It’s as you were as gains and losses balance out

Interest in creating a Welsh stock exchange is growing, as the recent ClickonWales post by Dr. John Ball of Swansea University makes clear. There are exchanges proponents point out, in a number of smaller countries, some of them such as Malta much smaller than Wales, and it appears a link can be established between the presence of an exchange  and economic growth.

Just how many companies in Wales would want to take advantage of a Welsh exchange cannot ahead of events be determined, though some studies have suggested there would be a sufficient interest, if the terms and conditions, and particularly the price, were right. All that can be said is that for many smaller Welsh companies the experience of listing on the London Stock Exchange (in most cases through its smaller Alternative Investment Markets) continues to prove challenging.

This column has been following a group of 12 companies since last November to see whether a nominal £100 investment in each of these would prove profitable for investors. The column also compares the performance of this basket of 12 shares with the performance of three indices, the FTSE100, representing the biggest companies, the FTSE Mid Cap index representing the next tier of companies, and the Alternative Investment Market (AIM) where the smaller companies are found. Only one Welsh company, Admiral, is now to be found in the top 100 among the galaxy of international groups and the majority of Welsh listed companies, including those in our selection are on AIM.

Over the course of the nine months since November the FTSE100 – which includes a number of largely international businesses not necessarily Britihin origin – had risen by end July by a modest 2 per cent, reflecting the ups and downs of a turbulent year in which confidence has waxed and waned with each contrasting item of economic news. The Midcap market – companies outside the FTSE 100 down to number 250 in size and mainly British – has done better rising 10.3 per cent, while the AIM has risen by a more restrained 5.2 per cent.

It is this last market that the Welsh share selection might have been expected to emulate but over the course of the nine months its value has in fact declined by 2 per cent. What this means is that an investment of £1200 last November would now be worth only £1,174. Six of the 12 companies in the selection have in fact lost value since November, in one case – Enfis the Swansea lighting specialist by more than 80 per cent though recently the company has announced a significant new order which has helped to improve its fortunes.

Two other companies, Boomerang Plus, the media group, and bakery group Finsbury Foods have lost more than 30 per cent over this same period, Redrow, the housebuilder, is down 26 per cent and stationery and decorations group, International Greetings is down nearly 18 per cent. The fact that the portfolio has not shown an even greater fall in total value on the original £1200 investment is down very largely to the strong performance of three companies – Admiral Insurance Group, Pure Wafer and Amerisur Resources.

The last-named will be familiar to very few people even in St. Mellons where it is based. Wales’s only oil exploration company, it prospects for oil mainly in South America and largely as a result of some favourable drilling discoveries an investment of £100 nine months ago would now be worth exactly twice that amount. Admiral, which operates in a number of other countries outside Britain and has recently announced a move beyond its motor industry base into household and other general insurance products, is 36 per cent up since November, and Pure Wafer, the silicon chip manufacturer, is up 20 per cent.

Welsh Share Selection (share code in brackets)	Price P Nov  5 2009	No. of shares	Value Nov  5 2009 £	Price P July 3 2010	Value July  3 2010 £	Price Aug 3 2010	Value Aug 3 2010	+/- July 2010 – Augst 2010	+/- Nov 2009 – August 2010
								%	%
Amerisur Resources (amer)	7.72	1290	100	12.75	164.47	15.5	199.95	21.5	100
Admiral (adm)	1059.0	9.4	100	1399.44	1315.5	1448	136.11	3.5	36
Boomerang Plus (Boom)	95	105	100	75	78.75	65	68.25	-13	-31.6
Enfis (enf)	53.00	190	100	15	28.5	10	19	-33	-81
Freshwater* (fwuk)		547		19.5	106.66	16	87.52	-17.9
Finsbury Food (fif)	26	385	100	15.06	57.98	18	69.30	19.6	-30.8
Internat. Greetings (igr)	72.90	137	100	56.67	77.63	60	82.20	5.9	-17.7
IQE (iqe)	18.41	543	100	17.36	94.26	21.3	115.65	22.7	15.7
Moneysupermarket. Com ((mony)	77.65	129	100	73.4	94.68	70	90.30	-4.6	-9.8
Pure Wafer (pur)	3.75	2666	100	5.5	146.63	4.5	119.97	-18.2	20
Redrow (rdw)	146.10	68	100	107.8	73.30	107.1	72.82	-0.06	-26
Wynnstay (wyn)	225.30	44	100	264.15	116.22	256.82	113.00	-2.8	14.0
Welsh Ind Inv Trust* (wii)	215.00	46	100
Total Cost/Value			1200		1170.6		1174.07	0.4	2
	Index
FTSE	5125			4838		5258		8.7	2.6
FTMC	9020			9276		9948		7.2	10.3
FTSE Aim All Share	652			653.3		685.68		4.9	5.2

