Investment Column: If China sneezes, Glencore catches a cold

BAE Systems; St James's Place Capital


Our view: Hold

Share price: 476.45p (-1.2p)

Glencore's float earlier this year was variously billed as record-breaking and blockbuster – and it was. At $10bn, the dual London and Hong Kong listing made the Swiss commodities trader the first company in the last 25 years to the enter FTSE 100 index at admission. Ordinarily, new floats have to bide their time until one of the index's quarterly reshuffles, but Glencore was christened a blue chip right at the start of its public life.

The business is certainly vast, with the group active in trading all manner of commodities. It also owns mines and stakes in leading miners, including part of Xstrata. Earlier this month, it sealed an agreement to buy control of the Mina Justa copper project in Peru.

Indeed, part of the rationale for listing was to strengthen the company's ability to fund big deals. The sector has seen a lot of activity – Ernst & Young recently said that the value of mining deals had doubled over the first half – and the listing gives Glencore the ammunition to match up to rivals.

But despite all this – and a bevy of "buy" notes from analysts – the stock remains below the 530p issue price. Investors, it seems, are not quite as excited as headline writers, who had a field day with the "secretive" trading giant. We suspect the weakness is not so much down to controversy as it is to concerns over the price of commodities such as copper, which is up strongly since the start of 2010. Recently there have been rumblings about the possibility of a correction if big consumers such as China slow down.

Inflation in emerging markets is very – some say uncomfortably – high. Central bankers have already raised rates, and could do so again, hitting activity and precipitating an economic slowdown. That would reduce demand for commodities. The world's appetite for metals could also suffer if the Eurozone (or, even worse, the US) serves up a sovereign debt disaster. But on balance, we'd hold for now. Just don't buy any more.

BAE Systems

Our view: Buy

Share price: 306.8p (+14.3p)

With military budgets being slashed across the world, the defence groups have – rather unsurprisingly – not been having a great time of it lately. For BAE Systems, 2011 has been particularly tough, and its share price has dropped nearly 15 per cent since the start of the year.

The group started yesterday trading at its lowest level since 2005, yet it ended the session as the blue-chip index's top performer. The catalyst was a reassuring set of figures, with the £90m fall in its first-half profits before tax to £691m largely expected.

The bounce in BAE's share price, therefore, was partly the market breathing a sigh of relief, while investors were also encouraged by the dividend being increased by 7.1 per cent as well as the announcement of a £500m share buyback.

BAE still believes its sales for the year will be behind, but there were no real new shocks in the outlook statement. The immediate concern is that the US will decide further cuts in its military spending are required, although BAE's chief executive, Ian King, was making confident noises, saying it was "in the fast lane and the sweet spot" in the country.

The issue of government spending will certainly continue to weigh on the stock for the short-term. However, the battering its share price has taken – combined with the confidence shown by management with the share buyback – suggests upside ahead, if you are prepared to wait.

St James's Place Capital

Our view: Buy

Share price: 356p (-1.1p)

St James's Place Capital caters for those with more than £30,000 to invest, with the help of a 1,600 strong army of financial advisers. It's proved hugely successful.

Annualised premium income (which combines regular and single premiums) for the first half of 2011 grew to £335.6m against £292.6m last year. JP Morgan Cazenove had forecast £328m. Total funds under management were 8 per cent higher since the start of the year at £29.1 billion and it hiked the dividend 58 per cent.

There's little to complain about here. We said buy at 281p in January and the shares have done us proud. They still, however, only trade at around the forecast net asset value per share. No longer a bargain, but they are hardly expensive.

SJP is majority-owned by Lloyds Banking Group, which said it had no plans to sell up after a recent review. Good decision. Keep buying.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected