Thursday 24 November 2011

Rolls-Royce Director says company will double in size!!

....assuming it delivers a $60bn order book first - http://gulfnews.com: Middle East investments set to power Rolls-Royce's growth

The article doesn't identify what measure might double in size, it could be in engine sales, share price, revenues, profit etc but, it does serve to highlight the long term nature of the aerospace business and if an investor can remain focussed on that (and the company does what it says it will do, of course), then this might provide an investor with some emotional armour against the wild gyrations that are inherent in the market's extremely short term view today.

HTC shares plunge 7%.

Apple @ $366.99, - $9.52 (-2.53%)

Not sure how to read this:- http://www.bbc.co.uk: HTC shares plunge after revenue forecast cut. apart from negatively, with a probable read across to my holding in Apple but HTC the fast moving Taiwan based manufacturer of smartphones released a profits warning yesterday which saw its shares fall by 7%, the maximum daily fall allowed by the Taiwan stock exchange.

The company had previously been forecasting 20-30% growth in revenues but is now guiding markets that growth will be flat.
Despite previous guidance on slowing growth in this quarter the news apparently caught analysts completely by surprise and the shares have been punished as a result. 
The company are predicting a return to growth in the first quarter of 2012 but, how hard have/will they be punished as the Taiwan stock exchange appears to manage a daily allowance of 7% falls. Not sure just how that works but I am guessing that they suspend the shares.

"Analysts said the grim outlook could be blamed on lack of new products to compete with an expansion in Apple's distribution channels in the US."  http://www.bbc.co.uk: HTC shares plunge after revenue forecast cut.
Slightly bemused by that statement as HTC famously churns out new models and upgrades by the bucketload.

But I am still assuming that there will be some negative read across to Apple and other smartphone manufacturers (HTC have been prolific producers of critically acclaimed products) but difficult to split this out from the generall falls with the market due to EU contagion fears.

On the upside Christmas is coming we just need the Apple stores' tills to be ringing or ringtoning.

Related articles:
- http://www.bbc.co.uk: HTC shares plunge after revenue forecast cut

Achtung: Risk of Euro contagion

Well thats put the cat amongst the pigeons and might just be enough to wrestle Germany from the torpor of its perceived protective bubble.
The richest, most secure (and probably best managed) of the EC's member states (it recently found 25bn it didn't know it had) has just had a pretty disastrous bond sale to the point where it was pulled with a little over half of the targeted 6bn raised.
Despite Angela Merkel's star turn managing the EU summit, and a show of European solidarity, the German state has stuck to its guns on the ECB and related options because it felt secure in its own financial strength, which it does seem to have, and saw an opportunity to push its own European agenda but, such is the current escalation of concern it looks like all things Euro are in danger of being shunned.
On a point by point basis I actually agree with most of Germany's stance and the risk of inflation but unfortunately, I can't help thinking that like every other politician involved here they are on too much of a voyage of self interest rather than seeing what is right in front of them.
I think the EC as a whole has squandered more time and opportunities than I think were actually available so, hopefully, this bond sale (or lack of) might just provide the wake up call to Germany that the contagion risk is a real one.
Although, it has to be said that the yield on offer, at 2.07% on 10 yrs, does not yet raise alarm bells.
With the possible future of the EC and the Euro at risk it really must be time to step up to the plate and show genuine purpose and desire to rescue it, or not!
The desire for closer fiscal union must also require the ECB to have a greater remit and range of regulatory powers than the fairly toothless symbol of EC bureacracy and vantity that it currently is.
So whilst I don't necessarily think that a program of quantitative easing or eurobonds is the right solution, I am not sure that there are any remaining options.

In my view it really is an all for one and one for all moment.

Related articles:

Wednesday 16 November 2011

Vodafone ex Dividend today.

Vodafone @ 173.85p, -6.75p (-3.74%) as at 12pm gmt

I see that Vodafone (I still need to correct myself from spelling it with a "ph") is in the fallers today having gone ex dividend to the tune of 7.05p.
It also looks like the company is starting to get quite a bit of notice from analysts now that the company's 45% stake in Verizon Wireless is starting to pay dividends (literally!). 
That being the case and if we see some benign market conditions (fat chance) then the shares could easily push beyond their 52 week high of 182.75p achieved yesterday.

Related articles:

Related posts:

Tuesday 8 November 2011

Vodaphone update: Interim results.

Vodafone @ 176p, +3.15p ( +1.82%)

Vodafone delivered half year results today for the 6 months ending 30 September 2011.

