Retailer Next (NXT) published their interim results on Thursday (19th Sept). This is a good example of a retailer making a successful transition from shops to internet sales. Earnings per share were up 8.8% with some impact from a change to adopt IFRS16 (lease accounting) and share buy-backs. Overall revenue was up 3.7% with online sales up 12.6% but retail sales down 5.5% and now less than the online figure. One has to ask, if Next can do this why could not M&S who recently got booted out of the FTSE-100? I suggest management is what makes the difference.
This what the CEO had to say in a detailed analysis of performance last year, under “Direction of Travel”: We are often asked: “What will the high street look like in 10 years’ time?” The only honest answer to this question is that we do not know; we can see the general direction of travel but can predict neither the speed nor endpoint for the changes that lie ahead. Our approach is to build as much flexibility into our operations and cost base as is possible to minimise the negative effects of falling Retail sales and maximise opportunities for growth Online. This means a constant process of reinvention and experimentation within our business, whilst preserving the integrity of our brand, the calibre of our people, quality of the operations and the profitability of the Group. The task remains extremely challenging, but with more than half of our sales now coming from our Online and Finance businesses, it feels like we are moving in the right direction”.
CEO Lord Wolfson said that they would cut prices by 2% if the UK leaves with a Brexit deal. This is due to the government’s temporary tariff regime for a No Deal Brexit, which aims to minimise costs to businesses and consumers while protecting vulnerable industries. But he would prefer to see a deal done.
It was interesting watching Lord Pannick performing in the Supreme Court over the challenge to the prorogation of Parliament which is undoubtedly being motivated by opposition to Brexit (I simply don’t believe the motivation is otherwise – Parliament has had plenty of time to debate Brexit issues and will still have more time). As the Government’s lawyer said in court, if MPs don’t like what the Prime Minister is doing they can always call a “no confidence” vote.
Lord Pannick is a very clear speaker and a good advocate of any case. I recall him representing the Northern Rock shareholders over the nationalisation of that company without compensation and actually congratulated him on his performance at the end of the case. He lost that one though. I suspect he may lose this latest, or the result will be inconclusive but we will no doubt hear in a couple of days. It does seem to me though that it is time the UK adopted a written constitution to avoid such legal challenges and not have lawyers debating political issues. More clarity is required on what is permissible and what is not, and what the powers of the executive have versus Parliament. The role of the Prime Minister and other Ministers is being undermined by MPs trying to dictate day-to-day matters such as foreign relations with the EU which undermines their historic responsibilities.
Meanwhile the Financial Times ran with a headline today saying the Labour Party’s plans to expropriate 10% of shares would cost pension funds £31 billion. It might also cost readers of this blog who invest directly in shares or in funds a very large amount. Thankfully the chance of the Labour Party winning any general election seems low as not only is the Party in some disarray over their Brexit policy but they are dropping in the opinion polls. This is of course why Jeremy Corbyn refuses to support the call for a General Election. He is also rated the worse opposition leader in the last 45 years according to one opinion poll. Those who oppose Brexit are now choosing the LiberalDemocrats while those who support Brexit are supporting the Conservatives or the Brexit Party. Only if the Conservative vote is split would Labour have any chance of winning an election. But a General Election can be a very different battle ground to polls driven by single issue politics.
On Friday (20th Sept) AIM listed Statpro (SOG) announced a recommended takeover bid from US company Constellation Technologies. The share price promptly jumped over 50% to near the offer price. I held shares in this company for a number of years. Bought in 2005 originally and sold the last in 2015, suffering an overall loss. So that’s an example of lack of patience. The company always seemed to have potential but profits were patchy – it lost money in the last three years. Both companies operate in the investment analysis and reporting markets so this is a complementary acquisition. I see no reason to turn it down.
Bearing in mind my previous comments on technology stock valuations, it is on a forecast p/e of 8 but that is probably optimistic given that it reported a loss recently at the half-year and has a habit of disappointing. The bid values the company at 2.7 times historic revenue though which is probably reasonable assuming that Constellation can strip out a lot of the overheads. That always needs to be taken into account when looking at technology stocks. Often a trade buyer will pay more than market investors, particularly if they wish to acquire technology or customers.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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