March 15, 2011
Pharma a Prescription for High(er) Income
Nuclear Fall Out Spreading Fast
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Several companies we have covered at Early Retirement Investor.com have released statements, summaries of which are below, including from:
Insurer Aviva posted a 35% rise in full year pre-tax profits, from £1.81 billion to £2.44 billion. The strong performance was driven by a record result for the UK life business and a £149 million reduction in costs.
Investors also benefited from an inflation-beating 6% rise in the dividend payout. The 31/12/11 dividend forecast is 27.3 pence.
While Aviva remains a high yielder for a non-utility share, the question is whether at current share prices of around £4.30 per share the group is historically undervalued to warrant a purchase or not. Something we solely focus on at Dividend Income Investor.com.
While owning a share delivering a high yield at purchase is preferable and although Aviva is committed to growing its dividend in the future, based on its dividend history Aviva remains an erratic dividend payer.
British American Tobacco
BAT declared an inflation busting 13.1 per cent rise in its final dividend to 81.0 pence, making a total for the year of 114.2 pence, up an even greater 14.8% over the 2009 payout. At the same time, BAT announced a resumption of its earlier buyback program, suspended only because of the recession, to the tune of £750m.
Sales volume was down due mainly to industry declines but against that market share in the top 40 markets increased. Adjusted earnings per share was up, free cash flow was up and net debt and gearing were down.
Vodafone’s disposal program
Vodafone is closing in on the sale of its 44% shareholding in French mobile-phone company SFR, France’s second largest mobile phone operator, to Vivendi, its French partner for between £6 - £7billion.
Currently, Vivendi appears to be unwilling to pay much more than £6bn for its minority stake in SFR, while Vodafone is holding out for £7bn.
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Pharma a Prescription for High(er) Income
Despite the clear challenges the pharmaceutical industry currently faces, some pharmaceutical companies are still attractively valued right now. . . especially if you're the kind of person who likes undervalued companies paying out large and increasing dividend payments.
Earlier this month, Dividend Income Investor.com published their latest Dividend Income Report covering extensively on just such a company.
While many of the drug makers have bounced-back “only somewhat” since the market's major low in March of 2009 ... they are still far off their former highs reached around the new millennium. As we mention in our latest Dividend Income Report, this particular company is valued substantially below its historical undervalued levels.
As any heavily regulated industry, the pharmaceutical industry has its specific problems, as outlined in our Report, and may help explain why big pharmaceutical companies have “sort of” missed out on most of the market's big rally. Yet I would hardly call this industry down for the count.
Instead, I would argue that the sceptics have swung the pendulum much too far ... and that there are plenty of reasons to be positive on several pharmaceutical companies, especially at current valuations, and, in particular the one we cover in the latest Dividend Income Report, available exclusively to premium subscribers.
Join us at Dividend Income Investor.com as we uncover more undervalued high yielding shares to buy for dividend income and growth.
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Nuclear Fall Out Spreading Fast
At Early Retirement Investor.com we have covered the re-emergence of nuclear power and uranium mining in some detail, so, I believe it is fitting to comment on what’s happening in Japan and its wider implications to the nuclear power industry as well as uranium mining prospects in particular.
While the loss in life and destruction of property as a result of the Tsunami in Japan is terrible, world-wide attention is now very much focused on Japan’s nuclear power industry. We need to remind ourselves that Japan:
- lacks any oil and natural resources. Until the Fukushima nuclear power plant stoppage, Japan relied on 54 nuclear reactors to supply 30 per cent of its power
- is the world’s most earthquake-prone country. The wisdom of locating many of its nuclear power plants near the sea is now more questionable than ever.
Overall there are 439 nuclear power plants currently operational in 25 countries, supplying 17% of the world's energy needs, while 39 plants are under construction. More than 400 are in various planning stages, while a number of these are are located within known earthquake prone zones.
Can we expect a stop to all new build nuclear plants?
