Category Archives: The In & Out

Shell I sell?

Oil… a slippery slope, indeed. So did Shell pounce too early? Of course, it did. Despite protestations to the opposite. Shell reiterated the company’s commitment to maintaining its dividend, even though the shares had an “outrageous” yield of about 7.8 per cent, reflecting investors fear that the payout could be cut.

Ben van Beurden, Shell’s CEO,  suggests that over time there was likely to be a floor under oil prices at $70 per barrel, but adds he does not know when the market would get back to that level. Phew… Anyway, according to Mr van Beurden share prices have been “knocked about”, and their valuations were driven by “risk aversion and volatility at the moment, rather than careful considered pricing”. And so the story continues… nothing to do with a supply glut, of course! The rationale behind Shell’s proposed takeover of BG Group for a whopping £43 billion surely doesn’t require further explanation? Clearly a brilliant deal that will produce synergies galore and help the newly created oil giant to maintain its generous dividend. Investors should be dancing in the street… . Well, Mr van Beurden, they don’t. You pounced too soon and the message from investors is clear: Renegotiate or pull out altogether. A takeover on current terms and conditions will turn into a classic case of value destruction on an epic scale.


Blooming Bloomsbury!

HP Sauce (aka Harry Potter) past its sell by date or a classic? Ok. They still stock it at Tesco’s but what about Aldi? And, indeed, what about Bloomsbury Publishing? It is eight years since JK Rowling published the seventh and final book in her Harry Potter series, but she has enjoyed a fresh surge in sales after her publisher reissued the novels with new covers. Has it done the trick? The jury is out.

Bloomsbury enjoyed a 29 per cent increase in annual sales of the titles thanks to the new editions, which were designed by Jonny Duddle, the children’s illustrator, and released last year.

Group turnover rose 1.5 per cent as Nigel Newton, the chief executive, managed to offset a decline in adult titles, including sales of ebooks, which have slowed across the industry. Digital sales fell about 4 per cent and make up barely a tenth of all sales.

Mr Newton has invested in more stable academic and professional publishing, helping to nudge up profits to £9.6 million in the year to February and allowing him to lift the dividend by 5 per cent.

The group, which has a big stable of celebrity authors including Heston Blumenthal and Hugh Fearnley-Whittingstall, said that A Court of Thorns and Roses by Sarah J Maas and Jonathan Strange & Mr Norrell by Susanna Clarke, which is being televised, have sold well in recent months. And, last but not least, it has a foothold in India, one of the fastest growing markets.

“There does seem to be a bit of a lull at the moment,” Mr Newton said of ebook sales. He pointed to “anecdotal evidence of people giving up their e-readers and going back to print” and “new evidence that people remember things more clearly if they read it in ink on paper rather than in a digital format”. Pinkers verdict: Heartening, indeed!

The fact is Bloomsbury has moved on, using the substantial magical revenues wisely. A beautifully managed programme of diversification into academic and educational publishing whilst retaining the more traditional staples such as children, fiction and non fiction, has reaped rich rewards over the years. The balance sheet is strong and the company is trading on a P/E of 15, yielding 3.5%. The shares have performed well over the last few months but seem to be treading water now, range 170-180p. The 52 week intra day high is 188.50 and one has to go back 7 years when they last broke the 200p barrier.

In summary: Bloomsbury is a consistent performer and it is almost surprising that none of the big boys have been tempted to have a nibble at it. After all, this relatively small outfit is the Bentley of independent English publishers… and we all know what happened to the venerable car maker.

Takeover is on the cards. BUY!

Menzies makes a meaty meal!

Lakestreet Capital Partners, a top 10 investor in John Menzies (MNZS.L) with a stake of about 3%, has called on the Scottish company to consider splitting up, believing its distribution and aviation services businesses would be worth more apart. The Swiss investment firm’s move is the latest example of shareholder activism in Europe. It said talks are ongoing with the company’s management to improve revenue performance and margins. Lakestreet considers itself an active investor and targets companies it believes are undervalued but have strong long-term growth potential. Its investment strategy includes engaging with company management.

Lakestreet are right: As opposed to Connect Group, Menzies main rival, the company has done little to improve the performance of its individual parts. Connect cleverly ‘consolidated’ by splitting itself into three separate entities, improving focus and performance. Menzies does not appear to know where it’s going. And that’s a good thing: It makes a meaty meal and Lakestreet are well ahead of the curve. Consolidation in the sector is rife!

Further to this: Buy the blood!



Anglo American Angel Cake!

Have it… and eat it! AAL is an obvious takeover target. The company is the largest platinum producer but also controls copper, coal, iron ore, nickel and diamond mines. In summary: A real hotchpotch of assets, an anachronistic conglomerate, over-diversified and lacking in focus. CEO Mark Cutifani is doing a reasonably good job but has made it clear that he isn’t exactly averse to takeover offers.

Several factors do not bode well for the mining sector:

Miners have slashed projections for capital expenditures in the last couple of years. In spite of lower investment, oversupply still threatens many of their end markets — and is here to stay. In fact, it does look increasingly unlikely that China will bail out the West in the long run.

That, in turn, would simply mean two things: a) they must integrate their current offering with more products and ancillary services in order to retain their clients; b) they must combine their costs to cut the resulting cost base.

Anglo is appealing for both reasons. Let’s face it: It’s all about synergies.

The formidable Ivan Glasenberg, CEO and main shareholder of Glencore, has rejected rumors of a bid: “With Anglo, we don’t trade diamonds, if that gives you a good idea, and we don’t trade platinum. We will only look at assets which we trade, which we market.” And, true to his word, he has moved on to Rio Tinto, a rather bigger fish in the pond. Still, with Anglo’s s/p bumping along rock bottom levels, its attraction is clear: Steal the lot, break it up… and laugh all the way to the bank. It’s the minnow amongst the miners and consolidation is rife. Furthermore, due to its small size,  it would be highly unlikely to attract the scrutiny of the competition authorities.

Glencore and BHP remain the best long-term investments. Rio, with almost 90% invested in iron ore, is a true NO!!! brainer… on a suicide mission by constantly ramping up supply in the face of deteriorating demand. Anglo, however, is the weakest link in the chain and its chances of survival as an independent company are extremely slim, indeed. It’s not a question of IF but only WHEN one of the bigger boys will pounce. At the current depressed s/p, not even private equity can be ruled out anymore.

Further to this: Big is beautiful!

The golden urinal!

Marcel Duchamp’s urinal? Yawn! Let’s face it: It’s Russia where all the action is!

Lenin was a genius. Well, a genius on gold, anyway. He despised it and thought it should be used to build public lavatories. Warren Buffet famous quote is no less contemptuous: “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

The fact is, of course, gold has never defaulted and remains the ultimate hedge. However, gold, like any other commodity is not immune to the fundamental economic law of supply and demand. Neither is it immune to natural cycles and, indeed, chartism. Certainly gold has been a very erratic store of value in recent years, especially in the new age of Exchange Traded Funds which are fuelling the speculative element.

For now, the decade long bull-run has come to a stuttering halt. Bullion started the year at $1,183 a troy ounce and went on to reach $1,300 by the middle of January as the European Central Bank prepared to launch QE and the leftwing party Syriza swept to victory in the Greek general election. Since then gold has been in retreat and and it has now surrendered all its 2015 gains. The trend is clear: DOWN. A buy at $800 and Pinkers is confident it will get there… before taking off like a Trident missile! That will be a glorious golden p*** up!