Tuesday 28 June 2011

Paris Air Show: Review

Post Paris commentary is generally of a subdued event, even so an article from www.thisismoney.co.uk: CITY COMMENT by HOWARD WHEELDON: Boeing and Airbus in for long haul points out:
- 2010 Airline industry profits of $18.6bn
- confidence in the Aerospace industry despite headwinds
- 2011 outlook of $8.6bn has been cut to $4bn due to headwinds from the Japanese Tsunami, political unrest in the Middle East and Africa, and the rising oil price.


- majority of orders were for short haul aircraft with the re-engined A320 (A320 neo) seeming to make some headway against the Boeing 737 with its promised 15% fuel saving
- the first 787 is due for delivery to All Nippon Airways in September
- the 3 year delay on the 787 has allowed Airbus to eat into the 5 years behind (the 787) starting point of the A350
- increasing competition in airframes from China, Russia and Canada.


Looks like Airbus have taken most of the airframe orders with the A350 and the A320 neo. As mentioned in an earlier post: Paris Air Show: Update on Rolls-Royce., Rolls-Royce also seems to have done well with engine orders particularly around the A350 where it continues to be the only engine option and has recently signed an exclusive engine supply deal for the enhanced A350-1000.
However, GE and partners weighed in with $27bn of orders mainly due to 400 engines for Air Asia purchased from CFM (GE's joint venture with Safran). The total splits out to $16bn of engines and $11bn of service contracts. 
The CFM engine is one of the two options available to A320 neo customers the other being Pratt & Whitney's geared turbofan


It feels a little bit of deja vu but I hope that Rolls-Royce doesn't regret its decision not to support the update to the A320 after stating that there wasn't a sufficient business case for it.
Airbus took 232 commitments for the aircraft at Paris and now has orders for 594 of the aircraft in total.
I guess the problem for Rolls rests on not having an existing engine for the segment. It has been "studying" its RB285 engine (150 seaters) for some time now without seeming to generate too much interest amongst the manufacturers.


At the end of the year, Boeing is expected to announce its own "next steps" to enhance/replace the worlds best selling aircraft, the 737.
With airline overcapacity, costs, development leadtimes, resource tied up in new widebody aircraft (787), and the fact that Airbus haven't replaced the A320, an enhancement of the 737 would seem more likely, unless the company feels the need for a "bold" step forward.


So with only a share of the IAE V2500 engine for the "older" A320, Rolls-Royce may find itself with a shrinking presence in new sales for the 150 seater segment until a new aircraft is announced.
Here's hoping for another "bold step" from Boeing and that Rolls-Royce will be ready for it.


Article links:
www.thisismoney.co.uk: CITY COMMENT by HOWARD WHEELDON: Boeing and Airbus in for long haul
www.thisismoney.co.uk: Airbus joins Rolls in £2bn show orders
www.rolls-royce.com: Rolls-Royce to power enhanced Airbus A350-1000
www.ainonline.com: Paris Air Show 2011 Report
www.glgroup.com: Rolls-Royce faces losing single-aisle airplane market share

Monday 27 June 2011

BG Update: Questor Share Tip.

Saw this Telegraph Questor Share tip for BG last week - www.telegraph.co.uk: Questor share tip: Gas trends change and BG Group looks good value

Interesting that the International Energy Agency gets its second mention in a week. 
Interesting to me as I had never heard of them before.

In this case the IEA have reversed an earlier view that there would be a global gas glut until 2020 and moved towards a view that the over supply is already dissipating, hmmm. 
Good news for BG though, and gives the company and its February full year results presentation (where it made reference to supply constraints) an increased credibility (www.dailymail.co.uk: BG Group gushing as gas prices lift earnings).
At the time, the company cited maturing gas fields and increasing environmental regulation, and increasing demand from China and India, as key drivers and that overall demand for gas would increase by 75% by 2020. In the same presentation, Chief Executive Frank Chapman also acknowledged the IEA's view (at the time) that there would be a gas glut until 2020. Frank Chapman's response being that he didn't know where it was going to come from.

