RBS a ‘buy’ as it becomes best performing bank after August trough

Otmane El Rhazi from Mindful Money » Shares.

Shares in Royal Bank of Scotland may be languishing at 330p by Investec analysts believe the stock has more to offer.

 

Investec analyst Ian Gordon said that although shares in the bank are still at 330p, ‘UKFI’s now infamous 4 August exit price’, the bank has been a top performer since the August crash.

 

He also argued that the delay to the buy-back of shares should not be taken negatively. On 30 July, RBS decided to defer the commencement of a return of a capital surplus to shareholders until 2017.

 

‘It has actually been the top performing FTSE 100 bank since the market trough of 24 August – up 7%,’ he said.

 

‘We think there is plenty more to go for. Our perception is that many would-be investors have interpreted the decision to postpone RBS’ share buyback until at least Q1 2017 as de facto confirmation that the scale of capital return is illusory.

 

‘We entirely disagree; or prior forecast of £10 billion in 2016, becomes £12.5 billion in 2017.’

 

Gordon added that the delay, which has been implemented to ensure the bank passes stringent stress tests of which the results are due in December 2016, should not worry investors.

 

‘We strongly disagree with this ‘timing decision’ but so be it – we expect to spend much of the next 18 months simply marvelling at the sheet size of the RBS’ capital surplus and wondering why it is just sitting there gathering dust,’ he said.

 

‘In our view, the RBS story offers steady incremental encouragement. The two truly transformational pieces are the disposal of Citizens Financial Group and the decimation of its corporate and institutional banking division.

 

‘With Citizens, RBS is already down to a 21% stake and plans to exit in full this year. Corporate and institutional offers a steady flow of small ‘milestones’.’

 

Gordon retained a ‘buy’ recommendation and target price of 395p on the stock.

 

Will the Living Wage just be “the tip of the iceberg for UK employers”?

Otmane El Rhazi from Mindful Money » Shares.

Retailing giant Next has become the latest group to anticipate that the Living Wage will increase costs in its outlets, expecting prices to rise 6% in total by 2020.

But it only attributes a 1% rise to the effects of the Living Wage.

The introduction of the Living Wage means minimum wages will be set at £7.20 an hour for over-25s from April 2016, forecast to rise to £9.35 in 2020.

On Tuesday Whitbread warned it will have to increase prices in some of its chains, which include Costa Coffee, Premier Inn and Beefeater Grill, to meet the costs of the Living Wage.

With Kingfisher, owner of B&Q, and JD Sports issuing results next week, investors may not have to wait too long to hear some more corporate predictions on the impact of the Living Wage.

Laith Khalaf, senior analyst at Hargreaves Lansdown highlighted that Next also identified the biggest cost associated with the introduction of the Living Wage is actually increasing the wages of staff who actually earn above the Living Wage.

Like most employers, Next will want to maintain pay differentials between its lowest paid staff and more senior employees. Consequently it estimates the cost of bringing employee pay up to the Living Wage to be £11m in 2020 but the cost of paying more to employees earning above the Living Wage to be £16m.

Khalaf said: “This corroborates the analysis of the Living Wage conducted by the Office for Budget Reponsibility in July, which estimated that around 3.25m people earning above the Living Wage would get a pay rise, compared with 2.75m people earning under the Living Wage.”

Next also warned of a possible ‘inflationary loop’ which could ensue from the Living Wage as it is pegged to the national average earnings which it may push upwards.

Khalaf said: “Paying employees the minimum wage could be the tip of the iceberg for UK employers, because increasing salaries for the lowest paid has a knock on effect on the wage demands of other workers. No junior manager is going to be happy if they are being paid the same as the newest trainee. This is likely to result in an upward drag on salaries, as companies filter progressively smaller wage increases up the pay grades. Employees earning at, or just above the Living Wage can expect to feel the biggest benefit, aside from those who have had their pay brought up to the new minimum.”

While Khalaf asserted that the Living Wage is going to increase the pay of millions of people, which is hugely positive, he added that there “may be a cost which can be counted in jobs, prices and profits”.

He said: “We are beginning to see companies warning they are going to have to increase prices to cope with the additional cost of the Living Wage, and we should expect more announcements of this sort. The high street retailer Next rightly identifies the risk of an inflationary loop, stemming from the fact the Living Wage is linked to average earnings, which it should push up. With inflation at close to zero this doesn’t look like an issue worth worrying about right now, but in five years’ time, an inflationary wage spiral may present more of a problem.”

Next shares are a ‘hold’ as it reassures investors with a 7.1% rise in pre-tax profits

Otmane El Rhazi from Mindful Money » Shares.

Next’s latest set of results cheered investors after it reported a 7.1% rise in pre-tax profits to £347.1m and reassured the market over the impact of the higher minimum wage

On Thursday in its half-year results, the High Street stalwart also announced a 2.7% rise in sales to £1.9bn, with full price sales rising by 3.5% which was slightly better than expected while the interim dividend was raised 6% to 53p.

Within the report Next said it expects the government’s new living wage to lead to a £2m increase in its wage bill next year and ultimately to add £27m a year by 2020. The group said it believes that is manageable but prices might have to rise 1% if there are no improvements in productivity.

Sales and profit guidance for the full year were unchanged and the company expects better sales in the second half, partly due to weaker comparative figures from last year. Following the update, by 1.41pm its shares had edged 15p higher to 7,690p. But over the past two years, the retailer has enjoyed a 51% share price hike, while over 12 months the stock is 7% higher.

The broker consensus towards the stock is presently pointing to a ‘strong hold’, marking a slight improvement in sentiment over the past three months. Analysts at both Canaccord Genuity and Investec have reiterated their own ‘hold’ recommendations while Cantor Fitzgerald is more bullish and has Next down as a ‘buy’.

Ian Forrest, investment research analyst at The Share Centre recommends Next as a ‘hold’ for “medium risk investors seeking a balance of growth and income”. He said: “The news shows Next continues to perform well and will have reassured investors that the impact of the new higher minimum wage should not be significant for the company.

“The company continues to expand its stores and online presence and, investors will note, Next is returning a significant amount of cash to investors in the form of special dividends. With much of this already reflected in the shares, we prefer Marks & Spencer in the sector due to its more attractive valuation.”

St Leger’s Day adage: were investors right to sell-out in May this year?

Otmane El Rhazi from Mindful Money » Shares.

With the St Leger’s festival imminently arriving, Graham Spooner, investment research analyst at The Share Centre, explores whether the historic tactic has benefitted investors this year…

As we approach St Leger’s Day 2015 this Wednesday, equestrian enthusiasts can look forward to the oldest classic horse race in the world, first run in 1776. For investors this day identifies with the strategy of “sell in May and go away, stay away ‘til St Leger’s Day”, which is based on the historical seasonal decline in the markets.

Earlier this year, we suggested five ‘buys’ for investors that might have defied this perceived logic. Looking back, how would you have done if you have sold up for summer? And how did our five shares fair against their benchmark index?

Over the period the FTSE 100 fell by around 12% and the FTSE 250 by close to 3%. Breaking it down a little further it will come as no surprise that if your portfolio was geared or overweight mining and oil shares or exposed to other global markets and especially emerging markets then selling in May would have been a very rewarding strategy. For anyone else with a more balanced UK portfolio, then once dealing costs have been taken into account, it may not have been quite so clear cut.

Our five shares to consider over the summer were; Booker, Marston’s, Easyjet, Compass and Restaurant Group.

Starting with the two blue chip FTSE 100 constituents, Compass fell by exactly the same amount as the index – mostly on the back of slowing demand from the offshore oil & gas industry. Easyjet outperformed the index, helped perhaps by the ones who sold and booked their flights to go away, but was still down by around 2%. There was better news from one of our mid-cap selections. Whilst Restaurant Group was down by 3% and Marston’s was down 5%, they both did no more than follow their benchmark. The star performer was Booker which rose by 26% against a 3% fall in its benchmark. The group’s May results, accompanied by the acquisition of Londis and Budgens, were well received and the latest trading update in September has helped underpin the fine performance of its shares.

In summary, our five picks (with the help of Booker) would probably have made you a little richer. The evidence for selling in May in recent years is hardly overwhelming. However thanks to China, this year will be viewed as one that would in general have rewarded investors. Another saying is that hindsight is a wonderful thing. We would recommend that investors look at what is best for their portfolio and not literally base their investments on old sayings, proverbs, adages or folk law.

Shares in Morrisons tumble as group reports hefty fall in profits and store closures

Otmane El Rhazi from Mindful Money » Shares.

Shares in Morrisons slid by 5% in early morning trading as the troubled supermarket announced a hefty 47% drop in half-year profits before tax to £126m.

On Thursday morning, the group’s stock was down 8.6p or 5% at 167.3p by 08:52 as it also revealed plans to shut 11 stores, which could potentially mean a loss of around 900 jobs.

It also said that over the six months to 2 August 2015, like-for-like sales tumbled 2.7% compared to the same period in 2014.

This followed an announcement on Wednesday that Morrisons was selling of 140 of its M local convenience stores for £25m.

The FTSE 100 listed group’s new chief executive David Potts who joined the business in March this year said the immediate priority is “to deliver a better shopping trip to stabilise trading performance”.

He outlined the firm’s “six strategic priorities” as

• To be more competitive
• To serve customers better
• Find local solutions
• Develop popular and useful services
• To simplify and speed up the organisation
• To make core supermarkets strong again

In a statement issued with its results, Potts added: “Our six strategic priorities will then deliver improvement in the core supermarkets, where we have the greatest opportunity.”

“It will be a long journey. We approach the challenge with energy, confidence and many strengths, particularly our strong balance sheet and cash flow, which enables investment in improving the customer shopping trip.

“As previously guided, we expect underlying profit before tax will be higher in the second half of 2015/16 than the first.”

Whitbread a hold says the Share Centre

Otmane El Rhazi from Mindful Money » Shares.

The Share Centre has rated brewer Whitbread as a hold, as the firm grew by 11% in the 11 weeks to August 13th when compared to the same period last year.

Whitbread says that it is on track to deliver full year expectations as well as its ambitious growth milestones with its interim results are due out on October 20^th.

Ian Forrest, investment research analyst says: “Many large UK employers are currently facing the challenges of mitigating the costs of the recently announced higher living wage. Whitbread announced today that it is developing plans to achieve productivity improvements, efficiency savings and selective price increases.

“For investors, we are continuing to recommend Whitbread as a ‘hold’. This is due to its good growth, future prospects and the overall attractiveness of the business model. Much of this is already largely reflected in the shares, which means they are not as good value as other companies in the sector. Our preferred travel and leisure stock for investors is Restaurant Group.”

Top British stock picks for HRH – BAE Systems, St James’s Place & BT

Otmane El Rhazi from Mindful Money » Shares.

As we approach the commemoration date for Britain’s longest reigning monarch, Ian Forrest, investment research analyst at The Share Centre, picks three long lasting British stock picks for investors…

BAE Systems

As a defense equipment company, which is a major supplier to Her Majesty’s Armed Forces, BAE Systems is a long-term stock for investors to watch. In the UK, there is a need to retain our own defense manufacturing capability and BAE Systems has proved a good long-term option for investors. It is important to note that prospects in the sector have improved, as orders from other countries remain strong.

As a medium risk stock with a good dividend, we are currently recommending BAE Systems as a ‘buy’ for investors seeking a balanced portfolio.

St James’s Place

This wealth management firm is a good long-term investment. The group has proven its worth and this looks as though it is due to continue, with positive growth prospects in both the UK and Asia. The growing need for individuals to make their own retirement provisions and the changing demographics in the UK are also helping the group. St. James is an apt name in this context given that it is also the name of the senior royal palace and the royal court.

For investors interested in this insurance sector group, we are currently recommending its shares as a ‘buy’ for those willing to take a medium level of risk and wanting to achieve or add to a balanced portfolio.

BT 

Charles II originally founded this great British fixed-line telecom group in 1660. Originally part of the Post Office, BT employs good long-term prospects thanks to its dominance over expanding broadband Internet usage in the UK. The group is also furthering its activity in TV and mobile services, which should deliver further growth and bolster its position at the center of the UK telecoms sector.

As with our other two long-term British stocks, we are currently recommending BT as a ‘buy’ for investors with a balanced portfolio seeking a medium level of risk.

Should you bet on the St Leger Day adage as a sure-fire tactic for investment returns?

Otmane El Rhazi from Mindful Money » Shares.

Should you place your bets on the St Leger Day adage as a sure-fire tactic for investment returns? Not always, urges Fidelity Personal Investing.

With the famous St Leger Day race-taking place on Saturday, 2 September, Fidelity Personal Investing analysed the returns for the FTSE All Share between 1 May and 1 September since 1995.

It found positive returns between these dates in 11 out of 21 years meaning investors would have lost money if they had been out of the market, disproving the theory of selling over the summer.

FTSE ALL SHARE		1995	1996		1997		1998		1999	2000	2001		2002	2003	2004
Return (1st May – 1st Sep) %							-14.47		-1.65		-8.98		-17.93
Did the adage work?		No	No		No		Yes		Yes	No	Yes		Yes	No	No
FTSE ALL SHARE	2005	2006		2007		2008		2009	2010	2011		2012	2013	2014	2015
Return (1st May – 1st Sep) %		-0.13		-0.99		-6.51			-2.09	-9.61					-10.15
Did the adage work?	No	Yes		Yes		Yes		No	Yes	Yes		No	No	No	Yes

Tom Stevenson, investment director, Fidelity Personal Investing said: “The St Leger Day adage is a bit of a non-starter. Our figures show it is totally hit and miss since 1995 and investors would have been left out of pocket 11 out of 21 times.”

While this summer may have been a classic Sell in May year. All around the world, investors who sat out the May to September period will be celebrating due to China’s stock market crash and the problems in Greece. Stevenson however warned that in volatile times doing nothing is often the best approach, especially when some of the best days in the market can often follow hot on the heels of the worst days.

The costs of trading in and out of the market should also be taken account of – frequent dealing is costly.

“It is very difficult to foresee whether we are in the early stages of a real bear market, or coming to the end of a short-term correction.  Either way, investors need to remember that blind faith in an old adage and being out of the market could mean missing out on strong performing days which can have a significant impact on your returns. Far better to focus on your long-term saving goals and stay invested,” he added.

Why shares in services group Bunzl are a ‘buy’ for lower risk investors

Otmane El Rhazi from Mindful Money » Shares.

Graham Spooner, investment research analyst at The Share Centre, explains why he is backing Bunzl…

Amidst recent market instability, support services group Bunzl is one for lower risk investors to consider. Solid interim results in August reported an 11% rise in profits to £147.1m, along with a 7% rise in revenues.

There was also good news for investors with an increased interim dividend of 11.7p – also up 7%.

Bunzl’s approach of making acquisitions to boost revenue and profit continues to work well, and has led to its aforementioned improved dividends and a strong share price performance over the last four years.

The company has a global presence, which has protected it from regions that have suffered more in recent times, such as Europe. The weakness in sterling against the dollar should also further benefit the group’s results.

Bunzl is a defensive pick in volatile times, as it provides a range of essential products such as plastic cutlery, toilet rolls and cleaning products.

The group has had continued success during tough times, and we regard it as being a well-managed business. We are currently recommending the group as a ‘buy’ for lower risk investors with a balanced investment objective.

 

Mindful Money’s weekly shares watch: Next, Barratt Developments & Morrisons

Otmane El Rhazi from Mindful Money » Shares.

Given the ongoing buoyancy being enjoyed by the UK’s property market, investors will want to hear Barratt Developments is keeping up with demand when it reports its full-year results on Wednesday.

Following its July trading update, brokers are anticipating that the results should bring few surprises, with attention potentially focused on any accompanying current trading comments.

The past 12-months alone has witnessed the FTSE 100 firm’s shares soar by 72% and for his part, Graham Spooner, investment research analyst at The Share Centre is currently calling the stock a ‘hold’.

He says: “The improving trend over the last few years has helped the company return to a net cash position for the first time since the financial crisis. Like many other companies in the sector, they plan on returning some of this to investors through special dividends. Investors should remember that the sector has held up well in the recent market turmoil.”

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers highlights that aided by increased completion volumes, a greater proportion of builds on higher margin land and underlying house price inflation, “management have guided to an estimated 45% increase in pre-tax profit to around £565m”, up from £390.6m last year.

Prior to the results, and given the already significant rise in the share price, the analyst consensus opinion currently signifies a ‘strong hold’.

Thursday sees High Street stalwart Next report its half-year results. Having already delivered better than expected first half sales at its July trading update – up 3.5% – the focus falls on profits and accompanying management outlook comments.

The group’s shares are up 5% over one year and by 1% over the last six months. Looking ahead to this week’s update, Bowman notes: “First half pre-tax profit is forecast to rise by around 5% to £342m, with management currently guiding towards full year sales in the range of +3.5% to +6%.”

Before the results, analyst consensus opinion denotes a ‘hold’, a sentiment Spooner echoes.

He says: “Shares in the high street clothes retailer have outperformed the market since its last trading update in July. At that stage it delighted the market by revealing better than expected sales in the first six months and raised its full year profit guidance.

“Investors will be keen to hear any update on full year expectations and will focus on the performance of the mail order business as well as the high street stores. Next is due to pay a special dividend in November and investors will be looking for news on any further special dividends to come.”

Morrison Supermarkets also reports its half-year results on Thursday. The troubled supermarket has seen its stock nosedive by 19% over the past six months and Bowman expects that a business assessment from new chief executive, David Potts, who joined back in mid-March, will lead the agenda.

Bowman says: “Evolution rather than revolution in the company’s strategy is broadly expected, with continuations of existing initiatives such as property disposals and the postponement of convenience store openings likely.

“First half pre-tax profit is expected to fall by around 30% to £125m, pressured by falling sales.”

Ahead of the announcement, and despite a near 20% decline in the share price over the last six months alone analyst consensus opinion continues to point towards a ‘sell’ however Spooner has faith and has labeled it a ‘hold’.

Tesco sells South Korean arm Homeplus for £4bn

Otmane El Rhazi from Mindful Money » Shares.

Shares in troubled supermarket group Tesco tumbled almost 1% in early trading on Monday after the group announced it was selling its South Korean division Homeplus.

