Tag Archives: stock prices

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: 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.


Stocks in Focus: Diageo

This week I am looking at Diageo plc, one of the world’s largest beverage groups. The business, which is known for its stable of recognisable brands such as Johnny Walker, Guinness and Smirnoff, has recently announced its interim results for the period ending 31 December 2017.

Overall, the results were encouraging. The company’s year-on-year increase in sales was above analysts’ growth expectations, pre-tax profits rose by 6% and earnings per share grew 9.4% compared to the previous year. Management has raised the interim dividend by 5% and stated that they expect further margin growth and improvements in net sales over the next 18 months. They also highlighted that the recent strengthening of the pound against the dollar would hit full-year sales and operating profits as the US is Diageo’s largest market and contributes nearly 45% of its profits. However, management also added that the Trump administration’s recent tax cuts would offset some of the negative currency impact.

CEO Ivan Menezes launched a cost-saving programme a couple of years ago and the recent interim results show that the project has been diligently executed. The underlying business is delivering well against expectations and is on track to meet its 2019 target to become more efficient, leaner, and more agile. Looking at Diageo’s market segments, a growing middle class in emerging markets is playing into the group’s hands too. As consumers move up the value chain, the advantage of Diageo’s big portfolio of brands is that it can provide premium labels to meet every taste. Furthermore, cash flow remains robust and the recent dividend increase continues an enviable record of dividend growth that stretches back to the 1990s.


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.


Stocks in Focus: RBS Group Plc

Following the UK budget last week, Philip Hammond, the Chancellor of the Exchequer announced plans to begin selling the government’s remaining 71 per cent stake in The Royal Bank of Scotland (RBS) towards the end of 2018. It is his intention that the FTSE 100 bank will once again become entirely privatised. At the height of the financial crisis, RBS had no choice but to accept a £45bn government bail-out on the back of the largest annual loss in UK corporate history.

On previous occasions, the Chancellor has avoided setting a deadline until RBS had reached an agreement with the U.S. Department of Justice (DoJ) over a multi-billion dollar fine for miss-selling mortgage-backed securities in the lead-up to the 2008 financial crisis.

Unsurprisingly, the announcement came shortly after a good set of third quarter results, which demonstrated a broadly reassuring outlook for RBS. Following several years at a loss, RBS posted a net profit of £392m for the quarter, which was largely attributed to lower costs and significantly lower restructuring and litigation charges compared to 2016. More importantly, a number of legacy issues it has faced since the crisis appear to be coming to a close including the DoJ fine which the Bank expects to settle in the coming months although it is still unclear what the final bill may be.

It is promising to see that the business appears to be on track to achieve its 2018 targets and hopefully see its first full year of net profit since the bail-out. If its recovery continues, investors should eventually look forward to a reinstated dividend. However, RBS still faces a number of risks given that it is significantly geared towards the UK in the face of Brexit and there are still other litigation cases yet to be settled.


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.