The Questor tip also pointed to BG's increasing oil production with "Morgan Stanley calculated that 64pc of production from BG will be oil by 2020."

There was also a cherry to top things off (or should that be an old chestnut), with Royal Dutch Shell and China's CNOOC being speculated as possible bidders for BG.

Management seems capable, a successful strategy is in place and it has proven its expertise in exploration for oil and gas.
The company also deals in a commodity that is very much in demand as well as having significant reserve assets that would complement any of the major gas/oil producers portfolios whilst also being of a suitable size at £43bn (big enough to add value but not too big to acquire).
One to keep hold onto then.

Article links:
www.telegraph.co.uk: Questor share tip: Gas trends change and BG Group looks good value
www.dailymail.co.uk: BG Group gushing as gas prices lift earnings


Links to BG Group website: 2010 Fourth Qtr and Full Year Results (plus webcast)
www.bg-group.com: 2010 Fourth Quarter and Full Year Results

Sunday 26 June 2011

Tesco: Banking problems!

Tesco @ 396.15p, -1.15 (-0.29%)

Not a particularly promising start to life for Tesco Bank with savers locked out of their accounts for 3/4 days.
Not certain what the problem has been but it has come to light following the banks attempts to switch over savings and loan accounts to new systems which in turn has involved the allocation of new sort codes.

Various explanations around the net about certain browsers not working and the reputation of the customer helpline has also taken a battering.
Seems to have been a very frustrating time for many people and of those interviewed quite a few are saying that they will be closing accounts down. 
Having experienced problems with other more established online offerings I can share their frustration and intent.
Tesco has come out and stated that they will address each compensation request on a case by case basis as long as it can be proven. But, will this be too little too late for some customers.

Not the best news for me as I thought that Tesco Bank could carve out a nice profitable niche for itself in a UK Banking sector where reputations have taken a battering and integrity is no longer a given.
I have already seen an early positive change in the stores following new Chief Executive - Philip Clarke statement that there would be a refocussing on its UK operations so it is a disappointment that the company has allowed something to escape in its fledgling Banking arm. 
Hopefully, the situation can be rescued and the company will learn lessons from it.



Article links:
www.thisismoney.co.uk: Crisis at Tesco Bank as online banking crashes and leaves customers locked out for THREE days
http://faq.tescobank.com: Question: How can I claim compensation for costs I've incurred as a result of Tesco Bank's system issues?

BP update: a little bit of everything.

BP @ 437.15p, +1.65p (+0.38%).


Well, much like the update on Rolls-Royce, the performance of BP since they were added to the Virtual Portfolio can only be described as a roller coaster. Purchased at 435p, the shares quickly rose to 509p in January but have since charted an unrelenting course back to the levels they were bought at.


BP Share price performance (Chart courtesy of Digitallook)
Unlike Rolls-Royce, I see this performance as being entirely down to its own making. In particular, to my mind, the Chairman and the Chief Executive have yet to demonstrate that they deserve their positions. Put another way, it would be interesting to know where BP might have been if the Rosneft deal had never even been considered.


Given the volatility of the oil price, and its link to economic recovery, its nowhere near conclusive but, BP's share price was 503.7p on the day prior to the announcement of the Rosneft tie-up. The CEO, Bob Dudley and the Chairman, Carl Henric Svanberg, have to take responsibility for this bumbled attempt at international deal making and the distress of the share price since then.


However, trying to move forward but still being held back by the past. BP did announce last week that a further agreement has been reached with another one its partners in the Gulf of Mexico operation. This time, oil services firm, Weatherford, has agreed to contribute £46.2 which will go directly into the compensation fund.


That was the good news, and I did say that this was a little bit of everything. Well the not so good news is that, another partner Transocean, continues to decline all responsibility opting instead to point the finger at BP. Transocean owned and operated the rig.


