Date: Tuesday 15 Jun 2010
London open City sources predict FTSE 100 will open down 38 points from yesterday's close of 5,202.
Stocks to watch
Supermarket giant Tesco said it is continuing to see evidence of a steady consumer recovery in Britain as it reported UK like for like (lfl) sales growth of 1.1%. With the effects of January’s VAT increase stripped out, UK lfl sales growth was 0.1% in the thirteen weeks ending 30 May. Total group sales increased by 8.2%, while growth excluding petrol was 6.9%. Tesco, which generates much of its revenue overseas these days, said the longer-term trends in its international business remain encouraging. Total international sales increased by 11.9% at actual exchange rates, excluding petrol (5.3% at constant exchange rates).
Housebuilder Bellway said uncertainty surrounding the new government’s fiscal policy has resulted in a slight reduction in visitor site visits and weekly sales rates. “Nevertheless, with a strong forward order book, net cash in the bank of £55 million and expected future margin improvement, Bellway remains well positioned to continue to deliver earnings growth,” it said. The group said it has maintained a sales rate broadly comparable with the same period last year, at 100 sales per week. Cancellation rates have remained stable at around 13%.
Fashion retailer Ted Baker has seen a spurt in sales in the year to date, with its wholesale business also seeing a marked upturn. Total group revenue jumped by 18% in the 19 weeks from 31 January to 12 June. Gross margins were maintained in line with expectations, it added.
In the Press
Rupert Murdoch’s News Corporation has made a bold approach to take full control of BSkyB, the satellite broadcaster in which it owns a 39% stake. The takeover approach, made last week, valued Sky at around £12bn. It was rebuffed by the Sky board for “deeply undervaluing” the company. One insider said: “There is still a meaningful gap between the two companies in terms of price,” the Telegraph reports.
Sir Fred Goodwin has been summoned by the Financial Services Authority to answer questions about Royal Bank of Scotland’s management in the run up to its near-collapse in October 2008. The bank’s former chief executive is understood to have struck a deal to meet FSA investigators at the office of his lawyers rather than at the regulator’s Canary Wharf office in an attempt to avoid publicity. The meeting is planned for today but last night sources said that it could be delayed, the Times reports.
Clive Cowdery’s Resolution is close to securing a ground-breaking deal to slash investment bank underwriting fees on a rights issue to fund a £2.75 billion acquisition of Axa’s UK life business. The Times has learnt that Resolution has devised a new underwriting model with its shareholders — who include some of Britain’s biggest institutional investors — to act as a co-ordinated group of subunderwriters on a deal, reducing the role of the investment banks.
Newspaper tips Engineering group Weir issued a surprise update yesterday, revealing that trading over the nine weeks to the 4 June had been stronger than expected. Particularly encouraging was the disclosure that original equipment orders had begun to increase. In terms of enterprise value to earnings before interest, tax, depreciation and amortisation, Weir trades on a multiple of 7.4 times. That compares favourably to a sector average of 7.8 times. Buy before that gap closes says the Independent.
3i stock is cheap enough to be interesting, but it will be a long time before the private equity industry returns to its glory days of the middle years of the last decade. As a listed group, 3i suffers from the sector's damaged reputation. Hold says the Independent.
What is really attractive about Mothercare from a long-term point of view is the group’s international franchise business in both Mothercare and the Early Learning Centre. The nice part about franchising is that it involves relatively little upfront investment from the company. The shares are trading on a March 2011 earnings multiple of 14.2, falling to 12 in the following year. The yield is 3.5%. The shares are once again a buy for the international growth says the Telegraph.
US close
US markets fell back near the close on concerns over the eurozone as Greece's debt was downgraded to junk status by another rating agency. Moody's downgraded Greece's debt rating today to follow the downgrade by Standard & Poor's a month ago.
Across the markets, the Dow fell 20 points to 10,190, with Nasdaq flat at 2,243 and the S&P 500 one point lower at 1,089.
There were some risers. Construction equipment maker Caterpillar and aluminium giant Alcoa led the Dow upwards.
JP Morgan was the worst performer. Investors are mulling weekend press reports that US banks might be forces to spin off their lucrative swaps desks.
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