What counts for more: last year’s figures or next year’s figures? For savvy investors, the answer should be forward looking but we cannot ignore the past.
The conundrum cropped up this week in two quite different companies, investment group Standard Life (SL.) and oil and gas outfit Centrica (CNA). Investors needed to take a quite different attitude in assessing whether to buy the shares.
Standard Life put out annual results divided into eight chunks, enough to deter all but the most avid investor. It is always best to read right through a results statement, however lengthy. You never know what nasties may be buried away.
In this case, though, Standard was being thorough, not sneaky. The figures for 2014 were pretty good across the board, with operating profits up 19% and assets under administration 38% higher. Standard points to a “strong investment performance in volatile markets”. The final dividend is raised, taking the total up 7.8%.
I am not worried by the warning that investment markets are unsettled. Erratic markets provide opportunities to make money. Of greater concern is the warning that changes to pension rules will knock £10 to £15 million off annuity sales this year. However, I think that Standard is in good enough shape to absorb this.
The shares jumped 3.5% on the figures to a new 12-month high above 420p. They have been as low as 340 in the past year. There could be a bit of profit taking next week but if I were a shareholder willing to stand a bumpy ride I would be inclined to hold on.
Centrica presents a rather different picture. It is part of a wider sector that has suffered from events beyond its control, namely the dramatic fall in oil and gas prices. Consequently its shares slipped from 340p last summer to lows around 260p in December and January.
A pick up over the past two or three weeks proved to be premature. As crude oil process came off the bottom, from well below $50 a barrel to just over $60, optimists seemed to think that the crisis for energy companies was over.
Those hopes had already been dashed by the likes of Tullow Oil (TLW) but not, until this week, at Centrica. Profits slumped 35% in 2014 and the dividend is slashed by 30%. New chief executive Iain Conn has launched a strategic review, as well he might.
This year may prove less traumatic. Oil really does seem to have stabilised at $60 and is more likely to edge upwards from here. However, Centrica will not readily bounce back. It is slashing North Sea investment and conserving cash in the hope that its credit rating will not be trashed. I intend to stay well clear.
Talking of Tullow, it’s shares have topped the leader board on two or three occasions since the sharp fall when it suspended the dividend. I really cannot see any merit in picking up these shares at this stage. They are depressed for a reason. Don’t kid yourself that they are cheap.
Greece at the Last Chance Saloon
It’s a pity we can’t buy shares in the Last Chance Saloon, where there is always time for another round for Greece and its European Union creditors. By the time you read this, the bar may have closed but there will still be time for a bit of after hours drinking, such is the determination to find a solution.
An agreement that keeps Greece in will be greeted with relief and should be enough to power the FTSE 100 index to a new high but it will solve nothing in the long run. Grexit, a Greek exit from the euro, will probably also be greeted with relief that the wrangling over euro membership is over and will probably also send UK shares to a new high, although again nothing will have been solved.
I’ll drink to that.
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