Isaac's Thread - High Yielding Shares & other stuff

Sunday, May 16 2010 by

Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimisim is the best time to sell.

Sir John Templeton


Aviva (LON:AV.)
-Price 326.9
-Forecast Yield 7.71%
- Forward Cover 3.02
-Forward PE 4.3

-Price 530.2
-Forecast Yield 7.04%
- Forward Cover 1.82
-Forward PE 7.6

United Utilities (LON:UU.)
-Price 521.5
-Forecast Yield 6.58%
- Forward Cover 1.7
-Forward PE 8.97

Scottish & Southern Energy (LON:SSE)
-Price 1082
-Forecast Yield 6.5%
- Forward Cover 1.49
-Forward PE 10.3

Severn Trent (LON:SVT)
-Price 1128
-Forecast Yield 6.29%
- Forward Cover 1.42
-Forward PE 11.21

Royal Dutch Shell (LON:RDSA)
-Price 1779.5
-Forecast Yield 6.25%
- Forward Cover 1.81
-Forward PE 8.86

National Grid (LON:NG.)
-Price 618
-Forecast Yield 6.23%
- Forward Cover 1.55
-Forward PE 10.38

Vodafone Group (LON:VOD)
Price 134.5
-Forecast Yield 6.01%
- Forward Cover 1.91
-Forward PE 8.73

British American Tobacco (LON:BATS)
Price 2033
-Forecast Yield 5.58%
- Forward Cover 1.54
-Forward PE 11.66

Glaxosmithkline (LON:GSK)
Price 1167
-Forecast Yield 5.53%
- Forward Cover 1.86
-Forward PE 9.69

Astrazeneca (LON:AZN)
Price 2879.5
-Forecast Yield 5.37%
- Forward Cover 2.58
-Forward PE 7.22



Investment Greats: Ben Graham



Graham's approach is based on the principle that, while markets are not good at pricing investments, over the long term the true value of businesses will be revealed. "In the short run, the market is a voting machine but in the long run, it is a weighing machine".

'Mr Market', as he described the emotional and irrational marketplace, sets share prices that you may not agree with, based on your fundamental analysis of a share's value. When Mr Market's price is sufficiently below your assessment of the share's value, you have the opportunity to buy with what he referred to as a 'margin of safety'.

Allowing yourself this margin of safety is in stark contrast to the 'greater fool theory' (note the lowercase 'f'), whereby people buy shares regardless of valuation in the hope of finding someone to buy them later at an even higher price. It's all about risk and reward.

Risk can also be mitigated to an extent by buying a portfolio of shares, so that even if some companies go bust, the overall return may still beat the market.

Selection criteria

In the mid 1970s, Graham and his colleague, James B. Rea, refined his ideas into ten criteria for selecting a portfolio:

1) earnings yield at least twice the AAA bond yield;

2) price/earnings ratio below 40% of the highest P/E ratio the stock had over the previous five years;

3) dividend yield of at least two-thirds the AAA bond yield;

4) share price below two-thirds of tangible book value per share;

5) share price below two-thirds of net current asset value per share;

6) total debt less than tangible book value;

7) current ratio greater than two;

8) total debt less than twice net current asset value;

9) earnings growth over the previous ten years of at least 7% per annum; and

10) a maximum of two annual earnings falls of 5% or more over the previous ten years.

If you want to trawl for shares meeting these criteria, ADVFN has filters that facilitate this; you can see the results of a recent search I did in this article. Finding shares that tick all these boxes is quite difficult, but tests 1), 3), 5), and 6) were deemed to be the most important.

The following were considered sell signals:

1) share price up more than 50% since buying;

2) share held for more than two years;

3) company stopped paying dividends; or

4) profits fell enough to make it overpriced by 50% or more on the earnings yield criterion.


Books to Read

Investment Strategy:
Security Analysis - Benjamin Graham (HEAVY READING This is the old testament from the 'Dean of Wallstreet')

The Intelligent Investor - Benjamin Graham (HEAVY READING The New Testament)

Value Investing Made Easy - Janet Lowe (Easy read to see if you agree with the strategy)

The Rediscovered Benjamin Graham - Janet Lowe (Easy read with some late interviews that were interesting. I like this book.)

