With only a few weeks to go until 2016, we are coming to the end of our second year since we converted from being a hotel owning and management group to a leisure industry investment and management group, and it has been both an interesting and successful year.
This month, as we expand, we have moved our administrative offices to G7--Ground Floor --Battersea Studios 1 --80 Silverthorne Road --London SW8 3HE.
Our client Rachel Wang of Chocolate Films Ltd became Entrepreneur of the year at the annual Black British Business Awards lunch at the Hilton Hotel in London in October rounding off a record year of film and video production; a great achievement in this industry.
On the investment front, as envisaged in our autumn review the AGM of REDROW updated trading with a 28% increase in orders and a 15% increase in average sale prices since the year end, which should give another record year's profits and dividends on this investment.
GALLIFORDTRY had its AGM and, like Redrow, is forecasting a record 2016 profit and dividend from its rapidly growing housebuilding activities in the SouthEast and Yorkshire, with orders for new homes up by some 30% in the first 19 weeks of its new financial year, allied to a very focused construction business with schools, hospitals, hotel/leisure and infrastructure contracts throughout the U.K. Good to see Peter Truscott from Taylorwimpey has joined GT as CEO succeeding Greg Fitzgerald who retires in 2017 after 35 very successful years building this great business.
INTERCONTINENTAL HOTELS continued to be the source of bid rumours in October but has confirmed there is nothing happening other than the business continues to grow , and we still must wait until February to find out the size of the anticipated dividend/capital distribution from the proceeds of its HongKong and Paris property sales. Provisionally Feb 16th.
The announcement of the Marriott takeover of Starwood has created the largest hotel group in the world in place of IHG, but leaves IHG in the unique position of being the group with the lowest capital commitment in freehold property and likely to attract approaches from other groups, possibly from China and remains attractive with its low PE Ratio vis-a-vis its peers.
Our two new investments, ACCOR HOTELS and SODEXO continue to have solidly based share prices, regardless of the terrorist problems in France.
SODEXO figures for the year to September have exceeded our expectations with a record 22% increase in profits and dividends allied to a £300 million capital distribution to shareholders as this group continues to lead the field in contract catering and services,
TAYLORWIMPEY announced in mid November that trading was once again at record levels and a further substantial special dividend is intimated for 2016. It claims to be the UK's biggest builder, as does Persimmon, but with sizeable holdings in each company, it is only of academic interest to us. Of particular interest here is the improvement in operating margins of 2 basis points allied to a 12% plus increase in the order book for 2016.
The PERSIMMON IMS looks to be the basis for a greater than scheduled annual dividend well ahead of its projected shareholders returns annually until 2021. Dividend expected to be announced early February.
COMPASS GROUP announced last week another set of excellent figures in spite of reduced profits in catering for mining and oil production companies which have reduced their activities in the short term. It continues to purchase its own shares in the market to be held in treasury from its surplus cash generated funds and has increased the dividend payable in January by 11% to 29.4p for the year. Our holdings in Compass and Sodexo give us a sound and well spread investment in the contract catering and services industries.
BERKELEY HOMES GROUP has its interim results on 4th December which should continue to be very good and indicate a particularly successful year ahead in 2016/7 as major developments reach completion.
We wish all our management clients and associates a very happy XMAS and a prosperous NEW YEAR.
Autumn investment portfolio review
Results from just two of our holdings since August.
GallifordTry produced another set of good figures and its order book continues to grow.
Sales increased by. 31%
Profit increased by. 24%
Dividend up by. 28%
And a forecast of yet another attractive dividend increase next year makes this a really good long term holding.
INTERCONTINENTAL HOTELS produced third quarter figures well up to expectations, with an increase in REVPAR of 4.8%,and following the Hong Kong and Paris sales, some 95% of revenue will now be fee income which should ensure a sound future profit base. The decision on the distribution of the surplus £900 million from asset sales is to be announced in February.
Following the decisions of the CEOs of both IHG and Compass to join other Boards, viz Marks and Spencer's and Tesco, we have made our additional new investments in the Hotel and Catering Industry in Accor Group Hotels and in Sodexo, both of which are excellent businesses where the CEO is fully committed to managing their companies and not dissipating their time with non executive appointments.
