Investment update: Vodafone results y/e 31 March 2012

Vodafone @ 171.35p, -1.25p (-0.7%)

Vodafone managed a healthy bounce last week against general market sentiment which reflects a warm reception of the final results.

In its own words the company delivered "a robust financial performance in a difficult environment".

The numbers came in as follows:

-     Group revenue up 1.2% to £46.4 billion; full year organic service revenue growth +1.5%*; Q4 +2.3%*

-     EBITDA down 1.3% at £14.5 billion; EBITDA margin 31.2%, down 0.8 percentage points (0.6 percentage points before restructuring costs)

-     Verizon Wireless service revenue up 7.3%*; our share of profits up 9.3%* to £4.9 billion

      • £2.9bn dividend from Verizon Wireless

-     Adjusted operating profit at £11.5 billion, up 2.5%* on an organic basis

-     Gain on disposal of investments of £3.5 billion (Note 1) and impairment charges of £4.0 billion

-     Free cash flow £6.1 billion (-13.4%) after capex of £6.4 billion

-     Final dividend per share of 6.47 pence, giving total dividends per share for the year of 13.52 pence (including 4.0 pence special dividend), up +51.9% 

-     £3.6bn of share buyback, £6.8bn programme now 91 % complete

As you would expect there is an underperformance in Europe but this is currently being offset by growth in emerging markets. 

The headline numbers are arguably flat (within a range) as they have been for a number of years. But, the continuing strength of the company throughout its strategic re-position on minority/non-core interests has been its strong cashflow (used to manage the debts from its acquisitive years) and a steadily increasing cash position which now stands at £7.138 bn (2011: £6.252 bn).

So cash balances increasing, even with the current commitment to the share buyback which cost £3.6bn last year, and a dividend which cost £6.654bn in 2012.  

Net debt (debt less cash), at £32.029 bn, is going in the right direction and represents a gearing of 36.58% which is an improvement on the 2011 comparables of £35.372 bn and 39.14%.

The final dividend of 6.47p per share (2011: 6.05p) has been declared after the results and will show as a £3.195 bn outflow of cash in 2013's accounts. 

The total dividend outlay in 2012 amounted to £6.654 bn consisting of the 2011 Final, 2012 Interim, and 2012 Special. 

Click to enlarge, close to return

This does show the merits of the company's strong useable cashflow but also the contribution that an ongoing Verizon dividend can make to the company's shareholders. 

All makes the ship look quite steady in difficult times and I have to say that the investor information is particularly impressive (Vodafone Group Plc Preliminary results). 

It is very visual with waterfall charts to illustrate step changes in performance and, using recent historic performance (2008-2012) as a base, also throws a lot of the company's strategy into the mix as a look into a possible future for the company (2015).

  

It looks to me that the company's non-controlling 45% interest in Verizon wireless continues to look like the largest contributor to future growth if the joint venture can continue to pay dividends to its parent companies. The recent resumption of a payment of $10bn dividend payment realised $4.5bn (£2.9bn) to Vodafone: £2bn of which was further distributed to Vodafone shareholders as a special dividend with the remaining £0.9bn used to pay down debt.

 

However, it should be noted that the relationship between Vodafone and its partner in Verizon Wireless, Verizon Communications, is probably still not perfectly in accord so the politically correct statement has always been that last years dividend was a "special" but it does give a taste of what is likely to happen now that Verizon Wireless has made significant inroads into its own debt position following a $28.1bn acquisition in 2009.

For many years Vodafone's lack of control over such a significant investment with no return was seen as a huge burden on the company's capital but it is starting to look like management's faith (or stubborness) might yet yield a significant reward for shareholders.

With more than 108 million users, Verizon Wireless is the largest mobile operator in the US so is benefitting significantly from the growth in smartphones.

Vodafone doesn't initially include Verizon's performance figures in its group numbers (instead showing the dividend from associates), but there is a chart in the presentation that illustrates the effect on group service revenue growth, and free cashflow, if Vodafone had the controlling stake in Verizon.

Click to enlarge, close to return

Click to enlarge, close to return

 So with 2013 guidance looking to be similar to 2012:

Click to enlarge, close to return

any significant upside is likely to be constrained unless Verizon declare a dividend this year.

Its all about smartphones, emerging markets, and Verizon on the upside then but what about the downside.

Well, European woes continue to circle in the background as does an ongoing threat from the Indian Government to apply a retrospective tax bill on the company, and might yet rewrite legislation to do so.

Financial strength will also be required as 4G starts to take hold but hopefully this will not have the same paralysing effect on growth that the crazy auction for 3G licenses did last time around. After all its taken 10 years for phones to actually live up to the vision of 3G.

