Investing on a low income.

Author: lewys

Undervalued stock? Don’t wait for a correction BUY NOW!

Perceived ‘discounts’ obtained by waiting for a stock’s price to drop are often less than anticipated due to missed dividends Is the discount obtained from waiting for a stock to…

  • Perceived ‘discounts’ obtained by waiting for a stock’s price to drop are often less than anticipated due to missed dividends
  • Is the discount obtained from waiting for a stock to drop worth the risk of not owning it at all?
  • This article will show how waiting just 3 quarters for a 5.5% discount erodes the real discount by 2.2%
  • Investors waiting for a price to drop are fighting against time and the market.


“The market is overvalued”

“A correction is looming”

“We’re going into recession”

These are some phrases I’ve become used to reading, especially over the past few months.

Some ‘investors’ it would seem, are putting of buying shares due to their perceived valuation of the market.

But investors should always remember that;

Time in the market beats timing the market”

Why you shouldn’t try time that market

When I first started investing, I went at it – trying to time the market and shares.

I would insist, for example, that I would only buy a stock, let’s say ‘stock x’ if it dropped from £1 to 90p (a 10% discount).

But what I soon realised is that most shares wouldn’t drop, and the market correction that I was predicting along with many analysts just wasn’t happening.

In fact, market corrections have been predicted for over two years now.

We’re still waiting.

If it’s undervalued buy it – even ‘if it has further to drop’.

Let’s take a real life example.

A friend of mine really wanted to buy some shares in Kraft Heinz in January last year. The shares, having just come back from a price below $70 looked attractive, but he told me that he’d wait until the shares dipped below $70 again before buying in.

That never happened and now the shares sit at close to $90.

A great company with an attractive yield missed, simply for a few $.

A current example is Flower Foods which currently sits at just above $15. At this price, the stock has a dividend yield of 4.2% and is trading at low p/e multiples compared to its history.

Yes, the company currently has a few issues but I was amazed to see investors saying they are “waiting for the price to drop further”.

Some speculators have noted a current legal issue facing the company and the way it employs its drivers as a factor for further price reductions.

This is a dangerous strategy which ignores the fact that the shares are currently overvalued. There’s a very simple message for these investors;

Let’s take a look at how much is saved by waiting for a mear 5% drop in the price of a stock.



Flower foods at $15.71 vs Flower foods at $14.85


Let’s say an investor will only buy Flower Foods below $15. I bought in at $15.71, therefore if the investor manages to predict the market (against the odds it would seem) and buy in at $14.85 then he/she has achieved a 5.5% right?


Here’s why that number is in fact only 3.3%




Point one shows the shares at $23.50. At this price, I would not have considered purchasing the shares, deeming them to be too expensive.

At $15.71 on February 12th , the share’s are looking undervalued and I decide to pull the trigger and buy. (Let’s say 100 share to keep the maths simple).

Scenario 1 Buying in February ($15.71 a share)

In March I receive a dividend of $0.145 per share.

March income = $0.145 x 100 = $14.50

I reinvest the dividends on the 18th of March (payment date) to purchase 0.77 share’s of Flower foods.

In June I receive a dividend of $0.16 per share.

June income = 0.16 x 100.77 = $16.12

I reinvest the dividends on the 23rd of June to purchase 0.9 shares of Flower foods.

In September I received a dividend of $0.16 per share.

September income = 0.16 x 101.67 = $16.27

I reinvest the dividends on the 8th of September (for illustrative purposes as dividend is paid on the 9th) to purchase 1.07 shares of Flower Foods.

I now have 102.74 share’s of flower foods for my initial $1,571 investment.

Scenario 2 – Buying in August ($14.95 a share)

On August 11th share’s drop below $14.95 so investors who waited for the shares to drop below $15 buy.

They buy 100 shares for $1,495.

The investor receives the September dividend of $0.16

September income = $0.16 x 100 = $16

The investor reinvests the dividends to purchase 1.05 shares of flower foods.

The investor now has 101.05 shares of flower foods for their $1,495 investment.


Cost per share;

Me: 1,571/102.74 = $15.29 a share
Investor 1: 1495/101.05 = $14.79 a share

% Difference

3.3% saving in favour of ‘investor 1’

So, it appears that taking the risk of the share price increasing has saved investor one a mere 3.3%,

But, extend this over a few more quarters and the margin of discount decreases.

Here was an example of three quarters of dividends, what if the wait was over 6 quarters.

The lesson is simple, the longer the time period, the more the cost of not investing is.

I like to be sure, so why not lock in that undervalued dividend paying stock and get your money to work!

This time investor 1 got lucky. But will Flower foods drop below $13.50 or $10. Who knows? Frankly, I don’t want to wait to find out.


The longer one waits before buying a dividend stock, the more the cost of not investing becomes.

The above example begs the question, Is waiting for the price to drop really worth risking a guaranteed purchase of an undervalued company?

Isn’t it better to lock in a deal and put my capital to work with a 4.2% yield as opposed to the close to 0% I’d get in the bank at current interest rates?


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The devastating effects of a damp student let.

There are so many things students need to get right before coming to uni. We have to make sure we have to make sure we have all the textbooks for…

There are so many things students need to get right before coming to uni.

We have to make sure we have to make sure we have all the textbooks for the year ahead, enough money to scrape by on and that we bring everything we need from home!

But, there’s one aspect of student life that’s often overlooked.


Your student house is where you’ll inevitably spend most of your student life and getting the right house is key for health and in turn motivation.

Renting a damp house could have devastating effects on your health and finances, as I found out.

My single biggest mistake.

In June this year I made the biggest mistake of my student life.

I didn’t do the necessary checks, got excited by the size of a bedroom and ended up renting a damp house.

On the 8th of June I moved in, along with all my belongings to the new house.

What proceeded was the worst 2 months of my adult life.


First signs of damp

To start, everything appeared fine, I moved into a large space and all was well.

I unpacked, stored my things, opened a celebratory glass of wine and celebrated what I thought was a ‘gem’ of a find.

Smugly thinking I’d gotten a good space for the price I was paying, reality soon smacked me in the face.

Slowly but surely, over the next few weeks I found I was waking up feeling very tired.

I couldn’t help but feel like my mind was clouded and that I was slowly but surely losing my enthusiasm and edge.

