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Press tips: Shire, AA, Tesco

Here is a selection of today's business press headlines.
June 24, 2014

Despite the recent sharp run-up in the price of Shire’s (SHP) stock investors should resist the urge to take their money and run. In the first place, it is entirely possible that AbbVie will come back with a higher offer that obtains the approval of the board of Shire. To take note of, any fresh bid from the American company will need to be substantially higher than its last, perhaps even as high as £55 per share, according to one analyst. Hence, as long as the possibility of another offer from AbbVie continues to exist investors should stick around. On the other hand, the company may decide to stick to its plans and go it alone. That would not be such a bad thing if it sticks to its pledge of doubling sales by 2020, even if its plans are not without risks. As well, there is scope for Shire itself to carry out acquisitions, to which one must add the benefits of the company’s two most recent purchases.

For all of the above reasons, to The Daily Telegraph’s Questor column what all the recent speculation surrounding the shares has in fact achieved is to bring their valuation in line with the company’s long-term prospects.

Motor insurance and breakdown specialist AA seems headed for an uneventful stock market debut on Thursday. The stock took a hit in conditional trading on Monday, perhaps as a result of investors associating it with Saga (SAGA), one of this year’s poor floats. Then again, in essence what broker Cenkos did yesterday was flip the shares onto the market while at the same time issuing an additional £185m worth to reduce its debt, which now stands at £3bn.

That mountain of liabilities explains why the firm is trading at a price-to-earnings ratio of just 7.5. In particular, there is a tranche of debt which is getting paid 9.5 per cent interest, with interest payments eating up nearly half the company’s yearly operating profits of about £380m. Furthermore, motor insurance is a viciously competitive market, the initial dividend which will be on offer next summer will be low and the number of personal members has been falling and it is not clear where future growth will come from. “Ignore”, writes The Times’s Tempus.

BUSINESS PRESS HEADLINES:

Shire boss Flemming Ornskov on Monday admitted a higher offer from its US rival AbbVie could result in a takeover of the Irish drugmaker as he fleshed out his ambitions to double annual sales by 2020. Mr Ornskov, who has led Shire (SHP) for just over a year, said he would not stand in the way of a potential transaction if the board believed it would deliver shareholder value. "Look at my track record. I’m all about shareholder return and value," he said when asked whether he would oppose a higher offer for the company. – The Daily Telegraph

Philip Clarke's turnaround of Tesco (TSCO) was dealt a fresh blow on Monday when Fitch cut its credit rating on the supermarket, citing trouble in store both at home and abroad. The ratings agency said Tesco was coming under fire amid an escalating supermarket price war in the UK while its remaining international operations were being buffeted by "economic and political headwinds". Fitch, which downgraded its rating on the company from "BBB+" to "BBB", was following in the footsteps of rival agency Moody's which last week moved Tesco to its second lowest investment grade. – The Guardian

Passengers flying to France and beyond this week could face disruption as a strike by French air traffic controllers has forced airlines to cancel dozens of flights. The majority of services from the UK to France will continue to run but airlines have warned of potential delays to all flights crossing French airspace. French authorities have said an overall reduction of 20 per cent of flights is needed. Ryanair has said 26 flights to and from France will be cancelled on Tuesday, and EasyJet (EZJ) said about 20% of its services would be cancelled; all are either internal flights or between France and other European destinations. – The Guardian

North Sea oil and gas firm Ithaca Energy (IAE) has struck a $170m (£100m) deal to buy stakes in three “high quality” oil fields, funded by the issue of $300m in bonds, as part of its strategy of broadening its production portfolio. The acquisitions will be funded through the issue of $300m in bonds, due for repayment in 2019, which will also be used to partially pay down its reserves-based lending facility. - The Scotsman

The bill for cleaning up Britain’s nuclear waste has topped £110bn, after a £6.6bn increase in the cost estimate for work required over the next 120 years. The Nuclear Decommissioning Authority said that the biggest increase derived from a fresh assessment of the work required at Sellafield, the country’s biggest and most toxic nuclear site. – The Daily Telegraph

An enraged investor has launched a legal attack on Elektron Technology (EKT), the small-cap engineering systems developer, after accusing its directors of mismanaging the company. Barrie Bridge, a 63-year old semi-retired interior decorator, launched a “derivative claim” against six current and former directors of the company. Mr Bridge, who owns around 3 per cent of Elektron shares, is seeking permission in the High Court to pursue the action to recover £2m in funds from the directors on behalf of the company. – The Times