Hindesight UK Dividend Letter - Hinde Capital

HINDESIGHT DIVIDEND UK LETTER / JUN 15

Mark Mahaffey Ben Davies

If you pick up any newspaper or journal of late we are bombarded with Grexit and contagion risk undermining the European project which was founded in 1957 with the Treaty of Rome. There have been many bitter political disputes across Europe on the merits of membership to its Union, no more so than in Britain. In the next two years the British will have their say on whether they would like to remain or not in the Union. But perhaps the bigger question is the viability of the Euro and with it the EU as it currently stands. Many economic commentators have argued the Euro should not exist as it’s currently structured. We find it hard to disagree.

In 2010 we wrote in a letter at Hinde Capital entitled ‘The Euro Brady Bunch’ that the Euro crisis was a making of its own flawed foundations and that of the fiat currency system. We have included an excerpt here to remind us of the euro’s fragilities.

The euro was introduced on 1st

January 1999 for accounting

purposes, achieving full circulation

on 1st January 2002, and to date

has the highest combined value of

banknotes and coins in circulation in

the world, surpassing the US dollar.

Inspiration for the € symbol itself

came from the Greek letter epsilon

(Є), which is the first letter of the

word Europe – a reference to the

cradle of European civilisation –

crossed by two parallel lines to

certify the stability of the euro. The

euro concept was derived from the

economist Robert Mundell. His

'Optimum Currency Area' theory,

postulated that a geographical

region's economic efficiency would

be maximised by that region sharing

a single currency, (a group of

countries comprised a region). This

theory better suited the Federal

model of the USA than the newly

federated European bloc.

A decade on from the arrival of the

euro, one can see how the 'mastic'

for EU was lacking real adhesive

structure. The flaws that we have

outlined explain why it is highly likely

that if one of the periphery countries

defaults, it is likely to be the result of

an exit from the single currency and

the European Union. This, in our

opinion, would lead to the demise of

the single currency, as the rest of

periphery is likely to exit as capital

flows stop.

€

Є

UNIQUE WATERMARK: CBC1F9BF

http://www.hindecapital.com/attachments/reports/full/68/original/01_12_10_The_Euro_Brady_Bunch.pdf


The implications for an encumbered Western Europe

banking system would be disastrously deleterious, to put it

mildly. We just do not think the euro can ultimately survive

that. Hopefully it will result in a reassessment and

reaffirmation of the original core values of the Treaty of

Rome, as laid out by the Union's fore-fathers.

We have long stated that this is a solvency issue not a

liquidity issue. Although large infusions of EU and IMF

'money' will stave off the inevitable for a time. Desmond

Lachman, a fellow at American Enterprise Institute (AEI)

rightly suggests in his piece 'Can the euro survive?' that a

major part of the European periphery's fiscal deficits

constitutes primary balances (ie excluding interest

payments). This means that even draconian debt

restructuring will only be a partial remedy of budgetary

issues, as further retrenchment in budgets would later be

necessary. In essence you can reduce the stock of debt,

but the budget deficit excluding interest payments still

remains, i.e. the flow of debt continues to accumulate.

We mentioned earlier that Mundell's body of work on

Optimal Currency Regions is the footprint for the Eurozone.

Far from being optimal we believe the Eurozone has

always been a sub-optimal currency regime. Let's apply

Lachman's analogy of the Eurozone to another currency

union – the USA – to illustrate our point:

Europe does not enjoy nearly the degree of wage

flexibility that characterises the US economy. Its

rigid labour markets and legislative protections

mean that wages in Europe are very slow to

adjust to rising unemployment and the declining

production. This lack of wage flexibility, in the

context of a currency union, makes it difficult for

individual European economies to regain lost

international competitiveness, as is needed

through downward movements in wages. This

lack of wage flexibility also makes the European

countries vulnerable to sharper declines in output

and employment than is the case with the

individual states in the United States.

Considerable language and cultural barriers,

combined with poor housing infrastructure, makes

labour very much less mobile in Europe than in

the United States. Unlike the United States,

where labour readily moves from states in

recession to states enjoying a boom, European

labour does not readily move towards job

opportunities in other parts of the Eurozone.

Unlike the United States, Europe is yet to develop

an effective system of fiscal federal transfers.

Lacking the same sense of shared national

purpose as in the United States, there is a strong

reluctance of the more prosperous European

countries to have their tax revenues transferred to

countries that are experiencing fiscal shortfalls.

The European economies are characterised by a

great degree of diversity which makes them

particularly susceptible to adverse asymmetric

shocks. This vulnerability can prove to be

important in a currency union where the central

bank can only set one interest rate to satisfy the

needs of all of the union’s member states. The

greater susceptibility to asymmetric shocks in

Europe also highlights its greater need for labour

market flexibility and labour mobility in a currency

union.

As UK citizens we thank every day that Margaret Thatcher

was a disciple of Austrian economic values. (She reputedly

carried, a copy of Hayek's "Road to Serfdom" in her

handbag at all times.) She fought hard to keep us Brits from

entering into the EMU, and the implicit loss of national

sovereignty that would have entailed within a centrally

controlled bloc.

Thatcher's objection to EMU, though, was not xenophobic.

Rather it was economic:

"I want to see us work more closely on the things we can

do better together than alone....Europe is stronger when we

do so, whether it be in trade, in defence or in our relations

with the rest of the world. "

She understood the deflationary implications of such a

"fixed" currency bloc. She understood Germany's phobia of

inflation and the need of the periphery countries to devalue

in the absence of any productive mechanism of growth; an

impossibility within a single currency union such as this.

Today, we are on the verge of a Brexit being triggered by

an ‘out’ vote in our EU Referendum. We feel like the clock

is being rewound. All the objections that Thatcher had to

“ever closer union” and her simple vision for participation in

Europe were the correct ones.

Before we can contemplate the possibilities of our own exit

which seems so convoluted and riddled with complexity, we

must surely witness the demise of Greece in the Union. I

want to share the views of a good friend of ours David

Zervos, a former Fed staffer and now Jeffries Chief

Strategist. He is of Greek descent but he outlines the harsh

reality of a potential Grexit.

In the end, there is no question that the Germans have

executed a near flawless plan to humiliate and vilify

Greece. The Greeks now stand as poster children for

European profligacy. And they are being paraded through

every town square in the EU, in shackles, as the bell tolls

near the gallows for their leader. And to be sure, making an

example of Greece is a probably the greatest achievement

for the fiscal disciplinarians of Europe. Maastricht never

had any teeth. But this exercise is impressive. It shows that

fiscal excess will be squashed in Europe. The Portuguese,

Spanish and Italians are surely taking notice. And in the

days that lead up to a Greek default on 30 June, and then

more importantly on 20 July, these disciplinarians will

surely display their power for all to see. Oddly enough, I

actually think this has been the German plan all along. With

no real way to ensure fiscal discipline through the treaty,

they resorted to killing one of their own in order to keep the

masses in line. It explains why Merkel took out Samaras

when she knew a more hostile government would surely

emerge in Greece. This was masterful political

manipulation.



In any case, enough about the past, let's run through the

most likely end game for this Greek saga as a deal never

gets agreed before default.

1. Greece misses its IMF payment on the 30th of

June. This could be a trigger but it may not be.

The IMF has 30 days to call Greece in arrears so

technically Greek government guaranteed

collateral, and hence Greek banks are still solvent

after the 30th. However on the 20th July the

Greeks will surely default to the ECB without a

deal. This is the official D-Day.

2. Upon default, the collateral at Greek banks

cannot be posted any longer to the Euro system.

The Greek banks then become insolvent and the

ECB, through the newly created Single Resolution

Mechanism (SRM), is obligated to resolve the

Greek banks.

3. So the ECB goes to Tspiras and tells him – “We

are immediately instituting capital controls and we

will begin resolution of your banks unless you sign

the agreement and re-enter a program.” Without a

bailout program in place the Greek government,

and banking system, are both insolvent. So

Tspiras says – “What do you mean resolve my

banking system?” And then Mario explains as

follows. First we wipe out all equity and bond

holders. And then, as in Cyprus, we bail in

depositors. There is 130b in Greek deposits

against 90b in ELA. And while those deposits are

technically insured up to 100,000 euro, there is no

pan European bank insurance yet in place. That

only comes in 2016. Right now Greek deposits

are only insured with a Greek deposit insurance

fund that has about 3b in it. This is hardly enough

for the 130b in deposits. So we take the 130b

against the 90b in ELA. Any remaining deposits

go to fund a bad bank that begins resolving all the

NPLs. The good loans of course will go into a

good bank which will be funded with German

capital and most likely have a German name. Of

course depositors will get 2 to 3 euro cents on the

dollar for their existing balances from the 3b in the

insurance fund. So you have that going for you!

4. Tspiras hyperventilates and quickly reaches for a

bottle of ouzo.

5. Then it's basically time for the gallows. He either

signs a document cutting pensions, raising VAT

and violating all his red lines. Or he takes the

Greek people into bankruptcy and out of the euro.

Either way he is a dead man. His own party

destroys him if he does the former. And the 70

percent of Greek who want to stay in the euro will

destroy him if he does the latter. Of course there

is one other choice for Tsipras. He could just

resign and call for new elections. In that case

maybe the banks stay closed and the ECB does

not start the resolution process until the Greek

people decide what they want. But in any event,

it's over for Tsipras in that case as well.

This is an interesting analysis but by making an example of

Greece, Merkel and the other major creditors risk the entire

European project. We are still not convinced they want

contagion risk just when it seems the European economy

is on a more even keel. Any Grexit would be irreversible

and the political chaos that would ensue and the longevity

of the Euro would become questioned severely by the

markets. We do however think that Tsipras would rather

exit than continue to adhere to terms that provide no hope

for recovery. What would they have to lose?

A Grexit will change the landscape for Britain. EU leaders

may want us more than ever but we won’t want to fund any

more EU bailouts that would surely ensue across Europe.

A Brexit would seem more likely as UK voters would fear

being embroiled in the EU crisis. With this all in mind Ben

outlines some blueprints for our Brexit that take the

complexity out of the analysis and provide some solid and

quite simple solutions to our potential voluntary exclusion.

In the stock selections, Mark looks at two outlets for the

Greeks – cheap flights with EasyJet to escape their misery

and more cheap cigarettes from BATS to calm their nerves.

Greece after all has one the highest rates of tobacco

consumption in Europe, some 40% of the population. Let’s

hope nothing too electrifying envelops Europe but if it does,

defensives like National Grid, which has been flagged by

the HDVM ®, will benefit from the rate hike cycle delayed.


HINDESIGHT DIVIDEND UK LETTER / JUN 15 4



by Ben Davies

In our April edition in Views, we began the debate on whether – ‘To Brexit or Not to Brexit?' Now it has become imperative to understand how we can best Brexit, as the probabilities have risen considerably since the outcome of the #GE2015election. The Tory majority win ensures that we will have our say on this matter in an EU in-

out referendum by no later than the 1st January 2018.

Remember the Conservatives’ Manifesto guaranteed British citizens such a referendum when they stated in their 'Let

Britain Decide' campaign 'we will negotiate a better deal for Britain in Europe then give the British people their say in an

in-out referendum.'

I have spent many a coffee-break debating the merits or not of Brexit with my colleagues, particularly David Stevenson,

and group think notwithstanding, we all feel the hullabaloo surrounding our relationship with the EU is just that. We would

wager that any meaningful reform is likely be non-existent and that Britain will eventually follow Switzerland, Norway and

even Turkey’s model and try to position ourselves for an EU Single Market-lite relationship.

Britain will be part of a two-tier or two-speed Europe. As David puts it, let’s hope we are in the economic cohort which is

fastest. We will just continue to opt out of “ever closer union” when it most makes sense (repeal of the Human Rights

Act isn’t one of those that does though, by the way) and we will continue to squabble over EU budget contributions.

Nothing much will change.

We would concede that powerful structural realities could be more of a positive than we suspect in any UK negotiations.

First off Germany’s demographic is aging and the UK’s population will surpass that of Germany’s, paving the way for the

UK to usurp her as the European economic powerhouse. Politicians are myopic and as this reality is not imminent, I

wouldn’t want to overplay its significance. Secondly and more importantly the British Armed Forces, despite defence

cuts, remain central to NATO’s position in Europe.

The most important aspect of the referendum is that we observe fair rules of engagement. The date of the vote,

the campaign preceding it and the funding available should be done in a meritocratic process. Some of these

elements are even enshrined in legislation, such as ‘purdah’ rules that limit government announcements in the

run-up to the polls. The EU itself should also keep interventions to a minimum.

Cameron will be focussing on improving our sovereign independence whilst enabling healthy relations for future co-

operation with the EU. A fine balancing act that in reality, involves wresting past and future power from Brussels and

back to Britain by pursuing:

Freedom of global trade and finance, but not through 'ever closer union'

Repatriation of laws and legal process from EU back to Britain

Firmer immigration and border controls, like preventing 'benefit tourism'

A better deal for British taxpayers

Angela Merkel’s influence on her European partners will be instrumental to enabling any reform, but not at the cost of

jeopardising the four freedoms of the European Project. Grexit contagion risk may well constrain her sympathies. She

also has to contend an election next year, so her own domestic position could further constrain her interventions to assist

Cameron’s needs.

Clearly, there is considerable scepticism as to whether Cameron has ever even intended to properly renegotiate terms

with Brussels, not least of all from within his own party. They see him as paying lip-service to such reform, to keep his

American paymasters happy. This is not entirely unwarranted criticism, but I still find it somewhat uncharitable.

Many believe the Prime Minister offered voters a final say on the EU purely to satiate the Eurosceptic rebels and neuter

Farage's ability to exploit fears of EU oppression and migrant invasion. Whatever Cameron's motives were at the time,

it worked. He kept the party visually unified and won the election. I, for one, believe Cameron is far more politically

astute and committed to extracting a better deal for Britain. I just worry he can’t deliver one because of the Eurocrat’s

(Brussels) intransigence and quite apparent Anglophobia, or is that just UEFA’s Platini antipathy I witness. These

European institutions all blend into one for me.

If Cameron pulls off decent reform – he will be ‘the diplomat’ personified – in the Kissinger mould. In 2011 he blocked

the proposed Treaty changes that would lead to greater fiscal integration across all EU member states. So Brussels will

take him seriously in light of both this and his recent election win, which has certainly won him some political capital, at


http://www.letbritaindecide.com/

http://www.letbritaindecide.com/


least for now. This political capital won amongst domestic voters, if not eroded, will likely also tip the EU vote to an ‘in’

one. After all, the PM’s popularity will be instrumental to such a voter outcome.

My main concern is the reform list is very broad and without specifics it will be very difficult for us to judge his success.

What would be considered decent reform anyway? Cameron could fudge it and push for a snap referendum. He could

buy cheap votes by limiting access to welfare for 'benefit tourists' and bolster support from commerce just by the act of

bringing a swift vote. A snap vote would bring an end to regime uncertainty quicker and would be welcome by all sectors

of the economy, but it wouldn’t solve our growing issues within the EU. I personally would vote to exit, in this event, as it

is highly unlikely he will have negotiated any material reforms in so short a period, as many will require ratification of

Treaty changes. I even include a promise to change, here.

Let's be honest, if there was a referendum sooner I suspect the British would vote to stay in. There was talk that a vote

could coincide with the May 2016 Scottish, London, Welsh and Northern Irish elections, but Cameron has already stated

this won’t be the case; accepting voters on this day are more pro-European and could have undue influence on the ‘in’

(Yes) campaign.

According to the ComRes poll for Open Europe, any perceived reform wins, looks as if they will guarantee an 'In' vote.



It is a snap referendum, which members of a newly formed Conservatives for Britain; (CfB for short), purport to fear most,

for the reasons I have cited.

CfB is a group of Conservative Party members who:

Consider the UK’s present relationship with the EU to be untenable

Take an optimistic, globalist view of the UK’s future

Support the Party’s policy of renegotiation and referendum based on the Wharton Bill franchise and question

Wish to explore what objectives the negotiations must achieve to ensure that they meet the PM’s objective, which

is “to reform the EU and fundamentally change Britain’s relationship with it” (PM, Hansard, Col 1122, 23 March

2015)

Will discuss how to prepare for a possible “out” campaign, to be activated if it is apparent that negotiations will

not achieve the objectives

The CfB is an excellent checks and balance on the government and the debate at large, as this vote has constitutional

significance, so we need them, and as my colleague David Stevenson opined in his very thoughtful blog piece last week,

the stability of the UK 'constitutional' settlements is potentially in jeopardy, EU ‘out’ vote or not. It's really worth a read,

so please do.

Prime Ministers and cabinets are often more psychologically constrained by the realities of their office than they need

be. I see the CfB's 'intervention' as a positive, not because I necessarily mistrust Cameron; far from it. We should savour

the democratic right of party members not to have to kowtow to the party line. They should be able to express their true

views, even if this undermines this line and even electoral position. We so often chide politicians for being populous in

their motivations, that we should applaud this group. It is their right to exercise a view and it is our right to act on the

information presented by them and other proponents of the 'yes' or 'no' (in or out) parties. The CfB’s position signals to

Eurocrats that Britain means business and will require real reform if we are to stay, as Cameron will receive extreme

pressure internally from his party.

Although ministers and all Tories should have an independent and unrestrained viewpoint, I likewise do not believe

government advice should be impartial and disinterested. If Cameron believes he has achieved reform and encourages

the people to vote to stay in, it is up to others to disprove that he has not and vote not to stay in. Although there should

be an equanimous period where there is no ministerial activity on the subject by either party in observation of election

purdah. There should also be impartiality on funding, i.e. it should be a level playing field, as we don't want one entity or

another to 'buy' the outcome by shaping the media. Although this will happen anyway, just in kind.

The CfB has grown from 50 to over 100 led by their chairperson Steve Baker, MP for High Wycombe. I have met Steve

Baker, in his a role as founder of the Cobden Centre, which promotes prosperity through an open and free society based

on stable, sustainable economy in which there is meritocratic opportunity. (Such society is built on honest money,

meaning we must end excessive credit expansions that fuel false booms followed by financial crises causing devastating

human cost and spreading untold social disruption).

Steve Baker stood for election in part, so he could help re-educate government on the role of money in society. Based

on this, he strikes me as a resolutely principled, fair and decent man.

Steve and I also share a common view on the EU and the bureaucrats in Brussels. It's a dim one. They have insidiously

oppressed member states’ national interests by interfering in their legal, regulatory and political executives. The core

tenets of free circulation of goods, offering of services, movement of financial capital and migration has been undermined

by the centralisation of the EU, which threatens to choke these very same freedoms through over-regulation, restrain

and taxation on each and every sovereign member states.

Steve Baker recently wrote an eloquent op-ed in the Telegraph, declaring the CfB's position, in which he makes the

observation that many overlook or just don't comprehend, which is, to foster free trade with Europe and the rest of the

world, closer political union is not required. The two are not connected. "Freed trade requires an absence of government

restraint, not unified government."

