US giants Kraft and Heinz to merge and form North America’s third largest food and beverage company

Otmane El Rhazi from Mindful Money » Shares.

Heinz is to merge with fellow US food behemoth Kraft to establish what the firm’s have asserted will be the third biggest food and drink retailer in North America and fifth largest in the world.

Following earlier speculation, in a statement released today, Kraft said the combined company will be named The Kraft Heinz Company and will be co- headquartered in Pittsburgh and the Chicago area.

The enlarged firm will have revenues of approximately $28bn with eight $1bn plus brands and five brands between $500m and $1bn on its books.

The merger was spearheaded by Heinz owner, the Brazilian private equity group 3G Capital and Warren Buffett’s investment firm Berkshire Hathaway.

Berkshire Hathaway and 3G Capital will invest an additional $10 bn in The Kraft Heinz Company; existing Heinz shareholders will collectively own 51% of the new company, while Kraft stockholders will have a 49% stake.

Buffett said: “I am delighted to play a part in bringing these two winning companies and their iconic brands together. This is my kind of transaction, uniting two world-class organizations and delivering shareholder value. I’m excited by the opportunities for what this new combined organization will achieve.”

Alex Behring, chairman of Heinz and the managing partner at 3G Capital, added: “By bringing together these two iconic companies through this transaction, we are creating a strong platform for both US and international growth. Our combined brands and businesses mean increased scale and relevance both in the U.S. and internationally.

“We have the utmost respect for the Kraft business and its employees, and greatly look forward to working together as we integrate the two companies.”

John Cahill, Kraft chairman and chief executive said: “Together we will have some of the most respected, recognized and storied brands in the global food industry, and together we will create an even brighter future.

“We look forward to uniting with Heinz in what will be an exciting new chapter ahead.”

Heinz boss Bernardo Hees will become the chief executive of the new firm while Behring will become chairman of the new company, with Cahill as vice chairman.

Brokers backing Clarkson, the industrial transportation group

Otmane El Rhazi from Mindful Money » Shares.

Brokers are tipping shipping services group Clarkson with the analyst consensus towards the business firmly pointing to a ‘strong buy’.

Stock in the FTSE Small-Cap listed industrial transportation firm, which operates through four divisions; broking, finance, support and research, has fallen by 4% over the past year but over three months, it is up by more than 21%.

In its final results, reported earlier this month, it reported a 35% rise in underlying pre-tax profit and a 20% increase in revenue – overall ahead of expectations. In addition, income seekers cheered the news that the dividend was raised by 7%, continuing the consistent dividend growth seen by the company over the decade.

Graham Spooner, investment research analyst at The Share Centre is currently backing the business. He said: “The group have both a solid balance sheet and cash position, making it an attractive choice for investors. Clarkson continues to grow as a shipping services provider as a result of last year’s acquisition of R S Platou, a Norwegian shipbroker and investment bank.

“As the company grows its market share, with global exposure from offices in 18 countries on five continents, we recommend Clarkson as a ‘buy’ for higher risk investors seeking a balanced portfolio.”

Morrison results disappoint but brokers advise investors to sit tight and ‘hold’

Otmane El Rhazi from Mindful Money » Shares.

Morrison’s full year results have left many unimpressed but Ian Forrest, investment research analyst at The Share Centre, explains what the update really means for shareholders…

Investors in Morrison’s were not overly impressed with the supermarket chain’s full year results. Fourth quarter like-for-like sales were down 2.6% and there was a 52% drop in underlying pre-tax profit to £345m.

The group’s trading performance did improve steadily during the year, but recent data shows us that the supermarket is losing market share.

With cash generation remaining strong and enabling a 5% rise in the dividend, income seekers will be consoled, although the group is only promising a modest dividend for the current year.

Revenue fell 1.3% over the Christmas period and Morrison’s chief executive stepped down. His successor, who will be starting on Monday, has the market waiting to see what improvements he can make to the group’s strategy.

We continue to recommend Morrison’s as a ‘hold’ for medium risk long term contrarian investors due to the value of the group’s substantial property portfolio, cash generation and prospects for new sales channels, such as online and convenience stores. We prefer Sainsbury’s in the sector due to its better trading, cheaper valuation and higher dividend yield.

TSB shares soar as it confirms takeover approach from Spanish bank Sabadell

Otmane El Rhazi from Mindful Money » Shares.

Less than a year after its split from Lloyds, TSB confirmed in a statement on Thursday that it has received a preliminary £1.7bn takeover bid from Spanish bank Sabadell.

Following the announcement shares in the FTSE 250 listed challenger bank rocketed by 26%.

TSB said the proposal is for 340p in cash per share. The board has indicated to Sabadell that it would be willing to recommend an offer at the proposed price, subject to reaching agreement on the other terms and conditions of any offer.

Based on preliminary discussions, TSB said it “believes that Sabadell could support and accelerate TSB’s retail growth strategy and accelerate the expansion of TSB’s presence in the SME sector”.

If successful it would continue to operate under the TSB brand in the UK banking market.

Morrison shares slide as supermarket group reports 52% drop in annual pre-tax profits

Otmane El Rhazi from Mindful Money » Shares.

Shares in Morrison slumped in early trading as the supermarket group reported its poorest annual results in some eight years.

This morning the embattled firm announced that in the 12 months to 1 February, underlying profit before tax nosedived by 52% on the previous year to £345m.

Following the news, its stock slipped by some 3% by 08:33am.

The UK’s supermarkets stalwarts are presently facing stiffer competition from the so-called hard discounters such as Lidl and Aldi and same-store sales at Morrison fell by 5.9% over the trading period.

But the group has also been accused of not keeping up with its competitors in terms of its online business and convenience store offering.

In a statement accompanying the market update chairman Andrew Higginson, said: “Last year’s trading environment was tough, and we don’t expect any change this year. However, Morrisons is a strong, distinctive business – we own most of our supermarkets, have strong cash flow, and are famous with customers for great quality fresh food at low prices. This gives us a good platform.”

The group’s new chief executive David Potts starts next week, on 16 March, replacing Dalton Philips.

Speaking to the BBC, chairman Higginson added: “This has been a controlled and a planned reset of the business – it is painful, but it is the start of a new growth period we hope.”

Europe – an income investor’s perspective

Otmane El Rhazi from Mindful Money » Shares.

With European investors facing the dilemma of low economic growth, low inflation rates and central bank intervention, Alice Gaskell, co-manager of the BlackRock Continental European Income Fund, discusses where they are currently finding investment opportunities…

Nominal growth in Europe is likely to be subdued for the foreseeable future given the slow progress of structural reforms, slowing growth in Emerging Markets, the continued need to de-lever and low inflation rates.

European interest rates are unlikely to rise on a sustained basis for the foreseeable future. However, there is a realistic chance that the US Federal Reserve will increase benchmark rates this year which is likely to lead to a further depreciation of the Euro versus the US Dollar. The latter coupled with the tailwind from lower oil prices are clear positives going forward.

Income sectors that look increasingly interesting to us today are the Telecoms, Utilities and Insurance sectors.

Within the Insurance sector, several companies have excess capital which will allow them to continue to return capital over and above their ordinary dividends and / or increase the pay-out ratio of the ordinary dividend. Axa recently posted solid results and increased its payout ratio.

After a period of restructuring, the Utilities sector currently offers attractive free-cash-flow yields backing above-average dividend yields. We expect some stocks with undervalued international infrastructure-related assets to start to contribute to growth of group profits in the medium-term.

European mid-cap stocks can be highly attractive area for Income investors. The market often fails to estimate dividends correctly in this particular area, and therefore the non-megacap space can be a good way for us to make money for our investors.

The German residential housing sector is also attractive but needs to be carefully considered given recent outperformance from exposed stocks. In general, Real Estate offers highly predictable cash-flows backing strong dividend yields significantly above the risk-free rates. In addition, the German residential property market offers the potential for significant capital appreciation as historically low ownership levels are gradually increasing on the back of low interest rates and rising real wages.

The recovery of the peripheral economies continues while there is genuine political change happening in Italy – all of this means that dividend yields are increasingly safe and that dividend growth should accelerate.

Contrarian investing is tough but that can also make it rewarding…

Otmane El Rhazi from Mindful Money » Shares.

Here at The Value Perspective, we may wear our contrarian approach to investing as a bit of a badge of honour writes Andrew Lyddon…

But taking a position that is in direct opposition to the great majority of investors and – an equally important part of the equation – doing so with conviction is by no means as easy as we might occasionally imply.

To illustrate the point, let’s consider a US study from 1996 that added a couple of twists to the classic psychological experiment where test subjects answer simple questions and then begin to doubt themselves when they are informed – falsely – that everybody else has come up with an entirely different answer.

The newer study contained some of the traditional ingredients – putting images up on a screen and then asking people to say what they had seen. The first set of images remained visible for a comfortable period of time while a second set were flashed up for just a fraction of a second, thereby making the process of accurately recollecting what they had seen much more challenging for the participants.

In a fresh twist though, some of the test subjects were told they were simply taking part in an informal academic study while others were told the results they generated would be used in a much more meaningful way – contributing towards the development of a process to help witnesses identify criminals, which would ultimately be used by the state’s police and court authorities.

It was stressed to this latter group that previous participants had all tried their hardest in the test and they should aim to do likewise. Completing the range of psychological pressures being applied, a small amount of cash was offered to those producing the best results. Then the images started to flash and the doubts were raised over what had been seen. Would the test subjects stick to their guns?

After the easier task, about a third of the group who believed they were involved in an informal study chose to change their minds when they came under pressure to do so. Among the group who thought they were involved in the more meaningful project and so were trying to do their best, however, the percentage of people willing to abandon their original judgement was much lower – at around 15%.

It was, though, a different story after the more challenging task. While the percentage of test subjects willing to change their minds in the ‘informal study’ group stayed fairly constant, among the ‘meaningful project’ group, the number of people who were willing to change their original view rather than stick to their guns actually spiked significantly.

The conclusion drawn by those behind the study was that, when a task is both difficult and perceived to have a high degree of importance, people are more likely to find it harder to go against the ‘wisdom’ of the herd and stand by their original decisions.

With much about the stockmarket being difficult and also – rightly or wrongly – perceived as highly important, the study may help to explain why taking contrarian views about investment and doing so with conviction is so hard for so many people. This is especially true at times of heightened stress, such as the autumn of 2008, when the dramatic events seem to raise the stakes of each individual decision and make doing the same as everyone else seem even more comforting.

Of course, as we have written many times before, it is precisely because these decisions are difficult to take that they can be so rewarding for those who are able to instil such a level of discipline into their investment process.

Strength of demand suggests investors should ‘buy’ global communications firm Inmarsat

Otmane El Rhazi from Mindful Money » Shares.

As global satellite operator Inmarsat announces its full year results, Ian Forrest, investment research analyst at The Share Centre, explains why its shares are a ‘buy’ for investors…

In its full year results reported this morning Inmarsat beat market expectations with a 2% rise in revenues to $1,286m. The global communications operator registered good growth in its maritime, enterprise and aviation businesses, although the government arm remains weak with sales down 21.7% in 2014. Investors should note that the company finished the year strongly with sales rising 6%, helped by a 9% increase in revenues from mobile satellite services.

The group also announced that it expects 2015 to be broadly similar to 2014 with growth in maritime, enterprise and aviation. However, investors should be aware that it foresees continued weakness in its government sales, especially in the US.

We recommend Inmarsat as a ‘buy’ for medium risk investors with a balanced portfolio. The company’s shares have outperformed the market by 20% over the last six months, but the strength of demand for its services, especially maritime, and the group’s ability to develop new products and services should generate further growth. Despite cuts in defence spending remaining a weak point, especially in the US, there are signs that this may be turning around with the military portion of the budget on the rise.

Profits soar at Virgin Money as mortage lending surges

Otmane El Rhazi from Mindful Money » Shares.

Challenger Bank Virgin Money has reported record performance with annual profits rocketing 127% during 2014.

On Thursday, the bank, which floated on the stock exchange in November announced that underlying profit before tax jumped to £121.2m over the year.

On an underlying basis, its total income grew by 21% to £438.2m, driven mainly by strong growth in its mortgage business where balances increased to £21.9bn, up 11.8% against market growth of 1.4%. In addition, credit card balances rose 41% to £1.1bn while retail deposit balances edged ahead by 6% to £22.4bn.

Following the market update shares in the business, which is set to join the FTSE 250 index on 20 March, rose by as much as 4% to 331.06p in early trading.

However statutory profit before tax fell dramatically from £185.4m to £34m after its Initial Public Offering transaction fees and additional costs for Northern Rock to HM Treasury, which it bought in 2012, were taken into account.

Commenting on the results chief executive Jayne-Anne Gadhia said: “We have made great progress against our objectives to achieve strong growth, maintain our high quality balance sheet and deliver returns to shareholders. We set out to be a credible and effective challenger to the large incumbent banks and I believe we have laid an excellent foundation on which to realise our ambition.”