While attention has inevitably been concentrated on Greek debt, we should not lose sight of the £1.5 trillion accumulated government debt in this country. Closing the gap between what comes in and out of the public purse has been slow and there is still a long way to go.
Figures for May offer even more encouragement than those in April, when the gap narrowed by £2.5 billion compared with the same month in 2014. For May, normally a poor month for receipts, the gap shrank by 2.2 billion. It was the lowest May deficit for eight years, since the financial crisis broke. Income tax receipts recorded their highest level for May in four years, rising by 5.3% from a year earlier to £10.8bn.
There is obviously no cause for complacency. The deficit was still the wrong side of £10 billion and the total for the 2014-15 financial year has been revised upwards slightly. Nevertheless, reducing UK government borrowing is far more important for the UK economy than the disaster that is engulfing Greece.
The FTSE 100 index responded by edging higher. This could be a good time to buy shares, Greece notwithstanding.
Tracking Down Profits
Model trains, racing cars and planes maker Hornby (HRN) has been a far from model investment for me. I bought originally several years ago at 150p, just in time to see the group driven almost to oblivion by supply problems and other misjudgements. More recently, with new management turning the business and the depleted share price round, I decided to get on the bandwagon again before it was too late, only to pick the top of the market at 105p.
I fell victim to the curse of all investors, refusing to accept that I had got it badly wrong in the first place and that the correct course of action was get out and look elsewhere. However, what matters now is where Hornby goes from here.
Final results were accompanied by a £15 million share placing at 95p, a 5% discount to the prevailing market price. It is good that some institutions are prepared to come in and that the money raised will be used to reduce debt, which is now on a firm footing for the next four years. On that basis it is sensible for shareholders to approve the placing.
More disturbing is a move down from the main board to AIM, which will save money but could be part of a downward slippery slope.
The figures themselves, for the year to the end of March, are rather more encouraging. Sales are up, the supply chain is much improved and Hornby moved back to making an underlying profit, though there was a tiny loss at pre-tax level. There will be no dividend for the foreseeable future and the shares remain a gamble. At least my commitment is quite modest.
Car Trader On Autopilot
From toy cars to real ones, the first figures from online car seller Auto Trader (AUTO) are pretty encouraging. The company was floated in March just days before its financial year end, so the figures cover its final year in private ownership. Revenue was up 8% and operating profit by 35%.
I do hope that now it is a public company Auto Trader will drop its preference for stressing its Ebitda performance as this is a meaningless figure usually used to disguise a poor performance at operating and pre-tax level, which is not the case at Auto Trader.
It is difficult to assess the value of the shares until we find out in November what the dividend will be but investors have been enthusiastic, driving the shares up from below 250p to top side of 300p in three months. They ran into very modest profit taking on the results but those who backed this float will rightly feel they should hold on.
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. His views are not necessarily the views of Morningstar UK.
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