In a month when the message from the top-down macro indicators was more mixed than the relentless good news of late, valuation support was provided by a wide range of good bottom-up trading updates and results. Pleasingly earnings ‘beats’ and upgrades remain widespread and the number of companies indicating a return to ‘proper’ levels of dividend payments, albeit from next year, is tangible evidence of confidence in an improving outlook. The press has recently highlighted a number of large caps with excess cash flows and potentially large dividend payouts and we welcome this increased focus on the attraction of dividends to investors. As ever, the key for us remains the ability of a company to pay good levels of dividends that can grow over time. Supply chain interruption, labour shortages, rising wage inflation and increased freight costs have been a consistent theme in many of the recent company announcements and are obviously all being factored into analyst forecasts. These are all inputs that we will need to keep a keen eye on over the next few months, but to date a combination of price increases and good management have nullified the worst of the effects.
Amongst our top performers in the month were Ultra Electronics, which was the subject of a proposed bid, and DMGT, which announced proposals for a sale of assets and a return of value to shareholders. We have noted before that we expect a heightened level of corporate activity to be a continued feature of the equity market as the economic recovery gathers strength and business confidence returns. FDM and Devro also performed well in response to reassuring results. On the downside Halfords fell from recent highs after the release of a broker’s note and Sabre Insurance fell after results which investors deemed to be rather pedestrian. We topped up our holding in the latter on the share price weakness. We also increased our exposure to Moneysupermarket, Telecom Plus, Severfield and TP Icap amongst others. We sold out of Zegona and reduced weightings in Flowtech and IMI on dividend yield grounds. We added a new holding to our portfolio, Ocean Wilsons, as a line of stock became available. Its operating subsidiary is one of the largest providers of maritime port and logistics services in Brazil.