Engineering giant Babcock International Group (BAB) is poised to announce the closure of its Appledore shipyard next month, despite last-ditch efforts by ministers to save the north Devon site. A dearth of orders has in effect signed the shipyard’s death warrant, with no more work lined up once it finishes a patrol vessels order for the Irish navy. The FTSE 250 engineer, which repairs the Royal Navy’s submarines and warships, is to discuss Appledore at a strategy day before a board meeting next month, where its fate will be decided. The 163-year-old shipyard’s closure would affect about 200 workers, risking a political storm amid government efforts to spread defence work around the country and boost the southwest’s economy. Ministers are understood to have urged Babcock to delay news on Appledore’s future until after the Conservative Party conference in Birmingham this month.
The co-founder of Superdry (SDRY) has issued a rallying cry to disgruntled shareholders, warning that the retailer is on “a completely wrong path” after “probably the most disastrous eight months you could imagine”. Julian Dunkerton, who started out with a market stall and helped create Superdry in 2003, said he wanted to return and help revive the fashion company. Dunkerton left the board in March. Since then, he has concentrated on his family’s organic cider business and a small chain of Cotswolds pubs. He donated £1m to the campaign for a second EU referendum in August. “I’ve been in this industry for 30 years and I left a brilliant business and a brilliant brand, and it’s just taken a wrong direction,” Dunkerton said.
Hedge funds snap up chunks of struggling Debenhams. Aggressive hedge funds are circling Debenhams (DEB) as the struggling retailer’s lenders bail out of the company. Hedge funds Alcentra, Silver Point and Angelo Gordon are understood to have snapped up slices of Debenhams’ debt cheaply, positioning themselves to seize the company’s assets in the event that it breaches covenants on its loans. Mainstream lenders such as Royal Bank of Scotland and Allied Irish Bank have slashed their exposure to the chain. Debenhams loosened a so-called fixed-charge covenant to give itself more financial headroom earlier this year. The company, which employs 27,000 people, is expected to report a 65% slump in annual profits to £33m this week.
Has HMS Babcock been holed below the waterline? Questions have been raised about the FTSE 250 engineering giant’s leadership. The past few days have put a new slant on Appledore’s struggles. Last weekend, Babcock International Group (BAB) was targeted by a critical research note from a shadowy outfit called Boatman Capital Research, which published a string of allegations and provided revealing details on Appledore’s plight. The note was dissected and dismissed by a number of City analysts, who pointed to several inaccuracies — but the damage was done: shares fell 4% on Monday and failed to recover their losses during the rest of the week. They have halved from their peak of almost £13 in 2014, resulting in its demotion from the FTSE 100 last November. They dropped to £6.20 a share last week, valuing it at £3.1bn. Babcock has divided opinion. The engineering company sits in an unloved sector. Its support services classification lumps it in with companies such as Serco, G4S and Interserve — and Carillion, which collapsed. Short-sellers, who profit from declining share prices, have piled into the stock. At the end of last week, 10.2% of its shares were out on loan, according to data firm Markit. This tension between Babcock’s believers and naysayers is unlikely to be sustained much longer. Depending on who you believe, the shares are deep into value territory. Would-be buyers and activist investors are circling. Only a handful of bidders would be palatable to the government, however. The MoD has golden shares in both Devonport and Rosyth dockyards that entitle the state to block anyone it deems “unacceptable”. Monopoly concerns could prevent a takeover by BAE Systems, which builds submarines and warships. That leaves US defence giants or private equity firms such as Carlyle and KKR. The Carlyle Group, which considered buying GKN, has pedigree on UK defence deals. It was behind the privatisation of Qinetiq in 2003 — which left the defence research firm’s top 10 managers owning shares worth £107m. It also tried to buy the Devonport yard in 2007 alongside BAE, but was beaten by Babcock. A sale might be the best way to salvage Babcock’s reputation — and allow its board to exit with some dignity. Whatever happens, the pugnacious Turner is likely to fight hard for the company — and his reputation.
Khashoggi scandal casts £4bn shadow over BAE Systems (BA.). The furore over a dead Saudi Arabian journalist will create risks for defence giant’s jets deal. At the Foreign Office on Wednesday evening, Jeremy Hunt sat down with The Washington Post’s chief executive, Fred Ryan, to discuss the scandal of the newspaper’s missing Saudi Arabian journalist. On Twitter afterwards, the foreign secretary posted a picture with the message: “The Washington Post is a beacon of freedom of speech globally — yet another reason we need to know what happened to Jamal Khashoggi.” On Friday, he followed it up with tougher words, warning of “consequences” for key ally Saudi Arabia if allegations that its agents murdered Khashoggi are true.
