Tag Archives: market share

Stocks in Focus: GlaxoSmithKline

I am once again looking at GlaxoSmithKline (GSK) following the announcement of its first set of results since the appointment of Emma Walmsley as Chief Executive. Ms Walmsley has been with GSK for seven years, having previously worked at L’Oreal in a variety of marketing and management roles. With Pharmaceuticals being the core of GSK’s business, it is unusual to have a CEO whose experience lies outside the core division – although the ability to review the division from a fresh perspective could well be advantageous.

The second quarter results were slightly ahead of consensus, giving Ms Walmsley a solid start to her tenure. Alongside the results she set out her key objectives for the first time, highlighting the need to prioritise improvement of the core Pharmaceutical division. In short, GSK needs to become better at developing and commercialising lucrative drugs. Despite launching high volumes of new drugs, the company has not seen many of these lead to huge sales. Indeed, GSK’s last “blockbuster” product release was the asthma treatment, Advair, which at its 2013 peak made up one-fifth of the group’s revenues.

Ms Walmsley therefore plans to strengthen the pipeline by a) increasing the amount spent on research & development, and b) channelling 80% of this spend on a narrower set of four therapy areas (Respiratory, HIV, Immuno-inflammatory and Oncology). She also plans to bring about a more dynamic/accountable commercial model to help the business make the most of its innovations.

With an enthusiastic, fresh CEO at the helm and a credible plan in place to increase productivity over the long term, GSK looks well set. However, it is fair to say that previous attempts to increase productivity and commercial success have not been entirely successful – and investors may therefore want to wait for some evidence of success before buying into Ms Walmsley’s vision.

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/

 

Stocks in Focus: Reckitt Benckiser

This week I am revisiting Reckitt Benckiser, the global consumer goods company. In November of last year I mentioned how the company had a good start to 2016, supported by a successful cost savings programme and sales figures beating expectations. This year however, things have turned a little sour for the company with the news of a cyberattack taking its toll on operations and revenue.

The global cyberattack on multinational companies last month disrupted Reckitt’s ability to manufacture and distribute products to customers in multiple markets. Some of its factories are currently still not functioning normally but plans are in place to return them to full operation. Management stated that while it expects some of the sales lost in the past 3 months to be recouped in the current quarter, continuing supply chain disruptions mean that they could lose customers. As a result of these problems, Reckitt now forecasts a 2% revenue growth instead of the 3% originally expected.

Acquisition speculation is also in the news for Reckitt Benckiser as Unilever and Hormel Foods are believed to be bidding to acquire its £2.2 billion food division known for brands such as French’s Mustard and Worcestershire sauce. All three companies involved have not commented about the speculation, but we will surely find out more in the coming weeks.

Although Reckitt Benckiser is facing a tough period at a time when its shares are valued relatively highly, the company has historically shown resilience in difficult periods and consistent growth over the long run. Furthermore, its non-cyclical nature continues to be attractive to the long term investor.

https://www.nwbrown.co.uk/news/2017/jul/19/stocks-focus-reckitt-benckiser/

June 2017 Market Review

 This edition of the Market Review discusses another surprising election result.

The UK General Election delivered yet another surprising political result. Overall, the market’s response has been measured, but political uncertainty remains high and valuations are no longer cheap following an 18-month period of strong performance. Whilst this dampens our enthusiasm for new investments in the short term, the long-term case for equities remains compelling. Moreover, our emphasis on quality, value and diversification leaves us confident that our portfolios are well prepared for a wide variety of eventualities.

June 2017 Market Review

Points of View: Technology stocks

This week I am writing about the technology sector following an interesting article in the Telegraph.  The article highlighted that the NASDAQ index surpassed 6,000 for the first time and drew comparisons with the dotcom bubble of the 1990’s.

The NASDAQ index has a weighting of over 50% in technology stocks and serves as an indication of the performance of the technology sector.  Since March 2009 the index has had an annualised performance of roughly 20%.

The dotcom bubble was synonymous with the overvaluation of companies and investors ability to ignore companies’ underlying profits.  Indeed, these themes can be observed in some form in the current market.  The NASDAQ performance has inflated it well above the S&P 500 – indicating investor enthusiasm for tech stocks.  There are also signs of investors ignoring profits, illustrated by Netflix recent strong performance, despite being estimated to lose $2bn this year.

Technology has, however, moved on since the turn of the century.  Most noticeable the rise of the internet, broadband and smart phones has created an environment in which disruptive technology can thrive.  In addition, the valuations of tech companies do not look as stretched as previously.  In 2000 Microsoft’s price to earnings multiple peaked at 57 times. Today it is 30 times.

Investors can take some comfort from the more modest (but still high) valuations and the greater maturity of the sector. For these reasons we are not predicting an imminent decline in the sector. However, whilst the growth expectations are attractive the ratings leave little room for disappointment. Given our value bias we find it difficult to be optimistic about highly rated sectors.

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/