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Posts from the ‘UK’ 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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Don’t Go to Davos: Time to Be a New Rebel in the Brexit/Trump Era.

This is the message I give to Davos man or woman for the 2017 January meeting of the World Economic Forum in Switzerland, unless you want to go skiing of course. Picking a theme like inequality or climate change is all well and good.

However, with the inauguration of Donald Trump as the 45th President of the USA on the 20th January and Theresa May, UK Prime Minster, taking a harder line with Brexit from the EU once Article 50 of the EU Charter is triggered. The opportunity has arisen for a new type of rebel against the new anti-establishment establishment now that Brexiteers and Trumpites are in their ascendancy.

Global business executives, politicians, commentators and celebrity activists instead of lamenting about the ending of the Obama Presidency now need to embrace not just a new agenda of defending and improving liberal democracy, as the best political engine for raising living standards around the world, but a better way of involving its increasingly disparaged citizens in the process.

More elite group thinking in the cool mountain air is not going to resolve any loss of confidence in Western political systems that caused the political upsets of 2016. It has allowed the rise of nationalism and nativism across Europe and the successful isolationist rhetoric of the Trump presidential campaign.

Will he and his new administration be all bad? He seems to be rather thin skinned and rises to the bait or “tweet” far too quickly for trouble not to be too far away.

However, global stockmarkets have rallied, perhaps too far, in anticipation of looser fiscal policy, reflation and rising bond rates. Investment strategists have suggested the US should publicly finance infrastructure as one area of fiscal policy earmarked to get a boost under Trump.

How the new administration deals with Russia’s President Putin over claimed election interference with Rex Tillerson as the new Secretary of State, a lifelong oilman with business dealings with Russia, will be worth following. So too will the complex negotiations with Iran and Saudi Arabia over Syria, Yemen, trade sanctions and global terrorism. Furthermore, China’s territorial claims in the South China Sea with its neighbours will test and stress his administration to the limit no doubt.

Although it’s likely he’ll rely on his team to do the job for him and I suspect he’ll be as much of a part-timer as possible with Kellyanne Conway and his daughter Ivanka likely to feature a lot in managing the media (and his tweets) in the months ahead.

So what can the new establishment rebels do to make sure they don’t experience the political shocks that upset them so much in 2016 continuing in 2017?

Well to begin with, as it will take more time than a 4 year presidential term or the timeframe for the UK to exit the EU formally. By engaging with people and organisations not based in capitals or large metropolitan areas to better understand, argue and formulate changes to the political system.

Politicians and political elites should promote and introduce deliberative democracy techniques using sortition and lots for forming representative bodies. As in Finland, organise trials for universal basic income models to help alleviate anticipated long term employment or lifestyle changes due to technological advancement.

Well intentioned worries over inequality at Davos won’t produce any worthwhile solutions unless more people perceive they aren’t excluded from society or its opportunities by distant wealthy elites. This is surely the lesson from 2016 and any time now would be a good time to address it. Lest unpalatable results materialising further for those who claim to know best what’s good for society.

It might even be interesting experience transitioning to a new democratic system of governance now that could be worth talking about at some future Davos gathering.

LDC.

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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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Brexit and the Philippines’ President Duterte “Harry” Show the US Has Problems With Key Allies Doing the Unexpected.

Before the UK’s referendum on leaving the EU in June 2016 plenty of world politicians advised the British to remain most prominently was the current US President Barack Obama warning the UK would be, “at the back of the queue,” in any future trade negotiations with the US if it choose to leave.
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Post Brexit Bounce: It Will Need To Keep On Bouncing For Years

A Datastream chart of the month showing, “bumper UK retail sales in July as consumers shrugged off Brexit gloom,” was sent to me as a client of Cazenove Captial, a well known UK investment manager. Read more

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Sow the Seeds and Scatter: Will UK Farmers Reap What Profits They Sow in A Post-Brexit Britain?

Harvest thanksgiving services in many rural parish churches were for centuries well attended events in the church calendar which celebrated the harvest had been successfully gathered in for another year and the prospect of famine and poverty avoided.
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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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Brexit – Well That Wasn’t Meant to Happen But There’s Democracy For You.

The cliches maybe old and tired but they usually contain an element of truth this time on what happens now in UK politics – it’s anyone’s game, all is possible, the cat is out of the bag and who knows what tomorrow brings or the worst possible outcome of all would be cry havoc and let slip the dogs of war as Europe has often witnessed, and recently too with Bosnia in 1990’s and Ukraine now although on the EU periphery it’s geographically part of Europe.
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Brexit: The Great Tory Tear up and Why Britain is Better Bumbling Along.

The polling cards have been delivered and the debate is at large for the referendum on the United Kingdom remaining or leaving the European Union on the 23rd June 2016.
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Out and Proud with Ruth: Has the Tory Tide Turned in Scotland?

The election result was never in doubt in the May 2016 Scottish Parliament elections it was more about who came in second place. The governing SNP won the election easily with 63 out of the 129 seats only 2 short of an outright majority although losing its parliamentary majority did take the shine off an otherwise good result again for the SNP.
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