The Times 17/03/19 - Vox Markets | Vox Markets

The Times 17/03/19

Domino’s Pizza, led by David Wild, accused of misleading the City. Franchisees ramp up row with pizza delivery giant. The £1bn food giant that runs Domino’s Pizza in Britain has been accused of misleading the City over the state of relations with the powerful franchisees who run most of its 1,100 stores. Domino’s Pizza Group (DOM), run by former Tesco executive David Wild, received a letter from a group of angry store owners last week. It warned that comments suggesting a resolution to an ongoing dispute could be found were “extremely misleading”, because Wild and the board were “at total odds with the franchisees”. The letter marks a sharp escalation in a row between the plc and its entrepreneurial partners, who have refused to open new stores until they are granted a greater share of its profits. About 90% of the 67 store owners are members of the Domino’s Franchisee Association, which says their share of profits has fallen from 61% to 50% over the past four years.

Rivals Serco and Mitie circle in bid to clean up at Interserve. Rival outsourcing giants have approached Interserve’s administrator, EY, about buying its services business. Serco Group (SRP) and Mitie Group (MTO) are understood to have made inquiries about Interserve’s support services arm, which has a turnover of £1.7bn. Industry insiders expect a wave of consolidation across the outsourcing sector, which has been hit by botched contracts, government pressure and rising costs. However, a sale of the services division, said to be valued by the company’s lenders at about £300m, would leave Interserve focused on construction and equipment hire, posing a dilemma for the lenders. “Those players [rivals] only want the best bits,” said a source close to the talks.

 

Aston Martin’s £62m gift to boss Andy Palmer. Aston Martin Holdings (AML) chief executive was handed £62m in shares as a reward for turning around the luxury car maker before its stock market float. Former Nissan executive Andy Palmer was given 3.27m shares worth £62.2m at Aston’s float price of £19. Palmer sold £29.2m of the shares to settle tax liabilities and kept the proceeds from a further £6.6m that he sold. The remaining 1.39m shares will be released progressively until 2022, although they have fallen in value to £16.1m. The disclosure in the annual report comes after its much-hyped stock market float last October. Its shares have fallen since then by 39% to £11.62, valuing James Bond’s car maker at £2.7bn.

BT called out over rural mobile tie‑up. BT Group (BT.A) has been accused of frustrating an attempt to end poor mobile reception in rural areas by refusing to support a proposal put forward by its rivals. Three, O2 and Vodafone Group (VOD) want a joint investment in a single rural network to improve the signal for mobile phone users nationwide. Millions of people and thousands of businesses struggle because of so-called partial not-spots — areas where one or more operators cannot provide a signal. The government wants the four networks to work together to solve the problem through “rural roaming”, where customers would be able to use another operator’s signal, as they do abroad.

Tesco’s Dave Lewis finds his discount dream is not all right, Jack. The inauspicious start to Jack’s underlines the difficulty Tesco (TSCO) chief executive Dave Lewis faces in luring customers away from Aldi and Lidl, which have established themselves as part of the fabric of the industry, and raises questions over the merits of taking on such a time-consuming project. As investment and management attention has flowed towards Jack’s, Tesco’s core supermarkets have felt a chill, with the closure of 90 fresh-food counters and 9,000 possible job cuts coming on top of the tens of thousands of roles already removed by Lewis over 4½ years. He has told the City that he wants Tesco’s operating profit margin, now at 2.9%, to recover to between 3.5% and 4% by next February — a target that critics say is spurring short-term thinking.

The new banks that failed the challenge. Smaller lenders and fintech apps are finding it hard to take on the big four. Metro Bank (MTRO) claims to be the plucky underdog of British banking. It belongs to a pack of challengers, including TSB, Monzo, Starling and Revolut, that promised to rattle the big four — Barclays, HSBC, Lloyds and RBS. So far, however, many have failed to live up to their hype. Despite the brightly coloured branches and shiny apps, challenger banks have clawed barely any market share from the big four, which still control about three-quarters of the current account market. The upstarts’ future is now under the microscope. A string of debacles, including a serious accounting error at Metro and the botched IT upgrade at TSB as well as claims of a “toxic” work environment at Revolut, have raised serious questions about their governance and culture. Having grown at breakneck speed during their toddler years, many are struggling to reach maturity. Challengers are still dwarfed by their big-name rivals, and some are being forced into mergers to grow and to survive. CYBG (CYBG), owner of Clydesdale Bank and Yorkshire Bank, gobbled up Virgin Money for £1.7bn last year. Last week, OneSavings Bank (OSB) and Charter Court Financial Services Group (CCFS) agreed a £1.6bn merger. Fintech start-ups such as Monzo and Starling, which have eschewed branches in favour of digital apps, are battling to win customers and backing from investors while sitting on heavy losses. The looming question is whether some will see off these growing pains and pose genuine problems for the high street clearing banks, and how many will succumb to gravity instead.

Founder’s ally Peter Williams attacks Superdry (SDRY). Dunkerton will face hostility if he returns, warns retail veteran. The former boss of Selfridges has said he wants to protect Superdry’s co-founder from a “very hostile” atmosphere if he succeeds in his campaign to return to the fashion retailer. An acrimonious spat between Julian Dunkerton and the board of the company he co-founded will come to a head next month, when Superdry shareholders vote on his reinstatement and the appointment of Peter Williams, former chief executive of Selfridges, to the board. “If he was just going back in by himself, he’d be walking into a very hostile environment. I’m there to ensure fair play, so if he does get voted back in, he’s not on his own,” Williams said.

Watchdog FCA probes claims of rebound by Debenhams (DEB). Debenhams has been accused of misleading suppliers and concession holders in a press release last year, prompting a review by the Financial Conduct Authority. The troubled department store chain said in September that it still had “significant headroom” in its debt facilities as it responded to press speculation about its finances. It added that any “sustained upturn would result in a rebound in our profit performance”. A concession holder has alleged the statement falsely described Debenhams’ financial strength, leading some business partners to continue offering credit. Since the statement, Debenhams’ share price has collapsed by more than 70%. It closed on Friday at 3.3p, valuing the chain at £40m. The FCA’s market integrity unit is reviewing the issue as a potential breach of its rules.

Intu mulls £860m Spanish malls sell‑off. The owner of the Trafford Centre in Manchester is eyeing the sale of its £860m Spanish portfolio as it tries to cut its debts in the wake of two failed takeover bids. Intu Properties (INTU), which tried to merge with Hammerson last year and then received an approach backed by the Canadian giant Brookfield, is considering selling stakes in its three Spanish shopping centres — Xanadu near Madrid, Puerto Venecia near Zaragoza and Asturias near Oviedo. Intu owns 50% of each of the three centres, which are worth a total of €700m (£596.3m), and could look to sell to its joint venture partners. Intu also has a significant development site near Malaga on the Costa del Sol.

Investors around the world poured money into stock market funds last week at the fastest rate in a year, hoping to exploit the continuing rebound from December’s market sell-off. Equity funds received net inflows of $14.2bn (£10.7bn), the most since March last year, according to analysis by Bank of America Merrill Lynch. Many investors who have been wary about the stock market recovery this year are now turning bullish, the bank said. Wall Street’s S&P 500 index is up more than 12% this year, closing in on September’s all-time high. British stocks have followed, with the FTSE 100 up 7% this year despite the Brexit chaos. In the past, a rush of cash into stock markets has tended to foreshadow a big sell-off. However, the Bank of America analysts said it would take a few more weeks of hefty inflows to push markets towards “excess bullishness”.

Computer games developer Team17 (TM17) is set to report a surge in profits amid strong demand for its titles. Analysts expect the company behind the popular Worms franchise to boost pre-tax profits by 64% to £12.1m when it announces full-year results on Tuesday. The company, which floated last May and is now valued at £279m, has more than 100 games spanning computer consoles and mobile phones. Sales are set to be up from £29.6m to £40m over the year.

Homes are where the cash is for Galliford. When Galliford Try (GFRD) won a deal to build a 36-mile dual carriageway snaking around Aberdeen in 2014, it got much more than it bargained for. The road has proved an unmitigated disaster for the construction firm and housebuilder, costing it £150m so far. It is still locked in a legal tussle with the Scottish government over whether it can claw back costs. Galliford and Try merged in 2000 to build homes under the Linden brand and work with housing associations and councils on regeneration — making decent profits doing so. Galliford and Try merged in 2000 to build homes under the Linden brand and work with housing associations and councils on regeneration — making decent profits doing so. Galliford has ridden the Help to Buy wave, generating profit margins of 19.6% between July and December at Linden Homes. Its regeneration division earns 5.1% margins. Set that against profit margins of just 0.9% (before the Aberdeen losses) in its construction business and you can see which areas Galliford would rather be in. So, it’s make your mind up time for Galliford Try. If the cloud of construction lifts, its shares should rise, too.

 

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Mentioned in this post

AML
Aston Martin Holdings
BT.A
BT Group
CCFS
Charter Court Financial Services Group
CYBG
CYBG
DEB
Debenhams
DOM
Domino\'s Pizza Group
GFRD
Galliford Try
INTU
Intu Properties
MTO
Mitie Group
MTRO
Metro Bank
OSB
OneSavings Bank
SDRY
Superdry
SRP
Serco Group
TM17
Team17
TSCO
Tesco
VOD
Vodafone Group