Thinking this was just a case of a cold, flu or poor diet I soldiered on without knowing that the particles of bacteria filling the house could have been seriously affecting my health.

It was only when my parents visited that I became aware of the damp. When my mother visited the flat for the first time she immediately exclaimed that “It smells of damp in here”.

Unbeknownst to me, I had acclimatised to the horrible, stingy damp smell filling the house.

Further investigations with a damp meter showed very high levels of damp in the property, especially the living room.


Things get worse

After reporting the damp problems to the estate agents involved, it was weeks until they finally agreed that there was both penetrating and rising damp at the property.

Those terms, alien to many students, simply mean that there were two causes of damp tag-teaming my health!

After returning from a three week trip to China, (staying in a dry property) I was met with a stinky damp house ready to take on my health again.

The wallpaper in the living area began peeling, the tops and bottoms of the walls were visibly wet in the corners and sat in the middle of this room was me, breathing in damp that made the pollution in Shanghai feel like fresh country air.

As an asthmatic, my breathing became much more laboured over the coming weeks as the landlord eventually agreed to let me move out.

By now I was waking up tired, napping at 8pm and suffering from a very clouded memory, meaning that I was struggling to study for my dissertation.

Chesty coughs became a problem in the following weeks and I became a much less patient, irritable person to all.

I was going into work in damp smelling clothes, with baggy eyes and low energy levels. Not the impression I really want to be making to my peers.

Desperate to get out of the house, I would often sit for hours in coffee houses, the uni library and walk aimlessly around Swansea just to feel I could breathe. I spent tens of pounds on coffee and junk just to escape – not what the frugal student wants to be doing!

Moving out

Finally, just four days ago, I moved house.

Having to take the first dry suitable property we saw means I had no room to negotiate on price.

I also had to pay another admin fee and am now left with two lumps of money in deposit protection schemes as I eagerly await the inevitable unreasonable deposit reductions from the landlord of the property – that students inevitably suffer.

BUT, My first night sleeping in a dry room was pure bliss. Waking up a few days after I felt like I has been reborn. I had energy again, enthusiasm and most importantly the drive needed to complete a degree.

Whilst it would be very hard for me to prove that damp caused the symptoms I suffered over the past two months, I am convinced it was the source.

No student should be made to suffer damp housing – don’t get caught out!


Avoiding damp 

I viewed several properties before moving from the damp one, making sure I got it right this time.

I noticed two ‘tricks’ that may have been used by agents and landlords trying to mask damp.

It’s worth you keeping these in mind when viewing properties.


  1. Newly painted properties.
    If a property has been newly painted then this could make damp much harder to spot. The damp house I moved into had been freshly painted meaning that the damp patches weren’t visible upon viewing.
  2. Does the property smell strongly of anti-odour spray?
    Another trick that may make it harder for students to spot damp in a property is when the property has been sprayed with anti—odour sprays such as ‘oust!’ before viewing, thus masking the musty smell of damp.

Here are some signs of  damp that you may want to look out for;

  1. Visible algae and mould – especially in the corners of rooms. (Ask if you can move sofas and tables to check corners)
  2. A musty, damp odour
  3. ‘Lifting’ wallpaper
  4. Changes in plaster up to one meter above floor height

If you’re really keen you could even buy a damp meter although the accuracy of these varies (especially with cheap ones not used in the industry).


As students we are faced with a mountain of challenges and a damp home will make this a lot worse.

The NHS has a useful page on the effects that damp can have on your health:

Having to move house mid-study can have devastating effects both financially and academically.
A damp house could be the difference in grades attained, I have no doubt that the ‘clouded’ mind I experienced affected my ability to perform academically (Luckily I had no exams).

Final word

This blog details my own experiences and it’s worth noting that I have absolutely no qualifications or experience in dealing with/detecting damp.

If you think your student let is suffering from damp then please seek advice from your Students’ Union/University advice centre, The housing charity Shelter or the Citizens advice Bureau.

The tips contained in this article are things that helped me and may not necessarily be helpful to others.


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BT shares: A complete overview for 2017.

Introduction If you’re looking for a complete overview of BT Shares then you’ve come to the right place! In this article, I’m going to discuss BT as a business, the…


If you’re looking for a complete overview of BT Shares then you’ve come to the right place!

In this article, I’m going to discuss BT as a business, the wider telecoms market and whether BT shares are a compelling investment.

On the lookout for some cheap dividend stocks after the Brexit flash crash I picked up some BT shares but they have since gone on to decline by around 18%.

Whilst I’m not a huge fan of the stock, especially after the accounting revelations, I’m confident in holding it for its dividend and future potential.

With BT shares down 36% in a year, could this be a buying opportunity?

Why have BT shares dropped so much?

As I’m sure most are aware, BT’s share price went down by over 20% by the end of January and are down by around 36% overall this year.

So, Why have BT shares gone down?

  1. The Italian accounting scandal

BT recently became aware of some historical accounting inaccuracies in their Italian arm.

Initially, they estimated that the cost of the inaccuracies would come in under £150m but after an independent audit the cost has tripled to over £450m.

Following this, the head of BT’s European division was relieved of his duties leaving BT’s reputation in Europe tarnished.

2. The end of big IT contracts

The previous Labour government embarked on an ambitious IT spending spree to upgrade the UK’s tech infrastructure.

These contracts included improving internet speed and connectivity.

With these contracts now coming to an end, BT, especially it’s Openreach arm, will find it tough to replace this reliable and substantial cashflow.

The good


I’m always quick to emphasise that stocks should be bought on current facts and valuations. One should always do their best to avoid ‘betting’ on future earnings and predictions.

But, recent moves from BT have gotten me excited!

BT recently bought the UK’s largest mobile network EE for £12.5bn. A hefty price!

This acquisition puts BT in an enviable market position. The company now offers Telephone, Broadband, TV and Mobile and are focusing on rolling these products into one convenient package for customers.

We have already seen a glimpse of the future potential of these synergies by BT’s offer of a free BT sport app for EE customers for six months.

Openreach – Clarity at last!

Regulatory issues surrounding BT’s Openreach servicing branch have caused headaches for the company over the past few years.

