Increase in AdEPT Telecom target price and target prices in general

31st Jul '15 by johnrosier

6 comments 7452 reads

Target Price Reviews

Early in May I performed an exercise on all the stocks in the JIC Portfolio, where I asked myself if a 30% return over the next 12 months was a realistic prospect. If it was I set the target price for May 2016 at that level, if it wasn't I set the target price at a level that I thought was achievable. I made a note to myself that when a share price met its target I would review and if I could justify increasing the target, I would but if I couldn't I would sell. A number of stocks reached the targets within a couple of months: Intermediate Capital, which I sold, Crawshaw which I reduced and SafeStyle where I increased the target.

Next week I am going to repeat the process for all the holdings, rolling it all on 12 months; so I will be asking if a target price that equates to a 30% return is achievable by August 2016.

I like having a price target if only because of the discipline of regularly having to justify your position in a stock. For instance, after a strong run Renew Holdings closed, this week, above the target price I set in May and therefore I will review as part of next week's exercise; increase the target or sell!

On Wednesday, I reviewed £ADT which closed above my target of 220p set in May.

AdEPT Telecom (Market capitalisation; £51.0m, 225p and 6.1% of JIC Portfolio): Adept Telecom is up 24% since 1st May helped, by the publication on 7th July, of results for the year ended 31st March 2015. On current consensus forecasts the shares are valued at 13.1x March 2016 earnings falling to 12.2x March 2017. The prospective yield for March 2017 is forecast at 2.8%. Including the dividend I need a 27% uplift in the share price to get my 30% return, which takes it to 280p. Does that look sensible? If in August 2016 the share price was 280p the prospective PE ratio for the year ending March 2017 would be 15.5x and the prospective yield would be 2.2%. That looks eminently achievable to me in the absence of a change to the business climate. Other factors in its favour are: strong cash flow (according to Stockopedia it is valued at only 11.0x 12 month rolling free cash flow, ranking it 5th out of 21…

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Rusty2

31st Jul '15

I'm not so sure the balance is that strong, have you read Paul Scott's reports on ADT?

johnrosier

Hi herbie47, Without wanting to denigrate Paul's excellent work in anyway I think with a stock like AdEPT the most important issues are the strength of cash flow, stability of cash flow, interest cover etc. It is an asset-lite business. Anyway it is goo to see retrn on capital, assets and equity improving year by year.

If something goes wrong with the business then I wouldn't want to be in it but that goes for any business including ones with much better balance sheets such as erm Rolls Royce for instance!

Paul doesn't like £RNWH's balance sheet, which is really down to its business model, but the business is performing well so for now I am happy to hold.

Fair enough, I just thought I would ask in case you had not seen them. Yes I think its a good idea to set targets and review shares. Also need to rebalance. As for ADT a price movement out of line from normal is often a selling or buying signal, I would be inclined to take some profits.

BlueFrew

I'm long here. I had a similar debate at 220p, but thankfully listened to the little voice saying "run your winners".

Paul didn't report on the finals on the 7th July. He was slightly negative about the balance sheet in October 2013, but Adept have got rid of quite a lot of debt since then. It'll never be a business with lots of assets on the balance sheet and it'll always carry a bit of debt. Ian Fishwick has said often enough that he doesn't want £1 million in the bank earning 400 pounds a month in interest.

But the management team seem to be good deal makers and the business makes plenty of cash. There is plenty of dividend cover as well and increases in the dividend have been hinted at. There is plenty to like here.

5th Aug '15

Hi John. Did you expect to be doing your 280p review so soon? :-)

Does anybody know what is behind the recent share price strength? A 9% rise on a day when there doesn't seem to be any news is quite something.

It's no longer a cheap stock by any means, but neither is it outrageously expensive even at these levels.

Seems to be a Motley Fool tip.

Increase in AdEPT Telecom target price and target prices in general

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Johnrosier

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