The stock market expressed surprise when Interserve said it would be hit by the new higher minimum wage that the Chancellor is introducing. Shares in the construction and support services group immediately gave ground, falling below the No Pain, No Gain portfolio's buying price.
Quite a few portfolio stocks will be hit by the new edict. So far only Marston's, the brewer and pub owner, has commented but the likes of Patisserie and Whitbread will also feel the pinch. After all, I have always favoured companies that employ more lower-paid staff than many other, perhaps more sophisticated, enterprises.
It is likely that consumers will end up paying for all – or at least a large part – of the wage increases as prices are eventually lifted to accommodate higher pay, although in the shorter term profits will be under pressure.
Interserve, recruited in March at 599p, reckons the new minimum wage will initially have an adverse £10m to £15m impact. But it is taking steps to mitigate the eventual costs and is starting talks with customers, no doubt hoping they will absorb some of the extra costs. Certainly it appears to hope that higher wages will be priced into new contracts.
Under normal circumstances, and if the City had been in a more exuberant mood, the interim figures, announced last week, would have received a much more impressive reception and I would not have been surprised if the shares had advanced. The group, which can trace its lineage back to 1884, produced a 16 per cent revenue advance, leading to pre-tax profits jumping 19 per cent to £33.7m. The future workload rose 11 per cent to £8.3bn and the interim dividend was increased by 5 per cent to 7.9p a share.
Adrian Ringrose, the chief executive, commented that the construction industry "remains challenging" but that "demand in our main markets continues to strengthen".
The interim statement impressed Howard Seymour, an analyst at stockbroker Numis. He has a 745p target price on the shares and says "any share price weakness is a buying opportunity".
Interserve first got involved in the portfolio nine years ago when it bid for a then member, MacLellan, a support services group. It was a somewhat controversial mix-and-match cash or shares deal but the portfolio emerged with a gain. Shortly afterwards, Interserve encountered minor accounting problems that sent the shares down to 260p, against 380p at the time of the take over. They have since revived, hitting a 750p peak last year.
Avation, the aircraft leasing group, is about to enter its fastest growth phase, says Richard Wolanski, the group's finance director, in an interview with James Faulkner that appears on the Master Investor website.
The group, which controls Capital Lease Aviation, now has 29 aircraft that are leased out to seven airlines. It has just completed deals to sell one aircraft and buy another. The addition, acquired from Avalon, a Dublin-based leaser, is operated by Air France .
In the interview Mr Wolanski says the intention is to increase the fleet by 60 per cent in the next 18 months.
The shares are just below 140p, after reaching a peak of around 180p earlier this year. They were recruited into the portfolio at 83.5p in January 2011.
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