Member Info for Velo

Is that the same broker note released yesterday that briefed against IMB?

"Morgan Stanley today reaffirms its underweight investment rating on Imperial Brands Plc (LON:IMB) and cut its price target to 2100p (from 2755p)".

Came out yesterday, so a maybe a culmination of bad press releases, rather than all down to one specific like a distressed seller in play?

I/Krapp Monday @ " Good bounce at the end today. Strong and meaningful "

Dear oh dear, oh dear! What went wrong there, then?

1951p close last night and your prediction of 'Strong and meaningful' eh? (LOL!) results in tonight closing on 1903p

I think only your own words will suffice here. What was it you offered up the other day? Oh yes -

- " you don't half talk p ish "

Yes, your very own words sum you up perfectly and succinctly.

Longish - A 'pattern' close tonight. And it's a good one! I've checked and it's on your cards. - and it's bullish.

A two candle pattern, with a two word name.

Can you identify it?

I've already said it's bullish, so that's a starter - it's a Bullish "........" what?

Don't confuse it with the Bullish Harami, by making sure the colours are the right way round - and the sizes the right way round to match the card.

So that's a (bullish) Doji on Friday. (1)
Your bullish Spinning Top yesterday. (2)
Both confirmed by a plain bullish candle tonight. (3)

But tonight's close, on it's own, is just another bullish candlestick.

But look closely with the Spinning Top and today's large bullish candlestick and together bingo! - A pattern. (4)
That's a full confirmation!

What's the pattern called?

It's fair to say I won't be surprised to see Wed close with the second digit sporting a "3".
I'm open to offers on the third digit :)

And if not by Wed, then Thursday. Only thing is - how much strength in it - given this is still in XD period?

Longish - apologies!

Was busy elsewhere when I saw your post mentioning my name so felt obliged to respond. But in all that time had left another chart up on screen. Delete my previous post - it was for another share.

I can confirm, yes, VOD did go on to close as a full-on, in your face, bona fide Spinning Top.

Longish, just checked - and it's currently morphed into a long legged Doji with the catch-up trades now in. At least I think it's a bullish Long legged Doji.

But defo not forming a Spinning Top anymore.

Long legged Doji's are good for trend changes. This one's bulliush. The long wick below it shows the bears drove the price down alarmingly (126?) but the bulls chased them all the way back up by close. The body closed higher than it opened. All to the good. The bears lost today's battle.

Conclusion? Possibly a change to the wee downtrend back to a more ameanable outlook. But need more "confirmatory" signs to be absolutely sure IMO.

Japanese candlesticks set on dailies time frames are only valid by close of day, as they often change all meaning during the day. They're not really recommended for day trading but they are 'fractional' which means they can be used on any setting. And so if on say a five minute chart they often surprise me in their forecasting. I take it you're looking at today's chart set on daily prices? If so, you must wait until the day's trading is over for dailies.

PS. Can be black or white? ..... Personally, I colour my candles red and blue. Why? because like a dog and it's b'llocks, I can :)

AW100 - So that analyst is forecasting a £1, SP eh? Rather than take umbrage at a contrarian opinion I'd rather deconstruct his calculations to see if there's anything new I've missed in his assertion of the SP falling to £1 in the future. (Pushed for time at the moment so only time to comment on earnings) as get the earnings right and everything else falls into place, so was very concerned with this bit:

".... for the current trading year because City **analysts following the firm** expect earnings to fall."

News to me, that bit highlighted in the asteriks ** **

- Since when did analyst start forecasting a fall in earnings this year? If no evidence provided, I disagree on his reliance on other analysts expectation of "earnings being down in the current year". They're not.

Last year's earnings came in at £2,150m
and estimates for the current year are running at £2,391m
- Now what's that? - That's an increase! So where's he getting estimates of a fall in earnings?

Therefore I'll be keenly looking for the interim's later this year to see if still on track to achieving that. There's usually a first quarter update in July so will trying reading between the lines on that as few numbers are released. The H1 interims should be released in October with full disclosure and that's where I'll be checking to see if earnings and more are all still on track.
(You never know, these people sometimes hear rumours before the private investor does. He sounds awfully confident so I'll wait for the July update first).

- Couldn't get time over the weekend to post here, and only logged on now, to post that IMO all still looks on track to me for the SP to have a pop at 200-teens. And if a fair tailwind in the sails by that point, I'm looking for onwards to the 220p area.

After that, dunno, it's look around and see what's what.

That analyst was a bit too cocky. Has he got some latest info that know else has? Hmm .... again; earnings are forecast to be up, up, up, for the current year, not down.

So, the 2 questions are:

1) Why is debt projected to increase at least in this current year which ends in a couple of months in September, with such 'massive' free cash flow sloshing around? (I rarely if ever, ask a question without already knowing the answer beforehand, but in this instance I genuinely don't know the answer).

2) Earnings will eventually cover the dividend wholly. Yes, agreed, but do you think in 3 years - or longer/shorter?

GrabsterX - 2 questions for you but first, I take issue with your mildly dismissive:

".... will start coming up and cover the dividend, but this will make no difference besides pleasing investors looking only at the payout ratio."

I think you may be omitting and underestimating the influence of sentiment that a healthy dividend cover confers on the market's perception of a company.

Only last night a new investing piece floated past my phone screen on the best dividend shares to buy in the FTSE100. The analyst had in his title already revealed his no:1 choice - Lloyds, but I was curious to read how IMB fared before he filtered it out of the running.

It didn't even make the grade (his grade). Not mentioned. And yet IMB is clearly, factually, and without doubt, one of the top level % of best yielding shares in the FTSE100. So how did it fail to get a mention?

Simply that the analyst/reviewer filtered the chosen strategy by how well the dividend was covered and chose a cover of 2 as the cut off point. So IMB was not even a runner even though it whooped the ass of all his chosen income choices. It's the sentiment value that a healthy dividend cover confers to a company. I hope you see that Grabster. As right now bullish sentiment towards IMB is totally Missing-In-Action.
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".... due to the huge acquisitions done in the past the amortization is massive circa 1B GBP per year "

Yes, it's been mentioned a lot, and as you were referencing the dividend in relation to the high level of amortisation I hope you will allow me some leeway :) in re-writing that "massive" sentence as follows:

" .... due to the huge acquisitions done in the past the amortization is a massive circa £700m per year, once the 'overspend' in dividends not being covered, is paid for."

No? Well consider:
Earnings (' net profits' ) for 2018 = £1,368B
Dividends paid out for 2018 . . . . = £1,676B

So, £308m is already "spent" and the decision taken out of your hands. You have barely £700m left to spend as you please. Circa 30% each year from amortisation before you even decide how to apportion the remainder, rather casts
doubt on having £1b free to spend as you please.

Which leads on to the next query, with £700m free to spend as your heart desires/apportions - why is debt projected to be increasing this year to circa £12.8B which is a significant increase over 2018. Surely it should be down if some of that £700m is used to pay down some of the debt? I really don't get why debt is forecast to increase this year with so much free cash floating around, I really don't.

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".... once the goodwill is completely amortized 'net profits' will start coming up and cover the dividend...."

Agreed. I'm seeing 3 years before that occurs.

Question: What do you think 3 years, or longer? (or shorter?)

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So, the 2 questions are - (Continues) >

Still knocking off points from my old post -
Quick post as busy and also want to sneak in a response on Grabsters post below, before I'm called away.

The SP floor? No preamble. Cut to the chase. Potentially IMO 1830p's area.

Not forecasting the SP will fall to that area, only that it's a very strong support and I very much doubt the SP will fall further than that, should this retrace continue, as the-last-chance-saloon of support below that - well you don't want to know, maybe even 1300's?

Neah! 1830's is where the last major strength lies. I have full confidence it will do the necessary - if it's called on to do so. (Last weeks 1860's is probably indicative of that strength. That area could still turn out to be the worst of the fall with 1830's never called into action).

Was prepared to offer how I arrived at all that, but limited time. Will respond at a later time should there be any interest on the subject of where the floor might be.

So, 1830's that's it. I would expect deep value hunters to repel bears at that level - if, if, if the SP is intent on further retracing.

IMO

( Concludes )....

There appears to be a culture of ignore obvious negatives and only highlight our good points. More open honesty required. And that's why I don't rate either of them highly. They both speak with forked-tongue.

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Just 2 more points to go in the next day or so - and I'm done.

Next, technicals and my attempt at finding - where is the SP floor? Or was that it, the other week?

Why I don't trust either the CEO or the CFO of IMB to be other than economical with the truth - a personal view.

First the CFO - he said in the report below, that:

"We should start by saying our dividend is highly affordable ......We have got significant cash generation supporting our dividend commitment. So, there is no issue here about the affordability of our dividend given our current performance and our anticipated performance as we move forward".

No mention that on net profit generation the dividend is not covered so the excess cash needed to cover the shortfall is lifted from free cash flow. However, that's not the issue. It's one of veracity. Anyone reading that might assume that IMB scored well on covering it's dividend - but it's lifted cash from FCFlow that should have gone straight into paying down the debt burden. That's investing in the company when you pay down heavy debt loads. That's what FCFlow is all about - as well as (if required) replenishing worn old assets, it should be used to manage better, heavy debt.

It's almost as if, everyone everywhere, knows the dividend is not covered by net profit but can't admit it and run straight to - well it's affordable - from cash. Why can't the management (and posters on here) admit in plain English yes the dividend is not covered, but is affordable when free cash flow takes care of the shortfall? Sentiment takes a hit in the market when management is less than clear on how many years before dividends will be fully covered and stand on it's own two feet.

So I don't hold the CFO in high regard due to his insufficient veracity, and "cloudy" in giving the impression this situation can carry on forever. At a forward dividend yield of 11% at this SP level , the market should be biting the hand of IMB for shares, but they're not, and they haven't been taking advantage for some years, which brings me to the Porsche sports car driving, Spice girl herself - the CEO.

She says (and again it's the veracity of her direction that I take issue with)
".... because that's been quite a significant downward pressure on the stock since the end of March, but we see that coming off now..."

What! - downward pressure since the end of March? Come off it, you mean 3 years downward pressure. The SP peaked in the summer of 2016 - and ever since then it's been a steady downward spiral interspersed with half hearted rallies that returned to that now familiar long term down trend. How in all honesty can she talk of downward pressure in the last 3 months alone, when there's been unrelenting downward pressure for a full 3 YEARS! 3 feckin' years! She's a successful woman. And all successful people play down 'defeats' and polish up their successes, but how any analyst can let the CEO slide on 3 years of a falling SP without comment, nor the CEO even by her own violation address that glaring elephant in the room, simply defies belief.

(Continues >>>

Fair point Fleccy.

There are some scholarly research articles (if only I could re-find them again) "proving" that both fundamentals and technicals both suffer the same errors in reliably forecasting the likely future performance of equities. I could barely comprehend the constructions they used as a lot of the scientific language used was beyond me. There was no alternative offered to those two methods so I was left none the wiser as to what was the best way forward for the typical average investor to employ.

(Part 2 Concludes) -

So comments like:

"...So if you add back some of this amortization you would see that the dividend is covered " - are pure nonsense!

What about debt whilst you're upping the payments in dividends? When the time comes to renew - the debt hasn't reduced so it just gets higher and higher.

Debt used to run at circa £9/£8B back in 2013 & 2014,
- then from 2015 it increased by virtually 50% and has never reduced, running mostly at £12/£11B per year ever since

- with the current year on course for the highest debt ever recorded at circa £12.8B.

This is what happens when cash from amortisation and depreciation free cash flow is spent on pet schemes at the whim of those in charge instead of it being used for it's true purpose - to pay down debt.

This has been a long post, so I hope some at least can see that there are two sides to every coin, and just running round wily nilly shouting the huge dividend over spend is covered - but only IF you take free cash flow into account - is an erroneous way of pulling the wool over the true condition of the business.

