They think big is great but some shares look overweight

Last year I said Whitbread should indulge in a  share-slimming exercise. My plea fell on deaf ears

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The Independent Online

Are many of Britain's leading shares too fat? As the campaign against human obesity becomes even more intense, there remains a remarkable army of bloated heavyweights inhabiting the stock market.

When I first arrived in the City in the 1950s, the tendency was to keep share prices relatively low, largely to encourage smaller investors. The policy was to achieve shareholder democracy just to prove that the City was not the plaything of the rich and powerful.

But the wider share - ownership policy has since been abandoned. Today the small investor gets a very raw deal and the big guns again dominate.

Heavyweight shares did exist 60 or so years ago. I recall the now-disappeared Plymouth Breweries, with an issued capital of around 9,000 shares, enjoying a share price in the Lennox Lewis category. But they were exceptions, very few and far between.

It is, perhaps, not surprising that in the current “big is great” atmosphere, many companies are prepared to allow their shares to become inflated. Today, no fewer than half the constituents of the benchmark Footsie index have shares priced at more than 1,000p. Three are in the 5,000p-plus category.

I realise that slimming exercises, such as splitting shares or making bonus issues, are purely cosmetic. They don’t make any difference to a company’s performance. But fat shares are unlikely to appeal to many private investors, forced to fork out, say, £1,000 for a handful of shares.

It seems that many highly paid chief executives have lost all sense of proportion. In the next bull run, others will no doubt be welcomed into the heavyweight club.

One of the 5,000p trio is Whitbread, the leisure giant – a long-time member of the No Pain, No Gain portfolio. The shares, around 500p when the portfolio was launched 16 years ago, were recruited at 1,105p in 2008. They have since nudged 5,500p and are now 5,020p. Andy Harrison, the departing chief executive who joined in 2010, has clearly performed well and the shares have responded.

I had wondered if the Greek “no” vote would devastate Whitbread and other shares. After all, many alleged experts predicted such a referendum result would provoke a massive stock market retreat. As I write, the response has been muted. Greece’s woes would have some impact on Britain, but most of the damage would be confined to the eurozone.

Last year I suggested that Whitbread, then 4,202p, should indulge in a share- slimming exercise. My plea fell on deaf ears. Maybe the incoming chief executive, banker Alison Brittain, will be receptive to reducing the overweight price. She takes over in December. Such a move could even add to its capitalisation, currently around £9.2bn.

One of the “thousand brigade” is Compass, the catering group: its shares are just over the 1,000p mark. Some years ago the price was below 200p and I was tempted to add them to the portfolio. If memory serves ,I felt the price had moved ahead too rapidly as new management was installed. Yet another one that got away.