Stock market week: Small investors cold-shouldered in share deals

AFTER their astonishing performances, shares of Halifax and Norwich Union have faltered since the former mutuals produced their results.

There was nothing at all wrong with their respective figures. What disappointed was the predictable lack of corporate action and the surprising rebuff handed out to their army of small shareholders.

Halifax and Norwich had been expected to soak up some of their unwanted treasure chests by handing cash directly to their investors. Instead they opted to buy back shares through the stock market, in effect, by-passing their small shareholders.

Cash rich companies, such as Bass and BG, have created special shares which are then purchased from all shareholders; others, like another former mutual, Woolwich, opted for paying special dividends.

As they are still the domains of small shareholders after last year's conversions, the Halifax and Norwich approach has created widespread surprise.

They are, it will be argued, returning value by reducing the number of shares in issue and therefore improving the crucial earnings per share calculation. But such exercises offer little direct comfort to small shareholders. Improved eps may or may not add a few coppers to the value of their shares.

More importantly they are denied any direct, tangible benefit. What there is goes to institutional shareholders who are in a much better position to sell their shares to the buying company. Obviously the stockbroker handling the share buy-back does not contact, say legendary small investor Aunt Mabel in Harrogate, to pick up few thousand shares; it goes to a source which can be tapped for many thousand - an institution.

Halifax, for example, is buying shares through investment house Merrill Lynch. Its recent deals include blocks of 250,000 and 1.59 million. Shares from a few private investors may have been scooped up in the parcels. But any involvement would be accidental; the shareholders would not have been approached to sell.

How much more democratic, then, for all shareholders to be seen to be treated equally. With a special dividend or specially created buy-back share, small shareholders can see they are not losing out to the might of the City.

Woolwich has managed to perform the trick by paying a special 6.5p dividend. It could, however, blot its copybook. Like Norwich it is seeking buy-back authority. Shareholders could express their displeasure by voting against the necessary resolutions.

The behaviour of the former mutuals is all the more surprising in view of their still relatively modest institutional support. The strength of their shares has been partly due to big investors feeling obliged to increase their holdings in important Footsie stocks.

It is no coincidence that Halifax and Norwich shares have failed to move with Footsie to new peaks. Since the results Halifax shares have fallen from 977p to 910p; Norwich has dropped from 515p to 463.5p. Could some small shareholders be extracting their revenge?

Although blue chips achieved new record levels, last week belonged to the second and third liners with the mid and small cap indices hitting new highs and continuing to narrow the huge gap opened up by their peers.

As NatWest Securities point out, buying mid cap shares can present problems. "There are frequent criticisms of illiquidity or complaints that stocks are too small to make an impact on portfolio performance", say strategists Bob Semple and David McBain. And they point out that capitalisations of the top five Footsie stocks exceed the value of the 250 shares in the midcap index.

Say NatWest: "To overcome these problems investors have to be prepared to increase the number of stocks in their portfolios and take bigger bets in terms of the percentage shareholding -Don't stop at one house builder, buy five".

Investors are urged not to be deterred by big percentage gains "as in many instances they only partially make up for significant relative declines in recent years". And with mountains of institutional cash looking for homes NatWest points out that mid cap ratings "could move well beyond fair value".

NatWest's comments are directed at fund managers. But it is also sound advice for the small player.

Allan Collins at private client stockbroker Redmayne Bentley says until the mid cap revival got underway last month Footsie had out performed by 80 per cent over ten months.

He says before mid caps started to perk up their valuations "were akin to recession conditions at least as severe as the recession of the early l990's".

Diageo, the Grand Metropolitan/Guinness spirit giant, now valued at more than pounds 28bn, heads the week's results.

Its figures, as befits a newly-created colossus, will be complicated but should, at around pounds 1.95bn before exceptional items, support the shares.

There are hopes the results will be accompanied by details of the sale of Dewar's Scotch whisky and Bombay gin, the concessions demanded by regulators. Dewar's could go for pounds 800m; Bombay for pounds 100m.

Pearson could manage year's figures of pounds 300m (pounds 251.8m) and retailer Kingfisher should approach pounds 500m against pounds 390.2m.

Other blue chips reporting include Sun Life & Provincial which is likely to offer pounds 205m against pounds 154.4m; Wolseley with pounds 132m (pounds 123.7m) and Smiths Industries pounds 89m (pounds 80.2m).

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Lou Reed distorted the truth about his upbringing, and since his death in 2013, biographers and memoirists have added to the myths
musicThe truth about Lou Reed's upbringing beyond the biographers' and memoirists' myths
News
people
News
Ed Miliband received a warm welcome in Chester
election 2015
Life and Style
Apple CEO Tim Cook announces the Apple Watch during an Apple special even
fashionIs the Apple Watch for you? Well, it depends if you want it for the fitness tech, or for the style
ebooks
ebooksA special investigation by Andy McSmith
  • 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

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace