10 ★ FINANCIAL TIMES Thursday22 August 2019It is frustrating when you are no longer
the next big thing. Upstart mortgage
lender OneSavings Bankyesterday
reported rapid expansion in its loan
book. Growth this year would be in the
high teens, it said. A return on equity of
23 per cent in the first half should
make incumbent banks weep, even if
down from 26 per cent a year earlier.
OneSavings’ shares still dropped 5
per cent, extending their fall over the
past year to 24 per cent.
Some scepticism was warranted.
More profitable challenger banks were
once the future. They will not escape a
UK mortgage price war, nor the
potentially disastrous impact of a
chaotic Brexit on housing and funding
markets. Nevertheless, OneSavings,
which serves professional buy-to-let
buyers, may be better placed thanrivals.
True, net interest margins fell more
than expected in the first half. Older
books of business were refinanced at
lower rates. This effect had “largely run
its course”, the bank argued. It,
nevertheless, showed mounting
competitive pressures.
Unlike other challenger banks, it is
tightly focused on one sector of a
volatile housing market. But One-
Savings shows signs of maturing well. It
plans to acquire Charter Courtin an
all-share deal valuing its similarly
specialist rival’s equity at £670m. That
will scale its business. Professional
clients should also be better than the
public at playing a housing market
downturn.
Listed five years ago, OneSavings
shares initially outperformed the UK
banks sector. In the past two years they
have merely traded more or less in line
with larger peers. At just 1.3 times
tangible book value, the share price is
cheap relative to its high profitability.
Returns on equity should remain about
20 per cent for at least the next two
years, reckons Panmure Gordon. Brexit
clouds such forecasts in uncertainty, of
course. But if the outcome this autumnOneSavings Bank:
one directionis less worse than the market fears,
OneSavings should be quicker than
most in staging a comeback.Mariners once feared cries of “avast!”
as marauding pirates boarded their
vessels. Cyber crooks now curse the
UK’s eponymous online security group.
This month, Avastreported first-half
sales were 9 per cent higher, while new
billings gained 13 per cent. Customers
are increasingly paying for protection
against online privateers keen to
appropriate personal data.
Since its IPOin May last year, shares
in Avast have risen 30 per cent. ItsAvast:
sails, multipleantivirus software, which can be
downloaded free, is driving sales of
complementary products such as
Avast’s Virtual Private Network and its
anti-tracking software. The latter
prevents advertisers from targeting
users online. Ads reflecting deep
knowledge of a person’s habits can
easily feel like stalking.
Sales of non-antivirus products now
account for more than half of revenues
from consumers, against 35 per cent in- This is generating plenty of
operating cash flow, which was 6 per
cent higher at $176m in the first six
months. But the focus on slower-
growing consumer software means a
discount to UK cyber security peers.
Avast’s enterprise value to this year’s
free cash flow is 17 times, says Jefferies.
Sophos, which focuses on smaller
businesses, trades closer to 30 times.
Critics will point to US consumer
antivirus giant Symantec. Falling sales
have made the company a Jonah to be
avoided by investors. Its shares have
barely moved over the past five years.
Profit margins tend to be lower in the
consumer sector than at companies
providing business enterprise software
and cloud solutions. But Avast’s 55 per
cent ebitda margin outstrips Symantec
and most European peers.
There may be treasure buried in the
internet of things, reckons Avast.
Connected consumer devices provide
rigging for hackers to swing aboard
home networks — and an opportunity
to sell defensive products to security-
conscious consumers. Shares up 12 per
cent since the results should continue
to enjoy a fair wind and a following sea.US streaming services are as good at
upstaging one another as the big-name
actorstheyincreasingly employ. Apple’s
trailer for a flagship series featuring
Jennifer Aniston and Steve Carell this
week trumped Disney’s plan to launch
an online video service in November.
At first glance, both services are
contenders to defeat Netflix. But Apple
is not in quite the same fight as Disney.
Its plan is closer to that of Amazon.
Both groups hope to lure customers to
sign up to bundled offers. The
smartphone giant is adding video to
payments and music. The ecommerce
titan will provide streaming alongside
music and online shopping delivery.
Apple’s per-episode budget for
courtroom dramaThe Morning Show
might seem overblown — it is in line
withGame of Thrones, without a single
CGI dragon in sight. However, it makes
sense for Apple to invest in content.
Apple needs a few eye-catching
shows to add to its mix of other
services. Netflix and Disney only have
content. Topping up spendingfrom
$1bn to $6bn is not much of a stretch
for a company with free cash flow of
$64bn last year. There is no reason to
expect Apple to match Netflix’s
projected $15bn spend this year.
