Aviva disappoints, another big dividend yield bites the dust

Aviva reported to the market this morning numbers that probably came as a bit of a shock.

Shares in Aviva crashed 15pc in early trading on Thursday after the insurer revealed a 44pc cut in its final dividend from 16p to 9p, reducing its total dividend from 26p last year to 19p for 2102 – a drop of 27pc.

Aviva said it had rebased the dividend to give certainty to shareholders and reduce debt, putting the insurer in "a sound position for the future".

Pension funds, fund managers and small investors, who have held the company's shares because of its 7pc dividend yield, were expected to offload the shares on Thursday.

RSA Insurance upset investors last month by lowering its dividend by 33pc. The surprise cut resulted in a 14pc drop in the insurer’s share price in a single day.  

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/insurance/9914400/Aviva-shares-tumble-as-slashes-dividend.html

Like RSA Insurance, Aviva had been sitting on the attraction for investors of a big dividend yield for some time, but there was always talk of underlying problems, a "value trap" in the making and thus today's reduction in the dividend shouldn't really come as a total surprise. Anyone who shifted their funds out of RSA into Aviva a few weeks ago will have been hit hard by this double whammy.

Wood Group produces, but what will Kentz Corp announce?

Wood Group announced pretty good numbers this morning and the market has responded positively with a rise thus far of around 7.5%.

International energy services company Wood Group, posted a 20 per cent rise in revenue from continuing operations in its full year ended December 31st, boosted by growth in all three divisions. 

Revenue from continuing operations totalled $6,821.3m (2011: $5,666.8m), while earnings before interst, tax, and amortisation (EBITA) from continuing operations came in at $461.1m (2011: $341.6m), up 35%. The EBITA margin increased from 6.0% to 6.8%. 

Profit from continuing operations before tax and exceptional items was $362.7m (2011: $254.1m), up 43%, and adjusted diluted earnings per share were 85.2 cents (2011: 60.2 cents), up 42%. 

The total dividend for the year was up 26% at 17 cents per share (2011: 13.5 cents), following a final dividend payment of 11.3 cents, reflecting the company's "confidence in the longer term outlook for the group". 

http://www.digitallook.com/cgi-bin/dlmedia/security.cgi?csi=48822&action=news&story_id=20737594

It is often the case that share price will jump on the announcement of a good result, especially if it comes in ahead of expectations. This can also be the start of a new trend as the share price goes higher. Often however, the market will anticipate the good news so to some degree it may well be priced in. Wood Group has been another steady riser, with dips along the way, for a few years. After today's price move there may be more to come, but are there others in the same sector who just might come in with decent numbers when they announce them and so far it isn't totally reflected in their share price?

Video market round up for the week ending 1st March 2013

A week ending round up of the markets from Steve Briggs YouTube channel. Included this week is a look at the banking sector. The video also regularly looks at the currencies, gold and silver.

Links:

Steve's YouTube site http://www.youtube.com/user/sjb5555.

Useful charts and analysis can also be found at http://www.flickr.com/photos/stevebriggspics/

Debenhams, snow problem

Debenhams updated the market this morning with a profit warning, which they put down to snow.

The strong sales momentum reported on 8 January 2013, with Group like-for-like sales up 2.9% for the first 18 weeks of the half, initially continued at a similar level with Debenhams making further market share gains in key categories*. 

In the latter part of January, however, the UK business was severely disrupted by the snow which fell across the country.  Whilst Group like-for-like sales grew by c.3% for the 26 weeks, during the snow-affected period of 14-27 January UK like-for-like sales were down by c.10%.

http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11506189

Blaming the weather seems to be a regular tactic from High Street retailers, especially in winter, when things go wrong. Unfortunately such excuses, especially when snow is mentioned as the specific reason, opens them up to ridicule. After all, some retailers did ok, the snow didn't seem to affect them. Of course, this might be simplistic as some areas of the country had bad weather while others had it more mild. One major retailer near where I live I find I cannot get to if there are several days of rain beforehand because flooding usually makes the only route other than a long time consuming journey around it, impassable. When that happens I shop elsewhere and they lose my custom, I'm sure for others its the same.

The trouble is that blaming snow in winter comes across as a lame excuse, because, well, we are likely to have snow in cold weather. Fair enough, say that bad weather probably encouraged people to decide to stay at home in the warmth, after all, judging from Centrica's recent profits announcement that's exactly what a lot of people must have done, but they should leave the snow out of it. Bricks and mortar retailers have no choice but to live with the weather good or bad.

Trading serious numbers

There is an old saying that you have to speculate to accumulate and in the game of trading if you are ever going to make serious money then ultimately you have to be prepared to risk serious money.

It might be possible, actually desirable, especially if you are new to trading or a day trader placing hundreds of trades a week that the amounts you are trading are relatively small. After all, if you are spread betting the FTSE100 and placing 10 trades a day, a few pounds a point can return you a decent amount if you are actually good at it.

