The Advantages of Investment Trusts

The AIC has issued a video which spells out some of the advantages of investment trusts over open-ended funds. They spell out that with most investment products you don’t have a say, but with investment trusts you do because you can vote on important decisions about how your company is run and what it invests in. You can also attend the Annual General Meeting (AGM) to meet, and question, the board directors and the investment manager. Investment companies also have independent boards of directors.

You may think that all of this is theoretical and in practice shareholders have little influence. But that is not the case. When push comes to shove, shareholders can change the fund manager and even the board of directors. I have been involved in several campaigns where this actually happened – not just in smaller companies such as in VCTs but at Alliance Trust. The outcome is usually positive even if a revolution does not actually take place.

But attending AGMs is now only available as an on-line seminar using various technologies. I have attended several in the last few weeks of that nature, and they are less than perfect in some regards. Technology is not always reliable and follow up questions often impossible. But they do save a lot of time in attending a physical meeting and they are certainly better than nothing. I look forward to when AGM events can return in a “hybrid” form where you can attend in person or via a webinar.

The AIC video is available from here: https://www.theaic.co.uk/aic/news/videos/your-investment-company-having-your-say

Brexit

I see my local M.P. Sir Bob Neill, is one of the troublemakers over the Internal Market Bill. He gave a longish speech opposing it as it stands in the Commons. But I was not convinced by his arguments. Lord Lilley gave a good exposition of why the Bill was necessary on BBC Newsnight – albeit despite constant interruptions and opposing arguments being put by the interviewer (Emily Maitlis). A typical example of BBC bias of late. Bob Neill is sound in some ways but he has consistently opposed departure from the EU and Brexit legislation. To my mind it’s not a question of “breaking international law” as the unwise Brandon Lewis said in Parliament but ensuring the principles agreed by both sides in the Withdrawal Agreement are adhered to. Of late the EU seems to be threatening not to do so simply so they can get a trade agreement and fisheries agreement that matches their objectives.

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

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EMIS Interims, AstraZeneca and Brexit

Healthcare technology company EMIS Group (EMIS) issued some interim results this morning. This is one of my longest standing holdings first purchased in 2011 although it has not been one of my greatest investments – overall total return over the years of only 9% per annum. But I did buy some more in March as I considered it would be a defensive share during the epidemic and might actually benefit from the medical crisis. That has turned out to be generally true.

Revenue was down by 2% however and adjusted profits likewise and it appears that business-to-business activity has been constrained but the share price has risen by 5% today (at the time of writing). Some effort has clearly been put into meeting new requirements from the epidemic but a new EMIS-X module was announced (EMIS-X is a new modular platform they are developing). However, it does seem that EMIS-X is slow in arriving in comparison with my expectations.

The health system is becoming more digitised so EMIS is in a good place and unlike other companies who are chopping their dividends, EMIS announced a 3% increase in the interim dividend.

For those who are not big consumers of health services like me it is truly revolutionary how the world has changed of late. Email discussions with GPs and video conversations are now enabled and the whole health system is more responsive. But it is getting more difficult to actually see a doctor in person which is sometimes still required.

Edison have published a video interview with the CEO of EMIS which you can watch here: https://www.edisongroup.com/edison-tv/emis-group-executive-interview/

As regards the epidemic AstraZeneca have indicated they have put their clinical trial of a vaccine on hold due to a possible adverse reaction in one patient. It may purely be a random effect. But with lots of competitors for a vaccine and a low probability of any one making money, this is not necessarily significant news.

Brexit

I was very amused to see Government Minister Brandon Lewis admitting in Parliament that it will break international law over the Brexit withdrawal treaty, in an attempt to “rewrite” it or “clarify” it depending on who you care to listen to. I would not rate Mr Lewis very highly in terms of his knowledge of the law having met him when he was a Government Minister in a different role. We discussed the use of police waivers of prosecutions for speeding offences which I consider an abuse and a perversion of justice. He simply suggested it was a form of “plea bargain”. Not that they are part of the UK judicial system of course so it was a very odd response.