The disaster at Japan's Fukushima nuclear plant could slow worldwide development of nuclear technologies and further complicate the battle against climate change, the International Energy Agency (IEA) said Tuesday. Agency chief Nobuo Tanaka told reporters during a visit to Oslo:
“I recognise increased public fears currently surrounding the nuclear sector due to the events in Japan. While I understand the public reaction, I am concerned about the effect it could have on support for this technology, given its important role in achieving both energy security and a low-carbon economy. “
Almost 25 years after the Chernobyl disaster, the question now is whether, following the events in Japan, new builds will be delayed or even scrapped altogether, and, older, existing, nuclear plants will be decommissioned earlier?
After a decade or so when nuclear power gradually regained its credibility as a potential part replacement for hydrocarbons an increasing number of countries with nuclear plants have announced that they will reassess the speed of decommissioning older nuclear plants whereas planning for new builds are likely to be delayed many months, if, not years.
Chancellor Angela Merkel has already suspended the decision to extend the life of Germany's nuclear power stations for three months, indicating that some plants could be closed faster than expected. This has been followed by the decision to keep its seven oldest nuclear reactors – all built before 1980 - off line during a three-month moratorium in order to evaluate the safety of the facilities.
The Swiss government has suspended approvals for new nuclear plants until safety standards have been carefully reviewed and if necessary adapted. While France's prime minister has ordered safety checks of all the country's 58 nuclear reactors after Japan's tsunami-related nuclear troubles. Francois Fillon says France should determine the plants' capacity to resist earthquakes or floods, and use the information from the checks "to reinforce security" at atomic reactors. France is more dependent on nuclear energy than any other country.
While in the USA President Obama remains in favour of nuclear power as part of the US energy mix, analysts have already warned that the development of the American nuclear sector could be delayed by political backlash since General Electric, the US engineering giant, supplied reactors to Fukushima.
In Britain, the Department for Energy and Climate Change insisted that its initial response - asking for a report - was sufficient for now. A DECC spokesman said: "We should not make snap judgments at this point, but we will need to make sure that we can carefully establish what lessons can be learned."
Perhaps no halt, but expect mayor delays?
What is clear is that the Fukushima accident will lead to delays on new builds with Western governments and safety authorities likely to be aiming for substantial additional demands on safety systems, increasing the costs both for existing nuclear plants and new builds.
However, many of the planned nuclear power plants, as well as those currently being built are located in developing countries such as China and India. So far, it’s unclear what China’s position is following the earthquake.
Somehow, I don't expect China and India to change their plans much, other than placing additional environmental safeguards for nuclear plants proposed to be built.
India intends to spend $175 billion by 2030 on nuclear generation to meet the rising demand for electricity. In December, 2010, India agreed a $9.3 billion deal for two nuclear reactors to be built by Paris-based Areva whose shares have tumbled on concerns the Fukushima accident will stall global nuclear expansion.
What about uranium miners?
Uranium mining stocks around the world have been marked down considerably as investors have sold these companies in anticipation of a global clamp-down on nuclear power.
AIM-listed Kalahari Minerals Plc, which only less than 10 days ago announced a potential 290 pence bid from China's state-owned nuclear fuels group CGNPC-URC worth £756 million, with a potential bid war looming, is now trading substantially below the indicative offer price.
We need to realise that for every one of these planned nuclear plants not built, energy will have to come from somewhere else.
We know that wind power and solar only work on a limited basis. We know that the global population keeps growing, and emerging markets are demanding more energy. And we know that the easy oil has been found and depleted...
There is but one conclusion: The era of cheap energy is fading. . . The price of hydrocarbons will go up until there is a viable solution. I would expect the price of liquefied natural gas (LNG) to go up.
Following the announcement in Germany that it was halting the production of nuclear energy from its oldest plant natural gas spot prices in the U.K. - Europe’s biggest market - gained as much as 1.7 percent, to 65.25 pence, its highest price since October 2008. Is this the start of things to come?
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