Hello and welcome to Stock Watch Live.
It’s not busy next week on the corporate reporting front but there’s more than enough to keep your eye on across a range of sectors.
Commodities will be in focus, with trading updates from both Rio Tinto and Anglo American. Business services are in the spotlight with Robert Walters reporting and an update from Hays. Fittingly, as the summer holiday period gets underway, there will be trading news from Thomas Cook and easyJet.
But the three companies I’ve picked out for a closer look operate in three very different areas of the market. Polar Capital Technology Trust is an investment trust specialising, as its name suggests, in the technology sector. Premier Oil is an energy explorer that has been through the ringer in recent years but has latterly had some more encouraging news for shareholders. Finally, there’s Sports Direct, rarely out of the headlines thanks to its larger than life boss Mike Ashley’s attempts to reshape the ailing British High Street.
So, let’s start with Polar Capital. Although this is a London-listed investment trust, the nature of the industry it invests in means you won’t find any British companies among its top ten holdings. Unsurprisingly this include the giants of Silicon Valley - Microsoft, Facebook, Apple and Alphabet are its four biggest holdings. Amazon’s in the top ten too, as are both Chinese internet giants, Alibaba and Tencent. Samsung and tech fund staple Taiwan Semiconductor are in there too.
Given the names in the trust, you won’t be surprised to hear that it has been a great long-term performer, as the chart shows. Since the financial crisis, the value of the shares has risen seven-fold. Perhaps the biggest surprise is that they currently trade at a discount of nearly 10% to net asset value.
That could reflect concern about the future growth prospects of the FAANG stocks, a subject on which Polar’s manager Ben Rogoff was quizzed at a recent investor event held by ETF Stream, a publisher and events organiser focused on exchange traded funds.
Rogoff knows these stocks as well as anyone. He first bought Apple in 2003 since when the share price has risen 18,000%, he says. He’s gone underweight the company’s shares now, saying that the ‘smartphone industry is done’. Not so, Amazon where Rogoff cites the move into cloud-based platform services as the key to unlocking a business with $100bn of revenues.
If Polar Capital has been in the right place at the right time, the opposite could be said of Premier Oil which is proof positive of the dangers of a lack of diversification. Unlike the oil majors like BP and Shell, Premier is an out and out explorer. It lives or dies on the back of its ability to find new reserves. And it is a hostage to the oil price about which it can, of course, do nothing.
Back in 2014, Premier invested heavily in a new North Sea flagship project only to see the oil price collapse. From a high of over 500p in 2011, Premier’s shares fell as low as 19p at the beginning of 2016. Needless to say, there were considerable doubts over the company’s viability at that time.
Since then things have looked up considerably and a couple of months ago, the company said that production was higher than expected while its considerable debt pile was reducing ‘faster than anticipated.’ Last year, Premier returned to profitability, although given the need to reduce debt there’s no dividend yet.
Then at the end June, the company announced that expected reserves at its Zama field in Mexico had increased significantly.
Premier still has a way to go to get its share price back into three-digit territory but at 79p, the danger point of three and a half years ago is clearly in the past now.
Our third company under the spotlight this week has also been a huge disappointment to investors in recent years. Priced at over 900p in 2014, Sports Direct is less than a third of that today, perhaps understandable when you consider the challenge that boss Mike Ashley has set himself.
Essentially, Ashley has taken a massive gamble on the British High Street’s woes being fixable. Not everything thinks that is the case, but you can see why someone would have a go.
Nowhere in the world are there so many well-known brands available for apparently bargain-basement prices, as the internet and Brexit fears continue to cut a swathe through the UK’s beleaguered retail sector.
Sport Direct has already saved several retailers from collapse. He has stepped in to rescue Evans Cycles, Sofa.com and House of Fraser and it is the last of these that is the main focus for investors hoping for a turnaround story at Sports Direct. The £90m acquisition of the venerable department store chain is a big bet on the part of the High Street that many people doubt has a future in an era of online shopping. But the business is still loss-making.
If you can move from one specialist retailer to another at the click of a mouse what is the unique selling point of a department store, you might well wonder? The problems at Debenhams, and even the sector’s formerly untouchable star, John Lewis, rather make the point.
So what are we expecting next week from Sports Direct? According to analysts’ forecasts gathered by Bloomberg, underlying earnings in 2019 are expected to be £284m, compared with the £306m achieved in 2018. Adjusted earnings per share of 15.3p would compare with last year’s 19.9p.
Sports Direct has missed out completely on the market rally since the beginning of the year. The shares are down about 6% compared with a rise of nearly 9% for the FTSE 100. Investors are just not convinced that the strategy of creating a broad-based High Street holding company out of a sportswear retailer is viable in today’s challenging retail landscape.
Even the year-to-date fall has not been enough to attract much interest from investors. A couple of brokers rate the shares a hold, two more are sellers of the stock. There are no brokers ready to put their names to a buy recommendation just yet.
Well that is all from us this week. For more on the companies mentioned here and the other thousand or so on the platform, visit fidelity.co.uk’s Investment Finder tool.