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

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Boris Johnson Not Backing Down and the Technology Stocks Bubble

Today I received an email from the Conservative Party signed by Boris Johnson and entitled “I will not back down”. The first few sentences said:

“We are now entering the final phase of our negotiations with the EU. The EU have been very clear about the timetable. I am too. There needs to be an agreement with our European friends by the time of the European Council on 15 October. If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on. We’ll then have a trading arrangement with the EU like Australia’s. I want to be absolutely clear that, as we have said right from the start, that would be a good outcome for the UK”.

But he says the Government is still working on an agreement to conclude a trade agreement in September. However the Financial Times reported that there are problems appearing because the “UK government’s internal market bill — set to be published on Wednesday — will eliminate the legal force of parts of the politically sensitive protocol on Northern Ireland that was thrashed out by Mr Johnson and the EU in the closing stages of last year’s Brexit talks”. It is suggested that the EU is worried that the Withdrawal Agreement is being undermined. But reporting by the FT tends to be anti-Brexit so perhaps they cannot be relied upon to give a balanced commentary on the issues at present.  

Of course this could all just be grandstanding and posturing by both the UK Government and the EU to try and conclude a deal in their favour at the last minute. But we will have to wait and see what transpires.

Well at least it looks like Brexit news will dominate the media soon rather than the depressing epidemic stories.

Technology Stocks Bubble

Investors seem to have been spooked last week by the falls in the share prices of large technology stocks such as Apple and Tesla (the FAANGs as the group are called). This resulted in overall market falls as the contagion spread to many parts of the market, particularly as such stocks now represent a major part of the overall indices. I am glad to see my portfolio perked up this morning after substantial falls in my holdings of Polar Capital Technology Trust (PCT) and Scottish Mortgage Investment Trust (SMT) both of whom have big holdings in technology growth stocks although they are not index trackers.

I’ll give you my view on the outlook for the sector. Technology focused companies should be better bets in the long-term than traditional businesses such as oil companies, miners and manufacturing ones. There are strong market trends that support that as Ben Rogoff well explained in his AGM presentation for PCT which I mentioned in a previous blog post.

But in the short term, some of the valuations seem somewhat irrational. For example I consider Tesla to be overvalued because although it has some great technology it is still in essence a car manufacturer and others are catching up fast. Buying Tesla shares is basically a bet on whether it can conquer the world and I don’t like to take those kinds of bets because the answer is unpredictable with any certainty. I would neither buy the shares nor short them for that reason at this time. But Tesla is not the whole technology sector.

Some technology share valuations may be irrational at present, but shares and markets can stay irrational for a very long time as different investors take different views and have different risk acceptance. In summary I would simply wait to see if there is any certain trend before deciding to buy or sell such shares or the shares of investment trusts or funds focused on the sector.

Investment trusts are particularly tricky when markets are volatile as they often have relatively low liquidity and if stocks go out of favour, discounts can abruptly widen. Trading in and out of those kinds of shares can be very expensive and should be avoided in my view.

I don’t think we are in a technology stocks bubble like in the dot.com era and which I survived when anyone could sell any half-baked technology business for oodles of money to unsophisticated investors. But it is worth keeping an eye on the trends and the valuations of such businesses. Very high prospective/adjusted p/e ratios or very high price/sales ratios are still to be avoided. And companies that are not making any profits or not generating any free cash flow are ones of which to be particularly wary (Ocado is an example – a food delivery company aiming to revolutionize the market using technology). Even if the valuations are high, if a company is achieving high revenue growth, as Ocado is, then it might be able to grow into the valuation in due course but sometimes it just takes too long for them to do so. They risk being overtaken by even newer technologies or financially stronger competitors with better marketing.

Investors, particularly institutional ones, often feel they have to invest in the big growth companies because they cannot risk standing back from the action and need to hold those firms in the sector that are the big players. Index hugging also contributes to this dynamic as “herding” psychology prevails. But private investors can of course be more choosy.