Finally, the don't know bit of news, the International Energy Agency has announced the release of an extra 60 million barrels of oil into the market in response to disruption caused by the Libyan crisis. Up until the end of May the crisis has removed 132 million barrels from the market.
Apparently this increases global oil supply by around 2.2% and the price of crude dropped accordingly:
- Brent crude @ $107.26, -$6.95
- US light crude @ $91.02, -$4.39


Might also be in response to OPEC's decision in June not to increase output despite IEA's call for an increase.


Seems more a statement then anything else.


Anyway, back to BP, it has certainly been testing and at times it would be easy to lose sight of off the objective which is to generate returns over the long term. 
Since adding BP to the Portfolio, the company has re-instated its dividend and yields around 4% payable quarterly. It has also made solid moves to finance the liabilities and compensation due to the Gulf of Mexico incident.
Due to its well publicised issues, the share price trades on just 5.8 times current year so has plenty of scope for "recovery" and, it remains highly geared to the oil price and economic recovery (obvious I know).
As a result, for the Income side of the Portfolio, I still see BP making a significant dividend contribution for many years to come and eventually, a recovery in its share price once credibility is restored and its assets and prospects are appreciated once again.




www.dailymail.co.uk: BP strikes a £46m deal over Gulf oil disaster
www.express.co.uk: RIG OWNER SAYS BP IS AT FAULT FOR GULF SPILL
www.bbc.co.uk: Oil price drops on reserve sale

Paris Air Show: Update on Rolls-Royce.

Rolls- Royce @ 609p, +19p (+3.22%)


So what about pointing out some of the good news then. 
A significant holding in the portfolio, Rolls-Royce, has had a turbulent 9 months or so since the Quantas A380 incident and it shares have run an equally rocky course with the addition of the JSF budget cuts.
However, June begins what is generally a positive PR period for the company driven by the industry love-in that is the Paris Air Show.


The diary of press releases has been pretty full for the last 10 days so lets lists them straight off the Rolls-Royce site:
15th June - Rolls-Royce wins offshore supply vessel order in Brazil - "£15m order to design and equip 2 offshore vessels for ship owner Brasil Supply."


16th June - Rolls-Royce secures offshore orders worth over £100 million - £100m order "to supply propulsion systems for offshore construction and drilling vessels."


19th June - Rolls-Royce to power enhanced Airbus A350-1000 - "Rolls-Royce, the global power systems company, has signed an agreement to be the exclusive engine provider for an enhanced version of the Airbus A350-1000 aircraft."

"Currently six Trent XWB engines are being tested and are delivering better than targeted results. Flight testing of Trent XWB engines is scheduled to begin later this year."
"More than 1,100 Trent XWB engines have been ordered by 36 customers making it the fastest selling member of the Rolls-Royce Trent engine family. The higher thrust variant of the Trent XWB is scheduled to run for the first time in mid-2014 and enter service in mid-2017."
20th June - Rolls-Royce completes $2.2 billion Trent order with TAM Airlines - Rolls-Royce "has concluded a contract worth up to $2.2 billion at engine list prices, with TAM Airlines of Brazil, to provide Trent XWB engines for Airbus A350-XWB aircraft.  The order includes a 12 year agreement for TotalCare® long-term services support."

"This is the first time TAM has ordered engines from Rolls-Royce and follows a previous announcement of the aircraft order made by Airbus. TAM has placed an order for 27 A350-XWBs."
20th June - Rolls-Royce share of Gulf Air V2500 order worth $60 million - Rolls-Royce "has won a share of an order from Gulf Air for V2500 SelectTwo engines to power six Airbus A321 aircraft. The order is worth over $60 million to Rolls-Royce. 

20th June - Rolls-Royce share of China Southern V2500 order - Rolls-Royce "has won a share of an order from China Southern Airlines for V2500 engines to power 30 Airbus A320 aircraft. The contract includes a long-term engine maintenance agreement. The value of the contract to Rolls-Royce is over $250 million."

21st June - Rolls-Royce reaches $360 million agreement with Etihad Airways - Rolls-Royce "has reached an agreement with Etihad Airways, the national airline of the United Arab Emirates, to provide long-term engine services and performance enhancement kits worth a total of $360 million."

