Tag Archives: stock prices

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.

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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: 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/

Stocks in Focus: Hilton Food Group

This week I am looking into Hilton Food Group further to its recently published full year results for 2016. Hilton was established as a meat packing facility in Huntingdon in 1994. Since then it has grown to build processing and packing facilities and factories across Europe, with the business focusing on helping customers improve processes and become more efficient. More recently they have expanded further overseas through joint ventures with supermarket group Woolworths in Australia and food retail group Sonae in Portugal.

Following the results, which were above expectations thanks to strong volume growth in the UK, Ireland and Australia, I spoke with Robert Watson (CEO) and Nigel Majewski (CFO). The model for expanding into new territories is interesting. To develop the relationship with Sonae, Hilton initially sent a consultancy team to Portugal to review their current processes and systems. The consultancy period gave Hilton the opportunity to demonstrate their business case and as with the arrangement with Woolworths in Australia, Sonae went on to sign a full joint venture to redevelop its production facilities. While the core business is focussed on the processing and packing of meat, Hilton have been able to respond to their customers’ needs in wide range of fresh food preparation and packaging solutions, as shown with their fresh pizza range in Sweden.

Hilton now operates as a more diverse business geographically, with the ability to offer customers a more extensive range of solutions.  Expanding too far from the core business could create some challenges, but management remain optimistic that Hilton will be able to steer through these challenges and remain in a strong market position.

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

Stocks in Focus: GlaxoSmithKline

This week I am looking at GlaxoSmithKline (GSK) following the appointment of a new Chief Executive, Emma Walmsley, on Monday 3 April. She takes over from Sir Andrew Whitty, who steps down after nearly 10 years in the role, and inherits a business that has recently diversified away from its core Pharmaceuticals division and towards its Consumer Health and Vaccine divisions (following an asset swap with Novartis). Nonetheless, Pharmaceuticals remains the largest division and the focus of this article.

The pharmaceuticals industry relies on heavy investment in research and development to create new treatments. This pipeline is essential as older products lose their patent protections and generic alternatives come into the market, driving down pricing. The development process is expensive, as a drug needs to go through a rigorous process to gain approval. The skill of the new Chief Executive will be to select at an early stage those drugs with a strong likelihood of gaining approval and thereby recouping the development costs and to avoid those that have a low possibility of succeeding.

The UK’s exit from the EU will throw up further uncertainties as the European Medicines Agency currently approves drugs across all 28 member states.  It is possible that a new UK regulator could drive companies away from developing drugs in the UK, forcing them instead to focus on Europe.

The long-term prospects for pharmaceutical companies remains their ability to develop successful new drugs and to get those drugs through expensive clinical trials. GSK has a strong pipeline with a number of drugs expected to gain FDA approval this year. Ms Walmsley’s role as Chief Executive will be to guide the company through the aforementioned uncertainties and focus on the specific treatments and markets that will generate growth over the long term.

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

Stocks in Focus: Murray International

This week I am looking at Murray International, an investment trust that recently released its full year results for the year to 31 December 2016. The fund aims to achieve capital growth while also providing an above average dividend yield, predominantly through investment in worldwide equities.

Murray’s 2016 results were very positive and its total return performance was in the top 25% for Global Equity Income funds during the year. Sterling weakness was cited as being a key factor for the strong performance, as the fund has relatively low exposure to the UK economy while being significantly overweight in the Asia Pacific and Latin America regions. Successful stock selection and asset allocation was also a large contributor to the outperformance.

The manager, Bruce Stout, has focussed the fund towards emerging markets, as this is where he sees the most growth potential alongside attractive valuations. Mr Stout has also reduced the gearing in the fund by 30% by clearing a Yen denominated loan on the back of this strong performance, with all remaining debt now drawn in sterling.

After a couple of years of underperformance due to high weightings in Asia and Latin America/Emerging Markets, Mr Stout has this year been rewarded for sticking to his process. This fund offers investors a different approach to income investing and provides diversification against the traditional UK and Global income funds. Bruce Stout’s conviction in his methods has been beneficial to recent performance and highlights the need to take a long-term view when investing.  The investment trust historically has not traded at a wide discount to NAV and is currently at a 1% discount; in line with its 12 month average.  Despite its narrower discount it does offer a 4.1% yield, which is noticeably higher than most globally invested funds.

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

Stocks in Focus: Standard Life & Aberdeen Asset Management

Standard Life is to pay £3.8bn to acquire Aberdeen Asset Management in a deal which will see the combined company managing assets of approximately £660bn, making it the second largest Asset Manager in Europe. As investors, it is worth considering how this will affect both the shareholders in the companies themselves and those invested in their funds.

Standard Life and Aberdeen have both struggled in recent years with a rise in popularity of passive funds hurting the two, predominantly active, managers. Aberdeen has seen over £100bn of withdrawals from its funds since 2012 while Standard Life recently reported disappointing outflows from its flagship ‘Global Absolute Return Strategies’ range of funds. This deal is a defensive one with the combined company due to benefit from significant cost reductions. Management expect savings of £200m annually from the end of 2018 but that there will be £340m of restructuring costs – it will therefore be a couple of years before the full effect of the benefit will be felt.

Whilst Aberdeen is known for its Asian and Emerging Markets funds and Standard Life for its UK and European funds, there is a certain degree of overlap. Investors in some funds may, therefore, find that they are merged with others. This will likely lead to the best managers being retained and so should ultimately benefit investors.

Economies of scale will bring cost-savings, benefitting the combined company and, ultimately, the shareholders. Investors in their funds, while not likely to see any reduction in management charges, should benefit as the restructuring of the company results in an improved offering. However, bigger is not, necessarily, better and there are significant risks to be navigated by Martin Gilbert and Keith Skeoch, the ‘co-CEOs’ of the new combined entity.

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