Tag Archives: investment managers

Stocks in Focus: Prudential Plc

This week I am looking at Prudential, the multinational life insurance and financial services company.  Prudential has had a strong year after economic conditions turned in its favour, reporting a new business profit increase of 17 per cent for the year to September 30. The third quarter trading update also reassured investors that there are still clear structural opportunities in each of its three key markets – Asia, the US and the UK.

Much of the rise in the new business profit has come from the Asian market. This growth is expected to continue to drive the share price going forward. Management are hopeful that the Asian business will double in size every five to seven years thanks to a growing and increasingly affluent Asian middle class that has driven demand and sales.

Elsewhere, the company intends to strengthen its position in the UK asset management market, targeting the retirement income needs of an aging UK population, following its merger with M&G asset management. Prudential also own one of the largest life insurance providers in the US, Jackson National, and expect this area to perform well given the demographic shift of Baby-Boomers moving into retirement.

The Asian business now accounts for over a third of group profits but faces strong competition, with companies such as AIA having a much greater presence in China. Other concerns include how a weakening of the US Macro backdrop could impact the US business, and whether an excessive rise in UK interest rates could threaten the UK annuity business. While the company appears to be well-poised for further growth, these threats are significant.

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

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Stocks in Focus: Vodafone

This week I am looking at telecommunications giant Vodafone, which recently published its half-year results. For the past couple of years the company has been facing tough competition in Europe and losing market share in Germany, Italy, Spain and the UK. Furthermore, Vodafone had to write-down £4.3 billion earlier this year in India, its most promising growth market, when competition intensified with the introduction of a new mobile carrier that offered six months free service to customers.

However, these concerns seem to be easing as Vodafone surprised investors last week by raising its annual profit forecast. The revised outlook is the result of a stronger than expected start to the year with notable improvements in operating profit, service revenue and cash flow. European operations have performed well with strong performances in Spain and Italy. The group also announced that the merger of its Indian operations with former local rival, Idea Cellular, is progressing well, which gives hope that the combined business can recover in the near future. Management has raised its guidance for full-year profit growth to around 10% from 4%-8% and the interim dividend was increased, which reflects a growing confidence in the future positive performance of the group.

Several undertakings led to these encouraging results, namely improvements in the quality of products and services, investment in networks, cost cutting measures and the merger of underperforming operations. Nonetheless, the cost of delivering these enhancements, including spending on infrastructure and mobile spectrum, is enormous. Investors should not neglect the importance of sustainable revenue and strong cash flow generation when evaluating companies.

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

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/

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/

 

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/