Wednesday 24 October 2012

Nervous markets react to earnings misses.

FTSE100 @ 5804.78, +6.87 (+0.1%)
DJIA @ 13120.59,+18.06 (+0.1%)

Markets certainly testing nerves at the moment but despite what has felt like a painful few days with a 3%, or so, hit to my portfolio the FTSE continues to be above/around 5800 and the Dow Jones is currently above 13000 so the impact on the indices still appears negligible.

Surprise, surprise that Europe is back on the agenda and the forthcoming US fiscal cliff is in focus as the Presidential election moves towards a conclusion.

The icing on the cake (despite weeks of warnings), is that company earnings have disappointed with a number of US heavyweights not meeting all aspects of analysts expectations the biggest disappointment of which came from Google (Google "groan" (not Chrome), as shares suspended on trading update.), which, unfortunately was the centrepiece of a debacle involving the early release of information without the benefit of company support.
This foot shooting miss and  early release triggered an almost immediate 10% fall in the share price followed by suspension.

Circling in the shadows is the 25 year old spectre of Black Monday with journalists earning their crust by wheeling out the many similarities (if you really want to dig for them, of course), with today's market environment. 
I did learn something new though as I didn't realise that, back in 1987 over the weekend that preceeded Black Monday, US warships shelled an Iranian oil platform which certainly wouldn't have helped frayed nerves.

Back to today though, and it might be that markets calibrate themselves further but I am not looking to react to it. Being cynical in my old age I still think that there are many interested parties who actively seek the trading opportunities that this volatility and nervousness can create.

The very active ex dividend and payment dates affecting my portfolio (September 2012: Portfolio Update.), also helps to give me a sense that it is still moving forward despite the market noise. 
Tesco and BAE have gone ex. div. already this month, IG paid out yesterday, R-R and William Hill went ex. dividend today, and GE payout tomorrow.
Thats a couple of payouts this month and 3 more ex.divs added to the "pipeline".

So patience, and finger crossing on my part that the steady rewards will continue.

Related post links:
Google "groan" (not Chrome), as shares suspended on trading update.
September 2012: Portfolio Update.

Thursday 18 October 2012

Google "groan" (not Chrome), as shares suspended on trading update.

NASDAQ @ 2744.17, -31.45 (-1.13)
Google @ $695, -$60.49 (-8.01%)

Bizarre, unheard of, and "by mistake".

It appears that Google has mistakenly declared its quarterly performance early as opposed to after the bell as planned and commonly seen with US companies.
The results outlined 3rd quarter earnings of $9.03 per share which was substantially short of analysts forecasts of $10.65.
This produced a significant fall of around 10% in the share price prior to its shares being suspended at around 12:50 until 3:20 New York time (Google shares suspended as premature results stun Wall Street), and then recovering slightly to close 8.01% down
Such a fall on such a share tied a big albatross around the NASDAQ which has itself closed more than 1% down.

Reports suggest that search and advertising revenues have suffered with users possibly bypassing Google for Amazon/App searches on Mobile devices (Google's results miss analyst forecasts: reaction). The company's acquisition of Motorola is also taking time to absorb with costs up around 71% (Google shares suspended as premature results stun Wall Street).

There is also a growing privacy and property issue to contend with as we accelerate towards a connected, cloud supported future.
Still the company remains the dominant search engine and with Chrome, Android, Cloud technology, and Motorola, Google continues to look like it can influence, shape and be at the heart of an internet and wireless dominated future.

But, its also worth noting that this is probably the 3rd big miss by Google in the last 2 years, as the company "invests" in capacity, innovation, and capability (occasionally at the short term expense of margins), but the shares have always recovered to new highs so it will be interesting to see if the same trick can be pulled off again. A further 10% and the shares might present another buying opportunity based on its previous bouncebackability.

Related article links:
http://www.telegraph.co.uk: Google shares suspended as premature results stun Wall Street
http://www.bbc.co.uk: Google shares suspended after profit results error
http://www.telegraph.co.uk: Google results: mobile phones at the root of profit challenges
http://www.telegraph.co.uk: Google's results miss analyst forecasts: reaction

Earlier Posts:
Is Android a reason to invest in Google?
Market valuations and Google's $12.5bn bid for Motorola.

Thursday 11 October 2012

BAE EADS merger talks ended: danke schön Frau Merkel

So the big European merger of unequals has fallen through amid news reports that Germany's rumoured demands for the enlarged organisation become an insurmountable obstacle (http://www.bbc.co.uk: Merger of BAE and EADS 'close to collapse').
The suggestion is that Angela Merkel was against the deal and that the German Government was determined that the venture be headquartered in Germany (http://www.sharecast.com: Germany blamed for BAE merger collapse).

This follows a groundswell of shareholder opposition that appeared to be championed by BAE's largest shareholder Invesco Perpetual through its variety of funds managed mostly by Neil Woodford (http://www.citywire.co.uk: Invesco's Woodford hits out at BAE-EADS merger), along with other top ten shareholders, who questioned the merits of the deal.

Following the collapse of the deal questions look likely to remain over the futures of Chairman Ian Olver and CEO Ian King who seem to have failed to deliver on a strategy stretching back to BAE's divorce of its stake in Airbus, the significant commercial aircraft subsidiary of EADS.
Bizarrely views are being expressed that, following the lowly premium that King and Olver were prepared to sell out at (backed by the UK Government), the company could well still be up for sale leaving it open to takeover from such as Boeing, Lockheed et al as they themselves look to protect revenues through an extended geographical diversification that BAE could offer.

It strikes me that bolting on a commercial aircraft business does little to protect anticipated weaknesses in UK and US defence budgets other than allow the company to mask inefficiencies. 
In all likelihood this would still lead to an efficiency drive (job losses), as capacity is reduced in line with customer demands. 
Even worse was the scenario that the UK's more amenable employment law framework would ultimately see this region used to balance the books with intellectual property transferred. 
Surely better that BAE drive its own efficiencies (whilst protecting UK capability and infrastructure), then grow in line with markets in the longer term.

So the board stand accused of an apparent about turn on Airbus/EADS links, and a failure to take advantage of the diversification that it represents from US DoD budget cuts, as well as leverage its position as a preferred supplier to the US DoD.
Looks to be a real failure by the BAE Board which has long looked to be an inefficient business with plenty of gains to be had by the right management.
As to the management, well this deal has shone a light on an apparent hole in the alignment of shareholders' and directors interests with reports that CEO Ian King would have benefitted from a "change of control" clause which, following the merger, would have seen all his long term share options exercised in a potential payday of up to £17.8m (http://www.dailymail.co.ukBAE chief to make £18MILLION from sell-off: Defence firm boss would hit jackpot if controversial merger goes through).

Clearly a disconnect of short term and long term interests. The Daily Mail article also goes on to suggest that King's incentives have had a peer group aligning rise of up to 300% which he clearly deserves based upon company underperformance!
As ever I am a critic of peer group alignment when the performance is clearly lacking and not reflected in results. Even more so when they are transatlantic as a huge number of weighting factors should come into play.

Once again it also raises a question mark over the so called golden share held by the UK Government (of all colours), that they have once again failed to demonstrate that they are willing to protect UK interests. 
Not sure what they had to gain other than networking!

So who had most to gain amidst all this personal interest: EADS CEO Tom Enders assuming he would take control of the new entity; EADS getting BAE on the cheap and further wedging open the door to the US; Morgan Stanley and other "advisors"; the BAE board and the "change of control" as an exit strategy having failed to execute a successful internal strategy despite being given every chance with the previous takeover of Vickers etc.

It certainly looks like shareholders' interests would have been lost amidst all that for a small premium to the current share price that does little to recover the longer term discount in the share price following SFO investigations and board failure. 
And then there was the threat to the dividend from the combined venture!

I am sure that if it were attractive then, fund managers and investors, such as Woodford, would already be invested in EADS and its politically motivated traditions.

Anyway despite all this the company has issued an "as you were" letter from the Chairman and Chief Executive (http://www.baesystems.com: A LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE), along with its interim management statement which specifies trading, including lower sales, as continuing to be "in line with management expectations". 
This includes forecast improvements to cashflow for the year based on the assumption that the Typhoon Salaam pricing negotiations with the Saudi Arabian government reach a satisfactory and timely conclusion (seems to be going on a bit though).

The shares are due to go ex. dividend on the 17th October with an increased interim dividend of 7.8p (7.5p), payable on the 30th November.

Related article links:
http://www.bbc.co.uk: Merger of BAE and EADS 'close to collapse'
http://www.bbc.co.uk: How Germany killed the merger of BAE and EADS
http://www.citywire.co.uk: Invesco's Woodford hits out at BAE-EADS merger
http://www.dailymail.co.uk: Intervention from major shareholder Invesco Perpetual drives BAE-EADS deal closer to the rocks

http://www.dailymail.co.ukBAE chief to make £18MILLION from sell-off: Defence firm boss would hit jackpot if controversial merger goes through
http://www.baesystems.com: A LETTER FROM THE CHAIRMAN AND CHIEF EXECUTIVE
http://bae-systems-investor-relations-v2.production.investis.com: HALF-YEARLY REPORT AND PRESENTATION 2012


Related posts:
Shareholders' rights going missing?
BAE takes off on proposed merger with EADS!
Part 2: BAE takes off on proposed merger with EADS!

BAE: 2011 Preliminary Results.

Tuesday 9 October 2012

Shareholders' rights going missing?

Interesting to see the weight of opinion rising against the BAE EADS with Invesco Perpetual's Neil Woodford the latest to voice concerns as a BAE shareholder (http://www.citywire.co.uk: Invesco's Woodford hits out at BAE-EADS merger).

Elsewhere on the Citywire forums the subject of shareholders rights has been raised once again particularly voting rights which could come into play in takeover and merger situations such as these.
It appears that over the years shareholders have been incentivised down the nominee account route without full realisation as to the loss of rights/benefits that go with this.
This can simply be shareholder benefits and discounts as offered by a company but also stretches to access to dividend re-investment programs and in this case individual voting rights (http://moneyforums.citywire.co.uk: Investors ‘unable to vote on BAE merger plans’).

Concerning and as the forums suggest time for the FSA and Government (yes you Vince!), to step up to the mark and enforce our rights.

Related article links:
http://www.citywire.co.uk: Invesco's Woodford hits out at BAE-EADS merger
http://www.dailymail.co.uk: Intervention from major shareholder Invesco Perpetual drives BAE-EADS deal closer to the rocks
http://moneyforums.citywire.co.uk: Investors ‘unable to vote on BAE merger plans’

Related posts:
BAE takes off on proposed merger with EADS!
Part 2: BAE takes off on proposed merger with EADS!

Wednesday 3 October 2012

September 2012: Portfolio Update.

Right its portfolio update time again and despite the disappointment of not maintaining the all time high reached mid September, my portfolio has continued to move forward month on month with a gain 0.98%, helped by a raft of dividends from BG, Microsoft, SSE, and BP.
But countering the dividends received is a short term negative impact from portfolio shares now trading ex-divided but pre-payment. 
These shares are: Aviva; IG Group; GE; Morrison's; and Centrica.

Worth noting is that following Mario Draghi's proposed ECB intervention (Super Mario powers up the markets with bond purchase program!), and then the US Federal Reserve launching QE3 (was Bernanke waiting for maximum dramatic impact?), my portfolio's value surged 4.94% in the month to an all time high (as markets relief rallied), before retreating back (again with markets), to finish September up just 0.98%.

However, back to the present review, and despite trading ex-dividend, GE made the portfolio's largest individual gain of 7.7% as the shares benefitted from a positive outlook.
The only other notable gainer being William Hill amidst a joint bid for Sportingbet which could lead to it cherry-picking Sportingbet's Australian assets should the bid prove successful.

BAE experienced a big surge into the 360p's following leakage of news that it was in advanced talks to merge with EADS, the owner of Airbus (BAE takes off on proposed merger with EADS!), with the 2 companies seeking to create a so called "European" champion in defence and aerospace. 
This instant euphoria soon passed though as reality set in on all sides as to the potential for political complexity and national interest, as well as major shareholder concern (on both sides), that the 60:40 weighting represents a fair valuation.
Looks an uphill task to me.

National Grid had a similar roller coaster as it retreated with markets before rallying back to just shy of 700p as Thisismoney reported that GE Capital was planning a 900+p per share bid for the company (GE Capital to acquire National Grid for £9+ share!), which, despite the specifics of naming GE Capital and the price, still seems more speculation than fact to me.

Vodafone is also proving a little volatile at the moment given continued speculation over any special dividend that the company might be due to receive from its significant investment in Verizon Wireless, particularly as its European markets struggle for growth and the Indian Government seeks to rewrite its own tax laws as it goes along.

Apple also missed a step after hitting $700 in the wake of the much anticipated launch of iPhone 5. This came after the company announced that they had sold out 2m pre-orders rather than the analyst speculated 5m. 
Added disappointment came from the glitchy maps application introduced by the company to replace Google Maps.
This combination of disappointments was enough to pull Apple back to $667.

Sterling has also strengthened to £1 = $1.61603 ($1.587 as at 30 Aug 12), which has also shaved a little of the valuation of my portfolio's 3 US holdings: Apple; Microsoft; and GE.

Individually then, and as at the end of September, the portfolio is as follows:


Merchant Adventurer's Index
Forecast 1 month YTD 21 mth
Price % holding Div. yield % gain % gain % gain
R-R
875.50p 31.72% 2.33% 2.68% 12.93% 35.31%
National Grid
683.00p 17.11% 5.99% -0.07% 9.28% 23.51%
Aviva
318.70p 10.65% 8.26% -2.27% 5.45% -5.67%
Apple **
$667.26 6.00% 0.27% -1.44% 58.41% 95.09%
BP
436.50p 5.43% 4.68% -1.10% -3.92% -4.63%
IG Group
446.00p 4.57% 5.17% 3.60% -2.56% -6.54%
William Hill
316.80p 3.36% 3.45% 5.49% 56.21% 85.59%
General Electric **
$22.71 2.60% 2.47% 7.70% 21.91% 43.68%
Centrica
327.80p 2.34% 5.01% 0.34% 13.31% -1.15%
SSE
1392.00p 2.19% 6.05% 1.75% 7.82% 13.63%
Microsoft **
$29.78 2.16% 2.41% -5.06% 10.29% 2.94%
BG Group
1250.00p 2.08% 1.31% -2.95% -9.19% -3.55%
Morrisons
285.20p 2.05% 4.13% 1.86% -12.57% 6.58%
Vodafone
175.75p 1.94% 7.41% -3.17% -1.76% 9.07%
BAE Systems
325.10p 1.85% 6.02% 2.07% 14.03% -1.48%
Tesco
332.00p 1.51% 4.54% -1.37% -17.71% -16.77%
Cash
2.46% 0.00%
100.00% 4.07%
1 Month YTD 21 mth
Virtual Portfolio gain (incl. Dividends)
- 1 month gain   1593.09 -  1608.75 0.98%
- YTD gain         1409.55 - 1608.75 14.13%
- 21 month gain 1264.20 - 1608.75 27.25%
- 33 month gain 1000.00 - 1608.75 60.87%
FTSE gain (excl. Dividends)
- 1 month gain   5571.15 - 5742.07 0.54%
- YTD gain         5572.28 - 5742.07 3.05%
- 21 month gain 5971.01 - 5742.07 -3.83%
- 33 month gain 5412.88 - 5742.07 6.08%
Transactions:
07/09/2012 Div BG Group @ 7.64p per share
19/09/2012 Div Microsoft @ 10.47p per share (act rec'd)
21/09/2012 Div SSE @ 56.1p per share
25/09/2012 Div BP @ 5.02p per share (act rec'd)
Notes: 
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.61603 as at 30/09/12
***  Gains are shown from period base date (e.g. YTD, or 21 months), or purchase date if less than period base date.



In chart form, the portfolio's performance continues to look positive with the aforementioned 0.98% gain in September (incl. dividends) v. the FTSE100's gain of 0.54% (excl. dividends).

Click to enlarge, close to return.

Looking ahead it still feels like we may have passed through a milestone following the ECB's proposal to intervene (under certain conditions), and address speculator driven imbalances in sovereign borrowing rates. 
It might not yet mean that we have hit a floor to the problems but, in Europe at least, the penny might finally be dropping as to the extent of the area's problems and a realistic concerted step to addressing it may have been put in place.
Preventing the situation happening again still comes back to financial prudence and control but that is a more of a mission statement than an immediate solution to past profligacy.
Now if the US could also agree a political consensus on addressing its long term debt!

The BAE situation could quickly turn into a debacle that might hamstring the shares for a time and looking at William Hill, they are in a number of bid situations (probably add Playtech to this list), that could draw on the balance sheet.
And whilst William Hill shares continuing to move beyond 300p is positive they are starting to look more expensive on current prospects with the forward yield falling below 4% and no forecast growth next year.

Dividends will continue to play a part with 4 holdings due to trade ex.dividend and 2 more due to payout.