The business is being bought by South Korean firm MBK Partners for £4.2bn and Tesco said the proceeds of the sale will be used to bolster the its balance sheet.

In April this year, Tesco reported a pre-tax loss of £6.4bn for 12 months to February, representing the steepest ever loss for a UK retailer.

This marks the first major move by the business since the market update.

In a statement, Dave Lewis, chief executive of Tesco, said: “After a highly competitive process, we are announcing today the proposed sale of Homeplus, our business in the Republic of Korea. This sale realises material value for shareholders and allows us to make significant progress on our strategic priority of protecting and strengthening our balance sheet.

“I would like to thank all of our Homeplus colleagues for their dedication, professionalism and service to our customers, which has resulted in the creation of a great business.  I am confident that the agreement we have reached with MBK Partners presents an exciting opportunity for their continued success.”

By 09:14, Tesco’s shares were off by 0.54% or 184.95.

Sales of equity funds soar to 15-year high in July

Otmane El Rhazi from Mindful Money » Shares.

UK retail investors ploughed more than £2bn in equity funds during July marking the highest sales tally for the asset class since April 2000 according to new figures from The Investment Association.

The fund management trade body’s analysis showed that overall, retail fund sales hit £3bn over the month, the highest since April 2014.

Mixed Asset was the second best-selling fund type with a £432m tally, while Property funds also remained popular, at third best-selling, with net retail sales of £293m.

UK equity funds were the best-selling in July with net retail sales of £943m – almost double the level seen in the previous month and the highest since March 1999 when they notched up £1.2bn. Europe was the second best-selling region for equity funds with net retail sales of £532m, while global equity funds were the third with £338m.

Asian equity funds were the worst-selling in July with net retail outflows of £151m.

Daniel Godfrey, The Investment Association chief executive, said: “Following investor hesitancy seen so far in 2015, confidence returned in July with the highest net retail sales for over a year.

“Although it remains to be seen what impact August’s volatility has on fund sales, retail investors had a strong appetite for equities in July, particularly UK equity funds which saw their highest net sales in over fifteen years.”

 

Cash and carry group Booker gets the all-clear to acquire Musgrave Retail Partners but are its shares a ‘buy’?

Otmane El Rhazi from Mindful Money » Shares.

As Booker updates the market Graham Spooner, investment research analyst at The Share Centre, explains what this mean for investors…

Thursday sees a trading update from cash and carry group Booker. This follows on from yesterday’s expected but still well received news that the acquisition of Musgrave Retail Partners has been given the green light from the competition authority.

Booker revealed it is still on track to meet market expectations, despite reporting a small fall in like-for-like sales, mostly as a result of lower tobacco sales. This most recent acquisition comprises the well-known names of Budgens and Londis. The balance sheet still remains strong with a net cash position of £110m.

Those invested will note that the share price has outperformed the FTSE 250 this year and is up 12% year to date, which compared to some in its sector is impressive. The group has delivered a strong performance since Charles Wilson took over as CEO and investors will be hoping that the latest acquisition will be as successful as the 2012 Makro.

We continue to recommend Booker as a ‘buy’ for investors. The long-term fundamentals look positive, and it remains attractive to those looking for growth in the sector, thanks to recent acquisitions and plans to expand its consumer base and product range.

 

Top 10 tips for investors when markets take a dive

Otmane El Rhazi from Mindful Money » Shares.

Frazer Wilson, senior consultant at Thomas Miller Investment, outlines his top 1o tips for investors when markets plunge…

Having seen markets gradually improve over the last six years, we have all become used to inflation busting returns, so what happens when volatility returns? How do investors navigate future volatility? Here are our tips to help investors survive the volatile markets.

1. Firstly, don’t panic: When markets fall, they often do so quickly and recover slowly. Market crashes will always make the news, however the recovery doesn’t quite seem to make the front pages of the newspaper. Take stock and do not make any rash decisions

2. Review your time horizon: If you need to access assets in the short term, usually within five years, then be careful about using anything other than cash, even if rates are low.

3. Remember the basics: If you invest into anything (stocks and shares, property, antiques, cars, etc) the value will fluctuate. There are no guarantees in this game but lets take what we do know which is that we should buy when assets are cheap and sell when they are high. However, most people tend to do the opposite.

4. Balance is key: As the old saying tells us, don’t put all your eggs in one basket. A diversified portfolio will stand you in good stead.

5. If something seems too good to be true, it probably is: We are all now exposed to “investment opportunities”. Our advice is to be very careful, especially when they look too good to be true.

6. “Sprat to catch a mackerel”: Plenty of organisations offer a “special” offer either for a small sum, or for a short period of time. Once people deposit their funds (either in cash or investments) they often then leave things where they are. Do not do this – review the position regularly.

7. What’s your Plan? Ask yourself the following questions; How much can you afford to invest and over what period? Are your assets structured in an appropriate way considering your tax position? When was the last time you reviewed your Will? Can you afford to gift assets to your family? Are the new flexible pension rules suitable for you? Could you afford the potential costs of care? The answers will be specific to you and will depend on your future plans, objectives, other assets etc. Remember that we are all likely to live longer in the future, so make sure you have a plan.

8. Past performance is no guide to the future: The world is changing so we all need to be aware that investments that have previously performed well may not be the best place to invest at present.

9. Attitude to risk / Capacity for loss? Not all investments have the same level of risk. Keeping funds in cash for a long term also holds its own risks, especially when taking into account inflation over the medium to long term. What would be the position if investments don’t perform as well as expected. Will this impact your future plans. Do you need to take any risk to achieve your goals?

10. Be careful what you read: Often literature is very generic and can not take into account each individual’s personal circumstances. Remember everyone’s position is different.

Easyjet shares lift off after group raises full-year profit forecast following record numbers in August

Otmane El Rhazi from Mindful Money » Shares.

Easyjet shares took off on Thursday after the airline bumped up its full-year profit forecast to between £675m and £700m for the 12 months to 30 September 2015.

Following the update, by 8:38am the firm’s stock had lifted 7% to or 108p to 1780p.

Previously the discount carrier had predicted profits to land somewhere between £620m to £660m.

In its latest market update, the airline highlighted that it enjoyed a boost in passenger numbers during August where the so-called ‘load factor’ reached 94.4%, marking a new monthly best for the group.

Passenger numbers for the month were 7.06m, which is also a record for the business and is the second successive month of over 7m passengers.

It said the strong revenue performance had more than offset the significant cost headwinds that the business has faced this year, with greater-than-expected disruption across the network particularly in April, the impact of the two fires at Rome Fiumicino airport, the one-off £8m settlement with Eurocontrol and costs associated with higher load factors.

Commenting on the latest figures, Carolyn McCall, easyJet chief executive said: “These figures demonstrate the strength of easyJet – with its strong customer focus and its unique and winning combination of the best route network connecting Europe’s primary airports, with great value fares, friendly service and industry leading digital innovations.

“This platform meant that easyJet was best placed to maximise the strong late summer demand from UK passengers to get away to beach and city destinations across Europe and will enable the airline to set new records for full year revenue and profit.”

Easyjet shares remain firmly in ‘strong buy’ territory according to the current broker consensus.

Why you should invest in emerging markets now

Otmane El Rhazi from Mindful Money » Shares.

Investors may be wary of putting their money into emerging markets but for the brave the rewards could be huge.

 

Ben Preston, director of Orbis Investment Advisory, said that market turmoil across emerging markets offers an opportunity to long-term investors.

 

He said that while it can be ‘tempting to follow the crowd’ and join the mass exodus out of emerging market shares, this can cause you ‘to miss compelling individual opportunities’.

 

‘Dismissing a whole region out of hand is a mistake,’ he said. ‘Economic conditions in many emerging markets have clearly deteriorated, but long-term investors should not be deterred. Investing during times of economic weakness often yields the best long term results.’

 

He said the best time to buy in the US and Europe was during the global financial crisis when others investors were selling ‘at any price they could get’.

 

‘The market often rewards those who can hold tight when others panic and run for the exits,’ he said.

 

Preston thinks the perception that emerging markets are risky are misguided.

 

‘Paying too much for an asset is the greatest risk investors face. The way to lose money on the stockmarket is to overpay for shares,’ he said. ‘It’s counter-intuitive, but investing is riskiest when share prices are high and the economy is strong: often just when it feels safest.

 

‘When market turmoil allows you to purchase a high-quality business below its fair value, long-term risk is reduced.’

 

While there has been a flight to perceived safer Western assets, Preston said investors were not taking into account the risks they pose.

 

‘A business is not inherently a safe investment just because it operates in the US or Europe,’ he said. ‘Risk has many components. It may well be less risky to own a high-quality and well-financed company in a developing country, than a mediocre or heavily indebted company here or in the US.’

 

 

Buy, sell or hold? Amec Foster Wheeler investors still affected by low oil prices

Otmane El Rhazi from Mindful Money » Shares.

As Amec Foster Wheeler reports its interim results Graham Spooner, investment research analyst at The Share Centre, explains what they mean for investors.

Low oil prices continue to negatively affect Amec Foster Wheeler, this morning’s interim results show. The group reported that it expects these challenging conditions to continue, putting pressure on margins. Investors should note that expectations for the full year remain unchanged.

Amec’s business prospects have been hurt by the fall in oil prices as customers delay upstream capital expenditure.

However, the diverse nature of the company has seen other markets counteract falling demand, whilst downstream markets, especially for petrochemicals, were described as being resilient. Furthermore, the group is currently involved in European nuclear and transmission & distribution markets.

Compared to its peer group, Amec’s share price performance has been relatively good given its diversification both by geography and sectors. On a prospective price to earnings basis of 9.5 times, the group looks more attractive in comparison to its peers. We currently recommend Amec as a long term ‘buy’.

This is a stock for those looking for a mixture of growth and income and willing to accept a medium level of risk, however, investors must be aware that a further fall in the price of oil poses a clear risk to the business.

 

FTSE 100 closes 5% down after enduring 10-day losing streak

Otmane El Rhazi from Mindful Money » Shares.

The FTSE 100 closed 5% down on Monday, after collapsing by as much as 6% at one point, as panic selling-gripped the market over fears on China’s slowing economy.

The UK’s blue-chip index has endured one of its prolonged losing streaks since its 1984 inception, with 10 consecutive falls and the worst one-time decline since 2003.

The FTSE 100 is now down by 15% since its brief April peak with Monday’s drop, wiping some £100bn off its value.

The turmoil was echoed worldwide with the US’s S&P 500 off by more than 2% in late-morning trading. Meanwhile the Dow Jones fell by over 1,000 points when it opened today, though it has since made back some of this ground. Elsewhere Shanghai shed 8.5%, while Hong Kong down 5.2%.

Laith Khalaf, senior analyst, Hargreaves Lansdown said: “China and commodities are still dominating proceedings, with oil and mining companies once again bearing the brunt of poor sentiment, though the banks aren’t far behind.

“It was just five months ago investors cheered as the Footsie broke through the 7,000 mark for the first time; it now looks like a very long climb back.”

The Times reported that the Chancellor, George Osborne speaking during a visit to Sweden, said he did not expect the slump in Chinese share prices to pose a threat to Europe’s economy.

He said: “I am reasonably confident, although I don’t think that we can be unaffected by what happens in China, I don’t think it’s going to cause immediate sharp problems in Europe.”

China recent bull rally, driven by retail investors came to halt earlier in the summer. According to Bloomberg, since its June 12 high, the Shanghai index has fallen 38% – which in turn has eroded more than $4 trillion. China are calling it ‘Black Monday’.

Reports show that the VIX index, commonly dubbed the Fear Index, soared to its highest level since January 2009 at one point during the day.

Adrian Lowcock, head of investing at AXA Wealth said: “The recent sell-off has turned into a rout today. In such times it is important to keep your head and remain focused.  August can be a challenging month. With many professional investors away on holiday there are fewer transactions which can lead to bigger swings in the market than may happen normally.”

“Today’s sell-off across global equity markets is a sign of capitulation and while the drop is disconcerting, investors who stay focused on their long term goals and objectives will likely benefit as they are able to ignore the noise.”

Khalaf asserted that however bleak things may seem today, there are reasons to be positive. “A lower oil price will boost household budgets in the UK, Europe and the US, which should feed through into spending. The $70 dollar fall in the oil price over the last year puts $6 billion more into the pockets of oil consumers each day; a level of economic stimulus even central bankers would be proud to notch up,” he added.

“Furthermore as long as lower petrol prices are keeping inflation down, central banks in the UK and US are unlikely to raise interest rates, providing a supportive background for companies and consumers. This probably further extends the pain for savers, who can probably see that light at the end of the tunnel receding into the distance.”

Government sells-off another 1% of its stake in Lloyds Banking Group

Otmane El Rhazi from Mindful Money » Shares.

The government has sold-off another 1% of its stake in Lloyds Banking Group, taking its shareholding to less than 13%.

The latest sale takes the total raised for the taxpayer to £14.5bn – all proceeds are used to reduce the national debt.

The government’s trading plan, which launched on 17 December 2014 involves gradually selling shares in the market over time but it will end no later than 31 December 2015.

Chancellor of the Exchequer, George Osborne said: “It’s fantastic news that we’ve sold more shares in Lloyds Bank, taking the total recovered to £14.5bn. I am determined to build on this success, and to continue to return Lloyds to the private sector and reduce our national debt.”

According to Reuters, Osborne added: “My view is that we want the government out of the banking system in the UK.

“I hope that [Lloyds] will be complete within the year.”

Lloyds, which was bailed out by the taxpayer during the financial crisis, recently announced that in the six months to the end of June, statutory profit rose to £1.2bn pounds, up 38% from a year ago. However it was forced to set aside £1.4bn to cover the cost of miss-selling payment protection insurance (PPI), taking the total amount of redress to £13bn.

Why shares in insurer Prudential are a ‘buy’

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Helal Miah, investment research analyst at The Share Centre, explains why he is backing the FTSE 100 listed insurer…

This week, international provider of insurance and investment products, Prudential is our share of the week for investors.

The group delivered a strong set of half year results, beating expectations and improving on key areas of activity. Operating profits rose 17% to £1.88bn, with Hong Kong seeing a remarkable 84% surge in sales in the first half. Additionally the company’s Eastspring fund management group, based in Asia, reported inflows of £4.6bn in the first half, taking its total assets to a record £85.3bn.

This represents a 28% increase over last year, further demonstrating that the region remains the main driver of growth for the company. Investors should also acknowledge that the UK and US life businesses delivered healthy profit growth, whilst its investment group M&G saw operating profits increase 11%.

Current investors will appreciate that the interim dividend was lifted 10% to 12.3p. We are recommending Prudential group as a ‘buy’ for those looking for a positive investment that will span a number of regions. The Asian growth story continues to remain highly attractive, along with strong UK and US operations.

A third of over-50s are looking to stocks to boost their retirement fund

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One in three of those aged 50 or more have dived into the stockmarket and bought shares in a company in a bid to help them boost their income in retirement, according to new research from Saga Share Direct.

The analysis found that other common reasons the over 50s buy and sell shares is to give them a regular source of income and because they think they will get a higher return by investing in shares than if they leave their money in a savings account.

However, some over 50s consider keeping a close eye on the FTSE 100 as a hobby while others said they bought shares because they like numbers and because trading stocks helps keep them mentally active.

Saga estimates that around 11m over-50s own shares but not everyone has bought them. One in 13 people have inherited them from a family member and kept them and the same number of people said they acquired the shares they own through a generous employer.

It appears the older you get the more likely you are to own shares as almost three fifths of people aged 80 to 89 said they have bought shares over their lifetime.

Jeff Bromage, chief operating officer at Saga Personal Finance, said: “These days’ lots of people are worried about making their money last in retirement and now that people are able to take their pension as a lump sum I wouldn’t be surprised if we see more people start trading to help boost their income. However people should remember that there are some risks involved with share dealing so they should always do their research before they start investing their money.”

FTSE 100 enters technical correction territory – what should investors do?

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It appears investors are starting to lose confidence in the UK market as Thursday saw the FTSE 100 index fall into technical correction territory having collapsed by more than 10% from its recent high of 7,122 on 27 April.

Experts are however calling for calm, claiming that behind the fall in the blue-chip index lies a lot of important detail for investors to consider.

Laith Khalaf, senior analyst at Hargreaves Lansdown said: “This year has really been a tale of the good, the bad and the ugly for the UK stock market. Housing and construction stocks have done very nicely, as have mid-caps, while the oil and gas sector has continued to suffer share price declines. At the ugly end of the spectrum, the mining sector has rolled over and is playing dead, losing a fifth of its value so far this year.”

But he pointed out that active fund managers in the UK have actually enjoyed a decent year so far, on average returning 6% for investors, compared with the FTSE All Share which has returned 2.1%.

“Partly this is down to their mid cap holdings, but a lack of exposure to the oil and mining sectors has also helped, proving sometimes out-performance is as much to do with the companies you don’t own, as those that you do,” added Khalaf.

However he believes that the UK market still looks fair value based on the earnings it is generating, adding that corrections of the sort witnessed in recent months are an occupational hazard for shareholders.

Khalaf said: “When they occur, investors should think about topping up rather than selling down.”

Top and bottom performing stocks in the FTSE 100 in 2015

	Total return 2015
Taylor Wimpey PLC	55%
Mondi PLC	49%
Persimmon PLC	43%
Barratt Developments PLC	37%
Direct Line Insurance Group PLC	31%
Aberdeen Asset Management PLC	-22%
Weir Group PLC	-26%
Antofagasta PLC	-26%
Anglo American PLC	-37%
Glencore PLC	-45%

What should investors do?

Looking ahead, Khalaf asserted: “It is impossible to predict which direction markets will move in the short term. However, the question for investors shouldn’t be where markets will be in two weeks’ time, but in five to 10 years’ time. Over the long term the best time to buy is usually when it feels really uncomfortable, and on that basis adventurous investors with a long time horizon could look at the current situation as an opportunity.The outlook for the UK market still looks favourable in our view, with economic growth healthy, but not strong enough to force interest rates upwards too quickly.”

He explains that the FTSE All Share looks close to fair value, standing at a forward P/E ratio of 15.4 with a prospective yield of 3.8% but that does not mean the index does not have further to fall.

