The Week: Utilities, Housebuilders and Sports Direct

THE WEEK: Morningstar columnist Rodney Hobson examines Mark Carney's claims, the profits of housebuilder stocks and the fate of Sports Direct

Rodney Hobson 9 September, 2016 | 12:44PM
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Mark Carney has taken a fair amount of stick for things that were not his fault since his appointment as Bank of England Governor – so perhaps balance was restored this week when he claimed credit where it wasn’t due.

For a man who prophesied that a vote for Brexit would bring immediate economic calamity, to claim he had saved the day by reducing rates was a bit much. The panicky cut to 0.25% in base rate is doing more harm than good.

Sectors that the doomsters said wold do badly, such as banking, housebuilding and manufacturing are very much seeing business as usual. And I am indebted to a reader of this column, Chris Hardstaff, for drawing my attention to utilities post referendum.

This sector is traditionally seen as a safe haven but it has received little mention since the vote. Opportunities are admittedly limited now that so much water, gas and electricity is supplied by foreign companies but Centrica (CNA), National Grid (NG.), Pennon (PNN), Severn Trent (SVT) and United Utilities (UU.) all offer decent yields although the price/earnings ratios tend to be higher than average.

In my view utilities retain their defensive qualities while offering scope for growth and every portfolio should contain at least one. I hold National Grid and United Utilities.

Housebuilder: Profits Up, Share Price Down

More on the theme of companies that produce good results or a positive trading update yet the shares fall sharply, opening up a buying opportunity. In common with other housebuilders, Barratt Developments (BDEV) reported another good set of results, with revenue, profits and dividend all higher for the year to the end of June.

The good news continues. Reservations since the start of July are higher than for the same period last year.

The figures were greeted with a fall of 2% in the share price that morning, presumably an irrational piece of profit taking after the shares recovered from 333p in early July to around 500p. Yet I cannot see why investors were prepared to pay 600p as recently as March if they are seen as worth only 500p now.

As a shareholder myself, I am more than content to sit back and wait for further recovery in the share price. This week’s dip is a chance for slowcoaches to get in.

Majority Shareholder? Major Headache

The trouble with investing in a company with one majority shareholder is that they cannot be held accountable. Small shareholders often feel disempowered at the best of times but at least, ultimately, shareholders can band together and oust the board as long as they can manage a majority between them. One person holding more than half the shares seems to me to go against the whole ethos of stock market investing.

Ah, you may say, but as long as the boss isn’t a crook like Robert Maxwell it should be all right, shouldn’t it? Mike Ashley, 55% shareholder in Sports Direct (SPD), may not be a crook but the company issued another profit warning this week. And the company remains mired in controversy over treatment of its warehouse workers and has seen more than half its independent shareholders vote to oust its chairman, who can carry on because he has the support of Mike Ashley.

The shares slumped on the latest profit warning and have lost more than 60% of their value in 12 months yet they have actually recovered a little since July. If you are among the unfortunate investors it is not too late to get out and learn your lesson to beware companies with a majority shareholder.

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.

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 PLC506.60 GBX2.51Rating
Centrica PLC79.14 GBX-7.24Rating
Frasers Group PLC672.00 GBX5.16
National Grid PLC1,186.50 GBX-3.30Rating
Pennon Group PLC1,032.00 GBX-3.19
Severn Trent PLC2,941.00 GBX-4.23
United Utilities Group PLC1,039.00 GBX-6.61Rating

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.