This is where backing investment trust or fund managers who have demonstrable long-term record of backing the winners rather than you buying individual stocks can be wise. Keeping track of the factors that might affect the profits of Apple or Tesla for an individual investor can be very difficult. Industry insiders will know a lot more and professional analysts can spend a lot more time on researching them than can private investors. It is probably better for private investors to look at smaller companies if they want to buy individual stocks, i.e. ones that are less researched and are somewhat simpler businesses.

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

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Big Miners, Moneysupermarket and Winning Against the Odds

Looks like we are back to a normal English summer – rain every other day and cool. But there are a few things to talk about.

Yesterday BHP Group (BHP) published their results to the end of June yesterday. Revenue and earnings were slightly below forecasts and the dividend was reduced by 10% as profits were down. But hey, when so many companies are cutting out their dividends altogether this is surely not going to worry many people. They still managed to achieve a return on capital of 17% and underlying eps was up. The shares fell only slightly as a result.

Today Rio Tinto (RIO) reported that production of refined copper in 2020 is now forecast to be lower by about 30% due to delays in restarting a smelter after planned maintenance. The share price is actually up today slightly at the time of writing, perhaps because copper is a relatively small part of their portfolio.

Both companies are very reliant on consumption of commodities such as iron ore in China, and China is still forecast to have economic growth this year despite the Covid-19 epidemic, unlike many other countries. Both companies are working hard to improve their ESG credentials after some recent mis-steps. Ignoring that, these companies still look good value to me (I hold both).

I used to be a holder of Moneysupermarket (MONY) shares but sold most of them in March when I was cutting my exposure to the stock market and weeding out the underperformers in the epidemic rout. Recently my house insurance came up for renewal and the broker I had used for many years gave a renewal quotation that was up 12% on last year. So I thought I would look for a cheaper quote on Moneysupermarket. They produced three quotations only one of which was cheaper and they insisted we replaced our newly installed alarm system for reasons I could not understand. So I then looked at other alternatives and got a quote from LV (Liverpool Victoria as was) that was less than 50% of all the other quotations. The moral is that it can be cheaper to go to direct providers. Is this why Moneysupermarket has not been growing earnings of late? Perhaps they are not producing competitive quotations?

Another good book for summer holiday reading is “Winning Against the Odds”, the recently published autobiography of Stuart Wheeler. He died in July and had a very interesting career.  He was a big gambler and founded IG Index which developed into a major spread-betting company from which he made many millions of pounds eventually.

One section of the book talks about his visits to Las Vegas where he made money by using a card counting technique on Blackjack. But he clearly liked to bet on almost anything.

I visited Las Vegas several times for computer software conferences. But I avoided the gaming tables and slot machines.  I did have some interest when a teenager in betting but not after the age of 18. To win at card games, betting on horses or sports results requires a great deal of hard work to be successful. I think there are easier ways to make money such as betting on stock market shares.

One of Stuart Wheeler’s friends was the late Jim Slater, financier and author of books on stock market investment. One of his sons is Mark Slater who runs a fund called the Slater Growth Fund, and others. I don’t hold them because I prefer investment trusts to open-ended funds but he is certainly a good “active” manager. They sent me the latest update on the Growth Fund today and it’s good to see that their fund asset chart over the last few months appears to match my portfolio. At least I am keeping up with the professionals.

The latter part of Wheeler’s book covers his involvement with politics although he seemed to have no great adherence to any political stance, apart from his belief in capitalism and his desire to depart from the EU. He did donate £5 million to the Conservative Party which was the biggest donation at the time to them. But they later expelled him from the party after he started to support UKIP.

Politically the last few years have been some of the most exciting in my lifetime. Politics used to be a very boring subject but now it has captured the imagination of the public with everyone forming opinions on the parties, their leaders and their policies. Rational analysis often gets lost in the fierce debates. Brexit alone was and is a very divisive subject. 

The leaders have been a very mixed bunch indeed and Wheeler sticks the knife into both Jeremy Corbyn and Theresa May. But he was careful not to say a lot about Boris Johnson. I think he might have preferred Michael Gove as Conservative Party leader but I do not see him as being very electable.

In summary, it’s an interesting book and an easy read.

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

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On the Wealth of Nations

The stock market’s in the doldrums and August is coming up when everyone goes on holiday. But I would guess many of my readers will not be going far, or not at all. You may need some lightweight tome to read on your sofa or on the beach though, so here is a book I have just finished and can recommend.  

It’s called “On the Wealth of Nations” by P.J. O’Rourke. First published in 2007 and claiming to be a New York Times Bestseller, it’s a digest and analysis of that venerable book of the same title by Adam Smith which was published in 1776. I tried reading that book many years ago but found it heavy going. It’s long and in a somewhat archaic style but it was the foundation of much subsequent thought in economics. For anyone interested in the worlds of business and finance, it provides a primer on the division of labour, productivity, and free markets.

P.J. O’Rourke is a very unlikely person to take a stab at popularising Adam Smith’s book but he makes a very fine job of it. He is a comic writer and wit whose reporting on the war in Iraq and in motoring stories in such books as “Give War a Chance” and Holidays in Hell” are also worth reading.

O’Rourke relates much of Smith’s adages, aphorisms, epigrams, insights, observations, maxims, axioms, judicious perceptions and prejudiced opinions (which Smith produced in large numbers) to the modern world. Here’s one example: “The freedom of the market, though of uncertain fairness, is better than the shackles of government, where unfairness is perfectly certain”.

Smith lived before the rise of modern capitalism and the importance of the joint stock company. But he wisely had this to say (as O’Rourke quotes) that as the result of an immense capital divided among an immense number of proprietors [shareholders]:  “It was naturally to be expected therefore, that folly, negligence, and profusion should prevail in the whole management of their affairs”. That’s still true of many companies is it not?

O’Rourke relates two very amusing anecdotes about Smith and his absentmindedness. He is supposed to have gone out into the garden in his dressing gown and, lost in thought, wandered into the road. He walked to Dunfermline, fifteen miles away, before steeple bells broke his reverie and he realised he was wearing his robe and slippers in the midst of a crowd going to church.

At another time, deeply involved in conversation over breakfast, he put bread and butter and boiling water into a teapot and then pronounced it was the worst cup of tea he had ever had.

Some of the issues that Smith discussed in his book such as whether to support free trade or not, what are good taxes or bad taxes, and what level they should be at, are still the subject of topical debate.

In summary O’Rourke’s book is easy reading but still prompts much thought on the world of business, economics and politics.

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

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Chancellor’s Statement – Eat Out to Help Out

I just watched the statement by Chancellor Rishi Sunak. He made some good rhetorical points which I pick out here:

He said the Government is “doing what is right” and is focused on job protection and creation. We are in the “second phase of our economic response to the virus”. The economy has contracted by 25% and we face significant job losses. But with the furlough scheme winding down to October, the measures are:

  1. A job retention bonus of £1,000 for each person who comes back from furlough (if all 9 million return, a cost of £9 billion).
  2. A new “Kickstart” scheme will pay employers for 16-24 year old staff for 6 months.
  3. Funding for new apprenticeship and trainee schemes
  4. £1 billion for the DWP to provide more support.

The Government is also investing in infrastructure to create jobs including £2 billion in green investment – for example in grants to improve the energy efficiency of homes. To improve confidence in the housing market, stamp duty is being cut temporarily as from today.

As our economy relies on “social consumption” (cafes, restaurants, etc.), there will be a cut in VAT from 20% to 5% on that sector for the next 6 months – at a cost of £4 billion. In addition, for August you will be able to eat out at a discount of 50% on Mondays to Wednesdays, funded by the Government. The Chancellor concluded with the phrase “Eat out to help out”.

There was a weak response from Shadow Chancellor, Anneliese Dodds who focused on the medical responses to the epidemic rather than the Chancellor’s statement.

Comment: It looks like the Chancellor wants us to put on even more weight by eating out. Encouraging folks to eat out may improve their “feel good” factor but this is a very temporary gesture. As regards the job protection and creation measures, these may help some people but will they really boost the economy?  

The hospitality sector, and companies in it, will clearly benefit from these measures, and it might encourage people to eat out. But I fear that many people like me will be reluctant to take the risk until it is clear that the epidemic has really disappeared.

