A couple of ex dividends to note today as they affect holdings in the portfolio:
Centrica @ 321.4p, -11.6p (- 3.48%), 10.46p dividend payable 15 June.
Tesco @ 402.9p, -3.8p (-0.93%), 10.09p dividend payable 8 July.
Disappointing that Centrica seems to have fallen by more than the dividend despite a small rally running up to lunchtime.
But, I can't see anything else affecting it directly so just disappointing really.
Wednesday 27 April 2011
Monday 25 April 2011
Apple 2nd quarter update - profits up 95%!
We can't make them fast enough! Apple claims to have sold EVERY iPad ever made (all 19.5million of them) (www.dailymail.co.uk)
Apple's "cry for help" doesn't seem to be affecting profits which for the second quarter are up 95% on last years comparable period.
Yes that is a 95% increase on last years second quarter profit figure of $3.07bn resulting in $5.99bn of net profit for this years second quarter as reported on the 22nd April.
The statements and highlights are pretty inspiring:
- Sales of $24.7bn
- Net profit of $5.99bn
- 4.7m Ipads (of all all kinds) sold in the latest quarter
- 19.5m Ipads sold in the past year.
- 18.6m Iphones in the last quarter, the highest in any quarter since 2007
- 3.8m macs up 28%
But, in line with the headline Apple has admitted to a backlog on the sales of the Ipad but said that it was catching up with them whilst also rolling out sales to a further 13 countries this week.
And, "Although electronics manufacturers are struggling with disrupted supplies of components from earthquake-ravaged Japan, Apple said it had not suffered any such problems as a result of the disaster." (www.dailymail.co.uk)
Also significant is the fact that "Apple commonly provides pessimistic outlooks in its forecasts, and Chief Operating Officer Tim Cook said the effects of the earthquake on the Japanese economy would lower revenue by $200million, or about 1 per cent." (www.dailymail.co.uk)
Difficult not to get overexcited by statements and numbers like these but there is a long way to go yet to maintain this momentum and doubts still exist given the long term health of Steve Jobs.
But, whilst we still need to see the "next" direction that Apple will explore the shares have recovered some of their composure following the "NASDAQ" rebalancing announcement detailed in an earlier post - "Nasdaq rebalance hits Apple", which is still to take place officially on the 2nd May.
Apple @ $353.01, +$2.31 (+0.66%) 25 April close.
Article links:
- www.dailymail.co.uk: We can't make them fast enough! Apple claims to have sold EVERY iPad ever made (all 19.5million of them)
Previous related posts:
- "Nasdaq rebalance hits Apple"
- Apple update: Ipad 2!
- Feb 2011: Virtual Portfolio update.
- Is Android a reason to invest in Google?
- An Apple a day!
- Globally Diversified Technology, Growth, and Hedge portfolio!!!
Apple's "cry for help" doesn't seem to be affecting profits which for the second quarter are up 95% on last years comparable period.
Yes that is a 95% increase on last years second quarter profit figure of $3.07bn resulting in $5.99bn of net profit for this years second quarter as reported on the 22nd April.
The statements and highlights are pretty inspiring:
- Sales of $24.7bn
- Net profit of $5.99bn
- 4.7m Ipads (of all all kinds) sold in the latest quarter
- 19.5m Ipads sold in the past year.
- 18.6m Iphones in the last quarter, the highest in any quarter since 2007
- 3.8m macs up 28%
But, in line with the headline Apple has admitted to a backlog on the sales of the Ipad but said that it was catching up with them whilst also rolling out sales to a further 13 countries this week.
And, "Although electronics manufacturers are struggling with disrupted supplies of components from earthquake-ravaged Japan, Apple said it had not suffered any such problems as a result of the disaster." (www.dailymail.co.uk)
Also significant is the fact that "Apple commonly provides pessimistic outlooks in its forecasts, and Chief Operating Officer Tim Cook said the effects of the earthquake on the Japanese economy would lower revenue by $200million, or about 1 per cent." (www.dailymail.co.uk)
Difficult not to get overexcited by statements and numbers like these but there is a long way to go yet to maintain this momentum and doubts still exist given the long term health of Steve Jobs.
But, whilst we still need to see the "next" direction that Apple will explore the shares have recovered some of their composure following the "NASDAQ" rebalancing announcement detailed in an earlier post - "Nasdaq rebalance hits Apple", which is still to take place officially on the 2nd May.
Apple @ $353.01, +$2.31 (+0.66%) 25 April close.
Article links:
- www.dailymail.co.uk: We can't make them fast enough! Apple claims to have sold EVERY iPad ever made (all 19.5million of them)
Previous related posts:
- "Nasdaq rebalance hits Apple"
- Apple update: Ipad 2!
- Feb 2011: Virtual Portfolio update.
