Tag Archives: NW Brown & Company Limited

Stocks in Focus: Marks & Spencer

This week I have been looking at retailer Marks & Spencer.  The high street continues to evolve and is going through a serious period of upheaval.  Disruption is being driven by the online shopping revolution, led by Amazon, which is changing consumers’ purchasing habits.

The internet has been a deflationary influence on pricing, which has been beneficial to the “squeezed” consumer.  However, with the headwinds from an increase in business rates and the National Living Wage together with inflationary pressures of increased input costs driven by both currency and the cost of raw materials, profit margins of traditional bricks and mortar stores continue to shrink.

Marks and Spencer reported its 3rd quarter earnings in early January, which included its Christmas trading statement.  Sales at the company’s Simply Food business underperformed, previously viewed as one of the strongest growing divisions.  This was particularly disappointing versus its food peers who reported strong Christmas figures.

At the end of January the company announced the closure of 14 stores nationally, which meets with its 2016 programme of repositioning around 25% of the company’s Clothing & Home space.  This forms part of the company’s cost saving strategy which also includes the reduction in the pace of openings for its Simply Food stores.

Not only does the company need to continue with constructively cutting costs, but it also needs to demonstrate how it is innovating within Clothing & Home and Simply Food in order for the company to remain relevant in an increasingly competitive marketplace.  Marks & Spencer has a reputation for delivering good quality products, however ensuring that these products reach consumers in as efficient manner as possible will define how the company succeeds in the future.

Marks & Spencer will update the market with full year results at the end of March.



Stocks in Focus: Rolls-Royce

This week I am looking at the British engineering giant Rolls-Royce, following its annual results last week. I last wrote about Rolls-Royce in January, after it made the announcement that it would restructure its five divisions into three core operating units – a decision that was welcomed by investors. The annual results have come as further good news, with the cost-cutting drive that included the restructure helping the company to return to profit, following its largest ever pre-tax loss in 2016.

The results came in ahead of prior expectations, with the company making £4.9bn in pre-tax profits in 2017.  £2.6bn of this came from non-cash gains on its foreign exchange hedging strategy, thanks to a strengthening sterling. The operating performance was also positive, with underlying revenues increasing by 6% to £15.1bn.

Despite the encouraging results, the year has not been without difficulties for the company. Technical problems were found with its Trent 1000 jet engines, used to power Boeing’s 787 Dreamliner, and some of its Trent 900 engines, resulting in them wearing out more quickly than expected. The issues cost the company £170m in 2017, with management forecasting an increase in cost to a peak of £340m in the coming year. However, CEO Warren East has reassured investors that the problems will be fully resolved by 2021-22.

Although the engine fault issues will continue to be costly for the company over the next 5 years, Mr East continues to look for opportunities to cut costs in other areas. Two years after making initial cuts to management, a further restructure is under way that should result in significant cost savings. Mr East has also reassured investors that the ambitious promise of £1bn free cash flow by 2020 is still possible, which will be impressive if achieved.


Stocks in Focus: Reckitt Benckiser

This week I’m looking at Reckitt Benckiser, the consumer goods company known for its health, hygiene and home products, following its full year results last week.  The results were disappointing after a turbulent 2017 with the company reporting flat net revenue growth and a decline in profit margins.

The results did not come as a surprise to investors as the company suffered a series of “one-off” problems during the first 3 quarters of 2017. Reckitt was one of several multinational companies to be affected by the global cyber attack in June last year, which disrupted its ability to manufacture and distribute products to customers in multiple markets.  The company has also struggled with the failed product launch of a new Scholl pedicure product, ongoing fallout from a South Korean safety scandal, and volatility in India due to the implementation of goods and services tax.

Despite the poor performance, Chief Executive Rakesh Kapoor is determined that the business can recover, and this was shown in Q4, reporting 2% net revenue growth. The recent acquisition of Mead Johnson, the global baby formula company, has contributed to Reckitt becoming a major player in the consumer healthcare segment, and as a result Kapoor has made the decision split the company into two units – one focused on healthcare and the other on home and hygiene products.  However, the new organisation structure is likely to be costly and the company has declined to give a margin target for 2018, admitting that it will be affected by the reorganisation.