Looking at the comparables:
- Half year revenues came in at £23.52bn (£22.603bn), +4.1%
- Operating profit up sharply at £6.478bn (£2.615bn), +147.7%, due mainly to the sale of Vodafone's 44% interest in SFR to its majority shareholder Vivendi for £6.8bn.
- Profit for the period "down" to £6.644bn (£7.504bn), -11.5% mainly due to the timing of capital investment
- Net assets/shareholders interests down to £85.272bn (£90.543bn), -5.8% following sales of minority interests.

The company also stated the following highlights:
- Q2 Group organic service revenue growth +1.3%; Europe -1.2%, AMAP +8.2%
- H1 EBITDA up 2.3% to £7.5 billion; EBITDA margin 32.0%, down 0.6 percentage points, as expected
- Adjusted operating profit £6.0 billion; full year guidance now improved to £11.4 - £11.8 billion
- Free cash flow £2.6 billion; full year guidance of £6.0 - £6.5 billion confirmed
- Interim dividend 3.05 pence, up 7.0%; special dividend of 4.0 pence to be paid at the same time 

So free cash flow range guidance confirmed for the full year along with an improvement to the previous guidance for operating profit (previously £11 - £11.4bn).

Overall revenues were up by 1.3% consisting of: European revenues down 1.2% due to price reductions in Spain but up 8.2% in Africa, Middle East, Asia Pacific (AMAP), despite inertia in Australian and Indian markets.

The company also re-iterated and detailed current progress against its strategy which is to:

1.
Focus on key areas of growth potential;
The single biggest industry opportunity identified as Mobile Data. Revenues from which were up 23.8% to £3.1bn representing 14% of Group service revenue supported by smartphone penetration at 21.7% of European customers.
Emerging market exposure with AMAP and Turkey key drivers.
2.
Deliver value and efficiency from scale;
Traditional economies of scale being pursued with shared technology platforms and procurement strategies.
3.
Generate liquidity or free cash flow from non-controlled interests; 
44% stake in SFR sold along with the 24.4% stake in Polish operator Polkomtel. £4bn of the SFR proceeds will go on a share buyback.
Verizon Wireless (the second largest wireless operator in the US), a joint venture with Verizon Communications remains a key investment and in July announced a special dividend worth £2.8bn to Vodafone which will go towards debt reduction and the 4p second interim (special) dividend.
4.
Apply rigorous capital discipline to investment decisions.
Continued intention to enhance Return on Capital and maintain A credit rating. 

The 1st interim dividend amounts to £1.538bn and the special a further £2.017bn which is around 53.5% of the declared profit for the period.
Cash and equivalents is showing as £6.975bn.
Net debt also continues to fall as a result of cash generation.

On the downside:
I did notice some exposure to Greece, along with Portugal and Ireland which the company says continue to be affected by well publicised economic factors.
There also continues to be an ongoing potential tax liability related to the purchase of Vodafone India.
The company continues to fight the liability through the legal system and there should be a supreme court decision before the year-end.
To that effect Vodafone has put aside $2.5bn in provisions but there remains a risk that this liability could be doubled!

Vodaphone is a company that has changed quite a bit over the years since its grand expansion during the Technology, Media, and Telecoms boom of the late 90's when it seemingly sought world domination but saddled itself with significant debt as a result.
Remember the auctions for 20 year 3G licenses completed in April 2000 (just before the Tech bubble burst).
Vodafone paid £5.964bn for theirs prior to going on the convoluted acquisition trail which saw it take over Mannesman, which had itself just taken over a hugely overpriced Orange in a wasted attempt to protect itself from Vodaphone (www.gsmhistory.com: Great Moments in Mobile Radio History from the inside – The 3G Auctions).


It all proved to be very good business for the then Labour Government and it is a travesty that the then Chancellor, Gordon Brown couldn't have been more prudent with the £22.47bn auction proceeds.
A BBC article of the time suggest that the proceeds were the equivalent of £400 per person in the UK but that the Government planned to pay down the National debt (http://news.bbc.co.uk: UK mobile phone auction nets billions).
Just where did it all go?
And, taking a further lesson from history when considering what is a fair price, how long has it taken for technology to catch up with the 3G licensed airwaves to eke some kind of profit for the investment.

To some degree the company's enormously expensive expansion strategy has been justified as the evolving company has not seemed to struggle to maintain cash flows to support debt servicing and repayment, and dividends.
Revenues have grown steadily over the last 5 years and the company looks just about ready to grow profits again through the increasing use of smartphones, a focus on controllable and higher margin interests, emerging markets, and its stake in Verizon Wireless.
The special dividend from Verizon Wireless is also very welcome and could yet be a sign of things to come.

