Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
This article is the latest part of the FT’s Financial Literacy and Inclusion Campaign
For stock market investors, there was little of note in last week’s Autumn Statement apart from the announcement of a consultation on allowing fractions of shares to be held in Isas.
But one interesting national opportunity did nonetheless emerge. The government’s aspiration to make further disposals of its 39 per cent holding in NatWest, perhaps including an effort to involve stock market novices with a “Tell Sid”-style marketing campaign, could be harnessed for the public good.
We all accept the failure of schools to provide any serious financial education. My suggestion is that each of our 4,400 state secondary schools should be gifted, say, £5,000 worth of NatWest shares by the government, to be held for the long term.
Each year, the question of what to do with the dividend of about £350 could be decided by a vote among the pupils. For instance, it could include spending on an item for the school, subsidising a visit or donating to a local charity. In addition, there could be an opportunity to attend NatWest’s digital AGM.
All this would help to raise youngsters’ awareness of banks and how they operate — as well as the stock market.
Alongside this, the government could create a small fund to cover the costs of approved individuals going into schools to help provide basic financial education.
To those who say that reducing the public debt is a bigger priority than making a gesture towards financial education, I would point out that we are talking about a very modest amount. The share gift would only cost the government £22mn, but financial education awareness could be given a real boost for the benefit of pupils and the nation.
Listed regional companies, particularly family-dominated firms, might be encouraged to similarly donate a modest shareholding to their local secondary schools, thus building relationships and networks with schools from which they are likely to be recruiting in years to come.
It is an idea I intend to raise in Parliament — and my soundings suggest it will gain support from many quarters.
On to my investment performance. Of the many homilies in the field I have four favourites. Warren Buffett’s “Lethargy bordering on sloth remains the cornerstone of our investment style”; “Patience is the companion of wisdom” from St Augustine; Bernard Baruch’s “Don’t try to buy at the bottom and sell at the top — this can’t be done except by liars”, and finally the French “Achetez aux cannons vendez aux clairons” — translated as “Buy on the cannons, sell on the trumpets”
I like to think my investment style is an amalgam of all four. I don’t chop and change, I patiently hold for the longer term, I don’t try to be too clever with my timing, but when markets are depressed following conflicts or the unexpected negative, I buy as I have been doing recently.
I view the UK market as attractive and very undervalued — not only for high-yielding large-cap stocks such as Aviva, Legal & General, M&G and Phoenix, all of which I own, but also for so many small-caps. With interest rates peaking and inflation heading down, my large-cap bloc is edging forward, but surely has some way to travel.
With small-caps one only has to look at takeover premiums, averaging around 50 per cent for furniture group ScS Group and City Pub Group to the exceptional 170 per cent on Hotel Chocolat. Sadly, we sold my grandsons’ holding of the latter at our last review on poor trading!
Thus, whenever I have available cash, as I did recently, following the interim dividend from my large M&G holding, in it went, topping up my holdings in Concurrent Technologies, Secure Trust, Vianet and VP.
The reinvestment and compounding of dividends is key to long-term portfolio performance. The Hotel Chocolat premium underlines the value of brands, which brings me on to my longstanding PZ Cussons shareholding.
Recent years have been miserable for shareholders, with market capitalisation falling from a £1.8bn peak in 2013 to only £600mn today, coupled with a dividend cut. Of course Nigerian problems played a big part, but the whole previous board has to take responsibility for some disastrous acquisitions and management failings.
It pains me to see such a decline in one of Manchester’s great commercial companies. I was on the board many years ago and played a part in the takeover of Cussons by the original Paterson Zochonis. However, I would now suggest that the value of group brands — Carex, Morning Fresh, St Tropez, Cussons body products, plus its major market position in Nigeria — by 2050 projected to be the third most populous country in the world — must add-up significantly to more than the current capitalisation.
The relatively new chief executive Jonathan Myers is bringing change and focus to the group. A very recent AGM update pointed to improving margins and an encouraging restart of cash recovery from Nigeria. One way or another, the real worth of PZC has to come through. While I wait, the 4.5 per cent dividend yield provides some comfort.
PZC went backwards, but super stock Cerillion scales new profit and dividend heights. This niche software company provides billing services to the world’s telecoms sector. I first bought into Cerillion — originally a buyout from Logica in 2016 at 84p. I bought on five further occasions, paying up to 173p. I sold 15 per cent of my holding at £12.40 and £14.50 when they looked somewhat “toppy” — but I wish I hadn’t!
Very recent results were again outstanding, with earnings up 31 per cent and dividends 24 per cent. The future looks as bright as the past, full of orders and optimism — and a chance to expand beyond what is still only a small share of the global market.
An earlier version of this article incorrectly referred to construction company Carillion.
Lord Lee of Trafford is an active private investor and a shareholder in all the companies indicated