This may come as a relief to Netflix,
which recently missed subscriber
growth expectations. Disney will be the
real contender when it launches. Its
firepower of Marvel,PixarandStar
Warsis impressive. Netflix has a mix of
old licensed shows and new content
but Disney has a vast back catalogue.
In five years it expects to win up to
135m subscribers and make money on
its streaming app. Netflix has 151m
subscribers and has yet to break even.
Disney’s plan to undercut Netflix’s
$8.99 per month rates will not help.
Apple would do well to steer clear of
price rivalry. Its aim is to top up
revenue lost from users failing to
upgrade their phones, a saving that
costs Apple from $37 per month.
Apple needs to convince users that
Apple videos plus music, gaming and
news are worth a similar sum.Apple/Disney/streaming:
bundles of joyHong Kong protests are making an
impact.Alibabahas delayed an up to
$20bn listing in the city, according to a
Reuters report. Pressing ahead with the
Chinese ecommerce giant’slisting—
Hong Kong’s biggest in a decade —
might have annoyed Beijing. But few
have more to lose than mainland
Chinese investors if Hong Kong’s
position as a financial hub falters.
Beijing holds the key to the listing’s
success. Alibaba’s structure hands
disproportionate control to a small
group of partners. Current regulations
ban mainland investors from investing
in companies with weighted voting
rights. Without a nod from regulators,
Alibaba’s listing might not be included
on the Shanghai-Hong Kong Stock
Connect, where mainland investors can
access shares.
The same rules prevent the listing
from moving to China’s main
exchanges. Foreign investors prefer it
that way. They value the Hong Kong
dollar’s US peg, judicial independence
and an ability to take capital out easily.
Over three-quarters of Chinese
companies’ funds are raised in Hong
Kong for this reason.
The listing could resume as early as
October if tensions ease. Alibaba can
shrug off the delay. It does not need the
cash. Annual free cash flow is nearly
$17bn. But for Hong Kong, it is a
significant setback. The delay raises
red flags to the world around its status
as a top financial centre. Stock
exchange ownerHong Kong Exchanges
and Clearing, which has lost its number
one spot for IPOs to New York this
year, has suffered a 21 per cent drop in
trading fees in the first half. The Hang
Seng is down more than 11 per cent
since protests started. The HK dollar is
at the weakest end of its trading band.
For Chinese tech companies,
Alibaba’s listing would have been the
catalyst to end the US-listing trend. But
recent events could mean mainland
investors continue to miss out on the
spectacular returns these unicorns
have brought to investors elsewhere.
Alibaba shares are up 156 per cent in
the last four years.
Mainland China can do without
Hong Kong in many areas. But
accessing offshore funding is not one of
them. A complete overhaul of itsAlibaba IPO/HK protests:
pause and effectfinancial system would be required to
create a suitable local alternative.
Until that day comes, China will have
to decide which it dislikes more: the US
markets taking its tech companies or
Hong Kong’s protesters.CROSSWORD
No. 16,252 Set by AARDVARK
JOTTER PAD
ACROSS
1 South American relations found
somewhere in the south (6)
4 Spam Irishman knocked back on
boat (4,4)
9 Mark, in language education
books, retrospective (5)
10 Can fellow reduce the price of
spring plant? (9)
11 Restricted by a particular map,
Earl’s up the creek without a
paddle (7)
12 Astronaut’s injury seen in sick bay
(7)
13 Male Norwegian writer I knew
somewhat (4)
14 Graduate wrongly dates a piece of
furniture (8)
17 Good beams of light mature plant
in US (4,4)
19 It’s a performance, making
American the ultimate cheese (4)
22 Company united in disorderly
hunt, using coarse language? (7)
24 Expert holds religious class on
Bible about sin (7)
25 Prohibition police backed after
Italian club trashed at front (9)
26 Son’s removed from European
island in a chilling way (5)
27 Mike, during school dance, initially
lacking sentimentality (8)
28 One in five children outwardly
consume fruit (6)
DOWN
1 Paddy’s conserving time
and energy on unknown
Mediterranean resort (2,6)
2 Roger inside gulps gin, flagrantly
having a binge (9)3 Archdeacon supports celeb
swiping boundaries for cricket
team (6)
5 Novel, small gift for president
( 7,1 , 5 )
6 Dotty liked to tour yearly,
essentially a county in Eire (7)
7 Afloat, plan to keep foundations
