Mon, 20 Oct, 2014


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Sun, 19 Oct, 2014
It could be the a good time to buy shares of Premier Foods, Danny Fortson argued in his Sunday Times column, Inside the City. The company, whose brands include Oxo and Mr Kipling, took on too much debt before the financial crisis but Chief Executive Gavin Darby has fixed its structural problems. He has cut debt payments, spun off the ailing Hovis business and struck a deal with pension trustees. The company is not yet "normal", as Darby has claimed, and third-quarter trading could look grim when the company reports on October 23rd but the bottom is probably not far off.
Fri, 17 Oct, 2014
Ex-Diageo chief Paul Walsh timed his exit in July of 2013 near perfectly. Since then emerging markets went into reverse with the depreciation in local currencies bringing great pressure to bear on consumers in those countries. For Diageo what matters is the fact that it makes it wares more expensive. In parallel, Chinese authorities' anti-corruption drive impacted negatively on it sales while consumers in the developed world are increasingly more discerning of what they buy.
Thu, 16 Oct, 2014
Having failed in its bid to purchase Finnish group Metso Weir Group purchased Trio, a far smaller outfit, marking its first bolt-on acquisition since the start of last year. Trio specialises in comminution, the process by which large rocks are crushed so as to allow miners to get more easily to the ores inside. The deal makes sense, as both companies serve the same end users and Trio has little presence outside of China and the US.
Tue, 14 Oct, 2014
Anyone wishing to peer into the future might be advised to observe the goings-on in north-western Australia. They will find 3-km long robo-trains careening through the landscape. It is precisely these futuristic machines which have allowed BHP to drastically reduce the cost of bringing new supplies of iron ore to the market, to $30 per new tonne of the metal instead of $100. Critically, plans to add longer and heavier trains will further cut the firm's costs, as the company moves to invest in more infrastructure rather dig more holes in the earth. Rio is planning to do something similar.
Sun, 12 Oct, 2014
The Questor column in The Telegraph has rated cruise operator Carnival as a 'sell' on the back of concerns about the spread of Ebola which have sparked a recent sell-off across the travel sector.
Fri, 10 Oct, 2014
Mail order group N Brown on Thursday warned again on profits for the full year, slashing its forecasts by 13% and claiming that the warmer weather had impacted negatively on its sales in September. Critically, just three weeks ago management said it was comfortable with analysts' forecasts. Furthermore, the company's excuse is simply not credible. The average temperature last September was 57F (13.9C), only 2F (1.1C) warmer than last year. As Kate Calvert from broker Investec put it, "we believe management has to take responsibility for either poor communication or execution, and perhaps trying to undertake too much at once." On the positive side of things, the retailer did improve its cash levels but debt is on the rise as the company invests in a new distribution centre. Given its rising debt and slowing sales it is best to remain to prudent. Sell, says The Daily Telegraph's Questor.
Thu, 09 Oct, 2014
The long list of challenger banks, both those who have recently floated as well as those which are waiting in the wings to do so, enjoy some important advantages over their big four rivals (HSBC, Barclays, Lloyds, RBS). Namely, they lack the legacy problems which are dogging their competitors and there is political support for competition in the sector.
Wed, 08 Oct, 2014
Investors chasing returns and growth from outsourcer Capita have been ignoring one glaring warning sign, if not more. The company's return on capital has been tumbling for the past seven years. Capita has delivered growth in revenues and earnings in the last decade, pole-vaulting the shares fourfold higher, but as a result the balance sheet is much the worse for wear, recent results showed large losses on disposals and goodwill write-downs, and net debt has soared.
Tue, 07 Oct, 2014
The drop in commodity prices is hurting dairy processor Dairy Crest, piling the pressure on the farmers which supply it. The company has been forced to cut its payments to them thrice since July - with another reduction expected in November.
Sun, 05 Oct, 2014
Sell shares of BG Group, Danny Fortson advised in the Sunday Times. Credit Suisse analysts have questioned whether the gas producer's big Australian operation will open on time and have said BG's estimates for its Brazilian oil fields are bigger than those of Petrobas, which leads the development. If the Australian project is delayed, BG could suffer penalty payments for contracts agreed. In the meantime, BG has no chief executive. Fortson concluded he was with Credit Suisse on BG.
Sat, 04 Oct, 2014
At least as far as the oil exploration sector is concerned, investors are no longer content with promises of new discoveries. Once again, what matters is cash, whether it be in the form of cash-flow or dividends. That does not mean that the market is no longer interested in growth stories, just not in funding production growth. The above is particularly true given the rout in the oil price as the US dollar strengthens. Cairn Energy is a case in point. After selling its oil production subsidiary on the sub-continent, Cairn India, it turned into an explorer play, sending its shares lower by 40% in the past two years. Soco International, on the other hand, has a promise to pay-out as dividends half of any of the free cash flow which it generates. How did its stock price fare over the last two years? It outperformed the wider sector, says the FT's Lex column.
