Tag Archives: investment trusts

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: Fidelity Special Values

This week I am looking at Fidelity Special Values (FSV), an investment trust that has recently released results for the year to 31 August 2017 and is celebrating five years under the management of Alex Wright.

Mr Wright adopts a contrarian and value style to picking stocks. This means that he focusses on finding out of favour companies that he feels are being priced substantially below their true value. This undervaluation usually stems from the market over-reacting to negative news concerning a stock or sector.

The trust sits within the UK All Companies sector and is able to operate in a completely unconstrained manner versus its FTSE All-Share benchmark. This has allowed Mr Wright to have a higher level of exposure to medium and small sized companies relative to his peers. This area is where Mr Wright and his colleagues are currently finding the most value. They are also looking at companies that earn the majority of their earnings in Sterling, as the team feel those with substantial overseas earnings are currently looking more expensive.

With the current uncertainty surrounding markets, the ability to pick stocks successfully on a bottom-up basis becomes evermore important. Mr Wright’s contrarian and value-based approach can sometimes result in a share price that underperforms the wider market in the short-term. However, his track record since taking over the management of FSV in late 2012 is impressive and suggests that his approach is adding value over the long term.

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

Stocks in Focus: Connect Group

This week I am revisiting Connect Group, the UK-based distribution and logistics company, following the announcement of its preliminary 2017 full year results last week.

The last few years have been challenging for the company, which has been managing decline in its traditional newspaper and magazine distribution business whilst focussing on its broader distribution offering.  Having sold off its Education and Care division earlier this year, the group now operates across three key divisions: News & Media (at the heart of which sits Smiths News, the UK’s leading newspaper and magazine distributor), Books and Parcel Freight (predominantly under the Tuffnells brand).

Following a strategic review earlier this year, the group now has centralised leadership teams across all of its divisions with the primary aim of becoming more efficient. Reducing costs is particularly vital in the News & Media division as the downward trend in newspaper and magazine sales looks set to continue – it is therefore encouraging to see that profits for Smiths News rose by £2.7m this year.

Unfortunately, the growing areas of the business did not perform quite so well, with Tuffnells seeing operating profits fall by 20% despite an increase in volumes. The division faced higher variable costs due to erratic volumes on top of one-off costs to upgrade depot facilities. Pass My Parcel, the ‘click-and-collect’ business, is delivering strong volume growth thanks in part to the introduction of a returns service for Amazon late this year. However, the business is still loss-making at this early stage of its growth and is not expected to break even till the end of 2019.

Investors have reacted positively to the update, driving a significant recovery in the share price following a period of weakness. Looking forward, the shares still look cheap on many metrics – although management must ultimately convince the market that the growth areas of the business can offset decline in the traditional newspaper and magazine distribution market.

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

NW Brown September 2017 Market Review

This edition of the Market Review considers whether markets will continue to climb a “wall of worry”.

September 2017 Market Review

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: Intertek

This week I am looking at Intertek Group Plc, the global inspection, testing and certification company. The specialist organization has more than 42,000 employees across 100 countries and provides quality and safety assurance to companies across several industries.

The company’s latest interim results were better than expected for the first six months of the year. Revenues were up nearly 14% compared to last year, while pre-tax profit jumped almost 28%. Management also upgraded their profit margin guidance from “moderate” to “robust”. Indeed, it has been a good couple of years for Intertek and this has been reflected in the share price, which has risen nearly 125% since the end of 2015 to its recent all time high of 4880p per share.

The global quality assurance industry has seen rapid growth in recent years as regulators are demanding stricter compliance measures and increased focus on risk management following several high-profile scandals that highlighted gross negligence by the companies involved. Intertek was well positioned to capitalise on the increase in demand.

That said, its resources division, which provides services to the oil, gas and mining sectors, suffered a dip in revenues. This was due to lower capital investment from its clients, but investors seem to have looked past this isolated weakness given the division’s relatively small contribution to overall revenue and the fact that the majority of its oil & gas exposure comes from fairly stable sources of operational expenditure and cargo inspection. The question for long term investors, however, is whether the strong performance and upbeat prospect still leave the stock as an attractively priced investment given the recent rise in the share price.

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.