Analysts have warned that Theresa May’s resignation will have a negative effect on markets because of continued political uncertainty and the rising chance of a no-deal Brexit. Her decision follows a revolt over her “new Brexit deal” and growing calls from her MPs to step down. On Wednesday night, Leader of the Commons Andrea Leadsom quit the government, becoming the 36th ministerial resignation during May’s time as PM. Reaction to May’s resignation has been mixed, but the prevailing concern is that the next leader – most likely coming from the Eurosceptic wing of the Tory party – will create an even more fragmented political landscape, spooking markets and meaning more uncertainty for business.
Sir Richard Branson’s Virgin Trains has launched legal action against Transport Secretary Chris Grayling’s decision to bar it and partners Stagecoach Group (SGC) and France’s SNCF from bidding for the West Coast rail franchise. Claims have been filed with the High Court, challenging the procurement process and calling for a judicial review. The Government failed to adopt a competitive tendering process, it is claimed. The launch of action will come as a fresh blow to Mr Grayling, whose department is already facing legal action from German rail giant Arriva and Stagecoach over the way it conducted the tender of another rail network, the East Midlands franchise. Last month, the Government surprised the rail industry by deeming three of Stagecoach’s bids to be “non-compliant”.
Mothercare (MTC) will focus on building its global brand and boosting online business in the UK in the next step of its turnaround plan that has resulted in 55 store closures and the loss of 900 jobs. The troubled retailer said the next phase of its transformation in the UK would include “enhanced” credit options and offering more exclusive products. The company, which wants to be a “textbook recovery case”, said it had completed its UK store closure programme and was now on a “sounder financial footing” after coming through a company voluntary arrangement (CVA), a process that allows struggling companies to shut stores and renegotiate rents. It now has 79 stores in the UK, down from 134 a year ago and has saved more than its target of £19m. “We have achieved a huge amount this year, refinancing, restructuring and reorganising Mothercare to ensure a sustainable future for the business,” said Mothercare chief executive Mark Newton-Jones. “The majority of that work is now done, including the completion of our store closure programme, leaving us with 79 stores which are well positioned to support our UK customer base.”
The energy regulator has confirmed plans to squeeze £6bn from energy networks over the next decade in a blow to investors already facing the threat of a government power-grab. Ofgem said it will lower energy bills by halving the returns that investors are allowed to make from the 2020s to the “lowest ever capital rate for energy network companies”. Ofgem estimates that these financial levers could reduce an energy bill by £40 a year, from where they might otherwise have been. The UK’s biggest energy companies have warned that the “disappointing” decision risks future investment in the energy system as they prepare to plug in to a boom in renewable power and electric vehicle charging. David Smith, of the Energy Networks Association, said the move will undermine efforts to secure low-cost investment in the grid upgrades, which will be carried out by energy giants National Grid (NG.), SSE (SSE) and Scottish Power.
The US Federal Reserve has sent markets a sobering message. It will not bail out the Trump administration as the trade war expands; nor will it come to the rescue quickly if Wall Street wilts. The proverbial “Fed Put” is a long way out of the money at this juncture. The outlook for the US economy will have to take a nasty turn before the Powell Fed cuts interest rates or halts quantitative tightening altogether. “The hurdle for cuts is very high,” said Tom Porcelli, US strategist for RBC Capital and a former Fed official. The Fed minutes released late on Wednesday are something of a shocker for investors who thought they had a monetary comfort blanket for the rest of this year. Futures contracts show markets have been pricing in 50 basis points of rate cuts. The text revealed that “many” members of the voting committee had dismissed the recent soft patch in inflation as “transitory” and largely caused by “idiosyncratic factors”. This amounts to a warning by the world’s hegemonic central bank that it may raise rates. It is an ice-cold douche for fragile markets.
Thomas Cook Group (TCG) has had an unsolicited offer from a European private equity giant for its Scandinavian business, providing a much-needed boost to its parlous financial situation. Triton, a German-Swedish fund manager that recently bought continental travel agent Sunweb, made a “highly speculative” bid for its Northern Europe division, comprising its tour operator and airline in Norway, Sweden, Finland and Denmark. Its market-leading Nordic brands include Ving, Tjareborg and Spies. Thomas Cook said it was evaluating the offer alongside the ongoing strategic review of its airline, for which it has had multiple bids. A deal would see about a fifth of the the 178-year-old company’s workforce move to a different employer.
The boss of B&M European Value Retail S.A. (DI) (BME) has poured cold water on speculation that the discount chain could launch a reverse takeover of Asda following the collapse of its merger with rival supermarket Sainsbury’s. Chief executive Simon Arora said B&M “was not talking about mergers and acquisitions, we are focused on the potential for organic store growth. We have 620 stores and we are looking at growing the business to 950 so there is plenty of road left on our own. He acknowledged the company had sealed a takeover of cut-price food chain Heron Foods two years ago, but the £152m deal was significantly smaller than the £7bn price-tag attached to Asda. “The business has a very different scale and its discount convenience offer was complementary to us”, he added.
AJ Bell (AJB) posted a big rise in profits in its first results since floating in December after adding customers and increased the value of assets under management. AJ Bell reported a 27% rise in pre-tax profits of £17.7m in the six months to the end of March while revenues rose 17% to £50.1m, shrugging off concerns about investor sentiment in the face of Brexit and broader economic uncertainty. “This robust financial performance enables us to continue to invest in the platform to achieve our ambition of becoming the easiest platform to use, underpinning our principal purpose of helping people to invest,” said Andy Bell, founder and chief executive. Customer headcount rose 9% from the same period last year while the value of assets under administration rose 3% to £47.7bn.
Mitchells & Butlers (MAB) reported an 8.7% jump in pre-tax profit to £75m for the six months to 13 April. Revenues exceeded £1.1bn as like-for-like sales jumped by a better than expected 4.1%. The company, which operates 1,700 pubs and restaurants across the UK, was helped by better weather over the period compared with 2018 when freezing weather kept patrons away. “We have momentum,” said M&B chief executive Phil Urban. “It’s the second half of profit growth and, for the external world, we’ve got to have a trend of growing our profits before people will believe it is a trend and not a one-off.” “We’re working on many fronts, many of which will drive incremental sales,” he said of the company’s transformation plan. While most of the changes were “not big in isolation” they would make a significant difference in aggregate, Mr Urban added. The company’s investment in an app that collects feedback and complaints from sites such as TripAdvisor and Google and sends them to pub managers had played a key role in improving sales, he said. The growth of its Miller and Carter steakhouses, was highlighted by Mr Urban as a “standout performer” over the six months.
Young & Co’s Brewery ‘A’ Shares (YNGA) cheered increased sales and profits as drinkers continued to opt for more expensive gins and craft beers. The gin revolution continued with sales of the spirit booming by more than a third. The Camden and Beavertown craft beer ranges were also “success stories” with sales now matching those of cask ales, the company said. Pre-tax profits rose 5.1% to £39.5m on sales of £304m in a year that saw Young’s acquire 15 premium Redcomb pubs. While the warm summer and England’s World Cup success, both of which boosted pub revenues last year, had set a “high benchmark” for the coming months, the upcoming cricket and rugby world cups would present an opportunity for pubs, said Patrick Dardis, chief executive of Young’s. Analysts at Stifel said that Young’s was “no sleepy family business” and that it had “some of the more promising growth prospects” in the pub sector.
Losses at TalkTalk Telecom Group (TALK) narrowed as the broadband provider added almost half a million fibre broadband customers and continued with its reorganisation. The FTSE 250 telecoms firm came close to breaking even in the year to March with a £5m pre-tax loss compared with a £100m loss the previous year. Sales dipped slightly to £1.6bn. The company said it had made “good progress” on cutting cost and becoming more efficient, including moving its headquarters from London to Salford. The move is expected to save the firm up to £30m a year but booked £42m of costs associated with its business reorganisation and simplification. The broadband and TV subscription provider said more customers were taking faster fibre broadband, with 490,000 net sales in the year and a record 152,000 in the final quarter when almost three quarters of new customers opted for fibre.
Questor: Royal Mail (RMG) inflicts a dividend cut on the Income Portfolio. Do we sell the shares or hold on? Questor Income Portfolio: the postal service is to invest more in modernisation, with income investors taking the pain. This leaves us with an uncomfortable decision to make. Selling now would cement a capital loss that seems out of proportion to the income damage we are sustaining. We will hold on.
