The FTSE 100 index has hit another high but don’t expect fireworks just yet. What is important is that the index is marking time, building a solid base from which to attack 7,000 points. That target will be reached but we have to be patient.
Despite a lurch downwards below 6,900 points earlier this week, the index has held around 6,930 and has in effect been trading sideways for the past two weeks. Various factors suggest that the next move will be up rather than down.
Firstly, the shadow of political turmoil in the Eurozone has receded. It will be back in about three months’ time as Greece again faces bankruptcy but we can close our eyes to that and continue to hope for the best, which will be another fudge that postpones the problem yet again.
Secondly, the European Central Bank does at last seem to be embarking on a quantitative easing programme that will pump money into the ailing Eurozone. It is reasonable to assume that some of that money will flee into what are perceived as safer havens, and the London stock market is conveniently handy.
Thirdly, results for 2014 from companies quoted here are on the whole pretty good, despite the effects of a stronger pound for much of last year. Lower oil prices have reduced costs and the world economy continues to grow. China is still expanding by more than 7% despite a slowdown and there are positive signs of a pick-up in India.
Even the Eurozone is edging higher, with positive GDP figures justifying the upward revision of the ECB’s growth forecast for 2015.
I have been consistently too optimistic about the performance of the Footsie, having expected the current level to be reached months ago, but we are getting there. I’m reckoning on 7,000 points by Easter but exact timing doesn’t really matter too much. Shares are on the rise.
Smaller Companies Results Review
I tend to comment on larger companies because readers are more likely to hold shares in them but two smaller companies reporting 2014 results this week are worth commenting on.
Marshalls (MSLH), best known for its paving stones (or, as the company prefers to put it, landscaping), produced a great statement. Revenue and profits were way ahead and despite a 14% increase in the dividend it is covered a more comfortable 1.7 times compared with only 1.3 times in 2013.
Marshalls says that trading conditions continue to be positive, with sales up 13% in January and February, so we can expect a further lift in the dividend this year.
The shares rose strongly in the second half of last year, from 150p in June to 260p in January, before coming off the boil to 238p on profit taking ahead of the results. Those who got out were wrong. The shares rose 4% immediately after the results were announced but were still below the January high. Shareholders should hang in there. With UK households once more enjoying rising living standards, there should be better to come.
Aga Rangemaster (AGA) is a completely different story. While trading is, on the whole, pretty good and is continuing on a positive trend, Aga is being overwhelmed by a massive gap in its pension fund. The company put £4.1 million in last year, yet the deficit soared because of the ludicrous way in which pension funds are valued these days by the yield on gilts.
Aga admits that the pension deficit is sucking resources out of the company, which means there is no dividend. In fact, I really can’t see the prospect of any dividend in the next five years.
Much of that was reflected in a halving of the share price from 190p a year ago to 95p last month but shares ticked up above 100p ahead of the results. Bizarrely, this dire scenario was greeted with a sharp but short-lived rise in the shares before reality set it. It’s still not too late to get out.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice. His views are not necessarily the views of Morningstar UK.
