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The Carillion effect #investments #finance

Since Carillion went into liquidation, people have been asking questions.Why did it pay a high dividend last year when it was in such a perilous state? This week, The AA announced a new strategy of investment and a cut its dividend to 2p a share. This is a good thing for the company, employees and shareholders but the share price still tanked. The Carillion effect, in this case, was to make them think long-term but we can conclude from the reaction of the market that, the market, in fact, considers only the short-term.

The Carillion effect

Immupharma

Immupharma made gains this week but we have to bear in mind that short-term outlook again. The market is looking to make a quick buck and so despite this company having the prospects to become a multi-billion pound company, it will probably have to grovel to the market for more investment before it can grow any more. The market, of course, isn’t interested in the long-term and it seems the government only thinks of the short-term too. Immupharma seems to be undervalued at 130, that’s below the recent placing price. Verona Pharma is undervalued as well and it seems someone is buying and trying to build a holding. The price has been creeping up and the latest news is that phase 2 of the testing of its innovative new drug is complete. Verona Pharma has been as high as 300 before so that could soar at any time. I think both companies are under-valued.

The Carillion effect

Carillion went bust because of high rewards for senior staff, a lack of control over finances, a pension deficit and a head in the sand approach to investment. The same could be said of a few other companies. While the Carillion effect has made the board of The AA sit up and take notice, ITV needs to take a good look at its performance and accounts and Debenhams is long overdue for a shakeup. Debenhams has decided to cut some store managers but they need to look closer to the top for some real savings.

Premier Foods

Premier Foods didn’t need the Carillion effect to make it restructure. Their restructuring has been going on for some time and is beginning to give them sufficient profit to reinvest. They have made some good trade deals internationally with the likes of Nissin Foods and the company now has a lot of potential after coming back from the brink.

Tesco

I was going to sell Tesco for a nice return and then markets around the world underwent a sell-off or a ‘correction’ to use a trader’s term. The truth is, lots of stop losses were triggered in what could be viewed at computer panic. That meant a great time to buy in but as far as the London Stock Market is concerned risks are still high because of Brexit. I decided to sit tight and hold onto my Tesco shares. I also held on to Lloyd’s which has potential but again, only in the long-term.

Small investors have to think long-term because frequent trading is expensive with high dealing fees. It can be disconcerting when we see big falls and lots of cash wiped off our balance sheet. Paper losses can be worrying and the Carillion effect for us is to make us nervous that more companies with weak finances and big pension deficits could go the same way.

That’s all for this week, enter your email address below to subscribe to my blog. You can also find ideas on my Facebook page.

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