"The Abu Dhabi-based airline will receive TotalCare® services for Trent 700 engines that power four Airbus A330 aircraft. It will also extend an existing contract covering the same engines that power 20 more of its A330 fleet."
"In addition, the airline will introduce Enhanced Performance (EP) kits on 30 of its Trent 700s, which will increase their fuel efficiency by more than one per cent per engine and reduce CO2 emissions by 800 tonnes per aircraft per year."

22nd June - Rolls-Royce and Lockheed Martin sign engine fuel efficiency agreement - Rolls-Royce "has signed a memorandum of agreement with Lockheed Martin Corp. to provide performance improvements, including better fuel efficiency, to the T56 family of engines. The agreement builds on a partnership of over 50 years and demonstrates long-term commitments from both companies to enhance safety, economy, reliability and performance of Lockheed Martin aircraft "

22nd June - Rolls-Royce Trent 1000 approved by Japanese aviation authority - Rolls-Royce "has received certification from Japan’s aviation authority for its Trent 1000 engine, confirming its readiness to power the Boeing 787 Dreamliner’s entry into service with All Nippon Airways (ANA).

A Certificate of Type Approval has been granted by the Japanese Civil Aviation Bureau (JCAB), the first granted for an engine powering the 787 Dreamliner.
Last month Rolls-Royce announced the Trent 1000 had been granted Extended Twin Engine Operations (ETOPS) approval by the Federal Aviation Authority (FAA), again a first for an engine operating on the 787.
Flight tests to support ETOPS approval of the engine/aircraft combination are now taking place and engines have been delivered for the first ANA 787 Dreamliner to go into passenger service."
23rd June - Rolls-Royce demonstrates technology leadership in Paris - "World-leading technology developed by Rolls-Royce, the global power systems company, was one of the highlights of this week’s Paris Airshow, where the Group launched the latest member of the Trent family and won significant new orders.

Rolls-Royce confirmed development of an enhanced Trent XWB engine, capable of delivering 97,000lbs of thrust, for the enhanced Airbus A350-1000, while also securing orders of $2.9 billion from customers in South America, the Middle East and Asia."

24th June - http://www.rolls-royce.com/investors/news/2011/110624_tognum_support.jsp - the Rolls-Royce / Daimler joint bid for Tognum has successfully secured 94% of the shares.

So a seeming avalanche of good news with a further touch added by the announcement that the company has also settled its potential legal dispute with Quantas at a cost of £62.5m as reported by the www.independent.co.uk.
However, the share price has run a roller coaster this year since the highs of 665p achieved in January. Since then it has pulled back to 570p, recovered to 650p and then fallen back again to 590p from where it looks to be on another recovery track with a 19p gain on Friday.
Rolls-Royce share price performance (chart courtesy of Digitallook)


Obviously, the tide that the share price is fighting might not be entirely of the company's own making (sovereign default and US slowdown) so might be reasonably argued that, JSF concerns aside, the company might not be at a valuation that matches it prospects. 
The company is effectively debt free, has one of the worlds most recogniseable brands and is one of the top two companies in an industry with huge barriers to entry (investment, technology, and capability).
It has also successfully executed a strategy which has given it a broad customer base across a number of sectors "comprising more than 500 airlines, 4,000 corporate and utility aircraft and helicopter operators, 160 armed forces, more than 2,500 marine customers, including 70 navies, and energy customers in nearly 120 countries, with an installed base of 54,000 gas turbines." (Rolls-Royce).
Almost 50% of revenues no come from the aftermarket support of this installed base.

At 31 December "The firm and announced order book stood at £59.2 billion", which is around 6 years work. Take note of the date though as a further $2.2bn was added to this from Paris alone.
It is one of two engine choices on the Boeing 787 and currently, the sole engine choice on the Airbus A350. 
The engine for the A350 (2 per aircraft), "The Trent XWB is the most advanced civil turbo fan engine in the world and the fastest selling Trent ever. Orders are in place for 574 aircraft, from 36 customers."


The share price is once again ploughing similar levels to those seen when the A380 engine failure hit the news. Is that a fair assessment of the company's medium and longer terms prospects?
At current levels the share price is on a forecast P/E of 13.7 falling to 12.2 in 2012 on earnings growth of 14% and 12%. 
Given the size and visibility of the order books, the nature of the aerospace cycle, and the near certainty of revenues from its installed engine base, I see R-R being a core holding of the portfolio for some time to come. 
It has a dividend yield in the region of 3% and, if projections to 2012 (and company guidance) are correct then the dividend will have doubled in 6 years which I see as quite a decent performance.
In the current 12 month horizon, I can still see the company regaining its premium rating and achieving new highs in the region of 700p.

Be lucky!



Rolls-Royce Press Release links:

Other Article links:


Thursday 23 June 2011

Market fears 2: Sovereign debt defaults and slowing US growth.

FTSE 100 @ 5674.38, - 98.61 (-1.71%)
DJIA @ 12050, -59.67 (-0.49%)


Feels like swimming against the tide (and losing) at the moment as voiced fears of slowdown and Greek tragedies can be heard from every soapbox and hyped up by the media.
Not sure why this pattern continues to reinforce itself over the summer months but it does seem to. Like voices whispering in the dark it can be easy to succumb to the fear and make rash decisions due to a short term influence and in many cases ignorance.
I don't necessarily mean that there isn't a qualified basis for every comment but these are, more often that not, magnified out of all proportion to meet the objectives of media companies i.e. to sell news whether it be headline tasters of the televised evening news (with dramatic bass rhythms) or huge font headlines in the papers.
There is also an element of some commentators or market watchers just feeding the information and answers that people want to hear. Can Greece fail?....Of course it can is the answer.

The difficult task is always to see beyond this horizon. Markets will always take hits and it is never going to be a one way journey. 
Not to belittle the situation but do I really think that following default, or austerity measures the Greek people will stop buying Iphones etc. 
It would be nice to think that people today are able to take that kind of personal responsibility and abstain from spending what they don't have but I don't see widespread evidence of it. Instead everyone seems to think they are owed something.

Of course, if Greece does default, there will be a significant (and possibly damaging) impact to creditors, and reputations, as well as the ambitions of the Greek government and its people. I assume that, even if defaulting, it doesn't mean that Greece can avoid the tough decisions on its finances as it will have zero credit worthiness to borrow, which leaves taxes as its limited source of revenue.
The big fear for the Eurozone must be that if Greece does go down the default route will that tempt others to follow?

Elsewhere, Ben Bernanke - Chairman of the Federal Reserve has lowered growth forecasts for the US this year. His lack of comments around quantitative easing  were also taken as negative. 


Again do slowdowns really affect the long term profitability of a company? Only if its finances are weak and overstretched to begin with and it has no control over its cost base. If it has effectively over mortgaged itself against potential future profits then you have to recognise that kind of risk when you invest in it and balance your portfolio accordingly.

Other than that, strong companies will manage their finances to roll and adjust to this whilst maintaining their competitiveness for better times. Often they can also emerge stronger as weaker competitors fall by the wayside.
My view is that these are the companies that I am looking to invest in and to stay invested in.

And, during turbulent times like this when markets are generally retreating with little forward momentum or clear support from a macro level, all shares are treated with the same finger burning fear.
This being the case there is often an oversold situation on quality companies as they are swept up in a retreating market.
I still think that the market could retreat further, looking back I see that the FTSE retreated something like a 1000 points last summer - a roller coaster that swept from 5800 in April to 4800 in July before touching 6000 at the turn of the year. 
FTSE100 2 year view (Chart courtesy of Digitallook).


Can't think of any specific events in 2010, just general concerns about European sovereign debt (PIIGS), and Australia's attempts to increase taxes on mining company profits. In a similar pattern the Dow Jones Industrial Average fell around 1500 points over the same period.


