Interestingly, the FTSE finished down albeit off its lows due to unease about the escalating situation in Egypt. But, after opening flat on the same concerns the DJIA finished up!
FTSE 100 @ 5862.94, -18.43 (-0.31%)
DJIA @ 11891.93, +68.23 (+0.58%)
BP: further updates.
Well the company just cannot stay out of the news or away from controversy can it. This time its partners, the Russian Oligarchs, that share ownership of TNK-BP with BP, have voted against the fourth quarter dividend, which effectively denies BP access to what would be a $900m share (nothing worse than a billionaire that can't see where his next billion is coming from).
This is ahead of its injunction against BP being heard in a London court tomorrow, the same day that BP issues its final results where it is widely expected to resume paying its own dividend.
With regard to the oil and gas industry, this may seem to be almost a sideshow to what is currently taking place in Egypt, where the political unrest that has unbelievably brought the country to a standstill threatens the supply of oil and gas passing through the Suez canal. In turn this has pushed the price of oil up to $100 per barrel for Brent crude.
BP @ 484.85, -1.95 (-0.4%)
National Grid to restructure US business.
Elsewhere, National Grid jumped after announcing that it would be restructuring its US operations into a regional structure with expectations of efficiency and cost savings totalling $100m to be realised in 2011-12.
The company also re-iterated its profits guidance following a strong first half momentum being carried into the second half to date.
National Grid @ 552.5, +6.5 (1.19%)
Monday, 31 January 2011
Sunday, 30 January 2011
Big week ahead for BP, plus updates on BG and Aviva
BP @ 486.8p report final results on Tuesday this week with the expectation that profits will jump due to the increasing oil price. The company may even reinstate its dividend (albeit at a lower level than previously) which will be welcome news to investors particularly within the Pension fund community where the company has traditionally been a big contributor with its formerly chunky dividend yield.
Otherwise analysts and watchers of the company will be looking for an update on the costs of the Gulf of Mexico disaster and the company's fund raising divestment programme. Finally, the current spat with TNK-BP partners over BP's new found friendship with Rosneft has resulted in legal actions from the partners which company watchers will want updating on.
On a further sour note despite the much heralded deal with Rosneft and what it says about Anglo-Russian relations, the Russian state backed company has signed a further deal with BP's rival ExxonMobil to undertake a joint venture in the Black Sea. It will be interesting to see how the US authorities respond to that given the nature of their objections to BP's deal!
Royal Dutch Shell reports 2 days later.
BG Group @ 1334p. Elsewhere, after a raft of good news in recent weeks there are rumours doing the rounds that BG may soon become the recipient of a take-over offer. The company's share price has continued to trade with a "take-over" premium for many years with Royal Dutch Shell deemed the most likely in an attempt to shore up its reserves following its misrepresentation and overstatement of reserves in recent years.
The company has kept itself in the news recently with its successes in its Brazilian operations and it may be that analysts are just pumping up the takeover talk to try to convince a likely buyer that the time is right. Not holding my breath though and not sure if I want to lose my investment for a short term profit given the success of the company and its management.
Aviva @ 450.2p I haven't spoken much about Aviva lately but the company is now showing a decent profit of 20% against my investment following the 3rd of 3 promised updates to shareholders. This 3rd presentation set out to demonstrate the company's financial strength in a presentation to analysts and investors to underline its recovering progress and balance sheet.
Previous presentations in July, covered the company's cash and dividend policy and, in November, its strategy.
The highlights of the 3rd presentation were:
- a vastly improved pension fund deficit which, at the end of November, stood at £0.4bn from £1.7bn the year before.
- Net Asset Value of 617p per share against the current share price of 450.2p.
- plans to reduce debt by a further £700m
At 450p the company is still on a forecast P/E of 7.2 and a consensus dividend yield of 5.9%, or 25.74p (close to 2.5 times covered by earnings) so with the prospect that the company may continue to recover its share price my one regret is that I should have bought more.
Perhaps the opportunity is still there but my vision is being clouded by previous purchases at a lower price than today? The fact that I can now point to 617p as a Net Asset Value suggests that there is still 30% upside on any further investment I make at 450p.
An article in today's Financial Mail supplement of the Sunday Mail also has Aviva mulling over a £7bn bid for rival RSA apparently this could be a means to bring Andy Haste (RSA's Chief Exec) into the Aviva group with the possible scenario of him running the whole operation. Seems a very expensive head-hunting exercise to me as well as seeming contradictory to the company's intent to reduce debt by £700m.
I don't think that I will be holding my breath waiting on either of the deals mentioned and wonder how to read the markets with so much "speculative" deal making going on? But, at least I continue to be confident of what would be 2 of my tips for the year (BP and Aviva), and the progress they are making.
Otherwise analysts and watchers of the company will be looking for an update on the costs of the Gulf of Mexico disaster and the company's fund raising divestment programme. Finally, the current spat with TNK-BP partners over BP's new found friendship with Rosneft has resulted in legal actions from the partners which company watchers will want updating on.
On a further sour note despite the much heralded deal with Rosneft and what it says about Anglo-Russian relations, the Russian state backed company has signed a further deal with BP's rival ExxonMobil to undertake a joint venture in the Black Sea. It will be interesting to see how the US authorities respond to that given the nature of their objections to BP's deal!
Royal Dutch Shell reports 2 days later.
BG Group @ 1334p. Elsewhere, after a raft of good news in recent weeks there are rumours doing the rounds that BG may soon become the recipient of a take-over offer. The company's share price has continued to trade with a "take-over" premium for many years with Royal Dutch Shell deemed the most likely in an attempt to shore up its reserves following its misrepresentation and overstatement of reserves in recent years.
The company has kept itself in the news recently with its successes in its Brazilian operations and it may be that analysts are just pumping up the takeover talk to try to convince a likely buyer that the time is right. Not holding my breath though and not sure if I want to lose my investment for a short term profit given the success of the company and its management.
Aviva @ 450.2p I haven't spoken much about Aviva lately but the company is now showing a decent profit of 20% against my investment following the 3rd of 3 promised updates to shareholders. This 3rd presentation set out to demonstrate the company's financial strength in a presentation to analysts and investors to underline its recovering progress and balance sheet.
Previous presentations in July, covered the company's cash and dividend policy and, in November, its strategy.
The highlights of the 3rd presentation were:
- a vastly improved pension fund deficit which, at the end of November, stood at £0.4bn from £1.7bn the year before.
- Net Asset Value of 617p per share against the current share price of 450.2p.
- plans to reduce debt by a further £700m
At 450p the company is still on a forecast P/E of 7.2 and a consensus dividend yield of 5.9%, or 25.74p (close to 2.5 times covered by earnings) so with the prospect that the company may continue to recover its share price my one regret is that I should have bought more.
Perhaps the opportunity is still there but my vision is being clouded by previous purchases at a lower price than today? The fact that I can now point to 617p as a Net Asset Value suggests that there is still 30% upside on any further investment I make at 450p.
An article in today's Financial Mail supplement of the Sunday Mail also has Aviva mulling over a £7bn bid for rival RSA apparently this could be a means to bring Andy Haste (RSA's Chief Exec) into the Aviva group with the possible scenario of him running the whole operation. Seems a very expensive head-hunting exercise to me as well as seeming contradictory to the company's intent to reduce debt by £700m.
I don't think that I will be holding my breath waiting on either of the deals mentioned and wonder how to read the markets with so much "speculative" deal making going on? But, at least I continue to be confident of what would be 2 of my tips for the year (BP and Aviva), and the progress they are making.
Friday, 28 January 2011
IG: Update to FSCS Post.
Some Sharecast news throws a bit more light onto the FSCS interim levy that I referred to in a previous post (IG Group: FSCS sticks the boot in!) and its potential impact to IG. The item suggests that IG did have £1m provisioned but will have had little or no visibility of the levy (chalk one to the regulatory bodies then).
Seems a bit short-sighted that to protect retail investors against potential future business failures you can issue surprise invoices with 30 days payment terms.
I would have expected some kind of prior consultation as to the direction in which the FSCS strategy and modelling was going but apparently not.
Alternatively some form of stress test on a company's ability to pay within 30 days, or even a contributory plan, seems essential unless the FSCS has some prescient knowledge of a company that is going to fail in 31 days time!
Digging a little further on Keydata, it seems that the company failed over 2 years ago and many put the blame firmly on the door of the FSA for inadequately policing the situation. Even more confusing was the FSCS decision "not" to compensate Keydata investors??? (as seen in dailymail.co.uk: Payout bombshell for Keydata victims).
Taking some learning from the Keydata situation, and the lack of policing, shouldn't there also be some form of stress testing or minimum capital reserves for any company in the financial services sector (wasn't this the straw that finally brought about the credit crunch?). And, wouldn't it be ironic if the surprise levy amount and/or payment terms ultimately resulted in the failure of a business.
Seems to me that the regulatory bodies themselves need a bit of regulating or training in communication and planning!
Back to the Sharecast release: IG Group latest to receive FSA compensation bill, there is no question that IG has the resources to make the payment but, the writer suggests that the "unforeseen" nature of the regulatory expense will probably put paid to rumours of a special dividend and may result in a slightly more conservative management of working capital and capital investment.
This combination of factors has resulted in some analysts at Panmure Gordon paring back profit forecasts for 2011 to £166.4m, -£4.4m (-2%).
Frustrating for an investor though. Having seen the aftermath of the lack of regulation there is an obvious need for more protection (and this levy is part of the savings compensation scheme) but it doesn't seem that there is much of a coherent plan or that it will rein in banking pay and bonuses!
Seems a bit short-sighted that to protect retail investors against potential future business failures you can issue surprise invoices with 30 days payment terms.
I would have expected some kind of prior consultation as to the direction in which the FSCS strategy and modelling was going but apparently not.
Alternatively some form of stress test on a company's ability to pay within 30 days, or even a contributory plan, seems essential unless the FSCS has some prescient knowledge of a company that is going to fail in 31 days time!
Digging a little further on Keydata, it seems that the company failed over 2 years ago and many put the blame firmly on the door of the FSA for inadequately policing the situation. Even more confusing was the FSCS decision "not" to compensate Keydata investors??? (as seen in dailymail.co.uk: Payout bombshell for Keydata victims).
Taking some learning from the Keydata situation, and the lack of policing, shouldn't there also be some form of stress testing or minimum capital reserves for any company in the financial services sector (wasn't this the straw that finally brought about the credit crunch?). And, wouldn't it be ironic if the surprise levy amount and/or payment terms ultimately resulted in the failure of a business.
Seems to me that the regulatory bodies themselves need a bit of regulating or training in communication and planning!
Back to the Sharecast release: IG Group latest to receive FSA compensation bill, there is no question that IG has the resources to make the payment but, the writer suggests that the "unforeseen" nature of the regulatory expense will probably put paid to rumours of a special dividend and may result in a slightly more conservative management of working capital and capital investment.
This combination of factors has resulted in some analysts at Panmure Gordon paring back profit forecasts for 2011 to £166.4m, -£4.4m (-2%).
Frustrating for an investor though. Having seen the aftermath of the lack of regulation there is an obvious need for more protection (and this levy is part of the savings compensation scheme) but it doesn't seem that there is much of a coherent plan or that it will rein in banking pay and bonuses!
Thursday, 27 January 2011
Dow Jones at 29 month high!
Overnight news is that the Dow is now sitting at a 29 month high as it briefly breached the 12,000 mark before finishing at 11985.44, +8.25 (0.07%).
Lots of facets to this not least of which is the affirmation that the Federal Reserve will maintain its $600bn bond buying programme as it seeks to maintain the recovery.
