Martin Gilbert, the chief executive of Aberdeen Asset Management, calls it “style drift”, the frantic shifting of assets under management into this or that class to keep pace with moving markets. Aberdeen prefers to stay where it is, even if this has resulted in an outflow of funds for the past eight quarters in a row.
Of Aberdeen’s £330.6 billion of funds under management, including those acquired with Scottish Widows Investment Partnership a year ago, well over £100 billion is in emerging markets — not the place to be at present. Investors are running scared of the effect on dollar-denominated debt of a rise in US interest rates, even if the timing of this still seems uncertain.
Aberdeen and SWIP suffered £11.3 billion net outflows of funds in the six months to the end of March, although favourable market movements and exchange rates meant the headline figure actually grew by £6.2 billion. Its funds are underweight in the United States, the best market to be in given a forecast $1 trillion of share buybacks this year, and in Japan.
On a positive note, the cash is piling up. Aberdeen exited the half-year with about £220 million of cash surplus to regulatory requirements and, as expected, much of this is being handed back to investors. A £100 million share buyback, or about 1.6 per cent of the market worth of the business, looks a little half-hearted and Mr Gilbert has promised to spend the excess on infill acquisitions. The halfway dividend is up by 11 per cent to 7½p, which suggests a 4 per cent prospective yield.
At some stage emerging markets will return to fashion and Aberdeen is to be congratulated in sticking to its guns. The sort of return on offer on that emerging market debt is so far in excess of that available elsewhere that a change in sentiment looks inevitable. That dividend yield, though, is available on plenty of other shares in the sector.
Aberdeen shares, off 12½p at 450½p, have come up strongly since the start of the year. The company has warned that global economic and political uncertainty will continue and that the markets where it is positioned will remain challenging. There seems no obvious reason to buy the shares for now.
Revenue £605m
Dividend 7½p
MY ADVICE Avoid for now
WHY The shares have come on a long way. The dividend yield, though attractive, is not the best in the sector and uncertainties remain
Spirent Communications had indicated that the start of 2015 would be difficult, after a strong last half of 2014. The company provides testing equipment to telecoms companies and is at the behest of their requirements, so the flow of orders tends to be lumpy.
The sector is in turmoil at present. AT&T has cut back on its own spending, while Alcatel-Lucent and Nokia are in the process of merging, although this apparently has had no effect yet on orders to Spirent.
The company put out a profit warning in October because of weak trading in the United States and China. The latter is showing signs of improvement and the spending will come through — yet the timing of orders, with a $12 million batch through in the first quarter of 2014 and another $16 million expected in the second half of this year, has skewed the figures, with order intake and revenues in the first quarter of this year both off, the latter by almost 14 per cent.
Orders grew strongly in the US, while Europe and Asia Pacific remained weak. This pushed Spirent into a $3.6 million operating loss in the quarter, against a profit of $11.4 million last time. Revenues will begin to grow again by 10 per cent or more in the second quarter and the company ended the quarter with cash balances of about $110 million.
The shares, off 1¼p at 85½p, have recovered a little from that profit warning. They sell on about 18 times’ this year’s earnings.
That rather implies that much of that second-half recovery is already priced in, which suggests no strong incentive to buy for now.
Revenue $96.6m
Down 13.7%
MY ADVICE Avoid for now
WHY Shares have been an erratic investment in the past
One wonders what there can possibly have been to debate, but next Monday the Competition and Markets Authority will deliver its verdict on the £774 million purchase by Greene King of Spirit Pub Company, six months after it was agreed. The purchase would appear to raise few competition issues and the assumption is that it will be waved through without much impediment.
I have suggested before that the price agreed seems to favour Greene King. The company’s trading update for the year to the end of April was in line with expectations. It is now lapping the sale of 275 sites to Hawthorn Leisure and, as these dropped out, like-for-like income at its business rose by 3.6 per cent over the past 48 weeks.
The early Easter holiday seems to have done the company no harm, with like-for-likes up by 2.4 per cent over last year. The key will be the merger benefits that Greene King, which has a good record of taking on new pubs, will get from the Spirit purchase.
I am still wary of the pubs sector until it works out how to cope with the Market Rent Only reforms; on 14 times’ earnings, the shares, up 5p at 819½p, do not look worth chasing.
Rise in retail sales 0.4%
MY ADVICE Avoid for now
WHY Shares look fully valued in today’s environment
And finally . . .
Ophir Energy has changed ships in mid-voyage. The oil and gas explorer has opted to go with Golar, where Sir Frank Chapman, the former chief executive of BG Group, is installed, for a converted oil tanker that will produce liquefied natural gas at its Equatorial Guinea well, rather than an entirely new facility. This is a much cheaper option and will bring forward first gas to some time in 2019. The shares made little headway, still under a cloud since Jan Kulczyk, the Polish billionaire, offloaded his stake last week.
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