SIF Portfolio: I'm tempted by Rio Tinto & Sirius Real Estate

Wednesday, Feb 15 2017 by
16
SIF Portfolio Im tempted by Rio Tinto amp Sirius Real Estate

I decided last week to follow Jim Slater’s example and relax my valuation criteria slightly. This left me with a choice of five stocks to consider adding to the SIF Portfolio this week.

If you missed last week’s article, I’m experimenting with reducing the minimum earnings yield of my SIF screen from 8% to 6% and increasing the maximum rolling PEG ratio to 1.3. No new stocks have qualified for my screen for four weeks, and the portfolio’s cash balance is becoming excessive.

You can see the results of the relaxed screen here.

Too much overlap

One of the companies which qualifies for the relaxed version of the screen is steelworks group Severfield. Last week’s comments suggested that this is a popular pick with Stockopedia users. The shares have nearly doubled since July and boast a StockRank of 95. The outlook is still improving, but the SIF portfolio already has five industrial stocks.

Of these, John Laing operates in the same Construction & Engineering industry sector as Severfield, while Flowtech Fluidpower is also exposed to the construction market cycle. I’ve had to rule out Severfield to avoid excessive duplication. Engineering services group Renew Holdings was also dismissed, for similar reasons.

Of the remaining three options, wealth management group Brewin Dolphin Holdings was easily ruled out for its overlap with portfolio stock Miton.

Two strong contenders

AIM-listed business park and shared workspace operator Sirius Real Estate was harder to dismiss.

Although classed as a financial stock, it’s a real estate business that operates in Germany. So it provides attractive exposure to a major EU economy other than the UK.

The overlap with my three current financial stocks, (H&T, Miton and TCS Holding) should be limited, barring a major meltdown.

Sirius also has a StockRank of 93, making it the second-highest eligible stock in this week’s expanded screen results. It’s tempting, especially as I don’t currently have any property stocks in the portfolio.

Equally tempting is FTSE 100 mining group Rio Tinto, which pipped Sirius to the post with a StockRank of 95.

Rio’s 2016 results last week were very strong. Reduced costs and rising commodity prices mean that cash generation was ahead of expectations last year. Net debt is down and the dividend…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested. ?>


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Sirius Real Estate Limited (Sirius) is a real estate holding company. The Company is engaged in the investment in and operation and development of commercial property to provide workspace in Germany. The Company has a portfolio of approximately 57 business parks across Germany. It offers a range of products, including Smartspace, FlexConnect and FlexiLager. The Company invests in mixed-use commercial real estate assets in Germany, which can be sub-divided into workspaces, offering a range of managed properties. Its SmartSpace has approximately 1.4 million square meters of the total lettable space. Its SmartSpace includes office, storage and workbox. The Company's properties include Sirius Business Park Wuppertal, Sirius Business Park Solingen, Sirius Business Park Rostock, Sirius Business Park Mainz, Sirius Business Park Pfungstadt, Sirius Business Park Offenbach Carl Legien Strasse, Sirius Business Park Offenbach, Sirius Business Park Nuremberg and Sirius Business Park Markgroningen. more »

LSE Price
58.8p
Change
-1.7%
Mkt Cap (£m)
603.6
P/E (fwd)
15.9
Yield (fwd)
5.1



  Is LON:SRE fundamentally strong or weak? Find out More »


9 Comments on this Article show/hide all

gus 1065 15th Feb '17 1 of 9
2

Hi Roland - excellent discussion as always.

On Sirius Real Estate (LON:SRE) , one observation that immediately jumps out looking at your final chart is that the RSI is suggesting that the shares are significantly "over bought" and have been since the turn of the year. While I agree the stock is well worth consideration, I wonder if this is necessarily the best entry point?

Best,

Gus.

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ddinksdadd 15th Feb '17 2 of 9

Hi Roland,

Ive just looked into SRE and went online to get a quote.

My brokers (Hargreaves Lansdown) tell me this is a complex finacial product that apparently needs a waiver letter before I can trade in it.

Anyone looking to buy this one might want to check to see if your broker is prepared to trade for you or it might require some form filling before that can go ahead,

Regards

Jim

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Roland Head 15th Feb '17 3 of 9
1

In reply to post #171511

Hi Gus,

I agree that Sirius Real Estate (LON:SRE) looks overbought in the short term. But over six months or more, and with subsequent newsflow, I don't think it's a major consideration. At least, I hope not!

The other point is that I don't try to time entry points for the SIF portfolio based purely on technical factors. That's not to say they aren't relevant, but I don't do it here.

Regards,

Roland

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Roland Head 15th Feb '17 4 of 9

In reply to post #171550

Hi Jim,

Thanks for flagging this up.

I've not had this problem, so I don't know if it's just a quirk of the way Sirius Real Estate (LON:SRE) has been classified in HL's system.

I was able to get a quote to buy online from my broker earlier today, without any apparent restrictions. I don't remember ever filling out a waiver letter in the past, either.

Regards,

Roland

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Richard Goodwin 17th Feb '17 5 of 9

In reply to post #171550

Sorry. I thumbed down you in error.

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jjis 17th Feb '17 6 of 9

Hi Roland, not quite sure why your screen seems to throw up so many "foreign" companies listed in the UK. In relation to the latest selection Sirius Real Estate (LON:SRE) - for UK Investors a similar operator which operates in and around London that is on around a 20% discount to NAV is Workspace (LON:WKP) which scores well on my screens, although I appreciate this would not make your screen.

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cig 19th Feb '17 7 of 9
1

In reply to post #171550

No problem with Sirius Real Estate (LON:SRE) here, I've held for a long time and had no issue to buy. It's no more a complex financial product than say Land Securities (LON:LAND) ... Maybe being quoted in euros explains HL's (mis)classification. It's due to switch to Sterling when moving to the main market.

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ddinksdadd 20th Feb '17 8 of 9

In reply to post #172150

Hi Cig,

Im glad for the feedback from a long term holder thanks!

God bless them I've been with HL for about 20 years and have a not inconsiderable amount invested with them so for me its a matter of trust and confidence, which I have with them. Its fair to say though as they have grown they have become progressively more risk averse an compliance minded, which is no bad thing, but does mean there is normally a few hoops to jump which other brokers may not have. Luckily SRE isn't a flighty little number so the delay isn't concerning.

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LittonOwl 21st Feb '17 9 of 9

Nice report on Sirius Real Estate (LON:SRE), Roland.

Re: NAV. Current year is forecast to rise to 59.3c and 63.2c next, so arguably SRE is trading at current NAV or slightly below, and as you say, there is clear evidence of good NAV growth.

For those who haven't already seen it, there's a short video interview with CEO Andrew Coombs from last month, from BRR, which might be of interest: https://www.brrmedia.co.uk/broadcasts/58809f723691...

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »

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