3 Things Investors Can Learn From The New Sugar Tax

Peter Stephens — Fri, 18 Mar 2016 18:00:37 +0000

George Osborne’s tax on sugary drinks teaches investors three key lessons. The first is that any company in any sector, operating in any part of the world can be subject to a major event that hurts its profitability and share price.

This makes diversification all the more crucial for investors, since it means that when a company is subject to a profit warning or the introduction of a tax that could dent sales and/or margins, the investor’s portfolio value will not be overly affected by the subsequent decline in the company’s share price.

In other words, diversifying reduces company-specific risk and while buying more stocks is a good idea, buying companies that operate in different regions, different sectors and that offer different investment appeal also makes sense. This point has been emphasised by the new sugar tax, but also in recent times by the slowdown in China (which affected China-focused stocks) and the fall in the oil price.

Health risks

As well as highlighting the importance of diversification, the new sugar tax also teaches investors that consumers are becoming healthier. Although the sugar tax is forcing people to potentially drink less sugary drinks through higher prices (if the cost of the tax is passed on to consumers by drinks companies), there’s a general trend towards consumers becoming healthier by their own choice. For example, people are now more aware than ever of the negative impacts of tobacco, alcohol and certain food groups. This means that companies operating within those spaces may find sales growth more difficult to come by in the long run.

Investors may therefore be forced to demand a wider margin of safety when buying shares in a tobacco, beverage or other ‘unhealthy’ company. As such, a number of stocks that were once favourable investments may prove to be riskier than previously thought and offer fewer potential rewards than had been the case in the past.

Embrace change

In addition, the new sugar tax has taught investors that business is constantly changing and all companies must innovate in order to maintain sales growth. Although the sugar tax was something of a surprise to many people, the reality is that a number of food groups have been identified as contributing to current obesity rates. And while a number of companies have sought to innovate and change their ingredients in recent years, a number of products (such as sugary drinks) have continued to use the same recipes despite increasing public pressure to reform.

Investors now may wish to take a look at their holdings and determine whether their stocks are doing enough to keep up with a changing consumer, economic and regulatory landscape. This isn’t just with regard to food and drink items, but also fossil fuels as cleaner energy becomes increasingly prevalent, tobacco as reduced-risk products increase in popularity and a whole host of other industries where the landscape is constantly changing.

Clearly, with change comes opportunity. For investors who are willing to take a calculated risk on companies that have the capacity to innovate, there’s the potential to generate significant long-term gains.

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5 FTSE 250 Stars Offering Irresistible Value: Britvic Plc, Halfords Group plc, Supergroup PLC, Marston’s PLC & A.G. Barr plc

Royston Wild — Thu, 17 Mar 2016 15:15:49 +0000

Today I am looking at five FTSE 250 giants offering splendid bang for one’s buck.

Cycle star

Car and bike emporium Halfords (LSE: HFD) has been rocked in recent times by pressure on its Cycling division, and the problems are expected to last for a little longer.

Still, galloping demand for its auto parts and services– helped by huge investment in its online and in-store propositions — are helping to offset current bumpiness. Indeed, Halfords saw total like-for-like sales rise 0.3% during the third quarter..

The City expects Halfords to bounce from a rare 5% earnings dip in the year to March 2016 with a 1% rise in 2017, resulting in a very-decent P/E multiple of 12.3 times for the upcoming year.

And Halfords carries a market-busting dividend yield of 4.3% for 2017. I believe the firm is a terrific selection for those seeking chunky earnings and payout growth in the years ahead.

Clothing colossus

Fashion giant Supergroup’s (LSE: SGP) decision to expand aggressively in foreign climes is clearly producing huge rewards.

The Superdry manufacturer saw revenues charge 14.6% higher in the last quarter, thanks to new store openings in Europe. And Supergroup’s rising footprint in the US and China promises to deliver further chunky sales expansion.

The number crunchers expect Supergroup to punch stunning earnings growth of 17% and 12% in the periods to April 2016 and 2017 respectively, producing P/E multiples of 16.5 times and 14.7 times.

I believe this is great value given Supergroup’s exceptional momentum, while dividend yields of 1.9% and 2.3% provide handy sweeteners.

Ferment a fortune

Brewing giant Marston’s (LSE: MARS) is also benefitting from the decision to ramp up its property base, with a rise in the number of its drinking holes helping the company set a fourth consecutive Christmas sales record last year.

Marston’s plans to open a further 20 new pub-restaurants and five lodges in the current year, a promising sign for further revenues growth. On top of this, surging demand for the firm’s beer brands is also bloating the top-line — sales volumes of Marston’s labels exploded 21% between October and late January.

The City expects Marston’s to follow a 4% earnings bounce in the year to September 2016 with a 9% increase the following year, resulting in ultra-low P/E ratings of 11 times and 10.2 times correspondingly. Meanwhile, dividend yields of 4.9% for this year and 5.1% for 2017 should keep income chasers happy.

Drinks darlings

Unsurprisingly news of a ‘sugar tax’ in this week’s Budget has whacked investor thirst for beverages giants Britvic (LSE: BVIC) and AG Barr (LSE: BAG) .

But it could be argued that the fear of the drinks sector is overplayed. The likes of Britvic and Barr have two years to reformulate their product ranges, a strategy which both firms have long been engaged in anyway.

As Investec points out, some 55% of Britvic’s British carbonates portfolio is already ‘sugar free’, while Barr’s revenues from zero-to-mid-sugar drinks has leapt to 42% from less than a third five years ago.

City brokers expect Barr to punch 6% earnings rises in the years to January 2017 and 2018, resulting in P/E ratings of 18.1 times and 17.1 times respectively. The company also boasts chunky dividend yields of 2.5% and 2.8% for these years.

Meanwhile, Britvic is predicted to see earnings rises of 5% and 7% for the periods to September 2016 and 2017, producing P/E ratings of 14.7 times and 13.9 times. As well, dividend yields for 2016 and 2017 ring in at 3.4% and 3.7% correspondingly.

While Britvic is clearly better value for money than Barr on paper, I believe both companies can be considered attractive investment destinations thanks to the massive brand investments in recent years, not to mention aggressive expansion into foreign territories.

The post 5 FTSE 250 Stars Offering Irresistible Value: Britvic Plc, Halfords Group plc, Supergroup PLC, Marston’s PLC & A.G. Barr plc appeared first on The Twelfth Magpie.