Back onto the upside and there is a potentially warm reception should the company's cash offer for Cable & Wireless Worldwide go through giving it a platform to establish itself in corporate business and bring a fixed line network to ease wireless capacity (and dependency on BT).

On a further note of caution, I see that Vodafone's Chief Financial Officer, Andy Halford has sold almost half his stake with 976,056 shares at 171.624p and 23,944 at 170.46p for a total of just over £1.7m. 

It would be nice to know his reasons particularly when he is in arguably the most significant position regarding the financial health of the company.

Since purchasing them for my portfolio in August of last year, my investment in Vodafone is showing a capital gain of 6.34% plus a further 4.37% in dividends, 10.71% in total.

The shares are also due to go ex-dividend on the 6 June 2012, following which shareholders will be eligible for the declared final dividend of 6.47p per share, payable on the 1 August 2012. 

6.47p represents a return of 3.7% of the current share price of 171.35p.

Still on an undemanding forecast PE of 10.6 and a potential yield of 7.5% (incl. Verizon), the shares are looking like a steady investment. A slow grower perhaps but one that should continue to generate good solid returns going forward with a possible ace up the sleeve in Verizon Wireless. 

The shares are also an initial pick in my experimental strategy "Following Woodford" (Following Woodford! ).

All in all, one to tuck away and forget about I think.

Article links:

- http://www.vodafone.com: news release

- http://www.vodafone.com: Vodafone Group Plc Preliminary results

Related posts:
- Following Woodford! 
- March 2012: Portfolio Update.
- New proposed investment strategy based upon Neil Woodford's top 10.
- Vodaphone update: Interim results.
- Portfolio housekeeping and additions: Talk Talk, Invesco Perpetual, Vodaphone, and Tesco.  

Facebook roller coaster!

Facebook @ $32.00, +$1.00 (+3.23%)

"There is only one thing worse than being talked about and that is NOT being talked about." Oscar Wilde.

Well I don't plan on writing about Facebook all the time but it seems a bit more interesting than trying to make sense of "Summit XVIII..., the Eurocrat strikes back".

Bizarrely the social network appears to have become the anti-social network as the capitalists became involved. 

Nothing like a good old pumping of the share price at the expense of the faithful to make a few worthwhile gains from an IPO is there.

But it now looks to have left a sour taste in the mouths of some shareholders with a view that not all information may have been fully disclosed to all shareholders prior to completing the flotation. 

 "Leading analysts branded Facebook’s stockmarket debut a “fiasco” yesterday as investors lodged lawsuits claiming they had not been told of problems with the business before the float. Shareholders began legal action in New York and California against the social network, its chief executive Mark Zuckerberg, Morgan Stanley, the lead underwriters to the float, and other banks involved.They allege that insiders to the initial public offering (IPO) of shares did not make some investors aware of a potential fall in the company’s revenues days before the share sale, resulting in substantial losses. Two of America’s financial regulators have also said they are considering investigating issues surrounding the IPO. This could lead to Morgan Stanley being investigated for alleged securities fraud, according to The Times. "

This accusation of "selective disclosure" of information relates to a forecast drop in Facebook revenues that now looks to be the basis of a suit against the 6 major banks involved with the IPO, along with founder Mark Zuckerberg, Facebook itself, and its CFO, David Ebersman.

Following this information, and post IPO, the subsequent revenue downgrades by the 6 banks have potentially contributed to the shares subsequent fall from their debutante price of $38 (peaking at $45), to a trough of $31 prior, to yesterday's stumble back to $32.

The 3% revenue downgrade to $3.07bn (from $3.16bn), doesn't seem huge but presses sufficiently on the nerve of doubt that Facebook might not be able to leverage its huge user base and might yet be susceptible to the next "shift" to mobile platforms.

In turn this has triggered a 16% fall from the auction price ($32/$38), or 29% from its peak ($32/$45), which, if the company wasn't an IPO (i.e it had been trading on markets long enough to establish a historic price range), would suggest a significant profits warning had been announced.

Wall St never sleeps!

Related articles:

- http://www.dailymail.co.uk: Investors suing Facebook after losing up to a fifth of their money since social networking site went public

- http://www.guardian.co.uk: Facebook and Mark Zuckerberg accused of misleading investors

- http://www.dailymail.co.uk: ALEX BRUMMER: Wall Street faces a fiasco over Facebook float

- http://www.scotsman.com: Facebook status - losing £15.4m a minute

Facebook's first day!

Facebook Inc. @ $38.23, +$0.23 (+0.6%)  

NASDAQ @ 2478.53, -$30.52 (-1.22%)

 

Click to enlarge, close to return (chart courtesy of Digitallook).

Looks to have come off a peak of $42 in official trading, although there is commentary suggesting that $45 was hit, before settling at just 23 cents above the IPO price. This against a wider index fall of 1.22%.

