Today, the online portion of the company still represents around 24% of the revenue stream. The remaining income is brought in from physical stores or partnerships with third-party retailers such as Ocado and Amazon.

The business model is fairly straightforward — it sells chocolates. However, the multi-channel approach to marketing its 400+ flavour catalogue has turned the stock into a debt-free cash cow.

Furthermore, Hotel Chocolat has also expanded in addition to its 127 UK branches to include a café-style lounge. In a similar fashion to Starbucks, it sells various flavours of chocolate-based beverages — including a delicious iced-chocolate shake that I’ve personally tried.

A deliciously innovative capital raising strategy

As previously mentioned, the firm is now free from all debt obligations and has been since 2018. But the original debts themselves weren’t exactly traditional.

Its bonds were famously referred to as “chocolate bonds” because they didn’t pay any interest – at least not in cash. Instead, lenders who bought the £2,000 bonds would receive six boxes of chocolates per year whose value was equivalent to a 6.7% interest rate.

The scheme was actually a huge success. The innovative approach to raising capital demonstrates not only intelligent leadership, but also a product that must be desirable, I feel.

A chocolate-craving customer community

Retaining customers in any business is quite a challenging feat, and the chocolate industry is certainly not short on competition. Therefore, customer loyalty is an essential aspect of the company.

As of July, Hotel Chocolat had over 1.3 million active members in its VIP club that offers a 10%-15% discount on all purchases. It actively engages with its customer community through social media to analyse what flavours are driving the most interest. And behind the scenes, there’s software keeping track of customer spending. This subsequently allows the firm to update customers by mail if a product they like is being revamped or a collection is being expanded.

How much can the FTSE AIM 100 company grow?

The multi-channel approach to doing business exposes the firm to four key markets.

• Chocolate-based gifts with a £195bn estimated global market size.
• Chocolate-based leisure products with a £224bn estimated global market size.
• In-home chocolate-based products with a £3bn estimated global market size.
• Premium chocolate-based alcohol and beauty products with a £102bn estimated global market size.

So far, despite its strong performance, Hotel Chocolat controls less than 0.1% market share in all four.

The bottom line

Chocolate hardly seems the most dazzling investment opportunity within the market when compared to some soaring tech stocks this year. But what it lacks in dazzle, it makes up for in flavour.

The business has a delicious product that is curated with the help of the people buying it. Combining this strong customer relationship with solid financials is a recipe for success, in my eyes. 

I’m currently seeking a new addition for my portfolio, and Hotel Chocolat is definitely looking like a stock I’d buy.

The post 1 FTSE AIM 100 stock I’d buy and hold before 2021 appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Hotel Chocolat. The Motley Fool UK has recommended Hotel Chocolat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As a reminder, BT Group is a telecoms infrastructure business. Operating under numerous retail brands – BT, EE, Plusnet, and Openreach – the firm supplies approximately 35% of the UK population with broadband.

On the enterprise-facing side of the company, BT owns and manages the UK’s core fixed network. Over 650 communications providers piggyback off the system to provide their customers with strong mobile signal for 2G, 3G, 4G, and soon 5G.

Why the BT share price has dropped

With such a diverse and far-reaching portfolio of services, it may seem odd that the BT share price has performed so poorly. The biggest problem is its level of debt. Building and maintain its communications network is a costly process.

The firm spent billions securing 3G licenses across Europe, repeated the process for 4G, and will likely repeat the story with 5G. It doesn’t help that the government restrictions on Huawei’s involvement with building the UK’s 5G network have added more pressure. As it stands, this pressure amounts to an expected £500m additional cost for BT over the next five years.

The company’s rapid growth during its early days created a vast need for cash flow that operations were simply not producing. So BT turned to debt financing and then seemingly never stopped. As a result, it now has over £27bn in long term obligations, including loans, leases, pensions, and tax deferrals.

Today, the total debt is nearly double the firm’s £10bn market capitalisation.

Furthermore, with the impact from Covid-19, the board of directors announced the suspension of all dividend payments until 2022. Subsequently, the share price fell to a 10-year low.

Light at the end of the tunnel?

The stock price has recently begun to rally following the release of the half-year report. Management raised guidance on the expected earnings before interest, taxes, depreciation & amortisation (EBITDA) from £7.2bn-£7.5bn to £7.3bn-£7.5bn. I’ve estimated this to translate into a net income of £1.6bn-£1.9bn.

Operationally, the business appears to be doing rather well. A new partnership with Belfast Harbour to deploy 5G was secured, improvements made to infrastructure have reduced annual costs by £352m, and the 5G network is now live across 112 cities around the UK.

Yet despite all this good news, revenues and profits continued to fall by 8% and 20%, respectively. However, a very positive sign was the repayment of £720m of debt. This doesn’t solve the solvency problem by a long shot, but it’s nice to see debt levels finally begin to decline.

The bottom line

Such a sharp rise in share price on what appears to be mediocre news tells me the stock is vastly undervalued. However, given the state of the balance sheet, I’d much rather invest my money into a company which isn’t riddled with liabilities.

The post The BT share price is starting to rise. Here’s what I’m doing now appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in BT Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Last Friday, FTSE 250 member and Peppa Pig owner Entertainment One announced it had agreed to a £3.3bn takeover from US toymaker Hasbro. The former’s investors will receive 560p per share, representing a 26% premium on Entertainment One’s closing price of 443.4p on Thursday afternoon. 

Earlier in the week, pub-operator Greene King also revealed that it had struck a £4.4bn deal with Hong Kong-based real-estate conglomerate CK Asset Holdings, valuing each of its shares at 820p a pop — 51% higher than where they previously trading at.   

Considering the lack of any real progress with regard to Brexit and the corresponding fall in the value of sterling, it’s likely that more UK stocks could be subject to bids from opportunistic overseas suitors before long. Here are what I believe to be two prime candidates. 

Gearing up to be sold?

Considering its battered valuation, broadcaster ITV (LSE: ITV) must surely be in the frame. The Love Island producer’s stock has recently retreated to prices not seen since 2013 as a result of concerns over dwindling advertising revenue and competition for viewer’s eyeballs from the likes of Netflix.

Although online advertising revenue is improving, the £4.6bn-cap is hoping its soon-to-be-launched streaming service Britbox — a joint venture with the BBC — will be the thing to turn its fortunes around. 

But will it succeed? Despite being a holder of the stock, I’m sitting on the fence for now. While both ITV and the BBC both have a great back catalogue and continue to produce quality content, streaming is becoming an increasingly crowded market with both Disney and Apple due to launch their own services in the near future.

If Britbox flops, or at least doesn’t do as well as expected, I’m not sure quite what CEO Carolyn McCall has up her sleeve to prevent likely bidders from making a move. A likely suitor would be US-based Liberty Global (owner of Virgin Media). It already has a near 10% stake in the FTSE 100 company. 

As difficult as ITV’s position might be, I still believe a lot of this is already priced in. The shares trade on less than 9 times forecast FY2019 earnings and come with a fairly-secure-looking 6.9% dividend yield. 

Prime target?

Another potential FTSE 100 takeover target is supermarket Morrisons (LSE: MRW). The most logical buyer would seem to be Amazon, since it already has an agreement with Morrisons to provide food deliveries to the online giant’s UK customers as part of its Prime and Pantry services. This would, after all, give Amazon a route into the UK grocery market that it’s apparently been looking for ever since it acquired Whole Foods back in 2017. 

With Morrison’s share price now down to levels not seen since 2016 and with the company valued at just 13 times forecast FY20 earnings, you begin to wonder whether the time might now be right for a low-ball bid. Should one be made, the implications for the remaining ‘Big 3’ (Tesco, Sainsbury and Asda) would be significant. 

In the meantime, Morrison’s stock yields 5.3% which may interest contrarian investors with a focus on generating income from their portfolios. Half-year numbers from the £4.4bn-cap are due on September 12.

The post UK plc is on sale. I think these 2 FTSE 100 stocks could be next to receive bids appeared first on The Twelfth Magpie.

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Paul Summers owns shares in ITV. The Motley Fool UK has recommended ITV. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Aviva (LSE: AV) has said its 7.8% dividend yield is safe for the time being, but some City analysts are sceptical. They believe the group’s new CEO, Maurice Tulloch, has this yield in his sights. 

A plan for growth 

At the beginning of June, Tulloch announced his new strategy for Aviva. He is looking to cut 1,800 jobs to save £300m of costs a year and “crack the complexity” of the business, which he says has been a drag on growth. As part of his efforts to streamline the business, Tulloch is also splitting Aviva’s core UK business into two parts, general insurance and life insurance, moving back to the model the group used before the divisions merged in 2017. 

If he succeeds in his goal, Tulloch’s targeted cost savings could help boost Aviva’s operating profit by around 10%, a substantial improvement. This should free up more cash to both reinvest in the business, and fund shareholder returns. 

On the shareholder returns front, the company has said it will be maintaining its dividend policy for the foreseeable future, which is good news. However, both Vodafone and Royal Mail both said the same thing before they slashed their payouts, so I’m inclined to take this statement with a pinch of salt. 

That said, looking at Aviva, the enterprise does seem to be in a much stronger position than both of the companies mentioned above. Current City figures suggest the dividend will be covered 1.9 times by earnings per share for 2019, giving plenty of headroom. On a cash basis, the distribution also looks well covered. The dividend cost the company around £1.2bn in total last year, compared to cash generated from operations of around £6bn. 

So the numbers suggest Aviva’s payout is safe for the time being, but it really all comes down to the path management decides to take from here. Cutting costs and improving efficiency will help improve margins, although it won’t jack up growth. Aviva will need to invest to generate growth, and this is where management could run into cash flow problems. Spending on technology, for example, has ballooned in recent years, rising from around £350m a year in 2014, to £600m for 2018. Aviva can’t cut too much here because it risks being left behind. There are also security concerns to consider. 

The bottom line 

Overall it looks to me as if Aviva’s dividend is safe for the time being. The payout is well covered, and while spending on growth might be rising, there’s a wide buffer between what the company is paying out and the level at which the dividend becomes unsustainable. 

The post Could Aviva be the next FTSE 100 company to cut its dividend? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 constituent BHP Group (LSE: BHP) is a great example. Shares in the world’s largest miner are up a very respectable 25% over the last year. However, if you’d had the courage to buy the stock just over three years ago when the commodity market last dropped like a stone, you’d be looking at a gain of around 200%. 

Despite the less-than-enthusiastic reaction from the market to today’s interim results, I believe those already invested should stay the course.  

Profits down

As a result of “unplanned production outages” at its operations in Australia and Chile (preventing the company from realising the $460m of costs savings it had previously forecast), BHP stated that production is now likely to be “broadly flat” in 2019.

This, coupled with a fall in copper prices and decline in ore quality, led the company to report underlying attributable profit came in at US$3.7bn — 8% lower than that reported for the previous six months. 

Underlying earnings were $10.5bn, down almost 3% from the $10.8bn achieved in the prior trading period. Margins from continuing operations also fell from 55% to 52%. 

Long term focus

BHP’s shares were trading on 12 times expected earnings before markets opened this morning. That’s a little more than top tier peers such as Rio Tinto and Glencore, but reasonable relative to the market as a whole. 

Whether the positive momentum over the last year will continue is hard to say, of course. With a market capitalisation of £95bn, the shares are certainly very unlikely to rocket. As legendary growth investor Jim Slater once remaked, “elephants don’t gallop.“

Nevertheless, there are reasons to remain bullish on BHP’s prospects both in the short and long term in spite of today’s fairly disappointing numbers. 

With regard to the former, CEO Andrew Mackenzie expects a “strong second half” will make up for the difficulties experienced in the first six months and that the company has “a portfolio of attractive development opportunities.“

Longer term, I’m inclined to think that declining stockpiles and the growing popularity of electronic vehicles could cause a very decent rise in the prices for many metals in the coming years, particularly copper. 

There’s also much to be said for BHP’s geographical and resource diversification. Unlike smaller miners, the company produces a wide range of commodities (iron ore, coal, uranium, silver, lead, zinc, uranium, gold, oil and gas) in addition to the aforementioned red metal. That doesn’t protect you from a general downturn, of course, but it does make it decidedly less risky play if you are contemplating getting exposure to the sector.

Having also disposed of its onshore assets to BP over the period and returned $10.4bn to shareholders through a combination of share buybacks and a special dividend last month, BHP should also be of interest to income hunters.

Today’s interim payout may have been kept at 55 cents per share but, with its debt pile down by $1bn (to $9.9bn) since the end of June and expected to “remain at the lower end” of its target range of between $10bn and $15bn, I see no reason why BHP won’t continue rewarding its loyal holders going forward. 

The post Don’t panic! This FTSE 100 dividend stock still looks a solid long-term hold to me appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The FTSE 100 has rallied in end-of-week trading as bargain hunters have come to the fore, the index having closed at two-year lows around 6,700 points on Thursday. But there are many tipping this as a so-called dead cat rally given that the prevailing worries — from the impact of Federal Reserve rate hikes to cooling economic output in China — are not likely to evaporate any time soon.  

Some Sage advice

We here at The Motley Fool see this as no reason to panic. Right now, there’s some truly brilliant stocks out there trading cheaply, and I would argue that this is a great time to buy.

As stocks guru Warren Buffett once famously advised, it’s a good idea to be “fearful when others are greedy, and greedy when others are fearful.” Even if you have a low tolerance of risk, now is still a great time to load up. There are shares out there that could thrive in the current tense environment.

Take Footsie shares Randgold Resources and Fresnillo, for example. They’ve actually thrived in recent sessions while the rest of the market has gone to hell in a handcart, with the former now dealing at its highest price since the start of 2018.

Precious metals are an established rush-to-safety in troubled geopolitical and macroeconomic times like these, and a great way to play this theme is to buy into the producers of these safe-haven assets. Gold prices rose to their highest in five months, above $1,240 per ounce, this week and latest demand data suggests that further gains could be just around the corner.

The World Gold Council declared earlier this week that holdings in gold-backed ETFs and similar products across the world jumped by 21.2 tonnes in November to 2,365 tonnes, the second successive month of gains.

Of course, you could buy into gold or silver directly, but the physical metal just sits there and does not offer a dividend. Randgold, by contrast, offers an inflation-smashing yield of 3.9% for 2019 at the moment.

Commodities clangers

Some of the FTSE 100’s other listed commodities plays offer jumbo dividend yields too. Rio Tinto smashes the readings of the precious metals specialists with a yield of 6.4% for next year, as do corresponding yields of 6.1% and 4.7% for Shell and Anglo American respectively.

Investing in companies that specialise in pure industrial commodities is extremely risky, though. While the indispensable nature of commodities like oil, copper and iron ore means that the share prices producers of such materials can also rise in risk-off times like these, right now, existing fears of oversupply in these markets have worsened. That has happened amid rising signs of a global economic slowdown as well as a ratcheting up of trade tensions between the US and China and looks set to keep pressing commodity values as we enter 2019.

In the current climate I see further scope for these stocks to continue sinking in the weeks and months ahead. If you want to grab a slice of the commodities complex then buying into the gold and silver diggers is the best bet, in my opinion.

The post The FTSE 100 is in freefall again! This is what I think you should (and shouldn’t) do appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.