Monthly Archives: February 2014

The FTSE-100 All Time High

In the press in the UK at the moment, there is a lot of talk about the FTSE-100 breaking the 7000 barrier. It was on December 30th 1999, that the FTSE-100 reached the all-time high of 6930.

That was over 14 years ago, and it was during the Telecoms and Technology boom, when many telecoms and technology companies were major components of the FTSE-100. Remember these names:

Thus plc
Baltimore Technologies
Kingston Communications plc
Orange plc
GEC (later renaming itself Marconi plc)
Bookham Technology
Cable & Wireless Communications
Colt Telecom
Nycomed Amersham

Just some names that may ring a bell.

On Wed 26th Feb 2014, the FTSE-100 closed at 6799 still below the all-time high, so over 14 years on the FTSE-100 has never reached its peak, but of course the FTSE100 over that 14 year period has paid generous dividends to shareholders with other companies replacing the displaced technology companies as the FTSE-100 was re-shuffled as the tech companies fell away once the Dot.Com bubble burst.

The shrinking of Vodafone.

On Monday 24th Feb, the new Vodafone PLC came into effect.

On Friday 21st Feb 2014, Vodafone owned 45% of Verizon Wireless. On Monday 24th Feb it no longer owned that 45%, as it sold its stake to Verzion, getting a huge cash windfall (of $85 Billion) from the proceeds of the sale from Verizon, and is in the process of returning that cash and to its shareholders.

A few weeks ago Vodafone was worth in excess of £100 Billion.

The share consolidation of the new Vodafone PLC is such that shareholder get 6 new ordinary shares for every 11 existing ordinary shares held. So if you owned 110 shares in Vodafone on last week, today you will own 60 in the new Vodafone PLC.

The new Vodafone will have 26,438,136,936 new ordinary shares in issue (excluding 2,373,727,362 ordinary shares held in Treasury).

With the share price of Vodafone trading at about £2.50 per share and 26,438,136,936 new ordinary shares in issue, the new market capitalisation of Vodafone is:

26,438,136,936 x £2.50 = £66,095,342,340 = £66 Billion. That is the new market value of Vodafone PLC.


Future Value of North Sea Oil Reserves

North Sea oil first came ashore in June 1975. Today there are over 300 active oil fields in North Sea.

A misconception is that the North Sea is running out of oil. It is thought there could be still be between 12 Billion barrels of oil and perhaps the higher estimate is 24 Billion barrels of oil.

So if there is between 12 and 24 Billion barrels left, what is the value of this black gold ?

12 Billion Barrels = 12000000000 Barrels.

24 Billion Barrels = 24000000000 Barrels.

Crude Oil is at $109.92 a barrel.

Thus if we have 12 Billion Barrels remaining, that is worth in today’s prices:-

$1,319,040,000,000.00 = $1319 Billion = £793 Billion

and if we have 24 Billion Barrels remaining, that is worth in today’s prices:-

$2,638,080,000,000.00 = $2638 Billion = £1587 Billion = £1.587 Trillion = over 100% of annual UK GDP.

The potential wealth of future North Sea Oil is huge, that is why it is a political football.

Global 100 Companies

The largest 100 companies in the world sit in the Standard and Poor’s (S&P) Global 100 Index

One can get access to these 100 companies via the Legal & General Global 100 Index Fund


This fund simply invests in the largest 100 multi-national blue-chip companies on the global stock markets

3M Company
Allianz AG
Anglo American plc
Banco Bilbao Vizcaya Argentaria, S.A.
Banco Santander, S.A.
Bayer AG
BHP Billiton Limited
BP plc
Bridgestone Corp.
Bristol-Myers Squibb
Canon Inc.
Carrefour SA
Caterpillar Inc.
Chevron Corp.
Citigroup Inc.
Coca-Cola Co.
Compagnie de Saint-Gobain
Credit Suisse Group
Daimler AG
Dell Inc.
Deutsche Bank AG
Deutsche Telekom AG
Dow Chemical
DuPont (E.I.)
EMC Corporation
LM Ericsson Telephone Co. – B shares
Exxon Mobil Corp.
Ford Motor Company
Fuji Photo Film Co.
GDF Suez
General Electric
GlaxoSmithKline plc
Goldman Sachs Group Inc
Honda Motor Corp.
HSBC Holdings plc
ING Groep NV
Intel Corp.
International Business Machines
Johnson & Johnson
JPMorgan Chase & Co.
Kimberly-Clark Corp.
L’Oréal SA
LVMH Moet Hennessy Louis Vuitton
McDonald’s Corp.
Merck & Co.
Microsoft Corp.
Morgan Stanley
Munich Re AG
National Grid plc
Nestlé SA
Nike, Inc. – class B
Nissan Motor Co.
Nokia Oyj
Novartis AG
Orange S.A.
PepsiCo Inc.
Pfizer, Inc.
Philip Morris International
Koninklijke Philips Electronics NV
Procter & Gamble
Prudential Plc
Repsol YPF, S.A.
Rio Tinto
Royal Dutch Shell – A shares
Royal Dutch Shell – B shares
Samsung Electronics Company Limited
Schneider Electric
Seven & I Holdings Co., Ltd.
Siemens AG
Société Générale
Sony Corp.
Standard Chartered Bank
Swiss Re
Telefónica, S.A.
Texas Instruments
Toshiba Corp.
Total S.A.
Toyota Motor Corporation
Twenty-First Century Fox, Inc. – class A
Unilever NV
United Technologies Corporation
Vivendi Universal SA
Vodafone Group PLC
Volkswagen AG
Wal-Mart Stores
Westfield Group

