MPs brand Royal Mail woeful over chief’s pay. Rico Back paid no UK tax on £6m payout. Royal Mail (RMG) is facing fresh criticism over “astounding” executive payouts after admitting that its new boss did not pay British tax on a £6 million award. Rachel Reeves, chairwoman of the business select committee, said that ordinary postal workers would be appalled by the payment to Rico Back, who succeeded Dame Moya Greene at the helm of the company this summer. The Labour MP branded Royal Mail’s engagement with its investors as “woeful”. Non-executive directors were accused by MPs of going “weak at the knees” when bosses demanded high salaries and were blind to the views of investors. The dressing down is the latest humiliation for Royal Mail, which in July suffered one of the largest investor revolts on record over a near-£1 million “golden goodbye” for Dame Moya and her successor’s pay package.
From feeling in the pink, Footasylum slides into the red. There was no sign yesterday of investors running back to Footasylum (FOOT) after the retailer reported an interim loss and a slowdown in the opening of new shops less than a year after floating with the promise of rapid expansion. The sports fashion retailer, which targets 16 to 24-year-olds, said that it had made a pre-tax loss of £4 million in the six months to August 25, reversing a profit of £2.3 million at this time last year. It came despite a rise in revenue from £83.2 million to £98.6 million. While the loss was expected — Footasylum had issued two profit warnings in the past few months — the company’s decision to slow its expansion from between eight and ten new shops a year to between one and two appeared to show a scaling back of once-lofty ambitions.
Supermarkets’ mega merger under spotlight. The competition watchdog will scrutinise whether the proposed merger between Sainsbury (J) (SBRY) and Asda will lessen shoppers’ choice and the quality of groceries, petrol, toys, school uniforms and even small kitchen appliances. The Competition and Markets Authority said that it also had a duty to assess whether any possible squeeze on suppliers had a “knock-on effect for shoppers” if the tie-up between Britain’s second and third largest supermarkets went ahead. The regulator made the pronouncements in its formal “issues statement”, published yesterday, as it set out the full scope for its review of a merger that could create a supermarket group bigger than Tesco.
Stricken café chain’s shares are locked in freezer. Trading in the shares of Patisserie Holdings (CAKE) may not restart for several weeks as the company rebuilds its accounts after the apparent fraud alleged to have been committed by its finance chief. Shares in the Patisserie Valerie operator were suspended last Wednesday after the discovery of a black hole in its finances, which led to the arrest of Chris Marsh, its chief financial officer, and the launch of an inquiry into his activities by the Serious Fraud Office.
Cautious update by Merlin is one in the eye for bruised investors. The operator of Madame Tussauds and Legoland said yesterday that it was starting to see signs of recovery in London after last year’s terrorist attacks, but added that “the cost environment remains challenging”. The cautious tone used by Merlin Entertainments (MERL) in its trading update sent its shares down 29¾p, or 8%, to 340p, although the company insisted that its annual results would be in line with expectations. Underlying revenue growth in the 40 weeks to October 6 was 4.7%, a rise of 2.6% at on a reported currency basis, while like-for-like sales increased by 1.4%, slightly better than the consensus forecast of 1.2%. The hot summer was a mixed blessing. Sales rose by 8.3% at its resort-style theme parks, but fell by 0.7% at its indoor Midway Attractions. Merlin said that the warm weather had affected Midway Europe, in particular.
Adding water takes heat off Drax. Drax Group (DRX) took a huge leap forward in its drive to end its reliance on coal by buying a collection of water and gas-fired plants from the owner of Scottish Power. Shares in Drax rose by 20p, or 5.4% yesterday, to close at 386p, after the company sealed a £702 million deal, less than the £750 million that most analysts had been expecting and well below earlier suggestions of a price tag of close to £1 billion. Drax also told shareholders that it expected its new portfolio of low-carbon and renewable energy assets to generate profits before tax and other items of as much as £110 million next year, the first time it has put a figure on a likely earnings boost from the acquisition.
Meggitt on the mend as US spends on defence. An increase in defence spending by the US government has given a boost to the aerospace group that makes advanced technology used on Hornet fighter jets and Black Hawk attack helicopters. Meggitt (MGGT) shares rose towards the top of the FTSE 250 yesterday, climbing 7.1% to 529½p, after it upgraded its forecasts for the second time this year. It raised its estimate for revenue growth in 2018 by three percentage points to between 7% and 8% and said that sales had benefited from higher demand for parts for military aircraft and demand for retrofit fuel tanks.
Rio Tinto (RIO) warns of delays at big project in Mongolia. Challenging conditions on the ground and tensions with the government of Mongolia are threatening to cause further delays to Rio Tinto’s $12 billion copper and goldmine being developed in the Gobi Desert. Production at Oyu Tolgoi was not likely to start until the end of the third quarter of 2021, the FTSE 100 mining group said, about six months later than planned. The mine is one of Rio Tinto’s most important assets, forecast to produce 560,000 tonnes of copper and gold each year. However, the company has come under mounting pressure from the Mongolian government, which wants to speed up its development. The miner has ploughed more than $7 billion into the first phase and will spend a further $5.5 billion on developing the mine, which will become the economic linchpin of Mongolia.
Bellway cashes in as house buyers get foot on ladder. The Help to Buy scheme and a low exposure to the top end of the housing market helped Bellway (BWY) to increase annual profits by 14 per cent after it built and sold more than 10,000 homes for the first time. The FTSE 250 housebuilder reported pre-tax profits of £641.1 million on the back of a 15.6% rise in revenue to just under £3 billion in the year to the end of July. It sold 10,307 homes, up from 9,644 last year. Nearly 40% of completions were backed by the government’s Help to Buy scheme and 67 per cent of customers who used it last year were first-time buyers. The builder has low exposure to the higher end of the market, including in London. Only 4% of completions sold for more than the Help to Buy price threshold of £600,000.
Hedge funds said to be taking profits from short positions on Britain’s biggest outsourcers pushed shares higher across the sector. Kier Group (KIE), the FTSE 250 construction, services and property group that is in the crosshairs of short-sellers, rose 51p, or 5.9%, to 918p after some investors cashed in on their positions, traders said. The company’s share price has fallen by 15.5% since the start of the year amid concerns over its high debt levels. The outsourcing sector is under intense scrutiny after the collapse of Carillion in January. Capita (CPI), the services outsourcing business, which has seen its share price fall 46.9% since the start of the year, closed up 7½p, or 6%, at 129¾p. Short-sellers have bet £76 million on a fall in its price. Another target, Equiniti Group (EQN), bounced back 14½p, or 7.2%, to 216½p amid hopes that the share registration service could become a bid target. Betaville, a financial blog, reported last week that GTCR, an American private equity firm, was interested in making a potential bid for the company.
Ocado Group (OCDO) topped the FTSE 100 after Bank of America Merrill Lynch upgraded the stock to “buy” from “underperform”, saying that the recent fall in its share price amid a sell-off in growth stocks had gone too far. It closed up 43½p at 833½p.
British American Tobacco (BATS) was the biggest FTSE 100 faller after cutting its full-year revenue target for cigarette alternatives from £1 billion to £900 million. It closed down 154½p at £31.77.
Tesco (TSCO) fell 7½p to 208½p after research from Kantar Worldpanel, the research group, showed that it had lost market share in the 12 weeks to October 7 as shoppers opted to take their custom to Aldi and Lidl, the discount supermarkets.
JD Sports Fashion (JD.) shares fell by 5.5% after Morgan Stanley initiated coverage of the retailer with an “underweight” rating, citing concerns about its recent acquisition of Finish Line, an American retail chain. The company also announced the planned departure of Brian Small, its long-serving chief financial officer. A stock exchange filing shortly before markets closed showed that Peter Cowgill,the retailer’s executive chairman, had spent £41,000 on a share-buying spree, at 410p per share, but it was too late to have any notable effect on the share price. It closed down 23p at 395½p.
The world’s largest listed mining company has doubled its stake in Solgold, a copper and gold company, sending shares in the latter up 13.6%. A stock exchange filing revealed that had paid £45 million for 100 million shares, at a 28% premium on Monday’s closing price. The purchase comes a month after its initial investment and brings its total holding in Solgold (SOLG) to just under 11.2%. BHP will have the right to appoint a director to the board, provided its stake does not drop below 10%. BHP has agreed not to acquire further shares in the explorer for a period of two years without the company’s consent.
Tempus – McCarthy & Stone (MCS): Hold. Shares are good value, but there are numerous worries in housing, even in the retirement market
Tempus – Diversified Gas & Oil (DGOC): Speculative Buy. Well-run, high-growth at low-risk end of the market