Kapoor remains confident that the company can make a comeback after a difficult year, and strong performance of previous years stands him in good stead. However, only time will tell if the reorganisation within the company has come at the right time and if management are more prepared for any future issues that may occur.


Stocks in Focus: Centrica

This week I am looking at Centrica, the parent company of British Gas and the biggest energy supplier in the UK. The company announced its full-year 2017 results last week, which reported a 3% rise in group revenue, but a 17% fall in operating profit due to the poor performance of its business energy supply unit. These results were broadly in line with expectations following the company’s profit warning in November 2017 where concerns were raised about the struggling business energy supply division and the impending price cap on standard variable tariffs (SVTs). What the market did not expect however was that the group would announce its intention to hold full year dividends steady at 12p per share this year and out to 2020 subject to cash flow and net debt targets being met. Shares reacted positively on the news.

Centrica is one of a number of energy suppliers that will be affected by the introduction of the price cap on SVTs. In response to this, the chief executive has announced plans to cut 4,000 jobs on top of the 5,500 he has already axed. He explained that greater digitisation in the industry as customers move online and intense industry competition are also part of the reason for the job cuts. He also added that cost cuttings programmes involving investment in technology and the simplification of core business processes would result in cost savings of £1.25bn per year by 2020 and the creation of 1,000 jobs.

With the price cap looming, cash generation seems to be heading in the right direction and debt reduction is on track. However, cost cutting cannot continue forever. Centrica has around 25 million existing customers as well as strong, recognisable brands. It will be interesting to see whether it can play to these strengths to drive future growth.


Stocks in Focus: Tesco Plc

At the beginning of last year, Tesco announced a proposed merger with Booker Group Plc, the UK’s largest food wholesaler, in hope of strengthening the retailer’s UK offering. After many months of consideration and despite concerns from competitors, the Competition authorities finally confirmed their approval in December 2017, which was welcomed by both groups and their shareholders.

With the merger expected to complete in March 2018, Tesco has now confirmed that Charles Wilson, the current CEO of Booker Group will be appointed as CEO of Tesco’s retail and wholesale operations in the UK and Republic of Ireland. Mr Wilson has been with Booker Group for 20 years, where he was credited with driving the group’s successful turnaround following near collapse in 2007. His knowledge and long term experience in the sector should prove beneficial for the business, where he could be seen as a prime candidate for succession of Dave Lewis, the current CEO of Tesco.

Tesco has also announced that it intends to pay a final dividend of 2.0p per share for the current financial year, which brings the total dividends paid for the year to 3.0p per share.  The decision to pay a dividend demonstrates management’s confidence in the business and is reassuring for shareholders, who had not received a dividend since the accounting and operational issues that forced it to be cancelled in 2014.

Despite the encouraging steps that management are taking to turn the business around, Tesco still faces strong competition from the Limited Assortment Discounters (LADs); Aldi and Lidl. With the “big 4” supermarkets continuing to lose market share to the LADs, only time will tell whether the new approach is enough to restore the company to its former glory.


Stocks in Focus: Templeton Emerging Markets

This week I am reviewing Templeton Emerging Markets (TEM), which is the largest investment trust within the Emerging Markets sector. The Trust has recently seen an unexpected change, with lead manager, Carlos Hardenberg, handing in his resignation.

Last September I wrote an article reviewing the Trust and Mr Hardenberg’s first two years as lead manager. During this time Mr Hardenberg outperformed his benchmark (96% vs 67%) and transformed the Trust into quite a different beast than the one he took over. One of the more significant changes was his push into the technology sector. At the end of December 2017 the technology sector was the largest weighting within the Trust at 31% (vs 6% in mid 2015), with giants such as Samsung, Alibaba and Tencent featuring in the top 10 holdings.

Effective immediately, Chetan Sehgal will be taking over as lead manager. Our early understanding is that he will look to keep the Trust running with the same investment process. Mr Sehgal has been with Franklin Templeton since 1995 and is a senior Managing Director and Director of the Global Emerging Markets and Small Cap Strategies. He should be capable of maintaining the process as he has been working closely with Mr Hardenberg during his tenure and was a part of the previous team under emerging market veteran Mark Mobius.

Given how much Mr Hardenberg had turned the Trust around and developed the existing strategy, this is quite a large disruption and causes some concern. We will monitor developments closely and expect to meet with Mr Sehgal in the near future to hear his plans for the Trust’s portfolio.


