Any columnist who takes companies to task for not being upfront with their shareholders can hardly complain when one then publishes a welter of figures, so I mean no criticism of Vodafone (VOD) when I say that its latest update was heavy going.
It has its finger in so many dials in so many parts of the world it’s difficult to form an overall opinion. Not for the first time, a massive loss on transactions, in this case a merger in India and a residual write-down of assets acquired with Mannesmann 17 years ago, is an added distortion.
Beaufort Securities promptly switched its recommendation from sell to buy with a target price of 260p, having previously feared that they would sink to 180p after a series of uninspiring results that have caused Vodafone to seriously underperform the wider stock market.
I reduced my stake in Vodafone after it exited the big growth market of North America and am relieved that my remaining shares have held up as well as they have done. Like Beaufort, I am pleased to see margins improving in Europe and feel that a planned reduction in capital spending will safeguard the progressive dividend, which is further enhanced this time by the fall in the pound because the pay-out is denominated in euros.
I propose to retain my stake because I like the yield but anyone thinking of buying at this stage should read all the figures carefully before making any commitment – which is always a good idea anyway. I confess I would not be buying in now.
National Grid Holds Up Under Pressure
With Jeremy Corbyn threatening nationalisation and Theresa May suggesting energy price caps, you might have expected National Grid (NG.) shares to come under pressure but as a shareholder I was delighted that they held up so well this week.
Pre-tax profits for the year to March fell 3% to £2.9 billion but that was caused by the £633 million cost of cleaning up sites in the US and dismantling gasholders in the UK. Underlying profits actually rose 5%.
National Grid has a progressive dividend policy offering a prospective yield of 4.4% and shareholders will this year also receive an 84.375p special dividend from the sale of a stake in its gas distribution system. The dividend cover is not particularly high at 1.5 times but it does not have to be for a company with solid, visible earnings.
I am showing a healthy profit on my longstanding holding but it’s not too late to get in for the long term.
Disappointing Investor Communication
Another two boards of directors have found it difficult to be upfront with investors. Hikma Pharmaceuticals (HIK) gave a new revenue forecast reflecting “changes in the outlook for our generics business, where we have revised our expectation” but didn’t actually say it was revised downward. You have to read between the lines. Perhaps the thought of facing shareholders later in the day at an AGM was a bit off-putting.
Investors are entitled to have this spelled out clearly. On this occasion, no-one seems to have been fooled by the mealy-mouthed update and the shares promptly fell 4.5%. They have been sliding for some months and I doubt if this is the bottom. Stay clear.
Revolution Bars (RBG) was a far worse offender. It reported, in its opening paragraph, positive sales growth with margins as expected yet the shares fell with the crash of a clumsy waiter carrying a trayful of empty glasses, losing 31%.
Sometime between the gung-ho half year results in February and now the board discovered that costs are rising faster than expected while five new bars that were expected to be returning a profit are actually running at a loss.
The shares had been sliding before this shock so some canny investors had perhaps noticed what the board had difficulty in seeing. Stay clear of the flying crockery.
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, nor are they the opinions of Morningstar.
