French Connection saves the day

The UKVI fund was down 6.48% this month compared to our iShares FTSE 100 benchmark. This was due to a large 7.04% gain in the benchmark which completely trounced my holdings over this short period.  What upside we had was mostly thanks to French Connection and their sale of Nicole Farhi, which prompted a raft of activity from institutional owners perhaps helping the share to its 23% gain from last month. On the downside, Luminar continued to slide another 16% but now it is such a small part of the fund that any further losses will be barely noticeable overall.

The six monthly figures are not much better (down 3.4% relative to benchmark), but six months is too short a time to make any meaningful judgments on performance. The goal for the fund is to outperform the benchmark in any given five year period so I am not sweating the small stuff just yet.

Other events of note

M J Gleeson sold off their property maintenance and emergency respose unit, Powerminster. I have no idea how this sale to Morgan Sindall for £6.6M cash will affect things other than to give Gleeson a boost to their already huge £20M cash balance.

In addition to French Connection’s share price increase, the fund received its first FCUK dividend which puts their total realised returns at 1.1% which is 0.8% annualised. Not exactly Earth shattering but at least it is a start.

Victoria’s latest interim management statement said of their three geographic regions that Australia was good, the UK was bad and Ireland was ugly. In summary they said that;

Overall, the trading environment will continue to be challenging. However, the Group remains confident that it has a financially strong position, a solid and geographically diverse business model which is well positioned to support future growth when the markets in which it operates start to strengthen.

Notice the all important word, “when”. The “when” may be sooner than with some other holdings as Victoria has a lot of exposure to Australia which may well return to boom long before the UK can even dream of such things.

Titon Holdings also produced an interim management statement but a much happier one than Victoria’s with revenues are up by 19%.  However, uncertainty and caution continue to loom large on the horizon and so the champagne remains on ice.

600 Group have just released their preliminary results for the year but I’ll leave any comment on that for next month, except to say that they are still making a loss overall, book value is down slightly but they at least made an operating profit in the second half.

How goes it for the market?

Currently the FTSE 100 has a real PE10 of about 12.7 which is slightly below my long term average estimate of 13.8. This is pretty close to a sensible value and if I were rebalancing an index tracker account between stocks and bonds today I’d put 72% into stocks.

And housing?

Some signs of weakness have started to appear, but as ever with the market that acts like a super tanker it may take a long time to find out which direction we’re headed. Currently the PE is still about 5.5 according to Nationwide, which is over 30% above my estimated sensible ceiling of 4.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

8 thoughts on “French Connection saves the day”

  1. Hi UKVII'm just working through the FTSE 100 PE10 values now. I'm seeing a current value of 13.5 against an average of 20.0. The average is since 1993 only and hence too small a data set to call "fair" value from. Did you ever write a post about how you arrived at an average estimate of 13.8? I know we discussed it in the past but the conclusion was that your expected was between 11 and 16. I might have missed you developing it further than that.I'll pull a post together and get it live by tomorrow with full UK FTSE CAPE info.

  2. Hello RITI use RPIX as an inflation measure and I think you use CPI? RPIX is typically higher than CPI so my old earnings will be relatively higher too, hence a lower PE and lower PE10. We might have some data differences too and my data is annual whereas yours is more monthly and so more accurate. As for the average, I didn't get round to a post, but it's pretty simple and arbitrary. It's the average of the US long term PE10 of 16.4 (at least that's what it was when I did the calculation) and the extrapolated UK average that you came up with of 11.2 (which was the UK average over 1993-2010 minus the average difference to the US average over the same period since UK stocks are typically valued lower than US stocks). That's it. Not very scientific but I thought that the 16.4 and 11.2 were reasonable upper and lower bounds for whatever the 'correct' number is so I just took the mid point. Over time I'll adjust it to get closer to the real average as the data set gets larger.I don't think the exact number is super critical though, it's more important to just take note of valuations and yields etc and have some way of adjusting your allocation accordingly. Of course that's not an excuse to churn your portfolio…

  3. Just wondering if anyone wishes to give a view on a possible share: Molins PLC ( P/B = 0.6 (excluding intangibles)+ Plenty of cash, no debt problems- Small company (£10m mar cap.)- Current gloomy sales

  4. Hi UKVIYes I'm using CPI. I also am tracking with RPI however I'm not yet showing on my blog. Using RPI over my short time period and I end up with a current PE10 of 13.2 and an average of 19.4.Thanks for clarifying how you calculated your average. That 11.2 was a pretty rough and ready calculation when we discussed it back in April. I look forward to seeing how it adjusts over time.All the bestRIT

  5. I think its just been a bad month or two for value investments, my portfolio has been absolutely hammered without any strong performers (to the tune of 7% under the FTSE). I suspect it is because small caps generally have a UK focus, whereas the FTSE is mainly multinationals, and foreign economies are ticking along rathe better than the UK right now.

  6. Hi SparkyYou're right about the FTSE 100 having a slightly different profile to my holdings (slightly as in very). A more appropriate benchmark might be something that tracks the all-share index instead, or even the small cap index, but the FTSE 100 is THE benchmark that everyone looks to so I'll just have to swallow any short term under-performance like your good self.

  7. Hi Taitam Molins certainly comes up high on my main screen. I owned them for a short while last year and made a nice gain, which was of course mostly due to luck as I bought them at the bottom of the market in April 2009. I haven't had a close look at them though so I don't know if they'd get dropped on further analysis.

  8. Would anyone wish to give any thoughts on the following two companies I am considering now:1) Sinosoft Technology+ P/B = 0.6 (tangible assets)+ profitable record, lots of cash+ makes a real product: software – recent fx trading loss?2) China Shoto+ P/B = 0.7 (tangible assets)+ profitable record, lots of cash+ makes a real product: back-up batteries- sensing a current gloomy sales outlook

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