- Is Android a reason to invest in Google?
- An Apple a day!
- Globally Diversified Technology, Growth, and Hedge portfolio!!!
William Hill still running.
William Hill @ 213.3p, +14.8p (+7.46%)
William Hill looks to have had a good run recently following various pieces of positive newsflow.
The Q1 management statement on the 22 April saw growth in revenue of 11% and profits of 21% despite a challenging consumer environment.
Behind the 11% growth in group revenue: the online business grew by 26% and the retail business by 8%.
The company also cautioned against the economic climate should consumer spending drop but, "Since the first quarter, Hill said it enjoyed a good Grand National after the favourite failed to win. While it was not its best Cheltenham, Hill revealed it banked £2m in profits from two races in one hour." (www.independent.co.uk: William Hill comes through strongly)
On top of this, the company also provided further detail of its plans to expand in the US with the acquisition of 2 land based sports-betting businesses: American Wagering, Inc. ;and the Club Cal Neva Satellite Race and Sportsbook Division, for an outlay of $39m.
A bit of a gamble (bad pun totally intended), William Hill sits in the Value and Income side of the Portfolio and to date has been a slow burner with a bit more volatility than anticipated but, at this point in time, the key numbers are:
- 24.7% capital gain
- 5.8% more in dividends
- total investment gain to date 30.5%
In fact, the ex dividend date for the final dividend is coming up soon - 4 May.
And, at 5.8p per share the final dividend is payable on the 9 June.
Quite a satisfactory performance thus far and with a forecast yield of 4.2% (at 213.3p) that in recent years has been more than twice covered by earnings there is potentially more to come.
Previous posts:
- William Hill - first past the post?
William Hill looks to have had a good run recently following various pieces of positive newsflow.
The Q1 management statement on the 22 April saw growth in revenue of 11% and profits of 21% despite a challenging consumer environment.
Behind the 11% growth in group revenue: the online business grew by 26% and the retail business by 8%.
The company also cautioned against the economic climate should consumer spending drop but, "Since the first quarter, Hill said it enjoyed a good Grand National after the favourite failed to win. While it was not its best Cheltenham, Hill revealed it banked £2m in profits from two races in one hour." (www.independent.co.uk: William Hill comes through strongly)
On top of this, the company also provided further detail of its plans to expand in the US with the acquisition of 2 land based sports-betting businesses: American Wagering, Inc. ;and the Club Cal Neva Satellite Race and Sportsbook Division, for an outlay of $39m.
A bit of a gamble (bad pun totally intended), William Hill sits in the Value and Income side of the Portfolio and to date has been a slow burner with a bit more volatility than anticipated but, at this point in time, the key numbers are:
- 24.7% capital gain
- 5.8% more in dividends
- total investment gain to date 30.5%
In fact, the ex dividend date for the final dividend is coming up soon - 4 May.
And, at 5.8p per share the final dividend is payable on the 9 June.
Quite a satisfactory performance thus far and with a forecast yield of 4.2% (at 213.3p) that in recent years has been more than twice covered by earnings there is potentially more to come.
Previous posts:
- William Hill - first past the post?
BSKYB: week ahead and take-over musings
BSKYB @ 835p, -1.5p (-0.18%)
BSKYB also publishes its 3rd quarter results this week with expectations of a 15% jump in profits to £252m and an increase in subscriber numbers of up to 40,000.
The subscriber increase is down on last years comparative period 62,000 though, due mainly to the HD marketing drive that took place last year.
The investment bank Nomura takes this further suggesting that the company is on track to report a 25% increase in full year profits to £946m (www.thisismoney.co.uk: Sky on course for profits of nearly £1bn).
The company is also the target of a takeover by its majority shareholder News Corp. Very much a family affair, News Corp is run by Rupert Murdoch whilst BSKYB is chaired by his son James Murdoch.
In the past BSKYB has been encouraged by News Corp to spend strongly on marketing to build its customer base but it is speculated that should the takeover go ahead this marketing spend will be slashed effectively turning BSKYB into a cash cow.
Currently the board at BSKYB have encouraged a bid above above 800p but as financial results improve and shareholders see an opportunity various take-out prices north of 1200p are being bandied about. Although it should be noted that there is no opportunity of a bidding war and the sterling dollar exchange rate has gone against News Corp which leaves the $64,000 question "how much does Rupert Murdoch want SKY".
Using last years results the company had:
- £649m cash on its books
- Margins of 18.43%
- After tax profits of £878m
- Dividend cover of 1.6 times
- Return on Capital Employed of 70.78%
- Cashflow per share of 78.66p v 31.1p earning per share
The key for Murdoch is the balance between how much News Corp will fork out v.
- the payback period from the Sky dividend
- future earnings enhancements to News Corp from the dividend.
