PRESS TIPS:
Last month, GlaxoSmithKline (GSK) announced a review of its European operations as sales fell 5 per cent in the third quarter, to £6.53bn, a decline which could lead to significant job cuts. The drugs group said continued pressure on drug prices in austerity-hit Europe, together with lower demand for vaccines, had hit sales. The company’s growing business in emerging markets and its large consumer healthcare operation are both doing well, offsetting negative sales growth. In its third quarter results, published on October 31st, GSK announced core earnings per share of 26.5p and a dividend of 18p, to be paid on January 3rd. GSK is trading on an estimated price to earnings ratio - a measure of profit per share - of 11.8 times this year compared with AstraZeneca on 7.6 times. Despite the premium valuation, GSK remains the choice over Astra because of its focus on consumer healthcare. It is also likely to have more stable earnings and therefore a more secure dividend. GSK is yielding a prospective 5.5 per cent this year, rising to 5.8 per cent next year. Hold, says The Telegraph's Questor team (Last IC rating: Hold, 25 Jul).
There is every sign that pork will get more expensive still next year, but this time Cranswick is ready, writes The Times' Tempus column this morning. The above as the European Union is bringing in tougher welfare standards for continental farmers, which may force many to stop producing. Cranwsick, one of the three biggest pork processors in this country was being guarded yesterday about how successful it had been in passing that cost inflation on to the supermarkets, but the interim figures talked of "ongoing constructive pricing discussions", which was taken well by the market, with the shares jumping 10 per cent to 812½p. The halfway performance was considerably better than last time, when Cranswick was squeezed between farmers passing on higher feed prices and those supermarkets. Furthermore, Vion, one of the other big pork suppliers in the UK, is to withdraw from the market, so Cranswick should pick up some of its business. As well, the company now has a license to export directly to China. On almost 11 times' earnings, "the shares look up with events," Tempus concludes (Last IC rating: Buy, 26 Nov).
Mark Lancaster, founder and now chief executive again of SDL, yesterday eased back market expectations for a second time this autumn. That came alongside a wide-ranging review of the business he founded in 1992. The combined result, in his own words, is that he is as certain as he can be that all the bad news is out there, Tempus writes. An earlier warning in October had suggested that revenues on the technology side, which provides corporates with the ability to manage their websites and monitor social media, remained low. Not coincidentally, one of the things which his review flagged up is that the technology side was taking too optimistic a view of prospects for the year, which will lead to another shortfall of between £1m to £2m. In addition, he is beefing up sales and marketing of the business and this will mean an additional £3m to £4m of spending this year. That comes on top of a more conservative view regarding revenue recognition from a handful of big contracts being carried out by the language services division. The shares sell on a little more than 13 times' earnings for this year and next, which looks attractive, assuming all the bad news is out in the open, Tempus says (Last IC rating: Buy, 14 Aug).
Business press headlines:
After two false starts in as many weeks, international lenders on Tuesday reached a deal to overhaul Greece's faltering bailout programme and release a long-delayed €34.4bn aid payment by agreeing to a series of measures that could relieve Greece of billions of euros in debt by the end of the decade. The measures, which include reducing interest rates on Athens' bailout loans to levels so low that some countries will probably take losses, are intended to cut Greek debt levels to 124 per cent of economic output by 2020, or 20 percentage points lower than Athens' current debt path, officials said. [Financial Times]
France's industry minister has accused the world's largest steel-maker, ArcelorMittal, of "lying" and urged it to leave the country. In an extraordinary attack, Arnaud Montebourg also threatened the company with temporary nationalisation. "We no longer want Mittal in France because they don't respect France," Montebourg said in an interview with the financial newspaper Les Echos. In a broadside directed at Lakshmi Mittal, the Indian-born British billionaire who heads the company, he added: "Mittal's lies since 2006 are overwhelming … he's never kept his word". [The Guardian]
Credit Suisse is to cut about 100 investment banking jobs in the UK as it pushes ahead with restructuring plans designed to find SFr4bn of savings by 2015, according to a person familiar with the situation. The job losses will mainly affect the investment bank's equities, fixed income and advisory businesses and will occur over the next 90 days. [Financial Times]
Europe is preparing to follow the United States in delaying the introduction of stricter rules on bank capital, while it lobbies for a rethink of the US stance, according to reports. The delay could push back the start of global rules in Europe, known as Basel III, by about six months, and that could be even longer if diplomats and lawmakers fail to break a deadlock on a law meant to be phased in from the start of 2013. [The Telegraph]
The City watchdog was accused of presiding over a "stitch-up" last night after a company at the heart of the Arch Cru mis-selling investment scandal avoided a fine. The Financial Services Authority decided not to impose a £4 million penalty on Capita Financial Managers because it deemed that the company was unable to pay without additional help from its parent, Capita Group. Capita Group, which is the biggest outsourcing company in Britain and runs BBC television licensing and the Criminal Records Bureau, made underlying profits before tax of £191 million in the six months to June 30 and has a market capitalisation of £4.8 billion. [The Times]
Hundreds of thousands of homeowners in flood hit areas may be left without insurance after talks between the government and insurance firms broke down. An existing deal between ministers and insurers that enables companies to provide affordable cover for flood-prone properties will expire next June. Negotiations have been ongoing over a replacement for the past two years but the process spectacularly fell apart on national radio and television on Monday. [The Telegraph]
Warren Buffett, the billionaire investor who favours a greater burden on the wealthy, yesterday called for a minimum tax on America's millionaires but proposed a higher threshold for increased taxes on the rich than the one put forward by the White House. Mr Buffett, who earned the moniker "The Sage of Omaha" as he built Berkshire Hathaway into a multi-billion enterprise through decades of canny investing, hit back at the suggestion the rich would somehow "go on strike" if asked to cough up a little bit more. [The Independent]