Of course there are a number of risks and potential liabilities such as from the tax case involving Vodafone Essar (India), global/regional recession, and regulatory pressure on charges. 
But, the company has behaved like a utility cash cow in the last few years quietly going about its business selling assets, servicing debt, and maintaining a generous dividend.
This last few years has also seen the company derated considerably particularly when one remembers its heady days as the biggest company in the FTSE with a capitalisation in excess of £300bn (2011: £89bn).
Its recent single digit P/E status has assumed very little growth and even then the price has only been propped up by a generous dividend payout.

I have mentioned Vodafone a few times in previous posts and finally added them to the portfolio in August at 160.334p. 
At today's closing price of 176p the shares have increased by 9.22% over 3 months. 
In addition, the shares are due to go ex-dividend (for the interim and special), on the 16th November which, at 7.05p (3.05p + 4p) will give a further 4.39% in dividends.

With a forward P/E of 11.1 and a forecast yield of 7.2%, the shares aren't as cheap as they have been but global depression aside the company has a strong geographic spread and significant exposure to the burgeoning uptake of smartphones which look set to be an essential "utility" with an exciting future that might just be taking off.
Slightly better growth prospects and an above average dividend policy might just be the catalyst for a positive rerating of the shares which I look forward to.

Related articles:
- www.vodafone.com: Presentation - Vodafone Group Plc Interim Results

- www.vodafone.com: News Release - Half-year financial report for the six months ended 30 September 2011
www.sharecast.com: Vodafone adjusts operating profit guidance higher
- http://news.bbc.co.uk: UK mobile phone auction nets billions

- www.gsmhistory.com: Great Moments in Mobile Radio History from the inside – The 3G Auctions

Related posts:
- Stock Markets stabilising at the end of a turbulent week?
Portfolio housekeeping and additions: Talk Talk, Invesco Perpetual, Vodaphone, and Tesco.
- August 2011: Portfolio Update.
- September 2011: Portfolio Update.
October 2011: Portfolio Update.


















Monday 7 November 2011

European markets and an Italian sore thumb?

Index asc Value Chg  % Chg 
CAC 40 3116.66 -6.89 -0.22 %
Dow Jon... 11983.24 -61.23 -0.51 %
FTSE 100 5489.81 -37.35 -0.68 %
FTSE MI... 15654.79 308.24 2.01 %
IBEX 35 8483.90 -112.50 -1.31 %
Nasdaq 100 2356.32 -11.39 -0.48 %
S&P 500 1253.23 -7.92 -0.63 %
Xetra DAX 5964.44 -1.72 -0.03 %

Interesting picture (as at 11.54 gmt) given the downgrades for Europe coming out of most of the big US Investment banks.
Ignore the US indices as they are closed until this afternoon.

The carnival appears to have rolled into Rome as Prime Minister Silvio Berlusconi fights for support and his political future. Given the increase in Italian bond yields in recent weeks the above picture (Italy's MIB index sticks out like a sore thumb) suggests that Berlusconi's days might be numbered.

Stephen Fry Tweets on Quantas A380 engine shutdown.

Rolls-Royce @ 705p, -9.5p (-1.33%) as at 9.22 gmt

I see that Quantas has had a recent problem with an A380 engine that developed an "oil quantity defect" and had to be shutdown which led to the aircraft being diverted to Dubai (www.telegraph.co.uk: Rolls-Royce hit by fresh 'oil leak' on Qantas A380).

Bizarrely, the incident took place "a year to the day since a Rolls-Royce engine exploded on a Qantas superjumbo - and industry sources said preliminary investigations have shown it was caused by an oil leak in an external oil pipe." 

Thankfully, Quantas has also said that "the incident was a "one-off" and "completely unrelated" to the engine blow-out last year that caused the entire Qantas fleet to be grounded". 

I had to laugh when the article quotes a tweet from Stephen Fry who happened to be a passenger and just about sums things up with "Bugger. Forced to land in Dubai. An engine has decided not to play." 

Obviously there will continues to be a level of nervousness around the A380 and last years grounding incident without which this probably wouldn't even get a mention in National Press.
Safe to assume that the current situation at Quantas has also contributed to its newsworthiness as well.

Rolls-Royce shares are down 9.5p this morning but I would have to suggest the decline is more to do with the uncertainty of finding a solution to the odyssey involving Greece, the EU, and the IMF which threatens to drag the global economy back into recession.