What will I need to retire?

The golden question when it comes to retirement planning is determining how much you will need to accumulate to successfully stop working, while maintaining your lifestyle.

Although it is beneficial to simply save as and when you can; obtaining a specific goal can provide much needed focus, and urgency, to prevent you from putting it off for that extra year.

A quick internet search will produce many basic calculators and statistics to give you a broad average of household expenses, and the lump sums required to meet these needs. The Office of National Statistics indicated a gross income of retired households as £29,000 in 2016, and Which? Has estimated an income of £26,000 being required to retire comfortably.   In our experience these generic figures are not overly helpful for our clients, as everyone has a unique set of circumstances and needs.

Although it is impossible to predict the future, and with it your precise needs at retirement, a good start is to look at your lifestyle today, and the known factors that will influence your future spending.

Begin by looking at your regular expenditure.  A good way of doing this is looking at your bank and credit statements for the last three or so months.

When looking at this, try to break down your spending into different categories of importance. An example of the categories is below:

Category Summary Examples
Essential You cannot live without these Mortgage, Bills, Groceries, Transport, Looking After Dependants
Basic It is not worth living without these Socialising, Hobbies and Interests
Luxury Enjoyable, but unnecessary to live Home Improvements, Holidays,

Higher End Restaurants, Trips

Aspirational Very enjoyable, but wholly unnecessary Yachts, Fine Wine Collections,

Multiple Homes, Vintage Cars


Naturally these examples will vary from person to person, and within each category there will be an order of importance, but by looking at your current habits, and splitting them up in this manner, you can get a basic idea for the bare minimum you will need upon leaving employment, as well as what would be required to lead the life you wish to lead.

My reference to ‘known factors’ above will include situations such as the mortgage being paid off in ten years, or that you will stop commuting at retirement.  There are also some less tangible factors, which are important, but harder to estimate- for example you will have more spare time at retirement, which may increase your socialising and holidays.  Use these factors to help refine the predicted amount of income required.

After this exercise you should have a general indication of what is required to meet each ‘category’, in today’s terms. For example your essentials may be £12,000 per annum, to meet your basic costs increases this to £22,000, to meet your luxury costs would raise this to £36,000, and to buy, insure, and maintain the yacht you have always dreamed of would increase this to £150,000 per annum.

This is a time to stop and reflect. Do the figures you arrive at surprise you? Was it a particularly expensive or inexpensive three months? Were there particular one-off purchases you do not expect to happen again? By thinking hard and being honest with yourself you should hopefully have arrived at a minimum and aspirational income figure for retirement.

An often quoted figure when estimating the capital required for income is to multiply it by 25.  This assumes that taking 4% from investments is sustainable over the longer term, net of costs.  While not a perfect calculation, it can be useful to obtain a general figure required.  Taking the examples above, you would have the following:

Category Income Required Capital Required
Essential £12,000 £300,000
Basic £22,000 £550,000
Luxury £36,000 £900,000
Aspirational £150,000 £3,750,000


Armed with these figures, you now have a goal to aim for when saving; however there are some pretty big caveats:

  1. These numbers are in today’s terms, if you were to retire immediately, and over time inflation will increase the costs for your needs. If, for example, inflation averaged at 3%, in five years the £900,000 requirement would be £1,043,347.
  2. This is an estimate only, and based upon your current lifestyle. Should you require nursing care, for example, your lifestyle costs may increase significantly.

The next step is to assess the feasibility of meeting this income, and take measures to get you on the right track to achieving it.  As a part of our Wealth Management service, we look at your circumstances and timescale, and identify the opportunities available to accumulate and manage wealth effectively.  These areas may include:

  • Maximising pension contributions, and utilising allowances, to increase your retirement savings, and increase the tax efficiency of your arrangements;
  • Providing recommendations for your existing investments, and providing ongoing management to ensure they continue to suit your objectives;
  • Carrying out cash flow modelling exercises, to not only refine the estimated requirements, but also to test multiple scenarios, such as different ages of retirement, or needing nursing care.

Working together with you we will help you to develop and achieve your aims for retirement.  We will review your arrangements regularly to ensure you remain in the most suitable position, and make you aware of the opportunities available to boost your chances of living the life that you want.