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Tempus: cash is piling up as balance improves

Buy, sell or hold: today’s best share tips
 
 

Martin Gilbert, the chief executive of Aberdeen Asset Management, thinks that the falling oil price will boost those emerging markets that are net importers of the stuff, as well as the manufacturing industry generally.

Those emerging markets, about 25 per cent of assets under management at Aberdeen after the acquisition of Scottish Widows Investment Partnership in April, could do with all the help they can get. They accounted for much of the outflow of assets over the year to the end of September, £16 billion from Aberdeen’s original business and £4.4 billion from SWIP.

The latter looks like a well-timed deal for Aberdeen, then, rebalancing it towards UK equities. Aberdeen lost about £4.4 billion of funds in the first quarter and another £4.3 billion in the second. The third-quarter outflow was swelled by the loss of one mandate worth £4 billion. By the fourth quarter the outflow from equities had ended as investors recovered their nerve.

Aberdeen ended the financial year with £324 billion under management, up from £200 billion, as a result of the SWIP purchase, which added about £135 billion to the total. Recurring fee income was up by 7 per cent, but performance fees tumbled from £50.8 million to £21.7 million.

Aberdeen has been adding gradually to its shareholding in Standard Chartered Bank as the price has nose-dived. This is a brave move and the company now accounts for about 8 per cent of the bank’s shares. Mr Gilbert has placed a large bet that the much-feared rights issue will not materialise.

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Total dividends for the year are up by 2p at 18p. One noticeable feature of the results is the amount of cash that is piling up, £654 million at the financial year’s end. By the spring, and the halfway results, Aberdeen will have cash on its balance sheet surplus to regulatory requirements, and some sort of share buyback seems inevitable.

The shares have been a strong market since the start of October as emerging markets returned to favour. That potential buyback will provide further support. Up 7½p at 457½p, they change hands on 13 times this year’s profits. Worth a buy at that level for the long-term prospects.

Revenue £1.11bn
Dividend 18p
£324bn Total assets under management

My advice Buy
Why Emerging markets have recovered their poise, if only temporarily. There are good prospects for a share buyback next year

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The break-up of Balfour Beatty might be the best outcome for its long-suffering shareholders, but it is not going to be as a result of the offer for its public-private partnership assets in Britain and America that is on the table from John Laing Infrastructure Fund.

This is pitched at £1 billion; the assets were valued at £1.05 billion in the autumn. Since then, £61 million has been received from several disposals, but this amount has been reinvested in the United States.

JLIF effectively has conceded that it will probably have to pay a bit more, if it can gain access to the books. The deal would double the size of the fund overnight, but the assets are exactly the sort that

JLIF was created to invest in. It would require a sizeable issue of equity, but there will be no shortage of takers for the new shares because of the 5.4 per cent yield on them, which looks assured.

The offer has caught Balfour Beatty on the hop, because Leo Quinn, the new chief executive, is not due to join until the new year. The best that the board can do is to set up an auction for the assets. The market capitalisation, at yesterday’s closing price of 191p, up 7¾p, is a little north of £1.3 billion, so a higher offer for the PPP assets would seem to be putting no value whatsover on the battered construction division.

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This would seem to be about what it is worth, because valuing such businesses is always difficult. There is every prospect that the KPMG report will find further horrors in the new year. Balfour Beatty shares are a highly speculative bet and I would continue to steer clear. Sell.

Value of JLIF offer £1bn

My advice Sell
Why Too much downside risk to bet on break-up

According to Bonmarché, the over-50s account for 48 per cent of all consumer spending and it is this market that the retailer, floated last November, is targeting. Yet even that demographic failed to spend much on warm clothing in the mild autumn and in the second quarter to the end of September like-for-like sales were up by only 2.1 per cent.

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This was a feature for most clothing retailers, as noted in trading statements from Next, among others.

The warm weather continued into October and November and Bonmarché admits that the start of the second half of its financial year was challenging.

Like-for-like sales in the first half were up by 7.8 per cent in its stores, while further growth is coming from its online business. There was some decline in gross margin — the company pays for half of its stock in dollars — and hedging against currency movements was more expensive this time.

That over-50 demographic can only increase, while Bonmarché is putting more outlets into garden centres and the likes. The shares, floated at £2, fell 2½p to 267p. They sell on 13 times this year’s earnings, which looks fully valued for now.

Revenue £91.1m
Dividend 2.3p

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My advice Avoid
Why Shares look fully valued despite growth prospects

And finally...

If the price of oil shares continues to fall, at some stage they are going to look like good value again, on the assumption that oil itself cannot drop too far below $70 a barrel.

Westhouse Securities has called the bottom on one stock, Tullow Oil, a member of the FTSE 100. The broker has gone through the numbers and believes that at $70 a barrel there is little risk of a rights issue and that its cashflow and balance sheet look solid enough.

A brave call: Tullow shares were falling again yesterday, down another 6 per cent.

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