Company Results – Alliance Trust, LSE and Whitbread

This morning Alliance Trust announced their results for the year ending December 2015. This company has been the subject of a campaign by ShareSoc (see https://www.sharesoc.org/alliance.html ) and Elliott Advisors were also aggressive in demanding changes before Alliance’s last Annual General Meeting but then committed to a truce for one year. Subsequently the Chairman Karin Forseke and Chief Executive Katherine Garrett-Cox have departed and the board has otherwise been restructured. This followed some years of underperformance which resulted in a wide share price discount appearing. That has now been narrowed somewhat by an active market buy-back programme but the discount is now still 10.3% according to the AIC at the time of writing (8.1% at the year end according to Alliance).

Has the investment performance improved in the latest figures? The Net Asset Value (NAV) Total Return per share rose by 5.4% in the year although the share price total return improved by 10.7% due to the narrowing discount. The 5.4% increase compares with the relevant MSCI index of 3.8%. So that certainly indicates an improvement. But it does not look great against another global active fund which I reported on in my last blog post – namely Fundsmith who achieved 15.7%, albeit with a very different and more focussed investment style. Looking through a list of similar global funds to Alliance for the year to date, the performance of Alliance looks middling in essence.

Two problem areas that arose from the empire building of the former CEO were the Alliance Trust Investment (ATI) and Alliance Trust Savings (ATS) subsidiaries. ATI reported a reduced loss of £2.1m with a small increase in assets under management. ATS increased assets and customer accounts by the acquisition of Stocktrade and revenue increased, but losses rose substantially to £5.2m. Alliance report an increase in the valuation of that business from an external review of 71% – are they looking to sell it one wonders? However, they do say that it “is positioned to deliver a profit in 2016”. There is clearly still work to be done, or actions required, on both of these operations.

Alliance did report a reduction in On-Going Charges to 0.59% with further reductions by the end of 2016 which is a positive sign. For investors minimising such costs is essential for long term returns, but whether the reported figures properly represents the total costs including that of the subsidiaries is questionable.

Lastly the Chairman of Alliance comments on the “lack of gender diversity” on the board following the restructuring. In essence dominant women were removed leaving a lot of aged white men – in other words more like most public company boards. He is determined to address that issue.

In summary, this company still appears to be a work in progress in terms of tackling some of the past problems, but the direction appears to be positive in this writer’s view. The AGM will be on the 6th May in Dundee and we hope to provide a report on the event. It was certainly a lively one last year.

London Stock Exchange (LSE)

The LSE also announced their final results for the year this morning. Ignoring the “adjusted” figures promoted on the front page, the earnings doubled from 35.5p to 73.7p over the previous year. Revenue was up substantially with costs well controlled (up 1%). The dividend was increased by 20% for the year.

After the recent prospective offers for the company, at the time of writing the share price reflects a p/e of 39 on these results which is surely high enough. And with a yield of 1.2% investors might welcome a bidding war breaking out for the company. The announcement reiterates the attraction of a merger with Deutsche Börse and says nothing about a possible alternative offer from Intercontinental Exchange.

Whitbread – the froth’s disappearing.

Whitbread issued a trading update yesterday – their year ends on the 3rd March so this very much indicates the likely outturn for the year. They “expect to report full year profit in line with expectations”, but that did not stop the share price from falling by 6% on the day of the announcement and it’s down another 1.7% today at the time of writing. What was the cause of this decline? It seems that the company did not meet analysts expectations for like-for-like sales growth in its Costa coffee chain. It only achieved 0.5% in the last 11 weeks which is blamed on warm winter weather and declining footfall on High Streets. One should be sceptical about claims for weather impacts. It’s often an excuse used by management when they do not know the real cause. But High Street footfalls might be declining due to more internet shopping. Other possible causes are overcrowding in the numbers of coffee shops, more aggressive pricing by them, and customers realising that too many lattes make you fat, one might surmise.

But the good news was that the other operating arms of the business – Premier Inn and Restaurants were up 2.2% on a like-for-like basis with a particularly strong showing from Premier Inn. In addition, total sales for Costa were up 10.5% in the last 11 weeks and 14.2% over the last 50 weeks. Hotels and Restaurants were also up 8.2% over the last 50 weeks, so this reaction to short term results from Costa might be considered excessive.

This looks like a case of “momentum” in share prices in the extreme as Whitbread has fallen from its peak of about 5400p in March 2015 to 3700p now, a 31% decline. Premier Inn still has growth potential and Whitbread are still opening more Costas even if short term like-for-like sales growth from existing outlets is static.

Whitbread do of course have a relatively new CEO, Alison Brittain, who came from a somewhat different background banking – she ran the retail arm of Lloyds Banking Group previously. Perhaps that has spooked investors.

Roger Lawson