So other than finding a price that I am happy to pay then the turning points at a macro-economic level would seem to be the finish of the US's stimulus package (easy money), and the outcome of Greece's woes which are likely to see speculators hunt for their next victim.
Bizarrely, if the US doesn't stop its stimulus program and begin to address its own deficit then there are one or two headline seeking credit rating agencies waiting to downgrade the US's credit rating. 


There is good news out there but it is just being lost in the retreat. That being the case and looking at the virtual portfolio, I am not intending to do anything specifically in response to the current situation other than to keep a close eye on my watchlist for any likely candidates to add preferably with strong brands, defendable market leading positions, good management and strong cashflows (preferably to pay dividends).


Finally, I have to mention that Wall Streets opening salvo today, a drop of 150 points put the boot into the FTSE, and when I started writing this post less than an hour ago the DJIA was down around 200 points at 11919 ish however, come the close it has recovered 140 points to finish at the 12050 level shown at the top of this post. Just bizarre!

Tuesday 21 June 2011

Market fears: Will they, won't they? That is the question!

Symbiotic is the word to describe good dependent relationships but the globalisation of financial services that we are seeing today seems more parasitic or virus like. The so-called relationships are more like an attempt at the world domino tumbling championship - one falls and they all fall, rather than being built on firm foundations.
Greece is in trouble. I appreciate that in the main the populace have done little to deserve it other than to buy in to the bubble of Euro membership. There are suggestions that they were "assisted" in meeting the criteria by the investment banking sector "re-structuring" the countries finances by re-categorising debt and effectively enhancing their debt to GDP ratio. How many more countries have followed the same path to satisfy the vanity and empire building of Brussels.
Interesting that they have also hosted the Olympics in recent times, and I wonder how much this has contributed to their current debt levels. In turn, what kind of a warning message does that leave for the UK.
Anyway, the question is will they, won't they? Will the Greek people support the proposed solution (I don't see any other on the table other than bankruptcy), or continue to fight the solution and start a second global contagion with a debt default? 
Will France and Germany allow them to default and firebomb the Euro?

Personally, I am not sure which is the better of the two. Certainly one would stave off bankruptcy and maintain the Euro, but that only raises the question of who is next in line - Spain, Ireland, Portugal, Italy?
It seems inevitable to me that, if not this time, then eventually Greece will default.

I have left the UK off  this list for the moment due to the Governments attempts to reduce its debt but it could surely do more, such as keeping to its election manifesto!
The scale of potential default is the piece of information I am trying to focus on, and the possible ramifications. In the past there have always been defaults with Russia, Argentina, Iceland, and Greece itself having trodden this path before. And with inflation you would expect each subsequent default to be bigger than the last.
Apparently, Greece owes euro$340bn (equivalent to 150% of GDP), with 70% held abroad.

The US is warning that default would trigger another credit freeze (as Banks stop lending to each other) along the lines of that triggered by the demise of Lehman brothers.

Would this situation be as toxic as that one? Lehman Brothers folded with $613bn of debt against "possible" assets of $639bn (questionable at best given the results of subprime, CDO investments etc).
But, surely it was the CDO's and similar investments that had run like viral tentacles across the globe as each investment bank bought into the bubble. And, it was this repackaged and hidden element that resulted in nobody knowing who was left holding the timebomb.
Surely, in this case the debt is transparent and the creditors known in which case, targetted solutions can be implemented.

I don't recall too much detail about the Russian default of 1998, other than that Russia did default on its domestic debt (not its international debt) and markets were affected.
It wasn't until much later that I began to understand the knock on to LTCM, who with their Blacks Scholes model were effectively buying up as much of Russia's debt that it could get its hands on.

Russia's problems followed on from an Asian defualt in 1997. So it happens a lot then.

Anyway, back to 1998, Russia's default hit the FTSE100 which fell from around 6000 to around 4500 (which can be seen in the chart below: courtesy of Digitallook) but then rebounded almost immediately to end the year around 6000.
For reference you can also see the smaller falls in 1997 triggered by Asia, and, of course, the natural disaster which was the 2008 credit crunch. 
The big V in the middle was the tripple whammy of the tech bubble bursting, the September 11th tragedy, and the second Gulf war that followed.