However, if you are trading more long term and placing fewer trades in the process, then ultimately the chances are that a pound or two a point isn't going to return you big money. Yes, it can still be very profitable, but to make the big money, sooner or later the chances are that bigger stakes will have to be used.

Trading bigger amounts does require a psychological requirement that you do not fear doing this. Trading and investing probably has the same psychological effect on us as other things in life. If our experience is bad it effects us to the negative and warns us off next time. If our experience is good, the effect on our future actions is more positive. In trading terms this negative and positive reaction to prior events will play out in how we act in the future.

Which brings me to a couple of stories that I came across this week.  The first is a trade placed by the Naked Trader Robbie Burns, which chances are many of us would not have made. I mentioned in this post on Greencore Group how the share price had been affected by the horse meat scandal, at one stage falling nearly 30% in the day. I also mentioned that Burns had indicated on his site that if the company fell into the 80p region he would buy it big time. At that stage the horse meat scandal news had not hit the company, the following day it fell to below 80p on that news.

If you want to know the full story of what happened next, then I suggest you download the latest addition of Spreadbet Magazine (it's free - link here along with other free online trading magazines). Needless to say, the Naked Trader did buy big time and in the article he talks about how he made so far around £10,000 (on paper) on the bounce that came from what was essentially a falling knife of sorts. Accept that in his mind it wasn't really and he gives the reasons in the article.

Of course, to make that much money in such a short space of time requires the type of stakes that most spread bettors would probably shy away from. It requires a willingness to take on a level of risk which many probably couldn't handle, but in the case of the Naked Trader we are talking about someone who has already made a large amount of money from trading shares. As his returns got bigger he has clearly increased his stakes.

Which brings me to the second story which can be followed in this blog, Barefoot Spread Betting. Again serious amounts are being staked in the experiment and thus far serious returns being made.

Now, such stories should always come with a financial health warning. Anyone starting out in trading or investing should start with amounts that you feel comfortable handling. There is nothing wrong in starting small and building up, in fact in 99.9% of cases it is probably advisable. Trading and investing is a confidence game, which will often only come with experience and time. Trading big amounts is not advisable for those without the experience to take on that risk. It is great to read about those having success, but the trading game is also full of those that have lost big and it's not something we should forget.

Taylor Wimpey, impressive results, bull run to continue?

UK FTSE250 builder Taylor Wimpey produced an impressive result today, purely looking through the numbers it's difficult to see anything wrong and there are a lot of things going right for the company it would seem.

Here's some of the highlights;

44% increase in operating profit* to £228.8 million (2011: £159.3 million)

Completed 10,886 homes at an average selling price of £181k (2011: 10,180 homes at £171k)

Extensive strategic landbank of 100,340 plots (2011: 86,236)

Total order book value increased by 14% to £948 million at 31 December 2012 (2011: £835 million)

Customer satisfaction increased to 93.2% (2011: 92.1%)

Reduction in net debt to £59.0 million (31 December 2011: £116.9 million) with further improved debt efficiencies

http://www.digitallook.com/news/rns/20729318-10332/TW_-Results_for_the_year_ended_31_December_2012_html

What is interesting is that despite a largely stagnant UK housing market, quite a few of the listed FTSE construction companies have actually defied the bearish calls of why they should still be falling in price and actually done rather well in the last few years. Of course, like the banks lots of them fell off a cliff back in 2007-8, but since then many have recovered well often on the back of good numbers.

The company doesn't offer a great dividend at less then 1%, but in terms of price growth it has been steady as you go for the past couple of years.

Below is the impressive weekly chart showing the clear momentum.

US budget - down to the wire again

No one should be surprised that the latest news on deadlock over US budget cuts seems to be going down to the wire again.

The US Congress has adjourned for the weekend without reaching a deal to avert steep automatic budget cuts.

The cuts, worth $85bn (£56bn), are due to take effect on Friday. Democrats and Republicans are blaming each other for the deadlock.

President Barack Obama has invited congressional leaders to the White House for negotiations.
Mr Obama warned that the cuts will harm the economy. The IMF said they could have a global impact on growth.

On Thursday budget bills from both parties were defeated in the Senate.

http://www.bbc.co.uk/news/world-us-canada-21610813

The pattern of leaving things to the last minute is well set in US politics and historically some sort of deal is usually, eventually, cobbled together. Markets seem quite relaxed thus far about the lack of agreement, but as everyone knows this can quickly change. It's possible that what we are seeing is a calm before the storm and that markets at some stage will use any US budget impasse to sell off and correct the impressive bullish run of the last 2-3 months. Markets may want to give the politicians a reminder of their power at some stage if no decision is forthcoming, so we all should be ready for at least the possibility of a wild ride in the markets going forward.