Two of this year’s biggest risers, Iomart Group (LSE: IOM) and International Greetings (LSE: IGR), are among Wednesday’s biggest fallers.
In today’s article I’ll explain why the shares are down and also take a look at Taylor Wimpey (LSE: TW), which has outperformed most other housebuilders this year.
Iomart
Shares in cloud hosting provider Iomart fell by more than 10% this morning, after the group published its interim results.
Sales were up by 16% to £36.3m, while adjusted earnings per share for the first half rose by 11% to 6.75p. These figures suggest to me that when the impact of recent acquisitions is included, Iomart should hit full-year forecasts for earnings of 14.7p per share.
However, somewhat unusually, Iomart did not confirm that is was on track to meet full-year forecasts. The firm also warned that overheads will rise as new skilled staff and management are recruited to help support the company’s ongoing expansion.
Iomart appears to be facing increased competition from cloud hosting providers such as Amazon Web Services (AWS). To combat this, Iomart is planning to shift its focus towards offering software services for customers using hosting providers like AWS.
It’s not clear to me how this gradual change will affect Iomart’s profit margins.
Even after today’s fall, Iomart shares have risen by 59% so far this year. The shares now trade on a 2015/16 forecast P/E of around 18, falling to 16 in 2016/17.
I’m not sure now is the best time to buy.
International Greetings
This boring-sounding firm makes boring products like wrapping paper, gift tags and stationery. It hasn’t been boring for shareholders, though. The firm’s stock has risen by 127% so far this year, making this morning’s 6% dip seem pretty trivial.
As with Iomart, International’s shares fell after the firm’s half-year results were published. The numbers don’t suggest any particular problems, though. Sales were up 7% to £120m, while adjusted pre-tax profit rose by 32% to £5.2m.
I suspect that the reason for this morning’s fall was that today’s results confirmed that the company expects to meet full-year expectations — but not exceed them. After such a strong run, a round of profit-taking isn’t a big surprise. International’s earnings per share growth is expected to fall from 16% in the current year to less than 5% in 2016/17.
However, International’s balance sheet is improving, with net debt falling fast. The company’s management seems able and the shares are not outrageously expensive, on 15 times forecast earnings.
I wouldn’t bet against further gains over the next year or two.
Taylor Wimpey
Housebuilder Taylor Wimpey has delivered a solid 42% gain for investors so far this year. Shareholders are also expected to enjoy a huge dividend hike, from 1.6p per share last year to 9.6p per share for 2016.
Wisely, Taylor Wimpey has focused on repaying all of its debt and building up a cash buffer before increasing payouts to shareholders. The firm now has net cash of £88m and offers a 4.9% prospective yield for 2015.
Taylor Wimpey seems reasonably valued to me, with a forecast P/E of 13.3, falling to 11.5 in 2016. As long as the housing market remains strong, this stock seems likely to deliver further modest gains, plus a generous dividend yield.