We have the latest UK unemployment and wage growth numbers due out on Tuesday 14th July
and they will be followed the day after by the latest British inflation figures. Both
sets of data will give economists and investors further insight into how the lockdown affected
the British economy as they will cover the periods up to the end of May and June respectively.
On the jobs front, we have had some good news as supermarkets and food retailers and delivery
firms in particular have been scrambling to hire people to help them meet demand and keep
the nation fed and watered during the lockdown. In addition, it is to be hoped that Chancellor
Rishi Sunak’s furlough programme staved off some redundancies and helped firms with
their wage bills. Unfortunately, we have seen a number of companies, public and private,
including SSP, easyJet, Rolls-Royce, Accenture, Casual Dining Group, announce staff cuts of
late. They will not feed into this set of figures, but this latest batch could show
us what the trend is.
Remember that in the three months to April
• The UK unemployment rate was 3.9%, still its lows of the early 1970s, as 1.3 million
people were registered as jobless • The employment rate was 76.4%, just short
of record highs
To put those figures in context, the actual number of unemployed was 1.3 million, while
it is estimated that some 9.0 million are being helped by the furlough scheme.
Given the uncertain outlook, it is was perhaps not surprising that wage growth slowed to
just 1.0% including bonuses. That was the weakest increase since September 2014 and
those who are in work will be looking at the inflation figures on Wednesday 15th so see
if pay rises are keeping them ahead of increases in the cost of living or not.
In May, inflation, as benchmarked by the consumer price index was just 0.5%, while the Bank
of England’s preferred CPIH reading, which includes housing costs, rose 0.7% year-on-year.
Thankfully that meant wages were still running ahead of that, but oil prices have started
to rise and that could feed through to the pumps. It would complicate an already difficult
situation for consumers – and therefore potentially retailers and leisure firms – if
wage growth started to lag inflation, as that leaves people worse off in real terms.
Company wise, around a dozen FTSE 100 firms are due to release an update, issue results
or host their annual general meeting and a good few mid-and-small caps will be getting
in on the act as well. Do however note that the Financial Conduct Authority is giving
companies extra time in which to prepare their statements so these dates are subject to change.
Names which may be worthy of note include:
• Gold miner Centamin Monday 13th July
• Online retailer, AO World, on the 14th
• Luxury goods icon Burberry and two more retailers, Dunelm and Dixons Carphone, on
the 15th
• Miner Anglo American, bookmaker GVC, financial services group Experian and recruiters Hays
on Thursday 16th
• And to finish off, on Friday 17th, another mining giant, Rio Tinto
But for me the stock that could just cause the biggest fuss in the week ahead is Halma,
when the FTSE100 company publishes its full-year results on Tuesday 14th July. As we can see
here the share price has been very resilient last 12 months even as the FTSE 100 has tumbled
by more than 15% - in fact Halma’s shares stand at almost an all-time high.
The FTSE 250 firm provides a solution to a problem, in that its hazard detection and
life protection systems, locks and devices help companies meet regulatory requirements
and keep staff, clients and customers safe. The mandatory nature of investment in this
area creates consistent business flows and sticky customers, a combination which gives
Halma a degree of pricing power. That in turn can mean high margins, good returns on capital,
strong free cash flow and a growing dividend for investors over the long term.
And it is Halma’s dividend track record which could again cause a fuss this week.
The analysts’ consensus forecast is for a full-year pay-out of 16.71p per share, an
increase of 6% on the distribution for the year to March 2019.
If this forecast is met, that would be Halma’s 41st consecutive increase in its annual dividend
of 5% or more. It would also keep the Buckinghamshire-headquartered company in that elite list of just 14 FTSE
100 firms that have managed to increase their annual dividend each and every year for at
least a decade – a list from which 14 more companies have fallen this year, to show just
how hard it is to keep such a run going.
Now on a share price or nearly £23 as I record this means the dividend yield is around 0.7%.
This may not thrill income-hunters but bear in mind that ten years ago the dividend was
just 9.1p a share – it has nearly doubled since. Moreover, ten years ago Halma’s share
price was 266p – so what would you have thought if someone had told you that ten years
later the dividend would be 16.71p a share for an implied yield a decade ago of 6.3%?
I suspect you may have been more interested.
Please note that this not investment advice with regard to Halma. But it does show the
power of dividend growth when it comes to capital returns as well as income, when things
work well. You now need to look at Halma’s earnings cover for the dividend, cash flow
and balance sheet, as well as its trading prospects, before you can decide whether that
40-year streak can run for another 5 or 10 years or more.
At first glance earnings cover looks healthy enough at more than three times, based upon
the consensus forecast of 56p in earnings per share, compared to that dividend estimate
of 16.71p.
This chart here shows the historic earnings per share (or EPS) progression and dividend
cover for the last decade, along with forecasts for the year just finished and the year just
begun.
Besides the dividend and earnings per share, analysts will be looking at the headline sales,
operating margins and pre-tax profit.
• On a headline basis, the consensus sales forecast is £1.3 billion, an increase of
10%. The organic rate of growth may be of more interest and at the first-half stage
that was 5% on a constant-currency basis.
• When it comes to the operating margin, Halma’s management has a target of 18% to
22%, on an adjusted basis. At the first half, the operating return on sales was 19.7%, slap
in the middle.
• And for pre-tax profit, the consensus estimate is for a 9% increase to £267 million,
against £244 million a year ago, on an adjusted basis. For the year just begun, in the unlikely
event that management feels able to give any guidance, consensus is looking for flat profits
at £267 million.
More strategically, watch out for updates on acquisitions, as Halma uses select purchases
to supplement its organic progress. At the first half stage Halma had snapped up five
firms as part of management’s plan to double the company in size every five years or so,
and it has announced five more deals since then.
I hope that you and your families are all in good health and good spirits during these
difficult times. Thank you for listening and I look forward to talking to you again next
week.