The encouragement for people to return to work and the clear intention not to extend the furlough scheme is surely a sound policy as otherwise it would be too expensive while people would get out of the habit of working.

In summary I would suggest these policies may assist, but what really matters to improve the economy and employment is more confidence that the epidemic is fading away, and that will take time.

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

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Boris’s “New Deal” and Events in Hong Kong

It’s summer and normally this is a quiet period for both financial news and stock markets, but not this year. Economic news is consistently terrible with job losses mounting rapidly, Government debt is rising to record levels (over 100% of GDP) and Brexit negotiations are still not concluded. The Covid-19 epidemic is still rampant in some locations even if overall UK deaths are falling but there is still no clear evidence of a workable vaccine to stop the disease and the available treatments are still not a certain cure.

Boris Johnson has revealed a “New Deal” in imitation of President Roosevelt. He hopes to use this to enable the UK to build its way out of the recession. This is what he said yesterday in an announcement by the Conservative Party which was headlined “Boris Johnson unveils a New Deal for Britain”:

“Because we have already seen the vertiginous drop in GDP and we know that people are worried about their jobs and their businesses. And we are waiting as if between the flash of lightning and the thunderclap, with our hearts in our mouths, for the full economic reverberations to appear.

And we must use this moment – now – this interval to plan our response and to fix of course the problems that were most brutally illuminated in that COVID lightning flash. The problems in our social care system. The parts of government that seemed to respond so sluggishly, sometimes it seemed like that recurring bad dream when you are telling your feet to run, and your feet won’t move. And yet we must also go further and realise that if we are to recover fully, if we are to deal with the coming economic aftershock, then this COVID crisis is also the moment to address the problems in our country that we have failed to tackle for decades”.

This is all stirring stuff is it not? He goes on to say:

“I can tell businesses that next week the Chancellor will be setting out our immediate plan to support the economy through the first phase of our recovery. But this moment also gives us a much greater chance to be radical and to do things differently. To build back better. To build back bolder.

And so we will be doubling down on our strategy. We will double down on levelling up. and when I say level up, I don’t mean attacking our great companies or impeding the success of London – far from it – or launching some punitive raid on the wealth creators.

I don’t believe in tearing people down any more than I believe in tearing down statues that are part of our heritage, let alone a statue of our greatest wartime leader. I believe in building people up, giving everyone growing up in this country the opportunity they need, whoever you are, whatever your ethnicity, whatever your background”.

You must admit he writes interesting prose. You can find the whole document on the web. It includes a good snipe at HS2 which he says is going to cost the equivalent of the GDP of Sri Lanka! One of my least favourite projects.

Usage of railways has fallen dramatically as people have been avoiding public transport. But unbelievably some London Councils such as Lewisham have been closing roads and forcing people to get on buses or trains, or even better, cycle while TfL are narrowing Park Lane and Euston Road by removing lanes – a couple of the key roads in London. All this is justified by the emergency of the virus epidemic and “social distancing” which the Government has encouraged with rushed through regulations. It’s not helping at all, just making matters worse.

All this rhetoric may not quieten the social unrest in the country though because the lower paid are the ones that are most likely to be losing their jobs. This country is suffering from a bout of mania about imagined wrongs – to black people, to those of different sexual inclinations, to those of every other kind of minority. This is going to be damaging to the economy unless some control is re-established by the forces of law and order soon.

Hong Kong is an example where the demand for more democracy and even independence finally caused China to clamp down. The riots in Hong Kong were threatening the economy and major companies actually support the new laws that China has imposed. The reaction of Western democracies to these events has been extreme to say the least. The UK is even willing to allow 3 million Hong Kong residents to migrate to the UK. Do we not have enough people already in this crowded country?  When immigration and overcrowding in our major cities brings pressure on housing and jobs which is one of the causes of social unrest, this seems a most bizarre decision. And I bet they will all wish to live in London!

Hong Kong was leased by the British from China and we have always conceded that the lease had to end and that Hong Kong was and is part of China. The Chinese will never concede otherwise. There was an agreed transition period to retain some local autonomy so as to not undermine the economic success of the territory, that was all. But the riots were destroying the basis of that so it’s not surprising that China intervened. The UK should have accepted that and not indulged in damaging steps just to show our displeasure.

I don’t often write about politics but some aspects of the current political situation are very important for economic prosperity in this country. Firm leadership is certainly one thing that is required at the moment. Will Boris’s New Deal revive the economy? On the principle that having people in employment, even if the state effectively has to pay for it rather than having them doing nothing is a good thing, then it is a sensible policy. It might actually work.

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

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Wirecard Cash Missing and Black Reparations

I always have pleasure in reporting major accounting frauds as it backs up the argument in my book Business Perspective Investing that the accounts of companies cannot be trusted and you need to look at other things to judge the quality of a company. But investors in German payments company Wirecard will be very disappointed that €1.9 billion has gone missing. It seems that information on “spurious cash balances” had been provided to their auditors (EY) by a third party (a trustee supposedly holding it).

The Financial Times has been running a series of articles over several months questioning the accounts of this company, but the shares are now down another 50% and it raises questions as to whether the company can survive.

Another story in the FT today was of organisations such as brewer Greene King and the Lloyds insurance market offering donations to charities supporting “diversity and inclusion” and were apologising for their past involvement in the slave trade. That’s for events before 1807 in Britain and 1865 in the USA when slavery was abolished. Greene King left the stock market in 2019. I just hope none of the companies in which I hold shares participates in this nonsense. Trying to rectify historic wrongs from 200 years ago is just unrealistic and totally unjustified when the persons affected are long dead. History is full of past injustices and it’s simply impossible to compensate for all of them.

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

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Babcock Dividend, Ocado Placing, AGM Reform and Why Are People So Angry?

To follow up on my previous blog post about Babcock (BAB) and the possibility of it “skipping” its final dividend, the company issued its Final Results this morning and spelled it out. This is what it said about the dividend: “Given the current level of uncertainty over the impact of COVID-19, the Board has decided to defer the decision on our final dividend for the year ended 31 March 2020. We recognise the importance of the dividend to our shareholders and the Board will keep this under review during the financial year as the impact of COVID-19 becomes clearer”. That is not what Shore Capital suggested at all.

Although the company appears to have met forecasts for last year, and says it has a record order book, the share price has fallen 5% at the time of writing. The market in general is down considerably also though.

Ocado (OCDO) announced an institutional placing yesterday together with an offer via Primary Bid to retail investors. Like the one for Segro I commented on yesterday, this is a fund raising for expansion and is at a relatively small discount and dilution. These arrangements are now becoming common but I still don’t like them. They give private investors very little time to decide whether they wish to take up the offer and they do not know what price is being offered. As a holder of Ocado, this is another one I declined to invest in. Ocado share price is down 5.7% this morning at the time of writing which is exactly the same as the discount in the offer to the previous closing price, i.e. you could pick up shares in the market just as cheaply. I suggest companies should do proper rights issues rather than this dubious method and that the FCA should regulate this area more robustly.

There was a good article in the Financial Times today under the headline “Coronavirus casts doubt on the future of AGMs”. It describes the debate over the reform of AGMs and the use of virtual AGMs. It also covered an initiative by organisation ShareAction who are raising money to fund research into the issue. They quote Catherine Howarth as saying “We hope to co-develop a robust framework for AGMs that would still include shareholder votes and which would also help companies interact with a wider range of their important stakeholders including employees, customers, suppliers and communities”. That may be a worthwhile initiative if it makes AGMs more vibrant and useful than they are now but bearing in mind the funding of ShareAction it may not be a totally unbiased proposal.

What we do not want is AGMs dominated by “stakeholders” with political views as happens already at some companies – such as oil and mining company AGMs with endless complaints from environmental activists or defence industry company AGMs dominated by those who believe the company should not be involved in that industry at all. Companies are not in business to right all the social wrongs in the world, but to provide a financial return to their shareholders. They just need to operate within the laws set by national governments. Company law in the UK already requires the company to take the wider interests of stakeholders such as employees or customers into account and they can be represented at AGMs easily enough now by just buying a few shares – you only need one share to attend an AGM.

