2 Sep 2022

Fifteen months ago I pointed out that ESG (Environmental, Social and Governance) investing would make a few people rich (via the vast public subsidies directed their way) and many people poorer. I tried to appear even handed without disguising my characteristic scepticism. Subsequent events have proved to me that I was much too restrained. ESG is not only rubbish but it is toxic rubbish. It fills up companies’ financial reports with box ticking nonsense that replaces facts that investors need to make decisions based on, you know, the financial outlook. Tom Kerridge is a “celebrity” chef who owns three successful gastropubs. He says that his energy bill is about to rise from £60,000 to £420,000 a year. The UK hospitality sector, having spent the best part of two years in imposed lockdown, is now staggering out of control towards a new disaster. All UK businesses that need significant retail outlets have seen their share prices dive because investors fear that rising energy costs will push them into loss or worse.  On 16 June Halfords released upbeat results for the year to April 2022. The dividend was 9p a share and the dividend policy is described as “progressive”. Today the shares are at 130p, down 60% this year, offering a theoretical yield of 7%. So I turned to Halford’s annual report and accounts to seek some clue about the company’s sensitivity to energy costs.    It seems that for Halfords risk management is based around a Task Force on Climate-related Financial Disclosures (“TCFD”). As the lights are about to go out Halfords’ ESG committee is meeting monthly to discuss the effect of climate change on the business between 2030 and 2050. The significant risk to Halfords retail sites is said to be extreme weather that results in flooding across the UK.  This might be the stuff of satire were it not for the fact that it replaces rather than supplements useful analysis.  Sainsbury’s shares are down 30% this year and the dividend yield appears to be 6.5%. As with Halfords, investors probably have visions of winter shopping in mittens by candlelight. Sainsbury’s annual report has seventeen pages of risk assessment. The company is watching out for...

17 Sep 2021

The company once known as British Petroleum (a name revived by President Obama when he wanted to stick it with all the blame for the Deepwater Horizon oil spill) has quietly rebranded itself in the lower case though almost nobody seems to have noticed. As if it is the corporate embodiment of white privilege, bp can only apologise and beg forgiveness for its own existence.  The splendidly named CEO, Bernard Looney (who will soon rebrand himself as Nigel Neurodiverse) has pledged to reinvent the company as a provider of multi energy customer solutions. My opinion is that if he thinks this is going to keep the eco warriors at bay he needs to change his medication, but never mind.   What interests me now is the entertaining contrast between the reinvention rhetoric and the grim reality that bp is probably having a stupendously profitable year due, of course, to the rises in the prices of oil and natural gas. How embarrassing could this get? I will save you the trouble of ploughing through bp’s 2020 annual report (tagline: “Performing While Transforming”) and take you straight to page 183 where you can get an idea of how the company actually earns its money. Essentially it is 94.5% from oil, oil products and gas. There was little bp could do in H1 2021 to avoid the surge of cash that resulted from the pop in gas prices in Q1 and the stronger crude oil price in Q2.  In its presentation about Q2 it was careful to say that it expected gas supply to remain tight and refining margins to remain roughly unchanged. In fact the natural gas price (Henry Hub) which averaged $2.9 in Q2 is now (17 September) at $5.37. And industry refining margins which for bp were strong at $13.7 per barrel in Q2 seem to be sharply higher again across the industry. It seems probable that bp will experience another embarrassingly strong quarter when it reports in late October.  The share price of bp would surely be higher were it not for the armies of Net Zero shamers whose abuse will only increase in volume as the delightful prospect of that orgy of UN...