Cash to deploy

[absolutezero]

From the CEO...


Her next priority was “return to shareholders” (*) and only then would come large-scale M&A

https://www.ft.com/content/ee0872c6-0bf ... ca06376bf2

A fair hint the dividend isn't sacred and is likely to be cut. I.E. Not going to be a income share, but a growth one.
Different people will read that different ways. But that's my reading of it.

[absolutezero]

I've always thought the sector names are a bit odd. Like my holding in DLAR is 'industrial', which I sort of get but ultimately it's a pretty unique (in the UK at least) secure printing business. 'Industrial' to me is something like a steel works or an engineering company.

Not quite certain where you've got that from. The London Stock Exchange has it in "Support Services" - see http://www.londonstockexchange.com/exch ... ml?lang=en, about halfway down the page in the right hand column. And that seems a fair classification to me, "Support Services" being basically a sector for companies that offer a service to other organisations rather than individuals, and secure printing being very much such a service (obviously it can be wanted by individuals, and doubtless De La Rue would be willing to supply it to an individual if the price and volume were suitable, but that would be very much an exception rather than their normal type of business).

Fair enough as far as it goes, that is. The problem IMHO with "Support Services" as a good sector for HYPers to use isn't that it misclassifies companies, but that it doesn't classify them enough, and so ends up lumping together very different companies. For example, Carillion, MITIE and De La Rue are all classified as being in the "Support Services" sector, and even all in its "Business Support Services" sub-sector - but while I can certainly see quite a bit of read-across from Carillion's fatal problems to MITIE's hopefully-non-fatal ones, I really can't see any from Carillion to De La Rue...

Hence my unwillingness to use 'support services' as a sector name. Too broad to be worth anything.

GSK. ... it's seemingly turning into a toothpaste company rather than a proper pharma company. ...

Interesting - a change I hadn't spotted. Some data from its last six annual reports (the segment information is presented differently before that - might well be matchable to the current format, but it would be more work, and probably not really worthwhile), and calculated by me from its results for 2017 (we're in the awkward gap between the results and the more comprehensive annual report):


So yes, it's clear that there was a noticeable shift from pharmaceuticals to consumer healthcare about three years ago. However, it looks to me more like a step change some way into 2015, so that 2015 was partially affected and 2016 and 2017 fully affected, than like a continuing shift. Would need to do some digging into just what happened then to make certain of that - but not a priority for me at present. And in any case, its turnover is still over a half pharmaceuticals and just barely over a quarter consumer healthcare - and I'd regard the vaccines turnover as much more similar to the pharmaceuticals turnover than to the consumer healthcare turnover. In particular, customers and regulations for pharmaceuticals and vaccines have a lot in common...

So I think GlaxoSmithKline is still a long way from being mainly a consumer healthcare company.

Agreed but it's becoming more Unilever/RB like and less AstraZeneca like.
If I wanted a mouthwash or soap company, I'd by RB or Unilever.
If I wanted a pharma company, I'd buy AZN.

Also, your descriptions "toothpaste company" and "proper pharma company" are basically spin - using a more dismissive description of one alternative than of another basically tries to influence one's audience in favour of the second without actually arguing for it. And my spin detectors are on high alert when analysing companies - there's so much of it in annual reports! - and my immediate reaction to detecting that type of spin is to look at it in detail to see whether there is any real argument against the dismissively-described alternative...

So, what is actually wrong with GlaxoSmithKline having a significant minority of its business in consumer healthcare? I can't really see anything much - as HYPers, we want diversification...

But that could then start to affect your sector allocations. If GSK is 75% pharma and 25% consumer and you already hold, say, Unilever then you should allocate the portion of GSK that isn't pharma to your household good sector allocation.

