Derek Pain: Stock market volatility is nothing new - just sit tight

Don't forget that twice in this still infant century the 100 index has been down in the dumps

Derek Pain
Saturday 23 January 2016 00:49

The retail malaise seems to have at last caught up with Booker, still the star of the No Pain, No Gain portfolio. Although sales were up 10.5 per cent in the final quarter of 2015, the gain was due to the inclusion of the Budgens/Londis businesses, acquired in September.

The original Booker cash-and-carry and distribution activities suffered a 3.1 per cent fall, mainly because of the expected decline in cigarette and tobacco sales following the latest government anti-smoking imposition which has resulted in small shop- keepers hiding their stocks.

But Charles Wilson, the chief executive, concedes that many of his cornershop customers experienced "weak consumer demand" during the quarter.

Booker shares suffered acutely in 2014 when the supermarket price war erupted. At one time the price was down to 115p and I seriously considered their future in the portfolio. But it proved a false alarm. Subsequently the shares approached 190p. As I write they are still showing a heady profit, standing at around 153p against a 24.5p buying price.

The £40m Budgens/Londis deal captured the right to supply around 1,800 retail outlets. There is clearly synergies between distributing to these shops and Booker's existing 3,100. Already Booker brands have started to replace the labels of the previous owner, the Musgrave Group.

Although overall sales may have been disappointing, Mr Wilson reports an improvement in customer numbers and satisfaction as well as cash profits. And he says the group should hit stock market targets for the year ending in March. The guess is that profits will jump from £139m to £152m. Some expect, assuming the integration of Budgens/Londis goes well, that profits could hit £171m in the following year. The cash-and-carry group has a habit of increasing its twice yearly dividends and has again promised to pay an additional 3.5p special dividend, costing around £62m, in the summer.

The dismal stock market start to this allegedly bright new year has reminded me of a remark made many years ago by the then Stock Exchange chairman. In 1961 when shares were in ragged retreat, Lord Ritchie of Dundee advised small shareholders to "put their heads down and let the wind blow over them".

At the time Wall Street had fallen – because of the perceived anti-business stance of US president, John F Kennedy – 35 points to 563; a slump that panicked London into the largest fall since 1938. In those days, of course, the FTSE 100 benchmark index did not exist and the measurement then used since 1935 was a now ignored index embracing just 30 shares.

Lord Ritchie's comments proved appropriate, with the old index going on to advance considerably within a couple of years.

I think the former Stock Exchange chairman would repeat his advise today. And he would be right. Stock market volatility is nothing new. Don't forget that twice in this still infant century the 100 index, which since 1984 has replaced the old 30 measurement, has been down in the dumps, hitting 3,287 in 2003 and 3, 512 in 2008. FTSE 100 was launched at 1,000.

There is much to be said for riding the storm and refusing to be panicked. The investing atmosphere will improve. And the portfolio intends to follow the Ritchie dictum and put its head down, sit tight and wait for better times.

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