The Warren Buffett Way - Robert G. Hagstrom (Easy read and interesting examples of some of WB's great investments)

Buffettology - Mary Buffett and David Clark (An interesting slant on things. Easy Read)

The Essays of Warren Buffett - Warren E. Buffett (From the annual reports of his company Berkshire Hatherway. Fascinating).

Common Stocks and Uncommon Profits - Phillip A. Fisher (Regarded as an investment classic. Fisher was one of the greatest growth stock investors. Buffett says he's 85 % Graham and 15 % Fisher, which is a real compliment).

One Up On Wall Street - Peter Lynch (Peter has a gift for making it all sound simple. I think this book extols the benefits of understanding brands).

The Real Warren Buffett - James O'Loughlin
(Buffett is so much more than an investor. What he has created in the management structure and culture of Berkshire Hathaway is truly unique).

The Smartest Guys In The Room - Bethany McLean and Peter Elkind
(How it can all go wrong. The ENRON scandle. (A riveting read. You couldn't make this up).

Accounts: Interpreting Company Reports and Accounts - Geoffrey Holmes and Alan Sugden

The Great Crash 1929 - John Kenneth Galbraith
(Easy read. I think it's important to understand bubbles, crashes and investment history statistics. It may stop you being panicked out of a sound investment one day or help you avoid investing during the later stages of a bubble cycle).

The BZW Equity-Gilt Study (Facts and figures going back to 1918 on Equities, Gilts and the Cost of Living Index. Great for looking at corelations).

The Death of Inflation - Roger Bootle (Bootle saw the change coming 10 years ago, while inflation was still raging. He's a genius economist imo).

A Very English Deceit - Malcolm Balen (The South Sea Bubble and an excellent account of how London's financial power house started in the early 1700's. Insurance companies and share traders in coffee shops, no less).


20 years of dividends and still going strong

Here's its pick of 20 UK companies that have at least held their annual dividends since 1990, together with their forecast payouts for financial years 2010, 2011 and 2012:

Vodafone Group Mobile Telecoms 180 8.3 8.9 9.5
Royal Dutch Shell Oil & Gas Producers 2,145 107.2 111.2 118.0
Tesco Food Retailers 403 13.1 14.9 16.0
Schroders General Financials 1,851 34.0 37.0 40.0
Serco Group Support Services 553 7.2 8.0 8.8
Meggitt Aerospace & Def. 349 8.6 9.2 10.0
Cobham Aerospace & Def. 209 6.0 6.6 7.3
Derwent London REITs 1,552 29.4 32.1 35.0
PZ Cussons Personal Goods 360 5.9 6.4 6.9
Spirax Sarco Engineering 1,843 41.2 45.3 49.8
Halma Electronics 340 8.5 9.1 9.8
Close Brothers Group General Financials 858 39.0 39.0 39.0
Brown N Group General Retailers 280 10.8 12.3 13.5
Rathbone Brothers General Financials 1,150 42.0 42.0 42.0
Greggs Food Retailers 480 17.5 18.6 19.9
Daejan Holdings Real Estate 2,781 74.0 74.0 74.0
AG Barr Beverages 1,150 23.1 24.5 25.7
Cranswick Food Producers 850 25.0 27.5 30.2
Oxford Instruments Electronics 617 8.4 8.8 9.3

Filed Under: Income Investing,


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

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National Grid plc is an electricity and gas utility company focused on transmission and distribution activities in electricity and gas in both the United Kingdom and the United States. The Company's segments include UK Electricity Transmission, which is engaged in high voltage electricity transmission networks in Great Britain; UK Gas Transmission, which is the gas transmission network in Great Britain and United Kingdom liquefied natural gas (LNG) storage activities; UK Gas Distribution, which includes approximately four of the eight regional networks of Great Britain's gas distribution system, and US Regulated, which includes gas distribution networks, electricity distribution networks and high voltage electricity transmission networks in New York, and New England and electricity generation facilities in New York. Its other activities relate to non-regulated businesses and other commercial operations not included within the above segments. more »

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Severn Trent Plc treats and provides water and removes wastewater in the United Kingdom and internationally. The Company provides clean water and wastewater services through its businesses, Severn Trent Water and Severn Trent Business Services. It operates through two segments: Regulated Water and Waste Water, and Business Services. The Regulated Water and Waste Water segment includes Severn Trent Water Limited's wholesale operations and household retail activities, and related support functions. The Business Services segment includes the Operating Services businesses in the United States, the United Kingdom, Ireland and Italy; its renewable energy business, and Severn Trent Water Limited's non-household retail business. The United Kingdom Operating Services provides contract services to municipal and industrial clients, and the United Kingdom Ministry of Defense (MOD). The United States Operating Services provides contract services to community, municipal and industrial clients. more »

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Aviva plc is a holding company. The Company provides customers with long-term insurance and savings, general and health insurance, and fund management products and services. Its segments include United Kingdom & Ireland; France; Poland; Italy, Spain and Other; Canada; Asia; Aviva Investors, and Other Group activities. The United Kingdom and Ireland segment consists of two operating segments: Life and General Insurance. The principal activities of its French operations are long-term business and general insurance. Its Poland Activities in Poland consist of long-term business and general insurance operations. Its Italian operations are long-term business and general insurance. The principal activity of the Canadian operation is general insurance. Its activities in Asia consist of its long-term business operations in China, India, Singapore, Hong Kong, Vietnam, Indonesia, Taiwan and international operations. The Aviva Investors segment offers a range of asset management services. more »

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334 Posts on this Thread show/hide all

djpreston 20th Jan '11 235 of 334

Have to agree bugs to a greater extent. The surging demand from elsewhere will be the main driver of commodities, some discretionary items are static or falling though (tv's etc) so its core inflation rising really. So much spare job capacity so little scope for wage push inflation (which is a pain that needs high interest rates to kill). Loan and mortgage rates already quite high - look at the margins on them for the banks.

Fund Management: European Wealth
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marben100 20th Jan '11 236 of 334

In reply to djpreston, post #235

Whilst a rise in UK interest rates could be pretty disastrous for the UK economy in its present state, it could have a short term suppressing effect on inflation by strengthening the GB£. However, longer term, higher interest rates will probably worsen the deficit (by a) slowing economic activity; b) reducing the tax take), which ultimately would lead to the GB£ falling again.

Mervyn is caught between a rock and a hard place. He's a one club golfer, with interest rates being the only tool at his disposal to meet his sole mandate of targetting 2% inflation. How much longer can the MPC do nothing, whilst inflation stays way above target and heads higher? Will the government be brave/shrewd enough to change the BoE mandate, so that inflation can do the job (unpleasant as it may be) of shrinking the nation's indebtedness - i.e. a backdoor default? I suspect that that idea will be morally repugnant to many readers (and government supporters) but seems to me to be the least worst way forward,

Looking at this another way, rising commodity prices reflect a (deserved) fall in the real value of many "Western" currencies - given the extensive "money printing" that has and is taking place. A rise in sterling interest rates might stave off that fall temporarily but would likely lead to a situation similar to that which Ireland currently finds itself in.

That's why my portolfio (and, I suspect those of many other Stockopedia readers) is heavily focussed on companies with "real assets" (mining/oil leases, land) and/or with a high proportion of sales to countries with better growth prospects and healthier economies.

Just another thought that occurs to me, is that the govt changing the BoE mandate would probably trigger a sharp fall in sterling, which would do our exporters no harm at all (but, obviously raise further the price of imported goods and raw materials). Wage-push inflation is a serious risk and once the inflation genie is out of the bottle it is devilishly difficult to control - so there is a careful balancing act to be done.



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bugsmunny 20th Jan '11 237 of 334

The QE of recent isn't where the "money printing"  started - it began with the housing price bubble and subsequent behaviour of the government, banks and populace.

The idea that a house was suddenly worth 10%-20% more each year gained wide acceptance and was the shaky foundation of economic policy - boom and bust was over and the UK was outperforming all other European economies.

The pound is no longer backed by reserves of gold and oil production (free wealth) in the north sea is declining. It's inevitable that the pound must be seen as increasingly unattractive; we have to pay for all those years of false accounting and the only way is devaluation, even if no-one dare utter that word.

