CITY 453August 2019 THE WEEKThe poundcontinued to fall on currency
markets, sinking toa28-month low
against the dollar, after government
ministers toughened their stance on
Brexit–outlining thatano-deal outcome
is “nowavery real prospect”. In a
change of tone, theCBIalso appeared to
accept the possibility. Director-general
Dame Carolyn Fairbairn said businesses
facing “a daunting new reality” should
meet the challenges “inanew spirit of
pragmatism and flexibility”. The falling
pound helped push the FTSE 100 to its
highest level in 11 months, boosted by
aflurry of takeover deals.
TheUS Federal Reservewas expected
to cut interest rates at its meeting this
week, but by less than the 50 basis
point cut that President Trump has
been calling for. Traders in Britain
began pricing in the possibility ofaBoE
rate cut by December. US/China trade
talks resumed amid diminished hopes
of atransformative deal–there has been
little progress on knotty issues like US
intellectual property rights.
Google’s parent,Alphabet,overtook
Appleas the world’s most cash-rich
company, withahoard of $117bn;
Apple, which held the title foradecade,
has been making an effort to reduce its
reserves. Shares inJust Eat,the take-
away delivery website, jumped by 25%
on news that it’s agreed terms with rival
Takeawayin a£9bn merger.SoftBank,
the giant Japanese tech incubator,
launchedanew $108bn Vision fund,
this time without Saudi backing.Cobham:will it fall to US private equity?
Even Cobham’s most loyal fans probably wouldn’t describe it “as the jewel in the crown
of the defence and aerospace industry”, said Nils Pratley in The Guardian. The Dorset-
based firm–founded 85 years ago by aviation pioneer Sir Alan Cobham–has struggled
with its balance sheet lately. Yet it was still sad to hear that it’s poised to fall to private
equity, its board having agreeda£4bn takeover by the US firm Advent, “which will seek
to flog” it, “either whole or in parts”, in the next five years. Cobham has some “excellent
kit”: it specialises in air-to-air jet refuelling and recently supplied equipment to Nasa’s
Mars space laboratory mission. Indeed, having recently balanced its books, the company
could haveadecent chance of prospering on its own, said Alex Brummer in the Daily
Mail. Small wonder its biggest investor, Silchester, is wondering why chairman Jamie
Pike–aman withacareer history of selling the family silver–didn’t at least do more
to findahigher bidder. This contentious deal is an early test for the new Johnson
Government, said The Observer. Will it “seek favour with the US” and accept “anything-
goes-capitalism”? Or will it “live up to its nationalist rhetoric and intervene”? Either
way, this is only the start of “a buyout frenzy”. Private equity is awash with cash, and
the falling pound makes British companies look like red-hot bargains.
Centrica:Conn’s the word
By the end of 2019, British Gas owner Centrica will have shed around 10,000 employees
over four years–and now its boss is going too, said Cat Rutter Pooley in the Financial
Times. “Afterarumbling pay row”, Iain Conn is off. His departure coincides with a
£446m half-year loss and the second slashing of the dividend since he became CEO in
- Conn blamed those problems on the government price cap, which he claims has
cost British Gas £300m in profits. But that doesn’t explain the loss of 742,000 UK
customers, “lured away by rivals”, in 2018 alone, said Oliver Shah in The Sunday Times.
Restive shareholders justifiably baulked when he was awardeda44% pay rise to £2.4m.
Having lost two-thirds of its value in two years, the company–“onceacornerstone of
every income investor’s portfolio”–isnow “clinging on to its place in the FTSE 100”.
Perhaps the best news Centrica had to offer this week was for Ford drivers, said BBC
Business.Anew partnership will see Centrica deliver “a dedicated home-charging
installation service” for the carmaker’s electric vehicles.
Woodford:the deepening disgrace
Bad news for investors whose cash is frozen in Neil Woodford’s “stricken” Equity
Income Fund, said Ben Martin in The Times. They may have to wait until Christmas
forathaw. And who knows how much of their money they’ll get back then? The only
certainty is that as the freeze is extended, the former star stockpicker’s firm will continue
levying fees, netting it around £11.8m in total from locked-in funds since June. And
that’s not the only sore point at the crisis-stricken firm, said Gavin Lumsden on Citywire.
Shares in the listed Woodford Patient Capital Trust fell toanew all-time low this week,
after it emerged that he had sold 60% of his stake in the trust at the start of July, but
only told the board this week. “Disgraceful”, yelled shareholders. Patience at an end, the
trust is now considering sacking him and findinganew manager.
Mike Ashley: the tracksuit tycoon’s “omnishambles”Even by Mike Ashley’s “bizarre standards”,
Sports Direct’s annual results statement last
week was “extraordinary”, said Christopher
Williams in The Daily Telegraph. Having
delayed the results until the stock market
had closed, Ashley ensured that pundits were
expecting bad news–yet this was an “omni-
shambles”. In short order, “the tracksuit
tycoon” announced that problems at House of
Fraser (the cornerstone of his plan to build the
“Harrods of the High Street”) were “terminal”
and he shouldn’t have bought it; that he had
sacked his finance director; and that none of
the Big Four auditors would work with him.
But the bombshell–“buried” under plans to
subject CEOs and CFOs to “voluntary” drug tests–was news of
a“surprise” £605m Belgian VAT bill.After all that, Ashley’s announcement that “there will be no profit
guidance for next year” was almost incidental, said TheObserver. Whatafarcical way to runapublic
company. “Life is hard on the high street”,
but Sports Direct’s “misery” is “entirely self-
made, due to an unrestrained chief executive
whose ambition and belief in his own abilities
have got the better of him”. Staff and
shareholders, already nursing heavy losses,
are now paying the price for his hubristic
empire-building.Ashley, who owns 62% of the business, is
suchamaverick that Sports Direct shares
“always came with an ‘18’ rating”, said Oliver
Shah in The Sunday Times. But what was
oncea“governance disaster” is turning into
“a trading disaster”: Sports Direct’s profitable “core trade in
cheap tracksuits and trainers” has been buried. What next? Who
knows. “Ashley’s sheer unpredictability” means that in three
years the company “could be bust”, have been taken private,
or riding high on the FTSE again. Talk about “caveat emptor”.Ashley: hubristic empire-buildingSeven days in the
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