1. The Market Today
2. Conquerors -- GEC, Carlton, BSkyB, Psion
3. Vanquished -- Bank of Scotland, Telewest
4. Reporting Next Week
5. Fool's Eye View -- A Foolish Introduction
6. And Finally...
The Market Today
Baker Street, London -- Although the bare headline figures might suggest it was a quiet Friday on the market, this was far from the truth. Admittedly New York was closed yesterday for the Thanksgiving holiday, but companies in London can sing without the need of an American conductor!
Today merger mania gripped traders throughout the session. Media companies and banks were the subjects under examination this time. By the time Wall Street re-opened this afternoon most of the action had already happened and a further inexorable rise in the Nasdaq Composite Index was not required to propel the FTSE 100 to another all-time high.
Conquerors
The big surprise story today was the mega media merger between Carlton Communications (LSE: CCM) and fellow ITV broadcaster United News & Media (LSE: UNWS), discussed in the Breakfast Fool. This will create a £7.8b giant, with combined sales of £4b.
By joining Carlton's and United's six ITV franchises, the group will become the largest commercial television broadcaster in the UK by advertising revenue. This could prove a regulatory sticking point. Carlton shot up 22.5p, or 4%, to 576.75p and United News rose 22p, or 2.9%, to 767.5p.
On expectation of more mergers in the media sector, current market leader BSkyB (LSE: BSY) also got caught up in the buzz. The country's dominant satellite broadcaster galloped ahead 60.5p, or 7.9%, to 819.5p. Speculation also mounted that the group might take a £600m stake in German pay TV group Kirch. Rival ITV broadcaster Granada (LSE: GAA), which reported results earlier this week, was also on the move, rising 9.5p, or 1.7%, to 540p.
New hi-tech Internet stock GEC (LSE: GEC) continued to re-adjust to the racy ratings of its peers in the sector following its results announcement yesterday. The shares, soon to be re-named Marconi, soared 72.5p, or 8.2%, to 952.5p, following favourable comment from most quarters.
More merger mania in other sectors today also as the Bank of Scotland (LSE: BSCT) raised its bid for NatWest (LSE: NWB) by £3.5b to £25.58b following the clearance of the offer by the Government. This sent NatWest's shares soaring 48p, or 3.2%, to 1519p. The Lunchbox has all the details.
With Christmas coming investors are beginning to raise their glasses to drinks, pubs and beverages groups again. Bass (LSE: BASS) led the way, going up 40.5p, or 6.3%, to 675.5p. There was a slight scare when the Office of Fair Trading said it was looking into the group's purchase of some of Allied Domecq's (LSE: ALLD) pubs earlier in the year. But jubilant investors rejoiced that this was only a technical hitch, not a full-scale inquiry.
Other brewers foaming up included the dastardly South African Breweries (LSE: SAB), celebrating their test team's superlative cricketing performance with a 34p, or 6.1%, lift in their share price to 584p. Scottish & Newcastle (LSE: SCTN) soared 17.5p, or 3.9%, to 456p and Diageo (LSE: DGE) went up 19.5p, or 3.4%, to 584p.
Elsewhere in the crazy tech sector e-commerce prospect Infobank International (LSE: IBI) increased 162.5p, or 15.5%, to 1207.5p after saying it was in takeover talks. Possible suitors include Microsoft (NASDAQ: MSFT), of all companies, who are apparently quite taken with Infobank's opportunities.
Internet software developer Geo Interactive Media (LSE: GIM) flew up another 167.5p, or 28.3%, to 759p. Two days ago before its deal with Samsung the stock stood at just 365p. And Psion (LSE: PON) continued to do crazy things. The handheld gadget maker, whose shares are tightly held, cruised ahead 261p, or 12.2%, to 2395p.
Vanquished
Fallers were in thin on the ground today as the London market basked in the warmth of its highest closing price ever.
The Bank of Scotland (LSE: BSCT) dropped 43.5p, or 5.6%, to 723.5p after investors feared the group has paid too much to acquire NatWest. Another out of favour bank was Abbey National (LSE: ANL), which cascaded 48p, or 4.2%, to 1079p.
Retailers continued to fall like shooting stars. For example fiery Electronics Boutique (LSE: EBQ) slipped another 5.25p, or 11.2%, to 41.25p on fallout from yesterday's profit warning. It will be a long haul back up to stockmarket heaven for this off-line seller of computer games.
Meanwhile fellow AIM tech stock World Telecom (LSE: WDT), which has a partnership deal with Freeserve (LSE: FRE) warned of increased losses and funding problems. This sent the stock down 10p, or 13.3%, to 65p in early trading before recovering to end the day all square.
Other larger telecom stocks also suffered. Energis (LSE: EGS) was off 81p, or 2.9%, at 2632p and Telewest (LSE: TWT) shed 13p, or 4.2%, to finish the week at 294.75p. With media and telecom companies converging rapidly it seems for the moment as if content continues to be king.
Reporting Next Week
It will be a quieter week on the results front than for some time, with only a handful of blue chips reporting figures. Duller defensive stocks will be at the forefront of investors' minds.
On Monday leading property company British Land (LSE: BLND) reports interim results for the six months to the end of September. The city is quite bullish, expecting a 35% rise in pre-tax profits to £67.5m, following a busy few months. The company's portfolio is heavily exposed to retail properties and the impact of the tough time that sector is experiencing will be interesting to see.
Another company working in a supposedly troubled sector reports on Monday. Imperial Tobacco (LSE: IMT) delivers its finals. Again analysts forecast the cigarette maker to produce a healthy 22% rise in pre-tax profits to £395m. This smoke might disguise the underlying problems from US litigation worries and contractions in markets throughout the developed world.
Beleaguered retailer Allders (LSE: ADS) sets its stall before the investment community on Tuesday. Following a poor first half the furnishing seller is expected to reveal a 20% drop in profits before tax for the year to the end of September. An update on current Christmas sales will be illuminating.
A brace of brewers is reporting in the middle of the week. Both have been instrumental in driving consolidation in this sector, by buying up smaller operations and chains of pubs. Investors will be keen to see how the purchases have bedded down.
Wolverhampton & Dudley (LSE: WOLV) is first on the stump on Wednesday, producing finals which are expected to show a 11% rise to £50m. Then Suffolk-based Greene King (LSE: GNK) pours out interims on Thursday, which should show a 12% hike in profits before tax to £23m.
Finally the Royal Bank of Scotland (LSE: RBOS) produces eagerly anticipated finals on Thursday. Estimates cover a wide range. The consensus is that pre-tax profit will improve 15% to £1.15b. More intriguing will be news about any bid the Royal Bank might make following the non-royal Bank of Scotland (LSE: BSCT) battle to takeover NatWest (LSE: NWB).
By Maynard Paton (TMFMayn)
Hello. As a new "TMF", I thought it would be a good idea to introduce myself and write a little about my own investment philosophies. Some of you may already "know" me from the message boards under the name WainscottBoy -- quite a specialist in the long-winded message board post!
If you subscribe to the stock market publication Analyst, you also may remember some "subscriber company profiles" I wrote in the first half of 1998. So, if you think my writing style is a little dry, includes endless accounting calculations and numerous quotes from Warren Buffett, then you know where I developed the habit!
Prior to joining the Fool I worked as a Computer Analyst/Programmer. However, outside of that nine-to-five, I enjoyed the researching and analysing of companies for my own personal investment far more. The attraction of stock market investments for me was quite simple. The long term rewards of effort applied to investment analysis for my own financial benefit could far outweigh those of effort spent in working for someone else.
In retrospect, after I started out on the rocky road that is stock market investment, I made some bad investment decisions. That's how we all learn (don't we?). From my mistakes, I developed my own strategy, which I feel very comfortable with. For now I'll go into the "theory" of my strategy (well, most the strategy has been borrowed from others. It'll be familiar to most Fools), but in future Fool's Eye Views, I'll painfully re-live my mistakes for all to see. I'm hoping that my mistakes will be of benefit those starting now. At least it will benefit me, re-emphasising to myself some of those hard lessons learnt. If only the UK Fool was around at the time I started(sigh).
So, onto my investment strategy then. It's based by and large on Benjamin Graham and Warren Buffett, with a sprinkling of Peter Lynch on top. It was only after the aforementioned poor investment decisions that I began to read some of the books written about Buffett and some of the books written by Graham and Lynch. Three books that I commend would be "The Intelligent Investor", "Buffettology" and "One up on Wall Street". All three are ideal for anybody starting out in direct share investment. In future Foolish specials, I'll review these essential books. When I feel that I'm about to stray from what I've learned the hard way, I re-read them. It's the only way to keep on the straight and narrow
So, no prizes for guessing "long term buy and hold". Indeed that is a sound philosophy, not to be "shaken out" by market declines. But I've learned that the time a share is held is not just enough. What is vitally important to the philosophy is the company selection and the characteristics of the industry the company operates in.
Both points here are crucial. Get company selection and/or industry wrong with the long term buy and hold, and your shares could be a ticket for investment mediocrity.
If you're looking for a long term bet, I firmly believe it's essential to find a company with a proven long term sustainable edge. The best "edges" to have are anything that legally stops the competition eating away at your profits, for example patents, brands, government licences, or a good reputation. Certain businesses or industries have these edges in abundance. Other businesses or industries do not. I look for a company with a sustainable "niche", where competition is light, with evidence of barriers to entry. The niche is usually evident from high operating margins.
Over the long term, additional sales will generate additional profits, which will in turn generate additional share price gains. I look for companies that have a proven history of growth. If they've grown their sales in the past, it's at least shown to me that the company has had that "sales generating" ability. I'd rather back that business than the business with an unproven future sales growth outlook. I look for sustainable avenues of future sales growth, avenues that are not just restricted to the UK.
I also look for a lack of capital requirements in a business -- large capital expenditure spent today must at some point generate a return tomorrow. If there are businesses that require little or no additional capital to constantly expand, why take the risk with those businesses that need huge amounts?
Those are the three main financial criteria -- margins, historic/future sales growth and low capital requirements. All three together usually indicate a company that can earn a high rate of return on its employed capital. I'll let Warren Buffett sum up my feelings: "The best business to own is one that over an extended period of time can employ large amounts of incremental capital at very high rates of return".
Just as important as the financial characteristics, though, are the reliability and predictability of the company's products or services. I avoid fast-changing industries, where the landscape can and does change overnight. One day you're the market leader, the next you're yesterday's obsolete dinosaur. You won't find me with any shares in an ISP, microchip designer or biotech drug researcher. The industries are just far too fast-moving or complicated for me to feel comfortable with.
I see it this way. Just this year, there have been several high profile FTSE 100 companies with "surprise" profit warnings. If an army of experienced analysts, who pore over these long established companies day after day, don't foresee such occurrences, why should I take a chance on a profitless "jam tomorrow" business, where the future is even more uncertain?
OK, so I'll miss out the just about every genuine wonder stock going, but that's my preference.
So that's me. Another predictably boring, sensible and long term Fool, I'm afraid.
And Finally...
With the England cricket team reeling on the ropes down in Johannesburg, we'd be very interested to know whether Fools think the Test will be still be going on by the time the market re-opens on Monday. It looks as if South Africa, enjoying a 264-run first innings lead with four wickets still in hand, are going to win, unless of course Mike Atherton repeats his defiant knock of four years ago.
But if the inevitable happens, don't despair, come and join us for the regular Foolish monthly social event next Wednesday 1st December from 7pm onwards. We are planning to drown our cricket sorrows and celebrate Foolishness near our new offices in Great Titchfield Street, London W1.
We have chosen the Crown & Sceptre pub, which can be found on the corner of Great Titchfield Street and Foley Street. The nearest tube is Great Portland Street. All Fools are welcome: the more the merrier. For more information on previous Foolish parties, check out the Foolish Social Events message board.
If you would like to post comments about any other topic please do so on the Daily Fool message board.
