BT spins off sport and cuts its pension deficit
BT (BT.) is pushing on with investment in its fibre optic network Openreach and its 5G service. To minimise distractions, the telecoms company has spun off BT Sport into a joint venture with Warner Bros Discovery – which will bring together BT Sport and Eurosport.
The roll out of fibre optics is progressing well. Annualised cost savings now total £1.5bn and the target has been increased to £2.5bn by the end of 2025. This lowering of costs helped push up adjusted cash profits (EBITDA) by 2 per cent despite a 2 per cent fall in revenue.
The fall in revenue was due to decrease in sales for its Enterprise and Global division, which fell 5 and 10 per cent respectively. Management blamed this on “well-known market challenges”. Amidst these challenges it is pleasing to see Openreach improve revenue by 4 per cent and adjusted cash profit by 8 per cent.
The other upside – and a direct positive result from the “market challenges” – is the big reduction in the pension deficit. The pension deficit fell from £5.1bn to £1.1bn in a large part thanks to the interest rate rises that have been implemented to tackle inflation. It’s always nice when there is a silver lining. AS
Salmonella discovery downs Cranswick’s shares
Cranswick’s (CWK) shares fell by more than 5 per cent after the company revealed that it has temporarily closed its Hull facility due to the discovery of Salmonella in some cooked chicken products.
In a statement on their website, the poultry and pork processor said that “a routine internal inspection has identified the presence of Salmonella in a limited number of cooked chicken products prepared at our poultry facility in Hull”.
Cranswick advised that its customers should remove products containing ready to eat chicken, which are sold by retailers and takeaways, and said they are working with the Food Standards Agency to deal with the situation.
Peel Hunt analysts said the share price reaction was “out of all proportion to the scale of the issue” and that this sort of food safety event is usually resolved in under a week. CA
Rolls-Royce benefits from return to the skies
Rolls-Royce (RR.) reported a recovery in the number of hours its planes were in the air as passenger demand picks up on routes where travel restrictions have lifted.
Long term service agreement flying hours (LTSA) in the first four months of 2022 were up 42 per cent on the same period last year, as air travel in Europe and the US has picked up even if much of China remains grounded. The company also said 12 of its Trent XWB-97 engines will be used by Qantas for its Project Sunrise initiative to offer direct flights from Australia to London and New York. Overall trading remains “in line” with guidance, with margins in its defence business likely to be lower as it invests more to support long-term programme wins. The company also said its SMR business designing small nuclear reactors has begun a “multi-year” design assessment process. The company’s shares were flat amidst a broader sector sell-off on Thursday,
Rolls-Royce expects the €1.7bn (£1.45bn) sale of its ITP Aero sale to complete this by the end of June, with the proceeds being used to pay down debt. A strengthening balance sheet, an expected return to positive cash flow by year end and good, long-term prospects for the company’s end markets are the main drivers behind our buy recommendation. MF
Landsec agrees to sell Strand building
Landsec has agreed to sell a building on the Strand, London, to a Singaporean developer for £195mn. The sale of the mixed-use office and retail asset at 32-50 Strand is expected to complete next month. Shares in Landsec continued to fall this morning – dropping another 2 per cent having fallen 10 per cent so far this year.
Chief executive Mark Allan said the cash from the sale would “fund long-term growth and new acquisitions to drive returns for shareholders”. The news comes after the company yesterday launched a regeneration business which it said would “create value through impactful regeneration”.
The Strand asset, which was refurbished in 2012, comprises 139,000 square feet of retail and office space over the basement, ground and eight upper floors. It is located at the western end of the Strand, near Charing Cross station. ML
Ferguson heads stateside
Plumbing wholesaler Ferguson (FERG) completed its switch to the US, with its primary listing shifting to the New York Stock Exchange. Its premium listing on the London Stock Exchange has now been cancelled, although it will maintain a standard listing.
Shareholders voted overwhelmingly in favour of the move at a meeting in March. Following the sale of its Woleseley UK arm last year, the company only operates in North America and chairman Geoff Drabble said it now has “the right listing structure for Ferguson to continue to grow”.
Ferguson’s shares could face some “short term technical pressure”, analysts from Credit Suisse said, given that about 10 per cent of its current share base is made up of passive funds tracking UK indices and that it will not immediately qualify for S&P index inclusion in the US.
