Tag Archives: investment manager

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/

Stocks in Focus: Scottish Mortgage investment trust

This week I am looking at the Scottish Mortgage investment trust, which aims to achieve long-term capital growth through investing in global equities, focusing on the speed of technological advancements and how they can disrupt established business practices.

The trust recently published strong results for the 12 months to 31 March 2017, during which it returned an impressive 40.9% vs the FTSE World benchmark return of 33.1%, placing it in the top 10% for Global funds during that period. The main driver of these positive results was a strong US market and, in particular, outperformance of the technology sector.

The lead manager, James Anderson, has been in charge of the trust since 2000 and has seen his successful strategy lead it into the FTSE100 and become the largest investment trust in the UK.  Over this time Mr Anderson has created a concentrated portfolio of around 40-80 holdings, with high weightings in US tech stocks including Amazon and Tesla.  In recent years he has also looked to exploit the emergence of China by holding tech stocks such as Tencent and Alibaba.

This trust has been a consistently strong performer, gaining 219% over 5 years against the FTSE World benchmark return of 116%.  This has gained it much attention from investors and the fund’s size (now at c£5.6bn) has allowed it to lead the way in reducing fees within the investment trust sector.  The trust is clearly an attractive vehicle for investors looking to have diversified exposure to disruptive technologies. The fact that it is trading at a modest premium to the underlying value of its assets makes it less attractive from a value perspective, but reflects the returns generated by the manager.

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

Stocks in Focus: Centrica

It has been an interesting few weeks in the utilities sector after the Conservative Party’s pledge to cap prices on standard variable tariffs as part of their manifesto for the upcoming general election. Centrica, the parent company of British Gas and the biggest energy supplier in the UK, warned that such a price cap would “lead to reduced competition and choice, and potentially higher average prices”, drawing on evidence from countries that already have a similar policy. Indeed, according to uSwitch, the average price of the cheapest deal offered by the six biggest energy providers rose faster than for the market as a whole since the plan was initially announced at the Conservative conference in October last year. However, not all of the big 6 have raised their prices – British Gas, for example, has frozen its prices until August 2017.

In a trading update earlier this week, Centrica reported a drop in its UK domestic customers since the start of the year as households switched to rivals, while unusually warm weather also led to lower than expected revenue from energy consumption. Despite this, the company is keeping its guidance to deliver on a range of targets for 2017, including reducing net debt and generating adjusted operating cash flow of more than £2bn through its cost efficiency programme.

Looking forward, market conditions are likely to remain challenging for Centrica in the short term due to the pressures of a possible price cap. Set against this, however, the company has expressed its confidence in being able to navigate this regulatory clampdown and maintain its financial targets through its competitive pricing, cost efficiency and focus on quality rather than quantity of its customer base.

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