My reaction to Chancellor George Osborne’s speech at Mansion House was: Why do politicians never learn? He had a perfectly good story to tell about the banking rescue but chose instead to hide the full truth and present a blatantly false figure instead.
Readers may recall that at the height of the financial crisis we, the taxpayers, had bailed out banks to the tune of more than £100 billion. To get that figure down to about £4 billion is pretty good going. Most of us would settle for that. Osborne, who took over at the Treasury long after the crisis broke, would be untarnished by the comparatively small loss.
So why, then, did he try to make out that the government has made a £14 billion profit on the bank rescue by overlooking the cost of borrowing money for several years to fund the bailout? It is a recurring theme of this column, usually regarding company results, that you cannot ignore borrowing costs. They are part of the equation.
Osborne was presumably softening us up for the sale, at a loss, of the government stake in Royal Bank of Scotland (RBS), having run out of patience with holding on for a profit. That is a warning for RBS shareholders and anyone thinking of buying the shares, which shot up on Osborne’s pronouncement. It has already been a long wait for RBS to come good and it is not going to happen in the near future. This is in sharp contrast to Lloyds (LLOY), where shares have been sold at a profit because Lloyds really has been turned round.
Lloyds, in which I have a stake, remains by far the better investment of the two.
When Bad Sales are Good for Shareholders
Mike Coupe was a trifle unlucky to find himself following such a great act as Justin King as chief executive of Sainsbury (SBRY) just as the established supermarkets came under pressure from usurpers but his luck was certainly in this week. His admission that like-for-like sales were down for the sixth consecutive quarter were greeted with a rise of 8% in the share price over a day and a half.
There are several points worth noting, not least that when short-sellers scramble to unwind their positions it is a signal for oversold shares to rise quite sharply. Another important point is that in this online age it is total sales that matter more than like-for-like store sales.
The main issue, though, is that supermarket sales figures are being depressed by cheaper food – and that means lower costs as well as lower sales. Sainsbury actually sold more stuff over the past three months and is doing better – or less badly – than Tesco (TSCO), Morrison (MRW) and Asda.
I wouldn’t chase Sainsbury shares any higher this stage but I am retaining my somewhat devalued holding, consoling myself with the thought that the dividend stream that has served me so well will continue, though possibly at a lower level than before.
Solid and Reliable Companies Outperform
We need more solid, reliable companies like project consultant WS Atkins (ATK), one of the best performers in my portfolio. Life for investors would be less exciting but a lot more certain.
Annual results are a little difficult to follow as there are distortions caused by acquisitions but the important figures are for the underlying business, which show improved profits despite adverse currency movements.
Atkins reports a strong performance in the Middle East and Asia Pacific and improvement in North America, offsetting mixed results in the UK and Europe. The group has the geographic spread to benefit from economic growth wherever it may be in the world. Increasing staff numbers are a sign of confidence; so too is the 8.1% rise in the dividend.
The shares long since ceased to be cheap but the PE of around 18 times earnings is not excessive and the yield of 2.4% based on the latest dividend is not bad for a company of this quality. Atkins is well worth holding onto in my view.
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.