Thu, 02 Oct, 2014
Competition in the UK groceries market has simply gotten downright vicious, as the disruptive German discounters Aldi and Lidl carve themselves a piece of the market. That is so much so the case that last month the market's size grew at its slowest since 1993, data from Kantar revealed. However, there are important differences amongst the Big Four which must be taken into account. For one, Sainsbury has only half the square footage of Tesco, which is trying to defend too many out-of-town hypermarkets which are simply excessively large.
Wed, 01 Oct, 2014
The speech delivered by the RBS boss at this year's Merrill Lynch banking conference, in London, was far more upbeat than the one delivered by his predecessor Fred Goodwin, in 2008, during the start of the last financial crisis. At the end of that day, six years ago now, the share price dropped by two-fifths. This time around the lender's current chief, Ross McEwan, highlighted how its 'bad bank' was not as faring as poorly as had been feared.
Tue, 30 Sep, 2014
Infrastructure and engineering contractor Balfour Beatty's latest figures revealed the danger inherent in chasing large numbers of small contracts, particularly in the low margin world of construction. Any bungling and your bottom line can quickly dip into the red, as the company's fifth profit warning in two years attests. Long gone are the days of big contracts such as the London Olympics or the widening of the UK's busiest motor-way. The result of all of that is that the markets now attach a value of just £1.3bn to the firm, not much more than that of its portfolio of public-private partnership contracts. Ironically, the company rejected a takeover by Carillion at 300p just last month. It is now at 190p. Carillion's shareholders got lucky, writes the FT's Lex column.
Sun, 28 Sep, 2014
It's a good time to buy shares in Dunelm, Danny Fortson argued in the Sunday Times's Inside the City column. Just over a third of its customers are retired and almost half have paid off their mortgages so they have time and money. Will Adderley of the founding family has taken over as Chief Executive and his options include expanding in the south east of England, opening overseas and making acquisitions. The shares trade at 15 times next year's earnings - more than Home Retail Group but less than Poundland. "Now looks like a good time to jump in," Fortson said.
Fri, 26 Sep, 2014
Sports Direct's decision to sell 'put' options on 23m shares of Tesco to Goldman Sachs is tantamount to a bet that the grocer's shares will not fall further. Fortunately, the strike price for those derivatives seems to lie close to Tesco's current share price, as the firm said that its total exposure is £43m. Hence, the worst case scenario is that founder Mike Ashley is forced to buy the stock near current levels. Even so, orthodox managers would be aghast at what Ashley has just done with the company's monies. He is supposed to be focusing on selling football shirts and the like, not speculating in capital markets. If shareholders want to buy Tesco they can choose to do so themselves, if they are given their money back. However, what Ashley has done is far less reproachable than what many companies usually do through their share buy-back schemes, which typically involve vastly larger amounts. Furthermore, most management teams tend to carry out buybacks in a cyclical manner, in effect destroying wealth, says the Financial Times' Lex column.
Thu, 25 Sep, 2014
With Wednesday's initial public offering of its Citizens' Financial unit RBS has passed another milestone on the road to cleansing its balance sheet. Although the reception afforded by investors to the new shares was tepid, once complete the disposal of that American unit will see the lender's common equity Tier 1 capital ratio improve by over two percentage points. If the "greenshoe" option is triggered RBS' stake will fall to 71%, although it is not yet known at what point Citizens' will be considered as deconsolidated.
Tue, 23 Sep, 2014
There is speculation that Tesco may have been too optimistic when forecasting how successful its promotions – and hence promotion related payments from suppliers – would be. Nevertheless, when the company does finally come round to releasing its results it will have a lot of explaining to do. After all, this is a grocer, not a derivatives trading house – it should not be that difficult for investors to understand what has been going on at the firm.
Sun, 21 Sep, 2014
Buy shares of GlaxoSmithKline, Questor said in the Sunday Telegraph. China's £297m fine against GSK for corruption is manageable and has lifted the cloud that hung over the company. The shares have underperformed the wider market and are trading on 15.3 times forecast earnings compared with 22 times for the FTSE 350 pharma sector. With US and UK investigations into alleged corruption continuing, GSK is not out of the woods yet but it is not in those governments' interests to disrupt GSK's drug programmes and trigger job cuts so the shares should recover.
Thu, 18 Sep, 2014
Shares of Smiths Group took a hit after the company announced that strength in sterling had knocked 8% off its operating profits for the year ended in July and that one of its five business units was below expectations – the detection division. That segment had already provoked a profit warning in 2012 but it turns out that its problems were more deep-seated and protracted than had been thought. In fact, they may take about five years to fix and 30m pounds in write-offs to close down unprofitable contracts.