Time is Running Out
When you read next week’s column you will probably know whether Carillion (CLLN) is to make a hostile bid for construction rival Balfour Beatty (BBY). An amicable merger is off the table. If you are a Carillion shareholder, hope it falls through. The potential benefits of a bid all fall to Balfour shareholders like myself, since Carillion will have to pay an attractive bid premium to win support.
At the moment Balfour shareholders have the worst of both worlds. No bid, and the pointless sale of the group’s profitable and cash generative Parsons Brinckerhoff subsidiary, with the proceeds being handed back to shareholders instead of being invested in the business.
I expect a bid to emerge by next Friday’s deadline, though I am far from certain. I hope I am right.
Blue Admiral
At first sight, figures from insurance group Admiral (ADM) seemed fairly reassuring. We had been softened up with a profit warning so a 1% rise in profits in the first half didn’t look too bad. However, premiums are down, income is down and profits would have been but for the release of cash previously set aside for possible claims.
I don’t like insurers because, as Admiral chief executive Henry Engelhardt himself made clear, in the good times participants slash premiums to gain market share only to discover that they have won unprofitable business. Everyone suffers and by the time premiums have recovered the lessons have been forgotten.
Admiral shares fell sharply for two days after the figures. I feel no temptation to buy for recovery.
A Nice Little Earner
Engineering group WS Atkins (ATK) is demonstrating that it is possible to win profitable contracts despite the strength of the pound. In fact, the UK division earns half the revenue but only 45% of the profits. The yield is below market average at 2.8% but the dividend is well covered and safe. The price/earnings ratio is an undemanding 14x on an historic basis and 13 prospectivex.
The shares have bounced back this week so it’s probably a bit late to buy, but I shall certainly keep my stake. Well worth buying on any sign of share price weakness.
The Biggest Worry Moves West
The centre of attention has moved west from Ukraine to the European Union. There will always be dangers lurking for investors but those who held their nerve are being rewarded by a recovery in stock markets.
I have long argued that Russian President Vladimir Putin has been far less confrontational than he might have been. Having annexed Crimea, to which Russia had a legitimate claim, he has been reluctant to get too embroiled in eastern Ukraine, especially since the disastrous shooting down of a civilian airline. His supporters at home have too much to lose in this confrontation.
So do we in the West, and the scaling down of tension this week is an important boost to economic hopes.
It would be great if one could say anything equally positive about the eurozone, which has ground to a halt again. Once more the calls in the British press are for the break-up of the eurozone, with Italy in particular being singled out as a potential beneficiary from going back to the lira.
If only it were so simple. The problems in Europe are deep seated and exist irrespective of the euro. The single currency did not cause the crisis and leaving it will not solve anything. This is one problem that investors have learnt to live with and is not going away.
British-based international companies that trade around the world rather than on just a small continent have suffered a little from the strong pound but are still making money. The future for those reliant only on Europe is less certain.
The euro-crisis will keep coming back, as we all knew it would. However, the masters of the great federalist dream have developed great skill in postponing Armageddon. In the meantime there is money to be made from stock market investments. I remain fully invested.
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.
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