Khala said: “Both oil and gas stocks and mining stocks have fallen significantly and may start to attract investor attention, particularly when you consider both BP and Royal Dutch Shell are now trading on a prospective yield of 6.9%. However these companies come with a risk warning attached; they are largely at the mercy of global commodity market and the reason yields look so high is the market isn’t entirely convinced dividends will be delivered.”

Positive results from Costain and a 15% dividend hike make the engineer’s shares a ‘buy’

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As Costain reports its half year results, Helal Miah, investment research analyst at The Share Centre, explains what they mean for investors…

Costain, the engineering and infrastructure projects group, has this morning reported an encouraging set of half year results. These included a rise in revenues to £621.1m and operating profits of £13.1m – both up by 17%.

These improved figures were supported by a good number of long term contracts awards, including the development of the M4 corridor around Newport and the underground link between Crossrail and the Bakerloo Line at Paddington Station.

Keen investors should note that these contracts reflect strong growth within UK infrastructure projects and major customers continue to invest in upgrading and renewing the UK’s transportation networks. The group’s order book has jumped by 16% to a new record level of £3.7bn.

Management remains confident for the remainder of the year, saying that full year numbers will be at the upper end of the board’s expectations.  This confidence is reflected in the 15% hike of the interim dividend to 3.75p. The market has welcomed these figures and the shares are up nearly 4% this morning. With features such as these in mind, we continue with our ‘buy’ recommendation for investors looking for a balanced return willing to accept a medium level of risk.

Shares in OPG Power Ventures are a ‘buy’

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Graham Spooner, investment research analyst at The Share Centre, is tipping Indian firm OPG Power Ventures as a ‘buy’, he explains why…

OGP is an Indian electricity company that owns coal-fired power plants, and we believe it is an interesting stock choice for investors seeking growth within their portfolio. With the country’s demand for power in excess of supply, the group’s management are confident that their expanding operations will be a beneficiary and lead to further growth options.

OPG has had a number of new plants come on stream in 2015, and the company has a good record for hitting its schedule.

Potential investors will appreciate that the group’s results continue to highlight the progress it has made over the last year, and management believes that it is well positioned for the future. Those interested should note that the share price hit an all-time high in November, however a 10% fall since then provides a more attractive entry point for investors.

With new energy plants increasing output and high demand of its services, we are currently recommending shares in OPG as a ‘buy’ for investors. Bright prospects, including the Indian Government’s desire to have reliable power as a foundation for social, industrial and economic growth, make this a choice for investors looking for growth, but also willing to accept a higher degree of risk.

Global dividend payments retreat again but full 2015 forecast is revised up

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Shareholder payouts dropped by 6.7% year-on-year to $404.9bn, (£258.95) a decline of $29.1bn in three months to the end of June, according to the latest Henderson Global Dividend Index.

The latest drop marks the third consecutive quarter of declines, chiefly on the back of the strength of the US dollar against other major world currencies

The euro, yen and Australian dollar were all a fifth weaker year-on-year, while sterling was down a tenth. The rising dollar knocked a record $52.2bn off the value of dividends paid during the quarter. The Henderson index ended the second quarter at 155.1, down 4% from the 161.5 peak in September last year.

However, underlying growth, which strips out exchange rate movements, special dividends, index changes and alterations in the timing of dividend payments, was up an encouraging 8.9%. As a result Henderson has upgraded its forecast for 2015 by $29bn and now expects global dividends of $1.16 trillion this year, down 1.2% at a headline level but up 7.8% on an underlying basis.

The second quarter was dominated by Europe ex-UK, so trends in that region characterise the global results and largely explain the weak headline global growth figure. Two thirds of Europe’s dividends are paid in the period and these fell 14.3% on a headline basis to $133.7bn, with most countries seeing double digit declines. This was almost entirely due to the sharply lower euro against the US dollar.

The index highlighted that underlying growth was 8.6%, with Italy, the Netherlands and Belgium enjoying the strongest gains. The region’s financials significantly increased their payouts, led by Allianz in Germany, part of a growing trend around the world. Danish shipping conglomerate Moller Maersk paid a very large special dividend, while France, the region’s largest payer, saw a slowdown, with weakness at Orange and GDF Suez affecting growth there.

Once again, US companies grew their dividends rapidly, with almost every sector increasing payouts. Here too, financials showed rapid growth, with Bank of America and Citigroup quintupling their distribution. Overall headline growth was 10%, taking the total to $98.6bn, and the US Henderson index to a record 186. This strong performance marked the sixth consecutive quarter of double digit increases. Underlying growth was a similarly strong at 9.3%.

The second quarter was also an important quarter for Japan, accounting for almost half the annual total. Headline dividends fell 7.1%, but underlying growth was very impressive, up 16.8% to $23.4bn, as rising profits combined with higher payout ratios to drive dividends higher.

Alex Crooke, head of global equity income at Henderson Global Investors said: “Though the headline decline seems disappointing, it is concealing very positive underlying increases in dividends. The strength of the US dollar had a significant impact again this quarter but our research shows that the effect of currency movements even out over time and investors adopting a longer term approach should largely disregard them. At the sector level, it is encouraging to see increases from financial companies as they start to slowly move towards higher payout levels. But this is less about a renewed boom to financial payouts and more about a gradual return to normality.

“The US remains the undisputed engine of global dividend growth but there are positive developments in many parts of the world, with Europe and Japan in particular doing increasingly well. The European economy is improving whilst higher payout ratios from a historically low base are a key driving force in Japan and elsewhere. This means a dividend paying culture is extending into new markets, beyond those where paying an income to equity investors is already deeply entrenched, highlighting the increasing income opportunities available to investors who adopt a global approach.”

 

Mindful Money’s weekly shares watch: Persimmon, Glencore & Imperial Tobacco

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Given the slow-down in property price growth over the past year shareholders will be keen to hear from Persimmon when the house-builder publishes its half-year results on Tuesday.

According to the latest statistics from Halifax, in July annual house price growth declined, albeit to a still robust 7.9%, from 9.6% in June. But the retreat brings house price inflation to its lowest level since December 2014.

But given Persimmon has enjoyed a 61% share price rise over the past 12 months, brokers feel the easy money may have already been made. For his part Graham Spooner, investment research analyst at The Share Centre has the group’s stock down as a ‘hold’.

Back in July the house-builder’s half year trading update saw it reporting a 12% increase in revenues to £1.34bn. The average selling price had risen by 4% to £195,000, with legal completions up 7% to 6,855 new homes in the period notes Keith Bowman, equity analyst, Hargreaves Lansdown Stockbrokers.

Looking to this week’s market report he says: “Pre-tax profit for the half year is forecast to have risen by around 21% to £254m, with current trading topping the agenda for investors. Prior to the announcement and with the company’s committal to returning surplus capital to shareholders pitted against a valuation seen by some analysts as “up with events”, consensus opinion currently points towards a ‘weak hold’.”

Sentiment towards FTSE 100 listed miner, Glencore, which has endured a 40% fall in its share price over the past six months is surprisingly more upbeat. The group reports its half year results on Wednesday and prior to the announcement, Spooner is calling the stock a ‘buy’.

He expects production figures to show increases across most commodities, but also for the continued fall in commodity prices to have a further impact on group revenues.

Spooner says: “China has shown further signs of weakness and it will therefore be interesting to see if management indicate any cutbacks in production intentions. The senior management have said that other companies should reconsider expansion programmes to stem commodity price falls. We expect the trading division to be one of the few positives in the commodities environment at the moment.”

Bowman asserts that falling commodity prices and concerns over the health of China’s commodity consuming economy will certainly provide the backdrop.

He adds: “Both the group’s traditional Mining and Marketing businesses are likely to have been pressured, with first half production proving mixed. Concerns regarding its investment grade credit rating and a possible need to scrap its 2016 dividend payment in order to protect the rating currently prevail.”

However, with the firm’s shares steeply down over the past six months, analyst opinion sees some potential opportunity as the consensus currently points towards a ‘cautious buy’.

Wednesday also sees Imperial Tobacco Group, up 8% over six months, deliver its third quarter trading update. Ahead of the report, the general broker view is that the shares are a ‘buy’, although this conviction was slightly more robust three months ago. As such the market will be keen to hear how trading has progressed since the interim results in May, especially in relation to volumes in growth markets which performed well in the first half.

Spooner who is calling the shares a ‘buy’ says: “In June, the $7.1bn acquisition of US assets from Lorillard and Reynolds American was completed, giving Imperial a 10% share of the cigarette market in the country. For income seeking investors the start of quarterly dividends in June was a welcome development and any news about future dividend payments will also be of interest.”

TUI shares tipped as a ‘buy’ for investors

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As TUI reports its interim year results Helal Miah, investment research analyst at The Share Centre, explains what they mean for investors…

On Thursday TUI reported very encouraging third quarter results, which have pleased investors as the shares have risen by 8% on the market this morning. The group’s revenues for the period increased by 6%, to €5.1bn, whilst its operating profits jumped by 18%.

These positive figures came about despite the impact of the Tunisian terror attacks, which cost it about €40m and there was lots of uncertainty due to the Greek debt crisis. However, in the most recent weeks, travellers have resumed confidence and bookings to Greece have picked up again.