There is the aspect of making simple sector classification a rougher approximation than it at first appears - regarding GlaxoSmithKline as just a Pharmaceuticals company rather than the better approximation of being about 3/4 Pharmaceuticals, 1/4 Personal Goods makes one's impressions about its levels of diversification with other Pharmaceuticals and Personal Goods companies somewhat misleading. But that sort of issue is very common among the very big companies that largely make up HYPs - for instance, Unilever is classified as Personal Goods, but a better approximation would be 1/2 Personal Goods, 1/2 Food Producers. Not all of them - AstraZeneca is a pretty pure Pharmaceuticals company, for example - but I suspect restricting one's HYP to such companies would be very limiting. The alternatives to that are more detailed analysis of the sectors each company is in, which will give a more accurate picture of one's HYP's sector distribution but involve quite a lot of checking up on the details of what each company's activities are, using the publicly-available sector classification and accepting its inaccuracies, or hybrids such as mine: I use the publicly-available sector classification, but with some adjustments of my own to mitigate its worst inaccuracies (such as subdividing Support Services).

I.e. if that's what one regards as being wrong with GlaxoSmithKline having a significant minority of its business in consumer healthcare, I think it's merely the top of a non GlaxoSmithKline-specific 'iceberg' of a problem, namely how accurately one should try to examine one's HYP's diversification and how much effort one should put into doing so...

Gengulphus

Which is why I use my own sector classifications.

[PinkDalek]

From the CEO...

"Ms Walmsley said GSK had been “very clear in its framework of prioritisation”. Investment in preparing for the next wave of growth, in particular in its pharma business, was its first priority"

and

"further investment in GSK’s vaccines division."

Her next priority was “return to shareholders” (*) and only then would come large-scale M&A

https://www.ft.com/content/ee0872c6-0bf ... ca06376bf2

To assist those who, like me, do not subscribe to the FT, that article is dated 7 February 2018 and also includes "protecting shareholder returns is a higher priority than large-scale mergers and acquisitions".

It also states "Wednesday the company said it expected to maintain its full-year dividend of 80p a share" as already reported in more detail in moorfield's reply dated 15 February 2018 based on the quarterly results:

viewtopic.php?p=118487#p118487

[monabri]

Ah - apologies ! I found the FT article using a Google search and this allowed me to read the full article. I do not subscribe to the FT.

[PinkDalek]

Ah - apologies ! I found the FT article using a Google search and this allowed me to read the full article. I do not subscribe to the FT.

No problem. I used your quoted extracts to find the article in question. My point was really to observe that it was from about 12 days back, that was all.

[moorfield]

I recently swapped GSK for AZN I'm worried by GSK's dividend.

Another thought comes to mind absolutezero. You've effectively already cut your income expected from that chunk of capital by swapping a yield of 6.1% for 4.3% (today's prices), by some ~30% !

[Gengulphus]

I've always thought the sector names are a bit odd. Like my holding in DLAR is 'industrial', which I sort of get but ultimately it's a pretty unique (in the UK at least) secure printing business. 'Industrial' to me is something like a steel works or an engineering company.

Not quite certain where you've got that from. The London Stock Exchange has it in "Support Services" ...

Hence my unwillingness to use 'support services' as a sector name. Too broad to be worth anything.

We're in agreement. I expressed puzzlement about where you got "Industrial" from - it doesn't make a great deal of sense, as you indicate, and it's also not its official sector in the ICB classification, which is "Support Services" as shown by the LSE. I have however since worked out where you probably got it from - it's in the "Industrials" industry (!) in the ICB classification, industries being its coarsest level. There are only ten of them (Oil & Gas, Basic Materials, Industrials, Consumer Goods, Health Care, Consumer Services, Telecommunications, Utilities, Financials and Technology) and being a classification, every company has to be matched to precisely one of them. So like all the other ICB industries, "Industrials" is a very broad group - far broader than what "industrial" means to you. As well as De La Rue, for example, it also includes Royal Mail Group...

So basically, I strongly suspect you picked up De La Rue being an "industrial" from seeing its ICB industry name rather than its ICB sector name, and it's classified in that industry because that's reckoned to be the best fit out of the very limited choice available.

And we're agreed that "Support Services" is too broad. I've dealt with that in my own home-brew modifications to the ICB classification by dividing "Support Services" up into various narrower sectors - which I've only defined as and when needed. Never having had De La Rue or any reasonably similar company in my HYP, I haven't yet defined one that covers it - but my first instinct is that it would be "Printing Services". (Not "Secure Printing" - that would IMHO be too narrow, and too-narrow sectors lead to the risk of regarding a whole lot of quite broadly-similar companies as 'diversified'.)

Agreed but it's becoming more Unilever/RB like and less AstraZeneca like.

