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By Bruce Jackson (TMF Googly)
Baker Street, London -- Last Thursday I was invited to a Misys (LSE: MSY) analyst and investor seminar at the Savoy. Around 80 people attended this plush event, the like of which I'm told are not completely out of the ordinary for a FTSE 100 company. As you can imagine, a buffet lunch consisting of such delights as king prawn and avocado savouries doesn't come cheap, not to mention the cost of hiring the Ambassador suite at the Savoy Hotel.
Is that a good use of shareholder's money? As the Misys share price rose 8.5% on the day, adding £260m to its market capitalisation, I guess you could say it was money well spent. These presentations are done to a very restricted audience -- and an audience who can influence the direction of the share price by issuing positive or negative analyst reports. Of course, any short-term share price movement is usually what I call noise, as over the longer-term the company will be judged on their earnings performance, and not on what was said to analysts on any particular given day.
Don't get me wrong here, as I'm not explicitly criticising Misys. All FTSE 100 companies do this sort of thing, as they effectively are forced to dance to the City's tune. You don't play ball with them, and they won't cover your company, leaving the share price to fight its own battles.
But -- hang on a minute. Shouldn't it be this way, where a company's share price ultimately depends on how well that company performs? Of course it should be. This is how Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) has built its fortune -- he rarely gives interviews, never lets anyone know in advance of a market purchase, and never gives trading statements. His one piece of communication to shareholders (and not to analysts, although they obviously have access to the information) is through his annual letter to shareholders.
The Misys management have a duty to increase shareholder value, and if these restricted briefings have that desired effect, it is hard to criticise them. In fact, Misys are one of the more shareholder friendly organisations I've come across. The slides of the analyst presentation are available at the Misys site, and there was no new financial or trading information released. The theory is that all investors, be they retail (that's you and I) or institutional, are wherever possible operating on a level playing field, and in that respect, Misys are doing their utmost to comply.
As for the actual presentation, as you may have read in the press, it was all about the company's strategy for Individual Financial Advisor (IFA) and Personal Finance Services (PFS) portals. Over the next 3 years, Misys will spend approximately £50m developing these products. As was shown in the presentation, this could generate potential revenues of £73m, although over what time-scale is unclear.
Misys are going head to head in the IFA space with The eXchange (LSE: EXC), an area which the latter company has had a virtual monopoly over the years. Listening to the presentation, you can't help but think Misys will be the winner, courtesy of their financial muscle, experience and captive IFA audience -- combined, they have the country's biggest IFA networks. The eXchange will certainly know they've got a fight on their hands.
As I was sitting there absorbing all this Wisespeak, I couldn't help thinking of Lloyds TSB (LSE: LLOY). Misys have identified the whole UK life insurance market as an area with huge growth potential. Lloyds have seen the same, hence their proposed acquisition of Scottish Widows. Both these companies look to have attractive and identifiable future growth prospects -- it's up to them, to produce the goods.
Unilever
On Friday, Rob gave us the boots and all summary of Unilever's (LSE: ULVR) results. I've only had a chance to give them a quick glance, and haven't really formulated much of an opinion either way. There's no doubt they are struggling to grow meaningfully in this low inflationary environment, in tune with other consumer giants like Coca-Cola and Gillette.
There's some great posts on the Unilever message board, including this one from ridger, this one from NEILLCAU01and this one from HonkyTonkFool. As for me, I put this whole Unilever lesson down to one of education. I've been saying for a long time now that I overpaid for them, and the Qualiport is now paying the price. That's regardless of whether 480p or 650p, or whatever, is fair value for Unilever. The fact is that I bought a low-growth company at an adjusted price of 753p, which just left around about zero margin for error.
Which brings me onto another point -- the psychology of investing. In the middle of last year, when I bought Unilever, consumer goods companies were seemingly all the rage. Believe it or not, the share prices were moving onwards and upwards on an almost daily basis. When that's happening, it is very easy to get caught up in the emotion and convince yourself that these companies are on an indefinite roll. You subconsciously allow yourself to be a little less conservative with valuations, and more importantly the assumptions which go into the make-up of those valuations.
Guilty your honour!
That was me. Guilty as hell. However, I'd like to think there's a big lesson been learned. Take note those people who've been buying shares in mobile telecommunications companies like ARM Holdings (LSE: ARM) and Psion (LSE: PON) completely regardless of valuation. Those people may roll out the argument that Microsoft (Nasdaq: MSFT) has always been over-valued on traditional measures, and that there's never been a right buy point for them.
I'll beg to differ, as by definition there must have been a buy point at some stage in the past 13 years (is that all?!) it has been a public company. It may have been at the split adjust IPO price of $0.15. Anyone buying in then, and having the guts -- no easy feat -- to hang on until today, will be sitting on a nice little 60,000% rise. The other thing to note is that there is only one Microsoft (despite Friday's anti-trust trial ruling, but that's a different story), and for every company that has been touted as 'the next Microsoft', very few actually achieve anything like the success which the Seattle based monolith has.
I need to have a serious look at Unilever's latest valuation. As Rob said, they are throwing off huge swathes of cash. There's more to them than just anaemic sales and earnings growth. See you Wednesday, and on the Qualiport message board.
Company Change Bid DELL(US)-1.80 40.70 EMA +0.02 8.17 IIG -0.06 2.82 MSY +0.19 6.08 PIZ -0.05 7.75 RTO +0.13 2.19 ULVR +0.17 4.82 LLOY +0.08 8.58 Qualiport Stocks Last Rec'd Total # Company Buy Current Change 29/09/99 356 Lloyds TSB 7.56 8.58 13.6% 22/04/99 542 Misys 5.57 6.08 9.1% 27/10/98 1133 Indep Ins 2.60 2.82 8.5% 04/11/98 245 Pizza Exp 7.93 7.75 (2.2%) 27/01/99 74 Dell (US) 44.63 40.70 (8.8%) 19/12/97 783 Rentokil 2.55 2.19 (14.1%) 17/04/98 301 Emap 10.20 8.17 (19.9%) 17/07/98 266 Unilever 7.53 4.82 (36.0%) Last Rec'd Total # Company In At Value Change 29/09/99 356 Lloyds TSB 2723.20 3054.48 331.28 22/04/99 542 Misys 3065.85 3295.36 229.52 27/10/98 1133 Indep Ins 2990.63 3195.06 204.51 04/11/98 245 Pizza Exp 1966.34 1898.75 (67.59) 27/01/99 74 Dell (US) 2007.42 1825.33 (182.08) 19/12/97 783 Rentokil 2046.53 1714.77 (331.76) 17/04/98 301 Emap 3139.85 2459.17 (680.68) 17/07/98 266 Unilever 2052.00 1282.12 (769.88) Cash: £ 9.01 Current Total : £18,734.06 Total Invested: £20,184.62 Profit/(Loss) : (£ 1,450.56) Value Per Share Day Month Year Qualiport 0.66% 4.35% -11.30% FTSE 100 0.28% 1.90% 8.36% FTSE All Share 0.22% 2.14% 10.94%