“There are decades where nothing happens; and there are weeks when decades happen”; Lenin
Broadly the dust is now settling. What is the early impact of “Brexit”…so far?
STG has settled well below the long term trend support at US$1.50 (31 year lows). This helps FTSE100 earnings.
In this currency sensitive environment, broad groupings have emerged:-
The risk of “overshooting” in fast moving environments is real. Some of the “Losers” have been oversold and we see opportunities in UK centric companies with track records of achieving growth.
GSK is a leading UK pharmaceutical/ consumer healthcare company formed via the 2000 merger of Glaxo with Smithkline Beecham. GSK’s initial success was attributable to its development of Zantac, a leading anti ulcer treatment one of the world’s first “blockbuster” drugs. The GSK business is split into three major divisions, i) Pharmaceuticals ii) Vaccines and iii) Consumer Healthcare. The board has promised to pay 80p per share in dividends in 2016 and 2017.
Company | GSK |
Key Catalysts GSK reports results in sterling yet its revenues are mostly in USD and USD linked emerging markets currencies. The decline in sterling from its Q1 result ($1.44) to $1.32 should of itself boost GSK EPS by c. 10%. The board has to date delivered £400m of cost savings of its total £3bn annual cost savings plan by end 2017. We are positive ahead of interim results, due on the 27th July 2016. |
Share Price | 1646p | |
Target Price | 1800p | |
52 Week Hi/Low | 1662p/1237p | |
Shares O/S | 4.872bn | |
Market Capitalisation | £80.1bn | |
Avg. Daily Volume | 7m | |
Dividend Yield | 4.84% |
Source: Fidessa plc
Topps Tiles is a UK supplier of tiles with an 18% market share of a £640m annual market) It has grown net profit consistently from £5.7m in 2011 to £12.85m in 2015 due to store additions/ capacity expansion / margin growth. The positive UK property backdrop (national average prices have jumped from £120k to £175k since 2011) and competitor closures post 2008/9 have helped Topps add market share. Topps Tiles is run by Matthew Williams, the son of founder Stuart Williams. The family’s combined shareholding is c. 11.37%.
Q3 trading update (6th July) with like for like sales growth +6.2% demonstrated a good customer reception to recent product ranges changes. Topps is likely to meet EPS forecasts of 9.16p for 2016.
Company | Topps Tiles |
Key Catalysts Topps recent working capital improvements, a decline in inventory days are positive backdrops. The board has also flagged margin gains from exiting wood products/ Topps Clearance. Topps is well positioned for a likely softer 2016 post Brexit. Topps has reversed c 27% since 22 June on concern over margins. . |
Share Price | 107p | |
Target Price | 150p | |
52 Week Hi/Low | 165p/96p | |
Shares O/S | 196.06m | |
Market Capitalisation | £210.5m | |
Avg. Daily Volume | 730k | |
Dividend Yield | 3.05% |
Source: Fidessa plc
DFS Furniture is a leading UK/ Eire/ Netherlands/ Spain furniture supplier operating via its namesake stores, and other names, Sofa Workshop and Dwell. Former owner Advent International floated DFS on the LSE Official List in March 2015. DFS growth has come primarily from store expansion.
Company | DFS Furniture |
Key Catalysts The directors were confident of DFS competitive position, its strategic initiatives and market share capture going into H2 2016. DFS is hedged against Far East product sourcing costs for FY16 but not FY17. DFS is committed to 10.5p in annual dividend (40%-50% payout ratio) suggesting Fy16 EPS of 21p-26.25p) against a consensus forecast of 23.2p.
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Share Price | 211p | |
Target Price | 300p | |
52 Week Hi/Low | 349p/181p | |
Shares O/S | 211.8m | |
Market Capitalisation | £448m | |
Avg. Daily Volume | 243k | |
Dividend Yield | 4.48% |
Source: Fidessa plc
We are confident that the sterling devaluation and imminent Bank of England measures will stabilize the UK economy after the Brexit event. As such the sell-off in UK centric companies is possibly overdone.