More interesting for me was the overnight State of the Union address from Barack Obama in which he stated a willingness to review and lower the top rate of corporation tax for the first time in 25 years. The caveat being as long as it doesn't add to the deficit but, public spending cuts totalling $400bn could provide the leeway. At last some foresight to distribute some of the assistance beyond the banking community.
Further good news for the US came in the form of new home sales surging 18% in the last month and the International Monetary Fund increasing its growth forecast for the region to 3%, double the figure for the Eurozone.
What can I take from this news well it does suggest that the US is recovering faster and that Industrials in particular are starting to pick up with bellwethers like GE and United Technologies delivering promising trading statements for the fourth quarter:
GE @ $19.92, -0.06 (-0.3%), sales revenue up 1% to $41.38bn (consensus was $39.9bn) but net income rose 50% to $4.5bn from $3bn previously (msnbc.msn.com: GE posts better-than-expected earnings).
United Technologies @ $81.41, -0.32 (-0.39%), also beat analysts expectations with sales revenues up to $14.86bn from $13.98bn last year. Net income also rose to $1.2bn from $1.07bn previously (online.wsj.com: United Technologies 4Q Profit Up 12%; Results Beat Views).
Not all good news though, as Boeing published its mixed bag with earnings dipping 8% in the fourth quarter and the prospect that, despite an increase of 152%, full year earnings will be below analysts estimates (google.com: Boeing fourth-quarter profits slump on lower sales) driven primarily by the much catalogued problems with the 787 Dreamliner.
And, with the first deliveries of the new aircraft pushed back a further 6 months into the last quarter of 2011(independent.co.uk/: dreamliner delivery put back to the autumn) I would expect it to impact next years earnings too.
On the plus side, margins are up to 7.7% (3.1%), orders and production rates are increasing, and with a possible first delivery in sight for the ground breaking 787, Boeing may just be entering a new growth phase.
Boeing @ $70.02, -2.22 (-3.07%)
Previously, I have also posted the view that the FTSE has tended to follow the fortunes of the DJIA very closely, which you can see from the chart below (blue is DJIA). So, despite the seemingly volatile times created by the Bank of England's Monetary Policy (and the Coalition Government addressing the financial disaster that was overseen by the same BoE Governor and the previous Government) it could be that the FTSE will still benefit from any upside in the DJIA. I would caveat this with the view that it will primarily be the large blue chips with global earnings exposure that will drive the FTSE though.
And, as the charts are historical, it has to be said that this might not continue. Still sounds promising on a long term basis though.
thisismoney.co.uk: Dow Jones storms over 12,000 mark
msnbc.msn.com: GE posts better-than-expected earnings
online.wsj.com: United Technologies 4Q Profit Up 12%; Results Beat Views
google.com: Boeing fourth-quarter profits slump on lower sales
independent.co.uk/: dreamliner delivery put back to the autumn
Charts courtesy of Digitallook.
Lots of facets to this not least of which is the affirmation that the Federal Reserve will maintain its $600bn bond buying programme as it seeks to maintain the recovery.
More interesting for me was the overnight State of the Union address from Barack Obama in which he stated a willingness to review and lower the top rate of corporation tax for the first time in 25 years. The caveat being as long as it doesn't add to the deficit but, public spending cuts totalling $400bn could provide the leeway. At last some foresight to distribute some of the assistance beyond the banking community.
Further good news for the US came in the form of new home sales surging 18% in the last month and the International Monetary Fund increasing its growth forecast for the region to 3%, double the figure for the Eurozone.
What can I take from this news well it does suggest that the US is recovering faster and that Industrials in particular are starting to pick up with bellwethers like GE and United Technologies delivering promising trading statements for the fourth quarter:
GE @ $19.92, -0.06 (-0.3%), sales revenue up 1% to $41.38bn (consensus was $39.9bn) but net income rose 50% to $4.5bn from $3bn previously (msnbc.msn.com: GE posts better-than-expected earnings).
United Technologies @ $81.41, -0.32 (-0.39%), also beat analysts expectations with sales revenues up to $14.86bn from $13.98bn last year. Net income also rose to $1.2bn from $1.07bn previously (online.wsj.com: United Technologies 4Q Profit Up 12%; Results Beat Views).
Not all good news though, as Boeing published its mixed bag with earnings dipping 8% in the fourth quarter and the prospect that, despite an increase of 152%, full year earnings will be below analysts estimates (google.com: Boeing fourth-quarter profits slump on lower sales) driven primarily by the much catalogued problems with the 787 Dreamliner.
And, with the first deliveries of the new aircraft pushed back a further 6 months into the last quarter of 2011(independent.co.uk/: dreamliner delivery put back to the autumn) I would expect it to impact next years earnings too.
On the plus side, margins are up to 7.7% (3.1%), orders and production rates are increasing, and with a possible first delivery in sight for the ground breaking 787, Boeing may just be entering a new growth phase.
Boeing @ $70.02, -2.22 (-3.07%)
Previously, I have also posted the view that the FTSE has tended to follow the fortunes of the DJIA very closely, which you can see from the chart below (blue is DJIA). So, despite the seemingly volatile times created by the Bank of England's Monetary Policy (and the Coalition Government addressing the financial disaster that was overseen by the same BoE Governor and the previous Government) it could be that the FTSE will still benefit from any upside in the DJIA. I would caveat this with the view that it will primarily be the large blue chips with global earnings exposure that will drive the FTSE though.
And, as the charts are historical, it has to be said that this might not continue. Still sounds promising on a long term basis though.
 |
| DJIA v. FTSE 100 |
thisismoney.co.uk: Dow Jones storms over 12,000 mark
msnbc.msn.com: GE posts better-than-expected earnings
online.wsj.com: United Technologies 4Q Profit Up 12%; Results Beat Views
google.com: Boeing fourth-quarter profits slump on lower sales
independent.co.uk/: dreamliner delivery put back to the autumn
Charts courtesy of Digitallook.
IG Group: FSCS sticks the boot in!
IG Group @ 457.5p, -13.1 (2.78%)
Funny that when you are down everyone seems to want to stick the boot in and it seems like IG Group got it between the ribs yesterday.
Its currently beyond my understanding as to the hows and (immediate) whys but the Financial Services Compensation Scheme has issued invoices for an interim levy, some of which are calls on IG Group for the sum of £4,052,000, payable within 30 days??
Worst still is the statement (in IG's Financial Services Compensation Scheme announcement) that none of this £4m has been provided for in the accounts. Could they have known and should they have known?
The announcement, which details the failure of Keydata Investment Services Ltd. as the principle driver for the interim levy (£326m in total), goes on to suggest that it is expected to affect UK regulated Fund Managers and Investment intermediaries. An article on the Citywire website (FSCS sets levy at £326m) has a bit more detail with advisors set to pick up the tab for £93m of the total.
Unfortunately for IG, this follows closely on the back of the poorly received trading statement which declared an almost total writedown of the company's investment in Japan due to regulatory changes. These changes, relating to leverage levels, have effectively put a ceiling on IG's previous plans for growth in Japan (see earlier post:Has the Sun set on IG Index?).
However, it does have to be said that £4m appears small against the backdrop of the £143m writedown or, more positively, against consensus pre-tax profit forecasts of £166m; or last years closing cash position of £678m (2009: £520m).
The problem for IG Group is that it is a victim of its own success so, despite the 4+% dividend yield, and 45% margins, analysts still want growth. And, with Japan now being scaled back significantly as an operation, analysts are looking to the currently small US venture to provide that growth.
I have enclosed links below:
- to the IG Group's announcement published on the London Stock Exchange's Regulatory News Service;
- to a citywire article detailing a broader breakdown of the £326m; and
- to the FSCS site's Levy Information page (which still doesn't mean very much to me).
Link to London Stock Exchange: Financial Services Compensation Scheme announcement
Link to citywire: FSCS sets levy at £326m
Link to FSCS: Levy Information
Funny that when you are down everyone seems to want to stick the boot in and it seems like IG Group got it between the ribs yesterday.
Its currently beyond my understanding as to the hows and (immediate) whys but the Financial Services Compensation Scheme has issued invoices for an interim levy, some of which are calls on IG Group for the sum of £4,052,000, payable within 30 days??
Worst still is the statement (in IG's Financial Services Compensation Scheme announcement) that none of this £4m has been provided for in the accounts. Could they have known and should they have known?
The announcement, which details the failure of Keydata Investment Services Ltd. as the principle driver for the interim levy (£326m in total), goes on to suggest that it is expected to affect UK regulated Fund Managers and Investment intermediaries. An article on the Citywire website (FSCS sets levy at £326m) has a bit more detail with advisors set to pick up the tab for £93m of the total.
Unfortunately for IG, this follows closely on the back of the poorly received trading statement which declared an almost total writedown of the company's investment in Japan due to regulatory changes. These changes, relating to leverage levels, have effectively put a ceiling on IG's previous plans for growth in Japan (see earlier post:Has the Sun set on IG Index?).
However, it does have to be said that £4m appears small against the backdrop of the £143m writedown or, more positively, against consensus pre-tax profit forecasts of £166m; or last years closing cash position of £678m (2009: £520m).
The problem for IG Group is that it is a victim of its own success so, despite the 4+% dividend yield, and 45% margins, analysts still want growth. And, with Japan now being scaled back significantly as an operation, analysts are looking to the currently small US venture to provide that growth.
I have enclosed links below:
- to the IG Group's announcement published on the London Stock Exchange's Regulatory News Service;
- to a citywire article detailing a broader breakdown of the £326m; and
- to the FSCS site's Levy Information page (which still doesn't mean very much to me).
Link to London Stock Exchange: Financial Services Compensation Scheme announcement
Link to citywire: FSCS sets levy at £326m
Link to FSCS: Levy Information
Wednesday, 26 January 2011
Rolls-Royce / BAE Systems: Britain reviews defence contract rules.
Rolls-Royce @ 649.5p, +13 (2.04%)
BAE Systems @ 355.6p, +4 (1.14%)
Interesting to see both R-R and BAE Systems up today. BAE seemed to mirror the markets movement (dipping towards the latter part of the day), but R-R kept its momentum.
There was no newsflow from either company but there was a general news release on Reuters (Link to Reuters: Britain reviews defence contract rules to cut cost) that the British Government is set to start an 18 month review of the defence contract rules as it seeks to cut spending by 8% over the next 4 years. The review will cover the "single supplier" contracts where only one supplier is invited to tender. Both R-R and BAE have been beneficiaries of this type of process in the past.
The slightly negative connotations don't seem to have affected either company today though.
Taking a slightly different tack to normal, the share price chart for R-R this year is looking interesting to me. And, although I am not really a Technical charting expert, I believe that the behaviours of investors do seem to concentrate at times and charts can be one of the most visible communicators of this.
As a result, I do find charts useful to understand the trend of a share price, particularly if I am unsure about buying or selling and any short term effect from the economy like, for example, talk of recession, austerity measures etc. which might affect the number of buyers in the short term but shouldn't have a significant impact on a company such as R-R in the longer term so, value will win out (one would hope).
Charts can only plot the historical results of investors behaviours but some of these patterns can be very strong and hence have an element of predictability about them that can provide a convincing forecast. As ever, there are many more variables that could be taken into account such as trading volumes so these should be considered before making a decision based on historical information.
At this point, I probably need to apologise to any Technical chartists out there (as I couldn't ever claim to be an expert) but looking at the chart for R-R, it does seem to be following a strong trading channel since the recent low point in 2008.
There are a couple of aberrations to this which might negate it from a strict technical understanding, but I have drawn a couple of parallel lines on the chart to illustrate my viewpoint (and it is only my viewpoint).
Similarly, if I was to look at the full horizon on this chart, it is surprising how close the share price is to re-establishing the trend with that of its previous uptrend that ended at the beginning of 2008.
It also struck me that drawing a line across the last 3 high points could possibly point to a concentration point coming as, if it was extended, it would eventually meet up with the lower of the 2 trend lines. To me this would suggest the views of buyers and sellers are coming together and there could be a breakout from that point.
Apart from being an investor in R-R, the main reason that this has caught my eye is that the trend has continued to be upwards despite the troubles of the last few months and on the 10th February Rolls-Royce is due to publish its final results (so where does that triangle point form?).
Significantly, these will be also be the last results with Sir John Rose at the helm so it would be fitting if they were positive enough for the FTSE 100 to give him the farewell he deserves after 14 years in the role of Chief Executive and during a time in which he has overseen the transformation of the company into a respected global business, and a champion for British manufacturing worthy of the Rolls-Royce name.
Fingers crossed!
 |
| R-R share price chart with trend lines estimated. |
Chart courtesy of Digitallook.
Tuesday, 25 January 2011
Halliburton Houdini?
I see that Halliburton reported back to the market yesterday with a trading statement for the fourth quarter which highlighted a doubling in revenues as client oil companies increased their spending against the backdrop of higher oil prices (basically as the price of oil increases some of the more costly and difficult to extract projects become more cost effective).
Picking the bones from the Guardian article (Halliburton doubles profits) it was interesting to note that "Sales in North America were the largest source of revenue, rising 83% to $2.63bn even as its Gulf of Mexico operations reported a loss. Halliburton said a recovery in the number of rigs operating in the Gulf remains "uncertain" this year."
Hmmm, the chorus of criticism seems ominously quiet. This is one of the 3 main companies (along with BP and Transocean) involved with the Gulf of Mexico disaster (Halliburton being responsible for supplying, testing, and pouring the "unstable" cement slurry mix into the Macondo well).
In the recently published report by the presidential commission investigating the disaster, Halliburton received criticism as to its involvement in the disaster (particularly 1 of the major decisions), as well as being named again with Transocean, as part of the offshore industry's "system-wide" problem due to the two companies operations spanning virtually every ocean.
However, the company is notable by its absence from the list of defendents in the recently lodged lawsuit by the US Government. Still not clear why it hasn't been included but that is not to say that the company can't be added should circumstances require it.
The company, formerly run by Dick Cheney (the former Vice President to George Bush), employs approx 100,000 people around the globe, and was a beneficiary of many major "no-bid" oil contracts in Iraq post the war.
That aside, and coming back to the company's increasing revenues and 1 year share price performance. I still have some difficulty understanding how Halliburton appears to be recovering faster than BP or Transocean. Maybe not so much due to the trading performance but more due to the emotional baggage and perception attached to the disaster (and anyone involved).
But, looking at the respective charts (see below) it has managed to do just that, detaching itself from what had seemed to be a destiny linked with BP and Transocean (both before and immediately after).
On the plus side, it still looks like all 3 companies are recovering, it just seems strange to me that Halliburton is the only one of the 3 who's share price has fully recovered and then some?
 |
| BP v Halliburton 1 year chart |
 |
| BP v Transocean 1 year chart |
Link to Guardian article: Halliburton doubles profits
Monday, 24 January 2011
Supermarket Sweep: Tesco; Morrisons; or Sainsburys?
In light of the recent Christmas trading statements from the supermarkets, and the relatively poor reception to Tesco's statement, I have been keenly watching the share prices should a buying opportunity occur.
I already have a holding in Morrisons and, even though I would be happy topping that up, I have had an eye on Tesco's for the long term (having let one opportunity pass me by last year) so thought I would take a look at some of the "numbers".
To summarise the 6 week Christmas trading:
- Sainsburys achieved 3.6% growth in like for like sales exc. fuel, and increased market share.
- Morrisons achieved 1% growth
- Tesco's had just 0.6% growth
Sainsburys has had the most successful Christmas having managed to cannibalise market share from Asda (unofficial stats) and regain the no. 2 position in the market. In the meantime, its been said that Tesco is under pressure from Sainsburys, Asda, and Morrisons on one side, and Waitrose and M & S on the other and, as a result, a few market watchers appear to have called time on Tesco's growth (which I think is very premature) and tipped Sainsburys as the one with the fastest growing market share.
Its a concern that Tesco's trading statement contained that old chestnut of weather affected sales, a statement that doesn't seem to have been mirrored by its earlier reporting rivals. Rightly or wrongly, my belief is that the vast majority of Tesco's sites are in prime locations and must have been as accessible as any of its rivals.
That being said Tesco did maintain its 30% market share.
A look at Tesco's financial results for 2009 - 10 (2010 - 11 not yet published) shows:
- Tesco's UK sales amounted to £38.5bn, more than Sainsburys and Morrisons combined (£19.96bn and £15.4 bn);
- its margins, at 6% (total group), were higher than Morrisons 5.89% and Sainsburys 3.56%
- Its current asset : current liabilities ratio was better than its rivals
- Net debt is higher (but falling at a rate of knots) and still seems well managed and proportionate to sales and profits
- Subsequently gearing stands at 70% (but falling) compared to 20% and 32% for Morrisons and Sainsburys respectively.
- Morrisons was the most prudent on interest cover (and therefore borrowings) with a figure of 20x. Tesco was 11x and Sainsburys just 7x.
- Cash held by Tesco was a huge £2.8bn compared to Sainsburys £837m and Morrisons £245m.
- Sainsburys came closer to Tesco on operating cashflow at 55.2p per share but still fell short in 2009 - 10 as Tesco achieved 56.9p.
- Historically, Sainsburys has been the most generous at increasing its dividend and at a forecast 4% has the highest prospective yield. But, this is possibly too generous with coverage by earnings of only 1.6 times, whilst both Tesco and Morrisons have their dividend covered more than 2 times.
Key thing for me is the opportunities for growth for each of the groups. The above sales figure for Tesco is just for its UK operations but, the sales figures for the overall Group came in at £56.9bn!
Coming back to the Christmas Trading statement, Tesco achieved sales growth of 7.5% when the whole groups operations are brought together.
Within this are international sales from Europe and Asia (growing by a near 15%), a new "full service" banking operation and an improving (albeit slowly) US division. The company also has a proven database strategy in its clubcard loyalty program and has the strength to test new ventures as shown by its recently launched "cash for gold" trial in 15 stores but supported by mail through each superstore. Along, with electricals, clothing, beauty treatments, and opticians, it seems able to maximise the trust in the Tesco brand (much like Virgin) but with the cost control and focus on cashflow that you would expect from a successful retailer.
Compare this to its rivals opportunities for growth which is largely dependent upon either Tesco slipping up, or cannibalising each others market share. In addition:
- Morrisons has bought some additional Netto stores from Asda, and is considering an online offering
- Sainsburys is entering the takeaway cafe market and looking to beef up its online offering.
As long as Tesco can maintain its 30% market share, let its rivals cannibalise each other.
However, there are a couple of concerns that stand out more than the stagnant UK sales, these being the announcement last year that Sir Terry Leahy, the CEO, is stepping down and the level of gearing at 70%.
- On the succession strategy, it has been announced with plenty of time for his successor (internal promotion) to work alongside Sir Terry and grow into the lead role. Strategy wise there are already a number of significant ventures in place that will provide continuity into the medium term.
- With regard to debt and gearing it could be said that Tesco is more efficiently leveraging its financial strength than its rivals (remember that the intent of the last attempt to buy out Sainsburys was to mortgage its property portfolio to raise funds to invest elsewhere). As long as the debt is wisely invested then all is good. In Tesco's case the investment has been to grow in Europe,the Far East, and the US; and the establishment of a full banking operation (buying out its partner RBS). The debt and the company's gearing appear to be falling at a rate of knots which further suggests the strength of the company's cash flows and the improving position in each of those areas.
The slight downer on the supermarkets at present looks to be a pre-emptive forecast of the impact from international food inflation and the VAT rise. To me this is very clearly a short term view.
In a previous posting (Looking ahead to 2011), I put forward my view that the major supermarkets are possibly one of the few sectors that have been able to absorb or pass on cost increases, which has enabled them to continue to increase profits and dividends throughout the last 5 years (Morrisons one year dip in profits post Safeways didn't stop it increasing its dividend).
There has also been the suggestion of a price war this year. That being the case, for me, there will only be one winner, the one with the most sales, the healthiest cashflows, and the largest pot of cash.....Tesco.
You will no doubt have noticed that I have not discussed Asda in great detail, as it is not quoted in its own right, having been acquired some years ago by the giant Walmart group. But despite early concerns the group have not really grasped the cultural differences between the UK and US and have therefore not been able to translate their US dominance into the UK market (up to now). Also, they are deemed to have suffered the most from a recovering Sainsburys.
So, finally:
- Morrisons. I would not be averse to topping up my holding in Morrisons, the group appears to have finally absorbed the Safeway acquisition and therefore has an opportunity to grow sales as its newer Safeway customer base embrace its traditional fayre. The group continues to be prudent with cash and debts and appears (to me) to have the best opportunity to grow domestic sales but, there is a new externally appointed CEO to embed and the current board structure is still relatively new (in the post Ken Morrison era).
- Sainsburys. I am concerned that the increased sales are being achieved at the expense of profit margins and therefore not sustainable leaving the company the most exposed should a price war erupt. Its foray into takeway cafes is uninspiring (to me) and may just increase costs whilst only resulting in lost sales from its own supermarkets.
The last take-over attempt fell through due to the pension fund deficit (and opposition from the Sainsbury family), and I am not sure that this deficit has been addressed.
In addition, the share price is already showing a premium to Morrisons and Tesco.
- Tesco. 30% UK Market share, an established European and Asian operation that is increasing sales, a stabilising US operation, and a full banking operation in the offing. Significant cash balances, reducing debt and strong cashflows.
I also think that now that the costs of establishing these multiple new ventures has been incurred (and cashflows are overtaking interest and debt repayments) there will still be plenty of opportunity for Tesco to grow and make profits faster than its rivals.
Tesco is the clear choice for me (on almost all grounds) but which portfolio would I put them in (growth or income), and will I be tempted by the current price and rating?
I will keep you informed.
Tesco @ 400p; a forecast P/E ratio of 12.3; and a forecast yield of 3.6%
Please note that the financial data referenced here has been derived from the 2009 - 2010 financial results and do not therefore encompass the latest financial year, 2010 - 2011.
The only data referenced for the latest financial year being the Trading statements for the 6 week Christmas period.
I already have a holding in Morrisons and, even though I would be happy topping that up, I have had an eye on Tesco's for the long term (having let one opportunity pass me by last year) so thought I would take a look at some of the "numbers".
To summarise the 6 week Christmas trading:
- Sainsburys achieved 3.6% growth in like for like sales exc. fuel, and increased market share.
- Morrisons achieved 1% growth
- Tesco's had just 0.6% growth
Sainsburys has had the most successful Christmas having managed to cannibalise market share from Asda (unofficial stats) and regain the no. 2 position in the market. In the meantime, its been said that Tesco is under pressure from Sainsburys, Asda, and Morrisons on one side, and Waitrose and M & S on the other and, as a result, a few market watchers appear to have called time on Tesco's growth (which I think is very premature) and tipped Sainsburys as the one with the fastest growing market share.
Its a concern that Tesco's trading statement contained that old chestnut of weather affected sales, a statement that doesn't seem to have been mirrored by its earlier reporting rivals. Rightly or wrongly, my belief is that the vast majority of Tesco's sites are in prime locations and must have been as accessible as any of its rivals.
That being said Tesco did maintain its 30% market share.
A look at Tesco's financial results for 2009 - 10 (2010 - 11 not yet published) shows:
- Tesco's UK sales amounted to £38.5bn, more than Sainsburys and Morrisons combined (£19.96bn and £15.4 bn);
- its margins, at 6% (total group), were higher than Morrisons 5.89% and Sainsburys 3.56%
- Its current asset : current liabilities ratio was better than its rivals
- Net debt is higher (but falling at a rate of knots) and still seems well managed and proportionate to sales and profits
- Subsequently gearing stands at 70% (but falling) compared to 20% and 32% for Morrisons and Sainsburys respectively.
- Morrisons was the most prudent on interest cover (and therefore borrowings) with a figure of 20x. Tesco was 11x and Sainsburys just 7x.
- Cash held by Tesco was a huge £2.8bn compared to Sainsburys £837m and Morrisons £245m.
- Sainsburys came closer to Tesco on operating cashflow at 55.2p per share but still fell short in 2009 - 10 as Tesco achieved 56.9p.
- Historically, Sainsburys has been the most generous at increasing its dividend and at a forecast 4% has the highest prospective yield. But, this is possibly too generous with coverage by earnings of only 1.6 times, whilst both Tesco and Morrisons have their dividend covered more than 2 times.
Key thing for me is the opportunities for growth for each of the groups. The above sales figure for Tesco is just for its UK operations but, the sales figures for the overall Group came in at £56.9bn!
Coming back to the Christmas Trading statement, Tesco achieved sales growth of 7.5% when the whole groups operations are brought together.
Within this are international sales from Europe and Asia (growing by a near 15%), a new "full service" banking operation and an improving (albeit slowly) US division. The company also has a proven database strategy in its clubcard loyalty program and has the strength to test new ventures as shown by its recently launched "cash for gold" trial in 15 stores but supported by mail through each superstore. Along, with electricals, clothing, beauty treatments, and opticians, it seems able to maximise the trust in the Tesco brand (much like Virgin) but with the cost control and focus on cashflow that you would expect from a successful retailer.
Compare this to its rivals opportunities for growth which is largely dependent upon either Tesco slipping up, or cannibalising each others market share. In addition:
- Morrisons has bought some additional Netto stores from Asda, and is considering an online offering
- Sainsburys is entering the takeaway cafe market and looking to beef up its online offering.
As long as Tesco can maintain its 30% market share, let its rivals cannibalise each other.
However, there are a couple of concerns that stand out more than the stagnant UK sales, these being the announcement last year that Sir Terry Leahy, the CEO, is stepping down and the level of gearing at 70%.
- On the succession strategy, it has been announced with plenty of time for his successor (internal promotion) to work alongside Sir Terry and grow into the lead role. Strategy wise there are already a number of significant ventures in place that will provide continuity into the medium term.
- With regard to debt and gearing it could be said that Tesco is more efficiently leveraging its financial strength than its rivals (remember that the intent of the last attempt to buy out Sainsburys was to mortgage its property portfolio to raise funds to invest elsewhere). As long as the debt is wisely invested then all is good. In Tesco's case the investment has been to grow in Europe,the Far East, and the US; and the establishment of a full banking operation (buying out its partner RBS). The debt and the company's gearing appear to be falling at a rate of knots which further suggests the strength of the company's cash flows and the improving position in each of those areas.
The slight downer on the supermarkets at present looks to be a pre-emptive forecast of the impact from international food inflation and the VAT rise. To me this is very clearly a short term view.
In a previous posting (Looking ahead to 2011), I put forward my view that the major supermarkets are possibly one of the few sectors that have been able to absorb or pass on cost increases, which has enabled them to continue to increase profits and dividends throughout the last 5 years (Morrisons one year dip in profits post Safeways didn't stop it increasing its dividend).
There has also been the suggestion of a price war this year. That being the case, for me, there will only be one winner, the one with the most sales, the healthiest cashflows, and the largest pot of cash.....Tesco.
You will no doubt have noticed that I have not discussed Asda in great detail, as it is not quoted in its own right, having been acquired some years ago by the giant Walmart group. But despite early concerns the group have not really grasped the cultural differences between the UK and US and have therefore not been able to translate their US dominance into the UK market (up to now). Also, they are deemed to have suffered the most from a recovering Sainsburys.
So, finally:
- Morrisons. I would not be averse to topping up my holding in Morrisons, the group appears to have finally absorbed the Safeway acquisition and therefore has an opportunity to grow sales as its newer Safeway customer base embrace its traditional fayre. The group continues to be prudent with cash and debts and appears (to me) to have the best opportunity to grow domestic sales but, there is a new externally appointed CEO to embed and the current board structure is still relatively new (in the post Ken Morrison era).
- Sainsburys. I am concerned that the increased sales are being achieved at the expense of profit margins and therefore not sustainable leaving the company the most exposed should a price war erupt. Its foray into takeway cafes is uninspiring (to me) and may just increase costs whilst only resulting in lost sales from its own supermarkets.
The last take-over attempt fell through due to the pension fund deficit (and opposition from the Sainsbury family), and I am not sure that this deficit has been addressed.
In addition, the share price is already showing a premium to Morrisons and Tesco.
- Tesco. 30% UK Market share, an established European and Asian operation that is increasing sales, a stabilising US operation, and a full banking operation in the offing. Significant cash balances, reducing debt and strong cashflows.
I also think that now that the costs of establishing these multiple new ventures has been incurred (and cashflows are overtaking interest and debt repayments) there will still be plenty of opportunity for Tesco to grow and make profits faster than its rivals.
Tesco is the clear choice for me (on almost all grounds) but which portfolio would I put them in (growth or income), and will I be tempted by the current price and rating?
I will keep you informed.
Tesco @ 400p; a forecast P/E ratio of 12.3; and a forecast yield of 3.6%
Please note that the financial data referenced here has been derived from the 2009 - 2010 financial results and do not therefore encompass the latest financial year, 2010 - 2011.
The only data referenced for the latest financial year being the Trading statements for the 6 week Christmas period.
Sunday, 23 January 2011
How to make a Million (by the time you are 65)!
Thought I would try to give a glimpse of visualising a financial goal (unattainable as it might first seem) and how it might be converted from just wishful thinking into something more tangible and achievable that might help you to manage risk.
Like a great many people I have often dreamt about being a millionaire and then allowed the cold water of reality to wake me up.
But, to be fair, I have always invested with a base plan, the origins of which came from reading an article with the catchy headline "How to make a million by the time you are 65!".
To be honest though, it would have been easy at that stage to just dismiss this as yet another get rich scheme (albeit not that quickly).
The basis of the article was an interview which pitched this question to a successful fund manager. Now there is no claim that the idea is original and when I try to find the source article today (it was some years ago and in a pre-broadband age) there are a myriad number of articles along a similar veins.
The thing that caught, and held my attention was not the how of making a million, but the fact that the numbers stacked up. It was a calculation that, with the right variables, achieved the magical figure of £1m by the time you reached 65.
Again, considering the timescales, it would have been easy to consign the article to a pile for tomorrow's chip wrapper but the formula and its variables intrigued me as it was clear that the variables could be tweaked to model a number of outcomes.
Anyway, lets talk numbers.
The first step in any plan is always a difficult one particularly as you might be looking for some kind of confirmation that the time/energy being invested is worth it. In this case, the first step and milestone you are aiming for, is to save and invest your way to achieving a sum of £30,000 by the time you are 30. And, yes this is a challenge in itself but it is a more touchable amount than £1million is.
And the second step, well, it doesn't get any easier as you need to invest the saved sum of £30,000 in order to achieve 10% net gain per annum for the next 35 years. Achieving 10% will add £3,000 to the starting sum in the first year; £3,300 in the second year; £3,630 in the third year and so on and so forth.
Finally, by achieving these 2 steps and allowing the magic of compounding to do its work you will reach the £1million target by the age of 65.
As before, the timescales, the starting sum and the 10% per annum will be enough for most people to dismiss the plan, which is probably why there are many of us who will only ever dream of being a millionaire. But, I did mention that the formula has variables so it can be tweaked to better fit your personal circumstances and targets, but it still requires discipline and a whole lot of luck!
For example, the second step takes the £30,000 sum and sets you the objective of achieving a 10% annual return. It may be that you think 10% is ambitious or brings too much risk with it. But the plan doesn't say that you can't continue any saving habit that got you to the £30,000 in the first place.
What if you continued to add £100 per month? Well, that would be £1,200 added to the starting sum in the first year, which would equate to a risk free 4% leaving 6% (or less) to come from investing the starting sum.
This could allow you the option to split the starting sum between bank accounts and riskier investments in order to manage your risk exposure.
Better still, what if you could invest and achieve the required 10% but continue to save, effectively achieving 14% in the first year. Well, that would knock 5 months of your planned timescale to achieve a million and this compression of the plan would continue to benefit through compounding if you continued to add £100 per month.
Alternatively, the additional supplement of saving could act as insurance against years when 10% may not be achieved, or it could allow you to start with a lower starting sum but continuing to save until you dovetail back into the plan at a different starting point e.g £30,000 at 32 but then adding savings until you catch back the 2 years.
The biggest downside for me is still the 65, and the effect of inflation. So realistically I have had to ask myself if I actually need £1million to live comfortably and how much would that be worth once inflation has taken its inevitable margin.
Could I live comfortably with £500,000. You need to remember that you are likely to have other things on the go at the same time such as pensions, property etc so this is just one leg of your personal finances.
Hopefully, this will help you (as it does me) to break down your aspirations into more reachable goals and give you the necessary patience to sidestep some of the riskier pitfalls for investments that are better suited to your investment style and appetite for risk.
It isn't anything like waiting for a bus, so I won't use that metaphor but, should you pass up an opportunity because of perceived risk, you can be certain that another more suitable opportunity will come along.
Note: that is a root to the power of, not a square root, e.g a 35th root for 35 years. So a scientific calculator is required.
For a short term target there is also something called the rule of 72 which is a rough estimate of how long it will take a sum of money to double given an assumed growth rate.
For example:
Like a great many people I have often dreamt about being a millionaire and then allowed the cold water of reality to wake me up.
But, to be fair, I have always invested with a base plan, the origins of which came from reading an article with the catchy headline "How to make a million by the time you are 65!".
To be honest though, it would have been easy at that stage to just dismiss this as yet another get rich scheme (albeit not that quickly).
The basis of the article was an interview which pitched this question to a successful fund manager. Now there is no claim that the idea is original and when I try to find the source article today (it was some years ago and in a pre-broadband age) there are a myriad number of articles along a similar veins.
The thing that caught, and held my attention was not the how of making a million, but the fact that the numbers stacked up. It was a calculation that, with the right variables, achieved the magical figure of £1m by the time you reached 65.
Again, considering the timescales, it would have been easy to consign the article to a pile for tomorrow's chip wrapper but the formula and its variables intrigued me as it was clear that the variables could be tweaked to model a number of outcomes.
Anyway, lets talk numbers.
The first step in any plan is always a difficult one particularly as you might be looking for some kind of confirmation that the time/energy being invested is worth it. In this case, the first step and milestone you are aiming for, is to save and invest your way to achieving a sum of £30,000 by the time you are 30. And, yes this is a challenge in itself but it is a more touchable amount than £1million is.
And the second step, well, it doesn't get any easier as you need to invest the saved sum of £30,000 in order to achieve 10% net gain per annum for the next 35 years. Achieving 10% will add £3,000 to the starting sum in the first year; £3,300 in the second year; £3,630 in the third year and so on and so forth.
Finally, by achieving these 2 steps and allowing the magic of compounding to do its work you will reach the £1million target by the age of 65.
As before, the timescales, the starting sum and the 10% per annum will be enough for most people to dismiss the plan, which is probably why there are many of us who will only ever dream of being a millionaire. But, I did mention that the formula has variables so it can be tweaked to better fit your personal circumstances and targets, but it still requires discipline and a whole lot of luck!