Once again, I refer you to that Charles Dickens adage of 6 pence left after expenditure as happiness and sixpence spent over expenditure as unhappiness :)

Knocking off the topics as promised in my old post.

Amortisation and Depreciation when calculating free cash flow
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I wanted to offer my opinion in clearing up misunderstandings in amortisation and depreciation, as some might infer from other peoples posts (and CFO's who come to a bad end) that the above is a free second income to do with as they please, and overlook it's true original purpose.

First, it's not a second income. Take depreciation, something that most self employed might come into contact with in their tax returns. It's aim by the taxman, is to allow companies to deduct a depreciation amount each year from operating profit, so that it lowers net profit and thus reduces the tax bill. You don't get to decide how much you set against depreciation for any asset/expense item. It's set by the taxman. In the case of say a company vehicle (last I checked) it's 25% per year on a reducing balance - not 25% of the capital amount per year - thus the depreciation amount travels on for many a year until the amount becomes so small as to be unsustainable and can be written off fully when it becomes a tiny amount.

That yearly amount is for replenishing that vehicle or say computer system or any other item, when it becomes obsolete/unusable. Some make the error of thinking: Ooh the amortisation and depreciation amount is so high that doesn't show up in the net profit, so what shall we spend it on? Well let's spend some of it on paying ourselves a very generous dividend that by normal metrics is not covered. And that will sort out the overspending on an uncovered dividend.

Wrong thinking, both by investors and CFO's. The taxman allows this to be done as he's helping companies whom he expects to replace those aforementioned assets for more modern equipment. It's expected that the money is used to pay down the debt, so that when those items are eventually replaced, the debt has reduced over the years from previous highs and new debt is undertaken to replace the old gear. Squandering it on over indulgent things like excessive dividends (forecast to be nudging 11% going forward) means debt does not return to lower levels and is actually increased when replacement items are bought.

Which brings me to amortisation - similar to depreciation but instead the company now writes down the capital cost of an asset over many years - and claims a reduced tax bill. Otherwise, net profit would be lumpy - a loss one year, a huge profit the next, and unstable to measure; hence like a mortgage, an asset's cost can be amoritised and knocked off the tax bill each year - with the expectation that the free cash flow amount will primarily be used to reduce that debt incurred, in readiness one day to upgrade to a newer and more efficient replacement asset.

So comments like: ......(Continues to Part 2) >

Yes, they're deliberately messing up this site IMO, to force users to go to the new beta version.
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Longish something for you -

Free - Candlestick Flash cards........

Anyway, been searching for something from years ago - and found it :)
(New I'd kept a PDF copy somewhere, thought it was on my old disposed computer).

Luckily there's enough trademarks on the saved PDF to re-look it up the site and post a link. And after all these years it's still up. I'm talking about this -

http://www.tradesmartu.com/external/files/Candlestick-Flash-Cards.pdf?inf_contact_key=bfe2e4c6b95e1142aa8573cbb41e302ec14798554ddf50c437bb9a31602fec46

(Google Tradesmart University+flashcards - if the link fails) One of gazillions of teaching sites on the internet for candlesticks. They all give so many free lessons and other freebies away, there's no need to buy anything.

It's about 36 or so flash cards, to aide fast recall of the most pertinent candlestick patterns and powerful single candlesticks. There are literally hundreds but these are the cream of the cream so to speak. Faster that way.

Now It's time for a bit of Blue Peter here's one I made earlier with card and sticky back paper LOL!

Print them off on scrap paper first to see you've matched up the correct answers on the back to the pictoral graphic candlesticks on the front. And if all works out okay print onto some decently thick card that your printer will accept (experiment) - I had some spare from Poundland. Mine survive years later and that little thick wodge of oblong cards is still on my desk in the corner. Sometimes I used to take them into work and test myself against them during quiet periods.

