Magic Hat portfolio: MJW out, XCH in

It’s time to update the Magic Hat portfolio on Stockopedia.
http://www.stockopedia.com/fantasy-funds/magic-hat-463/

Both IMT (Imperial Tobacco) and MJW (Majestic Wine) have the lowest MF (Magic Formula) rankings of 79%. IMT qualifies for the “Screen of Screens”, although it does also appear the Altman Z-score short screen. MJW does not qualify for any screens. So out it goes.

Topping the list on Stockopedia’s Greenblatt screen is XCH (Xchanging). It in the Business Support Services sector, providing insurance services, financial services, technology, procurement, and “corporate”.

Stockopedia reports a ROC of 143.2%, EY = 28.4%. Given and EV= £288.1m, that implies an EBIT of £81.2m. That figure looks distorted to me, and needs to be revised if we want to obtain what I think is a more realistic value. Forecasts sales for the next two years are £460m, and £480m. So let’s say that we can expect revenues to be around £475m. Looking at their past operating margins, 8.1% seems reasonable.

So a more believable estimate of EBIT would be around £38m (8.1% x 475). That gives a revised EY of 13.2% (38/288). The ROC would also need revising down. However, it looks like I can obtain an Earnings Yield of more that 10%. It also has a stock rank of 98, which is pretty good.

XCH is therefore “good enough”. So it’s in, at 159.75p.

Happy investing to you all.

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About mcturra2000

Computer programmer living in Scotland.
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