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Posts from the ‘Investment’ Category

Energy from Waste or Wasted Energy as UK Contractor Interserve Has Found to Its Cost.

I have a holding in Interserve a UK based support services and building contractor. It was until recently one of my larger holdings. From the 2009 financial crisis share price lows of sub 200 pence per share it climbed to peak at over 700 pence per share in early 2014 and has since retreated again to circa. 240 pence per share at the time of writing.

It has recently announced it will cut its final dividend to conserve cash. The company has hit some headwinds of a managerial and contract nature and not just market based volatility.

This company’s performance to date demonstrates well the high risks and rewards (for the patient and prudent) of buying, holding, taking profits, dividends and timely selling of holdings by small private investors in volatile stocks such as Interserve.

It’s never easy or dull that’s for sure however as the blog title suggests one of the reasons for the recent share price fall and poor performance financially, with a pre-tax loss of £94.1Million on a £3.2 Billion turnover, is a huge provision at a Glasgow energy from waste project with Viridor, a waste management company, which has clearly gone spectacularly wrong for the company.

The contract was worth £146 Million and the financial provisions made in 2016 were £70M has now increased to a whopping £160 Million. The company has been replaced on the contract and as the numbers indicate legal action against it seems likely.

Unsurprisingly, Interserve is divesting its energy from waste (incinerators) business units. Indeed analysts at the broker Liberum informed their clients in a recent research note, “we can have no confidence the provision is adequate,” (Money Mail, 2017). This is a damning comment.

Can management be trusted to sort out the business, will there be other problems emerging from the huge low margin turnover and disparate operations? Should there be a top to bottom purge of the incumbents with a new team taking the helm? Where hopefully, after completing their own purging of any further bad news, they will steer the company to a more profitable and stable future similar to their construction competitor Balfour Beatty.

The large corporate shareholders, pension and insurance companies, will be having their discussions with the management no doubt although I guess those will not be as widely reported as the recent results and the rather public ousting from its contract in Glasgow.

In my opinion, there is execution risk in either buying or holding this stock and any share price recovery to previous highs certainly won’t be this year either or maybe not even in 2018. However, I will continue to hold as I believe, along with Balfour and Carillon, Interserve will play its part in the UK infrastructure projects of the coming decades. Royal assent has now been given for HS2 to commence in a matter of weeks with the £22 Billion first phase from London-Birmingham line, “scheduled to open in December 2026, with a second Y-shaped phase launching in two stages with a total bill estimated at £56bn,” (Plimmer, 2017, FT).

Surely, a reinvigorated Interserve can take advantage of this massive project in its home UK market. It’s a long hold for me as a patient little deal clincher.

LDC.

References and further reading

Money Mail Reporter; (2017); This is Money: “Interserve’s failed energy-from-waste project black hole deepens to £160m – more than double original estimates,” Associated newspapers Ltd. Website accessed- 6th March 2017:
http://www.thisismoney.co.uk/money/news/article-4243418/Interserve-s-failed-project-black-hole-deepens-160m.html#ixzz4ZGWaIn5J

Plimmer, G; (2017);“HS2 line construction to start in weeks after royal assent,” The Financial Times Limited, London, UK. Website accessed 6th March 2017: https://www.ft.com/content/0bf8aa04-f9bb-11e6-9516-2d969e0d3b65

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2016: Goodbye to All That Nonsense and Hello to 2017

I’m looking forward to seeing the back of 2016.

However it’s not particularly as an investor that I’ll be glad to see the start of 2017 but as a voter. I have voted 5 times since 2014 in elections for EU, UK and Scottish parliaments, 1 Scottish referendum and in June 2016 the Brexit referendum. It has been the latter that has seemed to matter the most and it has caused all the political upset although markets have been benign about the result so far except with currency markets against Sterling. Unfortunately that does matter as prices are rising and inflation will creep back in to the UK RPI figures as 2017 progresses.

Come November 2016 the US election produced Brexit plus plus. When “The Donald” triumphed over the establishment front runner Hilary Clinton, world experienced Secretary of State and former First Lady of the USA-how could she possibly lose against Trump. Well loose she did and just like Brexit in the UK. Every café latte sipping, yoga loving, right thinking metropolitan immigration loving elite from billionaire to university boffin had yet another freak-out about how those who don’t know better than us could possibly vote like that (yes, I’m including myself in that list of irked how dare they vote like that types- to my credit I saw the anti-democratic bias early if I may defend myself).

Well as writer H.L Mencken said,” Democracy is the theory that the common people know what they want, and deserve to get it good and hard.

Those who voted for Trump will find their wall across the Mexican border isn’t going to get built after all and those steel and coal jobs aren’t coming back either. However I do think some infrastructure will get built and not before time- let’s hope his administration can raise the money if not the taxes to pay for it all. It’s going to be interesting. How about those Japanese car manufacturers in areas of the UK that voted for Brexit- will they stay put come the eventual day? The UK chancellor hopes so and has made some supportive noises to them and to lots of financial companies in the City of London too- again we’ll see in time although I have my doubts.

In Europe the slide towards nationalism and nativism continues with Italy refusing to face up to economic reform after its referendum and Marie Le Pen of the French National Front having a decent chance of becoming President. Even Angela Merkel is having a harder time and will face questions for coming elections over her immigration stance after the Berlin attacks in December.