The progressive metropolitan literatti at The Guardian talk of the 'bastards' of the CfB, in a reference to Sir John Major's

off tape, but recorded description of the Tory Eurosceptics whose attempts to derail the UK's Maastricht treaty

negotiations in the early 90s nearly brought down the government. In reference to keeping the Maastricht Rebels within

his cabinet, Major invoked Lyndon Johnson's maxim that "It's probably better to have him (them) inside the tent pissing

out than outside pissing in." Although I don't care for the Guardians inflammatory narrative, the CfB are more moderate

in their approach, and Cameron would be advised not to make these Eurosceptics his enemy.


https://www.hindesightletters.com/blog/are-we-next-greek-tragedy/

http://www.telegraph.co.uk/news/newstopics/eureferendum/11657169/Conservatives-will-stand-up-for-Britain-if-the-EU-lets-us-down.html


Purdah will ensure Whitehall draws a veil over itself and cuts itself off from influencing public debate on the referendum,

allowing time for the public to digest previous dialogue without undue bias. The term purdah, interestingly, comes from

the Urdu (parda) and Persian (pardah) words, meaning veil or curtain and the practice of Muslim and Hindu societies

screening women from men or strangers by use of a veil or curtain. Let’s hope it’s observed.

We all know how the Tories have a history of burning their very own veil of unity that binds them. Right wingers and

former ministers, like John Redwood and Owen Paterson, who opposed Major on Europe in the 90s still reside within the

CfB, but I believe that with Steve Baker at the helm their intentions are to both ensure a positive outcome for negotiations

and secure a better future for Britain's pursuit of prosperity through liberty.

Likewise, Cameron's position seems quite straightforward:

“Let’s be clear: in politics you should try and explain what it is you want to achieve, and what I want for my country is to

reform the European Union, to make it better, and then recommend that we stay in the European Union because we

need those trade links, we need those markets open, we want that influence in the world, that is good for Britain.

"There are Conservative Members of Parliament who want to leave the European Union come what may. But if you’re

part of the Government, then clearly you’re part of the team that is aiming for the renegotiation referendum.”

Unfortunately his position with regard right to free speech within his own party seems less so. Any more

miscommunications, the likes of which we saw at the G7 meeting, on whether cabinet members can elect to campaign

and vote contra to the government need eradicating. He really doesn't need to inflame a hornet’s nest, he needs to focus

on the job in hand, and if he does that I believe he will be supported fully by his party.

Never mind the CfB’s call for an 'out' vote, if Cameron is observed to be failing in his negotiation, would he himself declare

his support for an exit? It seems unlikely to me. I suspect he won't because that would be at odds with his 'One Nation'

commitment which he signalled in his acceptance speech outside Number 10. He knows the threat to a schism in our

own Union is now no longer existential, and by declaring his intention to devolve powers to the regions of England,

Scotland, Ireland and Wales, his ability to play a good poker hand on Brexit has perhaps been handicapped.

EU officials may chance that if Cameron threatens exit in the absence of full reform, he may not pull the trigger, as

Scotland's SNP are pro-EU, and any exit may result in an immediate Scottish Independence referendum. Cameron is

going to have to hold a real poker face and hope Europe doesn't call his bluff.

Again, I would reference David Stevenson's editorial at our site, where he points out one of the threats to our Union's

stability is Europe:

"I am a pro-European but I view the referendum debate as a useful one, allowing us to clarify our collective investment

in a project that is troubled. I am stunned by the consensus that we Europhiles will win this debate easily. That consensus

view strikes me as arrogance of the first order and I sense that if a proper debate is engaged we pro-EU types could very

easily lose. This prompts my first crisis – what next after we leave the EU?

I am happy to concede that there could easily be a life outside of the EU; it’s just that I have not seen a clear strategic

explanation and plan from the opposing camp explaining what happens next? I am aware of how angry many are at the

corruption and unaccountability of the EU, but what’s the ‘plan Stan’?”

Here I disagree with my right honourable colleague and Editor-in-Chief, he is wrong, there have been ideas and plans

drawn up that we can implement. A series of papers and reports, conducted by the Institute of Economic Affairs and

Open Europe, provide a roadmap based on these premises, that any EU discussion and the viability of Great Britain

within it should seek to push for greater market liberalisation and less EU interference in our executive, legislative and

judicial 'constitutional' branches. Simple. (Continued under Election Insights).



by Mark Mahaffey

An interim buy alert that recommended an investment in EasyJet Plc was sent to subscribers on June 9th 2015 at a price of 1563p. It enters the HindeSight Dividend portfolio this month with a healthy HDVM® score of 53.89

EasyJet Plc (EZJ: LSE) is a British low-cost airline carrier based at London Luton Airport. With a fleet of 239 planes (35%

leased), 700 routes in 32 countries and almost 9,000 employees, it is the largest passenger carrying UK airline. Listed

on the London Stock Exchange since 2000, it is a constituent of the FTSE 100 index with a market capitalisation of

£6.3bn. Revenue in 2014 was £4,527m, with a net income of £450m

Most readers who have been flying in Europe will no doubt have flown EasyJet at some time in recent years. With its

bright orange logo and TV series Airline, it has become an instantly recognisable brand, although its history only dates

back to 1995. It was launched by the Greek Cypriot businessman Sir Stelios Haji-Ioannou with two leased aircraft flying

from Luton to Glasgow and Edinburgh.

EasyGroup Holdings Ltd, the investment vehicle for Sir Stelios and family, is the largest shareholder with a 34.62%

stake. Over the last 20 years, EasyJet has seen spectacular growth, driven by strong demand for no-frills airlines and

acquisitions of rival companies, like GB Airways and Go. While the acceptance of low-cost carriers like EasyJet is

widespread nowadays, it is important to understand the origins of this phenomenon.

UK AIRLINE PROVIDERS

ABSOLUTE PERF. (12M)

INDEX RELATIVE PERF. (12M)

DVD YIELD (%)

PRICE/BOOK EV/EBITDA* HDVM®**

EASYJET PLC 3.94% 2.86% 3.27% 3.68 9.18 54.35

INTL CONSOLIDATED AIRLINE-DI 40.61% 39.53% - 4.50 5.40 46.52

RYANAIR HOLDINGS PLC 58.23% 57.15% - 3.95 10.28 -

Note * EV / EBITDA - Enterprise Value divided by Earnings (before interest, tax, depreciation and amortisation) ** HDVM® - Hinde Dividend Value Matrix



The dawn of commercial air travel in the 1920s and 1930s was a far cry from today. In the twilight of the British Empire,

Imperial Airways was Britain’s shuttle to all outposts. Between 1930 and the start of WWII in 1939, 50,000 passengers

flew Imperial Airways. The longest flights to Australia would cover the 12,000 miles in 11 days, with over 20 scheduled

stops and cost £15,000 in today’s money. Despite the gruelling nature of some of the journeys, with all the hazards of

non-GPS navigation and often freezing cabin temperatures, luxury and speed were the main focus. The alternative was

almost two months by boat.



After WWII, with a surplus of planes and pilots, international air travel began to take off for real. The International Air

Traffic Association was founded in Havana, Cuba, in April 1945 in order to promote safe, reliable, secure and economical

air services for the burgeoning passenger demand. The post-war period saw each country develop national carriers for

short and long haul flights. In the UK, British Overseas Airways Corporation (BOAC) and British European Airways

Corporation (BEA) ruled the roost, eventually becoming British Airways in 1974. These carriers enjoyed government-

sponsored monopoly status and scale, but two airlines were established in 1966/67 that can be considered the birth of

the low-cost airlines. These were Laker Airlines (founded by Sir Freddie Laker) in the UK and SouthWest Airlines in the

US. The business plan in 1966 for the new entrants was not very different from today.

Operate on the busiest routes with the highest demand

Offer customers vastly cheaper prices than the national carriers

Focus on keeping costs to a minimum on every aspect from reservations, in-flight service, fuel utilisation and

aeroplane all-round efficiency



Although they appealed to the consumers’ requirements, the subsequent three decades were a constant battle between

the majors and low-cost carriers (LCCs). Governments, often with IATA backing, were seen as hugely protective of the

national carriers in pricing policies, airport access and service requirements, despite there being airline deregulation in

many countries by 1980. Sir Freddie Laker would have several days in court fighting against British Airways before and

after the collapse of his airline empire, citing their anti-competitive practices. He is remembered for his famous advice to

fellow entrepreneurs, Sir Richard Branson of Virgin Atlantic and Sir Stelios, which was to “sue the bastards”, a reference

to BA’s bullying tactics as they tried to force newcomers out of the market.

In the end, demand (especially for short haul flights) proved to be the defining element. While low-cost carriers (LCCs),

apart from arguably Virgin’s early years, have not focussed on long haul travel, the short hop to Europe is mainly serviced

by LCCs, with Ryannair and EasyJet the most prominent. One of the main differences between them is that Ryannair

flies to secondary airports, often some distance from the city centre, while EasyJet operates from the main city airports,

like a national carrier.

Source: EasyJet



Like all businesses, profitability is a function of revenue and costs, and the airline business is no different.

The revenue part of the equation seems to be taking care of itself, as both population growth and travel demand continue

to grow at a strong rate. Current airline revenues worldwide are $727bn with a net income of $29.3bn. The risk to this

revenue can usually be summed up by:

Economic growth

Terrorism and fatal accidents

Loss of airtime, either from worker strikes or climate considerations, such as volcanic ash

Increased regulation and capacity constraints

On the cost side, improving aircraft efficiencies in fuel usage, as well as the recent effect of a much lower oil price, have

been the key factors in generating the best profit margins since the 1960s. Aging aircraft, like the famous 747 “Jumbos”,

are being replaced with newer, less thirsty models. With fuel costs often 30% of total costs, this increased efficiency

results in considerable savings. The typical 65% owned / 35% leased fleet allows flexibility and the low interest rates

keep lease rates low.

LCCs have been at the forefront of maximising efficiency over the past two decades. They have pioneered online

reservations and pricing policies to ensure the best passenger load factor, the airlines’ equivalent to the hotel occupancy

rate. While the worldwide load factor is approximately 80%, the LCCs are often running at over 90% capacity in most

months. They are also benefitting from less indebted legacies without the need to replace older fleets. British Airways

has an average fleet age of 13 years, while Ryanair and EasyJet are closer to an average of 5 years.

We are recommending an investment in EasyJet for the HindeSight dividend portfolio this month, with a HDVM® score

of 53.89, as we believe the stock price decline of almost 20%, which has occurred since earlier in the year, presents a

reasonable margin of safety, with a low forward P/E valuation of 12 times. Despite posting the best winter profitability in

its history for the normally quiet half to the year, EZJ has suffered from lost revenue due to April strikes in Europe, as

well as the Germanwings flight tragedy event. It has clearly underperformed its larger competitor Ryanair in share price

return over the last 12 months, despite stellar returns since 2012 of 170%. It has a forward dividend yield of 3.6% and

potential for special cash payments as well.



The Hinde Dividend Value Strategy method of stock selection often highlights stocks that have experienced short-term

weakness, despite long-term fundamental strength presenting an investment opportunity. We believe that the longer-

term fundamentals of EasyJet’s business will benefit from:

Global demand increasing

Lower for longer oil prices

Recovery in European growth with the QE monetary policy

Price of jet fuel Source: Bloomberg

Like most airlines, EasyJet’s largest cost is fuel. In 2014, it accounted for almost 30% of their total costs. EZJ employs a

hedging policy to reduce short-term earnings volatility. On a rolling basis, between 65% and 85% of the next 12 months

and between 45% and 65% of the following 12 months’ fuel requirements are hedged in the forward energy markets. As

such, the effect of the large decline in the price of jet fuel is not being fully received to the financial bottom line. If the

world oil revolution continues to be able to oversupply demand and prices remain lower for years, clearly this will provide

a massive saving to transportations.



EasyJet is a strong consumer discretionary business, covered by a wide range of analysts. Analysts have been very

bullish on this business (with 25 out of 28 analysts giving it a buy or hold rating). Our scoring system suggests that the

stock has an average 12-month target price (TP) of 1953p, representing an upside of 21% from recent prices.

EasyJet is a well-run company with efficiency at the forefront of its business plan. The ability to benefit from naturally

growing industry demand, potential revolutionary change in aircraft design, and a lowering of its largest cost bodes well

for increased growth and profitability in future years. With its strong cash generation and a return on capital employed at

20%, shareholders should be able to benefit from this dividend payments and share appreciation. The risks of further

economic contraction and revenue interruptions from terror or strike appear to be outweighed in the long term.



by Mark Mahaffey

British American Tobacco (BATS: LSE) is one of the five largest tobacco companies in the world, headquartered in London. The firm has a presence in 180 countries and a market leading position in over 50. The company was formed in 1902 as a joint venture between Imperial Tobacco Company and the American Tobacco Company. The parent companies reached an original agreement not to trade in each other’s domestic territories. British American Tobacco began trading in countries as diverse as Canada, China, Germany, South Africa, New Zealand and Australia, yet never in the United Kingdom or the United States.

The history of cigarettes can be traced back to Mexico and Central America, where locals used what looked like smoking

tubes in the 9th century. Later, the Mayans and Aztecs smoked tobacco in religious rituals, which were often depicted on

pottery and temple engravings. Through Hispanic roots, the cigarette was brought back to Spain and eventually found

its way into France, where it was officially named the cigarette in 1830. Over a decade later, the French state tobacco

monopoly started manufacturing them in large batches. France’s cigarette production rose quickly in the 1880’s when

James Albert Bonsack invented the cigarette-making machine. This helped production to rise from 40,000 hand rolled

cigarettes to just below 4million on a daily basis.

In the UK, Sir Walter Raleigh is remembered for introducing tobacco after returning from his voyages fighting on the

Spanish Main in the late 16th Century. He was the first British smoker, placing tobacco in a bowl and using a long pipe to

smoke it.

British American Tobacco has a market capitalisation of £65bn and generates revenues well above £13bn. The company

is also listed in the United States and South Africa. It has a strong presence in China and a long-term relationship through

its factory in the Pudong district. As early as 1919, the Shanghai factory was producing over 240 million cigarettes per

week, and the management team worked closely with the local Wing Tai Vo Tobacco Company to develop a successful

cigarette brand called Ruby Queen.

Twenty years later, British American Tobacco was producing and distributing 55 billion cigarettes within China alone.

However, the Japanese seized the firm’s assets following their invasion in 1937 and the company was ejected from

China.

The group went through severe restructuring over several years before BATS was completely acquired by American

Tobacco Group in 1994. This helped BATS to acquire the Lucky Strike and Pall Mall brands into their portfolio. In 2003,

BATS became the second largest producer and distributor of cigarettes in Italy, which is the second largest tobacco

market in the European Union. The group has gone on to make further acquisitions in Eastern Europe, giving BATS the

ability to manufacture its brands locally and saving costs on import duties. With Serbia, Bulgaria, Greece and Russia all

in the list of the top ten cigarette consuming countries per capita, this proved to be a shrewd acquisition. The export

opportunities have been significant as neighbouring countries have developed free trade agreements.

BATS have continued to grow and acquire businesses, targeting the emerging regions, such as Indonesia, Turkey and

Colombia.

The group’s four most popular brands are Pall Mall, Lucky Strike, Dunhill and Kent. These are also complimented by

Benson & Hedges and Rothmans.

The cigarette industry has had a number of issues, ranging from legal battles to a decline in demand, due to public

smoking bans and tax increases that have been introduced by most developed countries, even as far as the Philippines,

Turkey and Brazil. Up until now, tobacco producers/manufacturers have relied on emerging market demand to negate a



dramatic fall in demand for cigarettes within more socially developed European and North American regions. Emerging

and frontier market demand will still continue to prop up tobacco producer volumes; however, in recent times it has been

less effective. The most recent government intervention has come within China, which is the world’s biggest market. The

Chinese government recently banned smoking in public areas, such as restaurants, offices and public transport. Given

that the Chinese market is controlled by the China National Tobacco Corporation, this ruling does not affect British

American Tobacco too much (even though they launched a joint venture with China National Tobacco Corporation) due

to their low exposure. However, this latest ruling does demonstrate the current/future global trends.

Despite all these troubles, tobacco manufacturers have been very successful in managing these challenges over the

past ten years. Nine years ago, BATS distributed 691bn cigarettes and the company was worth £29.6bn. Last year, the

firm managed to sell 24bn less cigarettes and yet they were valued at over £65bn. Tobacco groups have managed to

increase their market valuation by using a three-pronged approach:

Tobacco groups have continuously increased their prices. These manufacturers have managed to do this knowing that

demand for cigarettes is inelastic, which means that consumers are willing to pay more for cigarettes, even if these prices

are continuously raised. In many countries, the price of a packet of cigarettes is largely made up of taxes. Within the UK,

nearly 80% of the price of a packet of cigarettes is paid to the government, so technically manufacturers are able to raise

their prices by 5%, without pushing the total packet price up more than 1%.

Tobacco groups are looking to counteract the decline in this industry through effective capital deployment, acquiring and

merging with a variety of groups. BATS have been conducting a number of smaller bolt-on acquisitions, such as their

recent purchase of TDR, which is a market leader in Croatia and the Balkan region. These deals provide a number of

key cost-cutting opportunities and the chance to improve on an operational basis.

Finally, tobacco manufacturers have been diversifying their offering and investing into the future. Two years ago, BATS

introduced the UK’s first e-cigarette brand called Vype.

In the short-term, the tobacco industry has also been impacted by FX volatility. Pricing strength has gradually started to

improve, whilst volume erosion, which has dogged tobacco manufacturers for the past five years, has started to increase.

The industry has been hit by down-trading (shifting from premium to cheaper cigarettes), which many experts believe is

linked to an increased uptake in plain packaging laws and believe this is a long-term risk to the tobacco industry.

British American Tobacco’s valuation is at the lower end of its historical range versus both itself and its closest rival,

Imperial Tobacco. Despite the company’s resilient near-term earnings growth, the company has further room to grow,

being positioned in certain frontier and emerging markets.

UK TOBACCO PROVIDERS



DVD YIELD (%)


BRITISH AMERICAN TOBACCO PLC

0.74% -0.34% 4.76% 12.20 12.73 53.46

IMPERIAL TOBACCO GROUP PLC

25.51% 24.43% 2.98% 6.57 9.93 46.75




US TOBACCO PROVIDERS



DVD YIELD (%)



0.74% -0.34% 4.76% 12.20 12.73 53.46

PHILIP MORRIS INTERNATIONAL -4.90% -15.25% 4.92% - 11.78 -

LORILLARD INC 23.16% 12.81% 3.70% - 11.32 -

ALTRIA GROUP INC 25.58% 15.24% 4.38% 39.76 13.65 -


British American Tobacco currently has a HDVM® score of 53.46 and enters the HindeSight Dividend portfolio this month.

An interim buy alert was sent to subscribers on June 17th 2015 at a price of 3511p. Over the last 12 months, the

share price is flat relative to the index. This lack of performance can be attributed to:

Decline In Consumption

Healthcare Lawsuits

Plain Packaging Regulations

Tobacco Tax Increase

Earnings Decline & FX Volatility

Demand for tobacco within Western Europe and North America may be declining, but this is not true on a global scale.

Over the last five years, demand for cigarettes in Eastern Europe, large parts for Asia and South America has started to

expand. British American Tobacco is now also looking at frontier markets, focusing on those regions where the middle

class are becoming wealthier and have a higher disposal income.

The tobacco manufacturer over the last ten years (business cycle) has consistently provided investors with at least 3%

in dividend income, weathering a variety of economic conditions.

The tobacco industry has declined over the past few years, due to a small downturn in global cigarette consumption, with

a particular focus on the European market, although according to Euromonitor, worldwide sales may increase 4.3%

through 2019. Changes in consumption patterns are forcing the likes of BATS to be more creative in their quest to

generate further revenue. They have been careful to acquire businesses as consumption within Western Europe declines

as it matures. This refers to more affluent (developed) countries in which research has shown that smoking habits have

fallen with increased awareness, education and wealth.



In the UK alone, the proportion of adults who smoke has fallen from 27.4% in 1999 to just above 18% at the end of last

year. Similarly, adult consumption in North America has fallen from 24.1% to 17.4% over the same period of time. BATS

are very much aware of this situation, as well as the social trends that are impacting this industry on a global level. As a

result, BATS have been investing heavily into the Eastern European market, where the smoking rate is the highest per

capita (globally), which makes sound business sense. BATS started pushing into the Eastern European market as early

as the fall of the communist regimes within this region; however, in recent years this push has intensified.

Similarly, BATS have also targeted Brazil with their attempts to buy out Souza Cruz, a prominent Brazilian cigarette

producer. Both Eastern Europe and South America are emerging areas that offer plenty of opportunity for tobacco firms.

They have some of the youngest and fastest growth populations. More importantly, with this growth we are seeing the

emergence of a wealthier middle class with excess cash to spend, making these emerging areas more dynamic and

favourable compared to more mature markets.

By increasing its exposure to emerging markets, BATS has added to its currency exposure, something that we have

seen last year. Large fluctuations on the FX market, with a focus on the Rouble and other Eastern European currencies,

have had a negative impact on BATS earnings. In 2014, BATS declared a 4% drop in earnings due to these major FX

fluctuations. This drop in earnings has created temporary fear in the tobacco giant’s share price. However, with BATS

strong track record for innovating and currency headwinds easing, this presents a good entry point into the British

American Tobacco.



Along with easing FX headwinds, BATS is well positioned to benefit from reduced unemployment in Western Europe,

whilst reaping the benefits of a rising, wealthier middle class within the emerging markets, which will support future

volumes.

Tobacco manufacturers have been hit by the justice system across a variety of countries in the last 12 months, having

been asked to pay compensation to former smokers for “moral and punitive damages”. These damages were awarded

on the grounds that tobacco manufacturers have been concealing the risks of smoking and its long-term effects. Although

these lawsuits are the norm, the market has taken them negatively, fearing that these new rulings would trigger a wave

of fines throughout the industry. Tobacco manufacturers value fell 2.4% when the ruling was announced, reducing their

value by over £2.5bn from their market capitalisation.

Earlier this month, BATS Canadian subsidiary was ordered to pay £8.2bn in punitive damages to former smokers. These

litigation cases are not new territory for BATS and neither is the magnitude of the amount awarded. Large amounts that

are awarded in cases like this are often revised downwards during the appeals process. Fortunately for BATS, the

appeals processes tend to last over multiple years, and experts believe the magnitude of any pay out (which is usually

revised down) would not have much of an impact on the intrinsic value of BATS’ business. Unfortunately, even though

experts believe that damages such as these do not have a significant impact on BATS’ business, the market took this

news particularly negatively, with the share price sold off further, having created an investment opening for long-term

investors.

Tobacco tax increases have created volatility within BATS share price, having instilled fear within the market place in

relation to BATS ability to grow its earnings in the future, as governments increase their levies. Tobacco taxes have been

raised steadily over recent years, as health departments believe this is potentially one of the most effective routes to

tackling smoking. They believe that pricing individuals out of buying cigarettes and deterring children from developing a

nicotine addiction in the first place is the best way to stem the issue. Within Europe, pressure is mounting on governments

to introduce additional taxes on cigarette sales, which campaign groups believe will help to remove cigarette smoking

within two decades.

Industry experts believe that government policies are likely to result in a continuing increase in tobacco tax across

developed and some emerging markets. Health departments globally believe that raising the excise year on year will

reduce the number of smokers and eventually extinguish the number of smokers completely. Continued tax increases

have weighed down heavily on tobacco manufacturers globally and are now having a short-term negative impact on the

market value on a global scale.

Unfortunately, academic research has shown that raising the price of a pack of cigarettes (after tax rises) tends to be

ineffective on the general population, as it only really deters a small group of young adults and those from a low

socioeconomic background. It often results in smokers merely downgrading to a cheaper brand.

Within the UK and many other countries, nearly 80% of the price of a packet of cigarettes is paid to the government in

the form of tax. The market reacts negatively to the news that tobacco taxes are going to be increased, but what investors

do not seem to understand is that BATS and other competitors have weathered these government attacks, as they are

able to raise their prices by 5% without pushing the total packet price up more than 1%.

The tobacco industry is an oligopoly with a small number of producers and a large number of dependent (or addicted)

consumers making demand for cigarettes inelastic and limiting the manufacturers’ downside.

Plain packaging (just like taxation and FX volatility) has fostered short-term negativity within the tobacco industry.

Government departments believe it will act as a deterrent, just as they do with taxation. Unfortunately, research has

shown that there are more prominent factors other than the packaging that influence a buyer’s behaviour. For example,

a European Health Department report suggested that seeing your friends/colleagues smoke is more influential than the

aesthetic of a cigarette box. Furthermore, reports on packaging conducted by Deloitte showed that neither increasing the

size of health warnings on the packs, nor introducing images over a number of years had a direct impact on reducing

tobacco consumption.

Unfortunately, tobacco producers believe that governments risk breaching trademark rights and international trade

agreements by introducing the plain packaging law. Having created a very convoluted situation, various governments –

from the Ukraine to Honduras and Indonesia – are all challenging these new laws at the World Trade Organisation.



Plain packaging regulations could become a hindrance for tobacco producers in the distant future. However, demand for

cigarettes is once again propped up by consumers who are dependent on the product itself. Therefore, plain packaging

will not prove to be the deterrent that many government bodies hope it to be.

A large part of managing a mature company in a declining market is through creating an efficient company by using cost-

savings measures. There is continued scope for margin improvement at British American Tobacco as it completes and

leverages upon its new SAP system. This new system will help BATS locate inefficiencies within its global structure and

improve margins through cost saving measures. For example, experts believe that an improvement in cash flow could

help the company to resume its buyback programme not too far down the line.

For companies, such as British American Tobacco, they have an inherent level of complexity, which can be easily

managed as data is aligned across an organisation through a centralised system. Fifteen years ago, Nestle introduced

a system called GLOBE, which enabled it to identify its inefficiencies. Six years later, the firm suggested that the GLOBE

system had helped Nestle to save approximately CHF1bn annually. The company went on to introduce bolt on systems

and standardise their data and processes. With all of the systems in place, Nestle are now saving more than CHF1.5bn

annually.

With BATS hoping to complete the implementation of its SAP system by 2017, analysts believe this will eventually have

the same impact on the tobacco giant as it did on Nestle. BATS will only see the full impact of this system and its benefits

once the majority of its sales have been entered into the system, and then data analysts are able to suggest the best

way to leverage the resources freed up as a result of this standardisation process.

The firm has been testing this system in Malaysia since 2011. Around half of BATS margin improvement over the last

two years has come from cost savings derived from this system, demonstrating that when it is fully installed, it will have

a greater impact on BATS margins, taking into account global savings.

Initially, large tobacco manufacturers were slow to react to the emergence of the e-cigarette market. However, having

recognised the uptake in demand for these products was a serious threat to the industry, tobacco producers have used

their financial muscle to invest heavily in a market that is now said to be valued at greater than $3.5bn. Given that many

of the large tobacco producers have their distribution networks set up, they will have a clear advantage over smaller

players within the market. BATS launched VAPE, which was the first e-cigarette product to be launched in the UK and

Western Europe, giving BATS first mover advantage. Since British American Tobacco’s launch, there has been a whole

raft of entrants into the Western Europe and North American markets.



The number of users in Western Europe has tripled over the past two years to 2.1million of which 700,000 users are ex-

smokers. E-cigarettes may not replace the tobacco industry; however, it could well acquire a number of former smokers

as users. This industry and its progress will be heavily dependent on regulation, taxation and product development.

British American Tobacco is a mature business, covered by a wide range of analysts. Over recent months, analysts have

become more bullish on this business (with 21 out of 25 analysts giving it a buy or hold rating). Our scoring system

suggests that the stock has an average 12-month target price (TP) of 3769p, representing an upside of 5% from recent

prices.

British American Tobacco is trading at a discount to itself and its industry competitors, after suffering from a barrage of

events that have weighed down heavily on its share price. BATS are in an oligopolistic industry serving an entire user

base, which is dependent upon the product that they produce, giving it a reasonable margin of safety. This has created

inelastic demand across the broader market, with certain pockets, such as the youth and low socioeconomic market,

being deterred by the increase in prices due to taxation. The business has provided investors with a dividend yield of at

least 3% over the last ten years, demonstrating its ability to provide income during the course of a full business cycle.

With the stock suffering from negative price movements over the past year, this would be a good entry point into British

American Tobacco.



by Mark Mahaffey

National Grid Plc (NG/: LSE) is the electric power transmission network in Great Britain. It is, in effect, the system operator for the whole of the UK and a distributor in the US that came about as a result of the breakup of the Central Electricity Generating Board in 1990.

Judging by the numbers, it is a true giant. Although the market capitalisation of £32bn usually keeps it in the top 20 of

the FTSE 100, its net debt pile of £23bln makes its enterprise value a whopping £55bln. Despite a yearly capex bill over

£3bn, its £2bn net income is seen as stable.

UTILITY PROVIDERS



DVD YIELD (%)


NATIONAL GRID PLC 5.30% 4.22% 5.56% 2.92 10.37 53.26

CENTRICA PLC -17.45% -18.54% 5.65% 5.12 4.40 52.57

UNITED UTILITIES GROUP PLC 15.75% 14.66% 4.43% 2.79 12.55 50.25




Large utility companies usually find their way into dividend and income portfolios and NG/: LSE is no different. Historically,

its steady earnings have provided investors with enough dividend growth to maintain a dividend yield near to 5%.

NG enters the HindeSight Dividend Portfolio this month with a HDVM® score of 53.26. The recent sell off in stock price

of almost 10% from the year’s highs provides us with an opportune entry point and an understanding of the main risk

that the market believes the company faces, namely debt servicing. Huge ex-national utility companies’ business plans

can typically run on large debt facilities with the stability of income, but this usually comes at a price.



Since the Conservative success at the May general election and the agreement with the energy regulator Ofgem – 2013-

2021 price control plan, the main risk to earnings is a rise of interest rates. Since early this year, both in the UK and US,

market rates have been drifting higher as the US seemingly strong economy looks likely to trigger the FED to hike rates.

The clear consensus is that, with interest rates in the developed world at zero for the most part, they can only head higher

at some juncture as the global recovery continues. Although the normalisation of the US employment rate would have

led to a hike in rates by now, we will play devil’s advocate. Janet Yellen, head of the US Federal Reserve has focussed

on the job market’s full recovery as a sign that the 2008 crisis is truly behind us, holding interest rates lower for longer

than a typical cyclical upturn. We would argue that by doing so she has waited too long. Employment is the most lagging

of all economic numbers and other more current and forward-looking numbers are showing signs of coming off the boil.



If the rise in market rates is concurrent or causing a slowing in the economy, this may put the dampeners on any intended

hiking cycle or at least reduce its intensity.

National Grid is an established organisation, covered by a wide range of analysts. Over recent months, analysts have

been directionless on this business (with 17 out of 23 analysts giving it a buy or hold rating). Our scoring system suggests

that the stock has an average 12-month target price (TP) of 890p, representing an upside of 4% from recent prices.

National Grid is a solid dividend play for our portfolio. It pays a high 5% yield and is currently 10% lower in price than

early 2015, providing a margin of safety. It is not a growth play and many may consider it boring. We believe we

understand the reasons for its current low price and are happy not just with its individual risk/reward profile, but also the

diversification it provides for our portfolio.



by Ben Davies

In the spirit of simplicity, perhaps we should answer the question of Brexit by asking ourselves what we should do in the event of an exit from the EU, post an 'out' referendum. We can look no further than the approach of the Institute of Economic

Affairs and Open Europe to the question. Rather than focussing on the pros and cons of membership, we should examine how Great Britain (and indeed any EU member) should shape its own (Br)exit in the event that a referendum triggers it. We would assume that the UK government, in respecting such a vote, would invoke Article 50 of the Lisbon Treaty and begin the withdrawal process.

The manner in which the exit path is accomplished will determine the strength of the UK's economy and political standing

in the world over the coming century. So we need an effective and realistic exit plan.

The late Steve Jobs was famed for his quest for simplicity. "Simple can be harder than complex, you have to work hard

to get your thinking clean to make it simple." In economics and politics, we have tended to look for formulas and easy

answers to simplify matters, perhaps insulting the complexity of inputs that drive them, but as Confucius apparently said:

"Life is very simple, but we insist on making it complicated."

Signed in 1957, that Treaty delivered four basic (simple) liberties:

Free circulation of goods

Free offering of services

Free movement of financial capital

Free migration

We must adhere to these whilst not sacrificing our independence and ownership of our sovereign rights. If we achieve

this, we will be better positioned in the UK to achieve prosperity through long-lasting liberty.

"Exiting from the EU should be used as an opportunity to embrace openness." Now this is the simple message given by

Iain Mansfield, the winner of the IEA's competition to find a blueprint for Britain's potential exit from the EU. Mansfield

submitted his paper independently of his position as a Director of Trade and Investment at the UK's embassy in the

Philippines. His blueprint 'Openness not Isolation' can be found at this link.

In my 'To Brexit or Not to Brexit?' opinion piece, I outlined the negatives of an uncontrolled exit as identified in the

'withdrawal agreement' from EU by any member state. Mansfield’s piece is an excellent look at how to control the process

and, as you can imagine, it needs Prime Ministerial and Ministerial diplomacy of the highest level. Osborne will be a good

foil for Cameron, as they simultaneously cudgel and charm their opposition numbers. Cameron can be stern and

uncompromising, but he still exudes more outward charm than his no.2, whose more aloof posturing will keep Britain’s

absolutism on reform on course.

As it stands, the Lisbon Treaty introduced a formal mechanism by which a member country could leave the EU. Article

50 of the EU Treaties would allow the UK to notify the EU of its withdrawal, and obliges the EU to negotiate a 'withdrawal

agreement' over two years. As one might imagine, the dynamics of Article 50 are inherently biased against the country

leaving. Our exit outcome would be dependent solely on those negotiations. It seems better to me, if possible, to pave

the path of reform before Article 50 is invoked. This is because there is no UK vote in withdrawal and the rest of the EU’s

members will lean to being more protectionist, especially in terms of trade to both the EU-UK, and also EU to RoW,

where the EU represents and negotiates on behalf of all 28 members at the WTO on bilateral free trade agreements

(FTAs). I would also add that the European Parliament can veto any free trade deals.

The act of leaving the EU also raises so many non-economic questions in an era where the geopolitical charge has

reignited. What does self-government of the UK look like with renewed tensions with Russia and the rise of Islamic

militancy? What happens to co-operation on foreign policy and security if we leave the EU? Will the SNP push for Scottish

devolution, as they say they want to stay in the EU on an Out vote?

The IEA responded to these dangers by inviting submissions for a blueprint for Britain after the EU. The remit was based

on the scenario of an 'out' referendum vote and HM Government having triggered Article 50:

- What measures does the UK need to take in the following two years, domestically (within the UK), vis-a-vis the remaining

EU and internationally, in order to promote a free and prosperous economy?

- An “Out” vote in a British referendum would be a major historic geo-political and economic event, perhaps even

comparable with the fall of the Berlin Wall and the subsequent collapse of the Soviet Union and re-unification of Germany.

It is time, therefore, that the UK explores the process of withdrawal and its economic and political consequences.


http://www.iea.org.uk/sites/default/files/publications/files/Brexit%20Entry%20170_final_bio_web.pdf


The competition was designed to examine the process of withdrawal and, more importantly, how the UK might fit into the

fresh geo-political and economic landscape that would follow.

The OE also published their comprehensive internal blueprint on the subject – “What if..? The consequences, challenges

and opportunities facing Britain outside the EU.”

Both the IEA and OE espouse the principles of a freer society achieved through market processes solving for economic

and social issues. Keeping both government and bureaucracy to a minimum goes a long way to aiding this outcome. 'A

Europe for Citizens, not Bureaucrats', encapsulates their thought-process.

The key takeaways from both blueprints are that the Swiss and Norwegian (even Turkish) models of EU association

could be adapted to Britain’s unique circumstances as a blueprint for a life after EU exclusion. The OE believes that a

better ‘Swiss model’ would be to include better access for financial services and a fair say over how rules and standards

are implemented. Switzerland has no catch-all agreement with the EU services. Crucially from a UK perspective,

Switzerland has no agreement with the EU on financial services, except for a 1989 agreement on non-life insurance.

Major Swiss banks largely get around this lack of cross-border market access by establishing subsidiaries in an EU

member state, often the UK. However, this approach results in higher costs because it requires personnel and separate

capitalisation.

It is also clear that an exit, which enables freer trade globally, deregulation in key sectors of the economy, like services

and transport for example – vis-a-vis legislative repeal of EU laws in the UK – could actually improve our economic

standing domestically and abroad.

Britain has a good global footing in major institutional frameworks, G8, G20 and OECD, which will enable her to deepen

trading relations with the likes of Asia, USA and Russia. The EU will still remain our single most important trading partner

for many years and so the single highest priority would be to ensure zero tariffs on bilateral trade. The best way to achieve

this is to join the European Free Trade Area (ETFA) and/or the European Union Customs Union (EUCU), which was

suggested by both the IEA and OE.

This is a good outline to give you an idea of the scope of topics that are needed in any exit negotiations:


http://2ihmoy1d3v7630ar9h2rsglp.wpengine.netdna-cdn.com/wp-content/uploads/2015/03/150507-Open-Europe-What-If-Report-Final-Digital-Copy.pdf


The box above suggests that guarantees regarding the nature of EU’s Single Market regulation are not of the highest

priority. I disagree. The Single Market (formerly the EEC Common Market) has sought to guarantee the four liberties of

freedoms I have oft outlined, and so is far more than just a customs union and free trade zone. Mansfield concedes this

point. However, to my mind, Brussels’ surreptitious abuse of the terms of the Single Market has occurred right across

the board, whereby EU ‘competence’ usurps individual member sovereignty. The Qualified Majority Voting, wh ich

requires approval of a weighted majority of member states to empower the EU agencies, as well as the justification of

‘creating a level playing field for business, can lead to any EU intervention, which can’t easily be challenged.

Movement of people, social, employment and environmental policy are just some the examples of why we should opt out

fully of the Single Market, as we have lost the ability to determine our own domestic needs. We should seek EFTA, but

not EEA membership, which provides us with a ‘role’ somewhere between Switzerland and Turkey, but not Norway

(which is an EEA member).

