Tag Archives: stock price

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: 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/

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/

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/

Stocks in Focus: Unilever

This week I am looking at Unilever again following management’s strategic review of the business, which was prompted by the failed takeover approach by Kraft Heinz in February. Most notably, the decision has been made to reduce the number of divisions from four to three by combining the Food and Refreshment divisions – with the rational that this will enable faster margin progression. As part of the restructuring, plans have begun to dispose of the  ‘spreads’ category, where sales have been in decline for a number of years, causing a drag on profits.

Management have already engaged in a number of cost saving initiatives over the last two years and intend to increase their efforts with the aim of improving underlying operating margins to 20% by 2020. Part of these cost savings are expected to come from cutting the marketing budget, and in particular reducing the amount of TV adverts aired. This reflects the difficulties many consumer companies face with how to successfully market to customers in a predominantly online era. In addition to reinvesting back in to the business, management has announced a €5bn share buy-back for the remainder of this year and a 12% increase in the dividend.

Initially, shareholders were concerned that the business would change drastically after the review and take on too much debt in the hope of “putting off” further takeover interest. It is encouraging to see that this has not been the case, and that it has been recognised that the existing business model continues to be successful. The news has so far been taken well by investors and the shares continue to trade at all time highs.

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

Stocks in Focus: Smith & Nephew

This week I am looking at Smith & Nephew, a leading UK-based global manufacturer of medical devices, following a transitional year bringing the business back to growth. The company operates across three specialist divisions: Reconstruction (hips and knees), Advanced Wound Management and Sports Medicine & Trauma.

The group has faced a number of setbacks in recent years, many of which stemmed from a flawed corporate structure of separately operated ‘silo’ divisions, which led to restricted innovation. This allowed competitors to catch up and take market share, although the company still enjoys a top 5 position across all the categories it operates in.

Management was then put in to question last year with the announcement that the CEO, Olivier Bouhon, had been diagnosed with cancer and would require treatment across much of the year. In addition to this, it was revealed that the CFO, Julie Brown, would be leaving to join Burberry after 3 ½ years with the company.

Despite these challenges, Smith & Nephew recently published positive full year results, demonstrating a return to growth and an encouraging outlook for the future, particularly within Sports Medicine. The internal restructuring of the business is now complete, which promises improved execution across the divisions and a stronger pipeline of new products. Olivier Bouhon (CEO) is now back at the helm and has recently announced the appointment of a new CFO, Graham Baker, who has 20 years’ experience at AstraZeneca and is expected to be a good addition to the board.

With a better structure in place and strong management team behind it, Smith & Nephew should now be well positioned to take advantage of an era where an ageing population and active younger generation mean health solutions are more essential than ever. Nevertheless, competition remains fierce and management will need to continue to drive innovation within key growth areas to keep ahead in this market.

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