Quotes sourced from the following related article:

Wednesday 2 November 2011

October 2011: Portfolio Update

Funny that just a few days ago I was looking forward to the monthly review of my portfolio. On Monday it still seemed like a good idea but then once again something unexpected has come out in the first few days of the following month which forcibly throws the monthly performance into the category of historic. And, as we all know historic performance is not a guarantee of future performance!

However, the portfolio has had a number of boosts in October notably:
- Rolls-Royce's deal with United Technologies re. its stake in the shared International Aero Engines venture (see earlier post:- Rolls-Royce update: IAE stake sale and new joint venture.) has added a long overdue boost to the shares which have also gone ex-dividend in the month with an entitlement worth 6.9p per share.
- I have to mention the EU Summit (pre and post) which has boosted markets and, despite the Trojan Horse gift of Mr Papandreu, markets continue to be higher than pre-summit levels. But who knows where they will go from here?
- BP has also managed to recover a little poise with a reasonable reception to its Q3 update; a contribution from Andarko towards the Gulf of Mexico fund; and news that the company has been granted its first permit to drill in the Gulf of Mexico since the Deepwater Horizon disaster.

As expected NG has fallen back slightly in the short term as investments are recycled out of defensives and into other recovering sectors (although you might see that being recycled back given recent events).
No changes to the line-up this month but a couple of dividends also came in from IG Group and GE.

The forecast yield for the portfolio, if held for the next 12 months, looks a satisfying 4.11% against its current valuation.
I am starting to think of this yield as the backbone of the portfolio as it provides a tangible return on an investment which is then locked in to the portfolio's valuation (I can then re-invest it of course).
For me it beats any share buyback program hands down unless a company can prove that its also buying value when it instigates a buyback. Too many companies seem to flash the cash at the top of a bull run and pay a premium which inevitably disappears when the bears come to town.
Perhaps they need to act more like investors rather than Directors!

Anyway I digress slightly so here is the portfolio as at close of play on the 31st October 2011:


Merchant Adventurer's Index







Forecast 1 month YTD 22 mnth

Price % holding Div. yield % gain % gain % gain
R-R 702.50p 30.82% 2.48% 18.07% 12.76% 45.29%
National Grid 617.50p 18.03% 6.33% -3.29% 11.66% 13.77%
Aviva 340.80p 8.24% 7.89% 11.59% -4.87% -2.65%
Inv. Perp. High Inc. *** 508.12p 6.88% 3.78% 5% 7.33% 20.26%
BP 461.00p 4.48% 3.75% 18.66% -0.98% 5.91%
Apple ** $404.95 4.28% 0.00% 3.21% 22.10% 108.38%
IG Group 466.10p 3.28% 4.65% 4.25% -8.61% 54.92%
William Hill 216.00p 2.67% 4.31% -4.51% 26.54% 26.32%
BG Group 1356.50p 2.63% 1.13% 9.26% 4.67% 24.44%
Morrisons 302.20p 2.53% 3.56% 4.03% 12.93% 19.43%
Centrica 296.70p 2.47% 5.15% -0.34% -10.52% -6.05%
SSE 1344.00p 2.46% 5.90% 3.78% 9.71% 16.78%
General Electric ** $17.25 2.32% 2.72% 8.26% 9.98% 9.98%
Microsoft ** $26.98 2.30% 2.14% 5.31% -6.02% 9.01%
Vodafone 172.85p 2.22% 6.89% 3.97% 7.27% 7.27%
Tesco 401.75p 2.13% 3.86% 6.28% 0.71% 0.71%
BAE Systems 276.60p 1.83% 6.74% 3.48% -16.18% -13.36%
Cash
0.44% 0.00%











100.00% 4.11%






1 Month YTD 22 Mnth
Portfolio gain (incl. Dividends)

7.76% 9.16% 37.99%
FTSE gain (excl. Dividends)

8.11% -7.15% 2.43%
- 1 month gain   5128.48 - 5544.22




- YTD gain         5971.01 - 5544.22




- 21 month gain 5412.88 - 5544.22











Transactions:





11/10/2011 Div. IG Group @ 14.75p pershare


28/10/2011 Div. GE @ 7.97p pershare
















Notes: 





*     US Dividends are adjusted for exchange rate and 15% withholding tax)
**   Sterling : Dollar exchange rate = £1: $1.60772 as at 31/10/11

*** Invesco Perpetual Accumulation units (Dividends re-invested). Yield shown is based upon most recent payments.


Very, very pleasing to see the performance in a chart which, courtesy of Rolls-Royce, has seen the portfolio keep pace with the October recovery shown by the FTSE.
Year to date the portfolio is showing a 9.16% gain compared to the FTSE100's loss of -7.15%.
And, over 22 months the portfolio is up 37.99% against the FTSE's meagre showing of 2.43%.

