Consumer durables

Yet, as the table shows, shares in these two have done nicely over the past year and in neither case has the momentum run out of gas even if it’s getting low at Greene King. Meanwhile, the performance of Topps Tiles has been such that at, at the current 78p share price, I have had to reset the stop-loss level on the income portfolio's holding, which I bought at 63p each in November.

Their share price strength owes something to the UK’s macroeconomic performance, which has been far better than the gloomy prognostications that have become so familiar since 2016’s referendum. The table offers some clues here. In the latest data, UK wages now average £497 per week; more important, their rate of growth has easily outstripped inflation over the past three years and especially over the past year. Understandably, therefore, consumers feel better off than what’s implied by the Brexit narrative of national resentment. That has boosted consumer spending – proxied in the table by retail sales volumes – which has grown faster than earnings in each period shown in the table.

Company-specific performance is also a factor. In their latest trading statements, all five of the consumer-facing companies rather arbitrarily chosen for the table said that like-for-like sales were higher than the corresponding period. Yet fairly clearly the best share price performance – especially over the past three months – correlates well with the best sales growth.

The exception is Topps Tiles. Yet the contrast between the strong performance of its shares and its ordinary like-for-like sales growth owes much to the point that, in its own depressed consumer segment, 1.8 per cent like-for-like growth in the second quarter of 2018-19 was actually pretty good. Even if that period was up against a comparatively undemanding second-quarter showing the year before, it was a brisk turn-around from a 1.4 per cent drop in the first quarter of the current year.

For example, DFS Furniture (DFS) claimed a 6.6 per cent rise in like-for-like data for the 22 weeks to the end of December, while pubs operator JD Wetherspoon (JDW) pointed to 6.3 per cent like-for-like growth in its first 26 weeks of 2018-19. Simultaneously, across all of the time periods, these two put in the best share price performance. At the other end of the scale, pubs operator Marston’s (MARS) put in the dullest like-for-like growth – just 1.4 per cent in the 16 weeks to mid January – which was matched up with the weakest share price performance.

Nevertheless, there is the feeling that this resolute performance – both from consumer companies and from the macro side – must falter. That notion is strengthened by the latest official data for capital spending in the UK. This shows that capex by companies fell quarter on quarter in the fourth quarter of 2018. The drop was 0.9 per cent to £46.7bn, which also represented a 2.5 per cent fall on 2017’s fourth quarter. More ominously, however, this was the fourth quarter running that capital spending has fallen and the first time there has been such a dismal run since the financial crisis of 2008-09.

Nor was the slack in business investment compensated by capital spending elsewhere, which might have helped improve the UK’s poor productivity. Overall UK gross capital spending was £85.7bn in 2018’s final quarter, down 0.6 per cent on the quarter and 1.1 per cent on the year.

True, capital spending is always a volatile activity – even at the macro level – and its growth has been pretty lively during the 2010s; for example, even 2018’s depressed level in the fourth quarter was 37 per cent higher than the amount spent in the fourth quarter of 2009.

So maybe not that much to worry about? It’s hard to be optimistic, yet that doesn’t necessarily mean the prices of the consumer-facing shares in the Bearbull income portfolio – Greene King and Topps – are particularly threatened. Sure, they’re unlikely to stray far from the London equity market, but their ratings aren’t especially demanding – little more than 11 times forecast earnings for Greene King and 10 times for Topps.

Of the two, Topps looks better value. That’s partly because of Greene King’s limitations. It seems ever burdened with heavy capital spending, a struggle to convert accounting profits into cash and declining profits per employee. By contrast, Topps has acceptable levels of cash conversion and rising employee productivity even if a bit more free cash flow would be nice.