For example, the second step takes the £30,000 sum and sets you the objective of achieving a 10% annual return. It may be that you think 10% is ambitious or brings too much risk with it. But the plan doesn't say that you can't continue any saving habit that got you to the £30,000 in the first place.
What if you continued to add £100 per month? Well, that would be £1,200 added to the starting sum in the first year, which would equate to a risk free 4% leaving 6% (or less) to come from investing the starting sum.
This could allow you the option to split the starting sum between bank accounts and riskier investments in order to manage your risk exposure.
Better still, what if you could invest and achieve the required 10% but continue to save, effectively achieving 14% in the first year. Well, that would knock 5 months of your planned timescale to achieve a million and this compression of the plan would continue to benefit through compounding if you continued to add £100 per month.
Alternatively, the additional supplement of saving could act as insurance against years when 10% may not be achieved, or it could allow you to start with a lower starting sum but continuing to save until you dovetail back into the plan at a different starting point e.g £30,000 at 32 but then adding savings until you catch back the 2 years.
The biggest downside for me is still the 65, and the effect of inflation. So realistically I have had to ask myself if I actually need £1million to live comfortably and how much would that be worth once inflation has taken its inevitable margin.
Could I live comfortably with £500,000. You need to remember that you are likely to have other things on the go at the same time such as pensions, property etc so this is just one leg of your personal finances.
Hopefully, this will help you (as it does me) to break down your aspirations into more reachable goals and give you the necessary patience to sidestep some of the riskier pitfalls for investments that are better suited to your investment style and appetite for risk.
It isn't anything like waiting for a bus, so I won't use that metaphor but, should you pass up an opportunity because of perceived risk, you can be certain that another more suitable opportunity will come along.
Some useful forecasting tools.
How to calculate the required compound interest rate:
Alernatively, modelled in excel, it looks like this:
- (( target sum / starting sum ) ^ ( 1 / no.of years) ) - 1 = compound interest rate required.
For a short term target there is also something called the rule of 72 which is a rough estimate of how long it will take a sum of money to double given an assumed growth rate.
For example:
- at 6% per annum growth:- 72/6 = 12 years for a sum to double
- over 12 years:- 72/12 = 6% growth required to double it
Thursday, 20 January 2011
Market Volatility and Investor Behaviours.
Markets are still bouncing around (or at least falling anyway), and there is still lots of information to digest. Amongst the news and official statistics there are numerous company trading statements (both here and in the US) and an absolute avalanche of speculation to sift through. Is it really any wonder that the market feels more exposed and volatile at the moment?
What has this done to my investments? Well, taking a quick look at the value of my portfolio as indicated by the Merchant Adventurer's index (see earlier post and link to 2010 Virtual Portfolio Performance!), it has dipped since the turn of the year and by a greater amount than the FTSE.
At 11:30am
Merchant Adventurers Index @ 1207.33, -56.87 (-4.5% 2011 Year to date)
FTSE 100 @ 5890.06, -80.95 (-1.36% 2011 Ytd)
This is reflective of the more concentrated number of holdings, and uneven weightings in my portfolio, which exposes it to short term news flow and greater volatility (I am thinking R-R, National Grid, IG Group). But, the same should be true when positive news is released (company or industry specific) so I am not concerned.
The self-awareness that I am trying to enhance is the ability to filter out the short term day to day swings of opinion and remain focused on the long term.
My hope is that this will reduce the temptation to over trade and react to the short term views of the volume hungry brokers and bankers of the investment industry. This should reduce my portfolio's expenses and give me a better chance of holding on to successful investments.
I have to hold my hand up and admit that I have, on occasion been sucked into this. In the majority of instances following short term broker fads has had me following the herd which is usually too late to buy in to a story and then lingering too long and getting singed (much like a pyramid scheme, I guess).
The weakness in following the herd is the assumption that others know more than yourself which can blind you as to the validity of your decisions and any credible information that you may have. Taking a lesson from popular myth, lemmings also blindly follow a lead and we all know how that one ends.
I have had some short term trading success though, but usually this has come when following my own valuations and guidance rather than others.
On a second point, as a private investor, despite using valuations, I am not always able to set a buy price for a share and stick to it. In the majority of instances, if the share price falls to my target price I then doubt myself and look for reasons not to buy, fearful that I have missed something or that the facts have changed. Usually, this is irrational and still built upon a fear that others may know more than me.
It may be that the share price dips a little more, and psychologically I initially lose a little value, but normally these losses are once again driven by short term sentiment rather than long term fundamentals.
So, to that end, another behaviour I am trying to promote is to try to restrict my buying to when the market is dipping or "being greedy when others are fearful" as Warren Buffett would quote it. The inverse of that is to "be fearful when others are greedy".
This in my own small way is an attempt to change my behaviours and go against the herd. So, after 2 days of market falls, I am now checking my watch list for any buying opportunities with Tesco and IG Group standing out as the most interesting given the poor reception to recent results.
What has this done to my investments? Well, taking a quick look at the value of my portfolio as indicated by the Merchant Adventurer's index (see earlier post and link to 2010 Virtual Portfolio Performance!), it has dipped since the turn of the year and by a greater amount than the FTSE.
At 11:30am
Merchant Adventurers Index @ 1207.33, -56.87 (-4.5% 2011 Year to date)
FTSE 100 @ 5890.06, -80.95 (-1.36% 2011 Ytd)
This is reflective of the more concentrated number of holdings, and uneven weightings in my portfolio, which exposes it to short term news flow and greater volatility (I am thinking R-R, National Grid, IG Group). But, the same should be true when positive news is released (company or industry specific) so I am not concerned.
The self-awareness that I am trying to enhance is the ability to filter out the short term day to day swings of opinion and remain focused on the long term.
My hope is that this will reduce the temptation to over trade and react to the short term views of the volume hungry brokers and bankers of the investment industry. This should reduce my portfolio's expenses and give me a better chance of holding on to successful investments.
I have to hold my hand up and admit that I have, on occasion been sucked into this. In the majority of instances following short term broker fads has had me following the herd which is usually too late to buy in to a story and then lingering too long and getting singed (much like a pyramid scheme, I guess).
The weakness in following the herd is the assumption that others know more than yourself which can blind you as to the validity of your decisions and any credible information that you may have. Taking a lesson from popular myth, lemmings also blindly follow a lead and we all know how that one ends.
I have had some short term trading success though, but usually this has come when following my own valuations and guidance rather than others.
On a second point, as a private investor, despite using valuations, I am not always able to set a buy price for a share and stick to it. In the majority of instances, if the share price falls to my target price I then doubt myself and look for reasons not to buy, fearful that I have missed something or that the facts have changed. Usually, this is irrational and still built upon a fear that others may know more than me.
It may be that the share price dips a little more, and psychologically I initially lose a little value, but normally these losses are once again driven by short term sentiment rather than long term fundamentals.
So, to that end, another behaviour I am trying to promote is to try to restrict my buying to when the market is dipping or "being greedy when others are fearful" as Warren Buffett would quote it. The inverse of that is to "be fearful when others are greedy".
This in my own small way is an attempt to change my behaviours and go against the herd. So, after 2 days of market falls, I am now checking my watch list for any buying opportunities with Tesco and IG Group standing out as the most interesting given the poor reception to recent results.
Wednesday, 19 January 2011
FTSE 100 Capitulation?
FTSE 100 closed @ 5976.7, -79.73 (-1.32%)
Wow, that was a disappointing close for the FTSE 100, which just petered out from about 3pm, driven by disappointment with the fourth quarter earnings report from Goldman Sachs and speculative reports out of Germany regarding the possible restructuring of Greece's debts subsidised by the EU bailout fund.
No idea what that entails but it obviously spooked the markets with both the French and German indices down.
Across the pond, the controversial financial giant, Goldman Sachs, reported that fourth quarter earnings fell by 52% bringing the full year decrease to 38%. Difficult to understand how, but the banks bonus scheme will pay out only slightly less than last year.
Pay and bonuses are by far the banks biggest expense and, at $15.38bn, equate to an eye watering 39.3% of revenues or, an average $430,000 per employee (35,700 employees).
Couldn't suppress a laugh when reading an ft.com report on Goldman's earnings which contained a quote from David Viniar, Goldmans Finance Chief. “In the month of December, things were just dead,” Mr Viniar said. The wording could easily be a quote from a couple of likely lads discussing the local pub or nightclub falling out of fashion and probably not the technical explanation and understanding expected from a highly paid Investment banker.
Ultimately, the numbers are disappointing from what has probably been the most lauded, and influential investment bank of recent times, particularly on the back of last weeks positive set of numbers from JP Morgan which raised expectations for the industry.
Anyway, at the close:
DJIA is at 11825.29, -12.64 (-0.11%)
NASDAQ is at 2303.32, -25.47 (-1.09%)
Link to ft.com: Goldman looks back at ‘dead’ days
William Hill - first past the post?
William Hill @ 191.8p, +15.1p (+8.55%), released a trading update today ahead of full year results to be released on the 25th Feb.
The highlights being a "predicted" 7% increase to revenues (2009: £997.9m) and a 6% increase to £275m for pre-exceptional earnings (ebitda - Earnings Before Tax Depreciation Amortisation).
Primarily driven by growth in the William Hill Online business and despite a loss of possible revenue in Dec as snow resulted in the cancellation of a number of race meetings
The shine has just been taken off slightly with a brokers note from Peel Hunt questioning what it will take to re-rate the shares “The challenging consumer backdrop, lack of World Cup boost and additional VAT is likely to mean that 2011 will be a tough year. However, a combination of tight cost management and the benefits of the banking deal agreed late last year means that we are now expecting some bottom line growth,” says analyst Nick Batram.
Peel Hunt along with Panmure Gordon have both increased their forecasts to 184p and 188p respectively with Hold recommendations.
Elsewhere, broker Daniel Stewart is suggesting that the success of William Hill online could put pressure on Ladbrokes online offering to perform with a recommendation to switch investment into WH should Ladrokes online fail to deliver. Interestingly, DS also puts forward a view that WH is trading at a 19% discount to its long time rival.
The 2009 financials showed cash increasing to £119.8m (2008: £76.5m), and long term debt reducing to £541m (2008: £1,302.7m) so, the company appears to be focussing on the right things. The dividend, forecast to be inexcess of 4%, is more than twice covered. Similarly, interest payments are more than twice covered.
My slight concern looking at last years numbers is that although long term liabilities have been decreasing, short term liabilities (payable within 1 year), increased by £375m. It could be that this has been part of the banking deal referenced by Peel Hunt but I will need to look for that again in this years results. Putting 2 and 2 together, I wouldn't be surprised to see that figure decrease this year but long term liabilities increase slightly.
Margins also dipped last year to 20% (2008: 28%), but with the planned closure of the telephone service and increasing scale of the William Hill online (and a few favourites losing, of course), will this recover or is it a longer term trend with the VAT increase to now consider.
So, in this years results (2010) to be released on the 25th Feb, I will be looking for:
Link to sharecast.com: William Hill profit at high end of forecasts
Link to sharecast.com: Broker snap: No spark at William Hill
The highlights being a "predicted" 7% increase to revenues (2009: £997.9m) and a 6% increase to £275m for pre-exceptional earnings (ebitda - Earnings Before Tax Depreciation Amortisation).
Primarily driven by growth in the William Hill Online business and despite a loss of possible revenue in Dec as snow resulted in the cancellation of a number of race meetings
The shine has just been taken off slightly with a brokers note from Peel Hunt questioning what it will take to re-rate the shares “The challenging consumer backdrop, lack of World Cup boost and additional VAT is likely to mean that 2011 will be a tough year. However, a combination of tight cost management and the benefits of the banking deal agreed late last year means that we are now expecting some bottom line growth,” says analyst Nick Batram.
