All credit to Primark for repaying furlough cash as sales resume with a whoosh | Business


The queues around the block told the story. After reopening, Primark took only six days to beat its previous seven-day record for sales in the UK. More than half the stores beat their previous bests.

The official tone from the boardroom of Associated British Foods, Primark’s owner, is still cautious as the estimate for lost sales in the second half of the trading year has been increased to £700m. But that is largely because of continuing restrictions in continental Europe.

Where stores have opened, Primark has continued to be a retailing phenomenon. Normal trading is returning with a whoosh and there is little reason to rethink the refusal to do online trading. In the Netherlands, a secondary market is said to have developed in the pre-booked slots that shoppers must obtain to limit numbers in stores.

With dividends back on the agenda for shareholders, albeit at half the old rate, you can see why ABF thought it should repay £121m of furlough money, including £72m in the UK. The curiosity, though, is that the company could probably have sneaked under the radar if it had wished. It can, after all, point to lost revenues since last March of £3bn and a cumulative profit hit of roughly £1bn.

So credit to ABF for doing the decent thing on the furlough money. Many competitors would not have done so – and, indeed, didn’t.

Tobacco firms still hooked on cigarette habit

About 90% of the PR output from tobacco companies these days relates to their investments in “new generation” products – vapes, heated tobacco and so on. “We’re building a better tomorrow by reducing the health impact of our business,” trumpets BAT, for example.

Investors know better than to mistake the excitable talk for a substantive change in the makeup of the revenues. At BAT, old-fashioned “combustibles” – tobacco – constituted £22.7bn out of group revenues of £25.8bn in 2020. The cigarette habit in earnings has not been stubbed out.

Thus even a whiff of new regulatory pressure can cause share prices to splutter. On Tuesday, reports in the US suggested the Biden administration was contemplating a ban on menthol products, which make up about a third of the US cigarette market. A reduction in nicotine content may also be on the cards. Shares in BAT and Imperial Brands fell by slightly more than 7%.

Analysts think any ban could take years to implement, so why the mini-panic in share prices that have already halved since their 2017 highs? First, even a ban that takes effect in five years’ time could hurt: the shares are being priced on cashflows where projections still span a couple of decades. Second, given the sluggish progress to date, “reduced risk” products look an inadequate substitute from the point of view of earnings.

The 90s clampdown on big tobacco produced a couple of decades of easy living for the companies. Competition was minimal and they saved a fortune on advertising as it was, in effect, forbidden. That era is over. The shares have become cheap again for a reason.

Circumvent M&G’s property-lite property fund

It has taken 16 months, but investors in M&G’s high-profile property portfolio fund will soon be able to trade their units again. The bolts, imposed in December 2019 after Brexit worries infected the commercial property sector and investors rushed for the exit, will be removed on 10 May.

The fund looks in better shape to withstand another sudden rush of withdrawal requests. Thirty eight properties have been sold and the cash now represents 33% of the assets. That figure, though, prompts the obvious question: what is the point of investing in a property fund if much of your cash won’t be invested in property? M&G promises the figure will be reduced to 20% “in normal market conditions” but that is hardly an adequate answer.

The cash buffers are needed, of course, to maintain daily liquidity in funds where the underlying assets – properties – cannot be liquidated overnight. The FCA is taking a look at this troubled question of a mismatch but, for nine out of 10 investors who want the ability to buy and sell instantly, the solution is surely to take matters into their own hands.

Just own shares in those quoted property companies that have a broad mix of offices, warehouses and retail units. Yes, you are exposed to the wider gyrations of the stock market – but at least the stock market is always open.