Tuesday 21 October 2014

Royal Mail still in the post!

Royal Mail @ 432p

Strange that the Royal Mail flotation is no longer being sounded in the House of Commons as a political football now that the share price is much closer to its supposed discounted launch price.
Once again its use by Labour, seemingly demonstrates that they have little understanding of markets themselves and would use any little thought out opportunity to influence voters minds with something that, it could be said has subsequently backfired and been quickly resigned to yesterdays news, as quickly as the company's prospects appear to have been deflated.

As ever, with these things, and particularly where politicians are concerned, the first question following such headlines and statements, should always be "what's in it for them?"
That answered you can at least consider what they are saying with a little more balance.

The fact remains that the issue unexpectedly recalled the hype of earlier privatisation issues, along with an over subscribed small investor proportion being scaled back and leading to greater demand in the short term.
Like any market, the number of buyers over sellers, dictates the price, and I suspect, market makers boosted this in the short term as they came on board to maintain liquidity of a new issue, providing a further boost.

Either way, and for a time, it seems that the value of Royal Mail got ahead of itself despite a gloomier wider economy, and as such, the price of the issue should never have been used for the target practice that followed.
Instead the debate should always have been about whether or not it should have been privatised given the use of state owned industry to maintain employment levels during a recession.

Most investment cases involve speculation as to future prospects, are sold on the positives, and are usually in an overbought or oversold situation, which can be influenced by company news and/or wider market and economic sentiment.

Anyway, as things stand, at the current price, the Royal Mail stands at a current historic valuation of 21.4 time earnings, and a yield of 2.4%, albeit the actual yield has been determined from just a 60% of a full year return.
The current valuation and share price, taking into account rapid growth (if you can believe it), falls to 13.2 time earnings and a 4.9% yield for the current year!

So even at this price these kind of growth multiples and speculation put the company into a high growth category, which still seems hugely risky given the competition for parcel delivery from its customer, Amazon, and other more established postal names.
I bought a suit from Marks & Spencers last year, which was efficiently delivered (almost tracked up the motorway), by Amazon!

That kind of growth multiple is also comparable to maturing technology companies such as Google and Apple, giving further food for thought perhaps. 
However, the investment case for Royal Mail has always been its dividend, so at 4.9% for next year v. some of the original investment case suggesting 6% for the current year (for income seekers), it still seems overpriced and therefore in risk of falling back to its offer price.

So my earlier question remains: Royal Mail IPO: first class or second class!
Only time and markets will tell.

Earlier related posts:
Royal Mail IPO: first class or second class!

Saturday 18 October 2014

September 2014: Portfolio Update

Well September heralds the fall, and markets have continued to fall with global headlines continuing to affect market and trader sentiment, despite none it being new or any more sensational than headlines of previous years.
But, some return to normal behaviour as the wider FTSE 100 fell further in the month than my portfolio and the 2 indexes now sit largely comparable on the 2014 year to date performance.
The gloom for me coming in the foreknowledge of a 15% fall in my largest holding, Rolls-Royce as of yesterday's trading statement/profit guidance/profit warning, which will now have a large say in my portfolio's October and full year performance courtesy of its 25% weighting in my portfolio,... a buying opportunity perhaps?

Anyway as previously posted the other key news to my portfolio being the selling of Tesco and Morrisons as I look to tweak my portfolio slightly. I may yet decide to sell BG Group too, as I build a nice war-chest for this current market consolidation, which I will look to feed back into the market over the coming weeks.
And whilst the table below shows that, at 30 September, cash stood at 8.23%, of my portfolio, that was before the sale of Morrisons, and Tesco.
Mainly as the sales were towards the end of the month, and the funds not re-positioned, I have, as I have done with some previous sales, continued to show both of those holdings but with their sale price.
The actual cash balance after the sales now sits at 9.55% of my portfolio's close of September value, and I may yet add more.

Dividends for September came in from BG, Microsoft, BP, SSE, Tesco, Morrisons and BAT.
Tesco easily led the fallers followed by R-R, BP, BG and Morrisons.
BP continuing to be mired in the legal damages resulting from the Gulf of Mexico Oil disaster.

So despite the flurry of dividends, and it has been a good year, its disappointing to see my portfolio reach the end of the third quarter still down on the year to date for 2014, and thats before the October fall in R-R.



Merchant Adventurer's Index
Forecast 1 month YTD 45 mth
Price % holding Div. yield % gain % gain % gain
R-R 964.00p 25.70% 2.64% -5.58% -22.97% 46.84%
National Grid 888.00p 14.38% 4.88% -1.22% 12.69% 60.58%
Aviva 524.00p 11.32% 3.66% 0.58% 16.52% 55.09%
BP 453.00p 4.85% 5.50% -5.95% -7.18% 0.00%
Apple ** $100.75 7.13% 1.65% 0.36% 27.66% 70.22%
Vodafone 204.00p 2.05% 5.57% -1.33% -19.14% -19.14%
Verizon ** 3074.98p 1.48% 3.78% 2.45% 10.80% 10.80%
IG Group 595.00p 3.94% 4.81% -1.98% -3.41% 24.68%
William Hill 370.00p 3.10% 3.43% 5.71% -7.94% 100.89%
Imperial Tobacco 2664.00p 2.75% 5.26% 1.41% 13.94% 17.93%
BAT 3482.00p 2.43% 4.52% -2.01% 7.54% 3.81%
General Electric ** $25.62 1.89% 2.75% 0.69% -7.16% 61.13%
Microsoft ** $46.36 2.16% 2.07% 4.20% 25.80% 59.29%
BAE Systems 471.00p 1.73% 4.43% 5.82% 8.28% 42.73%
Centrica 308.00p 1.42% 5.90% -3.57% -11.42% -7.12%
SSE 1547.00p 1.57% 5.81% 1.91% 12.92% 26.29%
Morrisons 168.24p 0.78% 0.00% -5.22% -35.54% -37.13%
BG Group 1142.00p 1.23% 1.79% -4.95% -11.98% -11.88%
Tesco 185.96p 0.55% 0.00% -19.13% -44.38% -53.38%
Barrat Dev. 396.00p 1.30% 3.59% 7.06% 10.78% 10.78%
Cash 8.23% 0.00%
100.00% 3.32%
1 Month YTD 45 mth
Virtual Portfolio gain (incl. Dividends)
- 1 month gain   2132.02 -
2097.83 -1.60%
- YTD gain        1644.62 -
2097.83 -1.94%
- 44 month gain 1264.20 - 2097.83 65.94%
- 56 month gain 1000.00 - 2097.83 109.78%
FTSE gain (excl. Dividends)
- 1 month gain   6819.75 - 6622.72 -2.89%
- YTD gain        5897.81 -
6622.72 -1.87%
- 45 month gain 5971.01 - 6622.72 10.91%
- 57 month gain 5412.88 - 6622.72 22.35%
Transactions:
06/09/2014
Div
BG Group @ 8.51p per share
16/09/2014
Div
Microsoft @ 12.13p per share (act rec'd)
20/09/2014
Div
BP @ 5.53p per share (act rec'd)
27/09/2014
Div
SSE @ 56.1p per share
29/09/2014
Sell
Tesco @ 185.96p
29/09/2014
Sell
Morrison @ 168.24p
30/09/2014
Div
BAT @ 81.2p per share
Notes: 
*     US Dividends are adjusted for exchange rate and 15% withholding tax
**   Sterling : Dollar exchange rate = £1: $1.6257 as at 30/09/14


The graph continues to provide an easily understood presentation of performance, which while disappointing for 2014, and its outlook, still shows that we are still in the realms of historic highs, 109.78% v. the 113.93% that closed out 2013.

Click to enlarge, close to return.

So looking forward, achieving any kind of parity for 2014 is now looking difficult given the fall in Rolls-Royce to come in October's update.
However, the significant task ahead now is to redistribute the fund now building in my portfolio, some of which I will have to consider for Rolls-Royce, and BP now.

Anyway, we're still in the game and, as ever, taking a longer term view of things than the market turmoiling around us.

Happy hunting!

Previous Posts:
August 2014: Portfolio Update
July 2014: Portfolio Update.
June 2014: Portfolio Update.
May 2014: Portfolio Update.
April 2014: Portfolio Update.
March 2014: Portfolio Update.
2013 Dividends profiled.
February 2014: Portfolio Update
January 2014: Portfolio Update
December 2013: Portfolio Update.