But, the telecommunications regulator deemed a spin-off unessacary, and BT have since negotiated a controlled and partial spin off of its Openreach arm.

Openreach will have its own board, and make its own investment decisions but BT will still retain control over Openreach’s budget and will remain the 100% owner of the cashcow.

This retention, along with quad-play, will allow the group to continue to enjoy competitive advantages over its competition in future.

The main attraction – dividend.

One of the main attractions for me is BT’s dividend.

Currently yielding 3.55% (ttm) BT offers a decent dividend yield.

The company has been rebuilding their dividend since 2008 and have achieved a 5 year growth rate of 13.6%.

The payout ratio currently sits at close to 50% meaning that the company has room to grow its dividend even if results disappoint somewhat.

The company has managed to grow its EPS by 10% over the past 5 years meaning that dividend growth is sustainable in the medium term if EPS continue to grow by the same rate.

In fact, I expect synergy savings from the EE acquisition to start kicking in and increased customer retention to outpace the increasing costs of TV rights (although this is pure prediction).

Screen Shot 2016-09-01 at 11.17.17

The Bad

Football rights – a red flag?

BT is currently up against Sky when it comes to bidding for football rights. The intense competition has lead to the costs of football rights skyrocketing!

BT recently spent £1.8bn to snap up football rights to broadcast on BT sports including a £300mn fee for champions league football rights.

This has helped reduce the level of broadband customers switching to Sky but has come at a heavy price with the cost of football rights soaring 80% due to the bidding war.

My main concern here is the limited number of cost cutting measures that Sky and BT could employ in order to offset the rising costs of football rights.

With BT’s debt pile already stacking higher, this continued bidding war is of major concern and is one it may well lose in the long term vs a mammoth like Sky.


Moving forward, we may see services such as Netflix and Amazon prime begin to bid for TV rights that could drive costs higher again.

Amazon recently made a bold move in signing the trio of Jeremy Clarkson, Richard Hammond and James May, formerly of Top Gear for an exclusive online series The Grand Tour.

They are reportedly paying a hefty £3million + per episode.

It’s inevitable that Amazon and its rivals will eventually move into sports broadcasting, pushing up the price of rights further.

With BT investing heavily into its quadplay stratergy for customer retention a loss of any single element could derail its stratergy.

The Financial Times has a great article about how the football rights battle is heating up; Further reading:


The acquisition of EE certainly did nothing to improve BT’s already pressurized balance sheet.

In 2016 Net debt has increased by £4,726m. This included the £3,464m cash consideration as part of the EE acquisition and EE net debt of £2,107.

What is  also worrying is the massive £7bn pension deficit that BT is carrying. Although it’s most generous of schemes, a relic of state ownership, ‘The BT Pension Scheme (BTPS)’ is now closed to new members, the BTPS still has around 35,000 active members, 197,500 pensioners and 69,000 deferred members.

A 16-year deficit contribution plan has been agreed. Under this plan, BT has made deficit payments of £875m in March 2015, £625m in April 2015 and £250m in March 2016. A further payment of £250m will be made in 2016/17, bringing the total for the three years to 31 March 2017 to £2.0bn.

This mammoth deficit isn’t going anywhere soon and is a major concern going forward with a further £5bn of payments still to make in order to close the gap.

With BT continuing to pour billions into this seemingly unfillable hole investors are right to be skeptical about future free cash.

Screen Shot 2016-09-01 at 10.52.20


Should I buy BT shares? – Valuation

What attracted me to BT shares was its valuation compared to the FTSE100, but this isn’t to say that the stock is cheap.

BT shares currently look attractively valued and appear a compelling investment. BT’s current 10 year p/e ratio is 12.8 (excluding 2009 due to negative earnings). The company currently trades at a p/e ratio of just 10.0 meaning the shares appear undervalued.

With the added value of EE and Quad-Play, I feel that BT has evolved rapidly as a company over the past two years and is now much better placed to tackle competitors as it was previously.

Previous valuations for BT do not reflect its current state.

This is evidenced by a widening of margins, despite TV rights battles. With further cost saving measures ahead and an increase in customer retention I am confident these margins can be maintained.

BT operating margins: (Source:GuruFocus)

Screen Shot 2016-09-01 at 10.43.14




BT has placed itself in an enviable competitive position with the acquisition of EE.

EE and BT are both well known brands with good reputations. Rolling telephone, broadband, mobile and TV together allows BT to increase barriers to exit for customers, allowing increased customer retention.

Debt remains a worry for BT. With a seemingly never ending pension black hole and increased spending on football rights, investors need to watch the balance sheet closely.

BT’s margins continue to expand, giving me confidence in the company’s ability to successfully battle competitors.

The recent collapse of the share price have left BT shares looking very attractive with the dividend being maintained.

The fallout from the accounting scandal and the infrastructure will take years to fully pass but the dividend remains in place and I still feel BT is best placed in the market to ride out the current market troubles and competition spike.

I rate BT shares a cautious but risky buy.



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Why BHS collapsed + what will rise from the ashes?

After reading countless articles jeering the demise of the ‘iconic’ BHS, I can’t help but think that the company had it coming for a long time. Not to sound too…

After reading countless articles jeering the demise of the ‘iconic’ BHS, I can’t help but think that the company had it coming for a long time.

Not to sound too harsh, I deplore the loss of 11,000 jobs, in which staff worked as hard as they could, going the extra mile to save the ailing business.

Let me be clear, it’s the company’s top brass that got it terribly wrong and I can only hope that most staff can find jobs in the companies that come to replace now vacant BHS stores.

Failure to invest

Sir Phillip Green knew what he was doing when he sold the company for £1 to a group of inexperienced ‘entrepreneurs’. He was abandoning a sinking ship, unwilling  to go down with it or to invest some of his £5.8Bn fortune to revive the BHS brand and offering.

The firm ultimately collapsed after its new owners failed to secure £70m for a turnaround. £70m I’m sure that would have been easily found from Sir Green’s fortune.

In the end, potential investors and lenders knew that BHS was dead in the water and refused to back an ailing brand that lost its significance with customers a long time ago.

What was BHS’s brand in the end?

The artificial changes that the purchasing group made in its final days simply weren’t enough.

Whilst the new branding (1) was a nice touch it was already too late, a cosmetic measure for a company critically burdened by high overheads and an astonishing pensions deficit.

