Britons still favour savings in cash

In this week’s bulletin:

  • Eurozone laboratory
  • Central bank action in the UK and US has supported financial markets and economic recovery, now the eurozone has introduced quantitative easing.
  • Anticipation of the eurozone’s bond buying programme has fired European stock markets.
  • Strong US jobs data has prompted speculation that interest rates could rise this summer.
  • Britons still favour savings in cash, despite being aware of better returns elsewhere.
  • As the tax year-end approaches, there is still an opportunity to review financial plans.


Eurozone laboratory

Almost six years ago to the day after the Bank of England launched quantitative easing (QE), the European Central Bank (ECB) has started its version of extraordinary monetary policy. In the intervening years, the extraordinary has become almost ordinary – or, at least, large-scale asset purchase programmes to support financial markets and economies are a fixture of the post-financial crisis world. Certainly, central bank action in Britain and America – the two early exponents of QE – has successfully buoyed financial markets and economic recovery. But as the UK and US look to return to more normal monetary policy, Japan and the eurozone have adopted QE. Now only time will tell if the ECB’s €60 billion a month of government debt and asset purchase programme can work the same magic.

Anticipation of the eurozone QE programme, however, has already fired European markets. The German DAX last week closed at 11,551 points after hitting a record high of 11,600 points earlier on Friday. Other indices in the region – including France’s CAC 40 and Spain’s Ibex – also made strong gains over the week and so far this year. The pan-European FTSEurofirst 300 index rose to its highest level since November 2007 on Friday and ended the week at 1,571 points. German government bond yields fell lower, as prices climbed, while 10-year sovereign yields in Italy, Spain and Portugal fell to near record lows. Investor optimism for Athens’ ability to resolve its differences with its creditors has helped push Greek government bonds lower after their peak following the Greek election in January.

Mario Draghi, the president of the ECB, believes QE can help defeat the threat of deflation and expects growth across the eurozone of almost 2% in 2016, as well as this year’s zero rate of inflation to rise to 1.5% next year. Alongside signs of improvement for the eurozone economy and the stimulus that the anticipation of QE has brought to the region’s financial markets, European corporate earnings are also recovering. Fund manager Stuart Mitchell of S. W. Mitchell Capital says European equity valuations are “stunning”, particularly domestic-oriented stock, and attractive compared to other asset classes and regions. Fund manager Schroders believes that improved conditions should benefit stocks such as autos, media and construction – as well as the region’s higher quality banks.


Global experiment

Central bankers also took action last week in China, where benchmark interest rates were cut for the second time in three months amid concerns over slowing growth and deflation. Beijing’s move gave a lift to Japan’s Nikkei 225 Stock Average, which last week exceeded the 18,700 point level it last reached in 2000 (although it remains around 50% below its 39,000 record in 1989). The Nikkei closed on Friday up 0.9% over the week at a 15-year high of 18,979 points. The Bank of Japan’s QE programme has continued to weaken the yen and strengthen Japanese exporters. Overall conditions for the Japanese economy look positive, with annualised growth now at 2.2%, corporate profits at record levels and signs of much-needed wage increases that should help spur consumption and curb deflation.

The week also brought good news for America’s economy, although there remains some disquiet that the recovery is short of policymakers’ forecasts. However, 295,000 US jobs were created in February, which is the 12th consecutive month that the economy has added more than 200,000 employees. The unemployment rate fell to 5.5% from 5.7%. The positive development further strengthened the value of the dollar. Markets are now speculating that the US Federal Reserve could raise interest rates this summer. Fund manager Payden & Rygel believes that the Fed is on track for an interest rate hike this year, with a rise in June “on the table”.

Shares in New York were down on Friday, while the dollar further strengthened and Treasury yields rose, as the robust job figures heightened expectations of a US rate increase. The S&P 500 index lost 1.1% over the week and closed at 2,071 points, although it had earlier, on the first trading day of March, reached a record high of 2,117 points as technology stocks, led by the world’s largest company Apple, gained amid strong earnings growth. A series of big corporate deals also stirred Wall Street, including a $21 billion move by AbbVie on Pharmacyclics to boost its cancer drug business. Hewlett-Packard also made a $3 billion swoop on Wi-Fi networks maker Aruba – its biggest deal since the troubled $11 billion purchase of UK group Autonomy in 2011.