Although Ferguson’s shares are currently valued below US peers, the bank cut its price target on the company’s shares on more cautious medium-term growth assumptions. The target price of £103.65 still represents an uplift of more than 10 per cent on its current valuation, though. MF
Superdry tests ‘premium’ revamp
The road to recovery for Superdry (SDRY) could be a long one. The faux-Japanese fashion brand’s shares fell by another 4 per cent on Thursday, adding to a 44 per cent drop year-to-date, after saying it remained “cautious” on the impact of inflation in the coming year.
Superdry’s overall sales rose by 8 per cent to £600mn in the year to 23 April, as in-store sales bounced back post-Covid. Online sales dipped by 24 per cent to £153.4mn after being dragged down by lower promotional activity against the previous year.
Chief executive Julian Dunkerton said he expected a “strong gross margin improvement for FY22” as the brand cuts discounts in favour of full-price clothing sales and raises prices by 2 per cent to cope with inflation.
Superdry’s ‘premium’ revamp, announced after the brand’s £12.6mn PBT loss last year, could be more challenging as consumers face a growing cost of living squeeze. “As we head into FY23 we remain cautious on the macroeconomic outlook and the impact of inflation but are confident that our strategy is positioning the brand for future success,” said Dunkerton. MT.
Private equity swoops back in on the UK
The recent share price rout and sterling weakness leaves UK companies more vulnerable to takeover bids from private equity, the manager of the SDL UK Buffettology fund (GB00BF0LDZ31) has warned.
Keith Ashworth-Lord has seen investors bid for two companies held by the £1.2bn fund in recent weeks. RWS Holdings (RWS) announced in April that the Baring Private Equity Asia Fund VIII was weighing up a takeover bid, while Homeserve (HSV) has been in talks with Brookfield Infrastructure after receiving “a number of proposals” from the firm.
Ashworth-Lord warned that while much of his portfolio had held up well operationally amid recent uncertainty, steep share price falls and the recent weakness of sterling versus the US dollar could see more UK companies taken off the market. The pound has been trading at its lowest level since early 2020.
“We are seeing the companies are doing fine,” he said. “The thing that has caused pain is simple derating and multiple compression. It’s a worry then that private equity is coming in and snapping them up.”
He added that three other companies backed by the team, NCC Group (NCC), RM (RM.) and Paypoint (PAY), looked most vulnerable to possible bids on the back of extreme share price weakness.
“They’re the three that look like ducks with guns pointed at them,” he said. “I fear they end up in a P2P (public to private) trade and we get cheated out of our ownership. I think these things could have doubled their share price in two or three years. It’s going to get stolen off me.”
UK companies have already seen private equity firms turn acquisitive in the last year or so, while signs have already emerged of that continuing into 2022. Activity in the listed Reit space has raised eyebrows, for one. DB
Hargreaves Lansdown’s assets drop
Hargreaves Lansdown’s shares tumbled 7 per cent when markets opened as the investment platform reported that assets under management fell to £132.3bn at the end of April, from £141.2bn at the end of last year.
Assets in the group’s funds saw the largest fall, dropping by £6.1bn from the end of December to the end of April, while assets in listed securities fell by £4.5bn. Net new business for the first four months of the year was £2.5bn for the trading period, compared with the £3.03 billion average estimate of analysts surveyed by Bloomberg.
“The challenging backdrop driven by unprecedented macro-economic and geo-political events has impacted markets and investor confidence,” said Chris Hill, chief investment officer at Hargreaves Lansdown. MM
Softbank’s Vision goes blurry
Investors in Japan’s Softbank will likely be owed a bow of apology after huge write-downs in its controversial “Vision” fund led to a pre-tax loss quarterly for the overall company of 2.1 trillion Yen – its biggest ever. The Vision fund alone posted a $27bn (£22bn) writedown on the value of its technology investments. The main culprits seemed to be Chinese technology companies with ride hailing app DiDi (DIDI), Coupang (CPNG) and Grab (GRAB) all suffering losses. Management blamed this on overhang concerns and regulatory tightening, in addition to a lack of investor appetite for high-growth technology stocks at a time of higher interest rates. JH