Author: rogerwlawson

Should Unilever Dispose of Ben & Jerrys?

Unilever has announced that as part of its “Growth Action Plan” it plans to “separate” its ice cream business. To quote from the announcement: “The Board believes that Unilever should be increasingly focused on a portfolio of unmissably superior brands with strong positions in highly attractive categories that have complementary operating models. This is where the company can most effectively apply its innovation, marketing and go-to-market capabilities. Ice Cream has a very different operating model, and as a result the Board has decided that the separation of Ice Cream best serves the future growth of both Ice Cream and Unilever. Following separation, Unilever will become a simpler, more focused company, operating four Business Groups across Beauty & Wellbeing, Personal Care, Home Care and Nutrition. These Business Groups have complementary routes to market, and/or R&D, manufacturing and distribution systems, across both developed markets and Unilever’s extensive emerging markets footprint”.

Having recently acquired some shares in Unilever I do have a view on this. To my mind this makes sense as selling ice cream is hardly a good business to be in. There are no barriers to entry and although strong branding can help ultimately it’s a “me too” kind of business.

The history of Ben & Jerrys is interesting. You can read the founders book under the title “Ben and Jerry’s Double-dip: Lead with Your Values and Make Money Too”. They told a good tale of their “social values” but in reality they sold a premium, high fat, ice cream when the competitors were selling bland products. That enabled them to build a niche and a reputation. When Unilever acquired the business in 2000 there were protections put in place that could enable the social mission to continue – for example to block sales to Palestinian territory – which has resulted in hampering Unilever ever since. This was in essence a pretty daft deal as mixing commerce with politics never makes sense but Unilever were so keen to acquire the brand that they went along with this nonsense.

Selling ice cream, premium sector or not, is bound to be a low margin and a very seasonal business so disposal of this problem child by Unilever makes good sense.

Megan Boxall has published an article on Unilever’s ice cream business here: https://www.stockopedia.com/academy/newsletters/a-lesson-from-the-fallout-of-misaligned-acquisitions/ . She argues that sales in the ice cream business have been driven mainly by price rises not volume growth. It is surely true that this is a mature sector and the move to more “healthy” foods is probably limiting growth. Megan is critical of the past acquisitions and the poor allocation of capital.

If Unilever spins off Ben & Jerry’s to become an independent listed business and gives Unilever shareholders shares in the new entity I will be selling those shares.

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

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Fundsmith Shareholder Meeting

I just watched a recording of the Fundsmith Equity Fund Shareholder Meeting – see https://www.fundsmith.co.uk/tv/ . As usual it was a mixture of jokes and serious analysis of Terry Smith’s investment process.

Yet again his prejudices (and to a large extent mine) were made plain – no banks, no insurance companies, no miners, no oil/gas companies, no property companies, etc. But the portfolio companies achieved a Return on Capital Employed of 32%. That’s better than in previous years and almost twice the return of companies in the FTSE-100.

I have no doubt that the Fundsmith Equity Fund will continue to have a decent performance so I am happy to continue holding.

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

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UK ISA Consulation and Investing in ISAs

The Chancellor of the Exchequer said in his budget speech that he was proposing to implement a “UK ISA” into which and additional £5,000 could be subscribed. Only UK companies would qualify for such investments. This is subject to consultation and you can read my response to the consultation here: https://www.roliscon.com/_files/ugd/8ec181_36b8502e9836413492f124ebc3ee9b4c.pdf

If you wish to submit your own response go here for the details and how to respond: https://assets.publishing.service.gov.uk/media/65e734d62f2b3bd5107cd8c5/UK_ISA_Consultation.pdf

My summary comments were as follows: “As relatively few investors probably contribute the maximum amount to ISAs each year I can see little attraction in being able to contribute an additional £5,000 to a UK ISA. Even those who do contribute the maximum amount each year will simply see it as a small increase in their ISA contributions and a complication to their portfolios. In general, I see little benefit in the establishment of a UK ISA and I doubt it will significantly increase funding for UK companies. This will just be an unnecessary complication of the ISA regime.

The AIC have just published an interesting note on the top performing investment trust ISAs over the last 25 years which you can read here:  https://www.theaic.co.uk/aic/news/press-releases/top-performing-investment-trust-isas-over-the-last-25-years . Many have done remarkably well with the best generating more than £250,000 from the maximum permissible investment of £7,000 in 1999. But the best tend to be sector specialists so choosing what to invest in is still important.