A low cost tracker to get exposure to the global blue chips.

Investment Quote: Vanguard & Economies of Scale

In 1975 John C Bogle founded the investment company Vanguard. Using simple Index Tracking Funds, to create economies of scale, today, Vanguard has $2 Trillion = $2000 Billion = £1194 Billion = £1.194 Trillion under management via its 24 Funds.


A great quote from John Bogle “Don’t look for the needle in the haystack. Just buy the whole haystack


What he is effectively saying is that the stock market as a whole generally gives good long-term returns, so save yourself the stress of looking for specific companies, and just buy an index fund where you will get all the companies.

A great place for Index Trackers is Legal & General:

A world choice, low charges, and resulting in buying all the needles in the haystacks.


The Bonds of Royal Dutch Shell

The Bond market is almost twice as large as the stock market, making it the 2nd largest market after the foreign exchange market.

Shell is one of the largest energy companies in the world. It is Anglo-Dutch, and is the largest company by market capitalisation on the FTSE-100, it is about 7% of the FTSE-100.

It is an active player in the bond market (debt), with a very large issuance programme, as with such stable cash flows, is able to borrow huge quantities of cash on the bond market to fund its day to day activities, and reward its lenders with safe and stable returns.

But how large are the borrowings of Royal Dutch Shell ?

Lists all the debt issued (money borrowed by Shell from Bond investors)

When you add this list of 23 issued bonds, convert into Dollars it comes to $32,158 million = $32 Billion = £19,338 Million = £19.3 Billion.

Doing a rough estimate on the average interest rate (coupon), that comes to 3.66%. So in these low interest rates, where money is lucky to get 1% on deposit, lending to Shell gets you an average of 3.66%, and even higher if the money is lent over a longer period.

A company whose borrowings are absolutely tiny, when it comes to the actual turnover of the business,

The numbers are staggering:
Capital Investment in 2012: £17,922 million = £17.9 Billion
Revenue in 2012 = £255,223 million = £255 Billion
Shareholder Dividends in 2012 = £6.6 Billion

3 largest shareholders:

BlackRock, Inc.  5.63%
Legal & General Group plc  3.10%
The Capital Group Companies 5.01%

The Anglo Dutch Energy and Cash Generating Giant.

Fund Focus : The City of London Investment Trust

The City of London Investment Trust, is a £1 Billion listed investment vehicle that a member of the FTSE-250 Index founded in 1891.

[ of London investment]

Managed by the London investment house, Henderson Investors, shareholders are getting a generous dividend of 3.8% yield.


This top 10 holdings are:

1 HSBC 5.70%
2 British American Tobacco 5.28%
3 GlaxoSmithKline 5.13%
4 Royal Dutch Shell 5.11%
5 Vodafone 4.91%
6 Diageo 4.23%
7 BP 3.52%
8 Unilever 2.94%
9 Scottish & Southern Energy 2.23%
10 Centrica 2.22%

Top 10 investments make up = 41.27% of the fund and the 40 largest investments represent 74.42% of the whole portfolio. Mainly investing in large cap companies, that provide stable returns.
The single largest shareholder in The City of London Investment Trust is Legal and General Investment Management, who hold 3.12% of the shares.

UK HM Government January 2014 borrowings…..

Another month, guess what, take a lucky guess, it is the same old story, HM Government, spends more money than it receives via taxes and duties. Another deficit month, thus to bridge the gap, needs to borrow on the bond market.

In January 2014, the HM Government had to borrow money to meet the difference between tax revenues and public sector expenditure. The term for this is The PSNCR: The Public Sector Net Cash Requirement.

