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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