Impossible for me to know how this will pan out or the scale of potential hurt given that some banks are still recovering their capital bases following 2008, or at least you would hope so.
There is still a significant risk that the great Ponzi scheme that is the bank re-capatilisation program has just been used to pay out bonuses and that this will find them all out once again!

On a more positive note, sovereign defaults in isolation, have been absorbed so it could be that markets are still a bit sensitive as the hurt of the last few years continues to leave red scars. That being the case history suggests that markets will recover in their own time but that being the case any falls might just yield an opportunity for the very bravest amongst us.



Related articles:
- www.reuters.com: Quick Guide to the Greek crisis


Wednesday 8 June 2011

Apple's WorldWide Developers Conference: The Rainmaker returns!

Steve Job's re-entered the spotlight this week at Apple's WorldWide Developers Conference (WWDC) in San Francisco.
It had been speculated about in recent weeks along with the fanfare surrounding the company's new product - the iCloud, which will be its first significant step into the next big frontier for the industry - Cloud computing.


As with the iPad, the announcement has met with some initial pessimism as to whether it can provide the company with its next avenue of growth. But, there does appear to be a consensus by the computer products industry to move into this next stage of "terminal" computing ie. having access to centrally stored files and resources.
The immediate thought is that this will free up your remote device, enabling it to work faster but, like many I have my own reservations about freeing up so much control to a remote operation.
It isn't really a new idea though, in the days of expensive mainframe computing, and before PC's, networks were often used to "rent" time and resource from a third party in order to save the expense of buying a mainframe computer and expensive programming resource.
Similarly today, online back-ups of photo's and other data files is in use.


Like new games consoles with a "killer" game to draw the buyers, the key product here could be iTunes, as put forward in Steve Job's presentation. Using iCloud will enable users to access "their" iTunes media library from all of their internet enabled devices.
Similarly, calenders, contacts etc won't need transferring from phone to phone or other device upon upgrading because it would all be in the "cloud". Jobs also managed a little dig at PC's by referencing the effort and task to keep all of our devices in synch. with each other.


I'm sure that, eventually, there will be a massive take-up of cloud computing, and that the industry will also line the route with lots of incentives. As ever, security will remain the issue.


As to Steve Jobs, well his health will always be speculated about.


Elsewhere, speculation suggests that the next version of the iPhone could be delayed until September.




Related articles:
www.dailymail.co.uk: Jobs enjoys a day in the sun to unveil his Cloud: Now Apple customers can access their music anywhere, any time
thescotsman.scotsman.com: Steve Jobs on cloud nine on Apple return

Monday 6 June 2011

May 2011: Portfolio Update

So much for the "merry" month of May which didn't seem to work out that way for either the FTSE or the virtual portfolio.
Continuing fears over Greece (and the potential domino effect on countries that make up the Euro) and an undercurrent of concern that the US recovery may be stalling seems to be the order of the day. Mix it well with succession problems at the IMF, sprinkle on a pinch of some disappointing company updates, and a dash of the doldrums and....... voila - a short term, retreating market.

Despite a retreat of 0.76% in May the portfolio is still showing a year to date gain of 3.99%.
I am actually quite pleased with the virtual portfolio's performance year to date, even more so when pitched against the FTSE which is back in negative territory year to date with its heavy weighting towards commodity and banking stocks.
Breaking the 3.99% down a little: the year to date contribution from dividends is just 0.35% which leaves 3.64% of capital gain.

Its probably fair to say that I still feel the market is exposed to bad news through this next few months but that this is a typical short term weakness or, at best, market consolidation (taking a breather).
I have to remind myself at this stage that if I didn't have a positive view on the long term prospects for global economies and markets then I shouldn't be investing in shares at all.
But, I am investing, therefore, I have to keep that long term view at the forefront of my thinking and ensure that short term volatility driven by sentiment and fear doesn't detract me from my strategy.

