The Grocer’s basket of shares is back in the black and has outperformed the FTSE 100. Sean McAllister reports
Who would have thought over two years ago that Somerfield would prove to be our best stock market investment? But then, playing the markets is an unpredictable business, as The Grocer has discovered since we invested £1,000 in a basket of shares spread across five food retailers and five food manufacturers in December 2002.
Many would expect Tesco, with its record-breaking profits, sales and market share, to offer the best return, but the City focuses on potential rather than current trading.
Teather & Greenwood retail analyst David Stoddart says Somerfield is a good investment because it has a relatively small profit on a large turnover (£39m on £5bn).
This makes it an attractive takeover target to an entrepreneur who thinks value could be extracted from the company with a few strategic tweaks.
When the City believes a company is ripe for a takeover, then the share price rises.
That’s exactly what happened last year when John Lovering and Bob Mackenzie made two opportunistic bids for Somerfield - in April and in June. But the board rejected bids of 103p and 120p - in spite of the fact that its share price had been 70p before the proposals.
The interest from Lovering and Mackenzie certainly gave the shares some impetus.
This proof that Somerfield was an attractive bid target and the renewed confidence from the City because of the success of Somerfield’s refurbishments and its acquisition of Aberness last month have lifted the share price beyond both bids to 163p - and provided us with an £85.05 profit on our £100 investment.
Overall, our investment of £1,000 has increased in value by 13.3% to £1,133.21 over a period of 27 months.
This was despite weak performances by Sainsbury, Safeway, Cadbury Schweppes and Northern Foods, which have failed to increase in value over the total period, although shares in all 10 of our investments did rise in value over the past 12 months.
Our basket also outperformed the FTSE 100, which increased by only 8.8% in value over the same period.
The reason, says Stoddart, is that we bought our portfolio of shares during a bear market, when confidence in the economy and the stock market was comparatively low.
During these times investors will turn to defensive stocks, which include food retailers, because, people have to eat. But when the economy and the stock market pick up, shares in food retailers tend to underperform compared with the rest of the FTSE, says Stoddart.
Another area to consider is the dividend - just ask one of Safeway’s small shareholders. At the emergency general meeting in February, many small shareholders who depend on the Safeway dividend as income were upset by Morrisons’ takeover.
Since we bought our shares, Morrisons has returned the lowest dividend payout of all, at £2.36, while Safeway’s was £6.18 and Sainsbury’s the highest at £8.55.
The Grocer’s shares have earned £62.23 in dividends and have taken the total profit made from our portfolio of shares to £195.44.
Shares value: £84.30
Dividend: £8.55
Total: £7.15 LOSS
It will come as no surprise that Sainsbury’s shares were the worst performers in our portfolio.
It has suffered two years of negative media coverage, sales regarded as disappointing, and a declining share in the grocery market. It also lost its number two spot to Asda.
Shares value: £107.33
Dividend: £6.38
Total: £13.71 PROFIT
The share performance does not do justice to Tesco’s market-leading performance.
However, even with its overseas expansion, it is unlikely ever to make it as one of the UK’s fastest growing companies. Nor is it likely to be the subject of a takeover bid - and that’s what City investors like.
Shares value: £99.66
Dividend: £6.18
Total: £5.84 PROFIT
Unfortunately for Safeway’s shareholders, an auction for the supermarket group failed to materialise thanks to the Competition Commission. But Morrisons’ takeover has helped to boost the share price which, at one stage, looked as if it was heading for a heavy loss.
Shares value: £118.25Dividend: £2.36
Total: £20.61 PROFIT
Steady as she goes. With 36 years of successive profit and sales growth, Morrisons shares are a safe bet. The initial bid for Safeway caused a wobble because of concerns about integration. But with an extra year to plan, courtesy of the OFT, Sir Ken has reassured the City and seen the share price rise.
Shares value: £185.05
Dividend: £3.01
Total: £88.06 PROFIT
Two takeover bids last year from John Lovering and Bob Mackenzie made Somerfield’s shares hot property.
However, John von Spreckelsen and his board were right to reject the bids and deserve credit for the upturn in Somerfield’s share price, even before its acquisition of Aberness.
Cadbury SchweppesShares value: £98.43Dividend: £5.19
Total: £3.62 PROFIT
Northern FoodsShares value: £97.35
Dividend: £10.61
Total: £7.96 PROFIT
Associated British Foods
Shares value: £115.05
Dividend: £5.46
Total: £20.51 PROFIT
Unilever
Shares value: £101.43
Dividend: £6.15
Total: £7.58 PROFIT
Dairy Crest
Shares value: £126.35
Dividend: £8.34
Total: £34.69 PROFIT
SAINSBURY
tesco
Safeway
morrisons
somerfield
suppliers
Who would have thought over two years ago that Somerfield would prove to be our best stock market investment? But then, playing the markets is an unpredictable business, as The Grocer has discovered since we invested £1,000 in a basket of shares spread across five food retailers and five food manufacturers in December 2002.
Many would expect Tesco, with its record-breaking profits, sales and market share, to offer the best return, but the City focuses on potential rather than current trading.
Teather & Greenwood retail analyst David Stoddart says Somerfield is a good investment because it has a relatively small profit on a large turnover (£39m on £5bn).
This makes it an attractive takeover target to an entrepreneur who thinks value could be extracted from the company with a few strategic tweaks.
When the City believes a company is ripe for a takeover, then the share price rises.
That’s exactly what happened last year when John Lovering and Bob Mackenzie made two opportunistic bids for Somerfield - in April and in June. But the board rejected bids of 103p and 120p - in spite of the fact that its share price had been 70p before the proposals.
The interest from Lovering and Mackenzie certainly gave the shares some impetus.
This proof that Somerfield was an attractive bid target and the renewed confidence from the City because of the success of Somerfield’s refurbishments and its acquisition of Aberness last month have lifted the share price beyond both bids to 163p - and provided us with an £85.05 profit on our £100 investment.
Overall, our investment of £1,000 has increased in value by 13.3% to £1,133.21 over a period of 27 months.
This was despite weak performances by Sainsbury, Safeway, Cadbury Schweppes and Northern Foods, which have failed to increase in value over the total period, although shares in all 10 of our investments did rise in value over the past 12 months.
Our basket also outperformed the FTSE 100, which increased by only 8.8% in value over the same period.
The reason, says Stoddart, is that we bought our portfolio of shares during a bear market, when confidence in the economy and the stock market was comparatively low.
During these times investors will turn to defensive stocks, which include food retailers, because, people have to eat. But when the economy and the stock market pick up, shares in food retailers tend to underperform compared with the rest of the FTSE, says Stoddart.
Another area to consider is the dividend - just ask one of Safeway’s small shareholders. At the emergency general meeting in February, many small shareholders who depend on the Safeway dividend as income were upset by Morrisons’ takeover.
Since we bought our shares, Morrisons has returned the lowest dividend payout of all, at £2.36, while Safeway’s was £6.18 and Sainsbury’s the highest at £8.55.
The Grocer’s shares have earned £62.23 in dividends and have taken the total profit made from our portfolio of shares to £195.44.
Shares value: £84.30
Dividend: £8.55
Total: £7.15 LOSS
It will come as no surprise that Sainsbury’s shares were the worst performers in our portfolio.
It has suffered two years of negative media coverage, sales regarded as disappointing, and a declining share in the grocery market. It also lost its number two spot to Asda.
Shares value: £107.33
Dividend: £6.38
Total: £13.71 PROFIT
The share performance does not do justice to Tesco’s market-leading performance.
However, even with its overseas expansion, it is unlikely ever to make it as one of the UK’s fastest growing companies. Nor is it likely to be the subject of a takeover bid - and that’s what City investors like.
Shares value: £99.66
Dividend: £6.18
Total: £5.84 PROFIT
Unfortunately for Safeway’s shareholders, an auction for the supermarket group failed to materialise thanks to the Competition Commission. But Morrisons’ takeover has helped to boost the share price which, at one stage, looked as if it was heading for a heavy loss.
Shares value: £118.25Dividend: £2.36
Total: £20.61 PROFIT
Steady as she goes. With 36 years of successive profit and sales growth, Morrisons shares are a safe bet. The initial bid for Safeway caused a wobble because of concerns about integration. But with an extra year to plan, courtesy of the OFT, Sir Ken has reassured the City and seen the share price rise.
Shares value: £185.05
Dividend: £3.01
Total: £88.06 PROFIT
Two takeover bids last year from John Lovering and Bob Mackenzie made Somerfield’s shares hot property.
However, John von Spreckelsen and his board were right to reject the bids and deserve credit for the upturn in Somerfield’s share price, even before its acquisition of Aberness.
Cadbury SchweppesShares value: £98.43Dividend: £5.19
Total: £3.62 PROFIT
Northern FoodsShares value: £97.35
Dividend: £10.61
Total: £7.96 PROFIT
Associated British Foods
Shares value: £115.05
Dividend: £5.46
Total: £20.51 PROFIT
Unilever
Shares value: £101.43
Dividend: £6.15
Total: £7.58 PROFIT
Dairy Crest
Shares value: £126.35
Dividend: £8.34
Total: £34.69 PROFIT
SAINSBURY
tesco
Safeway
morrisons
somerfield
suppliers
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