted by post-Brexit GBP FX worsening, but also referencing it was hedged.

No idea what to make of it. Board look like a pretty responsible lot. Chair is Philip Green (no, not that one!), ex UU boss.

I guess we just sit tight, and see what comes. Only really interested in the increasing dividend stream from the HYP.

[JohnnyCyclops]

I went to look for the shorting market information. I've done it once or twice before. It's not hard, and publically available.

https://www.fca.org.uk/markets/short-se ... -positions

There's an Excel/xls link in the first paragraph.