Poundland
Sales rise excluding Spain 11.8%
The decision by the Competition & Markets Authority to refer Poundland’s £55 million purchase of 99p Stores looks perverse. The CMA has found eighty areas where the two would seem to compete, and another twelve where they might if planned Poundland openings go ahead.
This, the regulator says, could lessen competition between the two chains. What, exactly, is Poundland expected to do? It can hardly put the prices up, although admittedly the conversion of 99 branches to its own would mean a swingeing 1p rise in the cost of each item.
We are where we are. Poundland has until tomorrow to make its response, though in all probability it will request another three weeks’ grace — the deal had been expected to go ahead without any hindrance. The company could always agree to sell off any offending stores where competition concerns exist. Alternatively, it could walk away from the whole deal.
The 99p purchase would have moved the chain significantly closer to its target of 1,000 outlets in the UK and allowed this to be exceeded in due course. Figures for the full year to the end of March show the rate of like-for-like sales growth at Poundland slowing, from 10.2 per cent in the third quarter to 7.1 per cent in the fourth.
There are good enough reasons for this. New openings, which by definition take time to come to full operating capacity, were weighted to the end of the financial year, seven taking place in the last week. The company is coming into some difficult comparators — last summer’s craze for loom bands added several million pounds to sales.
Still, that store opening number should be exceeded this year, with about 40 or so in prospect, which augurs well for growth. This explains the high multiple the shares trade on, about 25 times last year’s earnings at last night’s share price, up 3p at 335p.
The company will have to decide soon whether to press ahead with expanding in Spain, with other continental markets also under consideration. The shares, floated at 300p a year ago, have fallen from above 400p over the past few weeks. That multiple is a hefty one, but that fall looks overdone. Buy for the longer term.
My advice Buy long term
Why Shares are off after problems over 99p Stores deal, but there is plenty of growth to come even if this has to be abandoned
Ashmore Group
Total assets under management
I have suggested before that Ashmore Group presents a puzzle for investors. This specialist in emerging market debt keeps losing assets under management, both as clients withdraw funds and as its investments underperform, but it doesn’t seem to do the share price any harm.
The latest outflow, for the third quarter of its financial year, was less drastic than in the second and leaves the possibility that shortly the flows will be in the opposite direction. Emerging markets took another bath in December and January; there were net outflows of $2 billion, not quite as bad as the $4.2 billion in the quarter to the end of December, and another $600 million of negative investment performance, mainly down to forex movements.
This means that total assets under management have fallen from $75 million at the start of the financial year to $61.1 million. There are signs that clients are beginning to share Ashmore’s view that emerging markets assets are undervalued, given the attractive yields available. The shares, up 8½p at 315¼p, now yield 5.4 per cent, not as good as when I tipped them last but a good enough reason to hold.
My advice Hold
Why Recovery is taking time but yield is attractive
Michael Page Intl
Gross profit growth in Q1 11%
From an investment perspective, the recruitment specialists are beginning to resemble the housebuilders. The sector has had an extraordinarily good run and it is hard to fathom just when this run might end.
I wrote the other day about the drivers behind this strong performance, the global spread of the businesses and the benefits being gained from macroeconomic recovery. There is not a lot in Michael Page’s first-quarter figures to contradict this. The company was hiring heavily in 2014, taking on 468 new headhunters specialising in temporary placements — the degree of uncertainty in the eurozone has meant that employers there are less keen on taking on permanent staff. Those specialists typically take ten months or so to reach their full earning potential and this is now happening, meaning that the pace of hiring slowed in the first quarter.
Total fee income was up by 10.9 per cent at constant currency rates — one of the few negative points for the sector is the strength of sterling. The Americas were the worst-performing region because of the economic woes of Brazil and the oil and gas downturn, but even here income was up 7 per cent.
The cash is piling up, £100 million of it ahead of the final dividend payment, and the board will decide what to do with this in the summer, a special dividend being the most likely outcome. The shares, up ½p at 549p, sell on a hefty 27 times earnings; no reason to chase at this level, although the sector remains a long-term hold.
My advice Avoid for now
Why Page is performing well but earnings multiple is high
And finally ...
Diageo reports third-quarter figures tomorrow and much of the attention will be on how the global drinks group is performing in the United States, its biggest and most profitable region. This had been the cause of some concern at the turn of the year, because the simmering economic recovery did not seem to be translating into sales of spirits. Martin Deboo, at Jefferies, is looking for 2 per cent organic sales growth and believes that recent data from Neilsen on US consumer spending tells a stronger story.
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