I'd say "become" rather than "becoming" - it looks like a moderately small one-off step change about 3 years ago to me, not an ongoing process. Which makes a difference to how I view the change: a one-off step change doesn't indicate that there will be another, and if there is another, it could just as easily be in the opposite direction as the same direction. On the other hand, an ongoing process would suggest strongly that there would be continued moves in the same direction, which would give me a rather different idea of what to expect 5 or 10 years down the line.

If I wanted a mouthwash or soap company, I'd by RB or Unilever.
If I wanted a pharma company, I'd buy AZN.

Yes - but you did say "I'm happy holding more than one share in a sector to reduce specific company risk." So am I, and were I holding AstraZeneca and Unilever, the question would be what my second share in their sectors might be, and GlaxoSmithKline would strike me as a decent fit to one role and going a little way towards filling the other. Though whether it really should be counted as a "second share" in Unilever's sector is arguable, given the fact that Unilever has a similar-but-bigger "which sector is it in?" issue: to a crude approximation (*) it's half Food Producers and half Personal Goods - so Unilever and GlaxoSmithKline together are less than one holding-equivalent in Personal Goods!

That is somewhat obfuscated by the fact that in your OP, you have two other companies listed as being in Unilever's sector, namely Compass and Diageo. Three companies in a sector make adding another look rather excessive. But things like toothpaste and mouthwash definitely aren't food or drink (despite their manufacturers' attempts to make them taste pleasant!), and so I think they have to be classified in Unilever's Personal Goods side. Compass and Diageo don't significantly overlap with that side (at least as far as I know), and so the overlap of GlaxoSmithKline's 25%ish sideline in such products with Unilever would only be adding a second holding in Personal Goods, not a fourth.

I do understand your worries about GlaxoSmithKline's dividend, by the way - and indeed share them. They don't to my mind add up to a sufficient case against it as a HYP share, but I do recognise that as a judgement call, not something I can give a clear argument for. So I'm basically just saying here that I don't see GlaxoSmithKline's sector and how it overlaps with those of AstraZeneca and Unilever as adding to your case against GlaxoSmithKline in any way, not that you don't have an arguable case.

(*) More precisely, the figures are 43% Food Producers and 57% Personal Goods by turnover split - which is probably part of the reason why its official ICB classification is Personal Goods rather than Food Producers. Though only part, because turnover split is only one way to try to decide on a company's sector - others include earnings split and assets split, and those various splits won't necessarily agree about which is the most important aspect of the company. And all of them are complicated in practice by the fact that companies vary widely about which of those splits they supply the raw data for...

And by the way, putting Unilever in "FOOD/DRINK" as you did in your OP and having problems about putting GlaxoSmithKline in "PHARMA" does strike me as a bit inconsistent...

But that could then start to affect your sector allocations. If GSK is 75% pharma and 25% consumer and you already hold, say, Unilever then you should allocate the portion of GSK that isn't pharma to your household good sector allocation.

Sector analysis strikes me as an area that rapidly involves more effort and difficult judgement calls as one tries to do it more accurately. And the benefits of more accurate sector analysis strike me as fairly low, partly because I've only a rough idea of the sector balance I'm aiming for in my HYP anyway (my main sector diversification concern is avoiding major sector imbalances, and I wouldn't regard minor ones as worth doing anything about anyway - so I only need enough accuracy to be able to perceive the major ones), and partly because for companies that have business activities in multiple sectors, their exact sector breakdown is always liable to 'drift' as a result of changes in their markets and business strategies. So with attempts at greater accuracy involving both bigger increases in costs and smaller improvements in benefits, the returns rapidly diminish to the point of not being worthwhile.

Exactly when that point is reached, I don't know, but my own judgement about the question is that it's not worth trying for anything more accurate than working in units of 20% or 25% (i.e. so that the splits one considers for two-sector companies are 80%:20% and 60%:40%, or 75%:25% and 50%:50%), and for sanity-checking candidates as opposed to final checks before purchasing, nothing more accurate than units of 100% (i.e. assigning each company fully to just one sector) is worthwhile.

Gengulphus

[absolutezero]

I recently swapped GSK for AZN I'm worried by GSK's dividend.