Accor a French company is one of the world's largest hotel groups trading primarily as Sofitel -Novotel-Ibis -Mercure and MGallery and is a broader friendly tourist based business with a strong presence in French orientated countries and in LatinAmerica, as compared with IHG.
Sodexo is also a French company, similar and in competition with Compass and has worldwide interests. Here in England its catering contracts include ASCOT- RHS Hampton Court -Bateaux Mouches Thames cruises and major public companies and it is a particularly customer friendly business. We also like its contribution to education and constructive development in the 50 + countries in which it operates.
Looking ahead to the end of the year and our portfolio, we have an interim statement from Persimmon which should more than live up to expectations, and AGM's at Redrow and Gallifordtry which should be encouraging, followed by a trading statement from TaylorWimpey, and then the final figures from Compass on November 26th.
Key investments: into the autumn
September is here and with the end of the holidays we have interesting developments with several of our investments.
Yesterday Redrow produced even better than expected final figures with profits up by some 53% and dividend increased by 100%. With the forecast of an other record year in 2016. We will add to our holding here.
Berkeley Homes held its AGM today with the expectation of another good year in 2016 and two great years in 2017/18 as current developments come to fruition.
Intercontinental Hotels has really good news today as it has got rid of Marcato from its share register and can get on with running its business and keeping the company British. It can stay as the world's biggest hotel group and not be pressured into dealing with any weak American hotel group. Several of you have questioned the IHG commitment to China and expansion there in relation to the recent financial waves in the Far East, but from my visits to China I have few reservations on the IHG strategy and it will remain our largest holding in the hotel industry. Yesterday saw Citibank recommending that IHG shares which have gone from 2900 to 2300 since April are likely to rise to 3150 in the next 12 months!
There also remains the question of what the group will do with its surplus £900 million
This summer we have had the opportunity to experience the operations of both the Accor Hotel Group and the Sodexho Catering group – both well run operations which will feature in our further investments in the hospitality business.
Next week sees results from another of our building industry holdings, GallifordTry, which should emulate this week's Redrow results.
Finally I visited the privately owned SANIRESORT in Greece last month and it is superb with perhaps the best operation and the best staff I have experienced in a resort operation. Unique! and in no way affected by the country's political difficulties.
Key investments: August review
Our Key Investments this month include only the results from Persimmon Homes,which have come up to our expectations and the company is on course for a record year with profits up 31%at the half way mark. Some press comment suggests the price is overstated based on their theoretical analysis of building being a cyclical industry but they are wrong! Their is enough work to keep our builders busy for the next 20 years in our opinion and we are not sellers of any of our holdings in the building industry.Expect another increased payment being announced next February above forecast
Intercontinental Hotels has denied any deals with Starwood and we must wait until February until we find how the £900 million surplus cash will be utilised. I the meantime new hotels are being added to the group weekly, in all of its various brands and particularly encouraging is to see famous hotels such as the Grand Hotel in Bordeaux as well as new Holiday Inns joining the Intercontinental brands, where IHG management can achieve great improvements. The drop of 20%in its share price is not of any significance in this very successful business which remains one of our main investments in the hotel industry.
Looking ahead to September results for our Key Investment portfolio will include figures from two more of our construction/building holdings viz. GallifordTry and Redrow which should be great and in line with the growth of Persimmon.
Is IHG about to buy Fairmont or Movenpick? Plus TaylorWimpey & Compass update.
The anticipated half yearly results from some of our Key Holdings were announced in the past week and all are as anticipated.
Intercontinental Hotels produced another good increase in profits and a 10% dividend increase but no indication of what the surplus £900 million from property sales will be used for except to say shareholders will be advised after the year end next February. However this weekend's Sunday Times suggests the acquisition of either Fairmont Hotels from Canada or Movenpick from Switzerland is on the cards. Both these companies could benefit from IHG management and the acquisition of one or both of these groups would be great for IHG.
Whatever transpires, seven months from now this holding could be an even more successful Key Investment.
Another of our catering industry holdings COMPASS GROUP announced good trading figures but subject to costs of reducing activities in the oil and mining industries of £25million in each of the next two years.The rest of the business should continue to grow,and our only reservation with this holding is why the CEO spends time as a non exec at bombed out Tesco when Compass should have his full time involvement.We remain invested here as this is a group with great potential.
The third and best announcement of the month came from TAYLORWIMPEY with another record turnover and number of house completions, the interim maintenance dividend for the half year doubled and the announcement of another special dividend next July increased by 20% from £250 to £300 million. With the aim of steadily increasing the range and quality of its homes the future looks exciting when one considers the demand for new homes is at least 250,000 p a and the industry is only building 150,000.
AUGUST will bring figures from Persimmon Homes our largest KEY Investment in housebuilding and more than justify our holding where the shareprice continues to rise in expectation of another record year from our largest house builder.
How will IHG spend its Hong Kong cash?
With the sale of the Intercontinental Hong Kong now complete for £928 million, can we now expect another special dividend on this key investment in the hotel industry?
Don't bank on it !
Three years ago when the industry was still recovering from 2008 and TRAVELODGE was heavily loss making, Intercontinental executive Peter Gowers left IHG to become CEO of TRAVELODGE. Now it is a really successful business and is rumoured to be on the market for £1000 million.
What better use could IHG make of its Hong Kong cash than add Travelodge to its existing brand names for the Holiday Inn Express brand is way behind in the budget hotels market.
The IHG interim figures and dividend will be announced on Thursday so there may not be the big dividend hike we were expecting.
TRAVELODGE would be preferable
Either way IHG remains one of our KEY Investments.
Things are looking up
It's the end of June and time for the half yearly review of our interests all of which continue to prosper.
Our leisure businesses are both busy and Yoga BC, the yoga company, has launched it's own channel on YouTube. We've already published eight mini exercise routines with a further eight scheduled in the next six months
In television client Chocolate Films' (www.chocolatefilms.com) production projects are at a record level with some really interesting scripts under discussion. The 1000 Londoners series continues with a new programme released each week to some excellent critical acclaim.
Our Investment operations have had a further substantial increase in assets and profits, the latest holding to produce results being Berkeley with a 40% increase in profits and some £2 billion forecast over the next three years as the demand for new homes continues to exceed supply and the industry's production is close to capacity.
Away from our business interests in the leisure industry, a recent visit to the renovated Chichester Festival Theatre (£22 million) was to experience that there also Things Are Looking Up – it's the opening number of a production of a Damsel In Distress, last seen in England as a Fred Astaire musical in 1937. It was a great show, complemented by a delightful dinner in the Minerva Theatre Brasserie, created by an events' catering company new to me – Caper&Berry – perfect food and wine with exemplary service from white gloved waiters. The finest theatre dinner enjoyed since the Bregenz Opera Festival last year.
We go into the next six months with great confidence in all our hotel, catering and KEY construction industries investments and in the continued growth in our clients activities.
Dividend income: Revolution or evolution?
Three hundred years ago investors would invest their funds to back a merchant adventurer or business on the basis that the profit would be divided among them pro rata to their investment - the dividend. Then, and at the end of each venture, the original investment was repaid.
Notable exceptions were London's South Sea Bubble and Scotland's Central American Darien Project where everyone in Scotland lost nearly everything. (Royal Bank of Scotland repeated this in 2007).
Capital markets developed with the industrial revolution and the creation of major companies, partly financed from retention of profits after investors had received modest dividends with the expectation of capital appreciation on their initial investment.
The latter half of the 20th century saw many businesses reach optimum size and rather than pay out the profits in increased dividends, Directors of companies diversified using the surplus cash to buy other unrelated companies and create industrial conglomorates, most of which have vanished after incompetent management, along with a lot of investors' capital.The worst example of this period was one of the U.K.'s largest companies GEC which stashed away £5 billion of shareholders cash in bank deposits as there was nothing in the same business to invest in, according to chairman Arnold Weinstock. When he retired the new board blew the lot on acquiring diverse companies in the next five years and shareholders lost virtually everything!
Moving forward to present day we have a new situation with many companies. Now, when there is surplus cash from exceptional profits, asset sales, working capital surplus to requirements and a business is at its optimum size then companies are beginning to pay Special Dividends to shareholders, which they in turn can reinvest if they wish.