It does raise the question as to the company’s identity in its final few months. The new BHS(1), Bhs (2) or British homestores (3)?

BHS1 BHS2bhs3


The failure to establish a consolidated brand that customers could identify with was symptomatic of a complete failure by management to make the retailer relevant again.

As confused as they company’s branding was its in-store offering. Instead of focusing on its core offering the company expanded its offering in a desperate attempt to gain market share. BHS moved into Perfume and food, further confusing consumers and moving into already occupied territory!

Its venture into food was somewhat bizarre as rival M&S already dominated this space. Their confused venture was defined by their stocking of discount Happy Shopper products alongside ‘premium’ brands. A perfect symbolism of the company’s failure to settle on its offering and identify its target market.

Its perfume offering also ventured into a space already dominated by Debenhams and Boots. I’m shocked at what value management thought they could add by stocking perfume alongside homewear.

In the end, instead of focusing resource into branding and customer initiatives the company expanded and was left severely outgunned by rivals Debenhams, M&S and John Lewis.

Just take a look at advertising spend;


Screen Shot 2016-08-27 at 16.52.41



Not surprisingly the underinvestment in the company’s brand and offering lead to an abysmal YouGov Brand Quality Metric with the company achieving a score of 12.3, way behind rival Debenhams (38.8) and M&S (59.5).

What next for BHS stores?

In the end, BHS ended up like Woolworths, a tired brand that failed to move with the times. The attempts to offer everything ultimately lead to delivering on nothing and now customers can look forward to useful and significant offerings on the highstreet.

As, of the ashes of the old Woolworths, companies such as Poundland, B&M bargains, Iceland and Wilko came to occupy the derelict stores the same will happen again.

With countless online polls showing shops such as H&M, Zara and GAP as prefered occupiers for BHS stores I expect the reality to be harshly in contrast.

It will be retailers such as SportsDirect, Poundland, B&M bargains, Home Bargains and Primark that will rise from the ashes. These are the growing brands of today’s impoverished demographic still scared by 2008.

As we can see from the below table from Satisa which outlines acquisition of stores out of bankruptcy by company between 2009 and 2014, the preferred pics of the public are nowhere to be seen.

Screen Shot 2016-08-27 at 17.22.19


The demise of BHS gives us no more detailed insight into the state of the UK’s retail sector as Woolworths did.

Being an ‘Iconic british brand’ just doesn’t cut it.

Stores must offer an appealing core offering and value for money.

When faced with troubles, the answer is consolidation of core offering as opposed to expansion into various offerings.

As bitter a pill as it may be to swallow for those with disposable income, Poundland is the future of the empty BHS stores as they were with Woolworths.




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An in depth look at the UK mail sector and Royal Mail

Royal Mail. Since the government put Royal Mail shares on the market in 2013, investors can be quietly happy with their returns. Investors who bought in at day one at…

Royal Mail.

Since the government put Royal Mail shares on the market in 2013, investors can be quietly happy with their returns.

Investors who bought in at day one at a price of 330p a share would have seen a return of just over 35% to date, excluding dividends.

With good dividend stocks at decent prices hard to come by in the FTSE, I thought I’d take a closer look at Royal mail.

With an attractive growing dividend, this may be one for dividend growth investors to look out for.


What makes Royal Mail so interesting is that it’s a former state-owned monopoly which is still in transition from public ownership to private ownership.

The company still holds an effective monopoly in the letters market but are battling heavy competition in the parcel market.

Royal mail operates under two main divisions;

UK Parcels, International & Letters (UKPIL)

UKPIL operates in the United Kingdom collecting and delivering parcels and letters through approximately two main networks, the Royal Mail Core Network and Parcelforce Worldwide

General Logistics Systems (GLS)  .

GLS operates in continental Europe and the Republic of Ireland and has a ground-based deferred parcel delivery network in Europe. GLS provides parcel and express services, as well as logistics solutions.

A brief history;

In 2006 Royal Mail lost its monopoly on the UK parcel market when it became open to competition from companies such as UKMail, DPD and Hermes.

Although Royal Mail also lost its monopoly on letters in 2005, competitors just don’t seem interested in this ever shrinking market. The withdrawal of Dutch competitor Whistl in 2015 left the company effectively unopposed.

In 2013 Royal Mail was offered to investors for 330p a share, thus privatising one of the last surviving state owned companies in the UK.

The overall postal market

Royal mail’s two markets can be defined by the following statements;

Declining letter volumes and increasing parcel volumes.

In 2013, Royal Mail commissioned a review into future volumes from Pwc. The results can be seen below;

Screen Shot 2016-08-25 at 15.10.20 Screen Shot 2016-08-25 at 15.10.15

As the graphs clearly indicate, the UK has an increased demand for parcel services but a decreasing demand for letter services.

These trends are also clear in other developed countries and there are no signs of a reversal.

With a decline in mail volume, Royal mail is rightly positioning itself for the growth in parcels and cutting costs.

The parcel market and Royal Mail’s positioning

As we can see from the chart below, Royal mail continues to enjoy the lion’s share of the UK parcel market

Screen Shot 2016-08-25 at 15.23.40
Source: Royal Mail PLC 2015-2016 results

But, this dominance is declining year on year as is evident above.

The overall parcel market grew 6% growth  in 2015 and Royal Mail estimates a further 4% volume growth moving forward. This growth has allowed Royal mail to grow parcel volumes despite its declining market share.

Whilst focus on the parcel market appears to be a winning strategy significant hurdles exist that I’ll outline below.


The problem with Royal Mail’s strategy is the intense competition they face in the industry.

This is evident from the meager 1% revenue growth achieved from a 3% increase in parcel volumes. This is a worrying sign of declining margins to come.

If this trend is to continue then clear challenges await for the company;

2016 results show that the 1% increase in parcel revenue was offset by a 2% decline in letters revenue.

With the majority of Royal Mail’s revenue coming from its letters division this continued decline will slowly erode the balance sheet unless growth in other areas (mainly parcels) pick up.

Screen Shot 2016-08-25 at 17.40.15

As we can see from the above table taken from the company’s 2014-15 trading results Total letters accounted for £4,567mn of revenue as opposed to £3,190 for parcels.

