Get to the Point
The revised UK GDP figures produced a mixed blessing, with a downward adjustment of 0.1% for the whole of 2012 offset by an upward move of 0.1% for the first quarter of 2013. In this case, small is beautiful.
The last thing we wanted was the discovery of something seriously amiss in the earlier estimates and any upward adjustment was likely to be small, so a modest cancelling out exercise was fine. In fact, the slight improvement to this year’s figures suggests that the momentum of economic growth is indeed with us.
Latest figures put growth in the first half of this year at 1.1% - comprising 0.4% in the first quarter and 0.7% in the second - with the construction and industrial sectors expanding at their fastest pace for three years in the second quarter. The third quarter is almost over and indications so far are for growth to be at least as good as the 0.7% estimate for April-June.
The mystery is why economists have been so slow to revise their full year forecasts for 2013 up to at least 2%, which I did last month. Perhaps, like me, they have been ultra cautious after the severe battering that the economy has taken over the past six years, with several false dawns leading to nothing better than flatlining last year.
I find it hard to believe that growth will be anything less than 2.2% for this year, despite the reservations that some commentators have over the decline in business investment. Worries also persist over the state of the Eurozone but I am taking both these negative factors into account, otherwise I would be forecasting 2.5%.
Staunch Tory Lord Ashcroft curiously told a fringe meeting at the Labour conference that the next election is Labour’s to lose. I think he was making mischief. Oppositions don’t win elections; governments lose them. As the economy picks up, the election is heading to the Conservatives unless Chancellor George Osborne engineers a disaster. Given that he has so far displayed little idea of how to manage the economy there is a fair chance he will do nothing much in the next 20 months, which should suit us nicely.
Punch Drunk
Writing an investment column is often more about what to avoid rather than what to go for, since there are always plenty of solid companies with decent yields to choose from. Punch Taverns (PUB) caught my eye as a classic case of what to avoid.
Punch has net debt of £2.3 billion and it needs to ease the terms of its two big loans to avoid a default. That’s not how bankers tend to see things. The more doubtful it is that you can continue as a going concern, the more onerous are the terms that the lenders demand. Enforced debt revisions are expensive. No wonder discussions are dragging on longer than expected.
With cash-strapped consumers switching to cheaper supermarket booze and tenants already badly stretched by the onerous terms that pub groups impose, trading could get a whole lot worse. Group revenue in the year to 17 August was down 7% while pre-tax profits slumped from £52 million to £17 million.
After allowing for one-off costs such as restructuring, profits were down 32%.
Executive chairman Stephan Billingham claims the core estate has returned to growth but the Campaign for Real Ale calculates that 26 pubs close every week in the UK and Punch itself wants to sell off 1,200 pubs, having already disposed of a similar number over the past two years. One wonders where it will all end.
Punch shares bombed to around 5p last year but have doubled from 7.5p to 15p in 2013. There must be serious doubts as to whether there is any value in the shares at all.
Size Can Matter
While Twitter has the merit of imposing discipline on the verbose, it is in danger of killing the art of conversation as I discovered when one of my followers of @RodneyHobson raised the question of whether he should trim down his portfolio. You cannot really respond in 144 characters as the issue is worth wider discussion.
It turned out that he had only eight shares in his portfolio, which is hardly an excessive number. An exchange of tweets elicited the additional information that he wanted to buy shares in a new company and did not have any spare cash to do so.
The first point is that you should not sell shares just for the sake of trimming your portfolio so do be clear in your mind that you have something better to do with any money you realise from selling shares.
Secondly, if you do see a promising investment opportunity you still need to consider whether it really is better than the holdings you already have.
