George Salmon, Equity Analyst 2 August 2019
July was far from uneventful, and included two of the year’s busiest weeks on the stock market for results. But beyond the flurry of company news, the month ended in the appointment of a brand new Prime Minister – Boris Johnson. Among all the noise, our clients found plenty of time to invest. Traditional beverage companies proved popular, along with some flashier tech names.
July’s most popular shares
The lists below show the FTSE 100 and FTSE 250 shares (excluding investment trusts) with the highest number of net buys (buys minus sells) among HL clients in July. We’ve also included the most popular large* overseas shares (excluding investment trusts and ETFs).
Shares listed alphabetically.
*Of equal or greater size than the market capital of the smallest FTSE 350 stock.
These are provided for your interest, but aren’t a guide as to how you should invest. You should consider your own aims and attitude to risk before making any investment decisions, and remember that investments will fall as well as rise in value so you could back less than you invest. Past performance is not a guide to the future. If you’re not sure whether an investment is right for you, please seek advice.
Not only are Diageo’s drinks popular, its shares went down well with HL clients in July.
We expect that’s because it released full year results towards the end of the month. Organic operating profits rose by 9% to £4bn. That reflects the sale of almost £13bn worth of tipples.
The group’s being helped by a couple of factors. The first is its stellar stable of brands, including the likes of Gordon’s, Guinness and Johnnie Walker. The power of those names means it can push prices up without losing loyal customers, which lends a helping hand to revenues and margins.
However, the recent guidance of 5-7% operating profit growth next year was a shade on the disappointing side, leading the shares down around 3% after results were released. That was partly because performance in the key developed markets continues to tick, rather than steam ahead, with Europe and the US seeing profits rise by 2% and 3% respectively.
Refreshingly, sales in emerging markets have been growing well, as have trendy spirits gin and tequila. For now though, Diageo’s fortunes still depend on the sales of whiskies and vodka in more mature markets.
The second beverage group on July’s most popular list is A.G. Barr. News that full year profits are expected to be as much as 20% behind last year didn’t stop some HL clients buying in.
Own-brand soft drinks had difficulty adjusting to a higher price point, following last year’s sugar tax. The group’s high rating meant there was no room for manoeuvre when the group reported these weaker sales trends, and the shares fell over 20% following the news.
However, a big cut to profit guidance doesn’t necessarily mean the dividend’s under threat, since the group has over £20m of net cash on its balance sheet. Remember though, there are no guarantees.
The shares still command a price to earnings rating above the historical average though, so the share price could still be sensitive to any more bad news. Investors are also waiting for more detail on how the newly announced share repurchase programme is going.
We’d give A.G. Barr the benefit of the doubt for now – its famed IRN-BRU and trusty management have a strong track record. Of course, past performance isn’t a guide to the future, and we’ll be looking out for what the group has planned next when we hear from it in September.
Third quarter news from Visa showed the booming contactless industry is working wonders. A 9% increase in payments volumes helped contribute to revenues of $5.8bn. Society’s current penchant for small but frequent taps on contactless card machines is clearly paying off for Visa. And it’s a similar story at MasterCard.
Both giants make money from lucrative overseas transactions too, by charging extra fees. Visa in particular is seeing impressive growth in this type of transaction, feeding into an 11% rise in profits.
As primarily digital businesses, these companies have very attractive business models, because expansion doesn’t cost the earth. It was highlighted in Visa’s results, where adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) margins grew to 69.7%.
There are rumblings of fresh competition in the industry though. If growth stutters, their lofty price to earnings ratings could mean the shares are vulnerable if growth stalls.
The payment giants will need to make sure they keep a firm grip on the market if they want to keep to their current trajectory.
The author owns shares in A.G. Barr
Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss.
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