Talk of an activist investor shaking things up always introduces some excitement into a company’s share price. F&C Asset Management has been no exception. The shares rose 22 per cent last week when Sherborne, the investment vehicle of activist Edward Bramson, said it had built a stake in the company.
F&C’s management might well be feeling miffed about Mr Bramson’s interest. After all, they’re making the right sorts of moves. The company manages a lot of money for insurance companies, who pay measly fees and could decide to take their business elsewhere over the next few years. So Alain Grisay, F&C’s chief executive, has been trying to pull in new money from higher paying clients such as wealthy individuals. He’s also about to complete the £54m acquisition of Thames River Partners, which will bring new products and new clients.
The result is that F&C is gradually improving the quality of its earnings – once Thames River is included, low margin insurance business will only account for 30 per cent of revenues.
But investors might welcome some more radical action. F&C’s costs are still higher than those of other asset managers, so its profit margins are lower (although management has said it will cut costs). And the company is still losing assets under management. In the first half of 2010 there was a net outflow of £605m.
The 50 per cent dividend cut announced yesterday, albeit with the very worthy aim of paying down debt, is also a tough pill to swallow.
Mr Bramson has yet to make his intentions clear and hasn’t yet met F&C’s management. In the meantime, Sherborne continues to increase its stake and now owns 11 per cent of the shares. The uncertainty might convince potential F&C clients to take their business elsewhere. Nevertheless, investors who have seen the value of shares in F&C decline 22 per cent over the past 12 months will welcome the possibility of a breath of fresh air.
Like people, some countries are faster at shaking off hangovers than others. Diageo’s full-year results yesterday provided a handy prism through which to view the strength of the global consumer, whose ranks are now split between the hard-partying emerging markets and the weak-livered developed economies.
Last year, the souring economy was depressing volumes at Diageo’s international division, which is made up of Africa, Latin America and the Middle East. This year, however, the region appears to have been fortified, with revenues and volumes bouncing back.
It was a similar story in Diageo’s Asia-Pacific region, which went from falls in volumes and revenues last year to strong gains in both this year. While European volumes are growing again, North America appears more worrisome. It remains the only region to have seen a year-on-year deterioration in revenues and volumes.
Part of this can be explained by the lag effect created by the ‘three-tier’ distribution system in the US, which obliges producers to sell to wholesalers, who in turn sell to retailers. This leaves slack in wholesalers’ inventory, which is being run down thanks to better
second-half retail sales.
There is a further lag effect from marketing, with the bulk of Diageo’s US spend coming in the second half. Sales improvements can take time to catch up. It will be a few months before we can pass judgment on how strong any recovery in Diageo’s largest market will be. Until then, the region will remain caught between a glass of Alka-Seltzer and a round of shots.
“Super Thursday” dawned as almost 60 companies put out their results for the six months to June 30. The reason for the rush is a European directive that says that companies must release their first-half results within two months of the period end. For companies with a June half-year end, that means the end of August.
But there’s nothing in the directive about leaving the results until (almost) the last minute. Quizzed on why they chose Thursday, the companies came out with an array of excuses, ranging from “the auditors weren’t available” to “we had to fit in with everyone’s holidays”.
Whatever the reason, the rush is little help to investors, who are left with a glut of information to digest in a short space of time. Small and mid-cap companies find it difficult to attract investor attention at the best of times.
They could help their case by giving the timing of their results a little more thought.