At 835p the company is valued at £14.636bn but News Corp already owns 39% which leaves £8.92bn of Sky which it doesn't currently own.
1200p a share is a 43% premium to 835p which would value the outstanding 61% stake at £12.756bn.
But, the sterling dollar exchange rate has gone against News Corp since its opportunistic offer of 700p per share in July of last year. The intervening period has seen the rate move from $1.5281 (average) to $1.6296 (average), a 6.6% deterioration to News Corp war chest.
In turn, applying this 6.6% to the £12.756bn valuation results in an potential actual cost to News Corp of £13.603bn (before finance and legal costs).
Not sure how this would work in terms of News Corp but if Sky was to make £1bn of profit per annum and this was taken by the parent company then it would take 13.6 years (excl. any finance or legal costs), for the investment to payback.
But, it is likely to be earnings and cashflow enhancing almost immediately.
My consideration here is whether or not there is an opportunity to make an investment in BSKYB in order to generate a profit on takeover but, at this stage in the process, it hinges on whether or not BSKYB is still at an attractive valuation should the takeover not come about.
It does seem likely to go ahead but at what price given no third party involvement.
Should it not go ahead then there is still the opportunity to cut marketing spend and reap the cash cow benefits but this may be deemed ex growth by markets in the short term until growth numbers prove otherwise.
Still more to think on and I need to understand if there is an expiry date for News Corp to make an actual bid. Certainly it seems likely that if they don't bid in the short term then increasing profits in the short/medium term will only increase the premium required to take-out the 61% it doesn't own.
It might also be worthwhile for me to incorporate some kind of discounted cash flow model to understand what kind of investment Sky is going to turn out to be for News Corp.
So still plenty to mulch around.
Article links:
- thescotsman.scotsman.com: The week ahead: Cluster of big names will fill the short trading week
- www.thisismoney.co.uk: Sky on course for profits of nearly £1bn
- www.thisismoney.co.uk:Murdoch 'will slash BSkyB marketing spend'
BSKYB also publishes its 3rd quarter results this week with expectations of a 15% jump in profits to £252m and an increase in subscriber numbers of up to 40,000.
The subscriber increase is down on last years comparative period 62,000 though, due mainly to the HD marketing drive that took place last year.
The investment bank Nomura takes this further suggesting that the company is on track to report a 25% increase in full year profits to £946m (www.thisismoney.co.uk: Sky on course for profits of nearly £1bn).
The company is also the target of a takeover by its majority shareholder News Corp. Very much a family affair, News Corp is run by Rupert Murdoch whilst BSKYB is chaired by his son James Murdoch.
In the past BSKYB has been encouraged by News Corp to spend strongly on marketing to build its customer base but it is speculated that should the takeover go ahead this marketing spend will be slashed effectively turning BSKYB into a cash cow.
Currently the board at BSKYB have encouraged a bid above above 800p but as financial results improve and shareholders see an opportunity various take-out prices north of 1200p are being bandied about. Although it should be noted that there is no opportunity of a bidding war and the sterling dollar exchange rate has gone against News Corp which leaves the $64,000 question "how much does Rupert Murdoch want SKY".
Using last years results the company had:
- £649m cash on its books
- Margins of 18.43%
- After tax profits of £878m
- Dividend cover of 1.6 times
- Return on Capital Employed of 70.78%
- Cashflow per share of 78.66p v 31.1p earning per share
The key for Murdoch is the balance between how much News Corp will fork out v.
- the payback period from the Sky dividend
- future earnings enhancements to News Corp from the dividend.
At 835p the company is valued at £14.636bn but News Corp already owns 39% which leaves £8.92bn of Sky which it doesn't currently own.
1200p a share is a 43% premium to 835p which would value the outstanding 61% stake at £12.756bn.
But, the sterling dollar exchange rate has gone against News Corp since its opportunistic offer of 700p per share in July of last year. The intervening period has seen the rate move from $1.5281 (average) to $1.6296 (average), a 6.6% deterioration to News Corp war chest.
In turn, applying this 6.6% to the £12.756bn valuation results in an potential actual cost to News Corp of £13.603bn (before finance and legal costs).
Not sure how this would work in terms of News Corp but if Sky was to make £1bn of profit per annum and this was taken by the parent company then it would take 13.6 years (excl. any finance or legal costs), for the investment to payback.
But, it is likely to be earnings and cashflow enhancing almost immediately.
My consideration here is whether or not there is an opportunity to make an investment in BSKYB in order to generate a profit on takeover but, at this stage in the process, it hinges on whether or not BSKYB is still at an attractive valuation should the takeover not come about.
It does seem likely to go ahead but at what price given no third party involvement.
Should it not go ahead then there is still the opportunity to cut marketing spend and reap the cash cow benefits but this may be deemed ex growth by markets in the short term until growth numbers prove otherwise.
