The Mail 27/02/19 | Vox Markets

The Mail 27/02/19

After weeks of speculation, during which one of Ocado’s distribution centres burned to the ground, High Street stalwart Marks & Spencer Group (MKS) has stuck its neck out and penned a deal with Ocado Group (OCDO) that will enable it to sell its groceries nationwide for the first time. It has been dubbed a ‘transformational’ partnership for the grocery sector, and is a characteristic move by M&S’s veteran chairman Archie Norman, who had been expected to be dynamic in his dragging of the retail juggernaut into the 21st century. ‘It is the biggest and boldest moment so far and a game changing moment for reshaping M&S,’ thundered CEO Steve Rowe. But, given the plummet in M&S’s share price in early trading today, not everyone is best pleased about it – least of all its long suffering investors who look set to foot most of the bill. What’s more, the joint venture means that Ocado will, in 18 months’ time, terminate a near-2 decade long supply contract with Waitrose. That means a lost revenue stream for Waitrose and a potential loss of loyal customers for Ocado.

Taylor Wimpey (TW.) has shrugged off uncertainty surrounding Brexit to notch up a rise in full-year profits. The group posted a 5.5% increase in underlying pre-tax profits to £856.8million for the last year. Taylor Wimpey said it continued to see strong home-buyer demand in spite of increasing signs that Brexit worries are weighing on Britain’s property market. Pete Refdern, Taylor Wimpey’s chief executive, said: ‘2018 was another strong year for Taylor Wimpey with good progress against our strategic priorities. ‘We delivered in line with our expectations, achieving a strong sales rate and record revenues. ‘Despite ongoing macroeconomic and political uncertainty, we have made a very positive start to 2019 and are encouraged to see continued strong demand for our homes. We enter the year with a strong order book and a clear strategy in place to deliver long term value for shareholders. ‘We are very pleased with how our business is adapting to our customer-centred strategy. We are enhancing every step of our customers’ buying and aftercare service so that we become the first choice homebuilder in all market conditions.’

Shares in Metro Bank (MTRO) are firmly in the red this morning after the group posted a string of stock market updates close to or after markets closed on Tuesday. The bank’s share price is currently down 20.81% or 270.5p to 1,029.5p, as the fallout from its plans to raise £350million through a new share sale to help plug a shortfall left by an accounting error continues. Metro Bank’s total stock market value has fallen from a peak of around £3.5billion in March last year to just over £1billion.

Ted Baker (TED) has warned that its annual profits will fall short of market expectations, prompting the group’s share price to fall over 13% this morning. In a brief trading update, Ted Baker said its annual profit is likely to end up over £10million lower than expected, at around £63million rather than near the £74million mark. The lower forecast does not include previously announced costs associated with the investigation into the behaviour of the brand’s founder, Ray Kelvin, the collapse of House of Fraser, or the acquisition of footwear brand No Ordinary Shoes.

ITV (ITV) has confirmed it is in the ‘concluding phase’ of talks with the BBC to launch a proposed ‘Netflix rival’ called Britbox. After battling against the growing popularity of Netflix and Amazon Prime, the duo plan to launch the paid-for streaming service in the second half of this year. Britbox will offer British-based boxsets and commission new programmes from British production companies ITV will invest up to £25million in the venture this year and around £40million in 2020. While confident Britbox will help it keep up with rivals, ITV remains concerned about the potential fallout from Brexit and its impact on the advertising sector. ITV said it remained ‘sensitive’ to the economic and political ‘headwinds’ hitting the UK and affecting the advertising sector.

Metro Bank taps investors for another £350m: Boss offered to quit after we revealed truth over accounts blunder. The boss of Metro Bank (MTRO) is giving up his annual bonus over an accounting error which triggered claims he had misled the market. Craig Donaldson told the Mail he had offered to resign after the debacle, but this was rejected by the board. Instead he is forfeiting his 2018 bonus to make amends. The year before, Donaldson was given a bonus of £800,000. It came as Metro unveiled plans to raise another £350million from investors –sending shares down 15.8%, or 243p, to 1300p. The bank also announced 2018 profits of £40.6million, more than double the £18.7million it generated a year earlier.

UK defence firms Meggitt (MGGT) and Babcock International Group (BAB) reveal £15m cost of their No Deal Brexit preparations. Aerospace group Meggitt has spent around £5million on stockpiling around a month’s worth of parts, and Babcock International will take a one-off £10million tax hit from restructuring its emergency helicopter business. The prospect of a No Deal Brexit has fuelled fears that delays at ports would make it difficult for UK manufacturers to keep production lines going and export their goods. Babcock said it has had to set up a new structure, including two new companies for each of the European countries where it operates emergency services helicopters, to keep flying following a No Deal Brexit.

