A batch of results this week from the High Street demonstrated the need to distinguish between good and bad performers in the same sector – and also showed that it is not particularly difficult to exercise basic, sensible judgement.
Probably the best of the retailers reporting was Greggs (GRG), the baker, which really has taken on a new lease of life. The turning point seems to have been tackling the breakfast market, which means Greggs has two peak trading periods each working day instead of just one.
After a run of profit warnings, Greggs said last September that profits for the 2014 calendar year would beat expectations and it duly delivered when the actual figures were released in March. Now it says that sales this year have got off to a better start than expected and it is paying a 20p special dividend.
The rise in employment, even if – or perhaps because – many jobs are low paid means that more people are picking up breakfasts or buying sandwiches for lunch.
The shares have more than doubled since last summer so the recovery is well accounted for but those with the nous to have bought before the surge can hold on and hope for more of the same. While the P/E is a chunky 24 on the current year’s forecast the yield is a decent 2.7%, excluding the 20p extra dividend, and likely to rise.
Hold On to Modest Retailer Next
Clothing and homeware retailer Next (NXT) has a long record of under forecasting and over achieving. So long a record, in fact, that good news is heavily reflected in the share price. This is not a company to buy into in the hope of discovering hidden riches.
Like Greggs, Next is already running ahead of forecasts it made in March and is similarly paying a special dividend, in this case 60p. Unlike Greggs, it is attempting to play down its achievements by citing the warmer weather that coincided with it new summer range.
I wouldn’t chase Next any higher but the shares are below their 12 month peak and are well worth holding onto.
The same cannot be said of N Brown (BWNG), where the turnaround programme is showing little sign of success so far. Sales are flat and profits are down in the year that ended in February. Crucially, sales in the run-up to Christmas were disappointing.
The shares have lost about a third of their value over the past 12 months. There could be further to go. It is too early to be buying in the hope that the recovery comes any time soon.
Lloyds: Best of the Banks?
Vastly different outcomes were also in evidence at the banks. Lloyds (LLOY) undoubtedly came off best, if only for the welcome news that it has not had to make any more provisions for PPI misspelling or other misdemeanours.
It has taken a hit on the sale of TSB (TSB) but we knew it would have to and that at least is a one off. Underlying profits are up 21%. The shares will probably continue to trade around 80p until the rest of the government-held stake is sold but after that the only way is up.
The same cannot be said of Royal Bank of Scotland (RBS), where more hefty provisions have kept the bank in the red. Why the share price doesn’t collapse is a mystery. There will be no dividend for at least two years and the government cannot start to think about ditching its stake, which was and is bigger than the Lloyds holding.
Seven years on from the bailout, very little has been achieved apart from survival. Shareholders must be playing a very long game indeed.
Barclays (BARC) is also still setting money aside, in this case another £800 million for currency rigging and £150 million for PPI. Apart from that, first quarter figures were encouraging and if Barclays can achieve a settlement with UK and US regulators this month as expected the future will look much brighter.