The answer isn’t 2nd referendums or election recounts and most certainly not terrorist attacks either but engaging in the democratic process more than just voting at elections. It’s time for some democratic deliberation or even some form of sortition to get people active and engaged. People power does not come from voter apathy or partisan grid-locked politicians but from people seeking to make changes themselves.

So for both investors and voters the lesson from 2016 is that eventually, politics do matter, and as a society if you don’t deal with your problems or find a compromise, eventually, you can become a state like Syria or Libya as tragic as a civilised state can get. It was called the Dark Ages the last time.

There are of course opportunities and reasons to be cheerful – some pundits are tipping banks for 2017. I’m holding mainly and adding to beaten up Engineers who should in time and with some decent management make a comeback along with some inflation and a weak currency plus a predator or two- E2V Technologies another example has been gobbled up this month.

I wish all a Happy Christmas and a Happy New Year for 2017.

LDC.

Reference:
Read more at: https://www.brainyquote.com/quotes/quotes/h/hlmencke163179.html

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In the summertime when the FTSE 100 is fine, it can stretch right up and touch the sky…

The performance of the FTSE 100 share index appears to be fine so far after the UK’s Brexit vote, to paraphrase Mungo Jerry’s 1970 hit ,” In the summertime,” before the UK joined the EU, with global investors seeing US and other major indices rise too.
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Building a Wall to Stop Immigrants is the Last Piece of Infrastructure the USA Needs.

Republican Presidential Nominee apparent for the 2016 election (unless the Republicans can depose him at their convention) Billionaire property tycoon Donald Trump as part of his electioneering bravado has promised to construct a wall along the Mexican border to stop illegal immigrants from entering the US.
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Floods, Brexit and Migration with Weak Economic Growth and Tumbling Markets Makes 2016 A Tough Year Already.

There may have been a brief stock market rally late in 2015 and any expressed wishes for its continuance have been dashed as 2016 so far has been a tough one for many people and not just investors. Here in the UK floods have battered the country especially in Yorkshire, Cumbria and Scotland.
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2016: What’s Coming – the Good, the Bad or Mediocrity.

Another year starting so what’s in store for investors and markets?

In 2015 the GDP of the US economy grew at 2.4%, the UK did 2.5% and the EU managed 1.5% with all its currency and migrant upheavals (GS, 2015). China slowed down yet still reported 6.9% causing investors or speculators a heap of disappointment or margin call troubles depending on what figures one believes. India performed better at 7.4% and seems to have the confidence of pundits for an improvement in 2016 to 7.8% (GS, 2015). Let’s hope so, as India the world’s largest democracy, has disappointed before and there’s still plenty of debt and cronyism in its large institutions.
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Better to Be an Investor or a Speculator in Volatile Markets and Now with Marching Migrants?

During the spring of 2015 major equity market indices such as the S&P500 and the FTSE100 made record highs and most equity investors had a reasonable start to the year. However over the course of the summer, especially since August, these same indices along with share valuations have tumbled sharply. Widely discussed by politicians, economists and pundits is how it will effect or portray the true state of the economy now and in the coming months.
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Down and Up the Markets Go, Eurozone Sucks and Middle East Blows

Where are we headed is the question?

Will oil be the issue of 2015 or Eurozone deflation?

There’s been some volatility in recent months for financial markets were the VIX index, referred to as the fear index for markets, showed larger peaks appearing as investor concerns rose over issues like the ending of QE in the US, weak Eurozone demand or Russian actions over the Ukraine and more over.
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Peace, Hope and Progress versus Strife, Despair and Calamity: Any Predictions How These Will Turn Out?

In June 2014, I attended the 105th AGM of the Scottish Mortgage Investment Trust PLC (SMT), a fund of nearly £3 Billion of assets spread around the world with a total return objective. It’s managed by Baillie Gifford (BG) here in Edinburgh. As a small shareholder it’s useful to meet who governs and directs one’s portfolio from time to time and I would recommend attending such events on occasions, being an active shareholder is something a private investor should enjoy and not just for the coffee and sandwiches. I happened to know one of the directors as he’s from where I grew up and another Professor John Kay is a regular columnist and worthwhile read in the Financial Times. The board are usually available after an AGM to pose a couple of questions over those cups of coffee I mentioned.
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3D printing the next big thing: It’s exciting but investors should watch, wait and be choosy.

Increasingly Additive Manufacturing or 3D printing has become a hot news feature in the scientific or technical press and television news proclaiming revolutionary techniques to create products as diverse as jewellery, curvy concrete walls or car dashboards and even human spare parts. Pioneering medical applications include replacement jawbones and ears using powdered titanium or actual human tissue. The technology commonly uses resins, plastic pellets or powered metals or liquids to print a product using a specially adapted printer applying layer by layer the material through a nozzle or fusing by heat from a laser with a design created by CAD 3D software transferred to the printing device. The technology has been around for more than 20 years already and has been used by engineering companies such as GKN or Rolls Royce for parts in aeroplanes and automobiles. The internet was similarly available to academics and researchers before the worldwide web transformed its use. Read more

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