My first day back at work after Christmas finds me faced with another kind of temptation that could be bad for my (financial) health.
Corporate services group Hogg Robinson is currently the top-ranked eligible stock in my Stock in Focus screen. But after selling this £270m stock from the SIF portfolio last year, I ruled out further investments in companies with giant-sized pension deficits.
My reasoning was that these outsized liabilities seem likely to lead to an unpredictable outcome for shareholders. For example, in Hogg Robinson’s latest interim results, the firm reported a £21.7m reduction in its pension deficit, to £243.5m. This was the result of a 0.1% increase in the discount rate used to calculate future liabilities and “and update of membership data” following the latest triennial valuation.
This valuation is ongoing and will include a discussion of “the appropriateness of the existing recovery plan”. The firm is currently making an extra cash contribution of around £7.5m each year. As Paul Scott pointed out, that’s similar to the amount paid out in dividends. It also represents around 17% of operating profit.
The bullish argument is that interest rates are now…
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