Again I need to caveat that all dividends are re-invested and included in the portfolio's performance whereas the FTSE100 index does not include dividends re-invested.



Double click to enlarge and back to return.


However, with October's performance now consigned to the past, I have to say that I am increasingly nervous about what happens next following the Greek debacle and its potentially huge knock-on effect on global markets.
Greece is fast turning itself into a pariah and its place in the EU really needs to be resolved now. The opportunity to ringfence and plan an orderly default from the Euro has probably passed thanks to the questionable tactics deployed by the Greek Prime Minister.
I applaud the democracy of the decision (if that truly is the driver) but to undertake it after the event when it should have been considered in the weeks running up to the EU Summit makes the whole thing questionable and unforgivable.

As an example Angela Merkel was standing in front of Germany's 620 member Bundestag as late as the morning prior to the summit's final extended session. The result of which gave her a clear mandate at the negotiating table.
Should Papandreu not have been doing something similar?

Waiting for Greece's referendum will likely delay being able to focus on the next inevitable problems in Italy, Portugal and the future of the Euro.

I find myself really considering whether or not there is a way through this now as the stakes seems to get higher and higher.
It feels like we are once again so close to the abyss that the margin for error has gone.
As a result, the "flight" instinct in me is coming to the fore with the inevitable consideration that I should review my strategy and turn some or all of the portfolio into cash.
But which ones and how much?

They say that its always darkest before the dawn but I do find myself in a very uncertain place at the moment.
It would be nice to feel there is time to consider these things but there seems to be so much political uncertainty and inadequacy it is difficult to see where the leadership will come from now to resolve a situation that is at times fast moving yet still being drawn out!

My resolve is being severely tested and I can feel that contagion flu coming over me again.


Related articles:
- http://bizmology.com: BP wins permission to drill in the deepwater Gulf of Mexico

Earlier posts:
- Rolls-Royce update: IAE stake sale and new joint venture.
- BP gushes up on Q3 update.

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

Tuesday 1 November 2011

Papandreu: comic genius or something else?

As at 9:36am Tuesday 1 November
Index asc Value Chg  % Chg 
CAC 403147.70-95.14-2.93 %
Dow Jon...11955.01-276.10-2.26 %
FTSE 1005436.45-107.77-1.94 %
FTSE MI...15424.59-593.14-3.70 %
IBEX 358708.40-246.50-2.75 %
Xetra DAX5941.37-199.97-3.26 %








Well, the Greek Prime Minister, Giorgios Papandreu is either politically naive, a comic genius, or something more destructive, given his choice of timing to announce a referendum on the EU bailout of Greece.
As an integral part of the laboured negotiations and having spent weeks stating the case for help and a bailout the man has apparently gone and thrown the whole lot back in the face of fellow EU leaders and put the details to the mercy of a public vote.
It would have been nice if he had undertaken a referendum before going into the EU Summit. At least then he could have arguably represented his voting majority at the summit.
I have no doubt that Greece would have rejected everything, and then instantly defaulted. The EU could then have spent their efforts negotiating on how to address the predicted outcomes of the problem (expulsion of Greece, saving the Euro, and saving the banks), rather than trying to treat the symptoms.

As it stands, Papandreu has managed to put the whole process into reverse and wasted a huge amount of time and effort. Its a shame they can't send Greece a bill for everyone's time but who would pay it?

How long will it be before a vote can be arranged I wonder? Some media reports are suggesting January at the earliest!

Once again it highlights the weakness of the EU that minority "member" states (I include Greece here because they are the majority of the current problem but have done little towards a solution) can find a way to hold the whole lot to ransom to further their own agendas.
If they wanted out of Europe surely they could have asked beforehand, but then Greece wouldn't have had 2 handouts would they?

The US won't open until this afternoon and having seen MF Global file for bankruptcy yesterday on the back of betting on EU debt no doubt this news will start a rout on Wall St given that it is even more uncertainty in the inability of the EU to agree a decision, construct a plan, and implement it.

I really do not know what it says about the Greek Government or the EU? Shambolic to say the least but at worst....who knows!

Its not a case of jumping out of the frying pan into the fire, Papandreu looks to have thrown the frying pan in as well and set the kitchen ablaze.

Genuinely concerned now as I think the EU has already played its hand.

Related articles: