From this side of the Atlantic, it is hard to conceive the hold that Apple has on the American investment community, because there is no equivalent here. At least one Wall Street analyst has given up the day job to set up a consultancy whose sole purpose is to analyse its financial affairs; serious studies have suggested that if Apple launches any new product, such as the rumoured electric car, something like 20 million Americans would consider buying it. Whatever it was.
In Britain, Apple shares are among the top five overseas stocks traded by Hargreaves Lansdown, and the second most widely traded American one.
Let’s look at the bear case first. The high dollar will limit reported earnings. To survive, Apple needs to continue to produce technical innovations that consumers will pay over the odds for. It has had fallow periods in the past; some wonder if the watch launched yesterday is a genuine game-changer, rather than a fashion-led derivation of existing technology with built-in obsolescence. The iPhone, now generating 70 per cent of income, is another device with a limited shelf life, in that it is easy for rivals to keep pace by producing something similar.
The bulls’ case centres on the extraordinary cashflow that Apple generates, something like $178 billion in the bank and $8 billion spent on capital returns in the last quarter of 2014. Some analysts are looking for another $150 billion to $200 billion to be announced over the next three years in the spring. One estimate suggests up to a fifth of the shared capital could be bought back in the next three years. Those legacy products, meanwhile, provide an almost annuity-like income stretching forward as they go into new markets; a feature of that last quarter’s reporting was strong sales from China, Singapore and Brazil.
From a British investor’s perspective, what is startling is the relatively low multiple the shares trade on. At last night’s closing price of $127.14, the multiple on consensus earnings for 2014-15 is about 15. There are any number of UK tech companies, many of them supplying Apple, much more expensive than this. It is an odd paradox and probably explained by that residual mistrust, but it means that the shares look a good long-term buy.
Last quarter’s revenue $74.6bn
$178bn Net cash balances across group
MY ADVICE Buy long term
WHY Shares sell on a surprisingly low multiple for such a business, reflecting concerns in market over earlier underperformance
Abcam shares have been under a cloud during the past couple of years because it is reliant on American research funds for getting on for a third of revenues, and various upheavals in the US budgetary system have put a question mark over these.
Fortunately, there are signs that some stability and confidence is returning, even if the actual numbers remain below their peak. This is why I tipped the shares in the summer — and the near-£1 improvement in the share price, and a 13 per cent underlying increase in orders from the Americas in the first half, suggest that this was the right call.
That is one of three encouraging statistics in the halfway figures to the end of December. Abcam makes antibodies used in basic medical research and, while there is no obvious UK comparator, a 67 per cent rise in sales to China, broken out for the first time, is another. Spending on such research looks set to double in the next five years, meaning that one day China could rival the United States as the main profits centre. The third statistic is a 13 per cent rise in sales of Abcam’s core primary antibodies product as earlier investment pays off, about four times’ the average growth in that market.
Continued investment held the rise in operating profits to 3.6 per cent to £21.9 million. Given that it supplies only about 10 per cent of the global addressable market, Abcam looks like a good business to invest in long term. The shares, though, off 2p at 470p, sell on 25 times earnings, which suggests that immediate gains may be limited.
Revenue £66.7m
Dividend 2.29p
MY ADVICE Avoid for now
WHY Shares have recovered and trade on a hefty multiple
Shares in HgCapital Trust are tricky to evaluate because of its uncertain dividend policy, but that is no reason to give up on them.
This is the quoted vehicle for Hg’s private equity investments and the total dividend payment varies according to earnings. Last year was especially erratic, because there was a 19p special payment as the Trust handed back money gained from the refinancing of Visma, a Norwegian business software company, its second-biggest asset and the sort of must-have service provider that Hg prefers.
The proper dividend for the year is 32p, up from 29p in 2013, and while no promises are given, the intention is to provide a dividend yield of 2 per cent to 3 per cent.
In 2014, the amount made from realisations, £83 million, was matched by investments and the company has enough capacity and potential sales to fund outstanding commitments. Prices of new assets are looking toppy, but Hg is finding plenty of scope investing in existing ones to allow them to expand. Net assets of £12.48 a share at the end of February are at a reasonable 10 per cent discount to the price, up 13p at £11.18, giving confidence for a buy in the long term.
NAV £465.9m
Dividends 51p
MY ADVICE Buy long term
WHY Dividend income erratic, but capital growth is there
And finally....
Shareholder perks have a hint of the 1990s about them, but are still not uncommon. Marks & Spencer already offers investors discounts, but its new scheme allows up to £900 in dividend payments to convert into goods worth £1,000. Whether this is a good deal for investors depends on which matters most in your individual circumstances — a chunk off your grocery bill or those dividend payments. For a company with as loyal a shareholder base as M&S, representing 30 per cent of the register, it makes sense, though.
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