After the much-anticipated pensions freedom day came and went on Monday, I thought that it would be a good idea to take a look at a country that has a similar set of rules as those that are now in force here in the UK.
The country in question is Australia. Let’s take a look at some of the trends and the companies that could prosper, which I’m keeping an eye on.
Home Improvement
Over a third of retirees either improved or bought their home. This sounds like a sensible plan to me. It takes me to the first company set to benefit: Kingfisher (LSE: KGF). Despite the challenges, both here and abroad, this company has a strong market position through its B&Q and Screwfix brands. The company also has a new CEO in the form of Véronique Laury, and it already looks like she is starting to make her mark: she plans to close around 60 unprofitable stores in the UK and a few loss-making stores in Europe. It is true that we could see some mis-steps as the company makes the transition to ‘one’ Kingfisher, but I think there is potential here for long-term investors.
Gone In 60 Seconds
One of the views held by opponents of these new-found freedoms was that retirees would be rushing to buy themselves a car that they have wanted since a child. Whilst I suspect that there will be a few more supercars with the roof down flying past me on the M6, I think the majority of the 20% using some of their cash to purchase a car will settle for a newer model, rather that a vehicle that can achieve 0-60mph yesterday.
This brings me on to my second pick: Lookers (LSE: LOOK). This diversified retailer boasts nationwide coverage: it leases, sells and services vehicles to businesses and the public. True, it is a cyclical company, but with the shares trading on a forward P/E of around 11 times earnings and yielding over 2%, I think that there could be more in the tank as the year progresses.
Wish You Were Here
One of the most popular options — in this country, at least — seems to be holidays. This, in my view, could be one of the big winners for the UK, despite this option not being as popular in Oz.
One of the potential winners (for my money) could be TUI Travel (LSE: TUIJ). Indeed, over the years this has been the choice of a number of my ex-colleagues — who could resist the offer of a holiday of a lifetime? The added attraction here is the recent merger with the sister company and the offer of some significant synergies as systems and processes are integrated. At 17 times forward earnings and yielding over 3%, this share doesn’t scream cheap — but, with earnings expected to grow by nearly 35% this year, I think it will fit nicely into its valuation in due course.
Debt? What Debt?
In a similar theme to people being sensible and paying their mortgage off, it would appear that cash will also be channelled into debt repayment, too. With around 12% of our antipodean relatives either paying their debts down, or off completely, the monthly benefit could well be significant — think of how many people with some additional cash in their pocket will now be able to relax with a coffee at their local Costa and eat out on a more regular basis. I think that shares in Whitbread (LSE: WTB) are certainly worth watching.
I remember casting my eye over these shares when they were around the £25 mark. I passed, thinking that they looked expensive — a costly mistake. At 22 times forecast earnings and yielding less than 2%, they still look expensive… but I’ll be keeping my eye open for an opportunity, should one present.
Playing It Safe
The remainder seemed to play it safe and just bought an annuity. As investors, we should not underestimate the power of a regular and guaranteed income, which — for some — is the preferred option.
This brings me to my final pick: Aviva (LSE: AV) a diversified insurance company, currently trading at quite a discount to the sector and some of its peers. Perhaps this is due to market worries surrounding the acquisition of Friends Life — this can often be the case with such a large acquisition, as there can be unforeseen issues as systems, staff and processes are integrated. However, with the shares trading on a forward P/E of around 11 times earnings and yielding around 4%, they are worth a second look.