British values

The ECB’s adoption of QE has also boosted the UK stock market. The FTSE 100 last Monday hit a record 6,974 points, however, it had settled back by Friday to 6,912 points. Although international mining stocks continue to weigh on the market, gains in the financial sector helped lift the FTSE 100. Life insurers Aviva and its £6 billion takeover target Friends Life also announced they would increase their dividends amid strong results. Other strong performers last week included housebuilder Taylor Wimpey, which doubled its dividend payout amid rising demand for new homes, while Asian-oriented bank Standard Chartered and broadcaster ITV also made noticeable advances. Drug giant GlaxoSmithKline gained after the completion of its $20 billion asset swap deal with Swiss group Novaritis.

The FTSE 100 so far this year has advanced around 5%, after last month breaching the record high set at the end of the last century. While the 1999 peak at the height of the dotcom boom was driven by unrealistic valuations, accommodative central bank policy is now helping to power the UK stock market and economy. Although energy-related stocks have been hit by falling oil prices, a broad range of industries – together with UK households – have benefited from the downward pressure on already low levels of inflation.  As the UK economy continues to improve, conditions look positive for businesses and consumers. Households’ inflation expectations are at the lowest for 13 years, according to the Bank; and UK consumer price inflation in January was at its lowest recorded level of 0.3%.

Last week also marked the sixth birthday of near-zero interest rates. In March 2009, the Bank announced its move to cut rates to the lowest levels since 1694. With the financial crisis in full swing and the economy in dire straits, there was good reason for the emergency measures. But six years on and savers are still waiting for an increase – in fact, the last time there was a rise was July 2007 to 5.75%. The bleak news for savers is that, despite all the market speculation about when a rate rise will occur on this side of the Atlantic – probably after the Americans have increased theirs – the Bank has made it quite clear that we are in for a prolonged period of low interest rates and only gradual rises.


Then and now

Britain’s businesses and individuals have become accustomed to these conditions. Borrowers are benefiting from record low mortgage repayments, and readily available consumer debt. Meanwhile, savers faced with near-zero returns on cash have had to pursue other ways to generate returns, with many for the first time turning to stocks and shares. Certainly, as a recent Barclays Capital study underlines, stocks and shares offer long-term returns that can beat inflation. Whether the Bank sets it first rise in the autumn or early in 2016, ultra-low rates look likely to be here for some time – which will underline the need for investors to consider what the stock market can offer.

The stark reality for savers is that near-zero rates have also meant that steady inflation, although relatively low, has eroded the real value of cash – with AXA Group estimating a 13% fall over the last six years. Yet, as a BlackRock survey identifies, Britons continue to favour savings in cash, despite being aware that the money would offer better returns elsewhere. For example, the FTSE All Share index since its low in March 2009 has generated a total return for investors of 139%.

Stock markets in the UK and US are at record highs, and at recent peaks in Europe and Japan. Certainly, investor caution is understandable – the financial crisis still casts a shadow. But central bank action and the global economic recovery – although patchier than many had hoped for – together with strong corporate earnings are reasons to be upbeat. Although global equity growth may have slowed, equities still beat cash. Crucially, as the tax year-end approaches, there is still an opportunity to review plans in light of the realities of financial markets and the wider economy in early 2015.

February ended with stock markets advancing at a steady clip

Plain sailing?

February ended with stock markets advancing at a steady clip and moving clear of the turbulence that marked the start of 2015.


In this week’s bulletin:

  • Financial markets reacted positively to the US Federal Reserve’s steady-as-she-goes message last week and the prospect of monetary conditions persisting to the second half of the year.
  • European stock markets have also drawn strength from the European Central Bank’s quantitative easing programme, signs of improvement in the eurozone economy and stronger corporate earnings.
  • The UK stock market has breached the 6,950-point mark last reached at the end of 1999, as it benefits from low interest rates, central bank stimulus and the UK recovery.
  • The world of pensions has become an election battleground, with Labour unveiling plans to take £2.7 billion from pension savers to fund lower university fees.


Plain sailing?

February closed with global stock markets advancing at a steady clip and moving clear of the turbulence that marked the start of the year – as the FTSE 100 index also sailed to a 15-year high. Global investors have been buoyed by the European Central Bank’s (ECB) decision to launch its €1.1 trillion or more bond-purchase scheme, as well as Athens’ temporary deal with its creditors and, for now, the receding threat of a Greek exit from the euro. World equity indices were up over the month as global investors sought out stocks that reflect renewed growth potential across the global economy – not just in the US but also in Europe too. And the continued slide of yields on government bonds to near-record lows has further encouraged investors towards equity markets.

There has been a flurry of positive news for America’s economy too. More than one million jobs have been created in the world’s premier economy over the past three months, which is the strongest employment growth since 1997. A further 240,000 new jobs are expected in February. US unemployment is one of the lowest among the developed nations; while its growth rate is one of the fastest. Although the recovery is at half the growth rate of the 1990s, the US economy is, by the month, displaying more of the momentum sought this decade. Deflation is a concern; but consumers are benefiting from lower prices and increased expendable income – and should, crucially, spend more.

As the US economy gathers speed, Janet Yellen, the chair of the US Federal Reserve, continues to prepare the decks for a possible interest rate rise later this year. In her appearance on Capitol Hill last week, Yellen stated that the economic recovery is solid and there are signs that wages have started to pick up. However, she is faced with a fine balancing act: the Fed wants to increase rates but fears a further strengthening of the dollar that could make exports less competitive, imports cheaper, risk deflation and threaten to halt the recovery. Consequently, Yellen gave more of her nuanced signals to markets – the message is that she is inclined to raise interest rates, but not until the summer.



Financial markets reacted positively last week to the Fed’s steady-as-she-goes message and the prospect of present monetary conditions persisting to the second half of the year. Although the S&P 500 hit a record high earlier in the week, the benchmark US index was slightly down at the end of the week to 2,104 points amid continued uncertainty for the energy sector over the direction of oil prices. However, the S&P 500 has gained 6% over February as the strong dollar, the deepening recovery and growing business earnings attract investors. One sign of the confidence is the advance of cyclical stocks, particularly from the consumer, technology and industrial sectors. Meanwhile, utility stocks – last year’s favourite – were the S&P 500’s worst performers in February and dipped to a two-year low.

In Asia, news that Japan’s civil service pension fund – which has ¥7.6 trillion of assets under management – is to treble its exposure to domestic equities nudged the Nikkei 225 Stock Average to a 15-year high of 18,865 points. The benchmark Japanese index advanced 6.4% in February – its best month since November. Japanese equities are also reflecting the growing confidence in the Japanese economy, which has been supported by loose monetary policy, a weaker yen and the fall in oil prices. Schroders’ chief economist Keith Wade is upbeat for Japan’s economy and stock market. Lower oil prices are a big boost for Japan’s energy import-oriented economy, says Wade, while Japanese business looks “very competitive” as increased exports look set to support economic growth this year.

European stock markets have also drawn strength from the ECB’s quantitative easing programme, signs of improvement in the eurozone economy and stronger corporate earnings. The German parliament’s support of an extension of the Athens bailout also boosted European equities. The FTSEurofirst 300 index advanced 2.5% last week to close on Friday at a seven-year high of 1,565 points. The index has gained 14% his year, as investors seek the value offered by the region’s corporates (as consistently highlighted by fund manager S. W. Mitchell Capital). The ECB this week is expected to hold near-zero interest rates as it fleshes out the detail of its bond-buying programme. In this environment, government bond yields continue to fall, with the 10-year German debt at a record low last week.


1999 revisited

The UK stock market has also emerged from February with confidence. The FTSE 100 index breached the 6,950-point mark last reached on the final trading day of 1999 and, on Friday, touched another high before closing at 6,947 points. The ‘Footsie’ is up 6% since the start of 2015, as it benefits from low interest rates, central bank stimulus and the UK recovery. The FTSE 100 last year underperformed other leading indices – despite the UK recovery and partly due to its international horizon – but many believe that the conditions are in place to pass the 7,000 line soon.

The Footsie’s resurgence seemed to have been greeted with rumination rather than a fanfare. Certainly, there has been plenty of change to reflect on in corporate Britain over the last decade and a half – and only half of the index’s members have survived the intervening years. Since 1999, there has been the dotcom bubble; the optimism for global growth in the years to 2007; the crisis of 2008–09, and the hit taken by Britain’s banking stalwarts; recession and austerity; and the recent fall in commodity prices. One big change has been the demise of telecoms and technology and the rise of energy and mining stocks – a shift that has made the Footsie more a bellwether of the global economy.

The FTSE 100 is almost double the 3,512 points low it hit in March 2009. Investors have become accustomed to low bond yields and near-zero returns on deposits and have looked to equities for returns – the dividend yield on the index is 3.4% compared with the 1.8% from 10-year government bonds. One of the casualties of the financial crisis, Lloyds, also announced it would pay dividends for the first time since 2009. (Lloyds was one of the Footsie’s major dividend payers in 2008.) Nick Kirrage of Schroders sees the move as very positive. “A dividend needs to be a flag of something sustainably improving,” he says. “Banks will be a massive theme for income funds in the next three years.”


The long voyage

While the FTSE 100 surpassed its 1999 peak, Barclays also published its 60th annual study of long-term investment patterns. Barclays charts the course of stock markets since 1899, with events such as world wars mere features on the long voyage for equities. For example, £100 invested in 1990 would have returned £750 now, including dividends. And it is dividends that are crucial in this story – and that have risen each year since 1945. Returns on shares, for short periods, may have fallen behind government bonds and cash – and the returns on these assets are dwindling – but it is equities that have rewarded investors who invest steadily through economic cycles and events (an approach exemplarily pursued by Warren Buffett, who wrote his 50th and last annual shareholder letter at the weekend).

The Footsie’s high will be welcomed by the government as a sign of investor confidence ahead of May’s election, amid falling inflation and unemployment. But there are political uncertainties – beyond the election’s outcome – that could spell stock market turbulence. A nationalist landslide in Scotland could bring another referendum on the Union. And, if David Cameron holds power, a referendum on membership of the European Union (EU) looms in 2017. William Hill offers 3:1 odds on Britain’s exit of the EU; think tank Open Europe puts this at a one-in-six chance. Business leaders such as Martin Temple, of the manufacturers’ lobbyists EEF, are talking of a “sleepwalk out of Europe”.

Meanwhile, the once-sleepy world of pensions has become an election battleground, with Labour unveiling plans to take £2.7 billion from pension savers to fund lower university fees. The proposals hinge on a cut in the annual pension allowance to £30,000 from £40,000, a reduction of the lifetime allowance to £1 million from £1.25 million, and a decrease in tax relief to the 20% rate for those earning over £150,000. Although the finer details are lacking, the proposals have been widely received as a political raid on middle-income savers. As John Cridland, director-general of the Confederation of British Industry, – concludes, they would make it “very difficult for people who are trying to save for the long term”. One practical conclusion is clear: if you can, make the most of current rules while they are in place.

Market Snapshot:  Facilitate Trade and to bring resources to enterprises.

OMG! For around £1 a week on ADVFN

This week …

is a busy start with beginning of the month economic statistics. In the UK the main PMIs of Manufacturing, Construction and Services are reported. This is followed on Thursday by the BOEs meeting to decide on Interest Rates.

Reports on the Eurozone are as busy and generally a slow improvement can be anticipated although collectively the Unemployment rate of 11.4% remains too high.

In the US economic tensions are emerging as the FEDs patience with interest rates in thinning while the recovery growth may be maturing. Unemployment is a key US figure and is reported on Thursday. Markets seem likely to stand still.

Last week …

markets were moderately higher. The FTSE 100 beat its 15 year high of 6,950.6 and closed the week at 6,946 which was 0.5% better. The FTSE 250 improved by 0.9%, while the Aim All Share increased by 0.48% and the FTSE Small Cap, at 5,449 was 0.8% better.

Uncomfortable wind seems to be trapped between the UK’s increasing Consumer Confidence and the contradictory fall UK Retail Sales- it could just be timing issues.

Greece’s loan bailout terms have been agreed for four months so it’s fixed until June? Elsewhere in the Eurozone mild improvements were reported notably in Consumer Confidence and Employment.

The fall in US GDP to 2.2% from 2.6% with Consumer Confidence and Prices drifting lower, somehow managed to avoid a large potential banana skin.  The improvement in China Manufacturing is good news after couple of months of falling.


Pause for Thought

“ The immoral exploitation of the market in denial of its fundamental purpose which  is supposed to be to facilitate trade, to bring resources to enterprise not to profit from empty financial concepts before anyone realises that they have no actual value”.

Sentiment taken from, Baroness Scotland speaking at the World Traders Tacitus Lecture.



EMR                  Surprisingly good trading

ITQ                     Corporate activity could remerge

Empresaria (LSE:EMR) – 50p (47p-53p) – Cap: £19.8m

Next Results: Finals Thursday 5th March

Empresaria, the international specialist staffing group will be reporting finals on Thursday. January’s trading update reset expectation’s to a higher level. Despite the price increasing from 40p the prospective P/E is just 7x, yielding 1%.

EMR  is widely diversified by sector and geography, it provides both temporary and permanent staffing solutions in several growth sectors including Financial, IT Digital & Design, Technical & Industrial and Retail.  Net Fee Income increased by 10% to £21.6m at the interims and it was the fourth consecutive QTR of growth. There are 20 brands operating in 20 countries across the globe; including the UK which accounts for around 35% of turnover, there is also Germany, Japan, Indonesia, China, India, Chile, Thailand, Singapore, Finland, UAE and Australia. The business has been developed by acquisitions  which builds brands and the strategy is to incentivise  management teams  with significant stakes in their ‘own’ business. A Dubai based professional search firm was acquired in March 2014. Organic growth is from new offices in Hong Kong, Malaysia, Chile and Mexico. Profits for the December 2014 year-end are forecast at £6.1m for an EPS of 7p and a prospective P/E of 7x which could fall to 6x with a 1% yield, in the current year.


Net Debt was 27% lower at £9.8m with interest well covered by earnings (3x). Cash flow from operating activities is positive and there is plenty of spare borrowing capacity.

Trading Strategy

Despite seeming lowly rated and improving prospects two institutions have been selling down their stakes. The largest Caledonian has reduced from 16.4%, at the interims to currently 12.9%.


InterQuest (LSE:ITQ) – 84p (82p-86p) – Mkt Cap: £28.5m

Next Results:  Final Tuesday 10th March

Since OMG! January’s recommendation which was made after takeover talks were called–off, the shares have drifted. This prompted a Trading Statement upgraded profit expectations  and the results to be reported  a week this Tuesday.

InterQuest, is the number 9 player in the UK Information Technology recruitment sector and to maximise shareholder value put itself up for sale in October 2014, but the process was called off on 23rd December.  The shares were around 130p and the reason was that the offer was too low given the opportunities and growth potential.

InterQuest is an acquisitive specialist recruitment agency; placing difficult to find permanent and contracted talent with specialist IT skills in hot technology spots such as digital analytics, web technology and apts.  The net fee income for December 2013 was £17m and is forecast to increase by 34% to £23m. The value adding acquisition strategy is to focus on the fastest growing web development technologies companies maintaining them as separate divisions and then developing the business while opening up cross selling opportunities with existing clients.

The deeply experienced team which includes the major shareholder Gary Ashworth, already have the infrastructure for geographic growth as well as having a proven ability in making and integrating acquisitions.  Extrapolating from the trading update, which along with the 34% increase in Net Fee Income, stated that profit margins had improved by around 6% to 21%. We expect a PBT of £4.4m for an EPS of 10.1p giving a prospective P/E of 8.4x, with a 2.8% yield.


Gearing is around 33%, which is slightly higher than last year reflecting the growth but is in-line for a business placing 1,300 or so weekly contractors.

Trading Update

The organic growth rate suggests the size of this discount to the support services sector P/E of 24x, is harsh. There could also be value adding corporate activity.

Last OMG! Price 90p

A confident march

A confident march

The year has started with a series of market-moving events, but stock markets are at record or recent highs.

In this week’s bulletin:

  • European investors have shown faith in the ability of the eurozone to reach a deal on Greece.
  • The FTSE 100 index last week hit a 15-year high, despite renewed pressure on energy-related stocks.
  • Income investors were rewarded handsomely last year, with dividend pay outs up by 11% to $1.167 trillion.
  • The introduction of radical pension reforms together with the tax year-end fast approaches in April.

A confident march

Investors could be forgiven for thinking that there have been enough market-moving events so far in 2015 for a whole year. Greece has moved to the brink of an exit from the eurozone but, after the weekend, seems for now to have stepped back. Russia is pulling the West towards a new Cold War. Islamic State’s ambitions remain unchecked. The direction of oil prices continues to look uncertain. The European Central Bank has belatedly embraced quantitative easing (QE). And government bond yields push lower. Yet global equity markets are brimming with optimism and marching at record or recent highs. Investors in this late winter swirl are seeking out opportunities as they remain hopeful that the world economy, led by the US and global business, will continue its uneven recovery.

Wall Street last week continued to benefit from investors looking for quality, with the S&P 500 index advancing to a record high on Friday of 2,111 points – which amounted to a weekly gain of 0.6%. All of the S&P 500 sectors ended in positive territory, except energy, which slid amid the uncertainty over oil prices. The world’s most valuable corporation, Apple, with a market capitalisation now of $749 billion, reached another record closing high on Friday to give the US index its biggest boost. The world’s second-largest corporation, Exxon Mobil, worth a mere $376 billion, has lost the support of Warren Buffett, who has sold his holdings in the energy giant, as well as ConocoPhillips, in response to the oil market woes (the octogenarian investor’s increased positions include IBM, MasterCard and Visa).

In Japan, monetary stimulus continues to boost the Tokyo stock market. The Nikkei 225 Stock Average closed on Friday at 18, 361 points – its highest level for 15 years – and continued to advance in early trading this week. Japan’s financials made the biggest gains, led by Mitsubishi UFJ Financial Group. There was positive news too for Japan’s economy, which expanded by an annualised 2.2% in the final quarter of 2014, after contracting over the previous six months. Japan’s exporters are benefiting from loose monetary policy via a falling yen that has bolstered competitiveness and revenues; while the weaker currency, rather than an improving economy, is powering the Nikkei. However, the Bank of Japan, which left policy unchanged last week, is concerned that an even weaker yen would push import costs higher, hit consumers further, hold back inflation and negate the benefits of cheap oil.

Continent stirs

European equities also made strong gains last week and at the start of this week, reflecting investor faith in the ability of the Eurozone to reach a deal on Greece and, perhaps more fundamentally, the confidence that they have drawn from the ECB’s decision to start to buy government bonds from March to support financial markets and boost economic growth in the Eurozone. The FTSEurofirst 300 index advanced 1.5% last week to 1,525 points, and is up by a solid 11% so far this year (compared with a 2% rise in the S&P 500). Germany’s DAX also closed the week at a record high; the Greek stock market regained lost ground on Friday – and was closed on Monday for the beginning of Lent holiday – and has recovered by around 20% from its low after the Syriza victory last month.

Investors hunting for value have been increasingly drawn to the Eurozone, irrespective of the Greek crisis. A Bank of America Merrill Lynch survey of fund managers suggests that exposure to the Eurozone is the highest since 2007, amid the best profit outlook since 2009. Four-fifths of regional specialists surveyed anticipate a recovery this year. The open-ended nature of Frankfurt’s QE programme – which will run until inflation returns to acceptable levels – is a big factor. But, as Schroders economist Azad Zangana observes, signs of growth – particularly in Germany and Spain – have boosted expectations. AXA Framlington notes that consumer-oriented sectors, including telecoms, are most likely to benefit from a turnaround. Automotive, travel and leisure sector stocks are presently flavour of the month.

The bullishness on Europe is very much centred on the Eurozone, while two-fifths of those surveyed by BoA intend to reduce their exposure to UK stocks and shares (and Switzerland’s too). However, the London stock market has not missed out in the recent rally in world equities, and the FTSE 100 index hit a 15-year high last Wednesday of 6,921 points and ended the week a fraction off the peak. The advance to levels last achieved in 1999 came despite renewed pressure on energy-related stocks as oil prices started to slide again. British Gas owner Centrica was one of the FTSE’s big fallers after it revealed that it would cut its dividend by a third, following a £1 billion pre-tax annual loss amid low energy prices, warmer weather and uncertainty over the direction of government policy after the general election.

Perennial rewards

Although Centrica is not alone among the big energy-related firms that have had to review dividend pay-outs in response to the fall in oil prices since last summer, overall, investors in the UK and worldwide are still being rewarded handsomely. The total dividend income paid around the world rose by 11% last year to $1.167 trillion, according to Henderson Global Investors. However, the divergence of the US and UK recoveries from those of the rest of the world, as well as the oil-price slump, means that dividend growth looks likely to rise globally by just 1% this year. The strong US dollar will also drag on dividend income from around the world once converted into the US currency.

Despite a more subdued prognosis for 2015, global dividend income has risen 60% since 2009. Last year, UK dividend payments were up by almost a third to $135 billion, while North American and Continental European payments rose by 15% and 12% respectively. In the UK, the rate of growth for income investors over the last six years far outstrips inflation and the negligible returns that deposit savers have endured since March 2009. In Europe, with government bonds offering ultra-low yields – J.P. Morgan reports that some $3.6 trillion have negative yields – it is natural that investors are seeking out income and taking on a little more risk.

In Britain, the backdrop for investors is that inflation is at its lowest level in decades, with oil prices predicted to fall further and energy providers likely to start cutting prices. The Bank of England expects inflation to be around zero in the second and third quarter, with a brief period of deflation this spring. There is concern about ‘bad’ deflation when caution sets into households and businesses – as the real burden of debt rises – and leads to the woes that beset Japan in recent decades. However, Britain’s economy is growing at its fastest rate for a decade. The ingredients are in place for ‘good’ deflation, when falling prices increase income, expenditure, enterprise and growth.

After spring

Crucially, the Bank of England views the fall in inflation as temporary and has lifted its medium-term forecasts for both economic growth and inflation. Prices are expected to rise at a yearly rate of 2.1% by the end of 2017. In these conditions, there is speculation that the Bank could raise rates later this year. However, the Bank has stated that, if there was a risk of prolonged deflation, it is ready to ease monetary policy with more QE or further interest rate cuts. The months in the run-up to the election and beyond will hold the answer as to whether or not the UK can pull clear of deflationary threats. But, as the Bank has reiterated, rate increases when they do finally come will be slow and low.

Investors and savers are now also entering the perennial run-up to the tax year-end in which to review personal finances and make full use of allowances, exemptions and other opportunities before they are lost. However, this year, spring also brings the introduction of the most radical overhaul of pension arrangements in Britain since the 1920s. Up to 320,000 people each year from April will have the freedom to cash in defined contribution pension pots from the age of 55, with no requirement to turn their savings into a secure income.

The Centre for Policy Studies has welcomed the liberalisation, but wants savers to be encouraged back towards annuities. Many people risk failing to buy suitable products and running out of money, it warns. The position is sensible: de-emphasising the need for a regular income and annuity has risks and liberalisation needs to be safe. As the debate intensifies, what is certain is that the changes are momentous and will require those approaching retirement to make momentous decisions. The importance of sound, expert financial guidance has rarely seemed as pressing.

Market Snapshot: Watch for Banana skins

This week …

we are filing Ukraine and Islam State away as dangerous and under unpredictable.  Moving on we can predict that Greece remains uncertain but no longer likely to be dangerous. This is assuming that Greece will, at least pretend to fall in line with EU loan agreements although a veil of austerity needs to be pulled over the electorate eyes. There are plenty of chances for better Eurozone economic news with Consumer Price Index, Consumer and Business Confidence and Unemployment.

In the US there is Consumer Confidence reported on Tuesday; Thursday the latest Consumer Price Index and Jobless are announced with GDP on Friday. These factors may combine to make the recently buoyant market stumble.  We seem set for a moderately lower week.

Last week …

the FTSE 100 improved by 0.76% to 6,915, while the FTSE 250 was 1.66% ahead. The AIM All Share jumped 1.58% and the FTSE Small Cap at 4,514 improved by 0.4%.

The CBI is optimistic for the UK economy and have upgraded 2015 GDP to 2.7%. Inflation slowed to 0.3%, unemployment dipped to 5.7% and UK Retail Sales grew 5.8% on the year but at a slower rate in January.

In the US, the Fed signalled that an Interest Rates raise would still be ‘detrimental for the recovery’, perhaps they mean world recovery.

The Eurozone markets reached a seven year high as the Business Activity Index rose to 53.5 from 52.6, remember that 50 is break-even.

Pause for Thought

“Small Cap Stocks tend to be less well researched so many are mis-priced. The outlook for small and mid-cap stocks is better now.”



  • AVG Growth just ‘interrupted’
  • RXB Jogging on the spot but set to move forward
  • SIXH Sensible Strategy moderately rated


Avingtrans (LSE: AVG) – 115.5p (113-118p) – Mkts Cap: £32.3m

Next Results: Interims Wednesday 25th

A cautious Trading Update in November from the acquisitive AVG knocked the price from 140p. Avingtrans designs, manufactures and supplies critical (expensive) components, modules and associated services to the aerospace, energy and medical sectors.

