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Rating is premium but so is the price

 
 

SCHRODERS
Inflows £8.8bn Dividend 29p

Shares in fund managers are starting to look very expensive. Schroders has always commanded a premium rating because it is more diverse than most, both geographically and in terms of assets under management, with a spread of institutional and retail business and a range of asset classes. It does not have the heavy Asia Pacific weighting of Aberdeen, for example, which contributed to the latter’s disappointing update a week ago.

Neither do the shares offer the high yield that is available elsewhere, such as from Jupiter, as I wrote yesterday. The company has been jacking up dividends, by 35 per cent in each of the past two years and another 21 per cent at the halfway stage, but the shares have been running away, ahead by nearly 50 per cent since October and up another 18p to £31.10 yesterday.

The halfway figures show the benefits of this diversified approach and the damage done by the strength of sterling against the various currencies around the world in which Schroders holds assets. Net inflows nearly doubled against the first half of 2014 to £8.8 billion, even after the sterling effect.

Most noticeably, Schroders has attracted £9 billion into fixed-income investments over the past year. This would seem odd, on the assumption that such assets should be unattractive given the perceived imminence of an interest rate rise in the UK and US. Yet institutional investors in particular are seeking higher-yielding, longer-dated instruments given the flat prospect for interest rates in the eurozone and Japan, for example.

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The company is also seeing the benefit of the 2013 purchase of Cazenove Capital, the wealth manager.

Even taking out foreign exchange losses, however, Schroders reported a net loss on investments in the second quarter, especially in the difficult markets in June. The halfway figures explicitly warn of further turmoil in the eurozone and on Chinese markets, which will probably mean a slackening in new funds acquired.

The shares sell on nearly 18 times earnings, and the dividend yield is only 2.8 per cent. To take a long-term view, the growth will be there. There is better value, and better income, elsewhere in the sector, though.

MY ADVICE Take profits
WHY Schroders is one of the strongest in the sector, but the shares have come up a long way and the income from them is underwhelming

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LAIRD
Revenue £306m Dividend 4.4p

Laird was one of my tips for the year, and there is not a lot to complain about. The company, which provides high-performance products that shield electronic equipment from heat and other interference, is lessening its reliance on Apple and Samsung, the two big smartphone manufacturers, though sales in this area were still up by39 per cent in the first half.

This now provides only a fifth of revenues, as Laird’s products are increasingly going into other areas. The big surge has come from automotive, as more products go into each car and the range of models it supplies reaches a record level.

Its wireless division, which has tended to lag behind those performance materials that go into phones, beat market expectations as a result.

Laird is also getting the benefit of the strong dollar. In pounds, profits before tax were ahead by 36 per cent to £26.9 million. Even in dollar terms, though, revenues were ahead by 11 per cent and operating profits by 20 per cent.

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There was a slight hiatus in the second quarter as spending on telecoms infrastructure slowed, especially in China, but this is recovering. Margins are being held back by the need to incentivise staff by paying bonuses, a good indicator for the future.

The shares, which opened the year at 309p, added another 50¼p to 400p. They sell on 20 times earnings. This begins to look expensive, and nervous investors might consider locking in some profits, though I suspect that they have further to go long term.

MY ADVICE Buy long term
WHY Shares have surged, but further growth is there

RENTOKIL INITIAL
Revenue £855m Dividend 0.87p

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Those of us who have followed the travails of Rentokil Initial over the years will be relieved to know that under Andy Ransom, chief executive for almost two years, the company is pretty well where he wants it to be. Several parts of it, though, remain stuck in the slow lane.

Mr Ransom has set some ambitious targets for the year, not least £100 million of free cashflow, and nothing in the halfway figures suggests that these will not be met. Rentokil has sold all the underperforming businesses, not least the doomed City Link, and is adding to its pest-control side, the fastest growing, with small bolt-on purchases.

Pest control produced halfway revenue growth of nearly 10 per cent, half of that from acquisitions. Workwear remains vulnerable to poor economic growth in France and the Benelux countries, while the company has hopes of boosting its hygiene business, mainly washrooms.

There are good prospects for pest control in markets such as China and India. The shares, off 2p at 144p, have come up from 110p or so last autumn and sell on 17 times earnings. This rather suggests that the good news is already in the price.

MY ADVICE Avoid for now
WHY Restructuring over, but good news is in the price

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And finally . . . Has the Weir Group share price finally bottomed out? This is another 2015 tip. The shares topped out at above £20 as recently as May but now languish at little more than £15, though they were up yesterday on the halfway figures. Weir is doing everything it can to mitigate the effects of the low oil price, annualised savings of £85 million planned and a third of the North American workforce gone. The key to the rest of the year will be the US rig count, now stabilised. And that much-mooted takeover bid might materialise.

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