Berkeley Results, Pay, Brexit and AIM

We are now definitely in the usual summer doldrums in the market, compounded by the uncertainty over Brexit. It is obvious that private investors have been taking their money off the table for some time and this is clear from the results of Charles Stanley, a stockbroker and “platform” operator that were issued this morning. Both transactions and funds under management down over the year and other brokers are seeing the same. That does of course not bode well for the future figures from problematic Alliance Trust subsidiary ATS.

Private investors tend to buy when the market is rising, and even looking expensive, and sell when it is falling, or looking cheap. This is a recipe for long term poor investment performance as against a simple index tracking or “buy-and-hold” strategy. Or keep an eye on when the market is looking cheap which if it continues to fall it might soon be.

But life goes on so here are some comments on some recent news.

Berkeley Results

Housebuilders have been bouncing around for some months, and the results from Berkeley Group were published yesterday. At first sight they were positive – adjusted profit before tax up by 5.6% and forward sales now £3.25 billion. But the undercertainty over the referendum and the tax changes on buy-to-let properties is clearly having a significant impact on sales.  Sales in numbers were down 4% on the year and the London market is clearly slowing down at the top price level. However price inflation remains for properties of less than £1.25 million the announcement suggests. This surely reflects the underlying and continuing shortage of housing in London and the South-East for a growing population.

Berkeley, like Persimmon (and I hold both these companies), somewhat anticipated the cyclical impact on property sales caused by the long-term nature of building construction and recognised they might be getting near the top of the cycle. They both have plans to return substantial cash to shareholders via dividends over the next few years. In Berkeley’s case this means returns of £16.34 through to 2021 while the current share price is about £30. Effectively they are taking a conservative strategy and not gearing up in response to the housing boom of the last few years.

Remuneration

Tony Pidgley who founded and runs Berkeley, does of course get rather well paid for his long term experience and wisdom. His “single figure remuneration” figure for the year to April 2015 was £23.3 million generated from the aggressive bonus/LTIP schemes. Last years figures are not yet available but this might be another company where there is a substantial revolt.

But it’s worth noting that last year when the show of hands vote came at the AGM, I did not spot anyone voting against other than myself. And on the proxy counts only 14.5% voted AGAINST. This just shows how difficult it is to get investors to vote against resolutions when they are happy with the company’s performance and its share price. ShareSoc will probably be issuing more comments before the AGM on the 6th September.

Brexit

Tony Pidgley is in the Remain camp so far as Brexit is concerned and it is clear from his comments in the Preliminary Results yesterday and at last year’s AGM as to why. The financial interests of Berkeley are linked to not just a growing population in London, but on skilled labour coming in when there is a shortage in the UK.

Was very amused to talk to my local M.P. recently at the Chislehurst Summer Fair. He had apparently already predicted how I was going to vote despite the fact that I had only recently made up my mind while not advertising the decision, and he mentioned he was supporting the Remain side which did not surprise me either. This despite the fact that I applauded his role in the democratic structure of the UK which is being undermined by the EU in a recent editorial for the ShareSoc Newsletter which you can download from here: www.sharesoc.com/brexit.htm. As I said in a recent blog comment, I just wish all those commentators who forecast financial disaster, or the opposite, would run my portfolio because they clearly have more data, or are closer to the Delphic oracle, than me. And that’s the last I will say on this topic I think.

AIM Market

As you probably know ShareSoc recently launched a campaign to improve AIM – see www.sharesoc.org/aim-campaign.html . There were a couple of relevant stories on the front page of the AIM Journal (sponsored by Northland) this month.

The first one mentioned that it was the 21st birthday of AIM and mentioned that of the first ten companies listed on AIM only one is still quoted, and even that has moved to the main market – this is Athelney Trust. The rest have been taken over, delisted or simply faded away into history and such is the track record of many AIM stocks. The second article was on new AIM listing Directa Plus (DCTA). This is an Italian company that produces graphene. Graphene is a wonderful new product with many potential new applications, but most of the producers of it currently lose money. It is therefore a rather typical “concept” stock where it could have a wonderful future if you believe the hype and future growth forecasts. The current market cap is £72 million, but it made substantial losses in the last financial year and previously. Revenue last year was only £1.7 million. So this looks like yet another grossly overvalued stock being promoted to investors as with lots of other AIM stocks. Not all new AIM listings are such speculations, but unfortunately many are. This is one aspect of AIM which we suggested could be tackled.

Roger Lawson