Still more to think on and I need to understand if there is an expiry date for News Corp to make an actual bid. Certainly it seems likely that if they don't bid in the short term then increasing profits in the short/medium term will only increase the premium required to take-out the 61% it doesn't own.
It might also be worthwhile for me to incorporate some kind of discounted cash flow model to understand what kind of investment Sky is going to turn out to be for News Corp.
So still plenty to mulch around.
Article links:
- thescotsman.scotsman.com: The week ahead: Cluster of big names will fill the short trading week
- www.thisismoney.co.uk: Sky on course for profits of nearly £1bn
- www.thisismoney.co.uk:Murdoch 'will slash BSkyB marketing spend'
BP: Gulf of Mexico Anniversary; lawsuits; and 1st quarter results due.
Well, never one to be far away from the news, and on the anniversary of the Deepwater Horizon disaster, BP has launched lawsuits against its partners in the venture: Transocean, Halliburton, and Cameron.
In the venture, Transocean supplied and operated the rig; Halliburton supplied the cement slurry and Cameron manufactured the blow out preventer.
Further support from findings has come in the recent Coastguard investigation that cited "the poor training of staff and maintenance of the rig, owned by Transocean, contributed to the explosion and subsequent oil spill, adding that numerous actions by Transocean and the rig's crew affected their ability to prevent or limit the disaster" (thescotsman.scotsman.com: BP boosted by report on Deepwater oil disaster).
"So far, only BP has paid out towards the costs, but commentators in the US have said liability is likely to be divided up between the companies in out-of-court wranglings behind closed doors." (the scotsman).
Its also being reported that Transocean is pushing ahead with plans to pay a $1bn dividend this year despite pre-knowledge of the impending lawsuit.
Elsewhere, I noticed that Sunday papers (The Mail on Sunday), were reporting that BP and Rosneft continue to work on plans to buy-out the partners of BP's Russian joint venture TNK-BP.
The article suggesting that the Oligarchs have rejected a £25bn offer and are holding out for £30bn!
But, it appears that the Kremlin and prime minister Vladimir Putin, still appear to support the tie-up which is seen as a major positive.
Finally, BP is due to report on its 1st quarter on Wednesday, with profit expectations of $5.7bn v. $5.6bn last year.
Article links:
- www.guardian.co.uk: BP sues Deepwater Horizon partners for £24bn
- www.express.co.uk: BP SUES US FIRMS FOR £50BN OVER GULF SPILL
- thescotsman.scotsman.com: BP boosted by report on Deepwater oil disaster
In the venture, Transocean supplied and operated the rig; Halliburton supplied the cement slurry and Cameron manufactured the blow out preventer.
Further support from findings has come in the recent Coastguard investigation that cited "the poor training of staff and maintenance of the rig, owned by Transocean, contributed to the explosion and subsequent oil spill, adding that numerous actions by Transocean and the rig's crew affected their ability to prevent or limit the disaster" (thescotsman.scotsman.com: BP boosted by report on Deepwater oil disaster).
"So far, only BP has paid out towards the costs, but commentators in the US have said liability is likely to be divided up between the companies in out-of-court wranglings behind closed doors." (the scotsman).
Its also being reported that Transocean is pushing ahead with plans to pay a $1bn dividend this year despite pre-knowledge of the impending lawsuit.
Elsewhere, I noticed that Sunday papers (The Mail on Sunday), were reporting that BP and Rosneft continue to work on plans to buy-out the partners of BP's Russian joint venture TNK-BP.
The article suggesting that the Oligarchs have rejected a £25bn offer and are holding out for £30bn!
But, it appears that the Kremlin and prime minister Vladimir Putin, still appear to support the tie-up which is seen as a major positive.
Finally, BP is due to report on its 1st quarter on Wednesday, with profit expectations of $5.7bn v. $5.6bn last year.
Article links:
- www.guardian.co.uk: BP sues Deepwater Horizon partners for £24bn
- www.express.co.uk: BP SUES US FIRMS FOR £50BN OVER GULF SPILL
- thescotsman.scotsman.com: BP boosted by report on Deepwater oil disaster
Wednesday 20 April 2011
Tesco Preliminary Results 2010 - 2011.
Tesco's preliminary results for the year ending Feb 2011 were published yesterday and significantly gave us an introduction to the new Chief Executive Philip Clarke who has succeeded Sir Terry Leahy.
