Should I Invest in Oil and/or Buy a New Car?

The stock market is quiescent and it is time to ponder questions such as should I buy more BP shares and should I buy an electric or hybrid car? There is an article in the FT today on the rejection of resolutions focussed on climate change at the ExxonMobil and Chevron annual meetings. It said: “shareholders solidly rejected climate change proposals at the US oil majors’ annual meetings on Wednesday, scaling back support from last year and splitting with results at peers in Europe where resolutions related to global warming have won stronger support. Only 11 per cent of Exxon shareholders supported a petition calling for the company to set emissions reduction targets that would be consistent with the goals of the 2015 Paris climate agreement. A similar proposal at Chevron received less than 10 per cent support”. See FT article here: https://www.ft.com/content/7faccadc-beef-4b10-be53-ae7aceaeafce

Resolutions on this subject at the BP and Shell AGMs were similarly defeated even though many institutional holders like to promote their green credentials.

Individual shareholders need to make up their own minds on how to vote on whether to put companies like BP and Shell out of business by stopping their oil development activities. Both BP and Shell argue for a transition to renewable energy at a pace acceptable to their customers and which does not impose unreasonable short-term costs and I agree with them. The transition to renewable energy for many purposes may make sense but for transportation carbon fuels have a very high energy intensity and the infrastructure to support electric vehicles means a high loss in the transmission system.

I have a pressing personal decision to make on this issue. My diesel-powered Jaguar XF is almost ten years old now and I like to buy a new car when they have done more than 60,000 miles as they get more unreliable and expensive to maintain after that. I don’t do many miles now so a somewhat smaller car might make some sense. But should it be an electric vehicle, a hybrid or a petrol/diesel one?

I think a hybrid is the best bet and have booked a test drive of a Toyota Corolla. They are self-charging hybrids but can only run a short distance on battery power so I am betting that petrol will be readily available for at least the next ten years.

I am surprised that Jaguar are still selling XF models but they do now have a petrol option and a “sportbrake” version which probably shows how well liked the car is but I fear that diesel will be discouraged by regulation soon.

They do sell all-electric models now but they are expensive and are bulky SUV style cars when I prefer smaller vehicles. Note that the environmental benefits of electric cars over petrol ones are quite marginal if you take the all-in lifetime environmental impact costs into account and the latest scare is that the heavier weight of electric vehicles is causing damage to our roads – thus explaining why there are so many potholes in our roads of late. The weight of current electric batteries is becoming a major problem while the production and recycling of batteries is a negative aspect not yet confronted.

Electric cars are cheaper than they used to be but they either have limited range or are expensive (£43,000 to £58,000 for a Tesla Model 3 for example, or over £70,000 for a Jaguar I-Pace).

Readers of this article can suggest alternatives for me to look at. Use the comment box below.

I could of course hold on to my current vehicle for another few years in the hope that Sadiq Khan changes his mind on the ULEZ expansion (my Jaguar XF is not compliant) or is not elected again next May. There are several strong contenders lining up to take him on. But I do so few miles within the ULEZ area (current and future) that it does not bother me much what the Mayor decides to do. Whatever he decides he is bound to be wrong based on his past decision record.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Revolution Demanded at Abcam – Quite Rightly

The former CEO and founder at Abcam (ABC) is planning to call an EGM to replace the Chairman. He has published an open letter to shareholders which spells out the reasons – see https://www.globenewswire.com/news-release/2023/05/17/2671109/0/en/Jonathan-Milner-Announces-That-He-is-Taking-Steps-to-Call-an-Extraordinary-General-Meeting-of-Abcam-Shareholders.html

My comment is the sooner the better. His letter is a very good summary of where Abcam has gone wrong recently. I hope shareholders will support him.

I purchased Abcam shares in 2006 soon after the company listed on AIM in 2005. I still have my analysis of the shares made at the time which included a cash return on capital of 78% and a prospective p/e of 22. Revenue was growing at a fast pace and all went well under the leadership of Jonathan Milner as CEO for several years.

But even before he stepped down in 2020 the business was clearly in some difficulties. I commented on this blog negatively about the large expenses on new IT systems (which was capitalised) and very generous remuneration schemes. I could not get my reasonable questions answered by the Chairman at the AGMs I attended and subsequently voted against him.

You can search this blog for the past articles on Abcam which reinforce what Mr Milner is saying.

But the last straw was the delisting from AIM and the move to NASDAQ in 2022. As Mr Milner points out, this was pointless and has not benefited shareholders. I sold most of my shares starting in 2020 and the balance only recently – overall return of about 30% per annum since 2006. But the recent financial figures have been disappointing with margins declining and way too many adjustments.

The conversion of Abcam shares to ADRs for the NASDAQ listing may help to frustrate the calling and voting at an EGM.

Mr Milner says the current Chairman is weak – I agree. He needs to go with a refreshed board put in place.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Should ISAs Be Simplified? And AJ Bell Results

This morning AJ Bell announced their interim results. It is one of the UK’s largest investment platform operators and has been very successful at growing its customer base through having low charges and a simple user interface, particularly for SIPPs.

Customers grew by 7% in the platform business and overall revenue was up 37% with profits up 61%.

But the CEO has promoted the idea of simplifying the ISA regime. He says “Over the years a once simple product has fragmented into multiple versions with different rules and benefits. In proposals presented to the Chancellor, we have outlined a system which combines the many current versions into one ISA product that would be easy for people to understand and would encourage more investment”.

I am all in favour of that proposal. The financial world is complex enough and the different ISAs can potentially confuse and discourage new investors.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Shell AGM Disrupted

I am watching the Shell AGM and it has been disrupted by a campaign group chanting “Welcome to Hell” that has gone on for more than 15 minutes now.

Chairman Sir Andrew McKenzie has not taken vigorous action to stop the disruption. He should have ejected the objectors or suspended the meeting until order was resumed.

As a shareholder in Shell I consider this attempt to defeat the purpose of the meeting is an absolute disgrace.

As at the BP AGM, the Chairman was totally ineffective in controlling the mob.

Postscript: after 3 hours I am still watching the AGM. It has become more civilised after an attempt by some attendees to storm the top table. The CEO, Wael Sawan, made a good speech which covered the company’s decarbonisation programme. The target is net zero emissions by 2050. The plan is a balanced energy transition. He said that cutting supply while demand is unchanged does not work.

Based on the proxy vote counts, 80% of shareholders voted against Resolution 26 (the one requisitioned by protestors) while 80% supported the boards resolution (no.  25). That’s a quite decisive support of the company’s strategy.

There were some intelligent questions in the Q&A session and a few complaints about the timing and venue.

How to make these meetings shorter and avoid disruption by a vociferous minority? Could I suggest: more vetting of attendees or just make it an on-line only meeting. A more vigorous role by the Chairman would also help.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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EKF Diagnostics AGM Report

This morning I “attended” the Annual General Meeting of EKF Diagnostics (EKF).  This was a “hybrid” meeting with the physical meeting in Cardiff and the on-line aspect run on Zoom which I logged into. It was reasonably well attended both ways with a number of questions posed. The meeting ran for about one hour.

The company benefited greatly from the Covid epidemic when revenue peaked at £82 million in 2021, but it reported losses in 2022 as the epidemic declined and the market changed. Profits are forecast in 2023 however.

I did not learn much from the meeting except they are apparently still looking for a new CEO (they currently have an executive chairman which I generally dislike). As usual with medical companies they have difficulty in selling to the NHS who want to do everything centrally (different to the rest of the world) but they are still selling in Russia and don’t plan to withdraw from that market – profits generated there cannot be repatriated but by increasing their product prices they can obtain a return.

The meeting was difficult to follow because the internet link at the company’s end kept breaking. If companies are going to run hybrid AGMs they need to use reliable technology such as by using the Investor Meet Company platform.

Otherwise the meeting was well run.

I asked one question as to why they had a share buy-back resolution on the agenda which I voted against. Apparently they have no current intention of using it.

The company clearly has ambitions to grow its revenue and profits and the share price does not seem expensive to me on prospective earnings and dividend yield, but readers can no doubt make up their own mind on that.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Inflation Not Under Control

Back in March I said: “As I suggested in my comments on the budget, the probability of inflation falling to 2.9% by the end of the year is a grossly optimistic forecast”. And so it has turned out to be. Instead of inflation falling below its 2 per cent target within a year, which the Bank of England had forecast, the Bank now thinks it will only hit the goal in 2025. So Bank Rate has been raised again to 4.5%.

It really brings into question the competence of Andrew Bailey and Bank of England forecasters when an amateur financial commentator like me can be more accurate.

Inflation is always very sticky. When people see prices rising they adjust the prices they expect to pay and the wages they demand. And companies pay little attention to the exhortations of politicians.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Young People’s Poor Knowledge of Investments

The AIC published an interesting press release last week. It was headlined “Young people more aware of cryptocurrency than any other investment”.

Young people they class as those aged 20-40 but it shows an astonishing ignorance of different types of investment. Even more astonishing is that they rely on web searches, Instagram, YouTube, Facebook and Twitter as sources of financial information.

Some 70% of survey respondents were aware of cryptocurrencies such as Bitcoin, but only 18% of investment trusts.

The fact that most of these media that young people reply on are motivated by the desire to sell something to investors shows how easy it is for young investors to get misled. You can see why new investors are so easily sucked into speculative investments of one kind or another.

See https://www.theaic.co.uk/aic/news/press-releases/young-people-more-aware-of-cryptocurrency-than-any-other-investment for the full press release.

How to solve this problem? Education if one key and at a young age. But anything taught in school at age 15 will soon get forgotten, and be swamped by clever marketing by financial promoters.

ShareSoc has been working on this issue via their “Investor Academy” (see https://www.sharesoc.org/investor-academy/ ) but it does not seem to be having a great impact so far. There is little incentive to learn.

The only way I can see this state of affairs improving would be if investors had to pass a qualifying examination before they could invest in some types of investments. Having “health warnings” on cryptocurrency investment schemes is not enough.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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BP Agm Badly Managed and Disrupted By Protestors

I have been watching the BP (BP.) Annual General Meeting on-line. This was badly disrupted by protestors and the Chairman (Helge Lund) did a very poor job of restoring order. He had to ask for order several times and over 10 minutes in total were wasted before Lund requested removal of the protestors. Much too soft!

BP already supports a transition to net zero carbon which I consider misconceived. How many votes against Lund will he get? We shall soon see.

Note: I am a shareholder in BP.

Postscript: Helge Lund received 9.6% of shares voted against his re-election. Whether that was because of his weak approach to meeting management or dislike about the company’s strategy is unclear.

Requisitioned Special Resolution 25 was voted down by 83% which shows there is little support among shareholders for extreme policies.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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IBPO Delisting – A Bloodbath for Investors

There was an interesting discussion last night at the Mello meeting on the recent announcement of a delisting from AIM of iEnergizer (IBPO). IBPO is controlled by 83% shareholder EICR (Cyprus) Ltd whose major shareholder is Anil Agarwal. So he will have no difficulty passing the required 75% votes for delisting.

Unlike common practice, there is no offer to take out the smaller shareholders at a fair price. The share price dropped precipitately on the announcement but has bounced back this morning. This seems to be on the hope that the dividends will be maintained and just one year’s dividends might pay for the shares.

I personally would not bet on that because there are many ways a controlling shareholder can take out value from a delisted company.

I have been a holder of delisted AIM shares in the past and one such case did end happily after a few years but others did not. The key is to avoid investing in companies that could put you into such difficult positions. Prevention is better than cure (the company is registered in Guernsey so should be subject to the Takeover Panel Code which might help but trying to block a dominant shareholder from doing what they want to do is very difficult).

I covered some of the warning signs in my book Business Perspective Investing. These are a couple of extracts from it:

Large or Small Director Share Stakes

Common abuses of corporate governance codes happen when one or more directors have a controlling stake in the business, i.e. own more than 50% of the equity. Even owning 40% usually means they can win any vote and effectively have control.

One danger of such large stakes is that they might be tempted to take a company private if they think the shares are undervalued or they are simply fed up with sticking to the rules required of public companies.

On the other hand, it is important for directors to have a significant interest in a company’s shares so as to align their interests with that of other shareholders. Having a substantial interest provides a powerful incentive to promote the success of the company.  This particularly applies to executive directors but even non-executive directors should have a non-trivial shareholding. It’s even better if the directors acquired their share stakes by purchasing shares in the market rather than simply being a beneficiary of nil-price share option scheme awards.

Share stakes of directors should be big enough to be meaningful and to provide good incentives but not so large that they can dominate the board and other shareholders.

Company Domicile

Where a company is registered is definitely worth checking because it affects the laws under which the company operates. Even in those more developed countries with stronger traditions of protecting investors, e.g. the USA, you may find that there are differences between states. Delaware is generally viewed as more friendly to companies and their management than to their investors.

UK listed companies whose operating base is overseas may not be subject to the Takeover Panel Code (an important protection for minority shareholders), and can often create legal difficulties when wrong-doing needs to be pursued.

It is unfortunately a fact of life that some countries are viewed as protecting investors better than others. For example, when problems with Chinese AIM companies arose in recent years, many investors found it was difficult to enforce their rights in law or take action against errant directors.

In general, for UK listed companies, any domicile outside the UK adds to the risk of investing in a company. Domicile in the Channel Islands or Isle of Man is also not ideal [because company law is different and any shareholder meetings are likely to be held there thus discouraging attendance].

You might ask yourself why did this company register in the Channel Islands? There may be tax reasons why property companies/trusts do so but IBPO is not one such.

Another big question to ask is “do you trust the directors to act in the interests of all shareholders rather than just their own interests?”. Their recent actions clearly answer that question.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Politics and Technology Problems

It’s been a while since I wrote a blog post. Too busy sorting out some technical problems and keeping up with medical issues – I just booked my seventh Covid vaccination which does not scare me. But I would like to comment on some topical issues.

Should Dominic Raab have been fired, or encouraged to resign, which is the same thing in reality? There is one simple question to answer which is “would you like to work for him as a boss?”. My answer would be an undoubted “no”.

Leaders who wish to get things done need to be popular to some extent at least if they wish to have people work hard and follow the policies laid down. You certainly can’t get people to do what you want by bullying them.

Raab was apparently warned several times about his behaviour so the final outcome was hardly unexpected. In any organisation, and Government is no different, you have to have consensus and leadership by example. If Raab could not get Civil Service staff to do what he wanted then he needed to change his approach.

My first technical problem was that BT and Microsoft decided to stop supporting POP email clients, for alleged security reasons after 20 years. That meant potentially losing access to thousands of older emails I have received over the last 15 years. No workarounds provided unless I paid them money. I am very unhappy about being treated in this way and Outlook on the web is not nearly as good as Outlook 2016 as a local client.

My latest technical problem was configuring and learning how to use a new Samsung smartwatch (a Galaxy 4). This is replacing an older Huawei smartwatch which did basic functions very well but was not really compatible with the Apple i-Phone I currently use. I don’t like Apple watches – too expensive and I prefer a more traditional design. The Galaxy watch is also incompatible but you have to read the very small print on their web site to discover that. You even need a Samsung phone to set it up which is ridiculous. The user interface is horribly complex and it’s taken me hours to learn all the functions and configure it. Watches should be installable in a few minutes, not hours, and all common phones should be supported.

That’s the rant over for today.

I was alerted by the new emergency phone alarm just now. I presume that’s in case Russia launches World War 3, and we get 3 minutes warning of a nuclear attack. Reminds me of the 1960s but most people decided then that there was not much to do in 3 minutes except hide under a table.

Meanwhile Sadiq Khan is pushing ahead with the ULEZ expansion despite widespread public opposition. Financially it makes no sense and it will make no difference to air quality in the outer London boroughs. There will be a legal challenge in the High Court in July but I am not very hopeful of a successful outcome. But it’s worth supporting anyway.

The only way you can remove idiots like Sadiq Kahn is at the ballot box.

Roger Lawson

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