of business somehow (5)
8 Vocal band careless about track
name (6)
10 Fighter plane’s gentlemen
maintaining electronic check by
hand (13)
15 The German and Italian painter
one advises about greens? (9)
16 Given a month, European told to
publicise Victorian work (4,4)
18 In American university, Queen
song tanks (7)
20 Throwing game ceases around
two in morning (6)
21 Doctor drinks the greatest, most
superior cocktail (6)
23 Understand cat confused in
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Manila Thunder 30
Melbourne Cloudy 13
Mexico City Rain 24
Montreal Fair 25
Moscow Cloudy 23
Mumbai Cloudy 30
Munich Sun 23
Nairobi Fair 25
New York Fair 33
Oslo Shower 16
Paris Sun 27
Perth Shower 23
Prague Sun 23
Rio Rain 21
Rome Sun 30
San Francisco Fair 23
Seoul Sun 30
Shanghai Fair 32
Singapore Fair 32
Stockholm Fair 21
Sydney Shower 17
Taipei Fair 33
To k y o Thunder 32
Toronto Fair 25
Vancouver Fair 20
Venice Sun 28
Vienna Rain 23
Washington Thunder 35
Wellington Sun 14
Yangon Thunder 29
Zurich Fair 24
Amsterdam Sun 22
Athens Sun 34
Bangkok Thunder 33
Barcelona Sun 30
Beijing Fair 33
Berlin Sun 27
Brussels Sun 24
Budapest Sun 30
Buenos Aires Sun 15
Chicago Cloudy 25
Copenhagen Sun 21
Dallas Sun 38
Delhi Fair 33
Doha Sun 39
Dubai Sun 39
Dublin Cloudy 20
Edinburgh Rain 18
Frankfurt Sun 27
Geneva Fair 25
Hamburg Sun 26
Hong Kong Sun 32
Istanbul Sun 31
Jakarta Fair 33
Johannesburg Sun 22
Karachi Cloudy 31
Kuala Lumpur Fair 31
Kuwait Sun 47
Lisbon Sun 33
London Sun 25
Los Angeles Fair 25
Luxembourg Sun 25
Madrid Sun 33
Today’s temperatures
Forecasts by
Wind speed
in KPH
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29
Lex on the web
For notes on today’s breaking
stories go towww.ft.com/lex
Twitter:@FTLex
The fear that US capitalists are
greedily eyeing UK assets is giving
Britons fits of the vapours. It would
be bad enough if the US used a trade
deal to privatise the National Health
Service. Even worse, activistNelson
Peltzmay make off with Ferguson,
proud British supplier of plumbing
components, relisting the company
in the US where it makes most of its
profits.
Mr Peltz thinks the switch would
unlock a discount in the shares
compared with US peers. Three-
quarters of investors would need to
agree for the move to proceed. That
could be difficult to achieve. Two-
fifths of investors are UK-based.
Some have mandates requiring them
to invest only in UK-listed stocks.
Ferguson has already changed its
name from Wolseley to match its US
brand. It has also started reporting in
dollars, and has some American
depository receipts too. US investors
hold roughly the same number of
shares as those in the UK.
Executives may privately favour the
switch Mr Peltz advocates in public —
pay rates for bosses are typically higher
in the US. But they are managers, not
majority owners. Dissenting
shareholders succeeded in derailing
Unilever’s attempt to abandon the UK
and consolidate its headquarters in the
Netherlands last year.
The size of the Ferguson share price
discount is debatable. Ferguson has no
directly comparable US peer to value it
against. In some markets it competes
with Home Depot. Shares in the US
home improvement retailer trade at
a 50 per cent premium. But Ferguson
also competes with Home Depot
spin-off HD Supply, which carries no
premium. Analysts at Berenberg
think on average Ferguson’s discount
has been about 10 per cent over the
past decade. That is hardly a
disgrace, given that the UK market
has historically had a lower
valuation.
For shareholders, the benefits of
moving the listing do not currently
outweigh the risks. UK funds should
ask whether Ferguson’s slow
westward shift is intended to nudge
them off the register, as well as to
make the most of a healthy US
construction market.
FT graphic Sources: S&P Global; Thomson Reuters
UK US Norway
US institutions are large shareholders
Shares outstanding ( )
Valuation v US peers
EV as a multiple of ebitda
Ferguson
Home Depot
Lowe’s
HD Supply
BlackRock
Fidelity
Trian
Norges Bank
Harris Associates
Vanguard
Newton
Davis Selected Advisers
Fiduciary Management
Janus Henderson
Nelson Peltz/Ferguson: many fauceted problem
The US activist is calling for the FTSE 100 plumbing supplier to move its listing to the US, expecting a
re-rating to increase the company’s value. Lack of a direct US comparator makes that logic questionable.
US investors would probably support a move that some UK investors would be forced to reject.
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