Headline statements read as follows:
- Group sales up 8.1% to £67.6bn
- 12.3% rise in underlying profit before tax to £3.8bn
- Group return on capital employed (ROCE) increased to 12.9% (last year 12.1%)
- 7.8% growth in Group trading profit to £3.7bn, including 30% growth in Asia
- Dividend per share growth of 10.8%
- Net debt reduced to £6.8bn by year-end, ahead of plan
In his opening statements the new boss has clearly determined that the UK has lost momentum but outlined a management restructure of the business with new objectives and an increased focus on the UK:
"We have equipped the business for global growth with new management structures and teams -including an experienced UK Board, which is bringing more focus and energy to our largest business. Asia and Europe made excellent progress contributing nearly 70% of our profit growth in the year. The momentum in the USA is building but still has some way to go."
New management structures in place and increased focus on UK core business:
· New global Executive Committee in place, combining key business areas and support functions
· Six immediate team objectives set - around performance, growth and returns
· Dedicated, experienced UK Board appointed and operational
· Plans to align senior management remuneration with growth and ROCE improvement
We have set some immediate objectives for the Tesco team:
· First, keeping the UK strong and growing.
· Second, we want to be outstanding internationally, not just successful.
· Third, as the combination of stores and online becomes compelling for customers, we aim tobecome a multi-channel retailer wherever we trade.
· Fourth, we will deliver on the potential of Retailing Services - of which the Bank is a big part.
· Fifth, by applying Group skill and scale we will give our customers even more value and increase the competitive advantage to our businesses.
· Sixth, deliver higher return on capital employed for shareholders.
(extract from Tesco Preliminary results for 2010 - 2011)
So, profits are up and have continued this trend despite the last few years of global turmoil which underlines my view that supermarkets are in an enviable position of delivering essentials that we all need/want.
I have extended this further to a view that they are also in a position to manage cost pressures better as, despite the current price wars, hasn't your weekly shop gone up in price (or down in quantity), as price increases are passed on (earlier post: Looking Ahead to 2011.).
Significantly, the success of supermarkets is also based upon efficient management of stock and inventory so, if the majority are buying less then they also will be buying and storing less (and they store very little) but this would still impact profits so it is also pleasing to see that UK sales have been maintained and trading profit increased slightly (with fuel sales stripped out).
Significantly, the success of supermarkets is also based upon efficient management of stock and inventory so, if the majority are buying less then they also will be buying and storing less (and they store very little) but this would still impact profits so it is also pleasing to see that UK sales have been maintained and trading profit increased slightly (with fuel sales stripped out).
They also have a significant advantage to cashflow over most industries as they are often paid for goods before they have paid out for them.
It isn't altogether surprising that UK sales are flat. As discussed in an earlier post: Supermarket Sweep: Tesco; Morrisons; or Sainsburys?, I would be more than happy for that to be maintained given the state of the economy and the resurgent competition from Morrisons and Sainsburys over the last few years.
It isn't altogether surprising that UK sales are flat. As discussed in an earlier post: Supermarket Sweep: Tesco; Morrisons; or Sainsburys?, I would be more than happy for that to be maintained given the state of the economy and the resurgent competition from Morrisons and Sainsburys over the last few years.
The fact that Morrisons and Sainsbury are growing their market share and Tesco has managed to maintain their market share goes some way to explaining the price war instigated by ASDA with its price check campaign. Of course it is beneficial for the consumer but also highlights some of the reasons why Walmart has not taken the UK by storm with its lack of creative marketing.
Elsewhere, sales in Europe, Asia and the US were up with significant jumps in Asia and the US. Although, the US still recorded a loss and is not now forecast to break-even until 2012/13 (4 years behind plan).
Also in Asia, the company has announced a scaling back of its mall roll-out in China with 50 now planned in the next 5 years (down from 80). As for Japan, Tesco has decided not to invest further "unless it can "see a way of winning" in the country." (www.telegraph.co.uk: Tesco's UK stores have lost momentum says new chief executive Phil Clarke).
Tesco Bank achieved profits of £264m (+5.6%), on revenues of £919m (+6.9%).
So, no real surprises on UK growth, and confirmation that overseas growth is where the majority of Tesco's growth will come from. Also a couple of negatives in the slower roll-out of stores into China but that doesn't prevent them from continuing to grow beyond the five years or even to revise plans should conditions change.
One of the numbers I had identified in my previous analysis of Tesco was cash at hand and in bank which last year stood at £2.819bn but has now reduced to £1.870bn in these results.
Still a chunky amount of money though and the reduction can be explained by the paying down of debt to £6.79bn from £7.929bn.
This has resulted in net gearing of 55.67%, down from 71.62%.
And, as it has been directly used to pay off debt there is no difference to the company's overall health other than the benefit of reducing interest payments going forward.
Interesting to see the statement on senior management remuneration being linked to ROCE and the affirmation of the company's target to achieve 14.6% by 2015. This seems much more comprehensive than the usual earnings per share targets which can often be achieved for the short term at the expense of margins and efficiencies.
