HL SELECT UK INCOME SHARES
HL Select UK Income Shares - November review
Monthly roundup
HL SELECT UK INCOME SHARES
Monthly roundup
Steve Clayton - Fund Manager
7 December 2018
The UK stock market had a lacklustre November, delivering a total return of minus 1.63% over the month. Weakening commodity prices, concerns over global trade wars and of course speculation over the path of Brexit all played a role.
The fund enjoyed a solid month, increasing in value by 1.14%, somewhat ahead of the wider market, reflecting an underweight stance toward weakly performing commodity producers and strong performances from some of its Consumer, Financial and Industrial holdings.
Below, we look at which stocks contributed most positively and negatively to the fund’s return last month. Remember these details are over a short period of time and past performance is not a guide to future returns.
Stock | Contribution to fund's return | Actual return |
---|---|---|
Greene King | 0.38% | 13.8% |
Paypoint | 0.36% | 11.3% |
Sabre Insurance | 0.30% | 9.1% |
Compass Group | 0.27% | 9.0% |
BCA Marketplace | 0.26% | 6.7% |
Britvic | 0.24% | 8.3% |
GlaxoSmithKline | 0.22% | 8.6% |
Past performance is not a guide to the future. Bloomberg 31/10/2018 - 30/11/2018
Greene King reported half year results at the end of the month that provided reassurance on both profits and dividend levels. Like for like sales across the group’s pubs and restaurants have remained in positive territory after summer’s end and early Christmas bookings look good. Cost pressures remain, not least the National Living Wage increases that lie ahead. But Greene King are doing a good job of managing their pubs to cope with these.
Paypoint also reported well-received interim figures which sent the shares better toward the end of the month. This was a recovery after earlier weakness. The group is doing well in rolling out its latest generation of terminals to independent retailers and is getting traction with its multi-channel, bill payment offering amongst energy suppliers. Paypoint have continued to pay special dividends on top of their regular payments and should hopefully do so for a few more years, making the stock a high yielder currently.
Our newest holding, Sabre Insurance enjoyed a solid start. We recently met with management and came away very happy that their strategy of pricing policies for profit, rather than maximising volumes sold will leave them well placed to pay dividends in future years, with a considerable margin of comfort, given their strong capital ratios.
Interim results from BCA Marketplace were notable for a 15% hike in the dividend, accompanied by strong underlying growth. The car market is volatile currently, with new emissions regulations causing disruption in the new car segment, but volumes through BCA’s UK auctions are still growing, up 3% in the first half and WeBuyAnyCar was particularly strong, with volumes up 14%.
Stock | Contribution to fund's return | Actual return |
---|---|---|
British American Tobacco | -0.54% | -19.0% |
Domino’s Pizza | -0.28% | -9.2% |
Imperial Brands | -0.27% | -6.7% |
Royal Dutch Shell | -0.23% | -5.2% |
Past performance is not a guide to the future. Bloomberg 31/10/2018 - 30/11/2018
Royal Dutch Shell was impacted by the lower oil price that we can now see at the petrol pumps. Crude oil prices in the USA fell to below $50 at one point, having been over $80 as recently as this summer. OPEC looks less able to influence the market these days, and when it emerged that the USA was going to exempt key buying nations from sanctions against Iranian crude oil exports, prices slumped.
Tobacco producer shares – British American Tobacco and Imperial Brands – took a beating on news that the US Food & Drug Administration was contemplating banning menthol cigarettes and taking action to ban sweet-flavoured vapes from being sold in outlets where age verification could be hard to control. Any definitive moves are likely to be delayed by years of legal argument and smokers of menthol cigarettes are likely to switch brands, rather than quit. But menthol has a big share of the US market and the regulator’s tone is becoming more strident.
There was no trading news from Domino’s during the period, but we suspect that weakness was a result of concern that the growth of food delivery services by rivals such as Just Eat, Deliveroo or Uber Eats could ultimately pressure Domino’s. So far though, Domino’s shows little sign of feeling the heat, with organic growth in system sales of 6.0% at their last trading update in October.
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