There was an interesting discussion between David Stredder and Chris Boxall at the Mello event on Monday. They both bemoaned the lack of good small/mid cap listed shares in which to invest and this has certainly affected trusts and funds of late. AIM listings are declining with few new IPOs. The dross is leaving and new listings are fewer partly because funding from private equity investors is now more readily available. To revive the UK stock market we need more vigorous action than inventing “UK ISAs”. The costs of listing and corporate governance thereafter are too high for smaller companies.

But it is not all doom and gloom. One successful recent listing was Fonix Mobile (FNX) who announced good results yesterday and today we had results from 4Imprint (FOUR) who are doing well in conquering the US market for promotional items. I hold both those companies so the message is that it is still possible to find good UK listed companies.

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

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Chancellor Pandering to the Muslim Vote?

My report yesterday on the Chancellor’s Budget omitted to mention what he said at the start of his Commons speech, although lots of other people picked it up. I just did not see at the time that it was relevant. But here is what he said:

“So I start today by remembering the Muslims who died in two world wars in the service of freedom and democracy. We need a memorial to honour them, so following representations from the Rt Hon Member for Bromsgrove and others, I have decided to allocate £1m towards the cost of building one. Whatever your faith or colour or class, this country will never forget the sacrifices made for our future”.

Is this an attempt to pander to the Muslim vote after the success of George Galloway in Rochdale? If so it is particularly misjudged when the Chancellor should have been focussed on economic matters.

Monuments are often paid for by public subscriptions, and not by the Government. Is Jeremy Hunt going to set up a fund and call for donations to this cause? I think he should do so and not expect the public to support a religiously slanted memorial.

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

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Chancellor’s Budget – No Surprises

I watched the Chancellor’s Budget speech, much disrupted by heckling from Labour Party Members of Parliament – generally a quite disgraceful performance uncontrolled by the Deputy Speaker.

Just a few key points worth mentioning:

Alcohol duty frozen and fuel duty frozen, which will reduce inflation by 0.2%.

There will be a new British Savings Bond for savers, and a new “UK” ISA into which an additional £5,000 can be saved in UK listed equities. Otherwise ISA allowances are unchanged. A consultation on the “UK ISA” is here: https://www.gov.uk/government/consultations/uk-isa-consultation

The Chancellor emphasised the need for “a more productive state, not a bigger one”. A public sector productivity plan will be developed to modernise IT systems. This could halve form filling by doctors in the NHS and improvements in the NHS App could reduce missed appointments. Comment: I don’t know about other parts of the NHS but those I deal with are awash with new IT systems. I get daily reminders about appointments, reports on test results and doctors’ letters sent by text messages. But I would just wish they would use email instead!

But the Chancellor said this will be a model for all public services and all hospitals will use electronic patient records. There will be £6 billion in additional funding for the NHS.

Tobacco duty will be increased to encourage a move to vaping instead, but a tax on vapes will also be introduced.

There will be a reduction in capital gains tax on residential property from 28% to 24%.

The current Non-Dom tax regime will be abolished and replaced by a simpler system with a 4 year limit on eligibility. Result: a £2.7 billion benefit to the Chancellor.

National Insurance will be reduced by 2% as widely leaked in advance.

High Income Child Benefit Charge will be administered on a household rather than an individual basis by April 2026, subject to consultation. This will remove an anomaly where single earners can pay more tax than two earners.

Multiple Dwellings Relief will be abolished from June after showing no evidence of promoting investment in the private rented sector – raising £385 million a year – and the Furnished Holiday Lettings tax regime will be abolished from April 2025, raising £245 million a year while making it easier for local people to find a home in their community.

Comment: simplification of the tax regime is always to be welcomed.

The main response from Keir Starmer was that as tax thresholds are still frozen, total taxes will continue to rise which is a good point. But Labour supports the NI cuts and fuel duty freeze.

More details here: https://www.gov.uk/government/news/chancellor-delivers-lower-taxes-more-investment-and-better-public-services-in-budget-for-long-term-growth

Summary comment: this is a “steady as she goes” budget which is always welcome as continual changes in taxes are always counter-productive. But it is not a budget that is going to change the Tories popularity overnight.

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

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The Importance of Buying Trusts at a Discount

The AIC have published an article explaining the importance of buying investment trusts when they are trading at a high discount. They say:

“Investing when the average investment trust discount is more than 10% may lead to significantly better returns over the subsequent five years, according to new research from the Association of Investment Companies (AIC).

The AIC’s analysis of investment trust returns since 2008 shows that when the average discount exceeded 10%, the average investment trust generated a return of 89.3% over the following five years. However, when the average discount was less than 5%, the average return was 56.1% over the next five years”.

In simple terms this is indicating that buying trusts when they are cheap in relation to their underlying assets, i.e. at a discount to Net Asset Value, is a good idea. Discounts tend to follow the mood of the market so being a contrarian is obviously helpful.

For the full AIC article see https://www.theaic.co.uk/aic/news/press-releases/double-digit-investment-trust-discounts-can-mean-higher-returns-over

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

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FCA Announces Major Reforms

I have criticised the Financial Conduct Authority (FCA) in the past for its slow response to complaints about companies and its general secretiveness. They won’t traditionally disclose if they are investigating a company or what activity has taken place on a complaint. Complaints often take years to reach any conclusion and meanwhile complainants often lose interest or even die.

But it seems this may be about to change with the announcement of a new policy document – see CP24/2: https://www.fca.org.uk/publication/consultation/cp24-2.pdf

It includes these statements under the title: “Our Enforcement Guide and publicising enforcement investigations–a new approach”:

  • The deterrent effect of enforcement action is greater the closer it is to misconduct occurring. The longer it takes for outcomes to be determined, the longer it takes for us to send important signals to the markets we oversee about what we consider serious misconduct to be. That is why we want to speed up investigations. We will do so with a streamlined caseload of investigations better aligned to our strategic priorities of putting consumers’ needs first, delivering assertive action on market abuse and reducing and preventing financial crime.
  • More broadly, and subject to consultation, we are simplifying our Enforcement Guide (EG). We intend for this to be a more useful and focussed document going forwards, and are moving key information to our website where it’s more easily accessible. We know these proposed changes to what we will tell the public about our work are different to the approach we have taken previously, and we are keen to hear feedback on our proposals.
  • We currently publish very little information about the investigations we have opened that lead to those actions. Public concern about whether we are taking appropriate steps can develop in this gap, which can also undermine the educational value and deterrent impact of those outcomes.
  • The focus of this CP is a proposal to be more transparent around what enforcement activity we are doing. Proposed revisions to the rest of EG aim to improve the accessibility of information about how we carry out our investigations. We want the information we provide to be concise, relevant and, ultimately, more useful.
  • In future, we want to proactively publish more information about our enforcement investigations including their opening and progress. This includes publishing the identity of the subject of the investigation, if we assess that it is in the public interest to do so and if there are no compelling legal or other reasons not to. It will also include publishing updates on our investigations and announcing that we have closed cases where our investigations have not led to regulatory or other action.

The FCA says “We have been transforming to become a more innovative, adaptive, assertive and proactive regulator”. This is all to the good although changing the culture of an organisation is always difficult so it may be some time before we see any substantive change in how disclosures are handled and whether investigations are pursued more rapidly.

These are the answers to the questions posed in the consultation which I submitted:

Question 1: Do you agree with our proposal to announce our investigations, including the names of the subjects, and publish updates on those investigations, when in the public interest? Please give reasons for your answer. Answer: Yes I agree. It is important to announce investigations in the public interest and keep people informed on the progress of investigations.  

Question 2: Do you agree with the structure and content of our proposed new public interest framework, including the factors proposed, and the other features of our proposed new policy described in paragraphs 3.5 to 3.12 above? Please give reasons for your answer if you do not agree. Answer: Yes I agree.

Question 3: Do you agree with our approach to announcements and updates where the subject is an individual? Please give reasons for your answer if you do not agree. Answer: I suggest the approach is muddled and is totally unclear. It will lead to disputes as to what is permitted and what is not as regards disclosure of individuals involved in a case. I would like to see a more open approach.

Question 4: Do you agree with the proposed content of our announcements? Please give reasons for your answer if you do not agree. Answer: Yes I agree.

Question 5: Do you agree with our proposed methods of publicising an announcement and updates? Please give reasons for your answer if you do not agree. Answer: Yes I agree.

Question 6: Do you agree with our proposed approach to publicising investigation updates, outcomes and closures? Please give reasons for your answer if you do not agree. Answer: Yes I agree.

Question 7: Do you agree with our proposal that moving our strategic policy information to the website will make information more accessible? Please give reasons if you do not agree. Answer: Yes I agree.

I have no comments in response to Questions 8 to 16.

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You can submit your own response to the public consultation here: https://www.fca.org.uk/cp24-2-response-form

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

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ShareSoc Newsletters and SIPP Dangers

Another good newsletter issued by ShareSoc this month. Go here to sign up for it (you need to be a full member to get it): https://www.sharesoc.org/upgrade-to-save/

It covers yet another case where investors who hold funds in a SIPP may be prejudiced by an administrator charging fees to the SIPP funds. The latest case is that of Rowanmoor but the latest news on Hartley Pensions is also covered in the newsletter.

The moral is that you should only invest in a SIPP with a financially stable organisation and I suggest preferably one that is listed so you can easily monitor their financial stability – such as AJ Bell Youinvest or Hargreaves Lansdown.

The newsletter also covers the latest news for Woodford investors and the disappointing progress from the Digitisation Taskforce to improve the position of nominee shareholders – or at least make them no worse which is at high risk of happening if everyone is stuffed into a corporate nominee in the name of dematerialisation.

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

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NVIDIA and ARM – Did I Miss Out?

Last week saw a boom in the shares of chip producers Nvidia and ARM. These have both powered ahead in the hope that they will benefit from the need to support AI systems and their profits have been moving upwards. Nvidia’s share price is up 35% in 2024 so far. ARM’s share price has doubled since it’s IPO last September and there is much anguish over the fact that this UK company chose to list in the USA.

As an investor in technology companies I have missed out on this bonanza as I don’t have direct holdings in either stock. But an interesting article from the AIC entitled “Which investment trusts hold Nvidia” explains how I and others could have benefited from holding technology focused funds – see https://www.theaic.co.uk/aic/news/press-releases/which-investment-trusts-hold-nvidia    

For example, Polar Capital Technology (PCT) and Allianz Technology (ATT) both hold more than 7% of their funds in Nvidia and PCT is one of my biggest holdings. I also hold shares in Scottish Mortgage (SMT) and JPMorgan Global Growth & Income (JGGI) who also have substantial holdings in Nvidia so I have not missed out altogether.

Why hold funds that hold popular shares rather than the shares directly? Because keeping track of US shares is not easy and the fund managers are probably more in contact with US technology developments than I am. Also these trusts are trading at a discount to their holdings so you are getting the component shares on the cheap.

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

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Books by Ian and Peter Fleming, and Comments on Sadiq Khan

As I mentioned in my Christmas blog post, I bought a boxed set of all the James Bond books and also a biography of author Ian Fleming by Nicholas Shakespeare. I have now finished reading all of them, which is no mean feat as the latter book alone is over 800 pages long.

I can recommend all the books. The biography is interesting in many ways for anyone who lived through the 1950s and 60s. Ian Fleming was active in naval intelligence during the second world war (as Commander Fleming R.N.V.R.) and had a big hand in the development of both the UK’s and USA’s intelligence services after the war.

Ian was a charismatic character who attracted many admirers. But he smoked 70 cigarettes per day and drank heavily also. This no doubt contributed to his early death from heart disease. His family life was a mess and anyone who thinks their family is less than perfect should read his biography. James Bond was his alter ego in many ways. Hard drinking, fast driving and with numerous love affairs.

Peter Fleming was his brother and wrote several popular travel books which are more dated when the Bond books have kept their topicality – particularly of late as we are back in a war with Russia. I am reading One’s Company at present which is a report on a train journey to China in 1933 through Russia and Manchuria. It’s a light read.

I find it necessary to comment on the latest political disruption. Lee Anderson M.P. has had the Conservative whip withdrawn after he criticised Sadiq Khan for supporting Islamists. In reality Khan as head of the Metropolitan Police has allowed Palestinian slogans to be projected onto Parliament and the closure of Tower Bridge by demonstrators. Neither should have been permitted. Sadiq Khan should resign, not Lee Anderson.  

We should not allow religious factions to take over London, whatever their complexion. There should be no place for religion in politics. Sadiq Khan has been expert at turning populist issues with Muslim support into political capital. I hope people will vote him out of office in May. Hamas is a vile terrorist organisation and the actions of Israel have been justified.

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

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