A word of praise for the G4S (GFS) board, not for making a profit, but for their sterling effort in disguising the fact that profits were, technically, up 90% in the first half of this year.
I had read the results, which seemed to show profits up about 6%, so I was a bit shocked to read a newswire headline pointing to the much higher figure. What had I missed? It was only on the third reading that I worked out where this grossly inflated figure had come from. To its credit, G4S had buried it as a fiction of accounting rules that are supposed to make accounts more realistic, and instead concentrated on painting an accurate figure.
The market was somewhat less impressed by this honesty than I was, rapidly marking the shares down 7%. However, they are still up 30% since the start of the year.
The results were admittedly patchy, showing that growth had slowed in the second quarter compared with the first. There were problems in the Middle East and in India, two emerging markets for G4S, where revenue was down 8% and profits slumped 25%. Yet the global pipeline is strong, particularly in North America and, to a lesser extent, Europe, indicating that the group will hit its target 4-6% growth rate this year at least.
The interim dividend is held at 3.59p, so confidence in the board is muted. Overall, though, these results were not at all bad for a once maligned company that has stopped producing bad publicity. At current levels, the shares are worth a look.
Prudential Merges With M&G
I once worked with a sub-editor called Jack Houghton whose propensity for hyphens earned him the soubriquet Hyphenating Houghton. I fear he has ended up at Prudential (PRU), whose announcement that it is to merge its UK operations is full of hyphenated verbs and nouns posing as adjectives.
This sort of jargon is difficult to read and gives the impression of being pretty meaningless, which may well be the intention. Take this sentence as an example: “M&G Prudential will leverage its scale, financial strength and complementary product and distribution capabilities to enhance the development of capital-light, customer-focused solutions.” I take that to mean it will bludgeon its unfortunate customers into buying more products than they want or need.
Fortunately, Prudential is better with figures than it is with words. Profits were well ahead in the first half, led by a stellar performance in Asia, where Pru has wisely concentrated its efforts. The interim dividend is raised 12%.
Pru shares have risen 50% over the past 18 months but have come off their peak of £18.85 hit earlier this week. They may be pushed lower as tensions in Asia rise over fears surrounding North Korea but will soon move to a new high. And that’s putting it plainly.
Outlook is Not Sunny Discounted Shares
I was always strangely entranced by those endless DFS (DFS) adverts extolling amazing discounts off the price of their furniture but the slashing of the share price is rather less endearing. Those who believe that profit warnings go in threes, like DFS sales, will be vindicated before the year is out.
DFS shares fell by 20% in the Spring sale in June on a warning that profits would fall short of expectations; this week in the Summer sale they dropped 7% on news that profits will be at the bottom end of revised, lower expectations. We await the Autumn sale with some trepidation.
Consumer spending is coming under renewed pressure. It takes an incurable optimist with little grasp of reality to believe that DFS can bounce back any time soon.
