A tough week for UK shares as the Bank of England raised interest rates by 0.5% to 5%. The kickback online has been quite vociferous. Property Stocks (of which I hold a few – 12% of my portfolio) have been hammered.
5% Base Rates, whilst high compared to the last 5 years or so isn’t that high by historical standards. I can remember Base Rates hitting 15% briefly before we crashed out the ERM back in the 1990s.
It does make the case harder for Equities at the moment as you can probably get 3-4% guaranteed from savings – so why invest in risky shares for an extra % or two? The answer is, of course, that the Stock Market is forward looking and once there is a hint that rates are peaking or starting to come down Shares will recover and investors will reap Capital Gains, not just interest income.
The 888 that I sold is down 15%, so that Gift Horse sale seems to have paid off short term.
DS Smith (SMDS), a packaging company that I already hold Reported yesterday. From it’s Report:
— Excellent adjusted operating profit growth of 35% driven by improved product “added value” and effective cost mitigation more than offsetting volume declines and a more challenging inflationary environment
-- Strengthening customer relationships driving record customer ratings and contract wins -- Good free cash flow of GBP354m(8) reducing leverage to 1.3x net debt/EBITDA (2021/22: 1.6x)— Continued momentum in plastic replacement with 762 million units of plastic replaced since 2020 and 297 million in 2022/23
-- Further improvements in sustainability metrics and ESG ratings -- Continued investment in innovation, capacity, efficiency and environmental projects -- Current trading in line with our expectationsMiles Roberts, Group Chief Executive, commented:
“The performance of the business during the year has been excellent, despite the challenging economic environment and I am extremely proud of all our colleagues for their dedication and support. We have had an unremitting focus on meeting our customers’ rapidly changing needs with new innovation. This, together with high levels of service and our sustainability performance, has been rewarded through market share gains during the period.
Our operational, environmental and financial performances have all been strong through the year. Our service levels have remained very high, supporting our customers through our robust and flexible supply chain. We have made excellent progress in reducing the environmental impact of our business, and also helped customers replace c.300 million pieces of plastic with fibre-based alternatives during the year. Our cost and risk management, together with price increases to reflect multi-year cost inflation, have more than offset reduced volumes during the year and delivered the excellent growth in profit and returns.
While economic conditions have continued to be volatile and box volumes have remained lower than normal, trading for the year to date is in line with our expectations. Our strong customer relationships in the resilient FMCG sector, together with the investments we are making to drive cost efficiencies and growth, give us confidence for the future.”
That seems to me to be an excellent update, along with a 20% uplift. So excellent that the share price dropped over the two subsequent days from £2.90 to £2.70, about 8%.
At a yield of 6%, covered a couple of times it seems to be a good one to lock in so I have injected some cash into my ISA and topped it up (just over doubled my Holding) today.
Buy @ £2.72
Portfolio %: 2.1%
Total Portfolio holdings: 3.8%