Shares in RBS (RBS) have barely budged year-to-date. However, come August 1st, when Chief Executive Ross McEwan presents the bank´s halfway figures, he will be able to boast that progress is being made. Firstly, he is extracting the lender from its Ulster Bank subsidiary, even if the value attached to that by some may be over exaggerated. As well, the flotation of about a quarter of its Citizens arm Stateside is on track to take place this autumn. Similarly, the EU-mandated flotation and disposal of 312 Williams&Glyn´s branches should begin by 2016. All of the above may come on top of the £1bn in cost savings promised for this year.
Yes, there remains uncertainty over the recent investigation into the alleged manipulation of foreign exchange markets. Then there is the risk of litigation in America over the 2007 mortgage-backed securities affair. Nevertheless, its core retail and commercial banking business in the UK are seeing improvement, as the economy recovers. Most important of all, next week shareholders are expected to vote to repay £1.5bn to the UK government, another step on the path to a resumption of dividend payments. The shares remain a 'strong hold', writes The Times´s Tempus.
Mitchells & Butlers (MAB) acquisition of 173 new sites from the Orchid Group drew a yawn from investors. The UK´s largest pub operator believes that its more profitable brands and cheaper borrowing costs will allow it to make the deal work. If the UK economy continues to recover then the company is probably right. The average weekly sales of the Orchid pubs was about £15,300 in comparison to an average of £22,700 for the existing M&B estate. However, wheras the firm sees the pub and restaurant market expanding by 6 per cent over the next four years its own like-for-like sales were up by just 1.1 per cent over the 28 weeks ending on April 12th. Aggravating the above, it continues to carry a lot of debt and free cash flow fell to £70m during the first six months of the year from £82m. Lastly, its triennial pension fund valuation saw the shortfall jump from £400m to £572m at the end of March. Hence, anual pension fund contributions will jump by 10 per cent to £45m.
The shares are changing hands at at a price-to-earnings multiple of 11.3, decreasing to 10.3 next year. That is cheap when compared to its peers, whose stock is trading in the high teens. Nonetheless, that gap is justified given the debt burden and sluggish sales growth, such that any meaningful return to dividends looks a long way off. “As a result the shares are best avoided for now,” says The Daily Telegraph´s Questor column.
BUSINESS PRESS HEADLINES:
An early rise in interest rates has been all but confirmed after the most dovish of the Bank of England’s nine policymakers revealed yesterday that he expects to vote for an increase by May of next year. In words that underscored the governor’s surprise statement last Thursday that rates could rise “sooner than markets currently expect”, David Miles, an external member of the Monetary Policy Committee, signalled that he would vote for an increase before his term ends in 11 months’ time. - The Times
Voters in Britain have grasped that an economic recovery is under way, but precious few are feeling the benefit, according to a Guardian/ICM poll that shines a spotlight on the anxiety of a nation. A majority of the public (56 per cent) accept that the economic recovery is real, but fewer than one in five voters, just 18 per cent, say their families are benefiting. However, if the initial findings appear to validate Ed Miliband's focus on the cost of living, when asked what underlies their economic uncertainty, voters point the finger at immigrants undercutting employment terms and conditions more than anything else. - The Guardian
The prospect of an imminent cut in British household energy bills has been scuppered after Russia cut off gas supplies to Ukraine, triggering fears of a European energy crisis. Wholesale gas prices in the UK jumped 6 per cent yesterday after Gazprom announced that it would only supply Ukraine if it received payment upfront. With Ukraine unable or unwilling to pay, Gazprom confirmed that it had stopped delivering gas. - The Times
Britain's biggest oil majors, BP (BP.) and Shell (RDSB), will unveil multi-billion pound agreements to supply liquefied natural gas (LNG) to China in two of the biggest deals to be announced by David Cameron and Premier Li Keqiang today. BP is expected to announce a deal worth more than £5bn LNG deal as part of Beijing’s drive to reduce its carbon emissions. Shell has secured an agreement with the state-owned energy giant, China National Offshore Oil Corporation (CNOOC), to work on projects around the world, including LNG. - The Daily Telegraph
Moody's has increased the pressure on Tesco (TSCO) by cutting the credit rating of Britain's biggest retailer after its worst trading period in decades. The ratings agency blamed last year's profit fall, weak sales in the first quarter of this year and an increase in Tesco's pension deficit for the cut, and said it expected the conditions to bear down on Tesco's profit margins and affect its credit quality for the next 12-18 months. Moody's cut its rating on Tesco's long-term debt to Baa2 from Baa1. The agency said the firm's difficulties meant debt levels were unlikely to improve enough to justify the earlier higher rating. - The Guardian
He is not a man known for his patience, but Sir Philip Green yesterday shrugged off a mistake by City advisers that briefly marred his return to the public markets after a two-decade absence. Shares in MySale, the Australian online flash sale retailer that he backed, fell sharply on their debut after the stock was mistakenly priced in pounds rather than pence by corporate financers at Macquarie, the stock broker sponsoring the issue. When trading kicked off at 8am, MySale appeared to be priced at 2.26p, instead of 226p. - The Times
The US Supreme Court has declined to hear Argentina's appeal over its battle with hedge funds that refused to take part in its debt restructurings, an unexpected move that risks toppling the Latin American country into a new default. The high court left intact lower court rulings that ordered Argentina to pay $1.33bn to the so-called holdouts who refused 2005 and 2010 debt swaps in the wake of its catastrophic 2001-02 default on $100bn. This could open the door to claims from other holdouts worth as much as $15bn, a hefty sum for a slowing economy struggling with rapidly dwindling foreign reserves. - The Daily Telegraph
