12 October 2017


NEWS, the word in pink on a grey background

PLUMB TO RIGHTS:  For many years one of the darlings of the Stock Exchange, and latterly of the FTSE100, was Wolseley, the retail and wholesale supplier of bits and bobs to the plumbing industry in Britain in the UK.  For more than 25 years it had an enviable record of managing to increase profits every year, but then came trouble; overpaying for a similar business in the USA,  and the recession, put an end to this progession and at one stage the business looked to be seriously floundering.  A change of senior management and a change of branding and name – ironically to the name of that US business, Ferguson – began the return to health which was confirmed last week.  Profits were up 75% for the year ended July 2017, to £1.2bn on revenues up nearly 9%.  The star performer is the US operation, now in good health, where revenues were up 10% in the year, and weak sterling also helped push things along – the company estimated £122m of that profit was due to the level of sterling, so may well not be repeatable.  Ferguson confirmed an investment of £200m in the UK business to help that perform better.  Nevertheless it was a good performance, and the shareholders were happy, the share price being up £5 on the day – to over £50 a share.  This was reinforced by confirmation of a £500m share buyback this autumn, further boosting assets per share.

BOWLED OVER: The latest stats on economic productivity, published recently, showed that output per employee has fallen for two consecutive quarters.  On the same day Hollywood Bowl, Britain’s largest ten pin bowling operator and a major force in the urban leisure business, published its preliminary annual results (to the year end 30th September 2017) which showed turnover up almost 9%.  Perhaps that is effect and cause?  Hollywood, which listed on the LSE just a year ago, has had a very busy year, and, even stripping out new sites from its continuing expansion programme, sales were up 3.5%.  That should take profits for the year to around £33m, up on forecast, and sent the share price to 186p on the day.  They were floated at 160p, so it has certainly been a good game for investors.  In fact it could get better yet.  Bowling is a strongly cash generative business, and, even allowing for opening new sites over the next year or two, the company has more cash reserves than it needs, so is likely to return around £5m to shareholders via a special dividend.

BOWLED UNDER: Hedge Funds do not always present the easy pickings for their managers that the not-so-informed investor in the street may think.  Winton, which manages £30bn of assets and is celebrating its twentieth year in business, saw its profits for 2016 (to 31st December) halved, to £107m.  That was another low point in its recent history – it made profits of £487m in 2014.  The reason is simple – Winton management and owners only make good returns if their investors do, and they have recently been missing the target minimum returns which will bring in the extra profit sharing for the owners.  The business is largely run on computer predictive trading – maybe time to renew the techie stuff and rewrite the programmes.

EVERY LITTLE EXTRA…:  Recent results have shown very mixed trading in the retail sectors, even for companies in the same line of business.  The one that that the market has been waiting for, is Tesco, the UK’s leading food retailer, with 22% of the food and related goods market.  Tesco is clearly back on form, indeed with a flourish, and those investors who have stood by their shareholdings for so long must be delighted.  Profits for the six months to 26th August this year were £562m, a remarkable increase from £71m in the comparable period last year.  This is back in line with Tesco’s results before the series of recent disasters and change of management, culminating in the accounting scandal which is also now reaching its conclusion with the trial for fraud of three senior Tesco employees.  The food retail giant has now had seven successive quarters of growth in both profits and turnover – in the last two quarters sales were up 3.7% (2.2% on adjusted like for like).  In fact profits were even better than the trading results showed – there were gains from property sales (£175m), currency movements (£22m), and the sale of the Tesco business in south-east Asia (£196m).  Also good news for existing and future pensioners – the deficiency in the pension fund was cut by £3bn to £2.4bn – a truly remarkable result in current difficult market conditioners for prudent pension investment.  The company announced that it would be paying a 1p dividend now and the market is expecting another 2p per share on the full results when published next year.  The market initially reacted unexpectedly – the share price dropped 6p, around 3.5%, but it has since recognised the achievements of chief executive Dave Lewis and his team by rising 20p to 186p – with analysts saying that 200p is probably a better short-term target.  There’s always something extra though – and this time it is Tesco’s attempts to acquire Booker to give it a major wholesale business; this looks as though it may face much more difficulty than expected, with the leaders of every other major UK food wholesaler – nine of them – writing to the Competition and Markets Authority to protest that the acquisition will give Tesco “incontestable power” over the wholesale food market.  Mr Lewis will have his work cut out there.

LOW FLYING:  BAE Systems, the aircraft and defence manufacturer has finally formally confirmed that they do not expect to win the follow up order they have long been hoping for to build a further fleet of Typhoon fighter jets for the Kingdom of Saudi Arabia.  BAE have recently delivered the last four of 72 jets it has supplied to the Saudi’s, now all in service with the Saudi Airforce, and it was intimated that a follow up order would come for a further 48.  But that intimation has never turned into a firm order and the possibilities looked less and less likely – and with King Salman’s recent state visit to Russia it seems that the Kingdom may have an alternative supplier in the wings.  BAE has also built a fleet of Typhoon’s for the British RAF, but delivery of those are nearly complete, and that will leave the manufacturer with no orders – nor indeed is any other contractor building military jets in the UK.  That is likely to mean that a large number of redundancies across the BAE business is inevitable but they are likely to fall principally on the company’s assembly plants in Lancashire, where 2,000 or more skilled jobs  could go.


(as at 10th October 2017; comments refer to net changes on last 7 days; $ is US$)

Interest Rates:

UK£ Base rate: 0.25%, (unchanged): 3 month 0.34% (steady); 5 yr 1.00% (fall).

Euro€: 1 mth -0.37% (steady); 3 mth -0.33% (steady); 5 year 0.14% (fall)

US$: 1 mth 1.24% (rise); 3 mth 1.35% (rise); 5 year 2.01% (rise) 

Currency Exchanges:

£/Euro: 1.12, £ falling

£/$: 1.31, £ falling

Euro/$: 1.17 € steady. 


Gold, oz: $1,291, rise

Aluminium, tonne: $2,134, rise

Copper, tonne:  $6,607, rise

Iron Ore, tonne:   $60.18, fall

Oil, Brent Crude barrel: $56.81, rise

Wheat, tonne: £140, fall

London Stock Exchange: FTSE 100: 7,538 (rise).  FTSE Allshare: 4,134 (rise)


Nothing too dramatic this week, iron ore and wheat both falling back.  Sterling continues in a pattern of weakness, not helped by dollar interest rates edging up.  It is interesting to look at the performance of the markets in the previous quarter, with aluminium and copper both showing considerable strengthening by about 12% and 16% respectively.  The real action has been in oil, up from $48 in early July to almost $56 now – with $50 always regarded as the magic figure which makes deep sea oil and shale oil both economically feasible to extract.  Wheat and the FTSE are almost net unmoved, albeit with some variation during the quarter.


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