Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging "No-deal" option. In this regard investors have been more far-sighted than right-wing Conservative politicians.So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage "Sell in May and go away" comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given political turmoil and the existential risk posed by Brexit but it seems that investors always anticipated that Parliament would veto the most damaging "No-deal" option. In this regard investors have been more far-sighted than right-wing Conservative politicians.So where to now for FTSE100 ? The index is back to the level of early 18Q4 which seems appropriate given the anticipated economic downturn recession failed to materialise. The old adage "Sell in May and go away" comes to mind. As strategy this has worked quite well. Over the 25 years the market has been lower at the at the end of the second quarter than at the beginning 42%  of the time, producing an average return of minus 0.4%.In terms of individual companies, Tesco (which we had in the long portfolio) is amongst the top ten performers year-to-date, and Centrica (in the short portfolio) is the second worst.

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  
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<div class="content-caption">S&amp;P Capital IQ</div>
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With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be decided. Imminent political developments will determine whether Brexit is hard, soft, deferred, or aborted.
The UK's principal share index the FTSE 100 is virtually unchanged since we established our Long/Short portfolio a month ago. Results from Lloyds and Centrica have lead to useful outperformance and underperformance respectively. The M&amp;S joint venture with Ocado is judged by investors to have added a lot more value to the latter than the former. We have been wrong-footed by Melrose Industries, but heck, there is always one.
Remembering that no one ever got poor from taking  profits,  we have closed out our long position in Lloyds Banking.  


S&amp;P Capital IQ


Equity Bottom-Up

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
<h2>Hargreaves Lansdown: What does it do ?</h2>
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
<h2>Why is it in the Short portfolio ?</h2>
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 
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<div class="content-caption">S&amp;P Capital IQ</div>

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
Hargreaves Lansdown: What does it do ?
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
Why is it in the Short portfolio ?
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

S&amp;P Capital IQ

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The UK's principal share index FTSE 100 closed 2018 marginally lower than its level at the start of the Millenium
 In contrast with the lackluster performance of the stockmarket, nominal GDP of the UK economy almost doubled over the period
Relative to the domestic economy FTSE 100 looks marginally undervalued which may explain the rebound seen in the first month of this year
On the other hand, courtesy of the political decision to leave the European Union, the outlook has never been more uncertain
Major structural change involving tearing up a 40 year arrangement with the UK's largest trading partner is bound to have significant and unpredictable consequences 
We offer a long/short portfolio of UK stocks designed to exploit emerging themes

The UK's principal share index FTSE 100 closed 2018 marginally lower than its level at the start of the Millenium
 In contrast with the lackluster performance of the stockmarket, nominal GDP of the UK economy almost doubled over the period
Relative to the domestic economy FTSE 100 looks marginally undervalued which may explain the rebound seen in the first month of this year
On the other hand, courtesy of the political decision to leave the European Union, the outlook has never been more uncertain
Major structural change involving tearing up a 40 year arrangement with the UK's largest trading partner is bound to have significant and unpredictable consequences 
We offer a long/short portfolio of UK stocks designed to exploit emerging themes 

FTSE 100: Twenty Years of Going Nowhere (Almost)

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to identify a portfolio of UK shorts and occasional longs.  
Centrica PLC: What does it do ?
Centrica, through its operating subsidiary British gas is the largest of the six major energy supply companies operating in the UK. The core activity, and providing around 70% of revenues, is energy supply to households and businesses in the UK, US and Canada. The group has a 28% share of the home energy market in the UK and 13% of the market in US. In energy supply to businesses, Centrica is the second largest supplier in the US where it claims a 15% market share. Beyond energy supply Centrica has three established business, Services, Trading, and E&amp;P, and two nascent high growth businesses Distributed Energy &amp; Power and Connected Home
Why is it in the short portfolio?
Energy Supply is dominated by regulation and price conscious consumers which has lead management to predict a flat revenue outcome over the long term. Customer numbers are declining, the recently introduced default tariff price cap will eat into revenues, and higher gas prices are unhelpful.
Recognizing the problem management intend to treat Energy Supply as a cash-cow re-investing its cash-flow into the growth businesses. However the available upside from these new ventures may not provide sufficient compensation. More immediately consideration of cash-flow suggests the dividend, currently supporting the shares with a near 9% yield, may not prove sustainable.

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to identify a portfolio of UK shorts and occasional longs.  
Centrica PLC: What does it do ?
Centrica, through its operating subsidiary British gas is the largest of the six major energy supply companies operating in the UK. The core activity, and providing around 70% of revenues, is energy supply to households and businesses in the UK, US and Canada. The group has a 28% share of the home energy market in the UK and 13% of the market in US. In energy supply to businesses, Centrica is the second largest supplier in the US where it claims a 15% market share. Beyond energy supply Centrica has three established business, Services, Trading, and E&amp;P, and two nascent high growth businesses Distributed Energy &amp; Power and Connected Home
Why is it in the short portfolio?
Energy Supply is dominated by regulation and price conscious consumers which has lead management to predict a flat revenue outcome over the long term. Customer numbers are declining, the recently introduced default tariff price cap will eat into revenues, and higher gas prices are unhelpful.
Recognizing the problem management intend to treat Energy Supply as a cash-cow re-investing its cash-flow into the growth businesses. However the available upside from these new ventures may not provide sufficient compensation. More immediately consideration of cash-flow suggests the dividend, currently supporting the shares with a near 9% yield, may not prove sustainable.

Centrica PLC (CNA LN): Lots of Gas but No Fizz

United Kingdom

Centrica PLC is an integrated energy company offering a wide range of home and business energy solutions. The Company sources, generates, processes, stores, trades, saves and supplies energy and provides a range of related services.

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Centrica PLC (CNA LN)

FTSE 100 Long/Short: No 2 No Deal

The UK stockmarket has enjoyed a buoyant first quarter keeping track with other developed markets. This might appear somewhat surprising given...

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FTSE 100 Long/Short: Beginner's Luck

With just two weeks left before the UK is set to leave the EU, the shape of the arrangements with country's largest trading partners is still to be...

Boost Research

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research

FTSE 100: Twenty Years of Going Nowhere (Almost)

The UK's principal share index FTSE 100 closed 2018 marginally lower than its level at the start of the Millenium In contrast with the lackluster...

Boost Research

Centrica PLC (CNA LN): Lots of Gas but No Fizz

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to...

Boost Research

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