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Ian Pollard – Centrica Faces “High Level Competitive Intensity.”

Centrica CNA has issued a jargon riddled update, which believe it or not ends with the startling claim that the outcome for the year will be dependent on its operational and commercial performance. Well, well what a surprise. To cover itself all ways up it also adds to the list, the impact of an uncertain regulatory environment, weather patterns and commodity prices. Management skills are, it appears not included in the list as being likely to have any impact on the company, beneficial or otherwise. The year has however begun well, thanks to abnormally cold weather and despite unplanned outages in Morecambe Bay and production issues in Norway. Its core markets have been affected not just by intense competition but by “High level competitive intensity” which makes it sound really, really serious.

Diploma plc DPLM delivered robust growth in revenue and profits during the half year to the 31st March despite currency headwinds and is increasing its interim dividend by 10% to 7.7p per share.Adjusted earnings per share rose by 12% whilst revenue and profit before tax each rose by 8%. Currency movements caused revenue to fall by 4%. The Board believes that the company will continue with its excellent track record of value creation.

Eckoh plc ECK updates that the year to the 31st March ended with a robust balance sheet and a strong order pipeline. Good progress was made in the US where secure payment revenues more than doubled, although in the UK market conditions were more challenging. The company is looking forward to the introduction of European GDPR on the 25th May which could produce substantial opportunities in the UK and in the US where it appears  thare will be widespread adoption of the new European regulations.

Angling Direct ANG achieved record revenue and profits during the year to the 31st January, a year in which it not only joined AIM but also went on the acquisition trail in a big way. Group revenue rose by 44%, gross profit by 37% and online sales surged by 54% compared to a rise in store sales of 40%. Like for like sales however gave a much more modest and realistic growth figure of 9%. A good start has been made to the current year, despite adverse fishing weather.

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Ian Pollard – Centrica #CNA Chickens Come Home To Roost

Centrica CNA Produced weak second half results, after poor performances in Business Energy and in particular in North America created material uncertainty around the company and resulted in what it admits was a very poor shareholder experience.. A combination of political and regulatory interventions gets part of the blame but Centrica makes no comment as to whether these were justified or not. Despite a 3% rise in revenue, adjusted operating profit fell by 17%, EBITDA by 9% and basic earnings per share by 25%. Statutory operating profit collapsed by 80% and the dividend not surprisingly remains unchanged at 12p per share.

British Am Tobacco BATS is increasing its dividends by 15.2% after a  record year in 2017 which delivered another set of strong financial result. Revenue rose by 37.6% and adjusted diluted earnings per share by 14.9% after completion of the acquisition of Reynolds American in July which it describes as a transfomational deal. On an organic basis cigarette volume fell by 2.6% but that outperformed the market which fell by 3.5%

BAE Sytems BA Delivered a good performance in 2017 and sees an improved outlook for 2018 for defence budgets in a number of markets. Underlying earnings per share rose by 8%, EBITA by 4% and the increase in the final dividend to 13p per share makes a total increase of 2% for the full year.

Moneysupermarket MONY continued to deliver robust results in its core business for the year to 31st December and is increasing final dividend by 6%. Adjusted EBITDA rose by 5%, profit after tax  by 6% and basic earnings per share by 7%.

Go Ahead Group plc GOG produced a good performance in the half year to the 30th December and expectations for the full year have have increased due to one off rail benefits. Results for the rail division are ahead of expectations. Profit before tax rose by 19% and basic earnings per share by 7.3%. The interim dividend remains unchanged.

Serco Group SRP delivered a solid performance in 2017, producing profits at the top end of expectations, in  a difficult market. The year ended with a strong order book.  Despite a 2% drop in revenue for 2017 underlying profit rose by 10% over 2016 and  are expected to contiue to grow in both the current year and in 2019.

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Ken Baksh – January 2018 market Report……New challenges and opportunities!

Independent Investment Research

by Ken Baksh

Ken has over 35 years of investment management experience, working for two major City institutions between 1976 and 2002.

Since then he has been engaged as a self-employed investment consultant. He has worked with investment trusts, unit trusts, pension funds, charities, Life Fund,hedge fund and private clients. Individual asset managed have included direct equities and bonds pooled vehicles currencies, derivatives and commodities.