- A picture appears on one side asking "What's This? And on the other side is the answer, plus explanation. Really speeds up human memory access like greased lightening. Have a go :)

Best of you stick to your chosen path of reading, as different sites have slightly differing wording in explanation. For instance I posted that Friday's closing candlestick was a Doji and that signalled "indecision in the market" and indicated a trend change. On the flashcard it says:

" Shows complete balance among buyers and sellers and agreed upon price " It does mention a trend change as well but my reading/learning is imprinted with "indecision in the market as to whether to continue with the current trend" sounds a bit more purposeful to remember more easily than 'complete balance' both of which, are true.

Have fun!

I've always believed the inverted hammer pattern occurs at the bottom of a decent sized, downtrend. The last 4 days represent a very shallow downtrend, so I wouldn't rule it out, but it's in a weak position to be a true inverted hammer pattern. However Friday's close is not part of a pattern but a single Doji candlestick and that most defintely does signify indecision in the market with a possible change to the current trend. So..... maybe.

But with this couple of days shallow downtrend a case could be made that it still counts as all part of the up trend. Which wouldn't help the SP rise, in that case.

Whatever, I've been quitely impressed by the performance of the SP since XD day. It's only giving cause for concern in the past 3 or 4 days, so if it does rise it will be a positive sign that this XD period may not misbehave as the last XD period did by refusing to come out of the retrace after payment day.

The original question to this thread asked: 'How safe is the dividend'?

1) IMO in the short term; safe.
2) Medium term; safe.
3)Long term; safe-ish except to say at the current rate of continuing to fail in covering the dividend combined with any unexpected events unforeseen by the company that would require more access to free cash flow then there'd be minimum leeway to avoid at least freezing the dividend, and if no improvement eventually cut the divi.

This is what happened recently to Vodafone. The dividend wasn't covered - but up went the chorus but it's covered by free cash flow! Came a newly promoted CFO qualified accountant to the role of CEO - he said authoritively the dividend is being held because free cash flow is sufficient to ensure it is. There will be no cut to the dividend.

The SP soared up on that news, then came the annual results, and the CEO announced (barely 6 months since last November after promising it would be maintained) that the dividend would be cut after all.

The Free cash flow was fine. But it failed to protect the dividend. Too much of it was being used to fund the shortfall from net profit not meeting the dividend bill in full. Funds were now needed elsewhere (for 5G).

So, dismiss the Dividend Cover ratio a metric that is designed to warn and protect the investor, and ignore that the dividend is not covered at your own (long term) peril. You wouldn't be the first to swallow wholesale that free cash flow will protect forever. It will protect an uncovered dividend, yes, but only for a limited period.

It's poor financial housekeeping to continually use part of it to fund unearned dividend increases beyond and above all of each year's net profit. The result is increasing debt and the current year is on course for the highest debt ever recorded for IMB.

Read page 6 on "Dividend" in the report. Nowhere does the CEO state that the divided is covered. Nowhere! But he admits it isn't indirectly by saying "cash generation" (free cash flow) will "support" the dividend. He would have no need to use the word support if the divi was covered from net profits - It isn't. And that's why I don't rate him, for being economical with the truth. A strong Free cash flow is an excellent indicator of a company's health and IMB's is truly excellent. But nothing will stand abuse year after year, after year.

It was no accident the CFO was asked about the state of the divi, by the DB analyst. The analyst and the wider market knows it's not covered; hence why the question was asked in the first place! It wasn't asked as a filler. It was a loaded question and the CFO was dishonest in not admitting it wasn't covered, and ran to hide behind free cash flow for diversionary tactics.

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I intend addressing the remaining points in my post below in the coming days, including (for reasons of balance) a variety of metrics that show IMB in a favourable light.

I will expanding on that (I'm almost free) hopefully by the weekend, dividend, the confusion by some of over reliance on depreciation and amoritisation as if free cash flow will solve all problems.

Needless to say I don't rate the CFO nor the misdirection by the CEO and will explain why (and that outstanding matter of potential SP support areas).

For several years now, there's always been a trading progress update in July of each year. Anyone know if different this year or not?