Unlike Norway, Switzerland has the freedom to pursue its own social and employment policies, and has greater freedom

to regulate other aspects of its domestic economy. In theory, only its exporters to the EU need to comply with EU

regulations. Switzerland is outside the CAP, CFP, regional subsidies and justice and home affairs policies, but has

negotiated participation in the Schengen border-free agreement. As under the Norway option, the UK would be free to

negotiate an independent trade policy – either as part of EFTA, if it elected to apply for membership – or via its own FTAs

with non-EU countries. Switzerland has successfully signed FTAs with countries the EU has not, such as China, and

signed its deal with South Korea before the EU.

It is clear there are costs to an EU exit, but there also commensurate benefits, and if we still pursue an open trade policy

with Europe, avoiding protectionism at all costs, we could be significantly better positioned to benefit from other global

economies and be freer from the onerous aspects of EU legislation. For example, we would have more flexibility on

capital flows that could invigorate our economy with more inward investment coming from outside Europe, and we would

be able to preserve national interest on migration, especially one muddied by Terrorist asylum in the UK. If we achieved

even moderate success in the negotiations outlined in the first box, our deficits would fall, Sterling would rise and our

over-reliance on foreign capital would be diminished.

Ironically, I would contend that we would achieve a better outcome for the UK in exit negotiations, post an ‘out’ vote, than

from the reforms that Cameron hopes to attain prior to the referendum vote. An ‘out’ vote would see UK assets plunge



in value, Sterling and gilts, and the premia in the FTSE 250 would fall relative to the FTSE 100. However, 5 years down

the line we may look back and think that was the buying opportunity of the century.

So there are plans out there ‘Stan’, which if observed by the UK* parliament, do in fact bode well for a good outcome for

Britain*.

So simply put, the question of whether you are IN or OUT, requires an equally simple answer –YES or NO. It is your

choice.

*I find myself interchanging Great Britain and the United Kingdom constantly (deliberately), but to be clear, we are dealing

with the potential exit of the United Kingdom from the EU. Great Britain is an island that consists of three somewhat

autonomous regions that includes England, Scotland and Wales, whilst the United Kingdom is a country that includes all

three, plus Northern Island. Great Britain united under the Act of Union passed by the Scottish Parliament and

Westminster in 1707, and the Irish Parliament voted to join the Union in 1801 when the Kingdom of Great Britain became

the United Kingdom of Great Britain and Ireland.

To get some real insights into the impact of an exit, the OE report discusses the entire economic spectrum from

automotive, chemicals and pharmaceuticals to the professional services sector.



UK INDICES PRICE/EARNINGS RATIO

PRICE/BOOK RATIO

DIVIDEND YIELD (%)

FTSE 100 INDEX 21.94 1.95 3.74%

FTSE 250 INDEX 26.46 2.55 2.96%

No real change in the sectors over the month. Basic Materials (mining) and Energy, two large components of the UK

index, remain in the doldrums with RDSB at its smallest size, relative to the index market capitalisation in many years,

despite some recovery in the oil price. They remain the highest yielding stocks with utilities at this point. Although

Technology is up a stellar 27.10% over the last 12 months, its small index weighting of 1% doesn’t translate into big index

gains.





****

The entry price of 399.2 originally on the HSL reflects the pre 9-11 share consolidation before the 73p return of capital. The total return of 17.63% is reflective of all corporate actions since entry on

2/10/2014.

LIVE PORTFOLIO

Index

Entry Price

Index

Valuation Price

Div

Yield (%)

Ex-Div

Date

Div

Paid

Abs

Return (%)

Rel

Return (%)

Stop

Loss Price Name Industry Group Entry Date

Entry Price Valuation Price

GLAXOSMITHKLINE PLC

Pharmaceuticals 02/10/2014 1,403.50 1,358.50 6,446.39 6685.78 5.89% 13/08/2015 42.00 -0.22% -3.93% 1,052.63

CENTRICA PLC Gas 02/10/2014 301.90 269.90 6,446.39 6685.78 5.00% 24/09/2015 8.40 -8.04% -11.75% 226.43

KINGFISHER PLC Retail 18/11/2014 302.20 369.50 6,709.13 6685.78 2.71% 08/10/2015 6.85 25.11% 25.45% 226.65

ROLLS-ROYCE HOLDINGS PLC

Aerospace/Defense 18/11/2014 845.00 933.50 6,709.13 6685.78 2.47% 22/10/2015 14.10 12.35% 12.70% 633.75

IG GROUP HOLDINGS PLC

Diversified Finan Serv 18/11/2014 620.00 748.50 6,709.13 6685.78 4.12% 22/10/2015 8.45 22.39% 22.74% 465.00

ROYAL DUTCH SHELL PLC-B SHS

Oil&Gas 10/12/2014 2,098.00 1,877.50 6,500.04 6685.78 6.36% 13/08/2015 31.20 -9.16% -12.02% 1,573.50

SAINSBURY (J) PLC Food 10/12/2014 226.40 259.10 6,500.04 6685.78 5.09% 19/11/2015 13.20 21.53% 18.67% 169.80

IMI PLC Miscellaneous Manufactur 10/12/2014 1,229.00 1,185.00 6,500.04 6685.78 3.17% 13/08/2015 24.00 -1.66% -4.52% 921.75

HSBC HOLDINGS PLC Banks 16/01/2015 593.00 593.40 6,550.27 6685.78 5.24% 20/08/2015 20.00 3.56% 1.49% 444.75

VODAFONE GROUP PLC

Telecommunications 16/01/2015 228.30 231.30 6,550.27 6685.78 4.85% 19/11/2015 7.62 4.81% 2.74% 171.23

NATIONAL EXPRESS GROUP PLC

Transportation 16/01/2015 259.60 309.30 6,550.27 6685.78 3.33% 03/09/2015 6.95 22.42% 20.35% 194.70

BABCOCK INTL GROUP PLC

Commercial Services 11/02/2015 1,050.00 1,106.00 6,818.17 6685.78 2.13% 10/12/2015 5.33% 7.28% 787.50

ROYAL MAIL PLC Transportation 11/02/2015 438.00 507.00 6,818.17 6685.78 4.14% 26/11/2015 15.75% 17.70% 328.50

DUNELM GROUP PLC Retail 26/02/2015 925.00 930.00 6,949.73 6685.78 2.20% 26/11/2015 75.50 9.48% 13.27% 693.75

ANTOFAGASTA PLC Mining 17/03/2015 690.50 713.50 6,962.00 6685.78 1.91% 17/09/2015 6.50 4.31% 8.28% 517.88

TATE & LYLE PLC Food 17/03/2015 615.50 551.00 6,962.00 6685.78 5.08% 26/11/2015 -10.48% -6.51% 461.63

HUNTING PLC Oil&Gas Services 07/04/2015 540.00 598.00 6,962.00 6685.78 3.69% 05/11/2015 14.89 13.88% 17.85% 405.00

CARILLION PLC Engineering&Construction 13/04/2015 327.30 331.10 7,064.30 6685.78 5.36% 03/09/2015 12.15 5.06% 10.42% 245.48

AMLIN PLC Insurance 06/05/2015 454.00 473.50 6,933.74 6685.78 5.70% 03/09/2015 4.30% 7.87% 340.50

ASHMORE GROUP PLC

Diversified Finan Serv 08/05/2015 319.90 298.00 7,046.82 6685.78 5.55% 05/11/2015 -6.85% -1.72% 239.93

EASYJET PLC Airlines 09/06/2015 1,563.00 1,538.00 6,753.80 6685.78 5.90% 25/02/2016 -1.60% -0.59% 1,172.25


Agriculture 17/06/2015 3,511.00 3,499.50 6,726.57 6685.78 4.23% 20/08/2015 -0.33% 0.28% 2,633.25

NATIONAL GRID PLC Gas 17/06/2015 860.00 853.90 6,726.57 6685.78 5.02% 19/11/2015 -0.71% -0.10% 645.00

Average 4.31% 5.71% 6.35%

CLOSED PORTFOLIO

Index

Entry Price

Index

Exit Price

Capital

Rec

Div

Paid

Abs

Return (%)

Rel

Return (%)

Name Industry Group Entry Date Exit Date Entry Price Exit Price

STANDARD LIFE PLC Insurance 02/10/2014 08/05/2015 **** 475.10 6,446.39 7046.82 73.00 11.43 17.63% 8.10%

Average 6.20% 6.42%



Royal Mail saw the government raising £750m by selling half of its 30% stake at 500p a share. Other news was

that the regulator Ofcom is to conduct a review after the withdrawal of rival Whistl to ensure that the Universal

Service Obligation of postal services will be unaffected.

HSBC had an ex-dividend date on 21st May 2015 for 6.66p

Vodafone had an ex-dividend date on 11th June 2015 for 7.62p. Also there was more merger talk with Liberty.

Sainsbury had an ex-dividend date on 14th May 2015 for 8.20p.


HINDESIGHT DIVIDEND UK LETTER / JUN 15 35 UNIQUE WATERMARK: CBC1F9BF


We passionately believe that dividends really, really

matter.

William Thorndike in his fascinating book ‘The Outsiders

- Eight Unconventional CEOs and Their Radically

Rational Blueprint for Success’ examined one of the

most important aspects of running a business a CEO

must undertake: Capital Allocation. He summarised how

a CEO deploys capital in order to best utilise cash flow

generated from his or her business operations.

Essentially, CEOs have 5 ways of deploying capital:

Investing in existing operations

Acquiring other businesses

Repaying debt

Repurchasing their own stock (buybacks)

Paying dividends

Dividend payments are a crucial operation in creating

stakeholder wealth. It is this aspect of a business that

we are so fixated by – the propensity for a company to

produce and continue to grow dividends so that we may

accrue wealth over a generation. But as readers will

know we can’t just grab stocks with the highest yield for

fear that this signals some cash flow or even solvency

issues for the firm. So it is with this very real threat in

mind we explore only well-capitalised FTSE 350

companies.

This letter’s purpose is to help inform readers on

dividend investing so that they can construct a portfolio

of sound UK dividend stocks based on our

recommendations.

Our prerequisite is that any stocks selected for this letter

must be liquid, well-capitalised with a strong free cash

flow and a progressive dividend policy.

Every month we will provide a write up of 3 to 4

stocks until we create a portfolio of 25 UK dividend

stocks. This will be the HindeSight UK Dividend

Portfolio #1

You will be alerted by subscriber email intra-month

when these stocks become a buy. Timing is critical

to the strategy, not only buying quality stocks but

buying them at the right time

The entry points will then be recorded in the next

monthly in the HindeSight UK Dividend Portfolio

section and the stock(s) written up in full

We will run our winners but tend to rotate every 6

months depending on specific criteria which would

elevate cheaper companies into the portfolio

relative to stocks that had performed

The basis for stock and portfolio selection is derived

from our quantitative systematic methodology which

screens these companies using the Hinde Dividend

Value Matrix®, (HDVM®), a proprietary stock-rating

system

In the section on ETPs we will highlight our

investment philosophy and the investment process

behind our stock selections. This is the basis of our

dynamic risk and money management in our

portfolio construction for you. You can also read the

stand-alone Hinde Dividend Value Strategy

document to see the methodology behind our stock

selection



“We have met the enemy, and he is us.” Walt Kelly

Our key to long-term performance investing is premised on the following:

Systematic rule-based strategy

Systematic risk and money management

Occam’s razor, aka ‘K.I.S.S.’, Keep It Simple Stupid

Consistency

Discipline

All our investment ideas are rule-based methodologies driven by systematic and quantitative models.

Hinde Dividend Value Strategy seeks to generate a total return from an actively managed basket of UK dividend-paying

stocks. The strategy selects 20 highly liquid, mid-to-large capitalised stocks on an equally-weighted basis, which offer

the highest total return potential. The 50% Hedge version of the strategy would then be subject to a strategic Beta

Hedge*, which is designed to cover 50% of the value of the UK stock basket at all times.

The 50% hedge is maintained using UK equity benchmark indices to reduce exposure to overall market volatility, but

without reducing overall total returns to the market over the long run. The Hinde Dividend Value Strategy (100% Hedge)

would deploy a full beta hedge at all times.

The strategy employs a quantitative, systematic methodology, whereby FTSE 100 and FTSE 250 constituent stocks are

screened using the Hinde Dividend Value Matrix®, a proprietary stock-rating system. We use the same system to select

stocks for any of our strategies, long-only, 50% Hedge or 100% Hedge. The only difference is clearly the extent of the

hedge on the exposure to the overall market.

The basic premise of the strategy is to accelerate returns by selecting relatively high yielding stocks which offer the

highest potential for capital revaluation. The dynamic rotation of stocks each quarter enables us to sell stocks where the

capital revaluation and dividend has been captured, and use this additional capital to invest in more undervalued quality

companies. If successful, this cycle of capture and re-investment offers the chance to significantly improve the total return

generated by the Dynamic Portfolio.

The basis of the stock selection process is the Hinde Dividend Value Matrix®, which is a derived process that looks at 3

crucial variables:

* Beta is the stock’s sensitivity to market movements, e.g. if a share has a beta of 1.5 its price tends to move by 1.5% for each 1% move in the index

The top ranking stocks will be those offering a relatively high dividend. A composite of the following criteria comprises

the Dividend Rank:

Relative Dividend Yield

Dividend Capture

Payout ratios

The Relative Dividend Yield assesses if a company pays a higher dividend than the Index it derives from (the FTSE 100

or FTSE 250). The Dividend Capture criteria explain how quickly and how much of the dividend is paid at any point in

time. The Payout Ratio gives a snapshot of whether a company will be able to maintain and grow its dividend. It helps

us to assess how much of a company’s revenue, profit or cashflow is paid out in dividends.

The lower the amount of dividends paid out as a percentage of profits, the healthier future dividend potential will be.

History is for once a good guide as to whether companies will continue to pay and grow their dividends. A stock with an



excessively high yield relative to its sector or the overall market is invariably showing signs of heightened risk to its

dividend sustainability and often the viability of the company itself. The screen incorporates a limit on yield dispersions

from the overall market.

The strategy is emphatically not a yield chaser. It is the Performance and Value screens that are used to assess the total

return potential of a stock by analysis of how undervalued it is relative to its fundamentals, sector and overall market

index.

The top ranking stocks have the poorest relative performance to their index over multiple time horizons.

A composite rank of the following criteria provides the Performance Rank:

Stock relative performance ranked over multiple time periods

Average of time periods taken to select rank of stocks

The top ranking stocks by key fundamental criteria show stable fundamentals and exhibit upside momentum growth

potential. The following are some of the criteria that provide the Value Rank:

Value - Price to Book (intangible book adjustment), Free Cash Flow metrics

Quality - Return on Investment and Earnings metrics

Financial Stability - Debt levels, Coverage and Payout ratios

Volatility - Stock variance, Dividend variance

Momentum - Sales Growth, Cashflow metrics

Liquidity - Minimum market capitalisation relative to index, Shares outstanding

The FTSE 100 and FTSE 250 stocks are ranked using the Dividend, Performance and Value screens. An equally-

weighted composite rank is then taken of these 3 ranks, which provides a final ranking from which a selection of 20

stocks is made for the portfolio.

The stocks with the highest ranking are compiled for the FTSE 100 and the FTSE 250. The top 10 from each index are

then taken, subject to diversification rules, which entail that normally only 1 stock per sector per index can be invested

in. For example, if the top 10 stocks are all mining companies, the selection process would take the first of these and

then move on to select the next top stock from another sector. As long as a stock has the highest score in its sector, the

fact that it has appeared in the final ranking means it is already eligible for investment. In exceptional circumstances, it

may be that more than one stock has to be selected from an individual sector.



This score is derived from 3 inputs that have been obtained from all the external analysts at leading institutions who are

covering the stock:

1. The 12 month target price in relation to current price

2. The number of analysts covering the stock

3. The recommendation analysis, e.g. STRONG SELL, SELL, UNDERPERFORM or HOLD

This score is used to observe the other analysts’ view of the stock and is helpful when understanding the methodology

that other analysts use to determine their 12-month target price. We ultimately get a blend of price targets that is based

on different valuation metrics.

1. The combined score will vary from 30-70

2. A stock with a lowest score of 30 shows the majority of analysts not only have a full sell/underweight

recommendation, but also a low 12-month target price in relation to current price.

3. A stock with the highest score of 70 shows the majority of analysts not only have a full buy/overweight

recommendation, but also a high 12-month target price in relation to current price.

Note:

- On a standalone basis, the EAS score must be viewed in the following context:

Equity analysts issue far more positive recommendations than negative

If all analysts are overwhelmingly bearish or bullish, then this can signal a contrarian position be held, but this is

determinate on the where the stock is valued.

- However, in conjunction with the HDVM®, we have found the score to be useful when it is high or momentum is

turning higher, as this suggests that the stock offers deep value.

Disclaimer This newsletter is intended to give general advice only on the importance of dividends within the equity space. The investments mentioned are not necessarily suitable for any individual, and you should use this information in conjunction with other advice and research to determine its suitability for your own circumstances and risk preferences. The value of all securities and investments, and the income from them, can fall as well as rise. Your investments may be subject to sudden and large falls in value and you may get back nothing at all. You should not buy any of the securities or other investments mentioned with money you cannot afford to lose. In some cases there may be significant charges which may reduce the value of your investment. You run an extra risk of losing money when you buy shares in certain securities where there is a big difference between the buying price and the selling price. If you have to sell them immediately, you may get back much less than you paid for them. The price may change quickly, particularly if the securities have an element of gearing. In the case of investment trusts and certain other funds, they may use or propose to use the borrowing of money to increase holdings of investments or invest in other securities with a similar strategy and as a result movements in the price of the securities may be more volatile than the movements in the price of underlying investments. Some investments may involve a high degree of ‘gearing’ or ‘leverage’. This means that a small movement in the price of the underlying asset may have a disproportionately dramatic effect on your investment. A relatively small adverse movement in the price of the underlying asset can result in the loss of the whole of your original investment. Changes in rates of exchange may have an adverse effect on the value or price of the investment in sterling terms, and you should be aware they may be additional dealing, transaction and custody charges for certain instruments traded in a currency other than sterling. Some investments may not be quoted on a recognised investment exchange and as a result you may find them to be ‘illiquid’. You may not be able to trade your illiquid investments, and in certain circumstances it may be difficult or impossible to sell or realise the investment. Investment in any of the assets mentioned may have tax consequences and on these you should consult your tax adviser. The opinions of the authors and/or interviewees of/in each article are their own, and are not necessarily those of the publisher. We have taken all reasonable care to ensure that all statements of fact and opinion contained in this publication are fair and accurate in all material respects. All data is from sources we consider reliable but its accuracy cannot be guaranteed. Investors should seek appropriate professional advice if any points are unclear. Ben Davies and Mark Mahaffey the editors of this newsletter, are responsible for the research ideas contained within. They or any of the contributors or other associates of the publisher may have a beneficial interest in any of the investments mentioned in this newsletter. Disclosures of holdings: None relevant to any content discussed within this issue of the newsletter


Documents

Hindesight UK Dividend Letter - Hinde Capital