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’

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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?

Otmane El Rhazi from Mindful Money » Shares.

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’

Otmane El Rhazi from Mindful Money » Shares.

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’

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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”

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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

Otmane El Rhazi from Mindful Money » Shares.

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.