Another thought comes to mind absolutezero. You've effectively already cut your income expected from that chunk of capital by swapping a yield of 6.1% for 4.3% (today's prices), by some ~30% !

1. It's only a comparatively small lump of capital and the HYP overall is yielding nicely.
2. Come back when GSK cuts its dividend and see then!

[absolutezero]

Not quite certain where you've got that from. The London Stock Exchange has it in "Support Services" ...

Hence my unwillingness to use 'support services' as a sector name. Too broad to be worth anything.

We're in agreement. I expressed puzzlement about where you got "Industrial" from - it doesn't make a great deal of sense, as you indicate, and it's also not its official sector in the ICB classification, which is "Support Services" as shown by the LSE. I have however since worked out where you probably got it from - it's in the "Industrials" industry (!) in the ICB classification, industries being its coarsest level. There are only ten of them (Oil & Gas, Basic Materials, Industrials, Consumer Goods, Health Care, Consumer Services, Telecommunications, Utilities, Financials and Technology) and being a classification, every company has to be matched to precisely one of them. So like all the other ICB industries, "Industrials" is a very broad group - far broader than what "industrial" means to you. As well as De La Rue, for example, it also includes Royal Mail Group...

So basically, I strongly suspect you picked up De La Rue being an "industrial" from seeing its ICB industry name rather than its ICB sector name, and it's classified in that industry because that's reckoned to be the best fit out of the very limited choice available.

And we're agreed that "Support Services" is too broad. I've dealt with that in my own home-brew modifications to the ICB classification by dividing "Support Services" up into various narrower sectors - which I've only defined as and when needed. Never having had De La Rue or any reasonably similar company in my HYP, I haven't yet defined one that covers it - but my first instinct is that it would be "Printing Services". (Not "Secure Printing" - that would IMHO be too narrow, and too-narrow sectors lead to the risk of regarding a whole lot of quite broadly-similar companies as 'diversified'.)

Agreed but it's becoming more Unilever/RB like and less AstraZeneca like.

I'd say "become" rather than "becoming" - it looks like a moderately small one-off step change about 3 years ago to me, not an ongoing process. Which makes a difference to how I view the change: a one-off step change doesn't indicate that there will be another, and if there is another, it could just as easily be in the opposite direction as the same direction. On the other hand, an ongoing process would suggest strongly that there would be continued moves in the same direction, which would give me a rather different idea of what to expect 5 or 10 years down the line.

If I wanted a mouthwash or soap company, I'd by RB or Unilever.
If I wanted a pharma company, I'd buy AZN.

Yes - but you did say "I'm happy holding more than one share in a sector to reduce specific company risk." So am I, and were I holding AstraZeneca and Unilever, the question would be what my second share in their sectors might be, and GlaxoSmithKline would strike me as a decent fit to one role and going a little way towards filling the other. Though whether it really should be counted as a "second share" in Unilever's sector is arguable, given the fact that Unilever has a similar-but-bigger "which sector is it in?" issue: to a crude approximation (*) it's half Food Producers and half Personal Goods - so Unilever and GlaxoSmithKline together are less than one holding-equivalent in Personal Goods!

That is somewhat obfuscated by the fact that in your OP, you have two other companies listed as being in Unilever's sector, namely Compass and Diageo. Three companies in a sector make adding another look rather excessive. But things like toothpaste and mouthwash definitely aren't food or drink (despite their manufacturers' attempts to make them taste pleasant!), and so I think they have to be classified in Unilever's Personal Goods side. Compass and Diageo don't significantly overlap with that side (at least as far as I know), and so the overlap of GlaxoSmithKline's 25%ish sideline in such products with Unilever would only be adding a second holding in Personal Goods, not a fourth.

I do understand your worries about GlaxoSmithKline's dividend, by the way - and indeed share them. They don't to my mind add up to a sufficient case against it as a HYP share, but I do recognise that as a judgement call, not something I can give a clear argument for. So I'm basically just saying here that I don't see GlaxoSmithKline's sector and how it overlaps with those of AstraZeneca and Unilever as adding to your case against GlaxoSmithKline in any way, not that you don't have an arguable case.

