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Five shares that have it all

The 'have it all' stock screen we ran last Christmas produced a phenomenal return. We've re-run it & found more gold plated shares
December 19, 2012

When we ran a stock screen for have-it-all shares last Christmas, our main concern was that those shares which were able to deliver on the many levels our screen demanded (value, yield, growth, consistency and quality) might ultimately be found to be hiding some dark secrets. With hindsight, we shouldn't have worried. With a couple of exceptions (Chemring and Albemarle & Bond), the 11 stocks the screen selected had a fantastic year (see table) and clocked up an average total return (dividend plus share price performance) of 30.2 per cent, compared with 13.2 per cent from the FTSE All-Share (see table).

CompanyTIDMTotal return (9 Dec 11-12 Dec 2012)
PlaytechPTEC93.8%
Halfords HFD20.1%
Phoenix ITPNX12.0%
James CropperCRPR16.6%
N BrownBWNG66.3%
WH SmithSMWH32.0%
Albemarle & BondABN-32.8%
MaintelMAI35.5%
Carr's MillingCRM40.3%
ChemringCHG-36.9%
International Personal FinanceIPF85.6%
Average-30.2%
FTSE All-Share13.2%

Source: Datastream

Encouraged by this result, we're going back for more. But the bad news is that, after a good year for the market, it has become even harder to find companies that tick all our boxes. The idea behind the have-it-all screen is to be as demanding as a spoilt child writing their Christmas list, but we've had to loosen last year's criteria to get any results at all.

The main changes to the screen are that we're only asking for 5 per cent forecast EPS growth rather than 10 per cent and we're also scrapping the requirement for a low five-year beta. Recent changes in the market's mood suggest dropping the low-beta requirement could actually prove more in tune with sentiment in the coming year.

But, even though we've loosened the criteria, the pickings are still much thinner than last year. So, rather than last year's 11 stocks, we've found just five shares that pass all, or all but one, of our eight tests. Two of the five (Maintel and WH Smith) were also on last year's list.

The loosened 'have it all' stock screen criteria are:

■ A forecast PE ratio of less than 10 or a share price less than book value;

■ A dividend yield of 3 per cent or more;

■ Forecast EPS growth of 5 per cent or more;

■ A three-year dividend compound average growth (DPS CAGR) rate of 5 per cent or more;

■ A three-year EPS compound average growth rate of 10 per cent or more;

■ A three-year free cash flow compound average growth rate of 10 per cent or more;

■ A three-year average return on equity of 15 per cent;

■ A return on equity of 10 per cent or more in each of the last three years.

 

YOU CAN HAVE IT ALL

The shares that passed the criteria are presented in order of the highest-yielding first.

Hull-based telecoms company KCOM has been having a tough time recently due to a disappointing performance from its business services division. It's not all bad news, though, as demand for other high-margin services have remained steady. It is also making good progress in rolling out high-speed internet connections in its home city, which should aid future growth. But the cost of this investment is pushing up debt (net debt stood at £93m at the half-year stage) and there are concerns about what strain may be put on the group by an upcoming pension revaluation. That said, management is committed to a 10 per cent dividend rise this year, which would mean a 4.4p payout, equivalent to a 6.3 per cent yield. Further out, though, there are dividend concerns.

TIDMMarket capPriceDividend yieldForward PE
LSE: KCOM£361m70p5.7%9.2

Forecast 1-year EPS growth3-year EPS CAGR 3-year DPS CAGRNet debt
6.9%96%40%-£79m

Source: S&P Capital IQ

Last IC view: Hold, 70p, 28 Nov 2012

Despite its shares having had an excellent year, our 2012 Income Tip of the Year, newspaper and magazine distributor Smiths News, still satisfies the valuation criteria of our screen. Indeed, Smiths has delivered a total return of 107 per cent since the start of 2012. The company still shows promise as it squeezes more efficiencies from its cash-generative, but declining, distribution business. A recent contract extension with IPC underlines the fact that, while newspaper and magazine distribution is in long-term decline, there is still business to be done. The company is also investing in new growth areas and hopes to have half of its profits coming from non-news activities by 2016.

TIDMMarket capPriceDividend yieldForward PE
LSE: NWS£280m154p5.6%7.6

Forecast 1-year EPS growth3-year EPS CAGR 3-year DPS CAGRNet debt
8.7%14%8.1%-£103m

Last IC view: Buy, 140p, 16 Oct 2012

The fact that stationery retailer WH Smith has once again featured among our 'have-it-all' shares is a testament to the solid long-term investment case supporting the company. The high street business continues to tick along against a tough backdrop, but the travel business is performing solidly. The company also has a strong track record of margin improvement through an ongoing programme of cost cuts. But, given the group's consistency of purpose, news that long-serving chief executive Kate Swann is to step down has come as something of a blow. Still, the valuation of the shares is far from challenging and the forecast dividend yield of 4.8 per cent, based on Espirito Santo's 31p 2013 forecast, is attractive.

TIDMMarket capPriceDividend yieldForward PE
LSE: SMWH£807m652p4.1%9.5

Forecast 1-year EPS growth3-year EPS CAGR 3-year DPS CAGRNet cash
10%15%17%£36m

Last IC view: Sell, 630p, 11 Oct 2012

Costain's focus on offering clients an end-to-end service and focusing on non-discretionary spending has helped it to avoid the worst of the travails affecting the struggling construction sector. Both the group's strong order book, which is 90 per cent driven by repeat orders, and its high levels of net cash provide comfort against the backdrop of tough market conditions. The cash on the balance sheet is also helping it win work from a nervous pool of potential clients. While there are few expectations that the construction market will make a strong bounce back soon, there is a feeling that things are unlikely to get worse. And while investors wait for improved conditions, there is an attractive dividend to enjoy, forecast by broker Investec Securities to rise to 11.4p in 2013, equivalent to a 4.6 per cent yield.

TIDMMarket capPriceDividend yieldForward PE
LSE: COST£164m250p4.0%7.8

Forecast 1-year EPS growth3-year EPS CAGR 3-year DPS CAGRNet cash
6.6%14%10%£140m

Last IC view: Buy, 230p, 30 Aug 2012

Shares in telecom services group Maintel, which is the smallest of the companies to make it through our screen, is a 'have-it-all' investment for the second year in a row. The company has faced challenges in 2012, as the previous 12 months were boosted by some large short-term contracts for its equipment and maintenance business. But performance is being propped up by the contribution from the acquisition of a business called Totility last October, which now forms the company's mobile division. Its networks division was also doing well at the half-year stage. Having worked on shoring up customer retention at Totility since the acquisition, Maintel has recently been investing in sales staff in the hope of cross-selling its services to its other customers. Despite the weaker performance from the equipment and maintenance business in the first six months of the current year, the group boosted its half-year dividend by 37 per cent.

TIDMMarket capPriceDividend yieldForward PE
AIM: MAI£37m337p3.1%9.6

Forecast 1-year EPS growth3-year EPS CAGR 3-year DPS CAGRNet debt/cash
28%-20%26%£3.0m

Last IC view: na