Global worries hit Welsh shares

As investors will be only too aware, it has been a bad month for stock markets, not just in Britain but around the world. Fears that Greece would not be able to pay its debts and that other countries, including Spain, Portugal and Ireland might also come under similar pressures, have resulted in a big sell-off of shares. Investors are worried that the world might be forced into a second recessionary phase, depressing company sales and earnings and precipitating further rises in unemployment.

Athough stable government has been achieved with the creation of a new coalition between the Conservatives under David Cameron and Nick Clegg’s Liberal Democrats, offering the prospect of a five year Parliament, the size of the economic problems facing Britain have continued to cause concern. In addition, the problems facing BP, as it struggles to stop the flow from its broken oil well in the Gulf of Mexico, have meant UK markets have been a further factor in the market’s backward movement.

BP is one of the biggest payers of UK dividends, and, therefore, a vital source of income for UK managed funds, including pensions. If it has to cut its pay-outs, as some US critics are now demanding, this will have a further depressing effect on the UK economy and put further pressure on pension funds, many of which have already experienced periods of being under-funded over the past decade.

In this rather gloomy overall situation it would have been a surprise if the portfolio of Welsh shares we have constructed had managed to go against the trend, and indeed they have failed to do so. All of the 12 shares in our index fell in value over the past month, and the total value of the portfolio which reached £1,380 at the end of April – a 15.7 per cent gain over a period of six months on the original nominal cost of £1,200 –  is now back to just £1,179.69. In other words, an investor who had chosen our balanced portfolio of shares in (the admittedly rather small) number of Welsh quoted companies, would now be £20 down, though they would, of course, have received some benefit from dividend pay-outs.

Even the star of the first six months – oil exploration company Amerisur Resources – slipped back with a drop of 21 per cent in its share price from its previous high of 17.80p. No doubt this reflects sentiment moving against oil exploration companies because of the problems at BP and the prospect that the conditions imposed on exploration companies generally will be tightened. However, Amerisur remains by far the best performing share in the portfolio, with the original £100 investment worth £181 at the start of June.

Welsh Share Selection	Stock Exchange Code	Price P November 5 2009	No. of shares	Value November 5 2009 £	Price P June 3 2010	Value June  3 2010 £	+/- Nov 2009 – June 2010
							%
Amerisur Resources	amer	7.72	1290	100	14.05	181.24	+82
Admiral	adm	1059.0	9.4	100	1308	122.95	+235
Boomerang Plus	boom	95	105	100	75	78.75	-21
Enfis	enf	53.00	190	100	12	22.8	-77
Freshwater*	fwuk				18.5	101.31	-11.9^
Finsbury Food	fif	26	385	100	15.75	60.63	-39
Internat. Greetings	igr	72.90	137	100	61.05	83.63	-16.3
IQE	iqe	18.41	543	100	17.33	94.1	-5.9
Moneysupermarket.com	mony	77.65	129	100	64.9	83.72	-16.4
Pure Wafer	pur	3.75	2666	100	6	159.96	+60
Redrow	rdw	146.10	68	100	126.3	85.88	-13.6
Wynnstay	wyn	225.30	44	100	238	104.72	+5.6
Welsh Ind Inv Trust*	wii	215.00	46	100	–	–
Total Cost/Value				1200		1179.69	– 1.7
		Index
FTSE		5125			5116		– 0.18
FTMC		9020			9554		+ 5.9
FTSE Aim All Share		652			681.2		+4.5

*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.

Wales’s only FTSE100 representative, Admiral Insurance, also continues to prosper. Its share price dipped only marginally over the month to 1308 at the start of June. The original investment would now be worth £122.95, a healthy gain over seven months. The two other companies that have proved to be good investments over the period are Pure Wafer, the silicon wafer manufacturer, which is up 60 per cent (though down 20 per cent on its end May price) and Wynnstay, the agricultural supplies and retailing group based in Llansantffraid near Newtown, where the share price has grown a modest 13p to 238p since the beginning of November.

Wynnstay has remained defiantly expansionist during the recession, setting an example that all too few Welsh companies seem to be willing or able to follow. The company raised a total of £3.9m in May with a share placing, part of which will be used to finance its purchase of Yorkshire-based Woodheads Seeds for £2.6m. This is its second move to expand its seeds business in the past year, following acquisition of shares in Youngs Animal Feeds in November. The company is also a significant participant in the growing pets supply business.

The remaining companies in the index were showing share price declines, ranging in some cases up to 20 per cent compared with the end of April.  Apart from Amerisur Resources (down 21 per cent), Boomerang Plus, the independent television production company was down 19.4 per cent, Finsbury Foods 20.3 per cent, and Pure Wafer 20 per cent. Lighting manufacturer, Enfis, which has already fallen sharply from its 53p share price at the start of November, recorded another drop of 18.6  per cent to take it to only 12p. Despite reporting good sales over Christmas and record sales at a recent greetings industry trade fair, International Greetings was down 13.5 per cent. During May Boomerang announced that delays in certain projects were preventing it from meeting market expectations of profit before tax and earnings per share this year.

Perhaps most disappointingly, the performance of the portfolio has been weaker over the past month than the three main UK indices with which it is being compared. While the FTSE100, the index of big company shares, declined by 12.7 per cent, the FT Mid Cap by 7.8 per cent and the FTSE Aim (Alternative Investment Market) for smaller companies by 6.6 per cent, the value of our 12 Welsh shares declined overall by 14.5 per cent. Significantly, too, most of the companies on the Welsh list are on Aim, so this is the index which should have been most closely followed.

One change in the portfolio this month is the inclusion of Cardiff-based public relations and marketing consultancy Freshwater in place of Welsh Industrial Investment Trust, which has been wound up and therefore delisted. Freshwater, which has operations in cities across the UK, started the month with its shares at 21p but these had fallen to 18.5p by the beginning of June.

Note: shares in the index are Amerisur Resources, Admiral, Boomerang Plus, Enfis, Finsbury Foods, Freshwater, International Greetings, IQE, Moneysupermarket.com, Pure Wafer, Redrow, and Wynnstay. The observations above are personal opinion, they do not represent the views of the IWA and are not a recommendation to buy or sell any of the shares mentioned. Any reader interested in dealing in any of these shares should consult a financial adviser.