The FT article does make some good points about virtual AGMs, one of which I commented upon yesterday (EKF Diagnostics). But it suggests that it might cost £10,000 to hold a “hybrid” meeting at a small company. That is surely a grossly excessive estimate if voting is done on a poll. It’s trivial to set up a Zoom meeting for the number of investors likely to attend such a meeting (only a dozen at EKF).

I don’t often comment on general political or economic issues, but I find the current hysteria about the death of George Floyd and the resulting demonstrations over “Black Lives Matter” in the USA and UK totally out of proportion. George Floyd was a very tall and heavy person who it is alleged resisted arrest. He had a past criminal record and was a drug user. The full facts of the case have not yet been revealed and it is way too early to say whether the police used excessive force or not, even if the result was very sad.

As to whether there is wider discrimination against black or coloured people in the USA or the UK is also doubtful. From my experience of working in the USA, there appeared to be very little direct discrimination. Did not Colin Powell become head of the US Army and Secretary of State? Did not Barack Obama become US President? But as in the UK, black people are disadvantaged often by the social and cultural backgrounds of their families. Righting that can only be done by education not by demonstrations or laws. Demonstrations actually make matters worse, and the recent violent ones and attacks on property such as historic statues actually make people less sympathetic to the cause. Meanwhile the failure by the police to stop these events undermines law and order in general, just as happened with the Extinction Rebellion demonstrations.

Why are people so angry that they feel the need to take part in such demonstrations, including many people who are not black and hence could not have personally suffered from any prejudice? You can see the same problem in the divisive politics of Brexit where rational debate soon flew out of the window and it degenerated into personal slanging matches on social media. In fact social media and national media reporting of news has actually coarsened political life. The BBC in particular has often seemed to be more interested in stimulating outrage to improve their readership or programme viewing and web site clicks than in reporting the facts in a neutral and unbiased way. This is not a useful national broadcasting service. It has become a medium for slanted propaganda and for stimulating social unrest. This is a problem that responsible politicians will need to tackle sooner or later. But in the meantime those such as Sadiq Khan in London seem more interested in stimulating political division over trivia with the objective of gaining a few votes.

As investors, my readers will have to face up to these issues sooner or later because when the social fabric of a country crumbles as the result of poor leadership, sooner or later the economy crumbles also.

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

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Dividend Cut at Elecosoft, Dignity Trading and Public Transport Problems

Many investors are suffering from dividend cuts by companies. The latest one in my portfolio is Elecosoft (ELCO), a company that produces software for the construction sector. In their announcement of the full year results this morning they indicated revenue and earnings were much as forecast to December, and cash flow was good enough to put them in a net cash position.

Normally these results would not have caused any concerns that the dividend would be reduced or cancelled, but not this year. Even though they only previously paid small dividends and half the “cost” as a scrip dividend, this year’s final dividend has been cancelled. This is what the company had to say:

“Proposed Dividend: Elecosoft’s strong trading performance and cash generation in 2019, and, ironically, the strong start to trading in 2020, would normally have warranted the payment of an increased final dividend. However, having regard to the uncertainties created by the Coronavirus situation and the need to conserve our cash resources, the Board has decided to not recommend a final dividend”.

I don’t normally like to challenge the wisdom of management, who may know more than me about the trading position of the company and future revenue, but this does look at first glance to be excessively cautious. That is particularly so bearing in mind they could have paid it as a scrip dividend if they wished to conserve cash. ShareSoc has published some comments and written to the FRC, FCA and BEIS on the problem of dividend cuts suggesting they should issue some guidance. That seems to be a sensible suggestion because at present we don’t know whether this is just management panicking or being simply prudent.

One company that should surely be benefiting from the coronavirus epidemic is funeral provider Dignity (DTY) – I do not hold the shares. More deaths surely mean more business for them. But in their trading update today they show that it is not that simple. The company says the following:

“The absolute number of deaths increased by approximately one per cent to 161,000 from 159,000 in the comparative period last year. Sadly, since the end of the quarter, the UK has witnessed in excess of 20,000 deaths in a single week, the highest since the beginning of 2000. The number of possible incremental deaths as a result of COVID-19 is a matter of substantial speculation. Should 2020 witness a large number of incremental deaths, beyond the 600,000 originally anticipated by the Office for National Statistics, then it is possible that 2021 and 2022 could experience a lower number of deaths than in 2019. The Group will not speculate on the most likely outcome”.

In addition there is the problem that as many people cannot attend funerals, some funerals are being postponed or executors are opting for lower cost funeral packages. Dignity was already suffering from aggressive price competition which had prompted a strategic review before the latest crisis arose.

The company had previously decided to suspend dividend payments. Like Elecosoft they apparently are simply unable to forecast the likely impact of the epidemic on their business. So no guidance for 2020 is being provided.

On Saturday the 9th May Grant Shapps, Transport Secretary, said that only 10% of former public transport capacity will be available in some locations if social distancing is to be maintained. It seems likely that will be so for many months even if people are permitted to go back to work. This will clearly cause major problems in London where almost all commuters use public transport such as trains, the underground and buses.

After the Prime Minister spoke on the 10th May, Mr Shapps issued this tweet: “Speaking this evening the PM was clear – if you’re going back to work in a job that cannot be done from home, please avoid public transport if possible. Go by car, or even better, cycle or walk. To help, we’ve announced more than £2bn in the biggest ever boost to cycling and walking”.

An example of how problematic London transport has become is a report in the Times that says Transport for London (TfL) has asked the Government for £2 billion. To quote: “TfL is down to its last £1bn, which is being burnt at a rate of £21m a day — leaving it less than two months from emptying its coffers and illustrating the intense pressure on local authority finances”. The article suggests the Government will attach some strings to any funding.

Mr Shapps was clearly right to point out the public transport capacity problem, but his apparent remedy to get everyone walking and cycling makes little sense. It is a typical view of politicians who can afford to live in central London. But for the vast majority of London commuters who travel many miles to get to work, it’s simply impractical even if they are keen cyclists.

Mr Shapps also justified his proposals by saying the epidemic is a great health opportunity to encourage active travel with the objective to double cycling by 2025. He also proposes to implement at least one “zero emission” city, and argues that one of the few positives will be improved air quality. He actually said there are “more than 20,000 extra deaths a year attributed to NO2 emissions”.

This figure is nonsense. It repeats the past allegation of 40,000 deaths from air pollution in the UK which has been shown to be simply wrong and a corruption of statistical evidence. In reality, there may be a few months shortening of life expectancy from all air pollution sources, a lot of which cannot be removed such as natural sources. But the figure is essentially uncertain and it is clear there are no deaths directly attributable to pollution. To specifically indicate NO2, which mainly comes from transport, as being the problem is also wrong when the Government advisory body COMEAP could not even agree that NO2 contributed to the negative impact on health of air pollution from particulates.

Mr Shapps clearly knows little about air pollution and its impact on health but is using his ignorance to put a positive spin on his actions in response to the transport crisis.

Just to show how there is no direct correlation between traffic levels and air pollution, this is what the London Air Quality Network (LAQN) recently reported: “Levels of the pollutant nitrogen dioxide (NO2) has reduced significantly during lockdown, research from King’s College London has found. Concentrations of NO2 have lowered as much as 55% due to less road traffic. However, levels of PM10 and PM2.5 were higher after lockdown than at any other time in 2020, due to easterly winds and pollutants from northern Europe”. The reduction in NO2 is perhaps not surprising when measurements by the LAQN are often taken at the roadside so will be heavily influenced by adjacent traffic. But as particulates (PM10 and PM2.5) are of much greater health concern you can see that Mr Shapps’ spin on the air pollution issue is somewhat misleading. Other UK cities have also shown no direct correlation between traffic reduction from the epidemic and air pollution – at least to date.

The air pollution problem is much more complex than can be solved by encouraging walking and cycling alone.

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

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