Screen Shot 2016-08-25 at 17.43.40

The continued decline in letters revenue (although less than expected) as evidenced in the company’s 2015-16 trading results above creates a pressure on the company to deliver on parcel growth.

Even as the parcel market grows and parcel revenue increases it seems tough for Royal Mail to make a net gain on their overall revenue due to declining letter revenue.

Another revenue worry I have moving forward is the Royal Mails obligation to offer a universal service which means delivering to some very rural areas without the ability to charge more.

This is in stark contrast to competitors who can simply cherry pick the most profitable urban regions and rely on Royal Mail for ‘the last mile’ delivery. Royal Mail has hit back by ramping up the charges for this service but competitors have complained to the regulator Ofcom. With such murky legal waters ahead this certainly casts a shadow over the business.

Profit on the other hand looks promising if we strip transformation costs with profit up 5% in 2015.


Royal mail has done an outstanding job of turning the company’s finances around.

Debt is down significantly since 2012 and the company continues to make significant efficiency savings;

Screen Shot 2016-08-25 at 15.51.56

(Source: Ft Markets, Royal Mail Plc)

The group has also managed to shed 3,500 jobs since 2015 whilst also increasing productivity by 2.4%. These are promising signs for a company that needs to shed costs fast in order to maintain margins (especially in parcels) in a competitive market.

The company’s cash flow looks worrying at first glance;

Screen Shot 2016-08-25 at 16.09.57

But when you consider the transformation costs the company has occurred the weak cash flow becomes understandable.
Transformation costs in 2015 were £191mn, and the company projects further costs of £160mn in 2016-2017.

Most impressively is the operating profit margin now being achieved by the company as a result of these transformation costs with the profit margin jumping from 4.7% in 2014 to 6.1% in 2015.


Royal mail offers a tempting dividend yield of 4.2% and sits comfortably at a payout ratio of 54% from results filed in May.

With room for movement in the payout ratio the company could continue to increase its dividend payments even if earnings disappoint.

The company is also committed to a ‘progressive dividend policy’ meaning that dividend investors can be confident of continued dividend increases in the future.


Due to the scale of transformation costs it’s difficult to efficiently value the shares based on EPS.  Transformation costs in 2016-2017 are expected to come in at around £160mn.

Instead, I decided to use a dividend discount model to value the company’s shares.

As revenue is going to be difficult to expand in such a competitive market (and relative to management’s past performance) I see cost cutting measures as the main source of EPS growth for the company moving forward.

After a big dividend jump from 2014-2015 I expect dividend growth to stabilize at around 5% due to the above mentioned factors.

I factored in a 10% discount rate to account for the risk of our capital

The dividend discount model gives me a fair value of 442p a share. Meaning that this stock appears 15% overvalued by this metric.


Royal mail management is doing all it can to streamline the business moving forward, yielding impressive results with productivity and margins on the up due to a successful transformation strategy. But, there is only so far that transformation can go before the company is unable to continue to make large savings through efficiency.

The worry from then on would be the poor increase in parcel revenue relative to parcel volume achieved as this metric tends to point towards narrowing margins.

There’s too much uncertainty for me to buy the stock at this price but if the company goes on to continue to dominate the parcel shipping sector, investors should be handsomely rewarded with dividend growth and capital gains.


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5 tips to avoid being a skint student

Students love spending money. Students love complaining that they don’t have money. Seems like a paradox? I know I’m generalising but this is my experience after 3years of uni. I…

Students love spending money. Students love complaining that they don’t have money.

Seems like a paradox? I know I’m generalising but this is my experience after 3years of uni.

I get it. The student loan system sucks. But we have to play with the cards we’re dealt.

So here are 5 practical tips on how to have cash left at the end of every month.

                                                                                  Plan your meals

Living in student accommodation for the past three years taught me one thing. We just love fast food and takeaways.

According to data collected from HungryHouse, students spend over £900 a year on takeaway food.

Avoid this pitfall and plan your meals. Try to make the planned meals easy to cook so you don’t get demotivated.

It’s ok to eat takeaways too – But try to only eat takeaway food once every fortnight and give the uni meal deals a miss if you can.


Ditch your habits (Coffee and snacks included)

A few weeks back I wrote an article showing how coffee could be costing you £806 a year. This also applies as one of my student money saving tips!

Whilst we all need that late night revision boost once in a while, grabbing a coffee every day into uni isn’t necessary. Not only will it limit the boost you get from drinking coffee but it’ll also burn a hole in your pocket.

I’ll put crisps, pop and sweets in the same category. You’ll be surprised at how much buying the odd snack here and there will damage your wallet and maybe even your health.

Try this: For a fortnight, keep a log of your snacks spending. Once you’re done imagine that money in your bank account instead!


This is my favourite. Complaining can really pay off.

Bad service at a restaurant?

Food not up to scratch?

Or just not happy?


I often use resolver to complain for me. It’s quick, easy and rewarding. I’ve gotten anything from a free coffee to £60 straight into my bank account.

BUT Don’t rush straight for your nearest coffee shop! Only spend it when you would have used cash anyway.


Don’t get sucked in by discount

Marketing people are geniuses. They can make you think you’re saving money, by making you spend money.

If you’re local takeaway is offering 20% off for one weekend only, and you order a £10 takeaway because of the offer you’re not saving money.

News flash: You didn’t just save £2. You spent £8!

Companies often offer ‘student lock-ins’ and all sorts of initiatives to help you ‘save’ money, when in fact they’re ploys to make you spend money.

Avoid this trap by only buying something that’s on offer if you would have bought it anyway.


Don’t rush into any contract

When you get to uni you probably want to rush straight in and buy a gym membership, get a TV licence and get drunk.

Going on a spending spree will leave you skint for the rest of uni. Digging yourself out of that overdraft is harder than you think.

So, PAUSE before you buy anything;

Don’t rush into gym memberships – Just because a company has a stand at the freshers fayre doesn’t make them the cheapest.

Places at freshers fayres are sometimes even reserved exclusively for university services in some sectors. If the uni has a gym, I doubt they’d be letting a competitor pitch a stall!

A TV License costs nearly £150 a year – But if you only use it to watch catch up TV (except BBC iPlayer)  then you don’t need one.