Bookings for cruises, hotels and resorts from customers in the UK have generally been very strong, whilst Germany seemed to be a weak point for the travel group. Holidays for summer 2015 were 86% sold whilst Tunisian traffic is being diverted elsewhere. Management remains confident of delivering 12.5-15% operating profits growth for the full year of 2015 and we believe the economic backdrop remains supportive of further growth.

Due to encouraging factors such as the above, we continue with our ‘buy’ recommendation. This stock may be a good choice for investors seeking a mixture income and capital growth, who are willing to accept a medium level of risk.

Five technology stocks which have the potential to deliver “strong sustainable returns”

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Geir Lode manager of the Hermes Global Equity fund, navigates the increasingly divergent tech sector to highlight five diverse stocks he believes can deliver strong, sustainable returns to investors…

There has been a real divergence in the tech sector between the consumer-facing innovators and the hard component stocks. While tech stars such as Amazon and Facebook steal the headlines, we are finding value in unloved semi-conductors and hard component companies.

Innovative tech firms are shaping the world, but what we look at is the shape of future shareholder returns.  It is our job to consider whether company management carries a hubris premium. We must ask whether company management is empire-building or constructing a platform for sustainable returns to shareholders.

We like stocks with robust financial statements, competitive strength and a proven ability to consistently beat revenue and earnings expectations. We assess each stock’s value, growth and quality characteristics, along with market sentiment towards the company, to find those with the optimum combinations.

Google

Google is one of the stellar names in our portfolio. The tech giant is seeking to branch out into new growth projects from driverless cars to wearable technology, but they are conducting this activity at a relatively modest scale. For example, Google Ventures provides capital funding to bold new companies independent of Google. Since we have owned the company, it has delivered strong earnings.  It is trading at an attractive valuation and, crucially, the company is still growing.

Apple

The Apple share price has been undergoing some recent volatility, but we remain supporters of the stock. People tend to get hung up on things like new products and how many are they selling, and when will they disclose the numbers, but we think you need to take a broader, longer-term view. There is work to be done in product transitioning in the US and Europe, but if you look at the quality of their product lines versus the competition and the company’s enormous cash pile, we believe Apple remains in a very strong market position.

Lam Research

Lam is a leading supplier of wafer fabrication equipment and services to the global semiconductor industry. It develops innovative solutions that help its customers build smaller, faster, more powerful electronic devices. We think Lam has a very strong product line. The company is growing its market share and we are impressed about how the management is building the business. We have high confidence in the model.

ASML

ASML is a Dutch company that is currently the largest supplier in the world of photolithography systems for the semiconductor industry. The company is impressively growing the breadth of its technology. Success depends, to an extent, on how they will be able to penetrate the market with new products, but we believe this company should also be able to grow a strong franchise.

Micron Technology

This US-based company manufactures memory chips. This is deep cyclical name that is down 75-80% since its peak.  Ten years ago there were tens of players in this space. Now with just two key players withstanding, the duopoly situation should give more cover going forward. The company is still making money, and it has cash on its balance sheet, so we can wait for a rebound. We expect a high return on capital going forward, given the size of the industry.

Pearson agrees to sell its 50% stake in The Economist Group

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Following its sale of The Financial Times, Pearson has now agreed to sell its 50% stake in The Economist Group for £469m.

Exor, the Italian investment company controlled by the Agnelli family, has agreed to purchase 27.8% of The Economist Group’s ordinary shares for £227.5m and all of its B special shares for £59.5m from Pearson.

The proceeds will be used by Pearson for general corporate purposes and investment in its global education strategy. Pearson’s remaining ordinary shares will be repurchased by The Economist Group for £182m.

John Fallon, Pearson’s chief executive, said: “Pearson is proud to have been a part of the Economist’s success over the past 58 years, and our shareholders have benefited greatly from its growth. We have enjoyed supporting the company as it has built a global business, sustaining the excellence of its journalism and ensuring it is read more widely. We wish all our colleagues at The Economist every future success. Pearson is now 100% focused on our global education strategy. The world of education is changing rapidly and we see great opportunity to grow our business through increasing access to high quality learning globally.”

In 2014, The Economist Group contributed £21m to Pearson’s operating income. The transaction is subject to a number of regulatory approvals

Shares in security giant G4S are a ‘buy’ for intrepid investors

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As G4S reports its interim year results, Graham Spooner, investment research analyst at The Share Centre, explains what they mean for investors…

The world’s leading security group, G4S, announced its interim results on Wednesday. Past problems with high profile contracts have led to a strategic review aimed at cutting costs, improving efficiency and hopefully restoring confidence with its customers, especially with the government. Investors should be aware that the fall in profits was put down to restructuring and one off costs. However, the dividend was raised by 5% and the CEO pointed to “strong momentum” along with expectations of further improvements in performance in the second half.

Those interested in the company will note that there were £1.4bn worth of new contracts, along with revenue growth of 5.7% in emerging markets, with strong, underlying growth in Latin America and Asia Middle East.

Investors should see signs of improvement in these results, along with a more confident tone for the future from management.  We hope this trend will continue further, as a result of the restructuring that management has undertaken. We currently recommend the shares as a medium to high risk long-term recovery ‘buy’ for investors adding to a balanced portfolio. It is also worth noting that since April the share price has fallen by around 15% giving potential investors a better entry point.

 

Prudential shares tipped as a ‘buy’ as insurer beats City analysts’ forecasts

Otmane El Rhazi from Mindful Money » Shares.

As Prudential reports its interim results Ian Forrest, investment research analyst at The Share Centre, explains what they mean for investors…

On Tuesday Prudential’s interim results beat market expectations and showed that all of the insurance giant’s principal regions are enjoying good growth levels.

Operating profits rose 17% to £1.88bn, with Hong Kong seeing a remarkable 84% surge in sales in the first half. Additionally, the company’s Eastspring fund management group, based in Asia, reported inflows of £4.6bn in the first half, taking its total assets to a record £85.3bn. This represents a 28% increase over last year, further demonstrating that the region remains the main driver of growth for the company.

Investors should also acknowledge that the UK and US life businesses delivered healthy profit growth, whilst its investment group M&G saw operating profits increase 11%. Furthermore, current investors will be pleased to note that the interim dividend was lifted 10% to 12.3p.

Prudential’s interim results mark a good start for the new chief executive, Mike Wells, who recently took over from Tidjane Thiam, after running the group’s North American business. Shares in the group have underperformed the market in recent weeks, but interested investors should remember that this follows several years of relative outperformance.

We continue to recommend Prudential as a ‘buy’ for investors looking for a positive investment idea that spans a number of regions. The Asian growth story continues to remain highly attractive, along with strong UK and US operations.

 

HSBC shares tipped as a ‘buy’ for income seeking investors

Otmane El Rhazi from Mindful Money » Shares.

Graham Spooner, investment research analyst at The Share Centre, explains why he has HSBC shares on his ‘buy’ list…

In a sector that has remained generally out of favour with investors, HSBC could have long-term attractions for those prepared to dip their toe again.

Management has recently come under criticism as the bank struggles to boost profitability amid heightened regulatory costs. However, the group has been working hard to make the bank more manageable and streamlined, and investors should be encouraged by the changes being made.

The group reported its second quarter results this month which were slightly ahead of market expectations and there was encouraging profit growth in its Asian business of around 20%.

Furthermore, the announcement of the $5.2bn sale of its Brazil business demonstrates to investors that it is enforcing its strategy of reducing its operations around the globe, allowing the bank to concentrate more on organic growth.

As our preferred choice in the banking sector, HSBC has remained a significant dividend payer, despite banks as a whole having been hit hard in recent years. Although progress may continue to be slow, we feel that these shares could be a better option than other banks.

They are viewed as being more conservatively managed with a superior balance sheet and deposits. We currently view HSBC as a long term ‘buy’ for low to medium risk investors with income as their main objective.

 

Mindful Money’s weekly shares watch: Prudential, G4S & Interserve

Otmane El Rhazi from Mindful Money » Shares.

Tuesday sees Prudential deliver its half-year results and shareholders are anticipating more upbeat figures from the insurer.

The FTSE 100 constituent has enjoyed a 15% share price rise over the past year and the broad outlook appears to remain positive however challenges still remain.

Graham Spooner, investment research analyst at The Share Centre says: “There are some areas of concern such as regulatory changes affecting the retail annuity market and a possible slowdown in its important Asian operations.”

But despite any potential headwinds Spooner is still calling the firm a ‘buy’ and is keen to hear about its performance in America and the UK.

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers expects that ongoing strength in Asia should partly offset any slowing annuity sales in the UK, on the back of the new pension freedoms.

He adds: “Both earnings and the dividend payment are expected to grow by around 10% year-over-year. Prior to the news announcement and with the company targeting the middle class in Asia and the retiring US baby-boomers, analyst consensus opinion continues to point towards a ‘strong buy’.”

Security giant G4S follows-up with its own set of half-year results on Wednesday.

A ‘buy’ for Spooner, the wider opinion is however, slightly less confident and while its stock may have firmed by 7% over 12 months, over the past six G4S’s shares have eased by 4%.

Bowman forecasts that the company, which employs over 620,000 personnel, may again see revenue growth for its emerging markets and North American businesses lead those generated in the UK and Europe.

He says: “Plans to sell further businesses could be outlined, whilst news of any contract wins for its still significant customer, the UK government, would likely prove well received by investors. In all, and with reputational damage following the Olympics fiasco pitted against new management strategy and expected long term emerging market growth, analyst consensus opinion currently points towards a ‘hold’.”