Ex Div.  Company and payoutDue date
19-Sep Aviva @ 10p per share 16-Nov
19-Sep IG Group @ 16.75p per share 23-Oct
20-Sep GE @ 17c per share 25-Oct
26-Sep Morrison @ 3.49p per share 05-Nov
26-Sep Centrica @ 4.62p per share 14-Nov
10-Oct Tesco @ 4.63p per share 21-Dec.
17-Oct BAE @ 7.8p per share 30-Nov
24-Oct R-R @ 7.6p per share 04-Jan.
24-Oct
07-Nov
07-Nov
William Hill @ 3.4p per share
Apple @ $2.65 per share
BP @ 9c per share
07-Dec. 
15-Nov
21-Dec
13-Nov Microsoft 23c per share 13-Dec
?? Nov National Grid @ ?? ?? Jan
?? Nov Vodafone @ ?? ?? Feb.


I'm not holding my breath that economies are stabilising but am at least feeling a little more positive about the prospects for my portfolio as we move into the last quarter of 2012.


Related post links:
Super Mario powers up the markets with bond purchase program!
BAE takes off on proposed merger with EADS!
Part 2: BAE takes off on proposed merger with EADS!
GE Capital to acquire National Grid for £9+ share!

Links to Portfolio updates:

August 2012: Portfolio update.
July 2012: Portfolio update.
June 2012: Portfolio Update.
May 2012: Portfolio Update.
April 2012: Portfolio Update. 
March 2012: Portfolio Update. 

February 2012: Portfolio Update. 
January 2012: Portfolio Update. 
December 2011: Portfolio Update.  
 






Monday 1 October 2012

September 2012: "following Woodford" update.

So what's happening in my 3 ways to follow Woodford experiment?
Well despite a dividend of £25.74 coming in from BAT this month, the 3 picks option (British American Tobacco, GlaxoSmithKline, and Vodafone), took a notable stumble to slip back into last place as the combination of company concerns and investors' risk aversion temporarily switched off following the actions of various central banks notably the ECB and the US Federal Reserve.

However, not quite as expected the new leader of the pack is now the Edinburgh Investment Trust, rather than the High Income. 
The Edinburgh Investment Trust (also managed by Neil Woodford), was, like the 3 picks option, also launched into this fray with the slight disadvantage of an upfront dealing charge.

All 3 "ways to follow Woodford" continue to show gains (net of current charges), after 6.5 months though.
In contrast the FTSE100 is down -3.42% over the same period (5945.43 - 5742.07).

Company specific fears appear to be impacting BAT with plain packaging in Australia, then a ban on smoking in public spaces being introduced in Russia (one of the company's biggest markets).
But it remains to be seen how this might materially impact the industry's revenues. 
Opinions abound as to the actual impact on UK and Irish markets for instance.

Vodafone also continues to run with some uncertainty over its long running debate with the Indian Government over legacy tax arising from past acquisitions, and the extending uncertainty over the regularity of a dividend from its significant, but minority control, investment in Verizon Wireless.

After a good run over the last 12 months (as with all 3 I'd say), Glaxo is also suffering from a little more uncertainty over future earnings growth. The company also suffered a record $3bn fine in July for mis-promotion of some of its prescription products in US markets during 1998 - 2007.

With all 3 also being viewed as "defensive" the current market churn into and out of mining and other perceived growth shares has also reduced enthusiasm for the 3 picks and their peers.

But all 3 picks continue to be part of the High Income Fund's top 10 although Vodafone has slipped to 10th in the list which raises an interesting question should it drop out of the top 10.
Being honest any of these 3 dropping out of the top 10 is not something that I have had to fully consider yet so will need watching carefully.


QtyPrice£Value%Gain
Inv. Perp. High Income1110.145.586196.273.27%
Residue0.00
Dividends
Total
6000
6196.273.27%
Edinburgh Investment Trust1182.005.176110.941.85%
Residue0.43
Dividends167.58
Total
6000
6278.954.65%
3 Picks
BAT61.0031.801939.50-3.03%
Glaxo138.0014.281969.95-1.50%
Vodafone1191.001.762093.184.66%
Residue3.68
Dividends100.52
Total60006106.831.78%



Transactions in the month:
Invesco Perp. High Income
Edinburgh Inv. Trust
N/A
N/A
3 Picks
BATS26/09/2012Div25.74


Monthly Chart:-

Click to enlarge, close to return

We shall have to see what October brings.


Note: Unlike my Portfolio updates (Portfolio Updates.) which reflects an actual investment portfolio, following Woodford is an experimental strategy and a virtual portfolio.
However, I do hold an investment in Vodafone.


Related article links:
http://www.invescoperpetual.co.uk/portal/site/ip/products/
http://www.telegraph.co.uk: US fines Glaxo record $3bn for mis-promoting drugs


Earlier related posts: