The past three months has been interesting with profits on our International Hotels and Catering holdings offsetting post Brexit losses on our UK Building and Construction holdings both allied to the effects of sterling's devaluation against the dollar and the euro. A positive response from the Government to Brexit augurs well for our economy and we continue to focus our portfolio on some 50% of holdings in UK based high yielding building and construction companies not affected by the international value of the pound; and 50% of our holdings in international companies with lower yields which will benefit from sterling devaluation as most of their profits emanate outwith the UK.
Building & Construction Holdings Persimmon produced six months' sales figures ahead of expectations with a 29% increase in profits and a similar increase expected in the next six months. The company announced it would increase dividends by at least 45% over the next 5 years and we could see this increased further. The next Management Trading update is on 3rd November which should allay any remaining doubts on Brexit affecting house building, and help the share price to return to its pre Brexit level.
Taylorwimpey continues to grow steadily with profits for the past six months 12% ahead of last year and we expect a greater increase in the current six months. On the dividend front the company has stated that for the coming year based on future trading expectations, the total dividend will be increased to 13.8% from10.9% an increase of 26%,as which should see the share price back to pre Brexit levels with the business unaffected by the referendum and prophets of gloom.
Berkeley Homes Group once again produced excellent figures and confirmed a large increase in profits up until 2018. The image of being a city/central London builder only was corrected by showing it has some 20+ sites in the South East and is not materially affected by a quieter market in Central London. With a strong cash backed Balance Sheet and a guaranteed dividend for the next three years based on the current order book to yield 8%, we expect the share price to recover to pre Brexit levels quickly. The current shareprice is said to be being manipulated by Hedge Fund operators who will be proved wrong in our opinion. It has a potential share price increase of 30% to last years level.
Redrow Homes is our favourite holding in this sector having produced another set of record figures and announced a 54% increase in its order book for new homes as compared with last year in spite of Brexit. In the year to June, profits are up 23% and the dividend increased by 50%, four times covered. Now on a P/E of 8 we have increased our holdings here. The company proposes to take power to buy back its shares when deemed advantageous to do so as the share price remains low and it could be to existing shareholders benefit to do so.Being based in North Wales may not be a fashionable place for a PLC but the company operates throughout England &Wales and has a particularly attractive new site to build 2900 new homes in Colindale in North London.
Hotel and Catering Holdings All have done well in the past three months as their international profits have benefited from the fall in the pound against the Euro and the Dollar.
Intercontinental Hotels: continues to progress with new openings and technological developments. The share price continues to rise helped by the 20% devaluation of the pound which should add a near 20% increase in the value of profits and dividends. The next quarterly update on trading is on 21st October.
Accor Hotels: this French based chain has perhaps the most interesting of futures. After an Investors day teach in at Accor's Head Office in Paris last week we are increasing our holding here. Accor differs from the other four mainly North American based major hotel groups in that its base is France with a strong presence in the mid-Far East, Africa, Russia and South America and in July it acquired three top international brands: Fairmont based in Canada Raffles in the Far East Swisshotel in Europe.
This gives it 17 different brands covering all sectors of the industry. It is developing its brands in China in partnership with Huazu jointly and Huazu has taken an 11% stake in Accor. Concurrent with this Jin Jiang Holdings from China has acquired a 12% holding in Accor and other major shareholders include Quatar and Saudi government holdings. A major restructuring to put its properties into a separate company and sell part of its capital will release £3.5 billion to Accor to develop its hotel chain. In CEO Sebastien Bazin it has a far seeing and imaginative leader to create a uniquely successfull business.
Compass Catering Group: continues to grow soundly and steadily with more improved results in its third quarter. Sales continue to rise in line with new contracts and we are benefitting again here as it is a UK group with 90% of its earnings out of the UK. Although perhaps the biggest contract catering business in the world it still has only about 5% of the market giving great growth potential.
Sodexo: the French equivalent of Compass but stronger internationally in some countries than Compass, it has seen a 10% increase in its share price and dividend this year. Interestingly one of its major sales increases this year has been in England.
PORTFOLIO CHANGES NH Hotels has produced a substantial increase in profits but the anticipated resolution of the boardroom problems caused by a hedge fund attacking the largest shareholder the Chinese HNA group, have now moved to the courts which is potentially serious. Hedge funds should never be able to sack a company's very successfull management and this situation has made us decide to sell what is potentially a great investment which may be ruined by this dispute.
Mitchell & Butler: having visited some of their new developments and experienced their operations over the past three months, these were disappointing and did not provide confidence that MAB was on the road to recovery. Latest sales figures were poor and below others in the industry thus we were not persuaded the management can succeed in winning against the ever improving competition in the catering business.We have sold our initial small investment here at cost.
FILMS & TELEVISION Clients here have had a very successful summer in both the UK and in Europe.