That isn't to say that there isn't weaknesses in my portfolio to be concerned about. There are a couple of investments that need to be looked at as their prospects and outlook seems to have changed.
On a year to date basis: Microsoft and Cisco have underperformed quite a bit.
Microsoft doesn't look as bad on a complete picture with a -2.92% fall overall (and it has yielded dividends).
But Cisco is now -24.36% overall with a mob of analysts and market watchers thinking that management has taken its eye off the ball. Competitors appear to have caught up with its technology which is proving to be a challenge to the margins and premium that Cisco has historically been able to command.
This is being compounded by a reduction in customer spending, which is hopefully a short term issue but it remains to be seen whether Cisco can retain its profitability in this more competitive environment. 3 quarters of disappointing updates suggests that it has some work to do and I need to consider whether the funds invested in Cisco might be better deployed elsewhere.
Cisco was a "picks and shovels" investment in the growth of the internet, networks and smartphone traffic but doesn't seem to working out as planned. Funny thing is I can't think of many picks and shovel investments that I have made that have worked out, so there might be a lesson there for me.

Going back to Microsoft, the company appears to be suffering by comparison to Apple and Google with many suggesting that it has lost its innovative edge amid speculation that its market position is also under threat as its rivals challenge its previously default operating system.
However, Microsoft is certainly not on the same speculative valuation as its rivals (very little froth) and remains a cash cow with an abundance of technological resources and a market leading position on PC's and services to business.

Both investments are also being compounded by general concerns over the US economy and the resulting weakness of the dollar against sterling.


Merchant Adventurer's Index
Forecast
1 month
YTD
17 Months
% holding Div. yield
% gain
% gain
% gain
R-R 29.03% 2.75%
-1.71%
1.20%
30.40%
National Grid 18.99% 6.32%
0.90%
12.03%
14.14%
Invesco Perp.Hi Inc. *** 7.25% 0.00%
2.88%
7.66%
20.64%
Aviva 5.10% 6.26%
-3.58%
9.62%
14.74%
BP 4.69% 3.82%
-0.63%
-1.27%
5.60%
Apple ** 3.64% 0.00%
-2.45%
-0.90%
69.14%
IG Group 3.36% 4.27%
-2.36%
-10.59%
51.56%
BG Group 2.87% 1.03%
-8.02%
8.83%
29.40%
Centrica 2.77% 4.92%
-1.25%
-4.43%
0.34%
William Hill 2.75% 4.32%
-5.37%
23.90%
23.69%
Morrisons 2.64% 3.57%
1.93%
12.29%
18.76%
Scottish and Southern 2.63% 5.74%
0.59%
11.51%
18.69%
Tesco 2.32% 3.74%
3.23%
4.43%
4.43%
BAE Systems 2.30% 5.59%
0.85%
0.21%
3.59%
Microsoft ** 2.16% 1.95%
-3.26%
-15.98%
-2.52%
Cisco ** 1.68% 0.25%
-4.89%
-22.92%
-24.36%
Cash 5.84% 0.00%
3.66%
4.89%
100.00% 3.43%
1 Month
YTD
17 Months
Virtual Portfolio gain (incl. Divs)
-0.76%
3.99%
31.46%
FTSE gain (excl. Dividends)
-2.16%
-0.54%
9.72%
- 1 month gain   6069.90 - 5938.87
- YTD gain         5971.01 - 5938.87
- 17 month gain 5412.88 - 5938.87
Transactions:
17/05/2011 Dividends Aviva @ 16p per share
20/05/2011 Dividends BG Group @ 7.31p per share
Notes: 
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.6462 as at 31/05/11
*** Invesco Perpetual Accumulation units (i.e. Dividends re-invested)
Looking at the chart of performance relative to the FTSE100:


So, still going reasonably well but a couple of investments that I need to keep a closer eye on and might need pruning.


Links to previous Portfolio updates:
- April 2011: Portfolio Update