I still don't fully understand how this works but the 421million shares on offer yesterday are classed as A shares with 1 vote per share, whereas existing shares (held prior to IPO) are B shares with 10 votes per share so have 10 times the voting influence.
The $16bn or so raised from yesterdays listing reads across to an approximate valuation of $104bn for Facebook as a whole.
And with 2011 profits in the region of $1.695bn from revenues of $3.711bn that's $1.88 of profit on revenue of $4.12 per Facebook's estimated 900m users.
Currently a case of pile it high and sell it cheap but going forward the company will obviously take a serious look at how to increase profits (despite Zuckerberg's 56% voting power) and make best use of all that freely given but still private and sensitive personal data.

There had been some delay in determining whether or not Facebook shares were Crest eligible from the off which would have affected clients' ability to trade them through the Crest electronic settlement system and hold them in their electronic dealing accounts. But that now looks to have been resolved and the shares are confirmed as being Crest eligible. 

As with any US share, you will still need to have signed and submitted a W8-BEN form to your broker before you can trade in them of course.

Earlier posts:

- Facebook to begin trading on NASDAQ today.

- - Facebook IPO. 

Facebook to begin trading on NASDAQ today.

FACEBOOK IPO

Facebook lists on NASDAQ today and trading commences once the IPO Auction Process has been completed, c15:15 GMT. At present, it is not confirmed whether the company will make the stock CREST eligible (Selftrade).

Just picked this up of Selftrade in case you weren't aware of a minor Initial Public Offer in a little known company called Facebook...

Yeh right, hold onto your hats for this one. 

Not for me (Facebook IPO. ) but it will be hugely interesting to watch what happens to Facebook over the days, weeks, and years to come.

Don't forget that prior to any purchase of US shares you would need to have signed, submitted and had actioned a W8-BEN form with your broker (Globally Diversified Technology, Growth, and Hedge portfolio!!! ).

19 May 2012 Update:

"FACEBOOK IPO - UPDATE
We are pleased to confirm that Facebook has now confirmed the stock will be CREST eligible.
Order may be placed online in the normal way via your account. You will need to have completed a W8-BEN prior to placing your order."(Selftrade)

Earlier post:

- Facebook IPO. 
- Globally Diversified Technology, Growth, and Hedge portfolio!!!  
- Globally Diversified Technology, Growth, and Hedge portfolio update.  

Aviva Interim update; solid start to 2012 (but still sinking on Euro concerns).

I'm starting to get that sinking feeling myself now and feel particularly exposed to the scare stories that will no doubt start to dominate every scheduled news program and across all media channels.

The IMF Managing Director, Christine Lagarde has started the poker game rolling with a figure of $1 trillion as the cost of a Greek exit.

Not sure what to read into the French born Mrs Lagarde quoting in dollars for a Euro problem, probably nothing given the basis of the IMF!

As a consequence Aviva is starting to prove painful to my portfolio now given its position in the financial services sector with a declared estimated exposure as follows:

*Aviva (AV.LN): Shareholder exposure to debt securities of the governments of Greece, Spain and Portugal is GBP900 million. Includes GBP150 million exposure to Greek debt. (http://www.advfn.com: AT A GLANCE: Europe Bank, Insurer Exposure To Weak Economies).

Even the extent of £0.9 bn doesn't seem as bad as feared to a business and sector who's bread and butter is dealing with risk and disasters. But will there be a further unquantified risk from other sources and other financials that are indirectly invested in the Euro's fortunes?

Aviva's interim trading statement announced today (http://www.aviva.com: A solid start to 2012) also had some positives with its solvency ratio coming in slightly better than expected at 151% which basically means that its proportion of net assets is 151% relative to the insurance premiums that have been written in the year and are expected from customers.

All a bit complicated to me but I guess that premiums not being paid is a risk to the company's cashflow and therefore requires coverage by assets should an actual insurance event come about.

The 151% figure is slightly higher than February's 150% despite £300m of dividends being put to one side for payment to shareholders.

The 151% effectively equals a surplus of around £3.2bn.

Sales were up and down across its key market particularly in the Eurozone but at least seem to have been in line with forecasts i.e. no real surprises.

But having enough capital to weather current and future events, and anticipated regulatory changes seems to be the major concern. 

As does the uncertainty created by the lack of a CEO following Andres Moss's departure.

To that effect, Aviva's newly installed Executive Deputy Chairman, John Macfarlane also made the following comments:

“Although the economic environment remains uncertain, we have delivered a solid operating performance during the first three months of 2012 and profitability in both our life and general insurance businesses is in line with targets.

“We have begun the process of identifying a new CEO for the Group, internally and externally. We expect this will take the remainder of this year, as we need to appoint the best person in the world available to us. In the interim, I will act as Executive Chairman to ensure we take the necessary actions and decisions to improve the standing and performance of the Group, and to accelerate these actions. I am excited to be playing a pivotal role at what is clearly an important time for Aviva.

