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Seven Days: 19 August 2016

Our take on the biggest business stories of the past week
August 18, 2016

Sales fizz

English wines benefit

The booming popularity of affordable sparkling wines such as Prosecco has led to a doubling in sales of sparkling wine in the UK over the past five years. The prevalence of sparkling wines such as Italy’s Prosecco for under £10 offers an alternative to champagne that Britons have lapped up, downing almost 32m gallons in 2015-16. The shift in tastes has also benefited the rapidly growing English wine producing sector, whose produce has gained parity in terms of quality with wines from the continent.

Seeking value

Activist alert

US activist investor Value Act has emerged with a stake worth $1.1bn in US bank Morgan Stanley. The company, which has form in fostering improved corporate performance by exerting behind-the-scenes pressure, has taken a near 2 per cent position in Morgan Stanley as its management continues to battle to reshape the bank in the wake of the financial crisis and the rapidly changing regulatory landscape.

 

Inflation nation

UK on the rise

Inflation in the UK skipped to a near two-year high in July as rising prices at the petrol pump as well as factory input prices, pushed northwards by weaker sterling, contributed. The consumer prices index measure of inflation rose to 0.6 per cent which, although still low historically, was the highest reading since the end of 2014. The pressure on manufacturers and other hungry consumers of imported commodities was illustrated by figures that showed imported metals prices rose 12.3 per cent. With imported food also rising more than 10 per cent, such shifts are likely to be passed on to the consumer in the coming months, feeding inflation further.

 

Sledgehammer cracks it

Recession avoided?

The BoE got a hearty pat on the back this week from...the Bank of England. It praised its own ‘sledgehammer’ stimulus package announced at the start of this month as key in supporting the economy to the point that it should now avoid a post-referendum recession, even if only by a whisker. The Bank is now expecting a low level of growth during the second half, and potentially higher unemployment in the months to come but expects to scrape through the second half of this year before growth picks up again in 2017, albeit at a lower trend level than in 2014 and 2015.

 

Winds of change

Danish backed

The UK’s green energy revolution could be back on track. The government this week gave the thumbs up to plans for the world’s biggest windfarm to be built off the east coast. In total 300 turbines will be erected at Hornsea Project Two, each bigger than London’s famous Gherkin building, covering an area five times the footprint of nearby Kingston upon Hull. Once operational, the wind farm will generate enough power for 1.8m homes. Danish energy business Dong is investing £6bn in the project.

 

Property write-down

Norway fund

The giant $890bn (£684bn) Norwegian oil fund – the world’s largest sovereign wealth fund –has written down the value of its unlisted UK property investments by 5 per cent following the UK’s vote to leave the EU. Norges Bank Investment Management, which runs the fund, said the referendum result had triggered “significant movements in financial markets” and had thus created a “challenge to value unlisted properties in the UK market”. All of the fund’s property investments only make up 3.1 per cent of its portfolio, though, so the move will have a small impact.

 

The name's bond...

Corporate bond

The amount of debt issued by UK companies in the past two weeks has been the largest in nearly three years. The amount of sterling corporate bonds being issued has surged in the wake of the Bank of England’s extended quantitative easing measures. Last week saw £1.65bn of issuance, including deals from BP and BMW, while the week before that – when the Bank of England (BoE) held its meeting – a total of £1.78bn was issued, according to Dealogic. The two weeks since the BoE’s easing package was launched have seen as much issuance as the 14 weeks that preceded it.

 

Our chart shows the sharp rise in shares of Entertainment One (ETO) over the past few days, after the film-and-TV distributor and producer rejected a preliminary bid from broadcaster ITV (ITV) and news broke that private-equity group KKR is considering making its own offer for the company.

Entertainment One’s shares now trade at 255p – a premium of 8 per cent to ITV’s bid, which management said “fundamentally undervalued” the company and its prospects. We expect speculation of further bidding activity to keep Entertainment One’s shares aloft in the coming weeks.