If you do watch live TV or BBC iPlayer content, think if you could go without it for some cash in your pocket.

Insurance – Probably the most important tip. At freshers events you’re always going to have pushy sales people try and sell you contents insurance or mobile phone insurance.
Shop around! They’ll say they’re the cheapest – but they probably aren’t.

Check price comparison websites such as money supermarket before buying.

It’s also worth noting the plethora of exceptions that sometimes make insurance virtually pointless.

Common exceptions include ‘not covered’ ;


  • For accidental loss
  • If water damaged
  • If stolen from a home when there are no signs of forced entry

I even had someone try and sell me laptop insurance that didn’t cover laptops that wouldn’t turn on. Chances are, if it doesn’t work it wont turn on!

It’s also common to see agreements that don’t start for 14days after you’ve signed the contract. So, if you smash your phone at a club the week after you bought insurance. Tuff luck!

Remember, if you’re struggling with cash universities often have a money advice service that will help you free of charge. It’s always important to get advice on any debts before things get worse.

Whilst my student money saving tips might help you avoid getting into a hole, it’s always best to get professional advice if things go seriously wrong.

I hope you enjoyed these student money saving tips and end up with extra cash at the end of every month (maybe to invest!)

Have any extra student money saving tips? Comment below.

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Easyjet shares – avoid this investing mistake

Regular readers will know that I’m always skeptical of forward projections whilst buying shares. This is due to a very important lesson I learnt from a previous investing mistake. Whilst it’s…

Regular readers will know that I’m always skeptical of forward projections whilst buying shares. This is due to a very important lesson I learnt from a previous investing mistake.

Whilst it’s important that you view a company’s market going forward, and take clues as to future performance one should never focus too heavily on forward projections.

Let’s take a case study as to why: My purchase of EasyJet shares.

I bought EasyJet shares at around £16 a share in May 2015. My stake today is worth 35% less. Although, I always say that “my shares could drop 50% for all I care”, EasyJet is different because I didn’t do my homework.

This investment turned sour due to an investing mistake on my part.

The peril of forward projections

It’s important to understand the range of projections that exist for a share, and just taking the consensus recommendation isn’t good enough.

As you can see from the graph below, some analysts give a price target of £20 to EasyJet whilst others place it closer to £5. Who know’s who’s right?

The problem with many investors (and myself in May 2015) is that people buy shares expecting analysts to be correct about future earnings. At Least by taking the consensus estimates one could feel fairly comfortable right?

WRONG – these are estimates. Estimates change depending on continually evolving circumstances. Just look at the target price consensus revisions for Easyjet shares.



It’s so easy to feel secure because the price you’re paying is below the consensus price target.

It’s easy to feel secure because even the lowest target is not far off the price you’re paying.

But, like any projection. Things are subject to change, and Easyjet is a perfect example.

In July this year Easyjet shares tanked after the company issued a profit warning. Nobody, even the mystical analysts and their abundance of tools and resources saw it coming.

With any other share I’d be delighted at a drop in price but with Easyjet I wasn’t. I wasn’t comfortable in owning the shares at that price. Why? Because I was banking on projected earnings to pay lofted projected dividends. Big mistake.

Blinded by dividend.

When I stumbled across dividend growth investing, I got so obsessed with my own skewed version of the theory that I was blinded by dividend.

When buying EasyJet shares, I didn’t do my homework and betrayed most dividend investing principles.

The rationale for buying EasyJet shares pretty much lied solely on the dividend.

I saw this graph, took the forward dividends and EPS as gospel and plunged in head first. Look at that juicy 66p dividend in 2018. I thought, that would give me a yield of 24%. GENIUS…..More like idiot!



Screen Shot 2016-08-23 at 16.55.29

Projections de-railed

Another problem with projections and estimates, aside from the range of differing estimates is that projections can only be made with information available at the time.

As things change, so do projections.

But one thing that can’t be changed is the fundamentals of the company for the previous year or latest set of quarterly results.

This is why investors should never base their investments on the factual results at hand.

Management blames the following for Easyjet’s journey off course;

  • Terrorism
  • EgyptAir tragedy
  • Increasing market capacity (i.e more supply)
  • An expensive euro due to brexit
  • A very high level of cancellations during 3rd quarter 2016 with 1,221 compared to 726 in the third quarter 2015”


What I should’ve looked at – avoid this mistake! 

What I should have looked at before buying EasyJet shares were the company’s fundamentals, and the environment in which it operates.

Doing so would have clearly shown me that an airline stock is not the steady growing, reliable dividend payer that dividend growth investors should buy.

Indeed, any intelligent investor, not blinded by yield and greed would have seen that the airline industry is;

  • fiercely competitive – Increased capacity mean lower fares for all operators
  • Extremely sensitive to external factors – Think terrorism and weather
  • Very unpredictable – Think delayed flights + compensation claims

How on earth could such a stock be a steady, predictable dividend payer?

Just knowing these facts about the airline industry would have been enough to keep a conservative investor (as I now consider myself) far away.

Warren Buffett has notably said the following on airline shares;

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers”

— Warren Buffett, annual letter to Berkshire Hathaway shareholders, February 2008


Who would doubt the oracle of Omaha?

The future

As for the future of Easyjet, who knows.

My interest in the stock has declined rapidly since I awakened as to the perils of the airline industry and continually revised revisions.

One thing EasyJet did teach me was

  1. Never trust forward projections for any metric. Be it dividend, earnings, revenue e.t.c
  2. Always thoroughly check the industry in which a stock operates (duh!), you may have some serious misconceptions
  3. Don’t be greedy. Predictability is far more important than projections of dividend growth.

Warren Buffet famously made a $353mn investing mistake in the airline sector. Thankfully my investing mistake only cost me £500.

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Tesco’s share price – lower for longer

Tesco’s (TSCO) share price has been languishing since the company was embroiled in accounting scandal and made a £6.3bn loss. With a turnaround in progress and the company returning to…

Tesco’s (TSCO) share price has been languishing since the company was embroiled in accounting scandal and made a £6.3bn loss. With a turnaround in progress and the company returning to profit, investors may think that this is an ideal opportunity to buy. It’s not.

The supermarket sector.

Tesco finds itself between a rock and a hard place. Whilst competitors with defined markets steam ahead Tesco is having a bit of an identity crisis.

