Sales Rise, Share Price Falls; Sales Fall, Share Price Rises

THE WEEK, PART 2: Morningstar columnist Rodney Hobson marvels at the stock market's ability to react to earnings results

Rodney Hobson 31 May, 2013 | 3:01PM
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Pick & Mix

It is worth reminding ourselves from time to time that the FTSE 100, and any other index for that matter, is quite a broad brush and there are always over- and under-priced shares in the mix.

I was intrigued by the reactions to two contrasting sets of profit figures this week, at DIY chain Kingfisher (KGF) and Tate & Lyle (TATE). I have never invested in either but if I had to choose I would not hesitate to plump for sweeteners maker Tate, whose products will continue in demand while Kingfisher is subject to the whims of the marketplace.

Kingfisher shares rose despite a fall in sales and profits. Sales have been heavily affected by the weather and hopes for the immediate future are pinned very heavily on a strong recovery in the UK housing market.

If I want to gamble on the housing market I would rather hold shares in a housebuilder or plant hire company (I have modest holdings in Barratt Developments (BDEV), Taylor Wimpey (TW.) and Speedy Hire (SDY)) rather than take chances on a retailer. In any case, a marked improvement is already factored into Kingfisher’s share price.

Tate shares fell despite a 5% rise in sales and a 4% improvement in underlying profits. The performance was achieved in the face of the impact of drought in the US mid-west, which reduced the corn harvest.

The current Tate share price is well below the 12-month high and the yield is better than that at Kingfisher.

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.

Market Performance: May 28-31

FTSE 100 Index: -1.07%
FTSE 250 Index: -0.29%
FTSE All Share Index: -0.93%
FTSE Small Cap Index: +0.30
FTSE AIM 100 Index: +0.63%
FTSE Fledgling Index: -0.51%

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Barratt Developments PLC478.50 GBX-0.10Rating
Kingfisher PLC226.10 GBX-2.71Rating
Speedy Hire PLC26.50 GBX-2.03
Tate & Lyle PLC605.50 GBX0.08Rating
Taylor Wimpey PLC139.45 GBX-0.53Rating

About Author

Rodney Hobson

Rodney Hobson  is a columnist for Morningstar.co.uk and author of several investing books, including The Dividend Investor and How to Build a Share Portfolio.

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