Most management promises that lack specific targets are, frankly, not worth reading. Booker might be the exception. Its mission statement is “Focus, Drive, Broaden”, but this actually reflects the good performance of what is a fairly everyday business, supplying small shops and restaurants with their grocery needs.
In terms of focus, careful control of cash has left almost £106 million in the bank at the September half-year end. Since July 2012, when Booker issued shares to fund the successful purchase of Makro, the company has returned £180 million to investors.
Another one is due next summer, after the conclusion of the financial year. This puts the shares on a 4.5 per cent yield. As to driving forward and broadening, the company now gets about £1.6 billion of sales, against a total of about £5 billion a year, from the catering industry.
It is now integrating the Londis and Budgens chains that it bought a year ago. These are profitable, probably about £5 million in the current year, after losing some £23 million before the purchase, and an annual sales decline of 20 per cent has been reversed. This has inevitably brought down margins across the group, 3.2 per cent at the halfway stage against 3.4 per cent, but this will be reversed. Booker paid £40 million for the two; they have already generated £28 million in cash.
This is a tough trading environment and Booker is not immune. The ban on tobacco advertising displays hit sales at its small corner shops. Booker always strips these out and underlying revenues, taking out those acquisitions, were just better than flat. Taking in those acquired sales, the 13 per cent rise across the group disguises a significant improvement in the second quarter, 15 per cent growth against 10 per cent in the first.
When Charles Wilson joined as chief executive in 2005, the shares were plunging. He arrested a decline that saw them bottom out in 2007 at less than 8p. They added 9½p to 185p yesterday. They have struggled to get out of a narrow trading band of late and were hit by the referendum vote. The shares are now highly rated; on almost 24 times earnings, they may struggle to make further headway.
My advice Hold
Why Booker’s overall performance has been excellent in difficult markets, but all that seems reflected in a high multiple
Mondi
Mondi ought to be an easy enough business to understand, even if it is one of the less well known in the FTSE 100 index. The days when paper makers were the ultimate nightmare cyclical stocks, with supply and demand always falling out of kilter, are largely over. The main drivers in the interim numbers from the company, jointly quoted in London and Johannesburg, are positive.
Mondi has forced through a €20-a-tonne rise in kraftliner, one of its most important lines, from August as growing volumes absorbed earlier surplus capacity. A further €60-a-tonne price rise is going through for kraft paper, which goes into cement bags and the like, as demand has strengthened and capacity has come out of the market.
The effect on Mondi of interest-rate changes is complicated. There is little in the UK; the shares were marked back earlier in the week on political instability in South Africa but a weaker rand is on the whole positive, stimulating exports. The shares fell 58p to £15.98. They have come up from little more than £11 in January so some profit-taking was probably in order; but, on 12 times earnings, they do not look expensive.
My advice Buy
Why All the trends positive in terms of price and production
Hargreaves Lansdown
These are indeed strange markets. Shares in Hargreaves Lansdown were marked back by 37p to £12.00 after the country’s biggest provider of direct investment services reported a 15 per cent rise in revenues in the first quarter to June 30 because of a strong appetite for share dealing and a sharp rise in assets under management.
Part of the problem, as I have suggested before, is that the company trades on such a high earnings multiple, about 30 times, that the market tends to react strongly to any perceived bad news. The shares were off on Wednesday after another potential challenger, the European business of TD Bank, entered its core market.
Total assets under management grew by £5.9 billion to a record £67.6 billion. On its Vantage dealing platform, the rise was £5.7 billion to £64.4 billion. Of this, £4.6 billion was due to the soaring stock market; the £1.1 billion net gain was more than a fifth down on the same time last year, but it is hard to read too much into what is the weakest quarter.
Hargreaves’ experience was that while people were investing at about the same rate, they were pulling out a greater amount. Some of this was profit-taking because of those market gains but some was concern among retail investors that shares had gone ahead too far. The company admits that the uncertainty, over Brexit and everything else, will cloud investors’ views henceforth. It is adding about 20,000 new customers a quarter and the long-term trend is in Hargreaves’ favour. Further progress could be limited, though.
My advice Avoid
Why Caution over investor sentiment looks justified
And finally . . . Coats Group is the former Coats Viyella business, once worth several billions. The company now makes threads and yarns in areas such as fibre optics and automotive products and has sales of $1.5 billion. The third-quarter trading statement said performance was ahead of a depressed second quarter and profits for the year would beat expectations. The shares rose 8 per cent. The problem, as ever with such long-lived companies, is the pension scheme. Talks are continuing but this needs resolving before more progress is made.
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