Foggy Unfruitfulness
Autumn is supposed to be the season of mists and mellow fruitfulness but the stock market has been in more of a fog these past couple of months and the fruit is shrivelled and unripened after a cold, damp summer.
The profit falls and profit warnings have started to get distinctly uncomfortable. While the UK economy contrives to thrive, as employment figures this week demonstrated, it is not just the oil and oil-related sectors that are suffering. Problems are disconcertingly wide-ranging. Yet life should be so much better as falling energy costs hold down input prices and make doing business cheaper.
The one that really hurt me personally was Sainsbury (SBRY), where shares fell heavily over two consecutive days after a fall in first half profits. The dividend over several years has been some compensation for the deficit I now suffer in the value of my holding but now comes the blow of a 20% reduction in the payout.
Yet I still regard Sainsbury as the best of the three listed supermarket chains and the dividend reduction was not as severe as at Tesco (TSCO). I take it that chief executive Mike Coupe and his fellow directors are confident that there is no need to reduce the dividend further, which is some small consolation.
What I find difficult to grasp is why the supermarkets fared so much better when input prices, particularly for food, were rising faster than general inflation and faster than wages. Surely they should be better placed now that food prices are stable and wages are rising.
I am sticking with Sainsbury for the long term but I must admit that I am not adding to my substantial holding while shares are down. I am cautious enough to avoid further exposure at this stage.
Halfords (HFD) is a conundrum. Cycling and motoring never seem to ride in tandem. It is good that one side of the business always seems to be motoring but unfortunately one side always seems to be out of gear. Currently cycling is struggling, a victim of the poor summer weather.
This will always be a bumpy ride, which is why I have rarely been tempted to buy Halfords shares. This is one where you need to get on and off at the right moments, which is far too much excitement for my dull portfolio.
Worst of all has been Rolls-Royce (RR.), a name once borrowed as a cliché for the best of everything. Now all parts of its operations are displaying the worst of all worlds with a fifth profit warning in 21 months. The shares have nosedived. I am staying well clear of the flying debris.
Grind on with Miller
At last we have the definitive bid for brewer SABMiller (SAB) from Anheuser-Busch InBEV (BUD) after two weeks of wrangling over details. I hope one such detail has been finding a short, easy name with a sensible stock exchange ticker for the combined group.
The cash bid is £44 a share but SABMiller is stuck a good £3 below that, reflecting in part the time it will take to jump any regulatory hurdles – there are likely to be quite a few – and the possibility that it all falls apart before completion more than nine months away, in which case the shares will slump.
It would not be wrong to take a very sizeable profit now, but only if you can think of something better to do with the money. There is certainly no rush to cash in yet, as the discount between market price and bid price will gradually narrow. Results this week showed SAB is still in good form and shareholders get a raised dividend come what may.
It is usually right to hold on to the bitter end in any takeover. At the moment, that looks like working at SABMiller.
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.