The weakness of the pound in your pocket is being felt by many, and now the truth is dawning people's and people can see how badly they have been hoodwinked - but so shocked and bewildered they can barely raise a feeble grumble about petrol prices at £1.30 per litre while the government continues to tax more and more.

The BoE knows that raising interested rates may precipitate the next phase of the disaster, not least of which will probably involve the long-postponed correction of the housing market.

The "average person" in the street will be feeling a lot less well-off and likely experience a real decline in standard of living, whatever happens to the interest rate.

But raising is likely to be the worst of two unattractive choices AIMO.


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Fangorn 20th Jan '11 238 of 334

Spot on Bugs.

Agree with everything you say apart from the last bit. 

Interest rates have to rise. 

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kenobi 20th Jan '11 239 of 334

frankly the idea that raising interest rates to 1 or 2 % will make much difference is nonsense,
initially I would move rates to 1%, to signal that this party isn't going to last forever, those luck people
paying baserate +.5% will be hit a little, and savers will benefit a little, the pound will go up
a little, as the markets realise that the boe is set on reducing inflation.

any new borrowers will benefit from a baserate + smaller margin, because rates are being set not by base rate but by cost of borrowing, new borrowers are effectively subsidising previous borrowers,

time to start at least contemplating the first moves back to pre boom normality,


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Isaac 20th Jan '11 240 of 334


I think the BOE should increase rates gradually. Perhaps 0.25 % every 3-4 months. No point doing what the Fed did a few years ago which was to raise rates by 0.25% each month over a couple of years.

Much better to increase in small amounts over several months. And I think this is exactly what the BOE is going to do. And that is why there has been so much coverage in the media warning to people to prepare for higher rates so they can save and not feel so squeezed when it happens.

0.5% rates are unsustainable in the long term, we don't want another Japan.

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Isaac 21st Jan '11 241 of 334

Million young Britons on the job scrapheap: Almost one in five is unemployed

Meanwhile the number of graduates is expected to soar this year to 320,000, more than 50,000 higher than in 2007.

A recent report found that these graduates will struggle to secure a job at a top firm unless they undertook an internship while studying.

But rising student debts mean many simply cannot afford to do unpaid work, and many internships are unpaid. Employment minister Chris Grayling said: ‘This is compelling evidence of the way in which the last Labour government completely failed a generation of young people.

‘We have inherited a huge youth unemployment challenge and are determined to reverse the failures of the past.’ Joblessness was described by a leading charity as ‘a mental health hazard’ for the young.

Read more:

What a disaster........I actually feel very sorry for these kids. 2011 will be the year where people all over the country feel the pinch.

I don't think the Coalition government will survivve the 5 years. The Lib dems will start to fight back & a general election is likely to be called in the next year or two IMO.

I can't believe politiains on average get paid £65k a year. Is there not about 300 or so MPs in the UK ?

300 * 65,738 = 19.721m

The Prime Minister has announced that he will be taking a salary of £142,500.

Cabinet ministers receive a salary of £134,565 (including MP's salary of £65,738).

What a waste of money. Why can't the UK just have 100 MPs ?


I think what the British public need is transparency in terms of how much money gets spent in what areas and the public should get to vote as to what they think is necessary & what should be cut.

I am now also convinced there are bigger falls to come in the housing market, the economy feels like it is going to get worse and just speaking to normal average and in some cases reasonably well off people they are all going to feel the pinch and confidence will weaken causing prices to drop.

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Fangorn 21st Jan '11 242 of 334

I don't think the problem is MP's getting 65k personally, although it certainly contributes. What is the problem is overpaid public sector workers full stop. A tube driver gets 40k per year +pension + benefits for a 35 hour week(and they always seem to be on strike!) Clearly unsustainable. Many in local government get overpaid. At least 200+ BBC executives are on 6 figure salaries. The list is endless. All the time our soldiers and many policeman are underpaid in relative terms imv.

The public sector wage bill needs to be slashed. A subsequent benefit of this would be a reduction in pension liabilities.

