Join our community of smart investors
Opinion

High-yielding income play with capital upside

High-yielding income play with capital upside
November 15, 2016
High-yielding income play with capital upside

This is relevant to me right now because I banked profits on Aim-traded stockbroker and financial services outsourcer Jarvis Securities (JIM:305p) early last year ('Decision time', 23 Feb 2015) after the shares had doubled in value following my original buy advice ('Solid income buy', 25 Feb 2013). At the time I noted that the higher rating offered less margin for error, and one where the risk:reward ratio was no longer favourable. In fact, the company had experienced a slowdown in trading in the second half of 2014, in line with the experience of many stockbrokers, which had prompted analysts to rein in their profit forecasts for the 2015 financial year.

In the event, the company still managed to lift adjusted earnings per share (EPS) by 7 per cent to just shy of 25p last year, and maintained the dividend per share at 16.5p, although this was not enough to arrest an earnings multiple contraction that has sent the share price drifting back to around the 300p mark. To put the current valuation into some perspective, and based on Jarvis turning in flat adjusted pre-tax profit of £3.5m on revenue of £7.7m in 2016, as analyst Nick Spoliar of house broker WH Ireland predicts, the shares are now rated on 12 times EPS estimates. When I banked profits in February last year they were rated on 19 times earnings. Moreover, the board has since raised the payout, having declared aggregate quarterly dividends of 17.5p this year, up from 16.5p in 2015, so the rolling 12-month dividend yield is now 5.7 per cent, up from 3.75 per cent when I advised selling.

This is subscriber only content
Start your trial to keep reading
PRINT AND DIGITAL trial

Get 12 weeks for £12
  • Essential access to the website and app
  • Magazine delivered every week
  • Investment ideas, tools and analysis
Have an account? Sign in