Peel Hunt along with Panmure Gordon have both increased their forecasts to 184p and 188p respectively with Hold recommendations.
Elsewhere, broker Daniel Stewart is suggesting that the success of William Hill online could put pressure on Ladbrokes online offering to perform with a recommendation to switch investment into WH should Ladrokes online fail to deliver. Interestingly, DS also puts forward a view that WH is trading at a 19% discount to its long time rival.
The 2009 financials showed cash increasing to £119.8m (2008: £76.5m), and long term debt reducing to £541m (2008: £1,302.7m) so, the company appears to be focussing on the right things. The dividend, forecast to be inexcess of 4%, is more than twice covered. Similarly, interest payments are more than twice covered.
My slight concern looking at last years numbers is that although long term liabilities have been decreasing, short term liabilities (payable within 1 year), increased by £375m. It could be that this has been part of the banking deal referenced by Peel Hunt but I will need to look for that again in this years results. Putting 2 and 2 together, I wouldn't be surprised to see that figure decrease this year but long term liabilities increase slightly.
Margins also dipped last year to 20% (2008: 28%), but with the planned closure of the telephone service and increasing scale of the William Hill online (and a few favourites losing, of course), will this recover or is it a longer term trend with the VAT increase to now consider.
So, in this years results (2010) to be released on the 25th Feb, I will be looking for:
- increasing trends on cash and margins and
- decreasing trends on total liabilities (short and long term).
- with support from dividend and interest cover
- cashflow to remain in excess of profits
- any more news on William Hill online
- forecast impact of cost pressures.e.g. VAT.
Link to sharecast.com: William Hill profit at high end of forecasts
Link to sharecast.com: Broker snap: No spark at William Hill
Apple / BP / NG / IG Group / R-R : updates on current volatility.
At times like these it is strange not to feel that the universe has not singled you out for a kicking (as a former colleague of mine would describe it). Funnily enough I only seem to recognise volatility when the shares are going down!!
It is early days yet but to update:
BP @ 511.4p, +2.4 (0.47%), appears to be maintaining its recovery momentum despite the mixed reception to its recent dealings with Rosneft.
Apple @ $340.65, -$7.83 (-2.25%), recovered some of its composure balancing forecast beating results with the news that Steve Jobs is taking a 3rd medical leave from day to day operations.
National Grid @ 533.5p, -7 (-1.3%), lots of downward pressure on the shares and yesterdays brief respite being quickly quashed. Very little newsflow so more of a speculative assumption that debt levels, recent failures to negotiate US price increases, and shareholder pressure is driving the negative sentiment.
I guess that there is still some taint in the credibility of the Chief Executive - Steven Holliday after last years shock rights issue announcement (reversing on previous statements that one wouldn't be required).
Again, with the option to divest some or all of its US operations any leaning towards this change in strategy would be likely to support and propel the shares (as would a change in Chief Exec. if credibility is the concern).
On the plus side the interim dividend of 12.9p per share is due to be paid out today.
IG Group @ 471.6p, -9.4p (-1.95%), continues to be under pressure after yesterdays trading statement and the write down of its Japanese investment (purchased as an established business in 2008 for £122m), which illustrates some of the dangers that regulation can bring. The shares have at least bounced from a low of 466p this morning but with the curtailing of its Japanese expansion this leaves the US as its remaining big growth opportunity. From experience this is once again a risky market due to state regulation and Christian support groups (I know, I know but this is political pressure and certainly had a big effect with online gambling companies leading to jail sentences). But, as some of these regulations are slowly being unwound, and if IG concentrates on the financial markets and instruments of investment then this would seem prudent whilst still providing growth. The US operations currently contribute about £1m to IG's revenues.
R-R @ 653p, -8p (-1.21%), has certainly been a volatile share (up and down), for much of the last 12 months. Strange when the only news announcement today was in the Nuclear division where an agreement has been signed to collaborate with the "Nuclear Power Delivery UK (NPD) consortium in its plans to deploy the Westinghouse AP1000 nuclear reactor in the UK".
As observed in previous postings the aerospace markets appear to be stepping up so the opportunity is there.
Ah, just made the connection! Overnight Boeing have announced a new delivery date for the first 787 (pushing it back into the 3rd quarter) following the recent in flight test issues (see theaustralian.com: Boeing delays 787 delivery till third quarter.).
It won't materially affect Boeing's full year earnings or (at this stage), planned volumes of 787 in the year but with R-R engines on it there could be some pressure on R-R as yet another delay affecting deliveries. Strangely Boeing shares went up by 3.43% to $72.47.
Link to theaustralian.com: Boeing delays 787 delivery till third quarter
It is early days yet but to update:
BP @ 511.4p, +2.4 (0.47%), appears to be maintaining its recovery momentum despite the mixed reception to its recent dealings with Rosneft.
Apple @ $340.65, -$7.83 (-2.25%), recovered some of its composure balancing forecast beating results with the news that Steve Jobs is taking a 3rd medical leave from day to day operations.
National Grid @ 533.5p, -7 (-1.3%), lots of downward pressure on the shares and yesterdays brief respite being quickly quashed. Very little newsflow so more of a speculative assumption that debt levels, recent failures to negotiate US price increases, and shareholder pressure is driving the negative sentiment.
I guess that there is still some taint in the credibility of the Chief Executive - Steven Holliday after last years shock rights issue announcement (reversing on previous statements that one wouldn't be required).
Again, with the option to divest some or all of its US operations any leaning towards this change in strategy would be likely to support and propel the shares (as would a change in Chief Exec. if credibility is the concern).
On the plus side the interim dividend of 12.9p per share is due to be paid out today.
IG Group @ 471.6p, -9.4p (-1.95%), continues to be under pressure after yesterdays trading statement and the write down of its Japanese investment (purchased as an established business in 2008 for £122m), which illustrates some of the dangers that regulation can bring. The shares have at least bounced from a low of 466p this morning but with the curtailing of its Japanese expansion this leaves the US as its remaining big growth opportunity. From experience this is once again a risky market due to state regulation and Christian support groups (I know, I know but this is political pressure and certainly had a big effect with online gambling companies leading to jail sentences). But, as some of these regulations are slowly being unwound, and if IG concentrates on the financial markets and instruments of investment then this would seem prudent whilst still providing growth. The US operations currently contribute about £1m to IG's revenues.
R-R @ 653p, -8p (-1.21%), has certainly been a volatile share (up and down), for much of the last 12 months. Strange when the only news announcement today was in the Nuclear division where an agreement has been signed to collaborate with the "Nuclear Power Delivery UK (NPD) consortium in its plans to deploy the Westinghouse AP1000 nuclear reactor in the UK".
As observed in previous postings the aerospace markets appear to be stepping up so the opportunity is there.
Ah, just made the connection! Overnight Boeing have announced a new delivery date for the first 787 (pushing it back into the 3rd quarter) following the recent in flight test issues (see theaustralian.com: Boeing delays 787 delivery till third quarter.).
It won't materially affect Boeing's full year earnings or (at this stage), planned volumes of 787 in the year but with R-R engines on it there could be some pressure on R-R as yet another delay affecting deliveries. Strangely Boeing shares went up by 3.43% to $72.47.
Link to theaustralian.com: Boeing delays 787 delivery till third quarter
Tuesday, 18 January 2011
An Apple a day!
Apple @ $348.48
Nervous moments ahead of the US markets opening principally due to the news that Steve Jobs, the 55 year old co-founder and CEO of Apple, will take a medical leave from the company. This will be his 3rd following previous treatment for life threatening pancreatic cancer and a subsequent liver transplant.
So called pre-market trading suggests that the shares will open 4.7% down (at one stage 9% was predicted), as the market digests the news from what has, at times, seemed like a one man company.
On the plus side will be a first quarter update of earnings with consensus predictions of a 56% increase to revenues and a 47% increase to earnings.
Significantly, many influential market watchers and analysts, such as Goldman Sachs, are suggesting that any short term reaction to the news provides a buying opportunity as the long term prospects remain intact.
This should be true and the head tells you that it is so but, there is such a fervour and devotion to Jobs (of messianic proportions) by Apple consumers that the confirmation will only truly come when the next "big" product is announced to confirm the continuity of the "Apple" dream machine.
Whilst the company, in the absence of Steve Jobs, should be safe in the hands of Tim Cook, the current Chief Operating Officer, it remains to be seen whether the company can retain its ability to paint a vision that captures hearts and minds. A communication to employees did state that Jobs will remain as CEO and be involved in major strategic decisions.
It seems grossly unfair, and unfeeling really when the spotlight is on the future prospects for Apple the company when it should be concerned for the health of Steve Jobs. There are many different depictions of the man but I for one wish him good health and a speedy return.
Wall Street Journal: Apple Shares Fall 4.7% Premarket As Jobs Takes Medical Leave
Nervous moments ahead of the US markets opening principally due to the news that Steve Jobs, the 55 year old co-founder and CEO of Apple, will take a medical leave from the company. This will be his 3rd following previous treatment for life threatening pancreatic cancer and a subsequent liver transplant.
So called pre-market trading suggests that the shares will open 4.7% down (at one stage 9% was predicted), as the market digests the news from what has, at times, seemed like a one man company.
On the plus side will be a first quarter update of earnings with consensus predictions of a 56% increase to revenues and a 47% increase to earnings.
Significantly, many influential market watchers and analysts, such as Goldman Sachs, are suggesting that any short term reaction to the news provides a buying opportunity as the long term prospects remain intact.
This should be true and the head tells you that it is so but, there is such a fervour and devotion to Jobs (of messianic proportions) by Apple consumers that the confirmation will only truly come when the next "big" product is announced to confirm the continuity of the "Apple" dream machine.
Whilst the company, in the absence of Steve Jobs, should be safe in the hands of Tim Cook, the current Chief Operating Officer, it remains to be seen whether the company can retain its ability to paint a vision that captures hearts and minds. A communication to employees did state that Jobs will remain as CEO and be involved in major strategic decisions.
It seems grossly unfair, and unfeeling really when the spotlight is on the future prospects for Apple the company when it should be concerned for the health of Steve Jobs. There are many different depictions of the man but I for one wish him good health and a speedy return.
Wall Street Journal: Apple Shares Fall 4.7% Premarket As Jobs Takes Medical Leave
Has the sun set on IG Index?
Well, I have to say that the first few weeks in January have been nothing if not interesting and another mainstay of my Growth portfolio, IG Index, has been under pressure today after an interim statement for the 6 months ending 30 November 2010.
IG Index @ 481.5p, -37 (1:30pm)
The company has struggled with its Japanese operations as regulatory changes have impacted trading volumes and revenue. And, after judging this to be an impact on future trading volumes in its Japanese operations, the company has decided to writedown the value of the affected assets by £143m. The upshot here is that (on paper) the company's asset value is now reduced by £143m (incl. goodwill) and "trading" profits before tax of £81m have turned into a loss of £69m (2009: £69m profit).
The problems have been well publicised and it seems that analysts have speculated for some time that IG would need to write down its investment as future prospects for Japan may need reigning in by as much as 2/3rds. So it is some surprise to see the initial reaction to a prudent paper write down.
Putting the write down to one side revenues, profits and client numbers all increased and the cash positive, debt free company has still rewarded shareholders with a 5% increase to the interim dividend (5.25p per share. 26 Jan 11 xd date).
Out of the company's increased revenue of £156m (+9%), Japan contributed £11.1m and IG have indicated that, in their view, future trading volume for Japan could be 50% below this level and at a 52% profit margin (average for this 6 month period), that could equate to a £6m hit to revenue and a £3m hit to pre-tax profits going forward.