*Freshwater replaced Welsh Industrial Investment Trust on May 4^th following the latter’s winding-up.

^Percentage change is for one month only from May 5^th.

What about more recent performance?  IQE, the advanced semiconductor materials maker based in Cardiff, has been on an upward trend in recent months and now stands at 21.3p, compared with 17.36p a month earlier and 18.41p nine months ago. The company recently reported a strong start to the year, with first half sales growth of 53 per cent year on year. The company believes it has been winning market share at a time when businesses are replenishing their stocks and it expects sales to continue to be strong in the second half as a result of high demand from the smart phone and high speed wireless technology sector it serves.

Wynnstay, the agricultural supplies merchant and pets supplies and country goods retailer, though slightly down on a month earlier at 256.82p is still ahead of its November figure of 225.30, with the market approving of its expansionist stance as an acquirer of related businesses. Moneysupermarket.com. the north Wales market leader in the highly competitive comparison website sector is also ahead of November’s 77.65p at 90.3p, though this is a 4.6 per cent drop on the previous month’s figure. The company reported an increase in pre-tax profits for the first half of the year to £2.9m and expects to derive further benefits in the second half as a result of reductions it has made in its cost base. These result from the transfer in house of specialist services previously supplied by contractors and reduced marketing spend.

Enfis which started at 53p in November actually lost a further 9.5p  during July to take its price down to 19p but the new order it has received to supply LED drivers and arrays for the NBA basketball stadium under construction in Guangzhou China for the November Asian Games produced a 85 per cent jump in its share price early in August.

The sole food processor in the list Finsbury Foods in Cardiff recovered lost ground in July with a 20 per cent share price rise to 18p (though when shares are being traded at low prices, such as these, sharp variations are not uncommon). The company, which makes cakes for some of Britain’s biggest supermarkets, said in an end-July update that it had suffered in the first half of the year  from customers trading down and going after goods on promotion. It did report strong growth from its bread and “free from” division where sales rose 9.3 per cent, helping to offset a decline by a similar amount in its cakes division.

International Greetings also saw its share price grow in July after reporting profits of £0.525m for the year to March 31, compared with a loss of £22.8m pre-tax in the previous year. The company has been implementing a radical restructuring plan which has seen staff numbers fall globally by 1,000 to 2,000.

Just how well companies included in the list – and in consequence  their share prices – will perform over the remaining months of the year depends inevitably on the prospects for the UK and world economies, and the signs here are, as they have been for most of the past two years, confusing. Strong growth in Asia would be a boon for the technology companies in the portfolio but cuts in public expenditure and the possible knock-on effects for employment are bound to be damaging for businesses that rely on rising consumer incomes such as Redrow.

Rising wheat prices around the world will not be good news for Finsbury Foods which may have difficulty passing on higher costs to its supermarket customers. Wynnstay also faces rising input costs from the same source. Companies within the portfolio with strong market positions such as Admiral and Moneysupermarket.com could, however, benefit from renewed consumer attention to pricing. Like their counterparts elsewhere in the UK several of the Welsh quoted companies have taken the opportunity – and necessity – created by recession to restructure and become leaner and fitter.

What the fortunes of all these companies does indicate is that exposure to stock market sentiment does bring the added pressures of seeking to maintain a rising or stable share price even in volatile market conditions and this is certainly not easy. Whether the putative stock market will provide a gentler environment will become clear only when the current interest in setting up such a mechanism advances further.