The gloom infecting the high street is spreading online, with more than 9,000 internet retailers reported to be suffering from significant financial distress. Bricks and mortar stores have endured a slump in sales in recent years as more shoppers shun the high street and shift online, driven by the ease of smartphone ordering and quick deliveries. However, new evidence shows that online retailers are also struggling amid savage discounting, steep return costs and stiff competition. The number of online retailers in distress has risen by 65% over the past three years to 9,000, according to Begbies Traynor Group (BEG). While there are significantly more high street retailers in distress, at 17,893, this number has plateaued since last Christmas.
Manufacturing is booming in the Conservative heartlands of southeast England but in the newly blue former “red wall” constituencies of the West Midlands and northwest the picture is far gloomier. Those are the headlines from Make UK, formerly the engineering employers’ federation, in its quarterly snapshot of industrial confidence. The southeast is, after the northwest, the second largest manufacturing region, employing 400,000 people. The report by the employers’ federation found that member firms in the southeast were well ahead of those in the regions, sometimes by a substantial margin, in terms of output, orders, employment and investment.
The business secretary intervened in the takeover of a West Midlands aerospace company by a Chinese concern at the same time that she was waving through the controversial takeover of the UK aerospace business Cobham (COB) by an American private equity firm. Late on Friday Andrea Leadsom gave the green light to a £4 billion takeover of Cobham by Advent International despite fears that important UK technological knowhow was being sold off. On the same day, she took steps to block the takeover of a smaller rival, Mettis Aerospace of Redditch in the West Midlands, after its private equity owners agreed a deal with Ligeance Aerospace Technology, a company based in China and owned by Aerostar, a fund incorporated in the country.
Activist investors are thought to be turning their attention to a potential break-up of Aviva (AV.) after its chief executive refused to pursue a radical split of the business. Maurice Tulloch has pushed through a strategy to run its life and general insurance businesses separately, reversing his predecessor’s attempts to integrate the two and cross-sell products. However, the City had been hoping for a more dramatic break-up. It believes that a potential sale or listing of one of the divisions would revive the share price. Aviva is understood to have considered a dramatic separation of the business and discussed it with the board and advisers before Mr Tulloch opted for a watered-down alternative. Investment bankers believe that a separation could boost Aviva’s £16.3 billion market value by as much as £3 billion, according to The Sunday Telegraph, which first reported the threat of activists.
NMC Health (NMC) accused hedge funds of colluding to damage its share price as it stepped up its counterattack on Muddy Waters whose report into the company on Tuesday has resulted in its share price halving. Muddy Waters said in its 34-page report that it had “serious doubts” about NMC’s financial statements, including its asset values, cash balance and reported profits and debts. The healthcare group has passed information to the City regulator, alleging that a group of hedge funds colluded with analysts and acted in “systematic fashion” to send the shares lower. The latest regulatory filings show four investors holding a combined 4.9% short position, although Muddy Waters is not among them. This suggests that its position is smaller than 0.5%, the level at which disclosure is required. Those listed are Gladstone, Psquared, AQR and Polar. All four were contacted for comment and there is no suggestion that these are the alleged funds. Separate figures from IHS Markit, the data company, shows that 12.2% of the shares were out on loan, a proxy for short-selling, on the eve of the Muddy Waters report. This represented £659 million by value, the highest of any British company, and 26% of its free float. NMC did not name the research firms allegedly colluding with the unnamed hedge funds.
Lloyds Banking Group (LLOY) has promised to award £35,000 each to nearly 200 fraud victims after criticism of how it treated small business owners whose livelihoods were damaged or destroyed by the HBOS Reading scam. The decision to make the special payment to 191 victims comes as the bank seeks to respond to concerns over extra delays caused by a new review of the bank’s compensation scheme. Details of the payments were first reported by the Financial Times. Lloyds agreed to reassess damages claims after Sir Ross Cranston, 71, a retired High Court judge, concluded this month that the bank’s redress scheme had “serious shortcomings”. The Cranston review was launched in May in response to complaints from victims about an earlier independent review led by Russel Griggs, a banking adviser. The Griggs review paid out £80 million in compensation but has been blighted by allegations of flawed methodology and inconsistent payouts.
Takeaway.com was close to securing victory in the £5.5 billion bidding battle for Just Eat (JE.) after its rival for the British food delivery group threw in the towel. Naspers, bidding through its Dutch subsidiary Prosus, announced that it no longer planned to make market purchases of Just Eat shares in support of its 800p-a-share cash offer. Though its offer remains effective until January 10, the announcement is a clear admission of defeat. One source familiar with Prosus’s approach said: “They were in it to buy the whole company, not to end up as a minority shareholder.” The step back by Prosus follows Thursday’s dramatic events when, in less than an hour, both suitors sweetened their bids and declared them final.
M&C Saatchi (SAA) has been hit by a row with a contractor who alleged it had overcharged a client by inflating the number of hours he and other staff had worked. The advertising agency launched an investigation after the contractor claimed that one of its South African subsidiaries, Creative Spark, was overcharging a client in the healthcare sector by hundreds of hours. M&C Saatchi disputed his claims and said the investigation had found no evidence of wrongdoing, with the client reappointing the agency. It said the allegations were an attempt to damage the agency and ensure it lost the contract to service Medscheme. However, The Sunday Times has seen WhatsApp messages in which staff in South Africa appear to discuss how to inflate the number of hours billed.
The British branch of the billionaire Weston family’s empire has paid a £101m dividend as profits grew at Primark. Wittington Investments, the family’s main operating vehicle in Britain, posted a slight rise in pre-tax profits to £1.3bn on sales of £16bn in the year to September 14. Almost 80% of the payout will go to the Garfield Weston Foundation, as it owns the majority of Wittington’s shares. The rest will be split between the family. It beats the previous payout of £92m. Some 97% of Wittington’s profits come from its majority stake in Associated British Foods (ABF) as well as discount fashion retailer Primark. George Weston, 55, is ABF’s chief executive. Wittington also owns high-end grocer Fortnum & Mason.
Babcock International Group (BAB) believes it has identified the anonymous analyst behind a damaging attack on the company. Babcock, one of the Ministry of Defence’s biggest suppliers, was blindsided in October last year when a previously unknown organisation, Boatman Capital Research, published a highly critical dossier. The report claimed the company had “systematically misled investors by burying bad news about its performance”, and called for the departures of chief executive Archie Bethel and then chairman Mike Turner. The 23-page attack wiped more than 5%, or £130m, from the company’s market value. Babcock published a rebuttal, claiming the report contained “many false and malicious statements”. The board hired the investigative firm Kroll to trace the author. It is believed to have identified David Robertson, a former journalist at The Times who worked at the corporate intelligence firm K2 and now runs his own company. Babcock is believed to have written to Robertson, 46, warning him to cease and desist, but is not thought to be taking further action.
Debenhams (DEB) has spooked landlords by seeking fresh rent cuts just seven months after they were slashed in a restructuring, raising fears over its survival prospects. The retail chain is said to be targeting a further 25% reduction on about 20 stores in exchange for scrapping break clauses in the leases. The move has sparked panic among some property owners, who have sounded out rival Mike Ashley about taking on the sites when the break clauses become active.
Boris Johnson has defended the controversial £4bn takeover of UK defence and aerospace company Cobham (COB) by a US private equity firm. The government approved the sale of Cobham to Advent International after the deal was delayed because of national security concerns. When asked during a visit to see British troops in Estonia how comfortable he was with the takeover, Mr Johnson said: “I think it’s very important that we should have an open and dynamic market economy. “A lot of checks have been gone through to make sure that in that particular case all the security issues that might be raised can be satisfied and the UK will continue to be a very, very creative and dynamic contributor to that section of industry and all others.”
David Wild, the divisive chief executive of Domino’s Pizza Group (DOM), has taken almost £3m of shares ahead of his expected departure from the chain. The 64-year-old, who has been locked in a spat with franchisees over profits, also cashed in £1.4m of the shares awarded as part of a long-term incentive scheme. The payday comes amid a series of top-level changes at the FTSE 250 takeaway group, which is under pressure from an American activist and is in the process of replacing Wild and the chairman, Stephen Hemsley. Wild, who took the top role in 2014 after working at retailers such as Tesco and Halfords, has been under fire for failing to resolve a fierce row with franchisees, some of whom have refused to open new stores.
Mitchells & Butlers (MAB) has risked sparking a row with investors by changing the way it awards bonuses to its boss without giving shareholders a vote. Mitchells & Butlers will now award part of chief executive Phil Urban’s share bonus — worth more than £1m a year if targets are hit — based on performance relative to a wide range of listed leisure and travel companies, rather than its immediate pub peers. M&B, which runs more than 1,700 restaurants and pubs, justified the decision in its annual report by saying rivals Greene King and Ei Group had come off — or were about to come off — the stock market following bids. It would reduce its peer group of pub companies to three. The decision to change the award was made by the remuneration committee and is permitted under the company’s remuneration policy, but it is understood there was no shareholder vote. The change could make it easier to hit bonus targets.
When Redrow (RDW) founder Steve Morgan sold a slice of his company the stock kept moving up. Although Morgan is no longer running the housebuilder — he retired in March — some in the City had felt his near-30% stake acted as a drag on the shares by reducing liquidity. He found plenty of buyers. Next to its peers, Redrow looks cheap. The shares are changing hands at all-time high prices, but the company trades at a discount of about 25% to the sector on both earnings and net asset value — key metrics. Like other builders, its margins have been fattened by the Help to Buy scheme. However, they are also higher naturally because Morgan scrapped cheaper designs, amassed a strong land bank and focused on Redrow’s flagship Heritage range of family homes when he returned in 2009, nine years after retiring for the first time. While he was away, the company fell into crisis. He forced his way back in with the support of hedge fund Toscafund. After 10 years turning the builder around, he was succeeded as executive chairman by John Tutte, previously chief executive. Jamie Fletcher, an analyst at research firm StockViews, has a bullish £12.50 price target. He expects margins of 20% to rise by 1.5 percentage points due to “unappreciated embedded value in the land bank”. While others say that is too optimistic — Fletcher’s assumptions need moderate house-price and build-cost inflation to come good — other factors suggest that Redrow is set fair. Boris Johnson’s “stonking” majority has provided much-needed political certainty, and Tutte reckons a stamp duty cut may be on the cards. Then there is the prospect of buyers rushing into Help to Buy before the scheme is restricted to first-time buyers in April 2021. Buy.