The company's decision is prudent as is its move to reduce costs to suit a reduced expectation from Japan but the big question would seem to be what impact does this have on the company's future prospects for growth with analysts consensus forecasts currently predicting 8% (2011), 14% (2012), and 12% (2013).
It is still the industry's biggest player though and cites new technologies (mobile apps) and continued increases in its client numbers as major plus points. I would still suggest that volumes are likely to increase if confidence in the financial markets continues to improve
IG Index @ 481.5p, -37 (1:30pm)
The company has struggled with its Japanese operations as regulatory changes have impacted trading volumes and revenue. And, after judging this to be an impact on future trading volumes in its Japanese operations, the company has decided to writedown the value of the affected assets by £143m. The upshot here is that (on paper) the company's asset value is now reduced by £143m (incl. goodwill) and "trading" profits before tax of £81m have turned into a loss of £69m (2009: £69m profit).
The problems have been well publicised and it seems that analysts have speculated for some time that IG would need to write down its investment as future prospects for Japan may need reigning in by as much as 2/3rds. So it is some surprise to see the initial reaction to a prudent paper write down.
Putting the write down to one side revenues, profits and client numbers all increased and the cash positive, debt free company has still rewarded shareholders with a 5% increase to the interim dividend (5.25p per share. 26 Jan 11 xd date).
Out of the company's increased revenue of £156m (+9%), Japan contributed £11.1m and IG have indicated that, in their view, future trading volume for Japan could be 50% below this level and at a 52% profit margin (average for this 6 month period), that could equate to a £6m hit to revenue and a £3m hit to pre-tax profits going forward.
The company's decision is prudent as is its move to reduce costs to suit a reduced expectation from Japan but the big question would seem to be what impact does this have on the company's future prospects for growth with analysts consensus forecasts currently predicting 8% (2011), 14% (2012), and 12% (2013).
It is still the industry's biggest player though and cites new technologies (mobile apps) and continued increases in its client numbers as major plus points. I would still suggest that volumes are likely to increase if confidence in the financial markets continues to improve
ONS Report: CPI hits 3.7% in December
Well, the markets seem strangely buoyant this morning which is a little surprising to me given the 9:30am ONS Inflation report which included the nasty surprise of CPI increasing to 3.7% for December!
That now completes the picture for 2010 with CPI having been maintained at more than 3% for the year (incl. just 1 month at 3%). (What is that BoE target again?)
Really interesting to see all the opposing opinions on inflation over the days since the BoE kept rates on hold on Thursday.
The respected Ernst and Young think tank are predicting that CPI will rise to 4% as early as February quoting a frightening compounding spiral of increase upon increase but, strangely, are also suggesting that 4% will be the peak and that the BoE should hold its nerve and not raise interest rates this year!
Well, the forecast might be more realistic than the BoE who were expecting December inflation to rise to 3.3% (from 3%) and that it would peak at 3.5% through this year.
Interesting statement on the thisismoney.co.uk: Inflation at 3.7% article which suggests that "At this level of inflation, £1,000 loses around half its value in 20 years".
So, the clear consensus is that inflation will continue to rise but leaves the question open as to when, and what, inflation will peak at and then (the big IF!), whether the figures will come down of their own accord.
On a final note, when considering the CPI at 3.7% (as opposed to the RPI at 4.7%), just remember that the calculation of CPI doesn't include: Council Tax; mortgage interest payments; buildings insurance and house depreciation (so as long you don't live in a house then...).
There are a few more subtle differences linked to cost v. price as well but if the market for goods and services is competitive then the make up could be deemed the most important element.
thisismoney.co.uk link: Inflation at 3.7%...
thisismoney.co.uk link: December CPI what the analysts say
link to Reuters.com: Sterling hits 8 week high...
thisismoney.co.uk link: Interest rates must not rise experts warn
That now completes the picture for 2010 with CPI having been maintained at more than 3% for the year (incl. just 1 month at 3%). (What is that BoE target again?)
Really interesting to see all the opposing opinions on inflation over the days since the BoE kept rates on hold on Thursday.
The respected Ernst and Young think tank are predicting that CPI will rise to 4% as early as February quoting a frightening compounding spiral of increase upon increase but, strangely, are also suggesting that 4% will be the peak and that the BoE should hold its nerve and not raise interest rates this year!
Well, the forecast might be more realistic than the BoE who were expecting December inflation to rise to 3.3% (from 3%) and that it would peak at 3.5% through this year.
Interesting statement on the thisismoney.co.uk: Inflation at 3.7% article which suggests that "At this level of inflation, £1,000 loses around half its value in 20 years".
So, the clear consensus is that inflation will continue to rise but leaves the question open as to when, and what, inflation will peak at and then (the big IF!), whether the figures will come down of their own accord.
On a final note, when considering the CPI at 3.7% (as opposed to the RPI at 4.7%), just remember that the calculation of CPI doesn't include: Council Tax; mortgage interest payments; buildings insurance and house depreciation (so as long you don't live in a house then...).
There are a few more subtle differences linked to cost v. price as well but if the market for goods and services is competitive then the make up could be deemed the most important element.
thisismoney.co.uk link: Inflation at 3.7%...
thisismoney.co.uk link: December CPI what the analysts say
link to Reuters.com: Sterling hits 8 week high...
thisismoney.co.uk link: Interest rates must not rise experts warn
Monday, 17 January 2011
Airbus beats Boeing with 574 orders in 2010.
I see on a Google's news link today it has been reported that Airbus has maintained its position as the worlds biggest plane maker in 2010 beating its US rival Boeing with a final delivery total of 510 aircraft and 574 orders won in the year (worth $84bn).
Boeing delivered 462 and won a further 530 orders.
The company went on to quote that it hired 2,200 employees last year bringing its total to 52,500 and has plans for up to 3,000 more this year as it ramps up production.
All promising signs for the aerospace market and its supply chain of companies. I already hold R-R and note that General Electric are reporting back to the market this week.
Google news link: Airbus beats Boeing with 574 orders in 2010
Aviationweek: Airbus projects rise in activity
Boeing delivered 462 and won a further 530 orders.
The company went on to quote that it hired 2,200 employees last year bringing its total to 52,500 and has plans for up to 3,000 more this year as it ramps up production.
All promising signs for the aerospace market and its supply chain of companies. I already hold R-R and note that General Electric are reporting back to the market this week.
Google news link: Airbus beats Boeing with 574 orders in 2010
Aviationweek: Airbus projects rise in activity
BP / NG / R-R news updates.
Surprised to see such a limp start to the week from the FTSE following a steadying close to US markets on Friday but then again the US markets will be closed today for Martin Luther King jr day.
In the US, markets were helped by JP Morgan (America's second largest lender) reporting better than forecast earnings. And, with other major US banks reporting this week there appears to be some optimism for the US banking sector.
Elsewhere, influential US companies also reporting include: General Electric; Apple; Google; and eBay.
Closer to home:
BP @ 506.3p, +6.8 (11:00), just can't keep out of the news with its statement release on Fri announcing an arctic exploration license and share swap/ tie up with Rosneft, the Russian state oil company. This quite rightly has raised concerns (environmental, political, and continuity of supply) amongst many keenly interested parties including the US.
Seems a risky strategy to me, based upon Bob Dudley's (New BP CEO) experience with the TNK-BP joint venture which saw him in hiding, and fearful for his life before fleeing the country. It should be noted that the Russian state has a long history of interference leading to the appropriation of valuable assets.
Generally though, there are many market watchers suggesting that this could be very positive to profits (as was TNK-BP) and that the company may have had few other options for growth open to them, given the extent of its castigation by the US and resulting likelihood that it has little chance of winning new exploration rights there in the immediate future.
Although BP is up on early trade in London today, this is likely to rumble on and we should be able to guage any initial backlash from the company's 40% US shareholdings tomorrow.
On a different front, BP has been awarded licenses to explore 4 deepwater blocks of the South coast of Australia.
National Grid @ 535p, +4 (11:00am). Not exactly a bouyant recovery in the share price and with further news that US regulators have rejected NG's requests for price increases it is expected that Steve Holliday (Chief Executive), will come under renewed pressure from shareholders to address performance in th US. As mentioned in an earlier comment, the US divisions accounted for 61% of revenue but only 39% of profits in the last full financial year.
R-R @ 655.5p, +1 (11:00am), has announced its latest contract: to supply MT30 gas turbines to the US Navy's Littoral Combat Ships. At 2 per ship (plus 4 waterjets), and for 10 craft in total this is the "company's biggest ever marine naval surface ship contract".
It is an endorsement of the MT30 which, "at 36 megawatts, is the World's most powerful marine gas turbine" but looking beyond the headline, the statement goes on to qualify that the order, although an addition to 2 existing vessels, consists of 1 firm order and 9 options.
As a matter of interest the MT30 is also the selected power source for "the UK Royal Navy's new Queen Elizabeth class aircraft carriers and the U.S. Navy's DDG-1000 Zumwalt class destroyer programme"
Link to Sharecast - BP Rosneft tie-up / Australian deepwater licenses
Link to Sharecast - R-R MT30 contract
In the US, markets were helped by JP Morgan (America's second largest lender) reporting better than forecast earnings. And, with other major US banks reporting this week there appears to be some optimism for the US banking sector.
Elsewhere, influential US companies also reporting include: General Electric; Apple; Google; and eBay.
Closer to home:
BP @ 506.3p, +6.8 (11:00), just can't keep out of the news with its statement release on Fri announcing an arctic exploration license and share swap/ tie up with Rosneft, the Russian state oil company. This quite rightly has raised concerns (environmental, political, and continuity of supply) amongst many keenly interested parties including the US.
Seems a risky strategy to me, based upon Bob Dudley's (New BP CEO) experience with the TNK-BP joint venture which saw him in hiding, and fearful for his life before fleeing the country. It should be noted that the Russian state has a long history of interference leading to the appropriation of valuable assets.
Generally though, there are many market watchers suggesting that this could be very positive to profits (as was TNK-BP) and that the company may have had few other options for growth open to them, given the extent of its castigation by the US and resulting likelihood that it has little chance of winning new exploration rights there in the immediate future.
Although BP is up on early trade in London today, this is likely to rumble on and we should be able to guage any initial backlash from the company's 40% US shareholdings tomorrow.
On a different front, BP has been awarded licenses to explore 4 deepwater blocks of the South coast of Australia.
National Grid @ 535p, +4 (11:00am). Not exactly a bouyant recovery in the share price and with further news that US regulators have rejected NG's requests for price increases it is expected that Steve Holliday (Chief Executive), will come under renewed pressure from shareholders to address performance in th US. As mentioned in an earlier comment, the US divisions accounted for 61% of revenue but only 39% of profits in the last full financial year.
R-R @ 655.5p, +1 (11:00am), has announced its latest contract: to supply MT30 gas turbines to the US Navy's Littoral Combat Ships. At 2 per ship (plus 4 waterjets), and for 10 craft in total this is the "company's biggest ever marine naval surface ship contract".
It is an endorsement of the MT30 which, "at 36 megawatts, is the World's most powerful marine gas turbine" but looking beyond the headline, the statement goes on to qualify that the order, although an addition to 2 existing vessels, consists of 1 firm order and 9 options.
As a matter of interest the MT30 is also the selected power source for "the UK Royal Navy's new Queen Elizabeth class aircraft carriers and the U.S. Navy's DDG-1000 Zumwalt class destroyer programme"
Link to Sharecast - BP Rosneft tie-up / Australian deepwater licenses
Link to Sharecast - R-R MT30 contract
Saturday, 15 January 2011
UK Interest Rates on hold at 0.5% and £58bn lost to savings.