Projects undertaken in a number of areas including asset allocation, risk control, performance measurement, marketing, individual company research, legacy portfolios and portfolio construction. He has a BSc(Mathematics/Statistics) and is a Fellow Member of the UK Society of Investment Professionals.

Phone 07747 114 691



January 2018 Market Report


During December, major equity markets displayed an upward trend, assisted by well flagged Central Bank actions and statements, a quieter political mood, and the tail end of a generally upbeat third quarterly corporate reporting season. The European Central Bank continued to move, as expected, to a gradual tapering mode, amidst some very strong economic data releases while there was additional political “noise” from Germany, Austria, Italy and Spain. US market watchers negotiated the Federal Reserve (both rate increase and change in Chairman) as well as the last-minute passage of the Tax Reform Bill. In the Far East, Chinese authorities stepped up regulatory action (specifically the financial sector) while Japan recorded and another quarter of relatively strong GDP growth. Aggregate world hard economic data still showed steady expansion, excluding the UK, as confirmed by the IMF and the OECD with some forecasts of 2018 economic growth in the 3.5% to 4% area. Fluctuating currencies are playing an increasing role in asset allocation decisions, the near 14% move in the USD/Euro over the year being a good example. An American investor into Germany has seen a currency adjusted annual return of approximately 25%, some 20% higher than the other way around!



Global Equities rose over December, the FTSE ALL World Index climbing by 1.94% in dollar terms. The UK broad and narrow indices outperformed over the month while underperforming the World, in sterling terms, over the full year. Emerging markets had a relatively strong December thus completing a full year return of nearly 35% in dollar terms. In sterling adjusted terms Germany and Japan led   the year-to date returns, amongst the major markets, followed by the USA, although the tech-heavy NASDAQ, Asia ex-Japan, and Emerging Markets all showed yearly gains of between 25% and 35% in local currencies. The VIX index ended the year at 10.26, a fall of around 25% over the full year.


UK Sectors

Sector volatility during the month was high, mining outperforming utilities by about 15%. Over the full year, mining shares (the best performing major sector) have outperformed utilities (the worst) by approximately 40%. Within the overall UK fund universe over 2017, smaller caps outperformed larger stocks, and the difference between active and passive performance was much smaller than that experienced in 2016.Within the broad UK All company sector, investment trusts outperformed unit trusts by about 3.5% over the full year. The average IA mixed investment pooled fund (40%-85% shares) delivered a total return of about 10% in 2017.

Source: Trustnet


Fixed Interest

Gilt prices showed marginal gains over the month, the ten-year yield finishing the month at 1.23%. Over the full year gilts showed a price decline of about 1%, thus delivering a total return of about zero. Other ten-year yield movements were mixed, American, Japanese and German ten-year yields ended December at 2.43%,0.05% and 0.43% respectively.  UK corporate bonds rose slightly in price terms over the month and outperformed gilts over the full year. Amongst the more speculative grades, there were mixed trends, with emerging market bonds, in local currency terms, having a better month and US high yield hardly moving. Convertible bonds dropped slightly during the month but rose about 6% since the beginning of the year and I expect this outperformance over gilts to continue. See my recommendations in preference shares, convertibles, corporate bonds, floating rate bonds etc. A list of my top thirty income ideas (all yielding over 5%) from over 10 different asset classes is available.


Foreign Exchange

Amongst the major currencies, the Japanese Yen was the major December feature falling 1.2% in trade weighted terms. On the other side of the coin, the Euro rose 0.57%. The Euro strength at least partially reflected growing economic optimism and a gradual resolution to the German political stalemate. These volatile FX moves have played an increasing role in asset class allocations and this look set to continue. In sterling terms, Japanese and Continental European equities markedly outperformed USA and the UK.



Another mixed month for commodities. Oil showed a further bounce, the most recent OPEC agreement being broadly in line with expectations and some supply issues e.g North Sea and Libya. There were mixed trends amongst the precious metals, while the copper price rose by 7.8% during the month and over 31% over the full year. Over the twelve-month period, palladium rose by over 57% in price terms, while iron ore dropped about 7%. Recent mining conferences have focussed on both the China effect in reducing supply, and the growing requirements of the emerging EV (electric vehicle) markets. See my recent note on how to play the mining and oil sectors into 2018 while also enjoying an above average dividend yield (paid quarterly).


Looking Forward

Over the coming months, I expect Central Bank statements and political events e.g.  German coalition formation, Catalonian election follow-up, Italian election campaigning, Brexit,Korea, Iran, USA, and the major corporate reporting season (both figures and forward looking statements) to be the main forces driving major asset classes . US watchers will start preparing for the next interest rate hike, under the new Fed Chairman Powell as well as fleshing out the winners and losers from the recent Tax Reform Bill, and watching the machinations ahead of the latest funding deadline (19th January).  In Japan, Shinzo Abe is likely to push for changes in the Constitution and reinforce the easier monetary and fiscal economic policy stance following his resounding election victory. Hard economic data (as opposed to sentiment surveys) will shows that the UK economic growth will be slower in 2017 compared to 2016 and downgrades to 2018 have recently been made by many organizations. Anecdotal evidence from retailors usually released early January will give some clues as to consumer trends. BREXIT discussions enter a new phase with discussions on the timing and nature of the new “Trade Deal”, as well as transitional arrangements being a major focus.


On a valuation basis, most, but not all, conventional government fixed interest products continue to appear expensive against current economic forecasts and supply factors, and renewed bond price declines and further relative underperformance versus equities should be expected, in my view. Equities appear more valued, apart from some PE metrics, (especially in the US), although not in bubble territory, but there are wide variations, and opportunities, in both broad asset classes. Equity investors will be looking to see if superior earnings growth can compensate for higher interest rates in several areas.  Corporate results from US, Europe and Japan were, on aggregate, up to expectations at the third quarter 2017 stage, although EY noted that the number of UK profits warning were about 10% higher than the previous year at the nine-month stage, mostly in the home improvement, motor and other retail areas.  Outside pure valuation measures, sentiment indicators and the VIX index are still relatively low though showing more day to day variation. Growing cyber-currency attention also demonstrates investor skittishness, search for new assets.


In terms of current recommendations,

Continue to overweight equities relative to core government bonds, especially within Continental Europe and Japan. However, the equity selection should be very focussed. Certain equity valuations are rather high, especially on a PE basis (see quarterly). A combination of sharper than expected interest rate increases with corporate earnings shocks would not be conducive to strong equity returns.

  • I have moved UK equities from underweight to a more neutral position following the market 2017 underperformance and valuations of certain of the major global stocks. Within the UK equity space, I suggest moving the balance of small/large cap stocks now back to neutral following both the outperformance of the former and the volatility in the currency (part post-election, part BREXIT). Ongoing Brexit debate, political stalemate could cause more sterling wobbles, which in turn could affect sector/size choices. I would expect to see more profits warnings e.g WPP #WPP, Provident Financial #PFG, Dixons Carphone #DX, Carillion #CLLN, Paragon #PAG, Next #NXT, Centrica #CNA etc and cautious statements as we move through into the results season.
  • Within UK sectors, some of the higher yielding defensive plays e.g. Pharma, telco’s and utilities have attractions relative to certain cyclicals. Oil and gas majors may be worth topping up after recent weakness and balance sheet improvements and have lagged the recovery in the spot price. Concentrate on the major diversified although there are currently some very attractive equity and fixed interest ideas in the mid/small cap area.
  • Continental European equities preferred to those of USA, for reasons of valuation, and Central bank policy. This strategy, in sterling adjusted terms worked very well through 2017 (DAX outperforming the S&P by about 8%) and I expect to continue. Improving economic data adds to my enthusiasm for selected European names, although European investors may be advised to focus more on domestic, rather than export related themes. Look at underlying exposure of your funds carefully. Remember that certain European and Japanese companies provide US exposure, without paying US prices. I have recently written on Japan, and I would continue to overweight this market, especially in hedged form, despite the large 2017 outperformance. recently.
  • Alternative fixed interest vehicles, which continue to perform relatively well against conventional government bonds, have attractions e.g. floating rate funds, preference shares, convertibles, for balanced, cautious accounts and energy/ emerging/speculative grade for higher risk. These remain my favoured plays within the fixed interest space.
  • UK bank preference shares still look particularly attractive, and could be considered as alternatives to the ordinary shares in some cases. Prices have shown good capital growth since the beginning of the year as well as offering annual yields more than 5%, but are still recommended for more cautious investors with a desire for regular annual income. Recent results and the November “stress test” results show that generally UK balance sheets are generally in good shape, and I see negligible risk of default on preference share dividends for the recommended stocks.
  • Alternative income, private equity and renewable funds have exhibited their defensive characteristics during recent equity market wobbles and are still recommended as part of a balanced portfolio. Reference could be made to the renewable funds (see my recent solar and wind power recommendations). Selected infrastructure funds are also recommended for purchase after the recent weakness (see note).
  • Any new commitments to the commercial property sector should be more focussed on direct equities and investment trusts than unit trusts (see my recent note comparing open ended and closed ended funds), thus exploiting the discount and double discount features respectively. However, in general I would not overweight the sector, as along with residential property, I expect further price stagnation especially in London offices. The outlook for some specialist sub sectors and property outside London/South-East, however, is currently more favourable. Investors should also consider some continental European property plays. See my recent note on this sector.
  • I suggest a selective approach to emerging equities and bonds, especially where significant dollar loan exposure and or potential geo-political uncertainties are present e.g. Brazil, Venezuela, South Africa. Although the overall valuation for emerging market equities is relatively modest, there are large differences between individual countries.

Full fourth quarterly report will be available in January and suggested portfolio strategy/individual recommendations are available. Ideas for a ten stock FTSE portfolio, model pooled fund portfolios (cautious, balanced adventurous, income), 30 stock income lists, hedging ideas and a list of shorter term low risk/ high risk ideas can also be purchased, as well as bespoke portfolio construction/restructuring. I expect more clients to consider switching some final salary pots to SIPP over coming quarters, as transfer values start to slip (partially in line with rising gilt yields) and can work with you providing bespoke portfolios according to client needs.


Good luck with performance!   Ken Baksh 01/01/2018


All stock recommendations and comments are the opinion of writer.

Investors should be cautious about all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal ownership, may influence or factor into a stock analysis or opinion.

All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is not indicative of future price action.

You should be aware of the risks involved in stock investing, and you use the material contained herein at your own risk

The author may have historic or prospective positions in securities mentioned in the report.

The material on this website are provided for information purpose only.

Please contact Ken, (kenbaksh@btopenworld.com) for further information



Ian Pollard – Majestic Wine Celebrates With a 33.3% Dividend Hike

Majestic Wine plc WINE Moved into profit in the half year to the 2nd October and the interim dividend is to be increased by 33.3% to 2p. The Chief Executive says he is now ready step on the gas and accelerate growth with a team which has worked like demons and made him “dead proud” of every one of them. After breaking even in the first half, momentum continued through into the second half producing a profit of 6.8m.On a statutory basis last years loss of 4.4m was turned into a profit before tax of 3.3m. Sales rose by 5.7%

Centrica CNA admits  that it is not only disappointed with its performance but also with the delivery of that performance. The usual excuses are trotted out the main one being that trading conditions have been highly competitive which is really an admission that it is not managed well enough to beat the competition. Then of course there is the weather which is blamed for being warmer in the UK than Centrica expected. The UK is now only expected to break even, on top of which there is downward pressure in North America.

Severn Trent plc SVT Ongoing momentum is reflected in the results for the half year to the 30th September which saw a reduction of 48% in sewer floodings, which appears to illustrate after all these years of privatised utilities, just how bad they had allowed their infrastructure to become. The latest policy craze is now “customer first” which begs the question as to where in the pecking order have customers been for the last 25 years or so? As for the statistics, half year turnover rose by 3.7%, reported profit before interest and tax fell by 0.2% by and like for like reported basic earnings per share were down by 20.2%, in response to all of which the interim dividend in the true spirit of customer first, was increased by 6.2%

Cineworld CINE delivered revenue growth of 10.6%  between the 1st January and 19th November, spurred on by the expansion and refurbishment programme. The Rest of the World led the way with a 24.6% rise in retail revenue (13.3% on a  constant currency basis). Dunkirk took pride of place as the highest grossing film in the second half and for the rest of the year we have old favourites to look forward to with another Star Wars epic and Paddington 2.

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Go Ahead Goes For More Rail Contracts – in Germany, Thank God.

Go Ahead Group GOG The  really good news is that Go Ahead is bidding for a number of new rail contracts but they are all in Germany, so success will not bring more misery to the UK

The grossly misnamed provider of rail and bus services to the long suffering British public announces that it shares with its customers, expectations for its rail division, namely that they will be lower than what was previously hoped for helpful site. Overall growth rates for the bus division have been suppressed adding to the problems of the troubled company, by what appears to be fairly substantial weakness in the north east but Singapore is doing its best to save the day and make up for the Geordie shortfall. GTR services have been heavily impacted by Aslef’s industrial action but further risks remain.

Centrica CNA expects to exceed its 2016 targets first set out at its 2015 preliminary results. The second half performance has been strong. Efficiency savings have absorbed the effects  both of inflation and currency movements and the like for like head count has been reduced by 3,000. Adjusted earnings per share are expected to be around 16.5p. A stronger second half performance in North America energy supply has also helped following the warm weather problems of the first half. Preliminary results are expected  on the 23rd February.

Bunzl BNZL has not seen much change since its last update. Forecasts for the year to the end of December are still that group revenue will have risen by 14-15% at actual currency rates and 4-5% at constant currency rates,and all of it due mainly to acquisitions. Bunzl agreed to buy 13 businesses this year. The only change which may be significant is that the 4th quarter has seen the beginnings of like for like growth, contrary to the first 3 quarters.

GVC Holdings GVC  is to increase by 49% the special dividend announced on the 3rd November, following strong fourth quarter trading and growing momentum. Results for the year to 31st December are expected to be at the upper end of market expectations.


Impellam Group IPEL admits that it is managing and will continue to manage the business prudently but only because of the prevailing uncertainty in the UK  and the fact that UK healthcare performance has been impacted by the actions of the government. One can only wonder how it managed the business previously before these factors came into play and how it will manage it in the future once the need for prudence has flown out of the window, The company spokesperson gets this weeks foot in mouth prize.

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TipTV Daily Market Roundup – Nick ‘Moose’ Batsford, Zak Mir and Alan Green

Nick Batsford, CEO of Tip TV, was joined by Zak Mir, technical analyst for Zak’s Traders Café, and Alan Green, CEO of Brand Communications, on the Tip TV Finance Show to discuss the Chinese import and export data, the falling commodity prices, an outlook for Centrica and Hornby and a view on global producers.

Weak Chinese imports trigger risk-off

Batsford highlighted FX Street, who noted that exports in China dropped 6.8%, whilst imports fell 8.7%. Weak exports is not surprising with global demand being relatively low, but falling imports is a more serious issue for China as it highlights weak consumption. They continued that the global economy is to continue to face aggregate demand deficiency, and interest rates are likely to stay closer to zero, the new normal, so long as Chinese consumption does indeed remain weak.

Commodity melt down threatening the Santa rally

Mir outlined that we don’t know where commodities are going or how bad the situation is going to get, but with oil now falling as well there is certainly a chance for this melt down to impact the potential Santa rally. Green agreed with this, and commented that commodities may well put the brakes on a Santa rally.

Outlook for Centrica and Hornby

When concerning Centrica, Green believed that it shares have opened this morning lower, and with a trading update on Thursday unlikely to change the situation, he expected more downside for the stock.

In terms of Hornby, he expressed that we are seeing a convergence of the 50 and 200 day moving averages, and their upcoming trading statement may spark a recovery heading into next year. Green added that this is a pivotal time for Hornby.

Incredibly low prices impacting producers

Batsford highlighted Elliott, who commented that heavily weighted to both energy and precious metals, both Bloomberg’s Commodity Index and the older Commodity Research Bureau’s Index of basic materials and food are down at the sort of levels not seen in this century. Trading approximately 22% below 2009’s lows, and 65% below 2008’s record high, its impact is being felt by producers all over the world.

– See more at: http://www.tiptv.co.uk/finance/daily-market-roundup-commodities-applying-the-brakes-on-a-santa-rally-outlook-for-centrica-and-hornby/#sthash.gpvAqMDE.dpuf

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