Senior management often forget that they have legal responsibilities to act as stewards of the business on behalf of shareholders' and this in turn results in senior management remuneration being at the expense of shareholder value, incentivising personal gain over the business's gain, as the underlying business deteriorates.
But, "You get what you measure" is the statement that comes to mind and as, simplistically, Return On Capital Employed is the return generated by the amount of money invested in a business then, of course, the higher the (ongoing) percentage return the better it is for all stakeholders in the business (employees, management, and investors).
And, earnings per share growth should still result.
So could be a good thing and one I would like to see catch on elsewhere.
So could be a good thing and one I would like to see catch on elsewhere.
Other than that, Philip Clarke may have just instigated his own personal strategy to engage all with his open, amiable manner and might just be a positive new face for Tesco.
Maybe not quite as hands on, and in the trenches as the Sainsbury boss, Justin King, likes to present himself, but he is does seem like a refreshing change from the slightly dour manner of his predecessor.
Won't be clear for some time yet whether Philip Clarke is mixing things up or just re-energising and refining the existing formula. My hope is for the latter particularly as he is a Tesco man and hand picked by Sir Terry.
I notice that the shares fell 6.5p on the back of the results (but have recovered some of that today), which I think more to do with Philip Clarke's recognition of flat UK growth. I also think that this has been suspected for the last few quarters and am happy that the company appears to be taking steps to addressing this rather than ignoring it so am viewing this as a positive rather than a negative.
It still remains to be seen how they manage this year with inflation rife and consumer spending impacted but, as discussed in my earlier post: Supermarket Sweep: Tesco; Morrisons; or Sainsburys?, I think that they have the strategic nous and financial strength to come through the next 12 months stronger than their competitors.
It still remains to be seen how they manage this year with inflation rife and consumer spending impacted but, as discussed in my earlier post: Supermarket Sweep: Tesco; Morrisons; or Sainsburys?, I think that they have the strategic nous and financial strength to come through the next 12 months stronger than their competitors.
So with a convincing overseas growth story and potentially renewed focus on the UK, I am comfortable with Tesco's place in the portfolio and look forward to continuing growth in the dividend.
Tesco@ 397p, +3.45p (+0.88%) as at 12pm
- 10.09p dividend payable 8 July (ex dividend 1 May 11)
Tuesday 19 April 2011
The Efficient Market Theory: My only surprise is that markets are surprised!
As at the close 18 April 11:
FTSE 100 5870.08, - 125.93 (- 2.1%);
DJIA 12197.35, -144.48 (-1.17%);
NASDAQ 100 2290.48, - 17.10 (- 0.74%).
Markets running scared yesterday: possible defaults by Greece and Ireland; increased reserves requirements for Chinese banks; and an unprecedented "negative outlook" for US government debt.
Nothing new here so I am not sure if any of this should be a surprise to anyone or if the prospects for recovery have changed (unless overly optimistic) for any of the economies outlined.
So much for the efficient market theory though, where all information is anticipated, weighted, and factored in! (wikipedia.org: Efficient-market_hypothesis)
If anything China continues to show the way, as it has done in recent years, by taking precautionary action to prevent their economy overheating and trying to maintain longer term growth, which is more than can be said for many of the Western economies who continue to focus on profits today.
China may miss this goal but are at least taking responsibility for their actions rather than adopting a hands off approach and continuing to pump out everything that they possibly can to profiteer in the short term.
This gives them a chance of maintaining growth in their still booming economy. In fact their actions may even help to safeguard the global economies that they serve by easing off the accelerator and moderating growth.
Much better to have steady year on year growth rather than the extreme boom and bust cycles created by the "must have it now" culture that pervades western capitalism.
Additionally, easing the brakes on Chinese growth and consumption should bring some temporary relief to the commodity price inflation that again, seems to be a result of short term speculators driving futures pricing over the next 3 to 6 months.
Strange then that this news out of China should be one of the negative news streams that triggered market retreats and serves only to illustrate the sense of short termism that pervades global markets.
Moving on, I can only think that the possible default of sovereign debt will be a risk for some time to come and it seems slightly mad, or naive, that this should be a surprise to anyone particularly where there is so much resistance to the actions required to bring economies back onto a more normal keel.
I say more normal as it is clear that many Western economies have not been able to see through the "Emperor's new clothes" that many of our global banking behemoths have paraded before us.
Our leaders gladly signed up to, and sought to maintain their own status by aligning themselves with the new paradigms and even claiming that their "prudence" and soft touch regulation was creating a "golden" age of wealth and prosperity for all.
Wealth built on credit - hmmm!
If something is too good to true then it generally is.
Too many of us, and our governments, have sought to spend everything whilst hoping that "our assets" (generally property and wages) continue to inflate at a rate that would diminish our debts and top up our spending sprees.