“My first task is to make an improvement in the capital and financial strength in the group as well as an improvement in our financial performance. Whilst not underestimating the significance of the challenge I am optimistic of the outcome.

“To this end, last week I announced a new set of priorities for Aviva:

• Firstly a strategic review of all our businesses to ensure we are focused on the right segments; that we put in place plans to advance the performance and position of our businesses strategically, and exit sensibly those that are not part of our future. These will be reviewed by me and subsequently the Board in June, and we will provide an update to you in July.
• Secondly to build the capital base and improve the balance sheet strength of the group.
• Thirdly a profit and value improvement programme involving the dynamic reallocation of capital across our businesses, identifying sources of segmental revenue growth, and improvement in our operating margins and return on capital.
• Finally a continuous advancement in the foundation of the group and our position with all stakeholders and a frank and open communication with shareholders.

“Aviva has a strong brand, dedicated people and I believe the business has a great future.”

So no real surprises then with Capital and margin improvements identified as priorities and expectation that the Chairman designate will bridge both CEO and Chairman roles until a new CEO is appointed which could take the remainder of 2012.

Following this Interim statement, the broker Nomura has continued to take a very positive take on the company with a possible re-rating to 600p per share (http://www.sharecast.com: Broker snap: Aviva could be in for a re-rating, says Nomura).

I would suggest that given the wider risk from the Eurozone not all brokers have the same view.

I still have some cash in the portfolio but given the nature and source of current risks and the probably protracted nature of any resolution (good or bad) I am feeling fully exposed to Aviva although this might change given time and share price movement. 
Ultimately for me, confirmation of the company's commitment to its dividend strategy would prove very comforting.


On that final point a gratefully received 16p per share landed in my account today.

Aviva @ 271.7p, - 9.2p (-3.28%) as at 12:28

Related article links:

-  http://www.advfn.com: AT A GLANCE: Europe Bank, Insurer Exposure To Weak Economies

-  http://www.aviva.com: A solid start to 2012

-  http://www.sharecast.com: Broker snap: Aviva could be in for a re-rating, says Nomura

Markets have that sinking feeling again!

FTSE 100 @5405.25, -32.37 (-0.60%)

Just had a look through the markets today and see that the FTSE 100 still hasn't quite jumped off the cliff yet despite dragging its anchor through 5360 today.
France's CAC 40 even finished up at 3048.67, +9.4 (+0.31%)!

Rumours abound that the Greek people are starting to "run" their banks and that the ECB has cut lending lines to some of them.

All this comes despite the words from various of the Euro heavyweights that they want Greece to remain in the Euro.

Seems to me a pointless exercise to "run" the Greek banks (unless of course they are handing out gold), as my understanding is that Euros are identifiable by country of issue so will largely be worthless should there be enough Greek voters, protesters and politicians to push the country out of this Euro denominated game of poker. 

However, I do understand the possible feelings of helplessness that many might be feeling and that drawing money out of bank accounts might at least seem like some action and push back that feeling of helplessness for a little while.

You might also presume that by inadvertently "running" the banks they at least have some desire to preserve wealth and understand that their immediate fortunes are tied to the Euro. Any return to the Drachma and/or interim promissory notes must surely come with a huge amount of faith given the daily inflation that is likely to ensue if/when they are used for trade.

Unfortunately, it may be that this will only hasten the endgame by creating a credit crunch on the Greek banks followed by?

Hugely concerning and as yet I don't think anyone has any idea of how much or how little knock on damage will result as this runs its course.

Cisco continues to travail but never arrive!

I note that Cisco remains a volatile prospect after company guidance to reduce profit forecasts triggered yet another fall in the share price to $16.81, -$1.97 (-10.49%), which once again reverses a recent renaissance.

That's yet another striking pattern of optimistic recovery trend and cliff jumping reversal in the near 2 years that I have bought (31 Aug.10), binned (30 Aug. 11), and been aware of them.

The company continues to be a leader in its field and, with its hardware, could yet be the biggest beneficiary of the touted capacity busting increase in data traffic that is changing our lives. 

The company has frequently cited recessionary pressure on spending budgets as a temporary hit to its revenues and this could still be the issue but the longer this goes on the company also risks being engulfed by rivals catching up on technology and operating with lower margins.

Cisco does look to have made moves to address this through cost cutting and focus, hence its latest recovery trend, but this most recent disappointment might suggest that it has more fundamental strategic decisions to make.

On a positive note (for me at least), and despite my disappointment at selling them, it does seem to underline my decision to exit them. 

Although, with such a strong cycle of rise and fall, it might provide a trading opportunity for someone other than me.

