May proved an interesting month across our four share price indices, as a number of the front runners changed places.
The lead position in the Shareleague super category was taken by Homeserve at the end of May, after reporting a share price rise of 10.8 per cent since April 1.
The repairs service firm recently announced pretax profit up by 29 per cent to £50 million and group revenues of £367 million for the year to March 31. This growth has been attributed to a combination of acquisitions and rising policy sales.
Given these strong results and an optimistic outlook, a further 600 jobs are due to be created by a new call centre close to the company's head quarters in Walsall.
Mitchells & Butlers held onto second place after recording a final share price of 499p at the end of May.
During the 16 weeks to May 13 the UK operator of managed pubs, bars and restaurants reported strong growth in revenue, with same outlet like-for-like sales up 4.4 per cent.
According to the group's interim results, growth is largely being driven by its strong position in the fast growing pub food market and accelerating gains in drinks market share. During this half year period to April 15 pretax profit increased by 9.6 per cent to £91 million on total revenue of £887 million.
There was a change to third place this month after Wyevale Garden Centres moved up two places in the Shareleague super table. Wyevale has recently been under the spotlight over its acquisition by West Coast Capital (Hortis).
In the medium-sized companies table, UK component supplier Castings retained the top spot for a further month.
Despite some market uncertainty and high raw materials prices, the company reported a good period of trading during the majority of the year, with pretax profit up from £9.6 million to £12.7 million. As a result, the business has maintained stable employment throughout and is recommending a final dividend of 6.67p, up from 6.35p.
Facilities services company, MacLellan, leaped four places over the month to acquire second position in the Shareleague plus table. On May 2 the boards of Interserve and MacLellan announced that agreement had been reached between them on the terms of a recommended offer to be made by Interserve at approximately 116p per ordinary share.
Following closely in third position was Business Post, which reached a month end share price of 385p, benefiting from an upbeat trading statement issued on March 31. However, Umeco was one of the most significant movers in May, with a 2.5 per cent increase in share price helping it to move up five places in the plus league. The group is currently experiencing strong growth in response to increasing demand for its products and services and successful acquisitions.
The smaller Shareleague category continued to be led by air conditioning systems maker, Andrews Sykes Group.
The company's preliminary results reported a positive start to the year and since April 1 has recorded a share price increase of 17.2 per cent.
Competing strongly for the top spot was Coventry-based black-cab manufacturer, Manganese Bronze, which took second place again this month. Desire Petroleum also put in a notable performance, climbing 32 places in the Shareleague after recording a monthly share price increase of 19.4 per cent in May.
Turning to developments in the wider economy, there are growing signs of optimism following a challenging year in 2005.
Recent survey data shows strengthening activity over the last couple of months and there has been speculation over whether interest rates will shortly need to rise. In May the CIPS Purchasing Managers Index recorded an overall index number of 53.2 for manufacturing, where a figure above 50 indicates growth. Firms were reported to be benefiting from improving export orders as a result of increased new business from Germany and greater demand for British goods in both Japan and the United States.
There was also further expansion in the services sector according to the CIPS index, as firms continued to take on more staff and business expectations remained high.
Our industry focus this month is on the UK retail sector, which after a relatively slow start to the year has seen a rebound in sales over the second quarter.
Last month the British Retail Consortium reported like-for-like sales were up 2.7 per cent over the three months to May and were 3.6 per cent higher in May compared to the same month in 2005. This improvement is reinforced by the latest CBI distributive trades survey, which found 36 per cent of retailers had experienced an increase in sale volumes during the last year, while 27 per cent reported a decline. The balance of nine per cent was the highest recorded in the survey since December 2004.
A key influencing factor has been the onset of warmer weather, causing an increase in sales in the food and clothing sectors specifically.
In addition, the build up to the World Cup has had a much more dramatic effect on a wide range of retailers than was expected. The early winners have been electrical retailers, which have been reporting exceptional sales as consumers upgrade their televisions and invest in portable audio visual technology. Clothing, footwear and accessories have also sold well, while other big-ticket and smaller nonessential homewares continue to be largely discount driven.
This reluctance to invest in larger purchases suggests consumer confidence remains fragile and despite some signs of increased optimism on the high street, it is currently uncertain how long this upturn in sales will last.
Looking ahead, the sector continues to face a number of long-term challenges, including price deflation, cost inflation and increased competition. Given the squeeze on margins, many retailers and importers will need to address some difficult choices: passing price rises on to consumers, compromising on quality to retain price levels or finding alternative sourcing arrangements.
In view of this trend, we expect to see further consolidation amongst trade and venture capital retail portfolio companies in 2006, as they strive to generate value and develop new growth by enhancing the product offering or the route to market.