Friday Email: 24 April 2015
Every Friday morning our lead analyst Mark Riding sends out his weekly run-down and upcoming events in the investor calendar, like this one:
The FTSE 100 is pretty much where it began the week having pushed over 7100 in early trading on Tuesday.
It has been a very interesting week in the light of events on Thursday when Pace became the second company in our 2015 model portfolio to receive a takeover bid from a U.S. company. First came Rexam, which is showing a gain on the year of 28% and now Pace which is up 29%. This brings the performance of the model portfolio as a whole to up 12.14% (excluding dividends) whilst the FTSE 100 has risen from 6547 to 7053, up 7.7%. It is looking like another year of significant outperformance for the model portfolio is on the cards.
Members will know that we highlighted Pace on the 14th October last year and also as recently as the 23rd March in our feature on the best dividend increases from the reporting season. Personally, I don't think the Americans are paying enough as they are only paying a couple of years free cash flow that would be generated by Pace as the cash element of the deal. That said, you will be getting shares in a company that will immediately enhance their earnings with this acquisition. My thinking is that we will see more of this as the Americans use their over inflated paper and the strong dollar to pick up competitors that are quoted over here at much lower prices. To give you some idea of what the American market thought of the deal, Arris (the bidder) shares traded up 22% on the first day of trading after the bid, valuing Pace at roughly £5.
The past week was again very quiet as Tesco completed its humiliation with the confirmation of a final dividend of zero. Associated British Foods which trades on a forward PE of 28 times earnings and yields 1.3% managed a paltry 3% increase in their dividend. We won't be seeing that in the model portfolio any time soon.
The week ahead remains quiet although we do get final results from Whitbread and Home Retail. Thursday sees model portfolio constituent, Saga produce its final results and also it will be interesting to see how Globo are getting on with their US expansion when they report, also on Thursday.
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Read next: 17 April 2015
The FTSE 100 hit new highs on Wednesday but fell back on Thursday as worries about a Greek debt default and potential exit from the Eurozone once again kicked in. In the UK, the election battle continues to fascinate and the outcome remains very unpredictable. The strength of the markets suggests that the outcome will not matter all that much. Who knows? Usually, election years are good for the market. The worry of rises in interest rates over in the US has started to emerge as well this week and that is certainly going to have a big global impact on sentiment, but it is unlikely that that they will rise rapidly as the global economy remains fragile.