People drone on endlessly about overpaid bankers - the facts are most bankers are on 50-70k average(many are back office earning alot less, it is after all,only the stars on the 6 figure salaries) YET they also work 60+ hours a week minimum. And the stars getting 6 figures, particularly those at Goldman Sachs work 70-80 hours per week(yes that includes burning the oil at weekends)

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fuiseog 21st Jan '11 243 of 334

".......many policeman are underpaid in relative terms imv."

I have my doubts about that, and it's not just the pay to consider. One acquaintance has recently retired from the police aged 49 on full pension after (I think) 21 years. At the same time a friends son, a fit, healthy and intelligent graduate, has been trying to get into the Met for a couple of years without success. And did I hear that about 10% of the police force is on sick leave at any one time. Is this some kind of occupational disease, maybe called ineffective management?

As far as politicians are concerned, I think I heard it stated that their pension benefit would cost 30%+ of salary to fund.

One needs to look behind the headline pay figures when evaluating remuneration. The sneaky bits matter a lot imo.


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marben100 21st Jan '11 244 of 334

In reply to Isaac, post #241

Hi Isaac,

 Is there not about 300 or so MPs in the UK ?


Just a little tip, if I may be so bold... it's always a good idea to check your facts rather than guessing (I often learn a lot through fact-checking):

There are currently 650 constituencies, each sending one MP to the House of Commons


Don't forget that besides their role in parliament, MPs are also supposed to deal with matters of concern to their constituents (e.g. injustices those constituents suffer at the hands of officialdom). Some fulfil that role better than others, but if there were only 100 MPs, i.e. 1 per 600,000 population, how much time do you think they'd be able to devote to such matters? IMO the number of MPs we're paying for is a bit of a red herring and the sums involved are tiny in the greater scheme of things.



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Isaac 21st Jan '11 245 of 334

Oil price to break $200, says Jim Rogers


On oil, Rogers said: 'The surprise is going to be how high the price of oil stays and how high it goes, because we have had no major elephant oil discoveries in over 40 years. Known reserves of oil are declining. It is not good news. Unless somebody discovers a lot of oil very quickly, prices are going to go much higher over the next decade.

'The price of oil is going to make new highs. It will go over $150 a barrel. It will probably go over $200 a barrel.'

Read more:

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Fangorn 22nd Jan '11 246 of 334

I think Jim is wrong here. $150 per bbl yes, $200 is stretching it.

Haven't there been several large new discoveries in last 40 years as well? GOM where BP had it's spill, and hasn't BG had some very large finds around Brazil? And the Falklands which are apparently huge.

As to the future - there's the prospects off the Bahamas, and, more importantly, BP's foray into the Artic with Rosneft, a potentially huge discovery right there if what we are led to believe is true.

At $200 per bbl the world economy would shudder to a halt. Just isn't going to happen imv.

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marben100 22nd Jan '11 247 of 334

In reply to Fangorn, post #246

Hi Fangorn,

Whilst I think trying to make predictions about exactly where the oil price will be is a mugs game (and/or, in JR's case, something that gets some media headlines), there is another side to this coin besides oil supply/demand. And that is $ inflation. Potentially, the US$ has a long way to fall relative to "real assets", so I don't rule anything out (or in).

Concerning supply/demand, BP's recent outlook is most interesting. Even factoring in Brazil etc, they see little overall oil production growth over the next 20 years, with most of that growth coming from Iraq & Saudi. If one takes out Biofuels and NGLs from slide 26, oil production is seen growing from ~86mmbbls/d today to ~91 mmbbls/d in 2030. Of course, that assumes that the "Twilight in the Desert" scenario isn't true, or matters will be much, much worse!

Must admit, the significance of Iraqi production growth (~3x that of Brazil) does lend fuel to the flames for the conspiracists view of the real motivation for the invasion of that country and toppling of Saddam...



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Isaac 25th Jan '11 248 of 334

“In 2011, real wages are likely to be no higher than they were in 2005,” he said. “One has to go back to the 1920s to find a time when real wages fell over a period of six years.

I think that sums it up in a nutshell......everyone I've spoken to tells me they are worse off then they were 6 months ago.

Mr King expressed sympathy for savers and highlighted the failure of lenders to pass on cuts in interest rates. “I sympathise completely with savers and those who behaved prudently now find themselves among the biggest losers from this crisis,” he said.

Increase the interest rates, it will allow the prudent to spend more of the 'extra' disposable income which will in turn help the economy.

My view is lenders that were reckless should pay the price for borrowers defaulting.

Anyway what is happening is a slow motion crash of the housing market ....

Osborne is wrong blaming the contraction of the economy due to the weather IMO. ..... I believe we will see a douuble dip.....There was just too much doom and gloom in Q4 & people preparing for job losses & spending cuts.

I think the UK Gov should sell of the lloy & rbs stakes, the share prices of those banks have a better chance of recovering without the government stake and in turn the returns made by shareholders from the increased value could help the economy. As well as the government being able to reduce some of the deficit with the proceeds.

I spoke to a taxi driver a few weeks ago, he described 2011 as being a year of just about surviving.


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Isaac 25th Jan '11 249 of 334

MPC more concerned with inflation than GDP fall, says Bank of England Governor Mervyn King

The UK’s “uncomfortably high inflation” is of more concern to the Monetary Policy Committee (MPC) than the surprise fall in gross domestic product, Mervyn King, the Governor of the Bank of England, said on Tuesday night.


Mr King warned that inflation is likely to rise by between 4pc and 5pc over the next few months, before falling back next year. He said that inflation has risen to its current level of 3.7pc because of rising import and energy prices and taxes, and that these factors have squeezed real take-home pay by around 12pc.

In a speech in Newcastle that referenced both Ken Dodd and Leo Tolstoy, Mr King said that the shock 0.5pc fall in GDP over the fourth quarter of 2010 serves as a reminder of his comment last year that the recovery will be “choppy”.

However, he added: “Of more immediate concern to the MPC is that we are experiencing uncomfortably high inflation.”

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Isaac 25th Jan '11 250 of 334

Fast food giant McDonald's conquers coffee

The nation's quest for an affordable cappuccino has forced thirsty punters back to familiar haunts such as pubs and even McDonald's.

The fast food behemoth overtook more specialised coffee makers such as Starbucks last year. But ever since the introduction of café-style coffees to the menu in September, lattes and cappuccinos have sold better than the humble filter coffee.

McDonald's UK boss Jill McDonald is even looking at the idea of expanding the range on offer, given that items such as frappés and caramel mochas have done well in the US.

Hot drinks have helped attract 80million customers more in 2010 through the UK's golden arches.

According to Jill McDonald, 90 per cent of the firm's increase in sales has been driven by more customers walking through the door, rather than any increase in the average spend per head.

Read more:


A shame really that during recessions people tend to go back to eating unhealthy food..........

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djpreston 26th Jan '11 252 of 334

A shame really that during recessions people tend to go back to eating unhealthy food..........

Talk about sweeping statements.

1. Significant rise in sales due to the coffee offering - hence why Starbucks are hitting back with their £1 filter coffee.

2. A burger or other offering isn't necessarily unhealthy. No worse than many other foods/takeaways and trading down to McD rather than say grabbing a pizza or curry (oh so healthy alternatives).

Just an observation whilst waiting for the market news.

No position in McD and no, I don't eat there but not unknown for the wife to stop off with the kids for a n occassional "treat".

Fund Management: European Wealth
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salty64 26th Jan '11 253 of 334

In reply to djpreston, post #252

I'm reminded of the times I have read of "Glorious" GREGGS and it's sp over the years but we don't have any os their shops down in the far westcountry. Then I saw one and was amazed that they make money - and I live in pasty country - with what looked like very poor fare.
I've pastry on the brain at present as I help out on a few shoots and lunch consists of a Pasty and Saffron cake.

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Isaac 26th Jan '11 254 of 334

The UK government's austerity policy could push the country back into recession, the famous investor and fund manager George Soros has warned.

While the UK government "may be right by embarking on [cuts], I think they will probably have to modify it when the effects are felt," Mr Soros said.

While he had been very positive at first, the policy was "unsustainable".


Yep, Double dip recession is coming.

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