In a triumph of hope over adversity, Balfour Beatty (BBY) shares this week finally moved within touching distance of the 262p at which I bought them. The last time I was breaking even, not counting in dividends received, was February 11.
Results for the first half of 2016 left a great deal to be desired. The order book is 7% higher, despite an end to the reckless winning of contracts by underbidding, and the group is back in profit – but only just.
As a shareholder I am pleased that the dividend has been restored, albeit at a much reduced level. However, I can’t help feeling that it would have been better to confirm the recovery after a series of profit warnings before rewarding shareholders for their patience.
Balfour was one of the many companies that saw its shares fall off a cliff after the Brexit vote, slumping from 290p to 191p. It’s been a hard road back. I wish I could feel that the recovery in the shares is entirely justified. For now, they have factored in quite enough good news, though I hope the market disagrees with me.
Meanwhile I must remind myself that, like most long term investors and a good many shorter-term ones, I am much too slow to sell when things go wrong.
Brexit: Recovery from the Quake
Older readers may remember the famous headline in The Times: Small earthquake, not many dead. The impact of the referendum vote is beginning to look very much like that description.
From company and economic data I am increasingly getting the impression that there was a slowdown in spending and investment ahead of the vote but a pick-up since despite the “wrong” outcome.
A typical comment was this one from Kingfisher (KGF) this week: “In the UK, the EU referendum result has created uncertainty for the economic outlook, although there has been no clear evidence of an impact on demand so far on our businesses.”
In fact, it is sales in the UK that have driven Kingfisher in a reasonably strong second quarter. The main problems have been in France. In fact, I won’t be buying Kingfisher shares because, apart from the UK, its performance is too patchy. Despite the sale of the business in China, it seems far flung. Spreading geographic risk in fine in principle but not without cohesion.
Back to Brexit. It is clearly going to take time for the UK to accept that we are not necessarily on the verge of disaster. The sooner we start to believe in our future, the brighter that future will be.
While markets thrive on uncertainty, most of us like to know where we stand, even if it’s not where we would prefer to be. I shall therefore not panic if the economy has turned down, as most economists believe, in the second quarter. The performance over the next three months is a more important guide.
I was, admittedly, a bit shocked to see that the Budget surplus in July, traditionally a good month for tax receipts, was less than last year but one major reason was an increased spending on infrastructure projects. That is the best way to keep the economy moving. Make sure you have some infrastructure-related shares in your portfolio.
Betting on Gambler Shares
I generally castigate directors of target companies who refuse to engage in discussions with potential bidders but I make an exception for the William Hill (WMH) board, which has rightly scorned a proposal to merge with Rank (RNK) and 888 (888).
Perhaps I’m biased, as I was once employed by a company that succumbed to a takeover dressed up as a three way merger and serious damage was inflicted on all three businesses, which each had established names in their respective fields.
Hill complained that the proposal was too complicated and too reliant on debt. Fortunately it was also able to say that its operating profits for the current year will be at the top end of previous guidance. I’m not a fan of bookmakers as investments, but if you’re already in it looks right to hold on for now.
