Wednesday 21 May 2014

Should investors be shopping for income at Sainsbury?

A tail of woe in the supermarket sector

UK Food Retailers have been battered of late - the main culprits being:


  • The lack of UK households' purchasing power, with inflation consistently running ahead of wage growth;
  • The rise and rise of German food discount chains Aldi and Lidl

This has led to savage drops in share prices in the sector as investors have worried over the resultant combination of increasing price pressures and losses of market share: Tesco (code TSCO.L) has fallen from 378p in September last year to just 302p currently; Wm. Morrison (MRW.L) has slid from 303p back then to just 204p now; and Sainsbury (SBRY.L) has tumbled to 337p today from 410p in November 2013.

Why Sainsbury? Hasn't sales growth been falling?

Analysts will point to slowing like-for-like sales growth (comparing only the sales at stores that have been open at least 1 year) at Sainsbury as a real cause for concern; in the year to March 2014, it is true that Sainsbury only managed yearly like-for-like sales growth of 0.2%, the lowest for 9 years. Overall sales growth slowed to 2.7% in this latest year, again the slowest growth rate recorded since 2004 (Figure 1).

1. Sainsbury See Slowing Growth But Higher Profit Margins

Source: Company reports

But note also from Figure 1 that Sainsbury's overall profitability, as measured by operating profit margins, has continued to rise to 4.2%, a level of profitability not seen since the year 2000! So despite the pressures from the discounters, Sainsbury is managing to squeeze out better profitability year by year, unlike the falling profit margins at Tesco, Morrisons and even Wal-Mart (US owner of Asda).

And retail sales could be getting better...

Moreover, April retail sales in the UK (excluding petrol and diesel sales) posted a surprising jump today of 1.8% over the month of March, and a sizeable 7.7% yearly growth rate when compared with April last year. In fact, retail sales over the last three months are now rising at their fastest rate for a decade! So there may be some relief for supermarkets to come. Indeed, excluding April 2011 (the Royal Wedding), food sales in April rose at the fastest pace since records began in 1988...

There's value to be had

Sainsbury stands up well on a raft of value metrics too: at the current 337p share price, it trades on 11x prospective P/E and a price/book value ratio of 1.0x. So yes there may not be a huge amount of growth to be had at present, but I would suggest that this fact is already more than adequately reflected in these lowly valuation multiples. And yet, Sainsbury's underlying book value per share (an accounting measure of company value) continues to grow steadily (Figure 2) to stand today at 320p, while the net profitability earned on this equity continues to rise, hitting over 12% as of March 2014.

To read the rest of this article and see the remaining charts,
please click on the web link below:


Sunday 11 May 2014

Bloomberg TV:Debunking "Sell in May and Go Away"

I appeared last week on Bloomberg TV in the morning, talking to host Mark Barton about why the "Sell in May and Go Away" saying is no longer strictly correct - rather, June to September is more the danger period for stocks...

CLick on the Bloomberg link below to see the Interview:


Wednesday 7 May 2014

Alibaba.com to list at a mammoth $150-200bn? How to profit

The Chinese business-to-business (B2B) and business-to-consumer (B2C) e-commerce platform Alibaba has finally filed for a US flotation (Initial Public Offering) today, due to list in the near future in New York. Current analyst estimates pitch the starting market value of the entire company at between $150bn and $200bn, a massive public company by any standards and likely to represent the largest technology IPO since Facebook came to market back in 2012.

The business, headed by former English schoolteacher Jack Ma (no wonder that he speaks English so well!), dominates business to business e-commerce transactions, typically between suppliers and customers not only in China, but effectively globally.

While a detailed description of all Alibaba’s businesses is beyond the scope of this (short) article, there is more detail to be found here on cnbc.com, for those who are interested in finding out more about the company.

Alibaba by the numbers

Just a few numbers to illustrate its 400lb gorilla-like presence in this technology transaction space:
  • Over 1.5 trillion yuan, or $248bn in value of transactions executed over the last year through its 3 main marketplaces;
  • 11.3 billion orders placed annually;
  • 231 million annual active buyers;
  • 8 million active sellers;
  • 5 billion packages generated on their Chinese retail marketplace last year;
  • $5.66bn of listed revenue for the 9 months to 2013 year-end;
  • Net income (profit after tax) of $2.85bn for the same period.
This puts Alibaba ahead of Amazon plus Ebay together in terms of numbers of buyers and volume of transactions, according to Reuters! (Bear in mind that Amazon has a total market capitalisation in the US of $135bn, while Ebay is worth over $64bn currently).

Where could it be in the list of biggest listed companies?