With our Key INVESTMENTS we have seen extra dividends from IHG after hotel sales, the same from COMPASS from unneeded working capital, large special payments from PERSIMMON, BERKELEY and TAYLORWIMPEY with surplus cash as they operate at optimum size. In the insurance business we have DIRECT LINE saying they will repay all surplus cash left above regulators' requirements -this year possibly £430 million.
This evolution in dividend returns to investors is most welcome as we grow our investment portfolio and determine future strategy for our KEY INVESTMENTS. And there is an added bonus for all investors like us - we then have some additional funds to support the latter day 17th century merchant adventurers of today: the high tech start ups of the 21st century.
Post election investment update
With the Election now over there is little we intend to change in our portfolio which was anticipated to grow regardless of the result.
Housebuilding and Construction should be a major beneficiary of the new government and the traditional seven year cycle of the industry could now just be at the start of a 20 year cycle in housebuilding, schools, hospitals and infrastructure. We have increased our holdings in TaylorWimpey, Redrow, GallifordTry, Berkeley and Persimmon which are all already producing increased sales and profit. Persimmon is perhaps the most interesting and potentially most profitable with its innovative SPACE 4 development of factory based construction of timber framed houses which enables it to build homes faster to a higher standard than conventional techniques.
Hotels and Catering remain our main investments with both Intercontinental Hotels and Compass Catering our favourite long term holdings, and hopefully these two International groups will be able to retain their independence as British Companies.
Television and Media remain as attractive growth investments,but we have reduced our holdings in Aviva insurance as the management is rewarding itself in advance of the future, as we saw in the past.
Our investment policy of KEY Investments in other companies in place of operating and investing in our own hotels continues successfully with an overall gain on our holdings of 46.8% since January 2014.
Key investments: house building and construction
Yesterday GALLIFORDTRY produced an IMS confirming business is developing as planned. More importantly the appointment of the new CEO is confirmed with the existing CEO Gregg Fitzgerald staying as non exec Chairman for two years which is good news and we should continue to see exceptional growth as existing plans come to fruition.
A small but positive move is the acquisition of Shepherd Homes in York to increase the house building division. Shepherd is well known locally.
With a good dividend increase again expected with the next set of figures, Galliford remains one of our KEY investments.
Key investments: catering
COMPASS Group has reported its latest six months figures and once again a sound and steady increase in sales, profits up by 12% and the interim dividend by 11%.
With cash generation growing we should be getting an extra cash dividend in six months time and Compass remains one of our long term KEY Investments
KEY Investment. Intercontinental Hotels Plc
Last Friday's AGM produced no news about a takeover/merger but more importantly the latest quarterly figures gave REVPAR growing at 7.7%in the UK and 5.9% globally which points to another hike in profits and dividend later this year with a possible extra payment from the sale of the Hong Kong property.
We remain a firm investor in this section of the hotel industry with the share price at an attractive level of £28.20 and more hotels opening monthly.
Key investment update: IHG
Intercontinental hotels Plc
Latest news: yesterday's share price rose to 2967p on takeover rumours. Unfounded as usual but the background to this is the announcement that Starwood-Sheraton/Westin is looking for a merger/buyer as its business has problems with revenue down 3% this year compared with a 10% increase at Hilton. This shows how consistently well IHG continues to do as I expect we will have confirmed at its forthcoming AGM.
Interestingly I spend over £10,000 p.a. with Starwoods and never hear from them, whereas I spend little with Hilton yet I get an offer almost every week from them.
IHG price is back to 2820p today and our view that this is a great investment is unchanged
Our key investment: Intercontinental Hotels Plc
To update you here, rumours continue about an impending takeover by an American Grooup and the Share Price continues to rise, with no comment from the company.
An interesting development however is that CEO Richard Solomons has joined the Board of Marks and Spencer Plc and rumour has it that this is his next home once IHG has gone, for with the biggest hotel company to run you would not expect him to have time for the ailing M&S unless there was some long term plan.
Apart from this we are retaining IHG as one of our KEY investments as having just spent 5 nights at the Intercontinental Hotel in Marseille where nothing could be faulted, it was another experience of the top quality management of IHG.
Share price today £2820 up from £2560 since the February blog
The AGM is at the Intercontinental Hotel in London on May 8th the day after our General Election so it could add some interesting financial news to the plethora of politics that morning.
1000 Londoners
It was on 19th September last year that we last updated you on our client Chocolate Films and its productions. Since then they have had a full production schedule, of which 1000 LONDONERS has developed into a fascinating subject, with a new film on You Tube every week. Producer Mark Currie recently gave a TedExtalk in London which we think you will find interesting as it is a reflection of the life and vitality of our capital city and the contribution a developing film company can make for posterity
We hope you will watch and enjoy Mark Currie's talk.
https://www.youtube.com/watch?v=hkfNzzVV5gk&feature=youtu.be
Aviva: new management brings success
Today sees AVIVA, the last of our KEY Investments issuing their 2014 figures, and they are well up to our expectations as the past two years of new management has reduced the extortionate overheads of previous years,and with increased revenue has produced the anticipated increase in profits. The improvement is in fact greater than forecast and a further improvement is expected in the coming year.
Additionally 2015 will see the benefits of the takeover of Friends Life in April! This, plus the continuing gains in business from the existing operations should lead to further dividend rises next year and we will continue to add to our KEY investment in AVIVA
Results for 2014
Value of new business. +15%
Net Asset Value. +26%
Operating Profit £2726m. +10%
Earnings per Share. 47p. +10%
Final Dividend 12.25p. +30%
Aviva looks about to regain its past high reputation as one of our Internationally successful insurance groups.
Could Taylor Wimpey become Britain's biggest builder?
The latest of our KEY Investments to report its 2014 figures has today produced even better results than anticipated and it is now close behind Persimmon to become Britain's biggest builder. On the basis of today's review of the coming year it looks to overtake Persimmon in 2016 a year earlier than they aimed for.
Summary Results
Sales increased by 17% to £2.7 m
Operating Profit now 17.9%. Up from 13.6%
Pre Tax Profit increased by 67%to £450 m
Return on Assets now 22.5% up from 16.8%
Dividend increased by a massive 400% to 9.00p from 2.25p
The future for the house building industry looks better every day with all our main political parties promising bigger and bigger house building schemes daily.Even if our politicians do only 20% of what they promise, the building industry has 20 years of work ahead and the politicians appear to ignore the ability of the industry to be able to increase homes to the 240,000 needed without more sites, reduced planning delays and an increased trained and skilled workforce.
As before our investment portfolio retains and will increase holdings in Britains top five house building groups of which Taylor Wimpey looks now to be the front runner! However I might be persuaded at next month's Persimmon Meeting at York Racecourse that Persimmon is still in the lead (it's took its name from the 1896 winner of The Derby).
Great news for Persimmon
Persimmon is our main Key Investment in the steadily growing house building business. Based in York it is the U.K's biggest builder with its top two brands, Charles Church and Persimmon, and it has just produced a great set of figures this week for 2014
Sales increased by 23% to £2.6 bn.
Pre Tax Profits grew by 44% to £475m.
Earnings per share grew by 49% to125p per share
Return on capital employed rose 40% to 24.6%
Dividend increased from 70p to95p per share,some 35%
All told these results are superb and the initial figures for the current year suggest yet another record year for Persimmon in 2015,which remains one of the most attractive holdings in our Hotel /Leisure portfolio
The demand for homes continues to grow with an increasing population creating a demand for 240,000new houses annually,but currently only 140,000 homes are being built annually! Thus we see there is only a continuing long term demand which will keep all the five building groups in which we are invested busy for the next 20 years, if they are to catch up with the demand for 500,000 bedrooms annually
Why IHG is our choice holding
Intercontinental Hotels Plc remains our choice holding in the hotel business and this week it proved why, producing the expected level of higher profits, subject to currency adjustments.
Sales increasd by some 6% to £1500m
Profits grew by 10% to £648m at operating level
Earnings per share increased by 12% and
Final dividend increased by 11% to 77% for the year
Based on increasing REVPAR of over 6%
But perhaps the best news reading between the lines of the company's statement is that there is no mention of a Share Buy Back as we remain firmly of the view that surplus cash should be distributed among all the shareholders in cash !
The coming year looks good with the hotel business growing steadily and the I H G structure in place to grow even faster.
There still remains the possibility of a financial reorganisation, merger or takeover, but our investment is good even if the group remains independent