(*) More precisely, the figures are 43% Food Producers and 57% Personal Goods by turnover split - which is probably part of the reason why its official ICB classification is Personal Goods rather than Food Producers. Though only part, because turnover split is only one way to try to decide on a company's sector - others include earnings split and assets split, and those various splits won't necessarily agree about which is the most important aspect of the company. And all of them are complicated in practice by the fact that companies vary widely about which of those splits they supply the raw data for...

And by the way, putting Unilever in "FOOD/DRINK" as you did in your OP and having problems about putting GlaxoSmithKline in "PHARMA" does strike me as a bit inconsistent...

But that could then start to affect your sector allocations. If GSK is 75% pharma and 25% consumer and you already hold, say, Unilever then you should allocate the portion of GSK that isn't pharma to your household good sector allocation.

Sector analysis strikes me as an area that rapidly involves more effort and difficult judgement calls as one tries to do it more accurately. And the benefits of more accurate sector analysis strike me as fairly low, partly because I've only a rough idea of the sector balance I'm aiming for in my HYP anyway (my main sector diversification concern is avoiding major sector imbalances, and I wouldn't regard minor ones as worth doing anything about anyway - so I only need enough accuracy to be able to perceive the major ones), and partly because for companies that have business activities in multiple sectors, their exact sector breakdown is always liable to 'drift' as a result of changes in their markets and business strategies. So with attempts at greater accuracy involving both bigger increases in costs and smaller improvements in benefits, the returns rapidly diminish to the point of not being worthwhile.

Exactly when that point is reached, I don't know, but my own judgement about the question is that it's not worth trying for anything more accurate than working in units of 20% or 25% (i.e. so that the splits one considers for two-sector companies are 80%:20% and 60%:40%, or 75%:25% and 50%:50%), and for sanity-checking candidates as opposed to final checks before purchasing, nothing more accurate than units of 100% (i.e. assigning each company fully to just one sector) is worthwhile.

Gengulphus

I think the long and short of it is that sector analysis boils down to what the individual thinks is the best fit!
CPG is a 'caterer' rather than a 'food producer' like ULVR or a 'booze maker' like DGE. Sufficiently different but still food and drink.

[Gengulphus]

Sector analysis strikes me as an area that rapidly involves more effort and difficult judgement calls as one tries to do it more accurately. And the benefits of more accurate sector analysis strike me as fairly low, partly because I've only a rough idea of the sector balance I'm aiming for in my HYP anyway (my main sector diversification concern is avoiding major sector imbalances, and I wouldn't regard minor ones as worth doing anything about anyway - so I only need enough accuracy to be able to perceive the major ones), and partly because for companies that have business activities in multiple sectors, their exact sector breakdown is always liable to 'drift' as a result of changes in their markets and business strategies. So with attempts at greater accuracy involving both bigger increases in costs and smaller improvements in benefits, the returns rapidly diminish to the point of not being worthwhile.

Exactly when that point is reached, I don't know, but my own judgement about the question is that it's not worth trying for anything more accurate than working in units of 20% or 25% (i.e. so that the splits one considers for two-sector companies are 80%:20% and 60%:40%, or 75%:25% and 50%:50%), and for sanity-checking candidates as opposed to final checks before purchasing, nothing more accurate than units of 100% (i.e. assigning each company fully to just one sector) is worthwhile.

I think the long and short of it is that sector analysis boils down to what the individual thinks is the best fit! ...

I think I see what you're trying to get at, and agree with it. But I don't agree that sector analysis is a matter of finding what the individual thinks is the best fit - if it were, every company would be in a 'sector' with a tremendously long description of exactly what the company does, and no two companies would be in the same 'sector' - which would of course be an extremely laborious and long-winded way of achieving an utterly useless result!

Replace "the best fit" by "a good enough fit", and I would agree completely. And that's basically what my point about accuracy is about: I am for instance entirely certain that "75% Pharmaceuticals/25% Personal Goods" is a more accurate and therefore better fit to GlaxoSmithKline than "Pharmaceuticals", so if I were looking for the best fit, I would certainly not describe GlaxoSmithKline as a Pharmaceuticals company. But the real question for me is whether that description is good enough, specifically for the purpose of looking at the sector balance of my HYP - if so, I prefer it to the more complex description as a 75% Pharmaceuticals/25% Personal Goods company.

Gengulphus