TODAY’S FAYRE – LLOYDS, MORRISON, BALFOUR, NEXT & MARKETS

TODAY’S FAYRE – Tuesday, 30th September 2014

“All Nature seems at work. Slugs leave their lair –
The bees are stirring -birds are on the wing –
And Winter slumbering in the open air,
Wears on his smiling face a dream of Spring!
And I the while, the sole unbusy thing,
Nor honey make, nor pair, nor build, nor sing.

Yet well I ken the banks where amaranths blow,
Have traced the fount whence streams of nectar flow.
Bloom, O ye amaranths! bloom for whom ye may,
For me ye bloom not! Glide, rich streams, away!
With lips unbrightened, wreathless brow, I stroll:
And would you learn the spells that drowse my soul?
Work without Hope draws nectar in a sieve,
And Hope without an object cannot live.”

Samuel Taylor Coleridge – poet – 1772-1834

Tom Watson is my all-time favourite golfer – very talented and a gentleman. Like everyone else I am sure he has human failings, but he did not deserve the treatment meted out to him by Phil Mickelson so soon after the US was vanquished on the golf course at Gleneagles. The corpse of defeat was still cold and riddled with rigger–mortis. Tom may not have been a great captain, but the last action a member of the team should take is to lay out the ‘dirty-linen’ until the dust has settled – very bad form!

Like many other market observers I am slightly in fear over the protests by students in Hong Kong, who insist on having a say in who will be the colony’s next leader. Hong Kong may appear to be democratic but it is part of China, which is not. I fail to see how these students can win, even if the demonstrations remain peaceful. When HK left the UK’s jurisdiction in 1997, it surrendered the right to enjoy totally autonomy. The Hang Seng fell nearly 2% yesterday and was down another 1.41% at lunch today. The Hang Seng is now in negative territory for the year. Markets dislike uncertainty; so this impasse needs a very quick resolution, otherwise there could be more pain to come. I was hugely interested that student communication comes more often than not through ‘firechat’ in an attempt to avoid attracting the attention of the Chinese authorities. How long that works remains to be seen.

Yesterday the HK student demonstrations, where 74 people were arrested and the threat of higher interest rates in the US being implemented sooner rather than later, took the froth off the Street of Dreams. The DOW and the S&P 500 both eased by 0.25% and the NASDAQ by 0.14%. Ford posted dire sales figures for August thanks to recalls and weak demand – shares down 7% after hours. China has given the go-ahead for Apple to sell is iPhone 6. Asia did not enjoy a great session this morning with Japan’s NIKKEI down by 1.37% thanks to poor consumer spending and the adverse effect from the implementation of its sales tax.

London pondered its over-sized navel for most of the day, but the level of activity was very limited with the FTSE 100 ending down 2 points at 6646. There was rather more interest in George Osborne’s plans for limiting taxation on pensions and for his bold and necessary plans to cut the deficit by £25 billion in the next 2 years, than the mind-blowingly and balls-achingly levels of inertia that prevail in share dealing in London. There is still so much fat in the public sector that can be cut from dodgy welfare to technology expenditure, which has been dangerously profligate for years!

September has been the worst month of the year so far for equities, with the NASDAQ falling by 1.6%. Russia’s RTS Index has lost 20% so far from its peak in June – now entering bear market territory.

There were several interesting developments yesterday. Balfour Beatty posted its 5th profits warning in 2 years. Having dispensed with CEO Andrew McNaughton’s services in May, Steve Marshall had his work cut out explaining the need to write off £25 million of regional building and infrastructure projects. The fact remains Balfour Beatty does not have enough contracts particularly government ones and should have sold its US interest in Parsons Brinckerhoff and merged with Carillion. The proportion of any new company will surely now have changed. Balfour’s share price has dropped by 42% since March and by 33% since yesterday!

As if Sir Richard Branson wasn’t rich enough already. He owns 42% of Virgin Money, which seeks a £1.5 billion IPO quotation in London soon. Virgin Money is run by Jane-Ann Gadhia, an E&Y accountant with experience gained later on at Norwich Union, before becoming CEO of Virgin. Her first chairman was the much respected Sir Brian Pitman – he of the great Lloyds Bank days before the debacle – gave her sound advice before his untimely death. Virgin bought the good parts of Northern Rock for £747 million and then later on added some mortgage assets and a credit card portfolio. Last year Virgin Money posted a profit of £59.7 million. I am sure this business is as sound as a pound, but I cannot help thinking that it is a marketing tale and Virgin Money probably won’t eat too heavily in to the high street business – a decent boutique? – Probably, as will Aldermore prove to be, under Philip Monk, ex-Barclays.

Much was written about the ascendancy of Aldi yesterday. Market share had increased from 4% to 4.8% so far this year. Tesco has dropped from 31% 2 years ago to 28.8% and ASDA, which has performed adequately in recent months to 17.4%. We wait with bated breath for Sainsbury’s trading update tomorrow, when a drop in like for like sales may be as depressing as -3-4%. There is also a rumour that the rotten apples from Tesco’s trees may well have been well and truly shaken off. So perhaps the £250 million over-exaggeration of profits is where it really is. The auditors would surely have advised that the worst possible financial position should be posted. Here’s hoping!

Yesterday Lloyds Banking Group Chairman Lord Norman Blackwell and CEO Antonio Horta-Osorio announced that 8 staff have been dismissed for fixing LIBOR on Yen and Sterling trades and had forfeited their joint bonuses of £3 million. The bank was fined £218 million by the FCA for these transgressions. It will be interesting to see whether any criminal proceedings are brought against any of these individuals. If there are allegations to answer, why not?

Next’s sales in August were strong, but unseasonably warm weather has adversely affected trade in September. Consequently quarter 3 sales are only up 6% rather than the expected 10%. Wolseley’s results for the year saw a 6.1% increase in revenue with profits up 6.8% to £761 million with EPS 9.9% ahead of last year with a 25% increase in dividend to boot!

Finally the FCA has charged the former treasurer at Wm Morrison with insider dealing in shares of Ocado during the period when the two retailers were planning a £200m joint venture. Paul Coyle who was also head of tax was charged with offences related to trading in shares in Ocado between February and May 2013.

UK companies posting numbers – Tuesday – ICAP, WONGA, DMGT (TS), QINETIQ (TS), Wednesday – J SAINSBURY (TS), Thursday – DOMINO PIZZA, TED BAKER, Friday EASYJET (TS).

These are David Buik personal views

Twitter – @truemagic68

David Buik

Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
http://www.panmure.com – The information in this e-mail and any attachments is confidential and may be legally privileged. It is intended solely for the addressee(s). If you are not an intended recipient, please delete the message and any attachments and notify the sender of miss-delivery: any use or disclosure of the contents of either is unauthorised and may be unlawful.

David Buik
Market Commentator

D +44 (0)20 7886 2775
Panmure Gordon & Co
One New Change | London | EC4M 9AF | United Kingdom
http://www.panmure.com

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