Tag Archives: investment manager

Stocks in Focus: Kier Group

This week I am looking at property, residential, construction and services firm Kier Group, which announced preliminary full year results last week. The performance was in line with management expectations and the results showed a group pre-tax profit of £126m, compared with £116m last year, while revenues for the year have risen to £4.28bn, 3 per cent higher than the previous year.

The results were well received in a sector where a number of Kier’s competitors had experienced problems. Investors were reassured that management’s portfolio simplification programme has been a success since they made the decision to sell the Hong Kong and Caribbean businesses earlier this year. The simplification has resulted in increased focus on its three core markets; building, infrastructure and housing, which now represent 90 per cent of the group’s revenues and profits.

Management are confident that the business will remain relatively unaffected by Brexit and the firm is likely to benefit further from the increasing government focus on affordable housing, having already secured government funding over the last year to build new homes.

When writing about Kier last year, we explained that the contractor had laid out a “Vision 2020” plan of strategic targets to reach by 2020. The reassuring recent results along with the decision by the board to raise the full year dividend by 5 per cent, should help to increase investor belief that the group is on track to hit its ambitious target of £200m in annual operating profits by 2020. However, the economic environment remains challenging.

https://www.nwbrown.co.uk/news/company-report-library/

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Stocks in Focus: Dunelm

This week I have been looking at national homeware store Dunelm.  The company reported annual results on Wednesday 13 September that were in line with market expectations.  The company had a weak start to the year as a result of unpredictable weather combined with the tightening of consumer spending.  The second half of the year performed better with Easter falling later and improvements in the timing of promotional and seasonal events.  It has been an eventful year for the company following the purchase of online homeware retailer Worldstores from administration, together with the sudden departure of CEO John Browett at the end of August.

Dunelm had been interested in Worldstores for twelve months before the company went into administration, allowing Dunelm to take the initiative to buy the assets for a nominal £1.  The acquisition and ongoing integration of Worldstores is allowing Dunelm to accelerate both its furniture and online offerings.  Worldstores focussed predominantly on producing and sourcing furniture and selling through their online store.  These were both areas where Dunelm was underrepresented.  Worldstores also owned the Kiddicare baby and infant products store.  Whilst not a traditional core business to Dunelm the company believes that an integration of the brand, perhaps as a mezzanine level in existing stores, could help drive footfall of an otherwise untapped customer demographic.

The change in management at the top was not so surprising given the disappointing performance of the company over the prior two years.  However, for the interim, the company seems to be in good hands under the executive leadership of Chairman, Andy Harrison (previously CEO of Whitbread), incumbent CFO Keith Down and founder and majority shareholder, Deputy Chairman Will Adderly. They have lofty ambitions to double Dunelm’s sales over the next five years or so but investors are currently wary that the company’s prospects are ultimately tied to the strength of increasingly squeezed UK consumers.

Stocks in Focus: HSBC

This week I am looking at HSBC, one of the world’s largest banks, which delivered promising half year results at the end of last month.

The results showed a pre-tax profit for the first half of 2017 of $10.2billion, an increase of over 5% on the same period last year.  The better numbers were thanks to a boost from rising US interest rates, which generally enables it to make wider margins on loans, and an improved trading environment. In particular, the bank continues to see growth opportunities in Asia, where it makes three quarters of its profits.

Additionally, management announced a new $2billion share buyback, which will raise the amount of total stock that they have pledged to repurchase in the last year to $5.5billion. On the subject of management, investors are keeping a keen eye on the bank’s succession planning. Mark Tucker has recently been appointed as the new chairman and one of his first priorities will be to find a replacement for existing Chief Executive Stuart Gulliver, who is due to step down next year.

The shares have performed well of late and are currently trading close to a four year high following a rise of more than 50% over the last year. This leaves the shares trading on a relatively high valuation of 1.4x book value at a time of management uncertainty. Set against this, there are still plenty of positives. The bank is financially strong, offers an attractive dividend yield of over 5%, and is well placed to benefit from further normalisation of US interest rates.

Stocks in Focus: McColl’s

 

This week I am looking at McColl’s following the announcement of its interim results on Monday 24 July.  McColl’s is a leading neighbourhood retailer with 1,650 stores across the UK and the results mark one year since it announced the acquisition of 298 convenience stores from the Co-Op; a deal that has accelerated its shift away from being a traditional newsagent towards being a full-blooded convenience store retailer.

On the plus side, results show that like-for-like sales were up 0.2% for the first half of the year and 1.4% in the second quarter – a good result considering that like-for-like sales had hitherto been in negative territory for an extended period.  The Chief Executive, Jonathan Miller, highlighted McColl’s focus on the relatively robust convenience market and the IGD forecasts that the UK convenience market will grow by 12% between 2016 and 2021.  McColl’s hopes to benefit from this growth while continuing to grow its footprint and improve its in-store offering through better product ranges and the addition of more services (such as post offices and online shopping collection points that help drive customer footfall). On the downside, the food retail market remains very competitive and larger supermarkets also remain focussed on improving their convenience store offering. This competitive market may at some point drive negative like-for-like sales again, which can in turn hurt margins.

At the current valuation the shares do not look expensive and successful integration of the Co-Op stores should deliver attractive earnings growth.  However, the increased debt as a result of the store purchases does leave the company more vulnerable in the short term should the UK economy suffer a downturn.

https://www.nwbrown.co.uk/news/company-report-library/

 

New appointments and a fresh new look

NW Brown is delighted to announce the appointment of Oliver Phillips as Chief Executive. Oliver, who joined the Group in 2005 as an Investment Manager, takes over from Marcus Johnson, who will continue to serve as Deputy Chairman.

Oliver said of his appointment “I feel extremely honoured to be taking on the mantle of leading what I know to be an outstanding group of people, in a company which in many ways is in the best shape it has ever been”.

Other developments within the Group include the appointment of Paul Fox as Deputy Head of Financial Planning and Director of the Board of NW Brown & Company, and the launch of a new website https://www.nwbrown.co.uk/ 

Points of View: Interest Rates

The Bank of England’s (BoE’s) Monetary Policy Committee (MPC) met last Thursday and voted to keep interest rates at the historic low of 0.25%.  However the minutes of the meeting showed that three members (out of eight) voted to increase interest rates. The voting was considerably more hawkish than previously, with only one MPC member voting to increase interest rates at the last round of voting. This would usually be indicative of interest rates rising in the near future.

The MPC members that voted to increase the BoE base rate, cited the recent higher inflation as a reason.  Inflation has picked up to 2.9%, well above the 2% target.  Setting the base rate is one of the BoE’s principle tools for controlling inflation.  Interest rates are generally increased to seek to control higher than targeted inflation.

Inflation has increased following the fall in sterling as imports have become comparatively more expensive.  Many economists argue that inflation is only temporarily higher, with slow economic growth inflation will naturally fall and therefore there is no need to push rates up to control it.  Furthermore any increase in interest rates is likely to put an increased burden on households as two thirds of all mortgages are linked to the base rate.

While we agree with the consensus that interest rates are unlikely to rise in the short term, we will eventually see an increase from these historic lows.  When rates do increase, bond yields will increase and therefore bond prices will fall.  Equities may also see valuations fall but will conversely benefit from higher inflation.  We continue to hold fixed return investments with a low sensitivity to interest rate movements and exercise caution in looking at stock valuations.

https://www.nwbrown.co.uk/news/2017/jun/21/points-view-interest-rates/

Stocks in Focus: Perpetual Income & Growth Investment Trust

This week I am looking at the Perpetual Income & Growth Investment Trust (PLI) following the recent release of its 2017 annual results.

The £1bn investment trust, which is managed by Invesco Perpetual’s Mark Barnett, continues to focus on UK companies that can generate long-term returns irrespective of their position in the economic cycle. Dividends are a key driver of long-term returns for investors and in this respect the trust has a strong track record, having increased its aggregate dividend by 8% on an annualised basis over the last 10 years. The dividend yield currently stands at a relatively attractive 3.3%.

Unusually, PLI’s results were slightly disappointing over the 12 months to 31 March 2017 – its net asset value (NAV) rose 9.6% compared to a 22% rise in its FTSE All Share benchmark. This lacklustre performance was mainly due to the sector split, where PLI’s minimal exposure to recovering mining and banking stocks held the fund back. PLI has for some time been underweight the mining sector, which is very cyclical in nature and thus contradicts its strategy; however the rise in commodity prices and falling pound led to strong outperformance by the sector in the period in question.

Despite this latest set of results, our views on PLI have not changed.  We remain confident in Mark Barnett’s abilities and experience.  This is more than demonstrated by the long term performance of the fund, with the share price increasing 132% over the past 10 years compared to 70% for the FTSE All Share Index.  In addition to this, the fund continues to trade at an attractive 7% discount to NAV.

http://www.nwbrown.co.uk/library/