Hobson: Buy Shares on the Market Dips Except RBS

THE WEEK: After a six week hiatus, Rodney Hobson is back - and he is not best pleased with how certain stocks have behaved in his absence

Rodney Hobson 29 January, 2016 | 1:38PM
Facebook Twitter LinkedIn

The great fun of investing is that we always seem to be entering unknown territory. We hated inflation, rising oil prices, high unemployment and economic collapse but we got used to them. Now, it seems, what we can’t cope with is nil inflation, collapsing oil prices, rising employment and economic growth.

Figures this week showed GDP added 0.5% in the final quarter of 2015, giving annual growth of about 2%. This was hardly a disaster and was better than 0.4% recorded in the third quarter yet the figure was greeted with widespread dismay.

I believe that the economic situation is better than most commentators think. The end of the world is not nigh and every sharp drop in share prices is a buying opportunity.

First Group is Still Last 

All the existing problems at transport provider FirstGroup (FGP) have persisted for another three months, as the trading update to December 26 shows. Revenue is down 9.5%, thanks to lost rail franchises, lower revenue from US school buses, fewer passengers using UK buses and fewer seats sold on Greyhound coaches.

These are not new problems and First is attempting to deal with them but its efforts have been hampered by what it calls a challenging trading environment. As so often,  when you are struggling the heavens conspire to heap more misery on you. Profits for the full year to the end of March will be slightly lower than previously expected.

I do commend FirstGroup’s board for being a good deal more upfront with the problems than many companies are, which gives me confidence that these issues will be addressed in time. Alas, the shares dipped below 100p. They were 128p last June.

It is still too early to believe that FirstGroup has turned the corner. The shares remain too risky for my liking.

You Can’t Bank on a Raising Share Price

One day analysts at UBS said “we think it’s time to buy RBS”; then the reality dawned. Royal Bank of Scotland (RBS) produced another horror update that involved an extra £2.5 billion of losses from payment protection mis-selling and litigation in America plus a worsening performance in its private bank.  Add in an extra dollop for the pension scheme and there will be another annual loss when results from 2015 come in soon.

Perhaps UBS analysts are human. Perhaps they are as susceptible to making mistakes as we ordinary investors. Perhaps, despite their professionalism in refusing to be swayed by the fact that UBS helped the Treasury get shot of a tranche of RBS shares, there was just a little unconscious psychological pressure.

I cannot for the life of me see any attraction in the shares and I am not alone. They have slipped from just over 400p last February to 250p now, some 80p below the level at which UBS helped George Osborne get that tranche of stock away in August.

Chief executive Ross McEwan says he is “determined to put the issues of the past behind us” but the past keeps re-emerging. He admits that the bank will now have to move “further and faster” this year.

I am moving further and faster away from buying the shares. One wonders when, if ever, Chancellor George Osborne will manage to sell another batch of the government stake unless he decides to accept a substantial loss.

I retain my view that Lloyds (LLOY), in which I have a stake, is a far better prospect and the Chancellor has created a new buying opportunity by his senseless proposal to launch a retail sale of government-held shares at a discount.

Osborne’s obvious lack of understanding of finance and economics has stood him in good stead for most of the time but occasionally it backfires. By telling potential buyers that they will be able to get the shares cheaper a few weeks into the future has inevitably sent the share price into a downward spiral. He should scrap the retail sale, not just postpone it, and resume selling into the market once the share price has recovered.

Subtle Plug

Forgive me, but I’m very excited about The Book of Scams, to be published by Harriman House on Monday February 1. Only modesty prevents me from giving the name of the author.

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.

Facebook Twitter LinkedIn

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.