Patisserie Valerie may face action by investors. Law firm whips up shareholders after accounting scandal. Teacher Stern wants to pursue the former AIM darling for losses endured by shareholders when Patisserie Valerie announced that the board had been “notified of significant, and potentially fraudulent, accounting irregularities”. Patisserie Holdings (CAKE) was forced to scramble together a £15.7m rescue package from shareholders including stockbroker Hargreave Hale and the fund managers Schroders, Invesco Perpetual and Miton. However, the shares were sold at a deep discount of 50p, slashing the company’s implied valuation from £446m to £68m. Philip Rubens, head of financial services litigation at Teacher Stern, is trying to gather support for a group action case. Rubens said he had spoken to half a dozen institutional shareholders about filing proceedings against the company over “misleading statements” and that he was close to securing funding for the litigation.
Lakeside owner Intu Properties sees value of assets slide. Intu Properties (INTU) is set to report a slide in the value of its portfolio this week as it gears up for a £2.9bn takeover by its biggest shareholder. The owner of the Lakeside shopping mall and the Trafford Centre is expected to report a slight decline in its net asset value (NAV), which stood at 362p in June. Reclusive billionaire John Whittaker is leading a consortium including Brookfield Property Group and the Olayan Group of Saudi Arabia that last week tabled an indicative 215p-a-share offer. The South African fund manager Coronation, which owns 20% of Intu’s shares, is likely to play kingmaker and is expected to push the consortium for a higher offer. The Amazon-led rise in online shopping is forcing shopping centre owners to combine. Unibail-Rodamco bought Westfield for £12.2bn this year, while Hammerson withdrew its £3.4bn Intu takeover offer in April after a shareholder revolt.
Ocado, led by Tim Steiner, looks for warehouses to cater for online expansion. Ocado Group (OCDO) is hunting for two new distribution centres to capitalise on the surge in demand for online deliveries. The internet grocer is understood to be looking for one warehouse between London and Birmingham, and another in the north of England within easy reach of customers in Liverpool, Manchester and Leeds. The online retailer’s expansion, combined with hundreds of planned store openings by Aldi and Lidl, will increase the pressure on traditional supermarkets, which are lumbered with too many large stores. The online grocery market is expected to grow by more than 50% over the next five years.
Tesco (TSCO) can’t see online delivering. Even for the No 1 chain, supplying customers at home costs too much to be lucrative. Tesco boss Dave Lewis made an impassioned call for an internet sales tax to curb Amazon’s rampant growth earlier this month. It was perhaps a curious move, given his position at the helm of Britain’s biggest online grocer. Tesco has built up a 50% share of the £11.4bn market over almost a quarter of a century, yet during his four years in charge, Lewis has shown little appetite to burnish Tesco’s reputation as an ecommerce pioneer. His reluctance is because of the sector’s horrendous track record: leading supermarkets have delivered hundreds of millions of orders over the years — yet still make next to nothing from them.
Skies start to clear at Horizon Discovery Group (HZD). Analysts who met Terry Pizzie in his first outing as chief executive of gene-editing specialist Horizon Discovery were struck by his snappy dress sense as much as his promise to grow sales. However, it is his commercial nous — and Horizon Discovery’s new CRISPR gene-editing technology — that have attracted his latest visitor. Value Act appeared on Horizon’s share register at the beginning of last month. By September 17, its stake had risen to just under 10%. It bought the shares from star stockpicker Neil Woodford. At the time, Horizon welcomed its new American friend. However, Value Act is known for seeking boardroom influence at its investments. Last week, Value Act upped its stake to 13.3% — again buying from Woodford. So does it know something the market doesn’t? Value Act seems to have bought into Horizon’s new CRISPR platform — which it acquired through the purchase of US biotech company Dharmacon last year. That deal now seems to be delivering. Last month, Horizon said full-year revenues would be slightly ahead of consensus estimates of £60.7m. Gross margins at the interim results declined only marginally year on year, 63.2% down from 63.9% in the first half of last year, despite Dharmacon being less profitable at 56%. Analysts say Horizon is undervalued. Panmure Gordon has a 273p target, while its broker, Numis, has a target of 260p. Value Act coming on board should be a vote of confidence in Horizon — and a signal that change could be ahead. Buy.
London Stock Exchange Group (LSE) takes stake in London Clearing House above 80%. The London Stock Exchange Group is strengthening its grip on one of the world’s largest clearing houses with plans to take its stake in LCH Group to more than 80%. David Schwimmer, the exchange’s new chief executive, is in process of buying a further 15.1% of the London Clearing House for up to £384 million from a collection of banks and other financial institutions. He made the announcement in a third-quarter trading update in which revenue at the London Stock Exchange rose by 9% in the first nine months compared to the previous year. He said that the company had “world class assets, a strong financial position and a proven strategic approach”.
John Whittaker’s consortium names its price for Intu. A consortium led by the billionaire John Whittaker has indicated that it could be prepared to make a £2.9 billion takeover offer for Intu Properties (INTU), Britain’s largest shopping centre group. Mr Whittaker’s Peel Group, along with Olayan, a Saudi investor, and Brookfield, the Canadian private equity group, said that it could offer 215p a share as it began a period of due diligence on the owner of the Trafford Centre in Manchester. It is the first time that the consortium has indicated what it might pay to take Intu private since news of its interest emerged this month. At 215p a share — or 210.4p after Intu’s 4.6p interim dividend is paid next month — the potential offer reflects an 18% premium to Intu’s closing share price of 177¾p on Thursday.
Fashion chain seeks connection with buyer. French Connection Group (FCCN) says that it is in talks with four parties about a possible sale of the company. The struggling fashion retailer, best known for its FCUK label, disclosed this month that Numis, the corporate broker, had been approaching prospective bidders for the 42% stake in the business held by Stephen Marks, the company’s founder. The size of the stake means that any sale would trigger a takeover offer for the whole group. French Connection floated in 1984, but its shares have dropped from a high of 484½p in March 2004 as it has fallen out of favour with shoppers. They closed yesterday up almost 10% at 58p.
Job cuts set for Standard Chartered. Standard Chartered (STAN) is considering a range of measures to cut costs, including job losses, a hiring freeze and restrictions on staff travel. The London-listed, emerging markets-focused bank is expected to announce the reduction in staff numbers this month when it reports its financial results for the third quarter. The fresh round of jobs cuts was first reported by the Financial Times. The pressure on costs comes amid declining confidence among shareholders in the bank’s turnaround plan, which has been led by Bill Winters, who took over as chief executive in June 2015.
Fears that a newly revved-up, second-hand jalopy owned by Ebay would shunt Auto Trader’s business out of the way sent shares in the online car marketplace careering on to the hard shoulder. More than £240 million was wiped from the market value of Auto Trader Group (AUTO) after Gumtree, part of the Ebay online auction group, said that it had agreed to buy the Motors.co.uk classifieds site for an undisclosed sum. Between them, Motors, Gumtree and Ebay will offer more than 620,000 listings to ten million prospective car buyers, although there was no indication that the new owner would pool them into one. Either way, it dwarfs the 450,000 vehicles up for sale at any one time on the Auto Trader site, the dominant force in the buying and selling of second-hand cars, with ten million deals going through its site each year.
Unilever (ULVR) was back on form after suffering earlier in the week as dealers decided that better sales figures for the consumer goods group over the third quarter were more important than the weak volumes it had reported. Unilever picked up 124p, or more than 3%, to £41.10½ and its rival Reckitt Benckiser Group (RB.) followed it higher, adding 243p to £67.14.
Diageo (DGE), which makes Tanqueray gin and Smirnoff vodka, was pushed up 76½p to £27.01 after Rémy Cointreau, the French spirits group, reported stronger second-quarter trading than had been expected, lifted by premium cognac sales in China.
With the price of a barrel of Brent crude hovering around the $80 a barrel mark, energy groups were gainers. Centrica (CNA), the owner of British Gas, rose 2p to 149¼p, while Royal Dutch Shell ‘B’ (RDSB) shares gained 37p to £25.69.
Ashtead Group (AHT) suffered from the impact of a profits alert at Bouygues, the French conglomerate, that highlighted problems in construction, and the equipment rental business favoured by smaller builders fell 36½p to £19.
Brexit turbulence and a profits warning at Wizz Air Holdings (WIZZ) earlier in the week ate away at easyJet (EZJ), which was hit, too, with a broker downgrade. Its shares dropped 72p to £10.68. International Consolidated Airlines Group SA (CDI) (IAG), the owner of British Airways, lost 18½p to 557p.
InterContinental Hotels Group (IHG) fell 147p to £40.70 after the group reported lower quarterly revenue per room at its Amwerican business, highlighting wider worries about the health of the tourism and leisure sector.
Essentra (ESNT), a plastics specialist, added to the gloom gripping the paper and packaging sector as it reported flat underlying revenues in its third quarter. Essentra shares tumbled by 8%, or 31¾p, to 354p. Smith (DS) (SMDS) fell 18¾p to 385p and Mondi (MNDI) dropped 20p to £18.11.
China’s weaker gross domestic product knocked Renishaw (RSW), the precision engineer, only a day after it had delivered reassurance about the prospects in its key market. Its shares lost 10% to close down 428p at £37.64.
Petrofac Ltd. (PFC), up 7¾p to 594½p, after a consortium involving the oil and gas refineries specialist won a $4 billion contract for a clean-fuels project in Thailand.
IP Group (IPO), which invests in companies with developable intellectual property, was given a boost, rising 1½p to 112p, after the team at Berenberg initiated their coverage with a “buy” recommendation and a price target of 160p.
Zegona Communications (ZEG) said that it would be looking to its investors for up to £225 million in order to try to increase its stake in Euskaltel, a struggling Spanish technology and telecoms group, to just under 30 per cent. Under Spanish regulations, increasing its stake would give Zegona four seats on the board, up from one. Shareholders in the £140 million vehicle previously have committed in principle to investing as much as £3 billion in its ventures, so they knew that a move like this one was coming and the group’s stock increased by a penny to 112½p.