Freaky that my ownership of them was within 1 day of being exactly 12 months though.

Related posts:

- August 2011: Portfolio Update.  

- Globally Diversified Technology, Growth, and Hedge portfolio!!! 

- Globally Diversified Technology, Growth, and Hedge portfolio update.

- US Investment update: Cisco

JP Morgan's made up (synthetic!) credit securities.

Well, well, well... JP Morgan back in the dog house with an after market shock

"revealing its second-quarter performance will be dented by a huge trading loss on synthetic credit securities at its Chief Investment Office. The firm said that so far the losses amounted to $2bn but could "easily increase during the quarter" (http://www.digitallook.com: London open: Chinese data, JP Morgan weighs on stocks). 

So despite recent statements (http://www.digitallook.com: Bernanke says banks are stronger but must still improve liquidity) from Ben Bernanke the Chair of the US Federal Reserve, that US Banks had made considerable progress, JP Morgan:

"The biggest US bank by assets tumbled 6.7% after the close of regular trading, as chief executive Jamie Dimon said in an extraordinary conference call with analysts at 5 p.m. EDT that the bank made egregious mistakes and that trading losses were 'self inflicted'. Bank of America shares lost 2.6%, Citigroup retreated 3.6%, Goldman Sachs slipped 2.3%, Morgan Stanley slumped 2.9% and Wells Fargo & Co. lost 1.9%." (http://citywire.co.uk: Overnight Markets: Shock JP Morgan loss hits stocks).

Synthetic credit securities?...After second thoughts I'm not sure about the dog house possibly the zoo might be more suitable....with the other leopards! (or "leper"ds).

"Synthetic credit securities are bets on hypothetical credit instruments with credit default insurance. This is a credit derivative, and “synthetic” usually means there is no real asset in the instrument, but is a bet made on the performance of another instrument." (dailycapitalist.com)

I think that the CEO, Jamie Dimon sums it up nicely with the following statement:
“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored,”  (http://www.digitallook.com: JP Morgan harpooned by 'London whale').

Poor indeed!

Elsewhere, Greece remains rudderless, an interim grey area which might still result in them receiving interim bridging funds between bailouts (as they have just received), but does little to suggest that the country can remain solvent.

In the Euro or out of the Euro it doesn't really matter to the long term view of Greece as an administration that can't fend for itself e.g just collect the taxes due.

Spain has part nationalised what is probably its most toxic bank formed out of a consolidation of many of its regional banks and is rumoured to be considering a cap in hand request to the European Financial Stability Fund (EFSF).

Despite being a much more active ECB President, the heightening situation does pour cold water onto Mario Draghi's recent statements that the Europe situation was stabilising (http://www.bbc.co.uk: ECB chief Mario Draghi says worst of euro crisis over).

Fair to say that we might already have put a foot over the precipice without his actions but it perhaps serves as an illustration of Europe's political leaders (and inability to resolve the crisis) that can so easily put the situation to one side thinking it fixed.

Chinese data again suggests a slowdown in imports and exports but with inflation slowing it actually raises the prospect of China loosening its money supply restraints.

Of more concern for Europe is the suggestion that China no longer wants European debt.

So lots of risk starting to build up again within markets and any good news looks set to struggle against the headline grabbing disaster scenarios. 

Looks set to be a trial of nerves for the foreseeable.

Related article links:

- http://www.digitallook.com: London open: Chinese data, JP Morgan weighs on stocks
- http://www.digitallook.com: Bernanke says banks are stronger but must still improve liquidity

- http://www.digitallook.com: JP Morgan harpooned by 'London whale'

- http://citywire.co.uk: Overnight Markets: Shock JP Morgan loss hits stocks

- http://www.bbc.co.uk: ECB chief Mario Draghi says worst of euro crisis over

- http://en.wikipedia.org: Synthetic CDO

FTSE falls amidst European political disharmony

FTSE 100 @ 5554.55, -100.51 (-1.78%)

DJIA @ 12932.09, -76.44 (-0.59%) at close after recovering from session lows of 12820 and below.

Markets took a tumble yesterday following Wall Street's opening although to be fair the source is clearly European with the Union threatening to unravel with Greece and France leading the way with political uncertainty and news from Spain that the country has had to bail out its 3rd largest bank to the tune of Eu8bn.

With France's new President looking set to rebel against the recent budgetary pact signed by his predecessor (and thereby dissolving the Franco German direction that has kept the Euro going thus far), there could yet be more inflationary fuel thrown onto the still burning pyre that was the credit crunch in the search for the illusion of inflationary growth to diminish debts.

Alternatively, with lessening consensus it might isolate and test Germany's resolve to maintain the Euro raising the possibility of the Eurobond.

And Greece does once again look set to degenerate into chaos which could yet be the fuse that starts the dominoes falling.

Its always been the case but it is still concerning that politicians can often get themselves elected by telling the majority of voters what they want to hear rather than exercising true leadership by telling voters what needs to be done then winning over hearts and minds to a shared vision.
Reality only bites once elected at which point politicians often only seem to realise their personal career ambitions rather than the raised hopes of voters.

All clearly unsettling and uncertain with the apparent fate of Europe at stake and yet more contagion fallout.

Aviva AGM round 2: CEO resigns!

Aviva @ 312.4, +10.10p (+3.4%)

So Andrew Moss, CEO - Aviva, has resigned with immediate effect following the recent AGM in which more than 50% of shareholders voted against the company's executive remuneration strategy.

Key element is the criticism of Aviva's share price under Moss's stewardship which is down some 62% since Moss and the soon to be retiring Chairman, Lord Sharman took over.

The shares appear to have jumped in early reaction to the news although they have since come back a little from that early flourish which saw the shares hit 320p (+5.86%) at 8:34am.

Slightly concerned about transitions and strategy now as the company had recently re-structured and Moss was due to put forward his new strategy on the 24th May.

It also looks like the shareholders' aim was not to remove Moss immediately as his re-election vote was won (the re-election vote being a binding vote), but instead to raise the uncomfortable question of rewards v. performance particularly in the case of the golden hello for Trevor Mathews.

Not sure whether "the immediate effect" will have a short term impact (potentially rudderless) on the shares (once reality sets in) but what's done is done and the incoming Chairman is now standing in whilst the company looks for a new CEO and the company treads water in anticipation of a new strategy!

 Related post:

- Aviva AGM: Shareholders revolt! 

Related articles:

- http://www.sharecast.com: Moss falls on his sword at Aviva

- http://www.thisismoney.co.uk: Aviva boss Andrew Moss jumps overboard after huge shareholder mutiny

- http://www.guardian.co.uk: Business Aviva Aviva chief executive steps down after shareholder revolt

- http://www.telegraph.co.uk: Andrew Moss steps down as Aviva chief

New Trial Investment Strategy: 3 ways to follow Neil Woodford!

So I recently jettisoned my holding in the Invesco Perpetual High Income Fund for a variety of reasons (March 2012: Portfolio Update.), but I did suggest that I would start a little experiment and try to develop an alternative strategy based upon the same fund (New proposed investment strategy based upon Neil Woodford's top 10.).

So having taking the first step and selected 3 shares that are present in the High Income Fund, one from each of the fund's 3 biggest sector weightings:- Pharmaceuticals, Tobacco, and Telecoms.
I have retrospectively applied the starting prices as at the 14 March (as suggested by a reader), and then applied 3 sets of dealing charges and stamp duty to 3 equal tranches by value in order to backwards calculate a starting quantity in whole numbers for each holding.

At this point the Invesco fund starts with a little advantage here as I have calculated its starting point as if it was purchased via a fund supermarket i.e. 0% charges upfront and also allowing for partial units.
An annual management fee will be automatically adjusted in the calculation of the unit price.

As suggested I have also added a 3rd option, the Edinburgh Investment Trust, which is also operated by Invesco, and managed by Neil Woodford, but has a lower expense ratio (equivalent to management fees), and is traded directly in real time like shares, hence my adjustment in the initial holding for dealing charges, stamp duty, and whole numbers as per the 3 picks.

In all 3 cases I have started with a notional £6,000 which gives us the following starting point:

 

14/03/2012
	Price	Funds	Stamp	Dealing	Invested	Residue	Check
Inv. Perp. High Income	5.4047	6000	0	0	6000	0	6000
Edinburgh Inv. Trust	5.04	6000	29.786	12.5	5957.28	0.434	6000
BAT	32.37	2000	9.873	12.5	1974.57	3.057	2000
Glaxo	14.33	2000	9.888	12.5	1977.54	0.072	2000
Vodafone	1.66	2000	9.885	12.5	1999.06	0.555	2000
		6000	29.646	37.5	5929.17	3.684	6000

So from the start the 3 picks: Glaxo; BAT's; and Vodafone, have the weakest starting position by virtue of there being 3 sets of dealing charges and stamp duty.

Note that there is also a residue of funds that are insufficient to purchase whole shares so have been detailed and retained within the investment as cash until enough cash is present, through dividends or sales, to purchase new shares/holdings (I also need to think about setting rules for the re-investment of cash and/or changing holdings should they no longer be a part of the Invesco Fund's top 10).

The Edinburgh Investment Trust also suffers from one set of dealing charges but a similar amount of stamp duty as the 3 picks.

Which leaves the High Income Fund as having had the best start due to zero upfront charges and the full amount invested due to the allowance of partial units.

Also worth noting is that, as both Glaxo and BAT's are recent ex. dividends, there might be a small advantage to both the fund and the Trust when these are received.

A further difference between the High Income Fund and the Investment Trust is that the Trust is managed much like a company giving it access to fund raising through increased borrowings (gearing the balance sheet with debt), which might give it an opportunity to outperform the comparable High Income Fund albeit with more risk.

So what does it look like after 6 weeks:

				30.04.12
			Shares	Price	£ Total	% Perf.
Inv. Perp. High Income			1110.14	5.31	5898.755	-1.69%
Edinburgh Investment Trust			1182.00	4.94	5833.17	-2.78%
	Residue				0.434	0.00%
	Dividends
	Total				5833.604	-2.77%
3 Picks
BAT			61.00	31.59	1926.99	-3.65%
Glaxo			138.00	14.25	1966.5	-1.68%
Vodafone			1191.00	1.71	2030.655	1.53%
	Residue				3.684	0.00%
	Dividends
	Total				5927.829	-1.20%

And the chart:

Click to enlarge, close to return.

Very interesting already then as I can see from the chart that, despite having the best start in this experiment, the High Income Fund has since fallen below the level of the 3 picks.

The Investment Trust has also followed a similar downward trend to the High Income Fund leaving the 3 picks as the only investment here that has broken the downward trend starting on the 14 March 12, by turning upwards in April.

Earlier posts:
- March 2012: Portfolio Update.
- New proposed investment strategy based upon Neil Woodford's top 10.

Related articles:

- http://www.fool.co.uk: Neil Woodford's World

- http://www.thisismoney.co.uk: The 20 low-cost trusts that offered an average 24% return  

Aviva AGM: Shareholders revolt!

Aviva @ 305.6p, -5.7p (-1.83%)

Hugely interesting to see the results of the Aviva showdown on executive pay at yesterday's AGM.

Actually quite encouraging to see an activist voting shareholder majority of 54% win the day when in the majority of these cases you hear (and support) the grumblings but then find it to have dissipated faced by a questionable solidarity amongst company management and major shareholders.

The vote appears to be the first won against a company's remuneration plans in 3 years (Glaxo), and follows swiftly on the back of the Barclay's vote which itself had a thought provoking 31.5% objecting to the company's executive pay plans particularly Bob Diamond's controversial double taxation package.

Its a shame that these votes are not executive and therefore only indicate dissatisfaction to the boards involved so it remains to be seen what level of changes/outcomes will be realised.

It does seem strange to me that these "stewards" of the company (an oft forgotten accountability) appear to have no restraint on the amount of compensation and remuneration that they can negotiate despite company under performance.

I also have my own views on this constant merry-go-round of nomadic, and seemingly mercenary talent.

Operations such as this must have established development programs but its questionable whether this is just a tick in the box or an active part of a company's strategy to develop best practice and strong cultural values. 

Certainly if the intention is genuine then this raises questions about the available mentor ship, values, and culture that filters down from "hired guns" that appear to put their own financial priorities above the company's declared values.

There is a balance required between all elements, and stakeholders, that seems missing these days. I also cringe at the oft quoted justification "thats what the industry scale is these days" for talent.

It seems to me that industry scale is only ever going in one direction given the unspoken cartel like approach to setting.

If an internal development program is effective then let the "so called talent" go and chase their priority whilst the company promotes from within and protects the culture of the company, and the trust, motivation, and loyalty of all employees.

Funnily enough financial security is only on the second level of Maslow's hierarchy of needs (just about the most common theoretical model taught in Management studies). 

This level of remuneration is much greater than just financial security but, somehow in this era, the 5 stage pyramid has been shaken up like a snow globe and an obscene financial gain has been pushed right to the top (albeit with the sub plot of self actualisation).

April 2012: Portfolio Update.

Well April proved to be a washout for UK markets (in more ways than one) with negligible changes to the FTSE100 or the portfolio.
Spanish, Greek, and European debt problems compounded by political concerns continue to be under the microscope and April saw a bumpy ride for Apple with the stock pulling back from record highs ahead of its 2nd quarter update as doubts were cast about the company's performance going forward.
In the historical short term, Apple once again blew away forecasts which prompted a bounce although the stock has since started to deflate again (buying opportunity perhaps? - Apple: Cheap at 11.4 times 2012 earnings? ).

On the up, William Hill also delivered a well received quarterly statement and romped on 7.65% in the month.

The perceived defensive qualities of National Grid also came back into demand amidst Euro concerns pushing the share price up 5.55% in the month.

Aviva did fall back though with its speculated exposure to European bonds.
The announcement of a management restructuring also had a mixed reception, with unexpected departures of management talent, as did the rumour that it could sell its US operations at a loss.
Grumblings on executive pay put the cherry on the cake and the bottom line is that the shares have lost all of this years early gains although there is also a dividend to account for.

Supermarkets also continued to be under pressure with industry price wars and Tesco concerns at the fore.

Exchange rates discounted the value of the portfolio's US holdings as the dollar : sterling rate rose to more than $1.62 to the £1 with the old pound note benefitting from perceived confidence in the UK economy as a safe haven in troubled time (bizarre).

Transaction wise there was a small quarterly dividend received from General Electric, and two top up purchases in Aviva and BP which brought the forecast forward yield (if held for 12 months) back up to 3.96% against the portfolio's current valuation.
As a result the portfolio has a cash position of 4.25%.

So what does each holding look like this month?

Merchant Adventurer's Index
			Forecast	1 month	YTD	28 mth
	Price	% holding	Div. yield	% gain	% gain	% gain
R-R	823.50p	32.67%	2.39%	1.42%	10.31%	70.32%
National Grid	665.50p	17.57%	5.90%	5.55%	6.48%	22.62%
Aviva	308.10p	8.85%	8.83%	-5.98%	1.25%	-9.87%
BP	445.00p	5.84%	4.60%	-2.35%	-2.05%	1.73%
Apple **	$584.03	5.51%	0.21%	-3.90%	38.01%	196.85%
William Hill	281.40p	3.15%	3.74%	7.65%	38.76%	64.57%
IG Group	463.00p	2.94%	4.67%	2.89%	-2.91%	53.89%
BG Group	1450.50p	2.54%	1.09%	0.17%	5.38%	33.07%
Microsoft **	$32.01	2.43%	2.03%	-2.09%	18.01%	27.75%
General Electric **	$19.56	2.35%	2.61%	-3.86%	4.52%	23.18%
Centrica	306.90p	2.31%	5.36%	-3.00%	6.08%	-2.82%
SSE	1321.00p	2.19%	6.36%	-0.60%	2.32%	14.78%
Morrisons	280.60p	2.12%	4.33%	-5.84%	-13.98%	10.89%
Vodafone	170.50p	1.98%	7.44%	-0.99%	-4.70%	5.81%
BAE Systems	295.20p	1.77%	6.57%	-1.57%	3.54%	-7.53%
Tesco	317.35p	1.52%	4.75%	-3.83%	-21.34%	-20.45%
Cash		4.25%	0.00%
		100.00%	3.96%
				1 Month	YTD	28 Mnth
Virtual Portfolio gain (incl. Divs)				0.31%	8.25%	52.58%
FTSE gain (excl. Dividends)				-0.07%	2.97%	6.00%
- 1 month gain   5742.03 - 5737.78
- YTD gain         5572.28 - 5737.78
- 28 month gain 5412.88 - 5737.78
Transactions:
11/04/2012	Buy	Aviva @ 312.2p per share
20/04/2012	Buy	BP @ 436.36p per share
30/04/2012	Div	General Electric @ 14.46c per share
Notes:
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.6235 as at 30/04/12

And, the usual graphic:

Click to enlarge, back to return

Coming back to dividends, there are now quite a few dividends that the portfolio has qualified for but not yet received from:

- Aviva @ 16p per share payable on the 17th May
- BG Group @ 12.96c per share payable on the 25th May

- BAE @ 11.3p per share payable on the 1st June

- Centrica @ 11.11p per share payable on the 13 June.

- Rolls-Royce @ 10.6p per share payable on the 4 July.
- Tesco @ 10.13p per share payable on the 6 July.

Added back in (to this updated valuation), these dividends would give the portfolio a further boost of 0.98% on top of the current year to date gain of 8.25%. 

Very pleasing.

Looking ahead I still have some funds in the portfolio and could yet be tempted to top up again on existing holdings as I look to build a platform for further gains if global economies can move forward. 

And although it doesn't alter my long term view, I am also fighting the feeling that there will continue to be turbulence and value making volatility in the short term.

I am also looking for some signs of economic stability to support the view that my portfolio holdings can at least continue to maintain their dividend payouts.

Other than that, I am reasonably satisfied with things at the moment.
Further to that, the added expectation of dividend entitlements to be paid, and further ex dividends to come from William Hill (2nd May) and National Grid (est. 1 June), can only help to galvanise my portfolio at this time.

Related Posts:

- Apple Q2 Results lead bounce back in after hours trading.  

- Sense of foreboding ahead of Apple's quarterly statement. 

- Portfolio Ex-Dividends and Rolls-Royce newsflow 
- Apple: Cheap at 11.4 times 2012 earnings?  

Links to Portfolio updates:
- Portfolio Updates.  
- March 2012: Portfolio Update.
- February 2012: Portfolio Update.
- January 2012: Portfolio Update.
- December 2011: Portfolio Update.