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Press headlines & tips: Interserve, Electra Private Equity, IMI

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November 29, 2012

PRESS TIPS:

On the same day that Marks & Spencer announced an agreement with the trustees of its pension fund on how to pay off the deficit, the outsourcing specialist Interserve found a more innovative solution to the same problem. The company has transferred the rest of its portfolio of PFI assets, comprising its remaining stake in University College London Hospital and other public sector projects it was involved in, to its pension fund at a valuation of £55m. This gives the fund a decent income from assets that are mature and don't belong on the balance sheet of a company such as Interserve. The company accompanied the deal with a reassuring trading update. Analysts have tended to worry about its exposure to the British construction market. Work is coming through, though, from a range of clients, to a value of £500m in the second half of 2012 so far. The shares have risen sharply since the summer and sell on about eight times earnings, with the support of a 5.7 per cent yield. Hold, says The Times' Tempus column (Last IC rating: Buy, 28 Nov).

Nobody could accuse Electra Private Equity of rushing things. Two of the investments it exited in the last financial year - Amtico, the flooring maker, and Capital Safety Group, which makes harnesses - have been part of the portfolio for, respectively, more than 16 and more than 13 years. This patience is appropriate from the granddaddy of the quoted private equity sector, a business that dates back to 1976. While some such companies trade at a heavy discount to net assets, partly because these are illiquid and cannot be sold overnight, Electra's discount has diminished. As well, the company says that the longer-term trend for investments is good, as banks are forced to raise extra capital. There is also talk that esure, the insurer in which Electra has a 10 per cent stake, could float. That stake is in the books at only £19m; esure may be worth upwards of £1bn. Electra does not pay a dividend, so it is no good for seekers of income, but unless we are heading for some spectacular market cataclysm, that discount should narrow further, Tempus writes on Thursday (Last IC rating: Buy, 22 Jun 2011).

In its recent trading update, IMI said organic revenues growth in the year to date was 4 per cent – or 6 per cent including acquisitions and exchange rate movements. However, there was a slowdown in growth. There was no outlook for 2013 given in the statement. However, management said that second-half bookings momentum was similar to the first half at around 4 per cent. This was down on last year on an organic basis, hit by lower activity in nuclear and IMI's "more selective approach to new fossil power projects in India and China". Some analysts trimmed estimates after the statement, but all in all the valuation is looking reasonable. The shares are trading on a 2013 earnings multiple of 11.7, falling to 10.7 in 2014. The prospective yield is 3.5 per cent next year rising to 3.8 per cent. The Telegraph's Questor team last said to hold the stock when the shares were at 991p in March. Since then the shares have been as low as 780p before rallying back to the level seen in March. There are still major questions about the global economy in 2013, but IMI's end markets should remain active, if not buoyant. However, the lack of clarity means that the shares must stay at a hold rating for now, Questor believes (Last IC rating: Hold, 23 Aug).

 

Business press headlines:

BP has been blocked from seeking new contracts with the US government because of the oil company's lack of business integrity' during the Gulf of Mexico oil disaster, the Environmental Protection Agency said Wednesday. The temporary order bans BP from competing for new oil leases in the Gulf of Mexico - such as the auction of 20m acres taking place on Wednesday - or from bidding on new contracts to supply the Pentagon or other government agencies with fuel. While the ban does not affect existing business, it raises wider questions about the company's future in a crucial market. [The Guardian]

Brazil's economy is expected to have grown at an annualised rate of 4 per cent or above in the third quarter and is likely to maintain this pace through next year and into 2014, according to Guido Mantega, finance minister. His prediction of a strong rebound in Latin America's largest economy came as the central bank kept lending rates unchanged for the first time in more than a year after an easing cycle in which they fell to an all-time low of 7.25 per cent. [Financial Times]

Comet is to close a further 125 stores - with the loss of 2,500 jobs - over the next few weeks, and it may shut down its entire business before the end of the year unless a buyer can be found, the administrator, Deloitte, has warned. More than 1,000 jobs have been cut so far across the 41 stores already shut, and all 5,000 remaining staff are at risk of being unemployed by Christmas. The 70 stores that remain open will continue trading until all their stock has been sold and, with a last-minute takeover looking unlikely, it would be the biggest retailing collapse since Woolworths, which went into administration four years ago this week, with the loss of 24,000 jobs. [The Guardian]

David Cameron has been warned that proposals to set a minimum price for alcohol in England and Wales are illegal under European law. The European Commission has sent a nine-page legal opinion to the British Government warning that minimum prices are illegal – and that the Treasury should increase duty on alcoholic drinks if it wishes to raise the price. However, ministers appear to have decided to defy the legal warning and yesterday unveiled proposals to introduce a 45p minimum price for each unit of alcohol. [The Telegraph]

Barclays is considering exiting agricultural commodities trading as part of the UK lender's attempts to rebuild its battered reputation after a series of scandals. The possible retreat from the controversial business is part of a strategic overhaul by the bank's new chief executive Antony Jenkins, who is screening the reputational impact of every business line Barclays operates in. [Financial Times]

Tony Blair has warned that an exit from Europe would be "hugely destructive" to Britain's long-term interests and that an "anxious" business community will now move to make itself heard. In an impassioned speech to Business for New Europe, a pro-European coalition of business leaders, hosted by Chatham House in central London, the former Labour prime minister said London's leading financial centre would be damaged if Britain retreated from Europe and warned that companies would find it less appealing to do business. "Third party companies often want London as a base for Europe", he said. [The Times]

Barclays yesterday said five employees had been sacked as a result of the Libor-fixing scandal which landed the bank with a £290m fine and cost its chairman and chief executive their jobs. Rich Ricci, the chief executive of Barclays' corporate and investment banking division, told the Parliamentary Commission on Banking Standards that "a lot" of the individuals identified in its internal probe had left the bank, so it could not take action against them. He added that eight additional staff had also been disciplined. [The Independent]

Oil major BP appears back on track to renew a key Middle Eastern contract following yesterday's agreement to sell a package of North Sea assets to the state-controlled energy firm of Abu Dhabi. Taqa, which is three-quarters owned by the Abu Dhabi government, will pay more than $1 billion (£625 million) for stakes in five BP oil fields. The deal brings the British group within touching distance of a targeted $38bn of disposals needed to shore up its balance sheet ahead of its trial over civil fines for the Deepwater Horizon disaster in the US. However, the agreement also suggests that BP might still win back a long-running oil concession that is the linchpin of its operations in the Middle East. [The Scotsman]