Tracks out of the trough

Rhys David looks at how a selection of Welsh shares performed in December as the UK continues its slow recovery from recession and finds a mixed picture.

The main UK share indices rose last month as they have in 18 of the past 20 previous Decembers, so it is good to report that the Welsh share index launched on this site in November was also up.

Early in December the combined value of the 12 share nominal portfolio drawn from a cross-section of FTSE and FTSE Aim markets had declined, despite an even balance of six of the selections rising and six falling. Anyone who had actually purchased £100 of shares in each of the companies at the start of November would have seen their investment fall in value to £1,171.13, even though the main indices rose by a few percentage points during the course of the month.

By the end of the year there had been a bounce-back. The Welsh share portfolio is now worth £1,223.05, £23 more than the original investment and £51 up on early December, a rise over the month of 4.4 per cent or slightly more than the increases registered over the period by the main indices.

The devil, however, is as always in the detail. Although only four of the shares in the portfolio declined during the month – Enfis, International Greetings, and Pure Wafer – eight of the selected companies are now worth less than at the start of November when the index was created, a fairly remarkable performance, given the buoyancy in stock markets in the last quarter of 2009. The four exceptions are Cardiff’s own oil exploration company Amerisur Resources, Admiral Insurance, Wynnstay and Welsh Industrial Investment Trust. Having slipped in November Pure Wafer was at least back where it started two months ago at 3.75p.

The star performer over the period was St. Mellons-based Amerisur Resources, which has oil and gas interests in South America, notably Colombia and Paraguay. A beneficiary of high international oil prices, the company has seen its share prices almost double since the beginning of November from 7.72p to 15p. Though it reported wider losses for the six months to September, turnover was well up and the company has just won a new licence to drill from the Colombian Government. Anyone who had invested £1,000 in the company two months ago would now be sitting on shares worth £1,930. As for the other three risers, shares in Welsh Industrial Investment Trust are up 24 per cent over the past two months, Admiral shares are up 11 per cent, and those of agricultural supplies merchant and retailer, Wynnstay have risen by 5 per cent.

The weakest performer by far has been high power lighting specialist Enfis, where a £100 investment at the start of November has been transformed into £37 after a further fall in its share price in December. The company was reporting signs of an upturn in its business a month ago but the market remains unimpressed. International Greetings also disappointed despite Christmas traditionally being one of its strong selling periods. Its share, which rose in November, are now back to where they were at the start of that month at 72p. The company, which produces a range of wrapping, stationery and other products changed its management team a year ago and it has been seeking to reduce previously high stock levels and to exit lower margin businesses. It has managed to cut losses but the market is clearly still waiting for more positive results.

Another company currently restructuring, Finsbury Foods, staged a modest improvement in its performance in December after announcing plans to cut overheads at its Memory Lane cake factory in Llanishen where a total of 1,000 people are employed. The Cardiff-based cake maker, which has contracts with some of the leading supermarkets, has been affected by a downturn in demand for its cakes as a result of the recession and is planning to reduce production and employee numbers in Cardiff.

On balance, therefore, not a stellar performance by the companies forming this bespoke index, though hardly one that is surprising. In the early stages of recovery from this recession big companies are likely to be the earliest to benefit because of the much easier access they enjoy to sources of finance for restocking, re-investment and in the case of the very strongest for acquiring weaker competitors. Sadly, Wales has very few of these large-scale businesses and its companies are almost invariably cast in the role of prey rather than predator.

Smaller companies, and that includes most of those in the index, are likely to have much greater problems raising finance for expansion and recovery and are in a much weaker position in relation to the big companies they often serve. As such, they are less likely to be favoured by investors at this stage and this is reflected in their share prices. As the recovery continues, and providing it now becomes a straight upward line out of recession avoiding the feared double dip, smaller companies should begin to prosper again.

Next month will represent the three month period since the index was started and hence an opportunity to see if any clearer trends are starting to emerge. The full list of companies in the index is: Amerisur Resources, Admiral Insurance, Boomerang Plus, Enfis, Finsbury Food, International Greetings, IQE,, Pure Wafer, Redrow, Wynnstay, and Welsh Industrial Investment Trust.

A note of clarification. The observations above are personal opinion, they do not represent the views of the IWA and are not a recommendation to deal in any of the shares mentioned. Any reader interested in buying any of these share would be well advised to consult a financial adviser.

Rhys David is a trustee and former development director of the IWA, having spent most of his career working as a journalist with the Financial Times.

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