MoneyWeek roundup: How to profit from cloud computing

January 19, 2014 by  
Filed under Solar Energy Tips

The fracking revolution is an incredible opportunity for Britain, as we’ve discussed many, many times (if you haven’t seen it yet, check out this report on the topic from Fleet Street Letter editor David Stevenson).

But there’s just one problem.

No one wants a fracking set up in the back garden, any more than they want a high speed railway, or a wind turbine, or an airport, or a solar farm, or a nuclear power station, or any other potentially value-destroying development.

Frankly, it’s hard to blame them. As our editor-in-chief, Merryn Somerset Webb points out, “there is little or no compensation available” for those hit by such development.

This means that people have no incentive not to oppose development “as much as possible for as long as possible”. This is why “we aren’t getting on with fracking, and why it is verging on impossible to build enough new houses in the UK”.

But there is an easy solution to this Nimby-ism, says Merryn. “A negative land tax”. In other words, you effectively get paid for living somewhere, in return for letting development progress in your back yard.

Would people be quite as prickly about development if they “never had to pay council tax again, or got a cash lump sum?” And “if the tax benefits (and lump sums) came attached to your house”, then those still opposed “could sell it at a pretty price and move on”.

In essence, “what we need is wads of cash for those directly affected”.

This idea may seem radical, but it is becoming more mainstream. There are signs that “not only will local councils be able to keep all the money raised from shale-related business rates” but that “direct cash payments may be made to homeowners living near fracking sites”.

While some environmentalists are naturally critical, Merryn thinks this “could be the beginning of a very useful debate on who benefits from infrastructure change, and how”.

Not everyone is convinced. ‘Jbard’ suggests that the only argument for bribery is that, “the usual tactics of psychological threats, violence and propaganda take too long”. On the other hand, camholder’ favours sticks over carrots: Those protesting against power plants should be told that “when we start having brownouts, your area is first”.

But as Merryn replied: “Why should someone on the fast speed train line (with no actual stop) see the price of their house collapse while someone near the line and a station sees theirs soar?”

Have your say on the topic here.

Investors need to pay attention to history

History is a much-neglected topic by most investors. But it’s key if you want to understand opportunities in Latin America, says our expert on the region, James McKeigue.

James, who writes The New World newsletter with Lars Henriksson, points out that, “most of the countries in the region have been battling the same problems for the last few hundred years”.

So if investors can recognise these recurring struggles when they happen, they can work out the best places to put their money. For example, “one recurrent theme in Latin American politics has been the failure of governments to win the approval of a broad section of society.”


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You see, because of the way their original boundaries were set by the Spanish Empire, the post-independence countries “lacked social cohesion”. Their “people were profoundly split about the political and economic model they wanted their countries to follow”.

As a result, “dictatorships sprung up to enforce one view or another”.

The good news is that democracy has started to take hold in the last few decades, with leaders starting to realise that the best way to create social harmony is for everyone to benefit from growth. The best examples of this are Chile, Peru and Brazil.

Despite changes of government, and the rise of a former revolutionary in Peru, their pro-market “economic model remained the same”. This “gives stability for investors and also allows the economy to grow, without the rules being changed every five years or so”.

Now Colombia and Mexico look likely to follow these three examples. In Colombia, “despite its reputation for drug violence and guerrilla insurgents”, there is broad support for “the path of economic liberalisation that the country has travelled since the early 1990s”.

Mexico is also trying to open up its energy sector “to international firms”. To get these reforms through, the new president has “managed to co-opt the other two main parties into a ‘Pact for Mexico’”. If successful, this “could be a massive opportunity for UK investors”.

We have a City expert picking his favourite Mexico tips in the latest issue of MoneyWeek magazine. If you’re not already a subscriber, pick up your first three issues free here.

Why you should buy Iomart

My colleague over at The Right Side, Bengt Saelensminde, is a cloud computing evangelist. He regularly writes about how much he loves his Chromebook (the Google laptops that keep all the software and files you need neatly accessible online, rather than clogging up your hard drive).

And he’s also keen to make investment profits from ‘the cloud’. One of his long-time favourite stocks is Glasgow-based Iomart (Aim: IOM), which provides data centres – in other words, it provides the space where the cloud ‘lives’. He updated on the company this week.

“IOM has grown like crazy over the last few years. The whole industry is consolidating in a series of big and small deals, and IOM has been a key mover in that trend”. While the company is valued at a “racy multiple” of around 26 times future earnings, it’s expected to grow at 20% a year, which justifies the high p/e – assuming it can deliver.

Of course, “there are risks to IOM’s high-growth strategy”. In October, it decided to take a big gamble by paying £23m to buy rival Backup Technology. This “adds a significant chunk of debt to Iomart’s balance sheet” for a firm that “only turned over about £5m last year”. As a result Ionmart shares fell quite substantially.

But Bengt is confident that Iomart’s bosses know what they are doing. For instance, they plan to save a lot of money by moving Backup’s operations from expensive leased data centres to their own estate. They also hope to increase turnover by improving the sales and marketing,

Overall, Bengt reckons that “IOM will probably be able to beat analysts’ forecasts for the year ending March 2015”. The cost of data centres is falling, “and the value of the services they offer customers is going up – going up considerably”.

And “with each integrated rival, IOM’s range of services grows. The range of clients increases too. This looks like a business right in its sweet spot”. So he’s prepared to run with the company – and recent falls give new potential investors “an opportunity to hop aboard at a reasonable valuation”.

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Time to buy into Ireland

On Thursday, I returned to the topic of Ireland. Regular readers may remember that in October, I suggested that “it was still worth buying” because it was cheap and starting to recover.

“Since then, the market is up by nearly 15%”. Indeed, in 2013 “Ireland was one of the best-performing stock markets in the world”. However, “even after this performance – it’s still one of the cheapest markets in the world”.

There are still plenty of problems, no doubt about it. But “if you buy when everything looks fine and dandy, chances are you’ve missed the best gains and are getting in just in time for a fall”.

And there are signs that things are getting better. Property prices are rising again. The construction business is recovering. There’s “even talk of a potential labour shortage”.

The country is still deep in debt, but it’s regaining some control of its finances. It could even soon be in a position to ditch the euro if it wanted to – it won’t, but that would give it an extra bargaining chip to convince the European authorities to allow it to restructure its national debt a bit.

What’s more “the downside risks are still in the price”. Expert analyst Mebane Faber calculates that “the Irish market trades on a cyclically-adjusted price/earnings ratio of about 7.3”.

This, “makes it the third cheapest of 55 markets (sitting alongside the likes of Argentina and Russia)”. As a point of comparison, “the US – the second-most expensive market – is roughly three times more expensive than Ireland”. The simplest way “to buy in is via an exchange-traded fund (ETF) tracking the Irish market”.

However, “if you feel like taking a more aggressive punt, another share we’ve tipped recently is ferry owner Irish Continental Group (LSE: ICGC)”. This company, “owns key time slots in several of Ireland’s busiest ports, so it should benefit from rising container exports”. While, “it trades on a 2015 price/earnings ratio of 16 with a dividend of 3.5%”, its surging profits makes “the valuation look very reasonable”.

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Have a great weekend!

The MoneyWeek team
Merryn Somerset Webb
John Stepek
Matthew Partridge
Ed Bowsher
Antonia Oprita
David Stevenson

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