Current Trading, was reported to be adversely affected by the significant restructuring by one of the Company’s key customers, perhaps Rolls Royce. So profit expectations have been reduced to be pretty much the same as last year, but with a lower EPS. Longer term the market for aerospace products and services is growing and there is some increased activity from existing and prospective aerospace customers. There is room to accelerate efficiency with the site rationalisation plans which are already underway allowing cost savings. Since the Trading Statement the Aero Division, has signed a 10 year long term agreement with PFW Aerospace GmbH (part of Airbus) valued at c£25m over its duration based on the current predicted volumes. The medical and energy sectors are preforming in-line with expectations although there are some acquisition integration challenges. So for the May 2015 year-end, turnover of £62m could give profits of around £3m would give an EPS of 9.5p (14p) for a prospective P/E of 12x while yielding 2.7%.


At the finals to May gearing was 11%, positive cashflow with net debt of £3.6m and a net asset value of £32.6m.

Trading Strategy

This is a well-run business and we expect a decent improvement in 2016.


Rex Bionics (LSE:RXB) – 67.5p (65-70p) – Mkt Cap: £10m

Next Results: Interims Thursday 26th

Rex Bionics are pioneering of a new mobility product but December’s disappointing Trading update saw the shares fell from around 160p.

Rex are at the leading edge of robotic technology to improve the mobility of wheel-chair users by strapping them into bionic legs that can then walk. Since the IPO in May 2014 when £10m was raised there has been significant developments in product, manufacturing and marketing, however sales were reported to be materially behind market expectations. The issue is that to sell to the broader medical market such as Hospitals the medical and financial benefits of a walking wheel chair need further proof. Therefore clinical trials are underway to support the financial proposition along with the already proven therapeutic one. The application of robotic technology for wheel-chair users in the Rehabilitation and home care settings (ie non-medical) is gaining traction. Earlier in December an innovative collaboration was signed with PhysioFunction, one of the UK’s leading providers of specialist Neurological Physiotherapy and Rehabilitation Technology services, to enable PhysioFunction to offer Robot-Assisted Physiotherapy using the REX technology to its substantial customer base at fifteen physiotherapy clinics around the UK. The directors are sufficiently confident to have brought around £50k worth of shares at the current price.


It is likely that further funding will be needed to progress to sustainable cash-flow

Trading Strategy

There could plenty of upside in the world robotic legs market. These interims will be a guide to the pace of development.


600 Group (LSE: SIXH) – 18p (17.5p-18.5p) – Mkt Cap: £13.4m

Next Results: Finals June

This former metal recovery and engineering company has a long and now mostly irrelevant history as the latest acquisition moves it away from machine tool into higher margin leaser marking.

This year a £6.2m loan was taken to complete the 80% acquisition of a US leaser marking business TYKMA for £3.04m. TYKMA is a privately owned company based in Chillicothe, Ohio, which specialises in the design, production and distribution of laser marking systems for a broad range of industry applications.  During the year ended 31 December 2014, the Company reported net operating income of US$0.73m on revenues of US$8.40m. The business will be fully integrated with Electrox, the Group’s existing laser business. The terms are the loan are 8% coupon for Five years with the company holding an option to repay early. The loan is a 100% covered by 5 year warrants at 20p which can be exercised at any time.

The interims to September reported in December, described the performance  as satisfactory as revenue growth was above the industry average and profit margins showed continued resilience despite facing sluggish overall market demand. Electrox Laser continued to generate strong growth momentum, with revenues increasing by more than 15% to £4m across a broad geographical base.    More than 44% of revenues were generated in North America, where margins were squeezed by the strength of Sterling relative to the US dollar and additional sales resource was added to increase market penetration.

The balance of the loan restructures other debts and provides working capital. It supports the stated strategy of developing the Group’s exposure to high growth industry sectors led by technical leadership in niche markets. This should clearly improve 600’s rating. Finals to March 2015 are likely to be profits of £2m for an EPS of 2p which gives a P/E of 9x.


The restructured debt does allow for further infill and complementary acquisitions. A director recently brought £23k worth of shares at an average price of 15.8p

Trading Strategy

The shares are moderately rated and the 8% loan note with warrants seem attractive.