Treasury’s Brexit analysis is overly optimistic, warn MPs. Parliament cannot rely on the Treasury’s analysis of the economic impact of leaving the European Union because its models are overly optimistic and ignore the effect of triggering the “backstop”, MPs said today. In a scathing response to government analysis of the withdrawal agreement, the Treasury select committee said that it could not be used to inform a meaningful vote. The judgment was unanimous on the 11-strong committee of four Conservative MPs, five Labour MPs, one independent MP and one member of the Scottish National Party. “The committee is disappointed that the government has modelled its white paper, which represents the most optimistic reading of the political declaration, rather than a more realistic scenario,” Nicky Morgan, the committee’s chairwoman, said.
WPP (WPP) shake-up will make 3,500 people redundant. The advertising giant WPP plans to axe 3,500 jobs in an attempt to reduce overheads by £275 million a year so that it can compete more effectively in an industry dominated by Facebook and Google. Mark Read, its new chief executive, said that “painful steps” were unavoidable as he laid out a three-year plan to reboot the company for the digital era. The bulk of the redundancies are expected to come from back-office and finance teams as Mr Read simplifies WPP’s sprawling empire. “As an industry we are facing tremendous changes from technology and we have to change the way we work. We need to return the company to growth, and unfortuantely some painful steps will be necessary over the coming years,” said Mr Read.
Interserve plummets over worries that it is ‘Carillion Mark Two’. The crisis engulfing Interserve (IRV) intensified yesterday after it warned of a big hit to shareholders from an emergency rescue plan. Shares in the outsourcing company slumped by as much as three quarters to 6p, valuing it at less than £9 million. The latest sell-off was triggered by Interserve warning that its deleveraging plans were likely to involve the conversion of a “substantial proportion” of its debt into new shares. “If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders,” it said.
Falling share price piles pressure on ailing Kier. The pressure on Kier Group (KIE) increased yesterday as its shares fell deeper below the price at which the company is seeking to sell new stock. The construction and outsourcing specialist unveiled a surprise £264 million rights issue last month as it tries to cut debt and boost its balance sheet. Its discounted offer price of 409p was 45% below its share price, but the shares have continued to slide since then. Indeed, they have halved since November 30, when Kier announced the fundraising, and they closed down 1.5% at 376½p yesterday, a 15-year low. Kier traces it roots back to the late 1920s as a concrete design and construction business.
New rules are what Just Group hoped for. The insurance regulator has softened rules that would have imposed strict capital requirements on the providers of lifetime mortgages. Shares in Just Group (JUST) rose by nearly 20% after the Prudential Regulation Authority announced what the life insurer described as “considerably less onerous” proposals than had been expected. The watchdog had been considering additional capital requirements on providers of lifetime mortgages that could have forced Just Group to raise capital. Lifetime mortgages are loans usually taken out by retired people to release equity from their home.
Astrazeneca works with Cancer Research UK. A new partnership has been launched between AstraZeneca (AZN) and Cancer Research UK to harness big data and genetics and accelerate the development of new medicines. The Anglo-Swedish pharmaceuticals company and the charity are collaborating on a new centre of excellence based in the Milner Therapeutics Institute at the University of Cambridge. Astrazeneca, which is also building a new headquarters in the city, is one of the world’s leading drugs companies with a filling pipeline of cancer treatments. Sales of its oncology products jumped by 42% to almost $2.7 billion in the first half of its financial year.
The co-founder of Superdry (SDRY) has increased the pressure on the retailer after convincing a City broker that the present management’s strategy is flawed. Julian Dunkerton has “spoken extensively” to analysts at Liberum about his objections. Under a plan announced in September 2017, the company has scaled back the breadth of its clothing range, arguing that it was offering too many variations that didn’t generate enough sales. Mr Dunkerton, however, is not impressed. A “halt to innovation” has affected performance, he told analysts. “One should be generous with customers, offering them a wider and greater choice”, he said. “This is what they are asking for, if not demanding.” Superdry, he added, could become “the Asos of branded clothing in a very exciting way”. A presentation by in April showed that it had cut its product lines from 5,900 to 3,800. Asos has 114,000, up from 84,000 in January.
Brexit uncertainty and a weak start to trading on Wall Street put pressure on stocks. The FTSE 100 closed down 56.57 points, or 0.8%, at 6,721.54. Losses were limited by a fall in sterling, which gave a boost to multinational companies that make a high proportion of their earnings overseas. GlaxoSmithKline (GSK) rose 32¼p to £14.70, British American Tobacco (BATS) gained 57½p to £27.21 and Diageo (DGE) edged up 16p to £28.01. The more domestically focused FTSE 250 tumbled 351.80 points, or almost 2%, to 17,492.31. Housebuilders and retailers were sold off as uncertainty around Brexit is expected to dampen demand. Crest Nicholson Holdings (CRST) was among the biggest fallers after Peel Hunt downgraded the stock to “reduce” from “hold”, saying that the builder was one of the most exposed in the sector. Its shares fell 28¼p to 309½p.
The chief executive of Mitie Group (MTO) put nearly £200,000 into its shares as investors fled the outsourcing sector, spooked by rescue talks at Interserve and Kier’s discounted rights issue. Phil Bentley bought 146,800 shares at just under 136p per share. That was not enough to convince investors worried about the risk of contagion and the security and maintenance contractor closed down 7¾p at 129½p.
Galliford Try (GFRD), the FTSE 250 housebuilder and construction group struggling with cost issues on the Aberdeen bypass, was also caught up in negative sector sentiment. Its shares fell 51p to 597p
Avacta Group (AVCT), the biotech company developing cheaper alternatives to antibodies, shot up 7¼p to 30½p after announcing a development and licence agreement with LG Group, of South Korea. LG Chem Life Science will inject up to $180 million to help Avacta to develop drug technology for different diseases.
Investors in Thomas Cook Group (TCG) could be forgiven for feeling a little fraught. Since its latest profit warning two weeks ago, shares in the travel business have been bouncing around like a Super Ball in a concrete bunker. Yesterday was another day to forget after UBS cut its price target on the 177-year-old company’s stock from 60p to 34p, citing “lower estimates on underlying profits, higher exceptional costs as well as more conservative assumptions on working capital”. The shares duly fell by 4½p to 26½p, valuing the group at £409 million.
Hollywood Bowl Group (BOWL) closed 25½p higher at 210p, a jump of 14.5%, after Britain’s biggest tenpin bowling operator accompanied strong full-year results with a second consecutive year-end special dividend.
Tempus: Buy Morrison (Wm) Supermarkets (MRW); hold Sainsbury (J) (SBRY); avoid Tesco (TSCO). Morrison’s has room to grow, trading is on a roll and the shares are good value