Whilst Aldi and Lidl dominate on pricing and Waitrose and M&S (MKS) dominate on quality, Tesco is left wondering what it stands for.

You may think that Tesco has inserted itself right in the middle, focusing on price and quality but I’m afraid it’s a case of trying to please everyone, and in turn pleasing no-one.

Sainsbury’s have managed to insert themselves into Tesco’s traditional niche of ‘quality at a reasonable price’, leaving Tesco with no apparent core market.


The future – Where is Tesco positioning itself?

Moving forward, Tesco’s strategy is to focus on price and a superior customer shopping experience. The current plan appears to have had limited success.

UK like for like sales are positive again (albeit by a mere 0.3% last quarter), but this comes of negative growth in the previous 3/4 quarters.

Screen Shot 2016-08-20 at 21.25.36

*Tesco Q1 results – investor relations sector on their website.

The company is also “redirecting coupon spend” into ensuring lower shelf prices in a bid to compete with Aldi and Lidl. From what it looks like to me Tesco’s strategy  simply boils down to competing directly with Aldi and Lidl for price-focused consumers. Bad move!

By fighting Aldi and Lidl at their own game, Tesco is spending time and resource to offer what’s already on offer. 

Aldi and Lidl continue to grow their market share and Tesco can do nothing but wait until their customer base bottoms out.

Here’s the current state of affairs, drag the slider in order to compare dates.

Another major concern for Tesco is that Asda which is owned by US giant Walmart (WMT) is also weighing in on the price war. This will surely further pressure Tesco’s market positioning. The sheer scale of Walmart and its dominance of the U.S market would surely mean it would outlast Tesco in any war.

Consumer spending

As if things weren’t bad enough, consumer spending on groceries and non-alcoholic beverages in the UK remains under pressure. Despite glimpses of hope for the sector with increased spending on food in March this year (0.2% increase) – It appears that as the UK’s voted to leave the European Union has de-railed progress and caused families to tightening their belts. The most current Consumer price figures showed that spending on groceries is down 2.6% since the Brexit vote.


Financial position

Believe it or not, Tesco grew monstrously to become much more than a supermarket. It owned Garden centres, Coffee shops and even restaurants. Whilst this may be thought of as an advantage, these projects grew to become a burden on the company by distracting it from its main supermarket offering.

Thankfully, new CEO Dave Lewis offloaded these companies, using the proceeds to pay off debt (£6Bn from the sale of Korean assets) leaving Tesco’s balance sheet looking healthier.

He also eliminated the dividend, freeing up much-needed cash flow for the battle against Aldi and Lidl. But, the company’s debt remains stubbornly high with a £2.6bn pension deficit leading to a total debt of £15bn.

Increased competition in the supermarket has slashed Tesco’s margins from 6% in 2012 to only 2% today. As competition continues, so will the pressure on Tesco’s margins leading to lower profits for longer. It’s really hard for me to see any easing in Tesco’s financial position in the near term.


Just by looking at the share graph, many people assume, wrongly, that Tesco’s share price is appealing. Tesco’s share price has dropped from near 500p in 2007, to half that today, but that doesn’t make the share’s at all appealing.

Whilst there are some positive signs for Tesco such as;

  • A return to a positive FCF
  • An impressive £6.5bn cash pile

I’m afraid that Tesco’s share price offers little value to investors.

Reported EPS for 2016 come in at 3p giving us a p/e ratio of 53. This is much higher than FTSE 100 peer Sainsbury’s (SBRY) that trades at a p/e of 11.

Even if we take the highest analyst earnings estimates for Tesco in 2017 (earnings of 8.25p a share) the shares are still trading hands at a p/e of 18.7.

Summary – lower for longer

It appears that the market has already priced in any 2017, 2018 gains for Tesco. This is despite continued competition which makes achieving analyst estimates challenging.

Tesco has never traded for such a high earnings multiple (over 50) . It would therefore be reasonable to expect that they won’t in the future.

It seems that investors are pricing Tesco as if it was still the dominant force it was in 2012. We must remember that Tesco today is far smaller. It sold £6.5bn of Korean assets, Dunnhumby (owner of its clubcard division), coffee shops Harries and Poole and Giraffe restaurants. It also has a smaller share of the grocery market and lower margins on products (2% in 2016 vs 6% in 2012).

A return to fortune is already priced into the shares at current levels. Even at 159p a share Tesco’s share price remains too high.

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One stock I’d love to own – Just not at this price!

I absolutely love consumer goods stocks! Unilever (ULVR) is one of my core holdings and I just bought into flower foods (NYSE:LFO). I love Consumer good stocks because they are…

I absolutely love consumer goods stocks! Unilever (ULVR) is one of my core holdings and I just bought into flower foods (NYSE:LFO).

I love Consumer good stocks because they are generally very defensive and predictable investments. After all, even in recessions people still need to eat, drink and clean.

Stocks in this sector also boast superior margins, as the value of their brand mean that customers are willing to pay that much more.

What would you pay more for, Unilever’s Ben and Jerry’s or a Tesco copycat?

Consumer goods stocks in today’s market

With low interest rates people have been buying these defensive stocks for their dividends, which trump measly bank account rates.

High demand for these stocks have left them at high p/e ratios. For example;

Proctor and Gamble (PG) sports a p/e of 25

Unilever of 24.1

Colgate Palmolive (CL) of a whopping 48!

Even at these high valuations the stocks continue to climb and even Procter and Gamble whom are struggling with growth are up over 16% year to date.

With such high valuations I often sit back and watch momentum and demand drive these stocks higher, waiting patiently for an opportunity.

One stock that I have my eye on is Reckitt Benckiser (RB), a British consumer goods company that specialises in health and hygiene products.

Its rapid growth and impressive portfolio of products has caught my eye.

The company owns internationally recognisable brands such as Durex, Dettol, Clearasil, Veet, Strepsills and Scholl. With such a great portfolio of products I felt the need to take a closer look at the stock’s fundamentals;


Reckitt Benckiser’s sales growth has been impressive as of late with year end results for 2015 showing a further 6% growth in like for like sales at the company. What I love most about this company is it portfolio of Health products, which people will buy regardless of pressures on disposable income.

The growth in revenue from its Health division continues to be strong with a 14% like for like growth in2015.

Screen Shot 2016-08-19 at 09.31.26.png

But, as we can see from this tablefrom the company’s 2015 annual results this growth seems to be a tale of two halves.

The company’s Health segment continues to perform strongly but there are certainly signs of weakness in their home division and portfolio brands – investors should be aware of this.

Whilst Home and Portfolio brands make up a minority % of sales, further weakness in these divisions could neutralize (or certainly damage) the impressive growth in the health division.

We can somewhat see this concern play out in the EPS figures – EPS growth has not been strong with an average growth rate of only approx 1.6% since 2012. The company’s turnover has actually declined over the past few years from £9.485m in 2011 to £8,875m in 2015.


The company has paid a dividend since 2008 and has managed to increase its payments by 84% since then. The company’s payout ratio for 2015 was also a comfortable 54% meaning that there is room for dividend growth if EPS stay flat. Dividend yield based on 2015 year earnings is an anemic 1.9%


With no major red flags concerning the company thus far, it’s time for me to burst your bubble.

RB is not a buy!

I feel that this company is grossly overvalued, especially compared to its peers such as ULVR.

Looking over the past five years, we can see that the stock has an average 5-year p/e ratio of 20.2. But today we can see that the stock is trading hands for 30.8x earnings.

Even if we take the highest estimate for 2016 earnings of 301p per share the stock is still trading hands for 24.7 times earnings.

The 30.8 p/e ratio means the market is pricing this stock for some serious growth, something it has failed to deliver over the past five years. Yes, the growth in certain divisions is impressive but we must look at the company as a whole.

I was really interested to see what a dividend growth model valuation would give as a fair price for Reckitt Benckiser and I decided to be generous with my estimations too.

I factored in a 8% discount for the risk of our capital (As it’s a pretty steady earning stock in a great sector), and assumed that the company would grow its dividend by 6% annually (above its average 5 year growth rate of 3.85%).

Even with my very generous and optimistic figures the stock came in at a fair value of – 6,950p a share. Meaning that by my estimations the stock is at least 15.3% over-valued at present.


Reckitt Benckiser is a brilliant company that is powering ahead with the growth of its Health division. In an uncertain world it makes sense to invest in companies that have a great portfolio of essential health products that people will always need to buy. I’m confident that management can continue to deliver growth in this segment but the decline in their portfolio brands puts a question mark on the degree of overall EPS growth moving forward.

At a lower valuation I’d certainly roll the dice a bit and feel confidence that the intrinsic value I’d be getting would make any disappointment acceptable (relative to the price I paid). But, this company is priced for significant growth and that is far from certain.

If the company does indeed grow as projected then I expect the price to continue to climb higher, sustaining its current momentum which makes the stock unappealing in terms of valuation and yield. But, one slip will certainly lead to troubling times for the share price and ,hopefully, a buying opportunity for me!

Advice: Avoid at these prices, but keep an eye out.

Disclosure: I am/we are long ULVR, FLO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Why I just sold BP.

A tough enviroment and deteriorating fundementals mean BP is a sell for me.

Recent sell: BP.

I really hope that I don’t need to write too many articles like this. When I buy a stock, I want to hold that stock indefinitely. My hope is that as I only invest in high quality dividend growth stocks that these stocks will continue to perform and pay me an income for life. For me to have to sell one of these companies means that something somewhere went wrong.


In my portfolio I want predictability, not in terms of share price (frankly my shares could drop 50% for all I care), but in terms of the income that I gain from these shares. I need confidence that a company can meet its dividend obligations without fail. Unfortunately, I no longer feel that BP can continue to do so in the current environment.

EPS for 2015 came in at -0.35 a share whilst reported dividends per share were 0.40. This means that the company has had to take on debt and sell assets to fund its dividend. Judging by the continued weakness in oil price and Q2 results we can expect that BP will once again have to load up on debt to meet its dividend obligations this year. Although there are predictions that oil price will recover and whispers of any output freeze – the simple answer is that we don’t know if these events will happen.

I’m not happy to sit in hope.

Is it really prudent for investors to sit and hope something is going to happen or should they act on the information they currently have to hand?

I don’t like betting on what may happen and hoping that predictions materialise. The truth is, we don’t know when oil prices will rise  and I’m not comfortable in holding a stock that I feel is in a position of squeeze between pleasing shareholders (via dividend) and doing what’s best for the balance sheet and the company in the long-term. ConcoPhillips is a lesson to investors who think that oil majors can continue to take on debt with the company recently slashing its dividend from 74c per share to 25 per share. In my mind (from what I understand from the decision), ConcoPhillips made the correct decision to protect their balance sheet from further damage and to brace themselves for lower prices for long.

When I begin to look at BP’s fundamentals, its debt and continued asset sales I begin to feel like the prudent thing for the company to do would be to cut its dividend.

XOM Better placed.

I’m sure that BP will be just fine over the long-term once oil prices recover but their dividend remains in question.  Remember – dividend growth investors seek to grow their income from dividends over time and shouldn’t look for capital gains as a factor for investing.

I’m not selling out of oil altogether, I’m simply reducing my holdings in this volatile environment and placing my bets on a company that I feel is in much healthier shape. I won’t go into detail, but it’s clear to me that XOM is much better placed to ride out a situation where oil prices remain low for years to come. It’s balance sheet is superior sporting a much lower debt to equity ratio (by circa 60%), and its EPS are still in positive territory. It’s also worth considering that XOM has a AA+ credit rating from S&P as opposed to the A-2 BP holds. This means that any debt XOM does take on will likely have smaller interest repayments. These ratings are also indicators to the overall financial strengths of the companies.

I also feel much more confidence in XOM’s managements committment to its dividend with its 33 year dividend growth streak a testament.


BP isn’t going to disappear tomorrow, don’t worry. If you’re a share holder and are happy with the risks then by all means hold, who knows, it may pay of handsomely for you if oil prices tick up in the near future. Enjoy the yield! But, for me, the risk just isn’t worth the reward. When a stock’s current fundamentals are pointing towards danger and my holding in that stock is showing a 10% gain, I’m happy to lock in the capital gain (tax-free) and buy a stock that I feel has more solid fundementals.

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