A better month for Welsh shares

Rhys David reports that Welsh shares could have given investors useful returns over the past six months, but they would have had to choose carefully

How would the Welsh investor who decided to take the patriotic option and put his or her money into a basket of Welsh shares fare over time? This was the question the Welsh share index we have been running on ClickonWales set out to answer. After six months some predictable and some surprising messages have begun to emerge.

Firstly, it must be said that the range and quality of available Welsh shares is so narrow that this is not a sensible investment strategy. Any investor would be strongly advised to seek a broader spread of shares to invest in if they want to have exposure to the stock market. Very few Welsh companies are listed on the London stock markets, including the Alternative Investment Market specifically designed for smaller companies. One company, Admiral Insurance, which is listed among Britain’s 100 biggest companies, has a market capitalisation (total value of all its shares in circulation) greater than all other Welsh quoted companies combined.

If, however, our notional investor had invested in the 12 shares in our list he or she would not have done too badly. In fact, after trailing the main indices we have used in our comparison – the FTSE 100, the FT Mid Cap and the FTSE Aim All Share – for most of the six month period under review, our Welsh share index has actually done rather well in the past month and the value of the investments now stands 15 per cent up on the start of November.

In other words the £1,200 we notionally invested in our 12 shares on 1 November 2009 would now be worth £1,380. By contrast the FTSE itself over that period has, after recent falls prompted by worries over Greece’s economy and its impact on the rest of Europe, only risen 8.4 per cent. The FTMC has risen by 14.9 per cent and the FTSE Aim by 11.8 per cent.

Before getting carried away by this encouraging performance, it is worth noting that our 12 shares included some strong performers, but regrettably some very weak ones, too. Indeed, five of the 12 shares are now lower than they were at the start of November, despite the progress made by shares generally in stock markets across Europe over the period. Boomerang Plus, Enfis, Finsbury Food, International Greetings, and Moneysupermarket.com are all trading lower, in some cases by significant amounts.

One of the star performers in our list is the very little-known Welsh oil and gas exploration company, Amerisur Resources, which prospects for oil and gas in Colombia and Paraguay from its unlikely headquarters in St. Mellons. The shares were worth 7.72p in November but have now reached 17.8p after promising results from test drillings. Recently, the company has been able recently to capitalise on its successes to raise £13.7m to fund future developments. An investment of £100 in November would, therefore, now be worth £229. Another success is Pure Wafer where the shares have recovered strongly after touching 2p at one stage during the past year. The Swansea Technology Company’s share price is now back at 7.5p, which means that shares bought at 3.75p in early November have doubled in value.

Despite a slight drop in value in April from 1332p to 1315p, Cardiff-based Admiral Insurance has shown a six-month rise in value of 24 per cent as it continues to win market share in the UK and develop its operations overseas. Wynnstay, the agricultural supplies and retail group based in mid-Wales, rose by 12.6 per cent over six months. Meanwhile, Welsh Industrial Investment Trust, a company now in the process of being wound up, rose by 16.8 per cent. IQE, the Cardiff technology company, rose by a more modest 5.1 per cent while Redrow, the north Wales house builder, has seen little change in the value of its shares over the past six months at 149p.

However, there the good news largely ends. £100 invested in Cardiff media independent Boomerang Plus in November would now be worth £97.65, and the same amount put into International Greetings, the decorations and stationery company with production facilities in Ystrad Mynach would be down to £96.65. Moneysupermarket, the Ewloe-based price comparison website, which faces fierce competition from Admiral Insurance’s confused.com and the meerkats’ rivals, comparethemarket.com, is down 4.3 per cent at 74.3p (total value £95.85), though this does represent an improvement on the previous month when the shares had dipped in value to 69p.

The weakest performance has been by Enfis, the lighting specialist spun out from Swansea University and based in the city’s Technium. Despite a promising technology and export successes, the company has failed to become profitable. Its share price recovered in May, rising from 10p to 14.75p, but it remains 72 per cent down on the 53p figure early in November when the index started.

Falling sales of a very different product – cakes – have hit the final constituent of the index, Cardiff-based Finsbury Foods, a supplier of own label cakes to some of the UK’s biggest supermarkets. The company’s share stood at 19.75 at the beginning of May, compared with 18p a month earlier and 26p six months ago.

The lessons to be learnt from the first six months are that an investment in Welsh shares would at least have provided a better return than a similar sum placed in a building society or a bank at even the best rates of interests available. However, the reasonably strong performance of the Welsh shares listed has come at a time when shares generally have been rising. There is now a risk this rally will peter out or go into reverse as the impact of the tough new measures any new Government elected today will have to take. More pointedly, most of the profits our notional investor would have made have come from the performance of just two companies, Amerisur Resources and Pure Wafer. The shares of both companies have doubled in price.

Our index makes it plain that investors in Welsh shares need strong nerves. Choice of shares to invest in is extremely limited and the companies in which it is possible to invest, with one or two exceptions, are small and subject to considerable volatility. All this suggests, too, that the oft-suggested development of a Welsh stock exchange is an ambition too far at this stage. There are far fewer Welsh companies quoted on the stock exchange today than even 25 years ago. It is difficult at present to see where the next generation of Welsh companies that might want to raise public capital on a Welsh exchange is coming from. Nor is there likely to be much appetite among investors for Welsh shares, given the risks investment in such shares would clearly carry.

Note: shares in the index are Amerisur Resources, Admiral, Boomerang Plus, Enfis, Finsbury Foods, International Greetings, IQE, Moneysupermarket.com, Pure Wafer, Redrow, Wynnstay, and Welsh Industrial Investment Trust. 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 shares would be well advised to consult a financial adviser.

Rhys David is former Financial Times journalist and now writes on economic and business issues. He is a trustee of the IWA where he was development director from 2002-2008.

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