Having built up my portfolio to 16 stocks I would always prefer to add to existing holdings rather than add a new company but one should avoid being pedantic about investing. Rules are made to be broken and that includes the sensible notion that you should aim for a portfolio of 10 stocks: few enough to keep an eye on but wide enough to give diversity.
If Michael O’Leary can’t predict oil prices, we lesser mortals should settle for taking the best shot at investing as we see it today
However, at the moment the successful companies I hold look fully priced while the failures do not tempt me to throw good money after bad, so I am keeping an open mind. Thus I felt drawn by results this week from water and waste disposal group Pennon (PNN).
The attraction was emphasised by the fact that my existing water company investment, United Utilities (UU.), produced uninspiring figures a day later. I’m not dissatisfied with United, which is well up on my purchase price and has paid good dividends, but I don’t want to invest further at this stage and at the current share price.
Pennon’s water side, South West Water, is performing nicely enough despite a tougher pricing regime imposed by the regulator but the really good news is that the waste disposal side, Viridor, has got its act together after a series of profit warnings in the past. Viridor has moved into generating power from waste, a business that is less susceptible to wildly fluctuating prices than recycling.
Pennon shares responded well to the results but finished the day still a tad shy of the 12 month high, with the yield quite attractive at just under 4%. If they run into profit taking I will be sorely tempted.
A Successful Merger for Growth Investors
Mergers often destroy rather than create value but a notable exception is Dixons Carphone (DC.). I never fancied either company separately and was particularly averse to Dixons as an electrical retailer but together they seem to work wonders.
This week’s trading statement showed like-for-like sales growing consistently at 5% and profits for the year to April 30 will be in the top half of the range of forecasts. While Southern Europe was disappointingly flat in the final quarter, the Nordic region is powering ahead and the UK and Ireland are holding up well.
The shares are still well down from the year-end high of £5. The yield is not great at little over 1% but if you seek long term capital growth the shares are worth a look.
Ryanair Pays-out for Overpriced Fuel
Modesty was never a failing in Ryanair (RYA) chief executive Michael O’Leary so I was mildly amused at his forecast that net profits will rise “modestly” by about 13% in the current year. Some modesty. Most companies would think that was ambitious.
Rather more interesting was detail about the price at which Ryanair had hedged fuel prices in advance. Fixing fuel costs at $90 a barrel for the year that ended on March 31 probably seemed like a brilliant move when the bargain was struck but it looks very expensive now, as does $62 for the current 12 months, which is 95% hedged. For the 2017/18 financial year, 44% of fuel is hedged at $50, which may turn out to be a brilliant move if oil prices recover in the meantime.
If even Michael O’Leary can’t predict oil prices months in advance, it’s a reminder that we lesser mortals should settle for taking the best shot at investing as we see it today and stop worrying about what may or may not happen in coming years.
Incidentally, Ryanair’s results were pretty good, notwithstanding overpriced fuel, and although it is spending heavily on new aircraft and new routes, and although it is currently reducing seat prices, it looks to me to be the best prospect among airline and travel companies.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice.
