Water giants are set to launch a wave of appeals against the industry watchdog after it imposes one of the toughest financial settlements in years. New rules on spending and efficiency are expected when Ofwat publishes its long-awaited “final determination” on suppliers’ latest five-year business plans tomorrow. Industry insiders expect those demands to trigger a surge of appeals to the Competition and Markets Authority (CMA). Yorkshire, Anglian, Northumbrian, Thames and Southern are expected to be among the hardest-hit companies. The water industry in England and Wales, which operates under regional monopolies, has faced a sharp reversal after paying huge dividends and piling on debt since the privatisation boom of the 1980s and 1990s.
The board of M&C Saatchi (SAA) has been accused of backtracking on a promise to hold an independent investigation into its accounting crisis. Four directors, including co-founder Lord (Maurice) Saatchi, triggered turmoil last week when they quit in a row over responsibility for the scandal. In a blistering letter, the three non-executives claimed they had not been allowed to fulfil their roles properly. “Our recommendations have repeatedly not been accepted,” said the letter, signed by Lord (Michael) Dobbs, Sir Michael Peat and Lorna Tilbian. They claimed chief executive David Kershaw and chairman Jeremy Sinclair had reneged on a promise to establish an independent committee overseen by the non-executives.
Mike Ashley’s discount sportswear empire is expected to reassure the City over a shock €674m (£562m) Belgian tax bill tomorrow. — due to be renamed Frasers, after the House of Fraser department store chain it acquired for £90m last year — upset the market and its own auditors at Grant Thornton when it disclosed the surprise possible charge at the end of a heavily delayed results statement in July. It said the notice, which included 200% penalties and interest, was not a formal demand but a “proces verbal” that would lead to a mediation process. The claim is understood to relate to goods transported through Belgium.
Tony Pidgley has swooped on a central London development site amid speculation that the capital’s housing market could recover, despite Brexit and higher stamp duty. Berkeley Group Holdings (The) (BKG) has bought a store in Camden, north London, owned by Morrisons. Berkeley will pay the supermarket chain about £120m, comprising £85m for the land plus the £35m cost of building a replacement for the 40,000 sq ft supermarket. The site comes with planning permission for about 450 homes and 100,000 sq ft of offices. Pidgley has said he thinks the London market is set to recover after three years of depressed trading since stamp duty was raised and Britain voted to leave the EU, creating uncertainty for foreign buyers. His view is likely to have been reinforced by Boris Johnson’s thumping election victory.
The hedge fund tycoon building a stake in Ted Baker (TED) has said the struggling fashion retailer reminds him of Redrow, the housebuilder he shook up by reinstating its founder as boss in 2009. Toscafund, run by Martin Hughes, increased its holding in Ted Baker to 12% on Friday, making it the second-biggest investor after Ray Kelvin, the disgraced founder, who owns 35%. Shares in the retailer have crumbled by three-quarters to 372.8p this year due to four profit warnings and an accounting error, valuing it at £166m. Chairman David Bernstein and chief executive Lindsay Page resigned on Tuesday.
Britain’s six biggest banks and building society Nationwide are braced for the results tomorrow of the most gruelling test of their ability to withstand “Armageddon”. Lloyds Banking Group (LLOY), HSBC Holdings (HSBA), Barclays (BARC), Royal Bank of Scotland Group (RBS), Standard Chartered (STAN), Santander UK and Nationwide face the toughest test of their resilience in an economic storm designed to be worse than a disorderly Brexit. The test assumes that serious headwinds hit at the same time. These include a drop in economic growth, a 33% plunge in house prices, a jump in unemployment to 9.2%, a 30% fall in the value of sterling and a leap in interest rates to 4%. The assessment, which has become tougher since the 2008 financial crisis, checks whether banks can continue to lend while paying for past misconduct, such as payment protection insurance, which has cost more than £50bn.
The boss of Lloyds Banking Group (LLOY) has agreed to meet victims of the HBOS Reading fraud for the first time this week, as the crisis threatens to engulf the bank again more than a decade after it was exposed. Antonio Horta-Osorio will meet the victims to discuss compensation following a damning review published last week by former High Court judge Sir Ross Cranston. This found that Lloyds had been “neither fair nor reasonable” in its attempts to redress the wrongdoing. The intervention is seen as an attempt to prevent further embarrassment from the scandal, first uncovered in 2007.
Learning Technologies Group (LTG) has felt pressure from the hedgies. After taking over rival Line Communications in 2014, it set its sights on growing sales to £50m within three years. That target is now in the rear-view mirror, but not all investors have been convinced. LTG has been hit by bearish bets: about 5% of its stock was out on loan to short-sellers last year. Amid concerns over LTG’s ability to turn itself from a training provider to a software company offering a broader range of services. Sales had jumped by 83% to £93.9m for the year to December 2018 when it announced results in March. Pre-tax profits rose from £12.7m to £25.6m. That performance was partly driven by a $150m swoop in the US last year for the cloud-based talent-management business PeopleFluent. It took another step in that direction in April this year when it splurged $12m on Breezy, a developer of recruitment software. Analysts expect sales to grow by 38% to £130m and profits to leap by 46% to £37.4m. That growth has silenced a few of the naysayers, but doubters remain. The percentage of shares out on loan eased to 2.5% in September. Since then, it has crept back up to 4%, according to IHS Markit. Numis analyst Gareth Davies is bullish, believing that LTG’s “active pipeline of acquisitions” could help lift the shares by a further 50% to 185p. A boost could also come in May if it secures a bumper Ministry of Defence training contract, says Panmure Gordon analyst Paul Morland. With its dominant position, and a track record of outperforming financial goals, LTG’s shares should soar again. Buy.
An activist investor has more than doubled its stake in Ted Baker (TED) days after a profit warning resulted in the chairman and chief executive resigning. Toscafund took a 5.9% stake on Tuesday but took advantage of the fashion retailer’s sinking share price to build it to 11.9%. This week in a third profit warning it said full-year profits would be £5 million, a 90% nosedive on the year. A week ago the retailer had admitted a £25 million accounting error. The shares have lost three quarters of their value this year but rose after the Toscafund stake was revealed. One commentator said there was little for the activist to agitate for as the board had already been cleared out. “The numbers have been kitchen-sinked, there is fresh leadership in key positions and there is an upside from asset disposals and cost reductions,” he said. “Acting chairman Sharon Baylay is not wasting any time.”
Aston Martin Holdings (AML) has confirmed that it has held early stage talks with potential investors about building “longer-term relationships” that could involve equity investment, as part of a funding review. In a stock market statement after the London market closed the luxury car maker said it was reviewing its funding requirements and other options. One of the interested investors in the Warwickshire-based sports car manufacturer is Lawrence Stroll, the billionaire owner of the Racing Point Formula One motor racing team, who is preparing to bid for a significant stake in Aston Martin Lagonda, according to Autocar magazine.
Centamin (DI) (CEY), the gold mining group being pursued by a larger Canadian rival has hired an investment banking veteran as its deputy chairman. Centamin, which has rebuffed approaches from Endeavour Mining and refused to engage over its £1.5 billion all-share offer, said that Jim Rutherford would join its board on January 1. It said the plan was for him to become non-executive chairman by the end of 2020, succeeding Josef El-Raghy, 48. Mr Rutherford, 60, spent much of his career as a senior vice-president of Capital International Investors and previously worked as an investment analyst. He is also a director of Anglo American, the FTSE 100 miner.
A City backlash is brewing against Playtech (PTEC) over a plan by the gambling software supplier to introduce a bonus scheme that could hand its chief executive more than £30 million of shares. Two influential shareholder advisory groups, Institutional Shareholder Services and Glass Lewis, have urged investors to reject the company’s proposal for a share award scheme for Mor Weizer at a vote on Thursday. A revolt would be the latest investor rebellion over Playtech’s executive pay.