Watchdog may slam door on Provident Financial (PFG) takeover over concerns it could harm customers. A takeover bid for Provident Financial faces a competition probe over concerns it could harm customers. The attempt to buy the Provvy by rival Non-Standard Finance (NSF) is set to be examined by the Competition and Markets Authority. The regulator has banned the two from combining any operations while it decides whether to launch a full-blown investigation which could ultimately see the deal blocked. NSF, founded by former Provvy boss John van Kuffeler three years ago, is seeking control of its larger competitor and is strongly opposed by the Provvy board. More than 50% of Provvy shareholders have said they will back the bid, but NSF is seeking support from 90%.

New Direct Line Insurance Group (DLG) boss Penny James means Footsie is set to get a seventh female chief executive. Britain’s blue chip FTSE 100 index is to get a seventh female chief executive as Penny James takes over at insurer Direct Line. James will replace Paul Geddes at Britain’s largest general insurer in May, on a pay package worth up £3.9million a year if she hits maximum bonus targets. The 49-year-old, who joined Direct Line in 2017 and is its chief finance officer, will be the first female boss of a Footsie financial services firm. There was a revolt over her pay last year, with more than 23% of shareholders opposing a decision to give her 38% more than the previous finance director.

Marks & Spencer in talks with Ocado to create a delivery service that would see the High Street stalwart finally sell food online. Marks & Spencer Group (MKS) is considering launching a national online grocery delivery business through a tie-up with Ocado Group (OCDO), it has confirmed. Speculation about a possible deal between the High Street stalwart and Ocado emerged last month, but neither company would confirm or deny reports. In a statement to the stock market today, however, the UK retailer said that ‘it is in discussions with Ocado Group plc regarding a joint venture in UK Retail’ But it added: ‘There is no certainty that these discussions will result in any agreement or as to the timing of any such agreement.’ M&S shares rose 4% to £3.04 on the news, while Ocado shares jumped 12.5% by lunchtime. A report in the Evening Standard suggested that the tie-up could be announced as soon as Wednesday, with M&S paying up to £900million for a 50% stake in the venture. If a deal goes ahead, M&S would finally be joining the ranks of its grocery rivals, many of which launched online delivery businesses at the turn of the millennium.

Shares in the oil and gas explorer Kosmos Energy (DI) (KOS) have had a bumpy ride over the last year. The company’s key assets are mainly focused off the coast of West Africa near Ghana, Equatorial Guinea, Mauritania and Senegal, although it also has production operations in the Gulf of Mexico. Shares were up 2.75p, to 477p, after the firm announced its first-ever dividend, and full-year revenue growth of around 30%.

Analysts at Berenberg, whose research appears to go down well with fund managers, have raised concerns over the sustainability of the dividend at BT Group (BT.A). The phone lines and broadband giant generates around £2.5billion in free cash, giving it more than enough to support its current payout, which cost around £1.5billion last year. The tranche left – £1billion – is earmarked to support the hefty BT pension deficit, to buy mobile phone spectrum, and buy back employee share options. That doesn’t leave a lot of headroom for new boss Philip Jansen if he wants to invest in the business. Put another way, the dividend could come under pressure if he wants to push the boat out. ‘We believe that Mr Jansen may signal that, given the strategic importance and growth created by fibre-to-the-premise, he will prioritise investment and signal a cut to the dividend from 2020/21,’ said Berenberg.

Fresnillo (FRES) achieved record annual silver production of 61.8m ounces in 2018 as well as gold production of 923,000 ounces, but it wasn’t enough to placate an unforgiving market, which expected more – the company had hoped to hit 65m ounces of silver.

Big slider in the blue-chips was British Airways and Iberia owner International Consolidated Airlines Group SA (CDI) (IAG), down 4.3%, or 28p, to 617p after stock market data provider MSCI announced plans to delete it from its Spanish Ibex 35 index. It is understood to be because of a cap on the ownership of shares by non-EU persons, which came into force ahead of Brexit.

Derwent London (DLN) hiked its dividend by 10% after achieving earnings growth in 2018 despite ongoing uncertainty in the London office market, sending shares up 25p, to 3288p.

(SENX), which sank 2p, or 13.1%, to 13.25p after equipment for a project in Romania was missing components and was not set up properly.

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Mentioned in this post

BAB
Babcock International Group
BT.A
BT Group
DLG
Direct Line Insurance Group
DLN
Derwent London
FRES
Fresnillo
IAG
International Consolidated Airlines Group SA (CDI)
ITV
ITV
KOS
Kosmos Energy (DI)
MGGT
Meggitt
MKS
Marks & Spencer Group
MTRO
Metro Bank
NSF
Non-Standard Finance
OCDO
Ocado Group
PFG
Provident Financial
TED
Ted Baker
TW.
Taylor Wimpey