The Times 11/01/19 - Vox Markets | Vox Markets

The Times 11/01/19

Sluggish manufacturing drags GDP growth down to 0.3%. The economy stalled in the three months to the end of November as manufacturing output slumped to its lowest level in almost two years. GDP growth in the three months slowed to 0.3%, down from 0.4% in the three months to the end of October, as businesses continue to struggle in the face of Brexit uncertainty. Growth was led by the construction and services sectors, which rose by 2.1% and 0.3% respectively. The headline figure was dragged down, however, by manufacturing, which shrank by 0.8% in October and suffered its biggest decline since May 2017. The automobile and pharmaceutical industries both performed poorly. According to the ONS, GDP growth was flat in September, before rising to a disappointing 0.1% in October and 0.2% in November.

Ashley’s boardroom coup sees off Debenhams (DEB) chairman and chief. Mike Ashley’s Sports Direct International (SPD) has engineered an audacious coup at Debenhams, voting the chairman and chief executive off the board amid growing concerns about the department store group’s future. The sportswear retailer, which is the largest shareholder in Debenhams, teamed up with Milestone Resources, the third largest investor, to vote against the reappointment of Sir Ian Cheshire and Sergio Bucher. Milestone Resources is controlled by Micky Jagtiani, an Indian billionaire businessman based in Dubai, and with Sports Direct accounts for nearly 37% of the shares in Debenhams. Debenhams said that Sir Ian decided to resign as chairman with immediate effect after yesterday’s annual meeting, where 56.62% of votes were cast against his re-election. Terry Duddy, a non-executive at Debenhams, has been appointed interim chairman.

Brighton Pier takes dive before alert. The City watchdog is expected to scrutinise share trades at Brighton Pier Group (The) (PIER) after a 14% fall in the stock price in the two days before yesterday’s profit warning. The alert, which sent the shares tumbling 62% in early trading, is a fresh blow to Luke Johnson, its chairman and biggest shareholder, as he seeks to rebuild his reputation after the travails of Patisserie Holdings. An investigation by the Financial Conduct Authority would be embarrassing for him, given that Patisserie Holdings, where Mr Johnson is also chairman, is at the centre of investigations by the Serious Fraud Office and Financial Reporting Council over a £40 million hole in its finances.

German industry calls on Europe to take a tougher line with China. German businesses have called on the European Union to adopt a tougher stance towards China as concerns mount over state subsidies from Beijing, dumping of excess produce and technology transfer. Echoing some of the issues raised by President Trump, BDI, one of Germany’s biggest industry bodies, criticised China for funding the acquisition of foreign technology through takeovers. It noted the world’s second-biggest economy had been dumping excess produce such as steel, cement, and ceramics in Europe and blocking access to its markets, while using state money to allow Chinese companies to tender for work in the EU. In a paper yesterday the BDI said: “China is no longer developing structurally in the direction of a market economy and liberalism but is in the process of consolidating its own political, economic and social model.

Lucan’s son embroiled in oil firm boardroom coup. A British oil company is facing a boardroom coup from its ousted former chairman who is seeking to appoint Lord Lucan’s son as a director. Angus Energy (ANGS) said it had received letters from two shareholders requisitioning a general meeting to seek to appoint George Bingham, the 8th Earl of Lucan, and Adam Salim Habib as directors and to remove Paul Vonk, the managing director. It said it believed that Jonathan Tidswell-Pretorius, the former chairman, had a direct interest in the shareholding represented by one of the letters. He stood down in July after Angus said it was investigating whether he had violated regulations in his share dealings.

Debenhams discusses refinancing options as sales slump continues. Debenhams (DEB) may have to seek new sources of funding as it battles to halt and reverse stubbornly falling sales. The retail group said overall like-for-like sales fell 3.4% in the six weeks to January 5 and its British business declined by 3.6%, slightly worse than the market had expected. Over the quarter there was an even steeper fall with British comparable sales falling 6.2% and international sales down 3.5%. The only bright spot was its online business, where sales rose by 4.6%.

Optimistic Marks & Spencer ‘still on target’. Improved online sales helped Marks & Spencer Group (MKS) to produce a third-quarter performance that was slightly ahead of the City’s expectations. The household retailer said its turnaround was “exactly where we planned it to be at this stage” even as it again reported that sales at its UK food and clothing and home divisions fell by 2.1% and 2.4% like-for-like, respectively. Overall like-for-like sales were down 2.2% in the 13 weeks to December 29. The retail chain, which has been in turnaround programmes for more than a decade, has maintained its full-year profit guidance. Steve Rowe, chief executive, said it had been a “very challenging” third quarter, particularly in November when footfall to its shops and traffic to its website fell, but he was pleased with the performance. He added that it discounted less during the period and had 25% less stock as it started its Christmas sale, in a planned reduction in inventory.

Halfords punctured after mild winter deters buyers. Halfords Group (HFD) warned shareholders to brace for another year of subnormal profits yesterday, blaming the mild winter for poor returns this year and saying it expected weak consumer confidence to hit next year’s profits too. Shares in the car parts, repairs and bicycles retailer fell by 22% to 216¾p, leaving investors with losses on paper for the day of £123 million. The mild weather hit sales of de-icer, scrapers, screen wash and batteries in the third quarter, leading to a 2.2% decline in like-for-like sales in the 14 weeks to January 4. Underlying pre-tax profits for the year to March would be in the £58 million to £62 million range, well below expectations of £70 million. However, investors were more spooked by Halfords’ warning that there would be no profits recovery in the year to March 2020. Consumer confidence could be weak into next year, it said, pointing to low sales of bigger-ticket items such as adult bikes and roofboxes. The reduced profits guidance “poses some very serious fundamental questions,” Jonathan Pritchard, of Peel Hunt, said. He questioned whether the dividend was safe and advised clients to sell the shares. Halfords last cut the dividend, by a third, in 2013. The shares now yield 8.1%.

Merry Christmas puts Tesco ahead of forecast. Tesco (TSCO) has enjoyed its best Christmas sales growth in almost a decade, beating City forecasts. The retailer reported a 2.2% rise in like-for-like sales in its core Tesco business in Britain in the six weeks to January 5, its fourth consecutive annual rise in festive sales. It beat a company-compiled analyst forecast range of between 1 and 1.5%. Dave Lewis, the chief executive who has for the past four years been leading the turnaround, said Tesco had “delivered significant improvements in our competitive offer and this is reflected in a very strong Christmas performance which was ahead of the market”. “We have more to do everywhere but remain bang on track to deliver our plans for the year, and as we enter our centenary we are in a strong position.”

Pub group proves its festive pull. Drinkers and diners poured into Mitchells & Butlers (MAB) inns and restaurants over the holiday period, helping the pubs operator to notch up a bumper increase in festive sales. In what one analyst described as a “Christmas cracker” of a trading update yesterday, Mitchells & Butlers was able to boast like-for-like sales growth of a healthy 9.8% for the three weeks. Underlying sales at the Harvester and All Bar One chain over the two weeks around Christmas rose by 12.3% and in the seven weeks to January 5 by 6.9%, split evenly between food and drink, he said.

Professional recruitment slows to crawl, says Robert Walters. Hiring activity for professionals such as lawyers, accountants and IT workers in Britain is stagnant and could get worse if politicians do not soon deliver clarity on Brexit, a leading recruitment consultancy has said. Robert Walters (RWA) said that workers trying to move jobs and businesses trying to release capital to bring in new staff had been affected by the uncertainty. It said it was continuing to reduce its own exposure because jobs growth “lies elsewhere”, such as in France, Germany and Japan. “We have experience of dealing with extremely difficult situations,” Robert Walters, founder and chief executive of the company, said. “We have flexibility and very limited exposure to the UK. If we do need to downside or reallocate our people into growth markets, we can do that.”

Merlin Entertainments (MERL), the operator of the London Eye, Madame Tussauds and London Dungeon, was in for a scare after UBS raised concerns about the popularity of some attractions. Analysts sifted through more than 550,000 customer reviews of around 100 Merlin attractions. They also examined a monitor that tracks average queue times at theme parks. They found a continued decline in average reviews across Merlin’s Midway Attractions brands, which include the Blackpool Tower and Sea Life Centres. Merlin also operates Legoland and resort theme parks including Alton Towers, Chessington World of Adventures and Thorpe Park. UBS raised the alarm six months after it first expressed concern about increasingly negative reviews at the company’s city centre sites.

Burberry Group (BRBY), the fashion house hoping for a splash of star quality under new chief executive Riccardo Tisci, was the biggest faller on the FTSE 100 after Berenberg downgraded the company to “hold” in a luxury goods sector note. Analysts said the brand “offers one of the most exciting restructuring stories in the luxury goods sector” but pointed to near-term risks as it pursues a turnaround story in an uncertain market.

Rathbone Brothers (RAT), the British wealth manager, tumbled 198p, or 8%, to £22.86 after assets in its core investment management arm fell 6.8% in the fourth quarter amid increased market volatility.

Brooks Macdonald Group (BRK), the Aim-quoted investment management group, advanced more than 7% after announcing plans to cut 50 jobs and save £4 million a year in an efficiency drive. The company said the measures would drive increased margins in the medium term. It finished 72½p higher, at £15.40.

Diurnal Group (DNL) more than doubled on news that the US patent office has granted its second patent for Chronocort, a treatment for adrenal dysfunction. David Cox, healthcare analyst at Panmure Gordon, said the new patent significantly expanded Diurnal’s “exclusivity position” in the US, where he estimates there is a $1 billion market for the treatment.

Hvivo (HVO), the flu vaccine developer in which Woodford Investment Management has a 29% stake, accelerated 5½p, or 19.3%, to 34p after announcing positive results from a study of flu-v, its flu vaccine, being developed by Imutex, Hvivo’s joint venture with Seek Group.

Virgin to lead Flybe takeover. Flybe Group (FLYB), the regional airline, is expected to be taken over today by a consortium led by Virgin Atlantic. The carrier, which is part-owned by Sir Richard Branson, is understood to have joined forces with Flybe’s other potential suitor, Stobart Group Ltd. (STOB), and Cyrus Capital Partners, a US investor. They will form a new company that will be part of the Stobart Air franchise operation, according to Sky News. The bid for Exeter-based Flybe will be worth significantly less than the company’s closing share price of 16.38p, which last night valued the airline at £34.6 million. The deal will come less than two months after Flybe put itself up for sale, blaming a mix of currency volatility, rising fuel costs and Brexit uncertainty.

Tempus – Rentokil Initial (RTO): Avoid. A class operator and a leader in its field but the dividend yield is disappointingly low

Tempus – Essentra (ESNT): Buy. It’s not yet finished, but turnaround strategy is working

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Mentioned in this post

ANGS
Angus Energy
BRBY
Burberry Group
BRK
Brooks Macdonald Group
DEB
Debenhams
DNL
Diurnal Group
ESNT
Essentra
FLYB
Flybe Group
HFD
Halfords Group
HVO
Hvivo
MAB
Mitchells & Butlers
MERL
Merlin Entertainments
MKS
Marks & Spencer Group
PIER
Brighton Pier Group (The)
RAT
Rathbone Brothers
RTO
Rentokil Initial
RWA
Robert Walters
SPD
Sports Direct International
STOB
Stobart Group Ltd.
TSCO
Tesco