There were “only” 3 auctions of Gilts (UK Government Bonds) by the UK Debt Management Office ( to raise cash for HM Treasury :-

23-Jan-2014 2¼% Treasury Gilt 2023  £3,574.738 million
16-Jan-2014 3¼% Treasury Gilt 2044  £2,199.070 million
07-Jan-2014 1/8% Index-linked Treasury Gilt 2029  £1,475.480

When you add the cash raised:-

∑(£3,574.738 million + 2,199.070 million + £1,475.480) = £7,249.290  Million

£7,249.290  Million = £7.249 Billion

On another way of looking at it, is in the 31 days in January, HM Government borrowed:-

£233 million each day  for 31 days. We are fortunate, while the global banking and financial markets still has the confidence in HM Government to buy the Gilts. The budget deficit keeps rising. What is also alarming, is the dates these bond mature, 2023, 2029 and 2044. All long term borrowings, we are mortgaging our futures.


The effects of inflation

Inflation in effectively rising prices.

25 years ago from today was about Feb 1989.
if one looks at the RPI (retail price index) over the past 25 years, inflation has increased by 143%.

Thus to put it bluntly of someone retired in Feb 1989, would need to have pension income grow by 143% to maintain purchasing parity, and thus avoiding a decline in living standards.

Simple inflation calculations show that an increase in prices if 3% per year, in 20 years, if one’s income does not rise, you are only able to buy 50% of the goods in the year 20 compared to the year 1. Or another way of looking at it, in 20 years prices effectively double.

Here is a simple example of 3% inflation.

2014: A load if bread = £1.00
2034: A load if bread = £1.81

2014: Baked Beans = £0.70
2034: Baked Beans = £1.26

2014: Six Eggs = £1.50
2034: Six Eggs = £2.71

This really brings home the cost of living crisis that we see today.
When incomes are fixed and we have inflation on basic items, the vulnerable suffer and can’t afford basic items.

Final point on house price inflation, a home today compared to 1989 has on average risen by a whopping 231%, showing hard assets have risen faster than retail inflation, and if that house was bought as an investment, rental income too would have be received as well as the house price inflation.

Thus holding assets that beat inflation are hard to guess, but one thing is for sure, inflation destroys hard earned savings and is a wicked consequence that creates a spiral of poverty for decent people on low incomes, and our vulnerable retired citizens on modest and fixed incomes.

The Vodafone Dividend.

Vodafone PLC, a FTSE-100 company, that makes up 5% of the FTSE-100, valued at £106 Billion, has equity interests in 31 countries worldwide.


Yesterday, Wed 5th Feb, Vodafone PLC, paid a dividend to its shareholders.

It was a payment of 3.53p per share, it’s Feb 2014 interim payment

Vodafone’s issued share capital consists of 52,821,751,216 ordinary shares of which 4,354,978,270 ordinary shares are held in Treasury.

Therefore, the total number of voting rights in Vodafone is 48,466,772,946
So Vodafone paid £0.0353 on each of the 48,466,772,946 shares.

That means Vodafone paid £0.0353 x 48,466,772,946  =£1,710,877,085 to its investors.

That is £1.7 Billion paid to its shareholders on Wed 5th Feb 2014. Not bad considering Vodafone (Voice & Data Phone) was an newly created 1980’s company that was a subsidary of Racal Electronics, known then as Racal-Vodafone, and was then spun out in the early 1990’s under the leadership of the late Ernie Harrison. Only one of two telecoms companies that are members of the FTSE-100 (the other being BT Group PLC).

BT’s February Dividend Payment

Yesterday, Monday 3rd Feb, BT PLC, the world’s leading telecommunications provider, rewarded its shareholders with a 3.4p dividend payment per share.

This is the 2013/14 Interim payment.


In an interesting fact is how much cash BT has paid out with this dividend payment

The total number of voting rights in BT Group plc is 7,911,832,071

(on Friday 31st Jan 2014, BT Group plc’s capital consists of 8,151,227,029 ordinary shares with voting rights and BT Group plc holds 239,394,958 shares in BT Group plc, this from its share buyback programme)

so with 7,911,832,071 shares and paying £0.034 per share that is:

7,911,832,071 x £0.034 = £269,002,290
Just over £269 Million in cash paid by BT PLC to its shareholders.

BT has paid over a quarter of a billion pounds in cash to the investors on Mon 3rd Feb, rewarding them with the cash dividend, a company on an investment lead growth trajectory, and delivering returns that shows the world’s leading telecommunications provider is also leading the way in its delivery of strategy with strong financial performance.