Let us put or own personal preferences aside and review the election result coldly from the point of view of investors.
We went to the polls fearing the worst of all worlds, with the Conservatives losing ground and Labour making too little headway. No party would have had legitimacy as a government and no party would have been able to put together a credible coalition.
Exit polls offered the prospect of a Conservative minority government, not a particularly stable one but some sort of government would be better than none. By the time the markets opened, it was clear that there would actually be a government, formed by a party that had gained seats and eked out an overall majority. The fact that the Conservatives won with only a third of the votes cast can be conveniently swept under the carpet.
This is the best outcome that any investor could reasonably have hoped for, given that Labour had no realistic prospect of winning enough seats in England to offset the Scottish losses and creep ahead of the Tories to win an overall majority.
The stock market opened 100 points up but has strangely struggled to hold 7000 on the FTSE 100 index. I expected a far more euphoric reaction, even allowing for the fact that the index is packed with international companies. I think shares will have further to rise next week.
Food Retailers are All Apples and Pears
Last week’s column devoted to comparing companies in the same sector and sometimes finding you have a mixture of apples and pears had a resonance this week, firstly in supermarkets and secondly in tobacco.
We got a very similar story from Sainsbury (SBRY) and Morrison (MRW), which was no surprise. The travails of the major supermarkets have been well publicised and although Sainsbury chief executive Mike Coupe claims Aldi and Lidl will find it increasingly difficult to take market share I doubt if anyone else is convinced.
Coupe’s argument is that the discount stores will have to open stores in areas where they will be up against tough competition and in any case the bigger chains are heavily committed to cutting prices. Even if he is right, that spells more pain for Tesco (TSCO), Sainsbury and Morrison shareholders.
I’m not too worried about the property writedowns at Sainsbury, which were in any case announced several months ago. I am concerned about the fact that underlying profits are down as well. Nor was there any solace to be found at Morrison a day later. Sales in the latest quarter were down against weak comparatives from a year ago and the position has worsened compared with the previous quarter.
I own shares in Sainsbury and have decided, after much anguish, to hold on. Please don’t queue up to tell me I was wrong. I certainly wouldn’t be buying in at this stage had I not already got a stake.
The common tale of woe among major supermarkets is not, however, repeated in the tobacco industry. Imperial Tobacco (IMT) this week reported first half profits ahead of expectations, with rising selling prices more than offsetting a slippage in sales. The dividend is increased.
At least I picked the right company to invest in here. The bullish Imps statement was in sharp contrast to lacklustre comments from British American Tobacco (BATS), which emphasised the challenging market conditions, fall in cigarette sales and adverse foreign exchange movements.
Intriguingly, the statement to the AGM later that day was rather more upbeat. Perhaps someone had had a word with the chairman.
Both companies offer a yield of around 4% and a PE of about 21 that is above average though not too demanding. Unless you have ethical qualms – I have never smoked so I lack the zeal of the converted – either company looks a fair investment but I still prefer Imperial.
