Coming Unstuck?

Coming Unstuck?

Apologies the Sun-like quality of the heading. Henkel came out last night and warned. This had been well anticipated and certainly for most of Q1, Henkel was a heavily pushed, perhaps consensus short. Then came Feb 25, they released FY numbers which were better than expected, the comments reasonably upbeat and try as you could, short Henkel didn’t work. Now being short anything over the past month has been painful. But even pre this rally, and post figs, Henkel held up very well. It can only have been due to positioning, in my view that this happened. It was certainly counterintuitive to believe that Henkel could continue to post good figures. It’s an adhesives company, it’s exposed to craftsmen and consumers, construction and packaging. HB Fuller had poor figures in December, why should anyone believe that Henkel would not suffer the same fate? They shouldn’t, and probably didn’t but some of these names just burn you, and you have to ask if you have the patience and pain tolerance to run with it. Even if/when the warning does come, it may only be just enough to make you flat on the position.

I’d put TRIL into this category too. It makes no sense to me that it’s trading at 1650, on 14x vs peers on around 10x. 50% of the business is markets. Tom Glocer spoke at Davos and said he thought there would be a growth in the trading of wider spread, higher margin esoteric products in Investment Banks. Erm, not sure about that one…nevertheless, it has beaten a fairly steady path towards 1700p.

SAP came out at the end of January and said they’d make their margin target but said they wouldn’t give any guidance. How that was taken well by investors, I don’t know, but it was. Now I don’t know if SAP was a consensus short, but given the business it is in, it wouldn’t surprise me.

Many of the banks have come out recently declaring they’ve had strong quarters. How? Activity levels have hardly picked up. Trading volumes are down heavily, there’s a few debt issues around but it does make me wonder where this good quarter is coming from. Oh, and they’ve still got a bunch of toxic stuff on their books too.

So I wonder as we go into earnings season…and everyone is talking about the potential reality check if the real risk comes not simply from companies missing numbers but from companies which have set themselves up for a fall by talking up their stock, literally. And in doing so, denting investor confidence further. Frankly, I don’t know why anyone believes what management say these days, wolf has been cried so many times, but they do, or believe others will, and the market reacts accordingly. Surely it would behove management to temper expectations this time around, a la Polman at Unilever, because no one really has any visibility, so why bother pretending they do?

Ps. Just realised that last paragraph sounds like something out of SATC. Apologies again.