Following an upbeat trading statement issued only a month ago, Wednesday also sees Interserve publish its interim results, and investors will no doubt be hoping for more bullish sentiment from the UK based support services and construction business.

Over six months it has witnessed its stock firm by a solid 16% and Spooner, in-line with the wider broker consensus has the shares on his ‘buy’ list. He says: “The only area of moderate concern is in the UK construction business so any comments about that will be closely followed by the market.

“Prospects for the group’s future workload, in particular any signs of a return to business as usual by the government following the general election, will also be a major focus for investors.”

 

William Hill a ‘buy’ after acquiring stake in US lottery company

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Bookmaker William Hill is still a ‘buy’ after purchasing a stake in NeoGames, increasing its exposure to the US.

 

William Hill reported its interim results today, announcing a slight increase in the dividend to 4.1p and the acquisition of a 29% stake in online lotteries company NeoGames for £16 million.

 

The results also showed revenues in the first six months remained flat at £808.1 million but pre-tax profit fell 11% to £131.3 million, due to higher regulatory costs and tax issues such as the new point of consumption tax and machine games duty.

 

Ian Forrest, investment research analyst at The Share Centre, said: ‘Those currently invested in the bookies will be pleased to see that the group increased its interim dividend slightly to 4.1p, and said it is seeing good momentum with its Australian business, despite having to write down some of the value.

 

‘Furthermore, the US operation is enjoying strong wagering and profit growth, while the acquisition of online lotteries group NeoGames will provide further exposure to the US.’

 

Forrest said the interims will provide investors with ‘some cheer’ but also make clear the impact of new taxes on the UK betting industry.

 

‘The good news is that William Hill is expanding overseas and online, so over the long run the issues in the UK will become less significant,’ he said. ‘Consequently, we continue to recommend investors ‘buy’ William Hill due to the potential growth in its mobile and online operations, while its selective international expansion should provide regional, regulatory and economic diversification.’

 

Inmarsat endures drop in revenues and profit but it is still a ‘buy’

Otmane El Rhazi from Mindful Money » Shares.

As Inmarsat updates the market Helal Miah, investment research analyst at The Share Centre, explains what they mean for investors…

On Thursday Inmarsat, the global satellite and communications group, reported a 5.5% fall in half year revenues with profit after tax falling by 4%. The group saw strong growth in the aviation business, along with stable sales to the US government. Sales to non-US governments were contrastingly weak due to lower operational activities.

Investors should know that, whilst these results seem poor, the group is close to finalising several major contracts with airlines for in-flight connectivity. Inmarsat has also announced a delayed satellite launch is now scheduled for late August, and this should enable their new GX services to be available worldwide by year end.

We believe that Inmarsat will play a major role and benefit from increased demand for communication services by the transport, freight and defence sectors. We continue with our medium risk ‘buy’ recommendation for investors looking for a mixture of capital growth and income.

 

Why Marks & Spencer shares are a ‘buy’ for medium risk investors

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Ian Forrest, investment research analyst at The Share Centre, explains why he is tipping Marks & Spencer shares…

Despite being in the news recently for closing nine of its ‘wrongly located’ shops, Marks and Spencer is our top choice for investors this week. The chain, with around 800 high street stores in the UK selling food, clothes and home products, is one for investors seeking to add to a balanced portfolio.

After beating market expectations with its full year results in May, the group reported a 6.1% rise in underlying pre-tax profits to £661.2m, compared to forecasts of around £648m. Investors should note that the profitability of the general merchandise division has risen, whilst the food business remains strong. Current investors will also be pleased to see the final dividend was lifted 7%, making a total pay-out of 18p for shareholders.

With more money in our pockets, UK consumers are expected to continue spending on the high street and in effect supporting our economy. Those interested in the chain should also keep an eye on its plans to transform itself into an international, multi-channel retailer. With plans such as these and strong, bullish results on record, we currently recommend Marks and Spencer as a ‘buy’ for medium risk investors.

 

Greek shares collapse by more than 20% as its market re-opens for business

Otmane El Rhazi from Mindful Money » Shares.

Greece’s main stock exchange the Athex collapsed on Monday after trading re-commenced following a five-week closure period.

The index plummeted by as much as 23% at one point with the country’s main four banks – Piraeus Bank, National Bank, Alpha Bank, and Eurobank the worst hit, according to BBC News.

It has been widely predicted that shares would fall sharply when the market eventually re-opened after the prolonged closure.

Chris Beauchamp, senior market analyst, IG said: “Having been shut out for so long many will simply be keen to escape from Athens as quickly as possible and find havens for their money that do not require being on ‘crisis watch’ all the time.”

Economic data released on Monday showed that Greek manufacturing activity plunged in July to its lowest level on record.

The purchasing managers’ index (PMI) for the sector from research group Markit, dropped to 30.2 points, the lowest reading since 1999 – anything of 50 and above points to growth.

In July, Greece eventually sealed a bailout deal with its creditors but the European Commission anticipates that the embattled country will fall back into recession this year, with the economy contracting by between 2% and 4%.

Government sells off a further 1% of its stake in Lloyds Banking Group

Otmane El Rhazi from Mindful Money » Shares.

The government has sold a further 1% of its stake in Lloyds Banking Group taking the total raised for the taxpayer to almost £14bn.

The latest sale cuts the government’s shareholding to below 14%.

Chancellor of the Exchequer, George Osborne reiterated that he was “determined to build on this success, and to continue to return Lloyds to the private sector and reduce our national debt”.

The trading plan for the Lloyd’s sale was launched on 17 December 2014 and will end no later than 31 December 2015.

Last week Lloyds, which was bailed out by the taxpayer during the financial crisis, announced that in the six months to the end of June, statutory profit rose to £1.2bn pounds, up 38% from a year ago. However it was forced to set aside £1.4bn to cover the cost of mis-selling payment protection insurance (PPI).

 

 

First-half profits at HSBC jump 10% on strong Asian performance

Otmane El Rhazi from Mindful Money » Shares.

Profits at HSBC jumped 10% in the first half of 2015 compared to the same period last year on the back of a strong performance in Asia.

On Monday Europe’s biggest bank reported that pre-tax profit was $13.6bn (£8.7bn) in the first six months of 2015, up almost $1.3bn compared with the same period last year.

According to Reuters, the results were well ahead of analysts’ average forecast of $12.5bn.

HSBC also announced it had entered into an agreement to sell its entire business in Brazil. The bank, which presently boasts some 48m customers serviced by more than 268,000 employees, is in the midst of a cost-cutting exercise and recently said it would axing around 8,000 UK jobs. It also wants to offload it operation in Turkey.

In a statement, HSBC chief executive Stuart Gulliver said: “Our performance in the first half of 2015 demonstrated the underlying strength of our business. In June we announced a series of strategic actions to capture the value of our international network in a much-changed world.

“These actions are designed to maximise revenue, significantly reduce our operating expenses and meet our obligations regarding the structure of the Group. We are executing these plans and have significant momentum moving into the second half of the year.”

The business has upped the amount it has set to cover costs from various regulatory probes to $1.3bn from $550m.

Following the bank’s market update, its shares jumped 1% of by 6.69p to 586.6p in early trading.

Brokers are tipping BT shares as the firm reveals solid first quarter profits

Otmane El Rhazi from Mindful Money » Shares.

Brokers are calling BT shares a ‘buy’ as the telecommunications giant reports a 9% rise in first quarter pre-tax profits.

The firm also asserted that it was on track to meet its financial expectations for the year.

While revenues were flat during the three months to June, the total still marked an improvement on the 1.3% fall in the previous quarter.

However as the company gears up to take over the EE mobile network, BT revealed in its market update, that it has already signed up an impressive 100,000 customers to its new mobile service.

Despite a steep 22% share price rise over the past year the broker consensus towards the stock is a firm ‘buy’, with analysts at both Barclays Capital and Credit Suisse having recently issued upbeat notes on the FTSE 100 listed group.

Ian Forrest, investment research analyst at The Share Centre is also bullish and is tipping the firm as a ‘buy’ for medium risk investors. He noted that BT can now offer its super-fast fibre broadband to 80% of all UK households and the BT Sport TV offer will shortly be boosted by a new channel offering Champions League football.

He said: “These are good, solid figures from BT which show a continuation of the trends we saw in the previous quarter and point to the great potential for growth over the next few years with its new mobile and superfast broadband services. Subsequently, we recommend BT as a ‘buy’ as it continues to transform into the dominant telecoms provider in the UK, develops full value from the EE takeover and uses its strong cash flows to raise dividends well above inflation.”

Royal Bank of Scotland enjoys rise in profits on the back of strong performance from its personal banking arm

Otmane El Rhazi from Mindful Money » Shares.

Royal Bank of Scotland has reported a 27% rise in its second quarter profits helped partly by a strong performance across its personal and business banking divisions.

Following the news, shares in the group jumped 6p or 2% to 359.2p in early trading.

The still majority tax-payer owned bank posted an attributable profit of £293m for the period however overall it endured a loss of £153m for the first half. It said its mortgage business enjoyed a boost as borrowing applications jumped to £9.4bn over the quarter.

Litigation and conduct costs were lower too at £459m compared with £856m in the first quarter.

But restructuring costs rose to more than £1b, from £453m in in the first quarter, as the pace of change accelerated.

Commenting on the market update, RBS chief executive Ross McEwan said: “I think these results show we are making really good progress. We set out a very clear plan for the bank.

“We are going further than I think a lot of people thought we would have done in this short period of time but we have got lots to do.”

Barclays Bank sees profits rise 25% in second half but scales back dividend ambitions

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Barclays Bank has reported a 25% rise in statutory pre-tax profits to £3.14bn for the six months to the end of June.

Barclays has seen profits in the second quarter were £1.15 billion.

However the bank, while maintaining its dividend of 6.5p a share will abandon a target of paying out 40 to 50% of earnings. That move was announced by Executive Chairman John McFarlane, who has taken over the reins at the bank temporarily, having sacked chief executive Antony Jenkins earlier this month.

The bank is to move ahead with sales of non-core assets reducing their value to £20bn by 2017, but is not making any changes at the investment bank for now.

The bank has announced significant new provisions to cover legacy issues of £850m for possible payouts on packaged bank accounts and PPI, taking the total for PPI claims to a staggering £6bn.

McFarlane said: “There is more that can be done to deliver better returns for shareholders, faster, and that work has begun.”

The bank has already announced 19,000 job cuts.

ITV a buy for medium risk investors though future growth may be more ‘conservative’

Otmane El Rhazi from Mindful Money » Shares.

ITV continued to rebalance its business successfully with the broadcaster saying it was on track for another strong performance this year as net profits rose to £275m in the six months to 30th June. Revenue from external sources rose by 11% to £1.36bn as chief executive Adam Crozier transforms the group and he continues to ‘grow and rebalance the company creatively and commercially’.

Graham Spooner, investment research analyst at The Share Centre says: “Analysts have been encouraged by the improvement at ITV’s Studios business, as it continues to see a significant increase in new commissions and its digital offering. As a result, investors should note that ITV Studios saw revenue increase by 23% to £496m during the period.

“With so many options now available to consumers ITV has had to fight hard to maximise its audience share. In a fast changing environment, the changes that have been made in the group appear to have come in time to save what was once a troubled company. The debt situation has been addressed which has enabled the group to make a number of acquisitions, geared towards boosting its production business further and enabling strong dividend growth.

“As a result, we recommended ITV as a ‘buy’ for medium risk, growth seeking investors. Since we moved to a ‘buy’ recommendation on the shares in late 2009, the share price has risen by around 675%. Investors should therefore be aware that future growth is likely to be more conservative.”

 

Royal Mail is a hold for Share Centre

Otmane El Rhazi from Mindful Money » Shares.

As Royal Mail reports this morning Helal Miah, investment research analyst at The Share Centre, explains what it means for investors…

This morning, Royal Mail produced a Q1 trading update with no real surprises as the group revenue was flat. The group’s UK division saw revenues decline by 2% as parcels growth of 2% was offset by the continuous decline in the letters business which saw revenues fall by 4%. The smaller European parcels business saw an 8% increase in revenue. Despite the failure of other parcel businesses recently, the competition levels in the industry remain very high. Therefore cost control will remain a key focus to drive profitability and the group are hoping to keep costs at least flat or better compared to the previous year.

With the withdrawal of Royal Mail’s only competitor, Whistl, delivering door to door letters there is the possibility of Ofcom stepping in with more price controls. However, investors are reminded that this should not be feared so much as the price regulated part of the business only represent 5% of group revenues.

We currently recommend Royal Mail as a ‘hold’, as growth in some parts of the business will offset decline in letter volumes over the years. However, shareholders should be happy to take away the attractive dividend yield.

 

 

Shares in British engineering solutions provider Costain are a ‘buy’

Otmane El Rhazi from Mindful Money » Shares.

Graham Spooner, investment research analyst at The Share Centre, picks Costain as share of the week…

British engineering solutions provider Costain is a top choice for investors seeking a long term idea for a medium risk balanced portfolio. Investors should note that the group, based in Berkshire, stated last month that it remains on track to deliver results in line with management expectations.

Costain’s strategy aims on winning contracts in the water, energy and transportation sectors and has proved successful in gaining involvement with current high profile projects such as Crossrail and London Bridge station.

The latest contract win in July was for motorway improvement. Those interested should note that the current government wants to improve on UK infrastructure, which is something that Constain may benefit from.

Investors will appreciate that Costain’s management expects more predictable revenue in the future as a result of less risky forms of contract. The group has also been building on current blue-chip relationships, leading to 90% of revenue representing repeat business. We currently recommend shares in Costain as a buy for long-term investors.

 

Buy, sell or hold? Mindful Money’s weekly shares watch: Barclays, ITV & Diageo

Otmane El Rhazi from Mindful Money » Shares.

When ITV announces its second quarter update on Tuesday investors are likely to be looking at the performance of its studio business and will want an update on recent acquisitions.

The group’s first quarter trading update saw management forecasting 5% growth in Net Advertising Revenue for the first half and over the past six months its stock has risen by 17%.

Graham Spooner, investment research analyst at The Share Centre, who calls the broadcaster a ‘buy’ says: “Trading reports so far this year have been positive, especially with regard to advertising revenue. Other areas to focus on will be cost controls and the outlook for the second half, which will include the Rugby World Cup.”

Looking to this week’s report, Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers adds: “Management expects to outperform the market over the full year, with a mixture of comparatives with the 2014 Football World Cup and the pending Rugby World Cup providing the current financial year backdrop. Adjusted pre-tax profit is forecast to grow by around 9% to £340m.”

Overall, prior to the release, analyst consensus opinion currently denotes a ‘buy’.

Following the recent shock departure of its chief executive Antony Jenkins, Barclays reports its second quarter/half year results on Wednesday. The share price has been steadily rising this year – up 16% over six months – in hopes that the restructuring will continue at a faster pace and benefit in the longer-term.

For Spooner, the business is a ‘hold’. He says: “Regulatory issues often dominate the headlines and take the focus away from the changes that management have been making. As ever the performance of its investment banking business Barclays Capital will be important. The first quarter, reported in April was stated as being its best in years and investors will want that trend to have continued.”

Marginally slower activity for the investment bank and generally similar trends for its retail business are expected compared to the first quarter notes Hunter. He says: “An update regarding provisions for foreign exchange investigations, litigation and PPI could feature, while management’s renewed push to increase revenues, cut costs and enhance shareholder returns following the departure of its CEO could again be underlined.

“In all, with legacy issues slowly being resolved, diversity of business type and geography still enjoyed and no UK government share stake overhanging, analyst consensus opinion continues to point towards a ‘strong buy’.”

Global drinks giant Diageo, up 2% over 12 months, follows up with its full year results on Thursday. The firm, which counts Guinness and Smirnoff amongst its suite of brands, has seen sales in some of its markets, both emerging and developed, struggle this year but for Spooner, it remains a ‘buy’.

He says: “At its last trading update in April it forecast no change in that situation so investors will be very interested in how trading is going. Other luxury goods groups have reported poor sales in China recently so it will be no surprise if Diageo is in a similar position. Any change of strategy in North America, where the group has changed its management team, and the level of operating efficiencies achieved will also be of interest to the market.”

Hunter notes that organic net sales growth in the region of 0.2% is currently forecast, -0.3% as of nine months, and pre-tax profit is expected to decline by around 11% year-over-year to £2.79 bn. He adds: “More favourably, trading for the group’s African business is likely to have remained buoyant, whilst management focus on cost reduction could be further emphasised.” However, overall, the analyst consensus opinion currently points towards a strong ‘hold’.

Ladbrokes a ‘buy’ after it strikes merger deal with Coral

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Bookmakers Ladbrokes has announced it will merge with smaller rival Coral, in what analysts have said will be a ‘transformative deal’.

 

The merged business is expected to be valued at £2.3 billion and will surpass current high street leader William Hill as Ladbrokes’ has 2,100 shops and Coral 1,845.

 

Ladbrokes chief executive Jim Mullen will become the boss of the new company, called Ladbrokes Coral.

 

Ladbrokes chairman Peter Erskine said: ‘Together, we will create a leading betting and gaming business. The transaction will provide an attractive opportunity to generate considerable value for both sets of shareholders.’

 

Shareholders in Ladbrokes will be offering 93 million new shares, representing 10% of the company. Coral’s private equity owners will own 48.25% of the shares in the new company and the remainder will be held by Ladbrokes shareholders.

 

Ladbrokes share price fell 0.78% to 127p on the announcement of the deal but Peel Hunt analyst Nick Batram said it was still a ‘buy’.

 

‘Ladbrokes has made a company strategy announcement, regarding a merger with Gala Coral and a 9.99% share placing. The merger between the two companies is positive for shareholders, with potentially c.60% upside before any inevitable revenue synergies,’ he said.

 

‘The deal is supported by Playtech, which will take a c.22% stake in the placing, and we see this not only as an endorsement of the deal, but as reducing the medium-term execution risk for the merger, with a major supplier backing the group’s success. The £120 million break clause to Gala shows concern about a third party spoiling the merger. We put our forecasts and target price under review, but view this deal as transformational for Ladbrokes and see very material upside to the shares.’