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Seven days: 19 May 2017

Our take on the most important business stories during the past week
May 18, 2017

It's been a bad news week for oil services provider Petrofac (PFC). Management has announced that the group and its subsidiaries are under investigation by the UK Serious Fraud Office (SFO), which it believes is in connection with the ongoing investigation into Unaoil. Petrofac hired Unaoil to carry out consultancy services in Kazakhstan between 2002 and 2009. The SFO opened an investigation into Monaco-based Unaoil in March last year for suspected bribery, corruption and money laundering. The company said it was co-operating with the authorities and that chief executive Ayman Asfari and chief operating officer Marwan Chedid have been questioned under caution by the SFO. Shares in Petrofac closed trading 14 per cent down on the day of the announcement and had yet to recover at the time of going to press (click here for Bearbull's view).

 

Passive pressure

Vanguard platform launch

US investment group Vanguard has launched its first straight-to-consumer platform, allowing individual investors to open an account with either a lump sum of £500 or a monthly investment of £100. The service carries a 0.15 per cent annual charge, capped at £375. Vanguard has traditionally gained the majority of its UK business via stockbrokers and financial advisers - which would typically charge a higher fee - directing investors to its funds. The group specialises in low-cost tracker funds - an ever growing threat to active investment managers. Shares in Hargreaves Lansdown (HL.) closed the day trading 9 per cent down on news of the platform's launch.

 

Flowgroup confused

Capital-raising proposals

Flowgroup (FLOW) seems to be hedging its bets. After announcing plans to sell its energy business in March, management has said it may instead carry out a £20m fundraising. This is almost four times its market capitalisation following a tough year. The fundraising would likely be via convertible securities and new equity, priced at 1.5p and 1.8p, respectively, with a material element made available to existing shareholders. However, a capital injection is no sure thing - management said it was still in discussions with a prospective bidder for the Flow Energy business. Without the energy business the investment case for Flowgroup hinges on its energy-efficient micro-CHP boiler, the UK rollout of which was hampered by changes to government subsidies.

 

 

Labour's nationalisation

Energy and railways under scrutiny

Following the earlier leak of its manifesto, the Labour party has formally released its proposals ahead of the election. It has proposed to partly re-nationalise the energy market, creating at least one publicly-owned energy company in each region of the UK. Government would also take ownership of the grid and distribution. In addition, the document revealed plans to bring the UK's railways back into public ownership by buying up the franchises gradually, once they expire.

 

Irish competition

Trading duty scrapped

Ireland's finance minister Michael Noonan has announced plans to abolish stamp duty on trading in shares of small- and medium-sized companies. The duty is levied at 1 per cent on share trading on the Irish Enterprise Securities Market and is part of a wider review of stamp duty charged on trading of Irish shares. This is higher than in other EU countries such as the UK's 0.5 per cent rate. The duty will be abolished from 5 June. The government hopes to encourage more companies to list their shares in Ireland.

 

 

UK wages fall

First decline in three years

Price inflation continues to bite. UK real wages dropped for the first time in almost three years during the three months to March, according to data from the Office for National Statistics. Average weekly earnings increased 1.2 per cent during the first quarter, while inflation rose 2.3 per cent. The Bank of England has predicted that inflation will rise to 3 per cent during the final three months of the year. There was some good news among the data - unemployment fell by 53,000 to 1.54m, the lowest level in 42 years.

 

Activist's Petropavlovsk pressure

Hambro urged to step down

Petropavlovsk (POG) has become the latest natural resources company to come under the scrutiny of activist investors. Chairman Peter Hambro will step down from the board of the London-listed gold miner after three large shareholders - M&G Debt Opportunities Fund, Sothic Capital and Renova Group - said they would vote against the re-election of Mr Hambro and three non-executive directors at the group's annual general meeting in June. The group has a combined 30 per cent stake in the group - have proposed Mr Hambro stay on as an executive director, and nominated four candidates to sit on the board. There will be more to follow on this from us next week.