The first quarter really seems to have flown by. It definitely doesn’t feel like three months have passed since the last Micro Portfolio update. Anyway, equities seemed to have posted a pretty good start to the year, with the FTSE All Share Total Return Index scraping out 3.9% in the first quarter if my numbers are right. That obviously came on the back of vaccine rollouts all over the world, with a return to some semblance of normality now hopefully in sight.
As for the Micro Portfolio, it has now notched up its first ten months of contributions. That means exactly £1k has now found its way into the Halifax ShareBuilder, which continues to simply accumulate Royal Dutch Shell stock. The Anglo-Dutch giant had a fairly subdued quarter despite the significant rally in oil prices. We can obviously put the latter down to the vaccines and so on, with the prospects of a return to more normal demand sending Brent crude back to pre-COVID levels of $60-plus per barrel last quarter. In contrast, Shell stock gained just 6% in Q1, significantly underperforming peers like Exxon Mobil and BP.
Notwithstanding the above, I remain quite happy to accumulate Shell at these prices. Annual cash flow in the $45b region is worth around £33b at current exchange rates. Call it a per-share figure of circa £4.20 based on around 7.8b shares outstanding. The current share price of Shell ‘B’ class stock is £13.35, putting them at around 3.1x that annual CFFO figure. That seems like a pretty low bar to clear in terms of generating decent returns given the current operating environment.
At the end of March 2021, the book cost of that position stood at £1k; the market value of Shell ‘B’ class stock at circa £1,074; and circa £16.15 in cumulative dividends had been paid out in total.
The Trading212 account also had a bit of a mixed quarter. Unilever was the biggest loser, with the Marmite and Dove owner falling 7.5% last quarter in GBP terms. Higher than expected restructuring costs earmarked for 2021/22, released alongside 2020 results in February, help to explain that. The dip means that Unilever stock still trades below 20x 2021 earnings estimates. That is a pretty good deal in my view assuming the business can return to circa 3% annual sales growth. At the other end of the spectrum, BP notched up double-digit share price appreciation alongside the rally in oil prices.
Elsewhere, the other two consumer defensive names enjoyed a slightly contrasting start to the year. Diageo did okay, but Reckitt Benckiser – now simply Reckitt after a corporate rebrand – continued to underperform. I guess that isn’t so surprising: Diageo clearly stands to gain alongside a global recovery in on-trade activity, while Reckitt benefited massively early on in the pandemic as demand for its cleaning products went through the roof. Shares of the latter were down just under 20% at the end of Q1 versus their July 2020 peak.
The Trading212 account sported a price-earnings ratio of circa 16.5 at the end of March. Book cost stood at circa £755; the market value of equity at circa £770.76; and with circa £5.50 in cumulative dividends paid out in total.
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