Tempus in The Times writes that business solutions provider Sage, which enjoys a market rating a little more than 13 times this year's earnings that would be more appropriate to a fast-growth business, seems to have gone ex-growth.
Two points stand out from yesterday's results. One, a positive, that Sage is doing well converting its business to a subscriber model. Consumers are signing up for a longer-term relationship that makes future earnings more reliable. Subscription revenues, about two thirds of the total, were up by 6 per cent, ahead of 2011's 5 per cent rise. Second, a negative, that Sage One, the cloud-computing offering to small businesses, seems to be taking a while to get off the ground. The company says, not unreasonably, that new ventures take time while it builds relationships with routes to market, such as the big banks and telecoms companies.
But revenues, on an organic basis, managed to grow by only 2 per cent in the past financial year, half the rate in 2011. Pre-tax profits came in at £334.3m, a mere 1 per cent ahead, although a final dividend of 6.67p gives a total 4 per cent higher at 10.15p.
To bring borrowings up to an appropriate level, £200m will have to be spent on acquisitions or further share buybacks next year. It will be interesting to see where the money goes. Until then, hold (Last IC rating: Sell, 5 Dec).
Tempus writes that stockbroking increasingly looks like a game of last man standing. The value of trading on the London Stock Exchange's UK order book so far this year is down by 15 per cent; no one is making a decent return.
Numis is among those most suited to survive, because it had £41m in the bank at its September year-end. This is, unfortunately, £6.5m less than this time last year because of the need to pay dividends, 8p for the full year and about double earnings per share, and buy in shares for staff incentive schemes. The dividend was last covered three years ago; it will probably remain uncovered until some future recovery in the markets, not least because employees hold 43 per cent of the shares and will not relish a dividend cut.
Operating profits at Numis came in at £3.97m, against a comparable £1.82m last time. The broker has cut its costs by £3.3m without shrinking the areas of the market it covers. The good news is that 18 new corporate clients were won, not least because, one assumes, their previous brokers dropped out of the market, and Numis has a strong position in the retail bonds market, one of the few growth areas.
The shares, for no apparent reason, have risen by 46 per cent to 124.5p since the start of June. Unless you believe the markets are heading for some improbable renaissance, that 8p dividend looks like the only reason to hold them (IC rating: Fairly priced, Dec 2009).
Questor in The Telegraph reports that Tesco's share price gain yesterday was mostly down to the announcement that the Fresh & Easy boil was set to be lanced. The US unit had promised lots but never delivered, becoming a black hole for about £1bn of the company's cash. It is now under "strategic review".
Questor thinks that the fact Tim Mason, the long-time head of Fresh & Easy, has left immediately is a signal that a complete exit is in prospect. Despite all the investment and management attention, the US operations generated just 1.0 per cent of group sales last year.
Laurie McIlwee, Tesco Chief Financial Officer, told Questor yesterday that any cash realised from an exit would be spent first on improving the UK offering, not expanding into new space. South East Asia also remains an investment priority. The UK, which generates 66 per cent of the group's revenue, needs to be put back on track and the group as a whole needs to be a sustained generator of cash in order for the share price to really get moving. The UK operations are not really in rude health right now, with like-for-like sales in the third quarter falling 0.6 per cent.
Its rating is still low and the shares should be good value at an earnings multiple of 10 times next year's forecasts. The yield is 4.3 per cent. A recovery, however, is likely to take some time because it will partly rely on a global recovery in consumer sentiment.
In the words of Warren Buffett who holds Tesco shares: "Value investors are not concerned with getting rich tomorrow. People who want to get rich quickly will not get rich at all. There is nothing wrong with getting rich slowly." Questor therefore keeps a buy (Last IC rating: Hold, 5 Dec).
Business press headlines:
Deutsche Bank failed to recognise up to $12bn dollars of paper losses during the financial crisis, helping the bank avoid a government bail-out, three former bank employees have alleged in complaints to US regulators. The three complaints, made to regulators including the US Securities and Exchange Commission, claim that Deutsche misvalued a giant position in derivatives structures known as leveraged super senior trades, according to people familiar with the complaints. [Financial Times]
George Osborne was accused of damaging the ability of banks to lend last night after increasing the level of the special levy on banks. The Chancellor yesterday announced the fifth increase in the rate since the inception of the tax in 2010, imposing a tax of 0.13 per cent of a bank's balance sheet from January 1, 2013. Currently banks must foot a bill equivalent to 0.105 per cent of their balance sheet, a significant increase on the 0.07 per cent rate first announced in June 2010. The Treasury said the change would generate an extra £500 million a year for the Exchequer from 2013-14.
However, the rate increase, predicted in yesterday's Times, caused anger from some parts of the City. Mark Boleat, policy chairman at the City of London Corporation, said: "The banking sector has been working hard to improve balance sheets while mobilising capital and stands ready to pay its fair share to support the economic recovery. What the banks, like all businesses, require though is stability and predictably in the tax system so that they can confidently plan for the future. In this context, a fifth increase in the bank levy is unhelpful." [The Times]
Hopes that a controversial yearly rise in beer duty would be reviewed fell flat, prompting a warning from brewers that the Government missed an opportunity to create 5,000 jobs this year. Pub groups and brewers had hoped the Chancellor would heed a call from backbench MPs last month to review the unpopular beer duty escalator, which automatically increases taxes by 2 per cent above inflation every year. The British Beer & Pub Association (BBPA) said the Government's refusal to reassess the escalator, which was introduced by the previous Labour administration and has pushed up taxes in the sector by 40 per cent since 2008, was particularly disappointing in light of the decision to scrap next year's 3p a litre rise in fuel duty. [The Telegraph]
Ireland - the "poster child" for the International Monetary Fund and EU's bailout programmes - endured its sixth hairshirt budget on Wednesday with the imposition of €2.5bn (£2bn) of cuts as its finance minister insisted the country is emerging from the fiscal crisis. The Republic imposed a new property tax and cuts in child benefit as it strives towards no longer relying on IMF and EU funds to run its public services and social welfare. [The Guardian]
The maker of Hula Hoops and McCoy's has been sold to the German snacks group behind Pom-Bear in a deal worth $640m (£400m). United Biscuits, which is owned by the private equity groups Blackstone and PAI Partners, sold KP Snacks, which also makes Space Raiders, Nik Naks, Skips, Discos, and Frisps, to Intersnack. United said it will retain ownership of baked bagged snacks manufactured in its biscuit factories, including Mini Cheddars and Twiglets. [The Independent]
Coal miner ATH Resources fell into administration on Wednesday night after its lender, Jon Moulton's Better Capital, called in its loans. All five of the Doncaster-based company's open cast pits are in Scotland, where it employs about 330 staff. The firm has blamed falling coal prices for its woes. Brian Green, Allan Graham and William Wright from "big four" accountancy firm KPMG were appointed as administrators of ATH Resources, although its principal trading subsidiary – Aardvark TMC - is not in administration and continues to trade. [The Scotsman]
Some national newspapers will close as the industry is forced to confront the reality of declining sales in a crowded market, according to the departing chief executive of News International. Tom Mockridge told The Times that he was an "unambiguous believer" that printed newspapers would survive the shift of readers to websites but he predicted "some consolidation" of titles. It emerged yesterday that The Guardian, which lost £44.2 million last year, is considering funding future losses by selling its stake in Auto Trader for up to £600 million. Last week the owner of The Independent revealed that he was seeking an investor to share the pain of his losses. [The Times]
