Wednesday 23 October 2013

Royal Mail Sale - Berkshire Buy

Unfortunately I didn't get the full amount of Royal Mail shares that I subscribed for, instead getting £750.00 worth, which I believe is what every retail investor who subscribed actually received.

The shares shot straight up to about £4.50 (from £3.30) at commencement of trading, and have drifted up quickly since then on the back of huge demand. I sold today at £5.26 banking about £400.00 profit after expenses. At £3.30 the shares were obviously undervalued, but I'm not sure they are worth a great deal more than their current value, and am hoping I will do better invested elsewhere.

I have bought two new holdings. Firstly about 3% of my portfolio has gone into Berkshire Hathaway, the American conglomerate chaired by the sage of Omaha himself, Warren Buffett. I wish I'd bought this stock a long time ago, but hopefully the 'better late than never' mantra will apply. At 83 years of age Buffett is getting on a bit, but as well as being a great manager himself he is also a magnet for talent. I believe that succession won't be an issue when he finally throws in the towel.

Note I bought the B listed shares at $117.00, the A shares being slightly out of my price range at $175,000.00 a pop! The trading costs involved in purchasing the US shares were over double that I normally pay for buying UK stock; not too much of an issue in this case as I do intend holding long term.

As this investment is priced in dollars there will be some exchange rate risk, but luckily because of all the debt commotion caused by the US congress, the value of the pound against the dollar is close to it's 52 week high so it's been a favourable time to buy in that regard.

My second move was to invest about 1.5% of the portfolio into JPMorgan Russian Securities Investment Trust. This is a purely contrarian play as Russia is about the second most unpopular country in the world with investors, with the RTS index trading on a PE of 3.5. Only Argentina is more unpopular with their headline index trading at a PE of 2, although their economy is in terrible shape with inflation figures running into double digits.

Russia has a bad reputation with investors largely because of inconsistent regulation and a generally absent rule of law, yet Putin's government has pledged to tackle these issues. Furthermore the country benefits from a younger demographic than many of its European peers and its growing consumer class should prove a positive factor going forward.

Wednesday 9 October 2013

Portfolio Update - October

Two days ago I had a clear out of some of my weaker positions. I sold all my holdings in BG Group, all my holdings in Vodafone and half my holdings in Tesco.

BG Group & Tesco were sold for just below purchase price, although including dividends received I'm probably at break even overall. Vodafone has made about a 20% capital gain and also paid me a 5% dividend for a couple of years so that has been a more solid but not spectacular investment. These three companies have all performed poorly in a rising market and they are all facing their own headwinds that make me think the substandard performance might continue, at least for the short/medium term. I think my money will be better off elsewhere.

Some of the proceeds have been used to top up existing holdings in AstraZeneca, GlaxoSmithKline, Imperial Tobacco, and Murray International Investment Trust.

Of the remainder, some has been invested in Molins, a small cap company who make specialist machinery for consumer goods markets, mainly tobacco and food. They are very cheap on paper with a P/E of around 8, a decent dividend of 3% and good growth prospects in the form of potential new contracts in the near future.

Also despite saying I wouldn't get involved in the post office IPO I had a last minute change of heart yesterday and put my name down for a few shares, am not sure if I will actually get them as they have been over subscribed and I was very late to take action. It will be interesting to see how the IPO plays out.



Friday 4 October 2013

Royal Mail - First Class?

When I first heard about the Royal Mail flotation I must say I wasn't that interested. The company faces its fair share of adversity, with issues ranging from the rise of the email, strong competition in parcel delivery, and also employee turmoil. Things won't be easy going forward and some serious restructuring is probably in order.

However the figures are very appealing. The price range cited at initial offering is 260-330p, which would put their PE ratio at around a very reasonable 10. Also the dividend is forecast to be 6-7%, a phenomenal income stream in times of ultra low savings rates.

In 2012 the business made a decent pre-tax profit of £201m, a huge improvement over the -£118m loss in 2011, this probably due to the huge increase in the price of stamps etc. The figures for 2013 look like they will be even better!

There is huge public interest in this flotation, personal anecdotal evidence points to the shares hitting the higher end of the 260-330p range. I won't be getting involved in the initial offering but I will be keeping a close eye on them.