Hobson: Don't Invest in What You Don't Understand

THE WEEK: Morningstar columnist Rodney Hobson laments confusing management speak - and concludes not to invest in companies whose statement's he does not understand

Rodney Hobson 2 December, 2016 | 2:00PM

Waste disposal is a rather unloved sector – it is easy to understand why. It may not make polite dinner conversation, but that does not rule it out for investment purposes. One of the sector’s more well-known protagonists, Biffa (BIFF), has suddenly turned bearish. This seems a little unfair.

The problem is that it is very difficult to get a handle on quite how well or badly Biffa is doing. It reported revenue up 8.6% in the 26 weeks to September 23 but 4.9% came from acquisitions. Still, 3.7% organic growth isn’t bad. Margins improved as well.

More difficult to interpret are the profit figures. Forget about EBITDA – earnings before interest, tax, depreciation and amortization – which regular readers know is a meaningless figure, especially where a company has been on an acquisitions spree. When this is the first profit figure highlighted, as in the case of the Biffa announcement, you should be especially suspicious.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Biffa PLC243.16 GBX1.53
BP PLC314.90 GBX1.60
Glencore PLC154.26 GBX0.76
Royal Dutch Shell PLC B1,278.40 GBX1.95

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.

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