Balfour Declaration
The importance of investors staying invested for the long run has been amply demonstrated at Balfour Beatty (BBY), which has just won two eight-year contracts from National Grid worth a total of £1.2 billion. Suddenly last month’s profit warning does not look quite so dire.
It is true that one profit warning is often followed by another, so those who decided to get out when Balfour declared that this year’s profits would be ‘slightly lower than expected’ were quite justified in their actions, especially as the construction arm was said to be facing a difficult 2013.
Meanwhile, I decided to stay invested because although Balfour is heavily dependent on construction in the UK and the US, it has widened its range of products and markets over the years and it does have a large and reasonably steady order book that should stand at about £15 billion at year-end. Last week it won a £200 million order for highways in Suffolk.
The shares currently stand at around 270p, and although they are clawing their way back from November’s slump they are still well below their 12-month peak at 321p. Those who are still worried have the chance to get out at a decent level, and good luck to you if that is your choice. But I am staying in and may well reinvest my dividends in a company that I believe will survive the continued downturn and will benefit enormously from any upturn.
Buy Late for Christmas
I would certainly rather be invested in Balfour Beatty than most of the retail sector. However badly construction has fared over the past five years, the High Street, excluding supermarkets, has suffered equally with less prospect of an early boost.
The failure of UK retail sales to pick up in November, coming after a nasty 0.8% fall in October, is particularly disappointing. The November figure would actually have been worse had it not been for the impending demise of Comet, where punters rushed to snap up heavily discounted electrical goods.
Clearly people did not buy early for Christmas. They were probably holding back waiting for the big shop chains to crack, as they have done in recent years, and start reducing prices in a panic. So far the shops have held their nerve better this time.
The latest data show the volume of retail sales has more or less stagnated since 2008 after growing at an average annual rate of about 3.7% since the millennium. However, we do need to bear in mind that online sales now account for about 11% of the retail sector, a percentage that will inevitably continue to grow.
So the situation for retailers is difficult but not, on the whole, dire. We can reasonably assume that only retailers with a strong, well-run online presence will do even moderately well.
Should You Thomas Cook It?
I have on a couple of occasions warned investors off Thomas Cook Group (TCG), which I regard as high risk with little prospect of rewards, but Richard Barrand, a regular reader of this column, went in with his eyes wide open and has seen his holding double in value. Very sensibly he invested a small amount of money that he could afford to lose. He ponders over whether to sell half his stake, thus effectively recovering his entire original outlay, and keep the rest as a cost free punt.
Firstly, on Cook itself. There is some evidence that the company may have started to turn the corner, although these are still very early days. It is at least paying its new chief executive Harriet Green less than her predecessor and put her on six rather than 12 months’ notice, so some lessons have been learnt.
Green is still being very well rewarded and is receiving some bonuses in shares, which is the proper way of structuring incentives. Her blueprint for recovery will be presented in the spring, so we still do not know what the future holds. I continue to regard Thomas Cook as very high risk and it will not be in a position to pay a dividend for at least a couple of years, possibly much longer.
The wider question of whether to cash in some profits and hold onto some shares, whatever the company, is very much a matter of personal taste. Some commentators argue that it smacks of indecisiveness, because you should take a view on where the shares will go and hold or sell the entire stake (or buy more) accordingly.
I think that where shares are bought as a risky strategy it is perfectly reasonable to cash in some profits so that you can continue to gamble for free. After all, investing should be fun as well as lucrative.
To learn about the investment case for Thomas Cook’s main rival, 
TUI Travel (TT.), watch this Fund Managers’ Favourites video with Henderson fund manager, Job Curtis. This video was Morningstar’s most popular video of 2012.
Take a Week Off
It remains only to wish all readers of this column a very merry Christmas and a healthy and prosperous New Year. I welcome comments from readers and if anyone wants a particular topic or company to be covered in a future column please email me at rodhobson@hotmail.co.uk, bearing in mind that I cannot offer individual advice. There will be no column next week but The Week returns on Friday, January 4, 2013.
Market Performance: December 17 - 21
FTSE 100 Index: +0.31%
FTSE 250 Index: +0.96%
FTSE All Share: +0.41%
FTSE Small Cap: +1.08%
FTSE AIM 100: +0.18%
FTSE Fledgling: +0.88%
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Rodney Hobson is a long-term investor commenting on his own ideas and portfolio; his comments are for informational purposes only and should not be construed as investment advice.