At the upper estimate of a starting market value of $200bn, Alibaba would be the 14th-largest company listed in the US, between the bank JPMorgan and the telecoms company Verizon. In the Technology sector, only  Apple (market value of $512bn), Google ($350bn) and Microsoft ($323bn) would be larger. Note: at $200bn, it would have a larger value than the technology grand-daddy IBM ($192bn market value)!

Even at the lower estimate of $150bn, Alibaba would sit at number 23 in the list of largest listed US companies with the same market value as Facebook now, over 7 times more than Twitter and 9 times more than Linkedin.

How to get exposure in Alibaba?

Please click on the link below to see how you can get exposure to Alibaba...

 

 

Tuesday 6 May 2014

On CNBC Squawk (TV) last Thursday, talking about investing

And here is the link to the video clip on the CNBC website:




Stay in May and don’t fly away…

I find that I am greatly tiring of the plethora of articles which arrive around this time of year, urging investors to “sell in May and go away – come back on St Leger’s day”. Every year following May Day it is the same story but I believe the record needs to be set straight…

1. Yes, November to April is the strongest seasonal period for the FTSE 100 Index

As Figure 1 illustrates, the FTSE-100 index has typically posted its strongest seasonal performance over the six months from the beginning of November to the end of April the following year, judging from average monthly returns since 1986. December returns (including dividends) have averaged 2.6%, while April has been the second-best month at 2.1%.
1. FTSE-100 Index Has Posted Strongest Returns in December, April
Source: Author, Bloomberg
Judging from this 29-year history for the FTSE-100, May comes in as the ninth-best month for stockmarket returns, with a 0.3% – not all that impressive but nevertheless a positive average return.

2. And yes, this is true also for emerging market stocks…

Figure 2 shows the average monthly returns since 1990 for the MSCI Emerging Markets index, the main benchmark index used for investing in this geographic segment.
 
2. Emerging Market Stocks Show an Even More Pronounced Seasonal Effect
Source: Author, Bloomberg
 
In the case of emerging markets, the average return has been zero for the month of May, typically following a strong April, which has typically been the second-best month for emerging market gains.

3. The real danger period for UK stocks is between June and October

If we look at the table in Figure 3, which shows monthly returns for the thee UK FTSE stock indices by size, we can see the real danger period for stocks historically has really been June to October, with negative returns registered on average over two to three of these months.

To read the rest of this article, view the conclusions and all the charts,
please click on the link below:



Friday 2 May 2014

Has sell in May and go away come early? It’s not over just yet for stocks

Bond funds back in vogue in April

Now that May Day is upon us, we can start to look back at the month of April and pick out some interesting market trends (and not just the overly-repeated “sell in May and go away”!).

One way to do this is to look simply at which types of investment funds have been popular over the last month, and which have not. Now, normally this type of data takes some time to be collated, and so there is a lag between the month end and the date that the monthly data is released.

But in the case of investment flows into and out of US-based exchange-traded funds (ETFs), we already have some indications of which asset classes and funds were popular, and which were avoided or even sold by both retail and institutional clients (the US ETF market is approximately 50%:50% split between these two types of investor).

Bond ETFs grab the lion’s share of April inflows

From looking at the ETF flow data for April (from etf.com), we can see that  both US and international bond ETFs were very popular, with American investors putting in more than $3.25bn over the month.

To quote www.etf.com:

In the past month, more than $1.08 billion flowed into international bond ETFs—roughly twice the asset flows seen into the segment in the entire first quarter. Our data show that it was emerging market sovereign debt funds that led in net creations, attracting $671 million in April alone—the most popular fixed-income segment in the period.

So within the international bond segment, there was a big resurgence in interest in emerging market bonds, which is perhaps unsurprising given that their yields are now not far off the yields offered by US high yield corporate bond funds (which now yield only 5.4%), while you are still investing in investment-grade government debt, which in theory is a lot less risky than high-yield corporate bonds.

US Dollar-based Emerging Market Bonds were particularly popular, as exemplified by the iShares J.P. Morgan USD Emerging Markets Bond ETF (US code: EMB) which currently yields a relatively attractive 4.6%.  Figure 1 illustrates the steadily rising price of this ETF throughout most of this year to date, up some 5% from the early-February lows. 

1. JP MORGAN USD EMERGING MARKET BOND ETF ON THE RISE

Source: Bloomberg

There is a London-listed version of this ETF for UK and European investors, the iShares J.P. Morgan USD Emerging Market bond ETF (code: SEMB.L), priced in sterling (£65.85 as of 1 May 2014) if you feel that you want to invest in emerging market bonds and so benefit from these attractive yields, but without taking on currency risk.

Long-term US Treasury bond ETFs were also very popular last month, also taking in significant inflows as government bond yields in general declined, as they have done through much of 2014 so far.

To read the rest of this article, see the charts and why Sell in May is not always the best advice, click on the link below: