It was all going to be different this time, according to the weekend press. At long last Marks & Spencer (MKS) would show that it has finally turned around the business, which I naively thought meant a rise in clothing sales and perhaps even in home furnishings.
No more would I write that M&S quarterly reports were all the same, with food powering ahead and general merchandise struggling. Alas, it was déjà vu again with figures for the year to the end of March showing that food had “an outstanding year” while general merchandise “did not meet expectations”.
There were some positives. Profits for the year were indeed higher as were sales and gross margins. Like-for-like sales improved in the final quarter. However, the big question is why food, in a highly competitive market where supermarkets are suffering, is doing so well and clothing, where the High Street is equally but no more competitive, struggles year after year. M&S hasn’t found the answer yet.
The shares had already gained almost 50% from a low around 400p in September and they edged higher on the figures. The yield is below average at 2.8% and the price/earnings ratio is a little high at 19.2 so in my view the shares are fully priced – until someone really does sort out the clothing.
Royal Mail’s Outlook is Uncertain
I declined to take part in the Royal Mail (RMG) privatisation because I invest for the long term, not in dying businesses, so forgive me if I continue to dredge up any argument I can to justify my decision.
Annual results for the year to the end of March are a bit tricky because the previous year’s figures were pro forma, that is they attempt to say what would have happened had the company been in private hands over the previous 12 months.
What is incontrovertible is that revenue is flat and Royal Mail admits that parcels, the great hope for a future in which letters become less and less important, are still failing to live up to expectations. Debt has been reduced considerably, which is very good news, but the workforce is down by 5,500, which may explain why, mysteriously, some days I get no mail and twice as many letters come through the letterbox the following morning.
The shares have had a great run from 400p in December to pushing 500p this week, thanks largely to two major cherry-picking competitors dropping out in the meantime. I take the ungracious view that if competitors can’t make money delivering within and between large urban areas, how will Royal Mail make a living with a nationwide network?
The yield is a respectable 2.6% but the price/earnings ratio is somewhat demanding at 27.4. I can’t see the justification for buying at current levels.
Water Company Fails to Impress
Few aspects of the stock market are quite so aggravating as cack-handed attempts to bury bad news, especially when it is quite unnecessary.
Water company Severn Trent (SVT) saw its profits halved in the year to 31 March, a fact blithely ignored in the bullet points at the head of the statement. Nor did it rate a mention in the chief executive’s remarks in the documents. Even the results table was constructed to hide the unpleasant truth as far as possible.
Instead, Severn Trent preferred to bang on about a fairly small increase in profits before interest and tax, a useless figure. Interest payments are an essential part of costs and must be included to get a meaningful view of how the company is doing.
You have to wade through a lot of boring stuff before reaching a somewhat opaque explanation about tax credits and the revaluation of derivatives to find out what is going on. Meanwhile there is the risk that investors panic on seeing the bald pre-tax profit figure.
Severn Trent was lucky to get away with only a modest fall in the share price. I had thought of investing but I cannot feel comfortable with a company that fails to be upfront and crystal clear about negative news.
