Pasty Joke
You can’t buy the sort of publicity that the pasty tax row has generated for food retailer Greggs (GRG). It was the centre of the original Budget plans to impose VAT on some hot food, the centre of a campaign to scrap the tax and the centre of celebrations as Chancellor George Osborne relented.
Advertising costs money and is widely ignored by newspaper readers, while everyone has read the news stories. And Greggs has generated huge amounts of goodwill, which you just can’t do through adverts.
However, as far as investors are concerned there has been just too much publicity for Greggs. Well done if you piled in before the shares shot up this week after the decision to scrap the tax change but otherwise I feel that the good news is fully reflected in the share price. There is no guarantee that hungry workers will actually pile in each lunch time to buy the pasties.
The yield is around 4% and the P/E is 11x or thereabouts. The figures do not suggest that shareholders should sell and indeed Greggs shares have been considerably higher during the past 12 months than its current price of just above 500p. Greggs does look a much better prospect than many retailers, such as Halfords (HFD) and HMV (HMV), with much higher historic yields.
However, I would be inclined to hold off and see if the shares fall back rather than buy in at this stage.
Car accessories and bicycles retailer Halfords, by the way, fell heavily after reporting profits down from £118 million to £94.1 million. The fall was caused by a dip on the cycles side, which should be benefitting from the recent fine weather plus interest generated by the Olympics in a sport where the UK tends to do very well.
The performance at Halfords over the years has been appropriately cyclical and the shares, at their lowest level for three years, now look quite cheap. The dividend total of 14p, unchanged on the previous 12 months, is more than adequately covered by earnings per share of 34p.
Prudential Appointment
The promotion of senior independent director Paul Manduca to chairman at insurance giant Prudential (PRU) has more pluses than minuses. It is good that the search for a successor to outgoing chairman Harvey McGrath has not dragged on and while an outside appointment would have brought in fresh thinking, Manduca has been on the board less than two years and is not tainted by the bungled bid for AIA, the Asian assets of AIG, in 2010.
In any case, one doubts if chief executive Tidjane Thiam will have the opportunity or the desire to launch into another mega deal. Prudential is already growing well in Asia, where the best opportunities are, and does not need to overpay for a foothold.
Even paying $621 million for Swiss Re’s US life insurance business is small beer alongside the $35 billion that Thiam proposed to squander on AIA and this acquisition does fit in with Pru’s existing American business.
Prudential shares at 670-680p do, to some extent, reflect the decent prospects. The historic yield is 3.6% and the P/E is just below 12. The figures are not outrageous although there are better ratios available elsewhere.
I don’t have room for Prudential in my portfolio but other investors may care to take a look. It should prove a solid if possibly pedestrian investment. Morningstar analysts see the shares as fairly valued at present.
Loss of Facebook
Although I warned people off Facebook (FB) shares last week, arguing that the fall in the share price on the second day after flotation did not represent a buying opportunity, I certainly did not expect a further drop to below $30. That represented a loss on the float price of more than one fifth and was a third off the peak of $45 seen in the initial euphoria.
I still do not see Facebook as an attractive proposition, especially as the shares have fallen back below $30 after edging up to around $33 in mid-week. There is just too much bad publicity coming out.
Reports suggest that there has been a fair amount of short selling of the shares and I wonder whether it is the closing of short positions that prompted the temporary rebound. Further closing of short positions will admittedly help any recovery but the effect will be counterbalanced by brokers who supported the shares by buying on the first day. They will want to sell out at any reasonable opportunity.
There is the added danger that Facebook will get bogged down in litigation with the company and its advisers being sued for allegedly misleading investors. At the very least it is a distraction for management.
Market Performance May 28-June 1
FTSE 100: -1.71%
FTSE 250: -0.68%
FTSE All Share: -1.32%
FTSE Small Cap: -1.10%
FTSE AIM 100: -3.40%
FTSE Fledgling: -0.33%
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