We want low inflation (or even deflation), on the goods we buy, but high inflation on our assets. Not sure I know how that can work as someone gets exploited somewhere - out of sight is out of mind perhaps?
Iceland, Greece and Ireland have all had their recent days in the sun but there is probably no country that has not taken steps down this path lined by cheap credit and speculation.
Taken as a whole, Japanese companies and stock markets (natural disasters aside), continue to tread water following the implosion of their own 1980's bubble in commercial property (but no property escaped) which inflated to a point that has not been re-attained in the 20 years that followed the central banks "belated" attempts to cool inflation.
To quote from the www.nytimes.com: Bubble burst quickly, but the pain lingered.:
At some stage the debts have to be repaid and, as with companies, cashflow remains the key.
Moving onto the US, well, Standard and Poors have actually maintained their AAA rating on US credit worthiness but, quite rightly, has warned that unless the US undertakes some action to reduce its debt levels then it will be increasing the risk that its debt will become unmanageable and unserviceable from current revenues.
Again, why is this a surprise.
We have also got to remember that, like everyone else in a position to know better, Standard and Poors (and other rating agencies) failed to warn against the same conditions (but arguably more extreme), that preceded the "credit crunch" so, of course, after the event, they are going to react to any shadows that they see, and for some time to come.
Were they afraid of upsetting the golden goose prior to the credit crunch and are they crying wolf now, who knows?
But, as long as they openly voice an opinion then, at least there is a chance of it not happening as preventative actions can be taken!
There are a few facets to this:
- firstly at least most of the tangible debt is now visible and centralised with government not a myriad of companies trying to hide it. As mentioned earlier Standard and Poors (and their peers), failed to identify debt risk when it was hidden amongst hundred of subsidiaries so well done to them now for stating the bleeding obvious!
- secondly, additional debt has (supposedly), been utilised by the government to protect the economy, companies and their markets, and the money cycle.
Indeed, every market stumble in the last couple of years has triggered new appeals for more quantitative easing and low interest rates.
When I say it like that, it sounds like a child working out how to manipulate its parents to its own advantage!
But, at what point does the parent cotton on and understand that they are being manipulated?
- the US is also such large economy (population: 300 million) with a manufacturing base that there is a lot of sustainability about its money cycle... if it can maintain employment.
At this stage the debts and losses of the credit crunch have only been collected and held with government rather than being paid back and recovery remains the measure of success.
But, it remains to be seen how many recovering companies dodge their tax responsibilities when it comes time for governments to pay back the debts. I can't see many of them thinking "bigger picture" then!
Too many of them seem to thrive on parasitic exploitation rather than the symbiotic relationship required!
Finally, looking ahead, it feels like much of this year will continue to be a bumpy ride for stock markets. It won't help sentiment that we are also moving into the middle segment of the year (April to September) that I tend to think of as the "doldrums" when markets seem to trade sideways and directionless anyway, unless some significant event occurs to tip the balance one way or the other.
But, if global economies and governments can implement some sensible corrective actions to reduce debt now, then every day that passes will bring the day when some level of economic stability will be restored (until the next greed driven bubble of course) which, as ever, means that there could be buying opportunities for those with a longer term outlook.
Article links:
- www.citywire.co.uk: Markets tumble as S&P warns of US downgrade
- www.thisismoney.co.uk: Market turmoil as debt crisis hits US
- www.citywire.co.uk: S&P US debt warning: what it means for markets
- www.nytimes.com: Bubble burst quickly, but the pain lingered.
- wikipedia.org: Efficient-market_hypothesis
FTSE 100 5870.08, - 125.93 (- 2.1%);
DJIA 12197.35, -144.48 (-1.17%);
NASDAQ 100 2290.48, - 17.10 (- 0.74%).
Markets running scared yesterday: possible defaults by Greece and Ireland; increased reserves requirements for Chinese banks; and an unprecedented "negative outlook" for US government debt.
Nothing new here so I am not sure if any of this should be a surprise to anyone or if the prospects for recovery have changed (unless overly optimistic) for any of the economies outlined.
So much for the efficient market theory though, where all information is anticipated, weighted, and factored in! (wikipedia.org: Efficient-market_hypothesis)
If anything China continues to show the way, as it has done in recent years, by taking precautionary action to prevent their economy overheating and trying to maintain longer term growth, which is more than can be said for many of the Western economies who continue to focus on profits today.
China may miss this goal but are at least taking responsibility for their actions rather than adopting a hands off approach and continuing to pump out everything that they possibly can to profiteer in the short term.
This gives them a chance of maintaining growth in their still booming economy. In fact their actions may even help to safeguard the global economies that they serve by easing off the accelerator and moderating growth.
Much better to have steady year on year growth rather than the extreme boom and bust cycles created by the "must have it now" culture that pervades western capitalism.
Additionally, easing the brakes on Chinese growth and consumption should bring some temporary relief to the commodity price inflation that again, seems to be a result of short term speculators driving futures pricing over the next 3 to 6 months.
Strange then that this news out of China should be one of the negative news streams that triggered market retreats and serves only to illustrate the sense of short termism that pervades global markets.
Moving on, I can only think that the possible default of sovereign debt will be a risk for some time to come and it seems slightly mad, or naive, that this should be a surprise to anyone particularly where there is so much resistance to the actions required to bring economies back onto a more normal keel.
I say more normal as it is clear that many Western economies have not been able to see through the "Emperor's new clothes" that many of our global banking behemoths have paraded before us.
Our leaders gladly signed up to, and sought to maintain their own status by aligning themselves with the new paradigms and even claiming that their "prudence" and soft touch regulation was creating a "golden" age of wealth and prosperity for all.
Wealth built on credit - hmmm!
If something is too good to true then it generally is.
Too many of us, and our governments, have sought to spend everything whilst hoping that "our assets" (generally property and wages) continue to inflate at a rate that would diminish our debts and top up our spending sprees.
We want low inflation (or even deflation), on the goods we buy, but high inflation on our assets. Not sure I know how that can work as someone gets exploited somewhere - out of sight is out of mind perhaps?
Iceland, Greece and Ireland have all had their recent days in the sun but there is probably no country that has not taken steps down this path lined by cheap credit and speculation.
Taken as a whole, Japanese companies and stock markets (natural disasters aside), continue to tread water following the implosion of their own 1980's bubble in commercial property (but no property escaped) which inflated to a point that has not been re-attained in the 20 years that followed the central banks "belated" attempts to cool inflation.
To quote from the www.nytimes.com: Bubble burst quickly, but the pain lingered.:
"At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time..."
"...Now the land in Japan is worth less than half its 1991 peak, while property in the United States has more than tripled in value, to about $17 trillion."
At some stage the debts have to be repaid and, as with companies, cashflow remains the key.
Moving onto the US, well, Standard and Poors have actually maintained their AAA rating on US credit worthiness but, quite rightly, has warned that unless the US undertakes some action to reduce its debt levels then it will be increasing the risk that its debt will become unmanageable and unserviceable from current revenues.
Again, why is this a surprise.
We have also got to remember that, like everyone else in a position to know better, Standard and Poors (and other rating agencies) failed to warn against the same conditions (but arguably more extreme), that preceded the "credit crunch" so, of course, after the event, they are going to react to any shadows that they see, and for some time to come.
Were they afraid of upsetting the golden goose prior to the credit crunch and are they crying wolf now, who knows?
But, as long as they openly voice an opinion then, at least there is a chance of it not happening as preventative actions can be taken!
There are a few facets to this:
- firstly at least most of the tangible debt is now visible and centralised with government not a myriad of companies trying to hide it. As mentioned earlier Standard and Poors (and their peers), failed to identify debt risk when it was hidden amongst hundred of subsidiaries so well done to them now for stating the bleeding obvious!
- secondly, additional debt has (supposedly), been utilised by the government to protect the economy, companies and their markets, and the money cycle.
Indeed, every market stumble in the last couple of years has triggered new appeals for more quantitative easing and low interest rates.
When I say it like that, it sounds like a child working out how to manipulate its parents to its own advantage!
But, at what point does the parent cotton on and understand that they are being manipulated?
- the US is also such large economy (population: 300 million) with a manufacturing base that there is a lot of sustainability about its money cycle... if it can maintain employment.
At this stage the debts and losses of the credit crunch have only been collected and held with government rather than being paid back and recovery remains the measure of success.
But, it remains to be seen how many recovering companies dodge their tax responsibilities when it comes time for governments to pay back the debts. I can't see many of them thinking "bigger picture" then!
Too many of them seem to thrive on parasitic exploitation rather than the symbiotic relationship required!
Finally, looking ahead, it feels like much of this year will continue to be a bumpy ride for stock markets. It won't help sentiment that we are also moving into the middle segment of the year (April to September) that I tend to think of as the "doldrums" when markets seem to trade sideways and directionless anyway, unless some significant event occurs to tip the balance one way or the other.
But, if global economies and governments can implement some sensible corrective actions to reduce debt now, then every day that passes will bring the day when some level of economic stability will be restored (until the next greed driven bubble of course) which, as ever, means that there could be buying opportunities for those with a longer term outlook.
Article links:
- www.citywire.co.uk: Markets tumble as S&P warns of US downgrade
- www.thisismoney.co.uk: Market turmoil as debt crisis hits US
- www.citywire.co.uk: S&P US debt warning: what it means for markets
- www.nytimes.com: Bubble burst quickly, but the pain lingered.
- wikipedia.org: Efficient-market_hypothesis
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