Hmmm, I have been mulling over an interesting article on thisismoney.co.uk which puts forward a convincing, plausible figure of £58bn as the amount of interest lost to savers during the last 22 months of daylight robbery. £58bn being the difference between 0.5% and 3.41% (the average over the previous 22 months) but not accounting for any deterioration due to inflation!
It could also be viewed as a £58bn contribution to banking profits that the industry has not had to lift a finger for but I am sure that this will be excluded from profits when justifying bonuses, won't it?
With the article also suggesting that savers outnumber borrowers seven to one and that with 2/3rds of Britain's 11m house buyers on standard rates it seems to be a minority who are benefiting (other than the Banks of course).
There is an ongoing debate re. borrowers v. savers and what might happen should rates rise, but it is highly probable (if not quite a certainty), that anyone on a standard variable rate took on their mortgage at rates higher than today (or at least once initial discounts had expired) so they must retain a margin of affordability should rates rise. In addition, how many of these SVR's are for buy to lets?
Further, if there is a risk that these borrowers are close to the wire in terms of affording their loans, why is the BoE persevering with its "spend, spend, spend" statements?
I become more and more convinced that the BoE, along with our last Government, got it completely wrong by gambling "everything" on the single bet of rescuing the banks (wistfully hoping for a change in their ethics to subsequently kick start the economy) and in continuing to artificially depress interest rates (thereby learning nothing from the outcome of the last decade of artificially low interest rates).
The only conclusion that I can come to is that the BoE is not particularly concerned with either savers or borrowers, it is only concerned at recapitalising the banks by spoon feeding them money!
The last Government and the BoE rightly identified the need to stimulate the economy by injecting funds back into the money supply to bridge the interruption caused by the credit crunch, but should have at least hedged their bets by also creating jobs through public works, NHS or public services, if they wanted to maintain income tax revenues and consumer spending. In this way the banks (still benefiting from partial re-capitalising), would have had to retain some normality with their traditional business models of offering interest rates closer aligned to inflation to raise funds and then lending/investing these funds, and managing risks, to generate profits. In this way the banks would have had little choice but to distribute monies into the economy and have to work harder to manage the consequential impact to profits and bonuses (so no real downside then).
The psychology behind the BoE's immoral demands on savers (voiced by MPC deputy Charles Bean) to spend the UK back into recovery seems perverse given that their use of interest rates is only benefiting a minority of borrowers whilst robbing savers amid very few signs that bank lending to businesses has been restored.
I would put forward the view that many savers, particularly the so called "silver" savers, have lived prudently within their means and taken the responsibility to support themselves rather than burden the welfare state but must now feel abandoned by those who claim to know better (but still fell asleep on watch), due to the loss of income from, and dual pronged attack on, their hard earned savings from essentials spending and inflation.
Has anyone considered the potential future cost to the state that this could lead to if savings and resulting income continue to be eroded. The loss of capital now is potentially devastating to many who may have little opportunity to ever recover the situation (unlike someone younger and in employment).
I am also of the opinion that, taking SVR's out of the equation, not many individuals or businesses are benefiting from the 0.5% rate, except for the banks, of course, who are adding disproportionate margins and charges to loans, credit cards and overdrafts.The Government and BoE expect a return on the money they have lent to the banks, why can't we?
Ensuring that interest rates were more closely aligned to the reality of inflation would probably have been enough of a boost to savers to give them a feeling of security as to the sustainability of their incomes which in turn would have allowed them to maintain their normal spending levels (in fact I can think of 58bn more reasons than they currently have). But, the BoE has the opposite view of this ie. that high interest rates only encourage more saving.
I am open to correction but I am sure that I have read more than one article or report in the last 12 months suggesting that the practice of saving and paying down debt is increasing as opposed to there being any increase in consumer spending?
The additional benefit of this closer link to inflation would have been the opportunity to take a more measured view and response to potential inflation as a stronger sterling would also act as inertia to any short term increases on imports.
There is an obvious risk to exporters but I still think that there is a balance between inflation on imports (raw materials, fuel etc) and any supposed competitive advantage that a weak pound gives them. It also needs to be considered that many of our largest companies also have international presence so have much more opportunity to use local currencies to manage exchange rate impacts.
I would put forward the suggestion that if there was a better reflection of the "real world" in interest rates and the resulting strength of sterling (absorbing some raw material inflation) then the biggest risks to any company's ability to flex costs would be wage inflation and taxes (neither of which ever seems to have a strong link to interest rate policy).
Finally, I would ask, as I would any organisation " What is the stated intent of the MPC?".
Googling this I found the following "The MPC sets an interest rate it judges will enable the inflation target to be met"........"Each member of the Committee has a vote to set interest rates at the level they believe is consistent with meeting the inflation target."
And, what is the inflation target you ask, well... "The inflation target of 2% is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI)".
Like many of you I also have a view on the backward move to CPI which I will probably comment upon at some stage (but thanks for that one too Gordon!).
Where did I find these statements? On the Bank of England site and its pages on the Monetary Policy Committee and the Monetary Policy Framework.
Well I am sorry but, if that is still the priority then the MPC is failing and continue to do so by artificially depressing interest rates.
Although (to be fair and balanced), the Monetary Policy Framework does expand to include the "Government’s economic objectives including those for growth and employment". Sounds good but are we seeing low interest rates and Quantitative Easing capping wage inflation and increasing employment?
The MPC needs to be more accountable and transparent about its intentions, and actions, along with detailing who will benefit and who will be bearing the brunt of the recovery for the short, medium and long terms. It is essential to capture hearts and minds!
I recognise the urgent, undeniable need for a policy to sustain recovery but also that there should be some justifiable fairness and openness in the execution.
Unfortunately, as it stands I for one feel hoodwinked, beaten up, and robbed by the BoE! (And that is before I even begin on the hypocritical conflict between BoE: spend, spend, spend and Government austerity measures!)
thisismoney.co.uk link to "Savers lose out on £60bn in interest"
Link to Bank of England: MPC Page
Link to Bank of England: Monetary Policy Framework
It could also be viewed as a £58bn contribution to banking profits that the industry has not had to lift a finger for but I am sure that this will be excluded from profits when justifying bonuses, won't it?
With the article also suggesting that savers outnumber borrowers seven to one and that with 2/3rds of Britain's 11m house buyers on standard rates it seems to be a minority who are benefiting (other than the Banks of course).
There is an ongoing debate re. borrowers v. savers and what might happen should rates rise, but it is highly probable (if not quite a certainty), that anyone on a standard variable rate took on their mortgage at rates higher than today (or at least once initial discounts had expired) so they must retain a margin of affordability should rates rise. In addition, how many of these SVR's are for buy to lets?
Further, if there is a risk that these borrowers are close to the wire in terms of affording their loans, why is the BoE persevering with its "spend, spend, spend" statements?
I become more and more convinced that the BoE, along with our last Government, got it completely wrong by gambling "everything" on the single bet of rescuing the banks (wistfully hoping for a change in their ethics to subsequently kick start the economy) and in continuing to artificially depress interest rates (thereby learning nothing from the outcome of the last decade of artificially low interest rates).
The only conclusion that I can come to is that the BoE is not particularly concerned with either savers or borrowers, it is only concerned at recapitalising the banks by spoon feeding them money!
The last Government and the BoE rightly identified the need to stimulate the economy by injecting funds back into the money supply to bridge the interruption caused by the credit crunch, but should have at least hedged their bets by also creating jobs through public works, NHS or public services, if they wanted to maintain income tax revenues and consumer spending. In this way the banks (still benefiting from partial re-capitalising), would have had to retain some normality with their traditional business models of offering interest rates closer aligned to inflation to raise funds and then lending/investing these funds, and managing risks, to generate profits. In this way the banks would have had little choice but to distribute monies into the economy and have to work harder to manage the consequential impact to profits and bonuses (so no real downside then).
The psychology behind the BoE's immoral demands on savers (voiced by MPC deputy Charles Bean) to spend the UK back into recovery seems perverse given that their use of interest rates is only benefiting a minority of borrowers whilst robbing savers amid very few signs that bank lending to businesses has been restored.
I would put forward the view that many savers, particularly the so called "silver" savers, have lived prudently within their means and taken the responsibility to support themselves rather than burden the welfare state but must now feel abandoned by those who claim to know better (but still fell asleep on watch), due to the loss of income from, and dual pronged attack on, their hard earned savings from essentials spending and inflation.
Has anyone considered the potential future cost to the state that this could lead to if savings and resulting income continue to be eroded. The loss of capital now is potentially devastating to many who may have little opportunity to ever recover the situation (unlike someone younger and in employment).
I am also of the opinion that, taking SVR's out of the equation, not many individuals or businesses are benefiting from the 0.5% rate, except for the banks, of course, who are adding disproportionate margins and charges to loans, credit cards and overdrafts.The Government and BoE expect a return on the money they have lent to the banks, why can't we?
Ensuring that interest rates were more closely aligned to the reality of inflation would probably have been enough of a boost to savers to give them a feeling of security as to the sustainability of their incomes which in turn would have allowed them to maintain their normal spending levels (in fact I can think of 58bn more reasons than they currently have). But, the BoE has the opposite view of this ie. that high interest rates only encourage more saving.
I am open to correction but I am sure that I have read more than one article or report in the last 12 months suggesting that the practice of saving and paying down debt is increasing as opposed to there being any increase in consumer spending?
The additional benefit of this closer link to inflation would have been the opportunity to take a more measured view and response to potential inflation as a stronger sterling would also act as inertia to any short term increases on imports.
There is an obvious risk to exporters but I still think that there is a balance between inflation on imports (raw materials, fuel etc) and any supposed competitive advantage that a weak pound gives them. It also needs to be considered that many of our largest companies also have international presence so have much more opportunity to use local currencies to manage exchange rate impacts.
I would put forward the suggestion that if there was a better reflection of the "real world" in interest rates and the resulting strength of sterling (absorbing some raw material inflation) then the biggest risks to any company's ability to flex costs would be wage inflation and taxes (neither of which ever seems to have a strong link to interest rate policy).
Finally, I would ask, as I would any organisation " What is the stated intent of the MPC?".
Googling this I found the following "The MPC sets an interest rate it judges will enable the inflation target to be met"........"Each member of the Committee has a vote to set interest rates at the level they believe is consistent with meeting the inflation target."
And, what is the inflation target you ask, well... "The inflation target of 2% is expressed in terms of an annual rate of inflation based on the Consumer Prices Index (CPI)".
Like many of you I also have a view on the backward move to CPI which I will probably comment upon at some stage (but thanks for that one too Gordon!).
Where did I find these statements? On the Bank of England site and its pages on the Monetary Policy Committee and the Monetary Policy Framework.
Well I am sorry but, if that is still the priority then the MPC is failing and continue to do so by artificially depressing interest rates.
Although (to be fair and balanced), the Monetary Policy Framework does expand to include the "Government’s economic objectives including those for growth and employment". Sounds good but are we seeing low interest rates and Quantitative Easing capping wage inflation and increasing employment?
The MPC needs to be more accountable and transparent about its intentions, and actions, along with detailing who will benefit and who will be bearing the brunt of the recovery for the short, medium and long terms. It is essential to capture hearts and minds!
I recognise the urgent, undeniable need for a policy to sustain recovery but also that there should be some justifiable fairness and openness in the execution.
Unfortunately, as it stands I for one feel hoodwinked, beaten up, and robbed by the BoE! (And that is before I even begin on the hypocritical conflict between BoE: spend, spend, spend and Government austerity measures!)
thisismoney.co.uk link to "Savers lose out on £60bn in interest"
Link to Bank of England: MPC Page
Link to Bank of England: Monetary Policy Framework
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