Join our community of smart investors

News Review 6 Jan: Adaptable Greggs weathers the storm

Our selection of the biggest news stories of the week
News Review 6 Jan: Adaptable Greggs weathers the storm
  • Informa hopeful for events comeback
  • Lockdown 3.0

Adaptable Greggs weathers the storm

Last March, we opined that “for now, it seems as though Greggs (GRG) can do no wrong”. That view came on the back of a 9.2 per cent like-for-like sales increase at its company-managed premises, coupled with a one-quarter hike in the annual dividend. We weren’t alone in our praise, as speculation mounted over a promotion to the FTSE top-tier, but within three weeks the high street hash-slinger had issued a profit warning, scrapped its dividend and said it could not provide forward guidance.

Timing, in life, as in baking, is everything and Greggs has been forced to adapt its commercial operations to the subsequent stop-start regime. Greggs chief executive, Roger Whiteside said that meant establishing “working practices that allow [Greggs] to provide takeaway food services under the different levels of restrictions we have experienced”. So, while full-year sales are down 31 per cent and the group anticipates a pre-tax loss of around £15m, it still expects to open around 100 net new stores in the year ahead, “subject to prevailing market conditions”. Nobody can be sure when we will loosen the grip of Covid-19, but we can be reasonably confident that Greggs will remain a feature of high streets up and down the country.

The group closed out the year with a net cash position of £37m and a £100m, three-year Revolving Credit Facility in place. But liquidity issues aside, perhaps the most pleasing aspect of the update was that, despite the proliferation of tiered restrictions, like-for-like sales averaged 81.1 per cent of a strong Q4 comparator in 2019. There was no shortage of hype surrounding the stock in early 2020, but we do not think our confidence was misplaced. MR


Events comeback within reach

Exhibitions operator Informa (INF) thinks that 2021 is “likely to be a year of return of physical events”. Hopeful that vaccine rollouts will help revitalise customer confidence, the company said that it will postpone events outside of China until late spring. The market pushed the shares up 4 per cent in response to the news, although the events schedule could still be subject to change. True the company is supported by its other subscription data and knowledge products, but adjusted operating profits are still expected to drop by as much as 70 per cent in the 2020 financial year. LA


Lockdown 3.0

Prime Minister Boris Johnson has ordered a third national lockdown in England, as the new Covid-19 strain risks overwhelming the NHS. Chancellor Rishi Sunak announced a new £4.6bn support package, in a “top-up grant” for around 600,000 retail, hospitality and leisure businesses, which can claim up to £9,000 each.

The British Chambers of Commerce director general Adam Marshall described the new coronavirus restrictions as a “blow to our  business communities”, and wrote in a tweet that while the chancellor’s new lockdown support was welcome, it was incremental. “Ministers need to set out a clear support package for the whole of 2021 - not just until Spring - to help businesses of all shapes and sizes survive this difficult and uncertain year.” LA


Impax hits £1bn milestone

Sustainability-focused active fund house Impax Asset Management (IPX) has posted an extraordinary 24.8 per cent increase in assets in the final three months of 2020, as investor appetite for ethical assets and further positive market movements continued the strong momentum evidenced at full-year results.

Net flows for the first quarter of FY2021 came to £2.8bn. Some 95 per cent of this was into listed equities, which also accounted for £2.02bn of the £2.18bn uplift in the overall market performance. Equally encouraging were the £319m of net flows to Impax’s US subsidiary, equivalent to 7.6 per cent of the division’s opening assets under management.

Shares in Impax rose 9 per cent to 812p on the news, pushing the Aim-listed group’s market capitalisation above £1bn for the first time. Total assets now stand at £25.2bn, just shy of Peel Hunt’s forecast for September. AN


Google workers unionise 

One of Google’s best-loved slogans was once “don’t be evil”, until it quietly dropped out of Alphabet’s (US:GOOGL) code of conduct in 2018. Now, ongoing concerns over the search giant’s ethics have prompted the creation of the Alphabet Workers Union. In an op-ed in The New York Times, the newly-elected executive and vice chairs highlighted tensions brewing around Google’s military contracts, sexual harassment scandals and equal pay. 

The news follows the departure of Timnit Gebru in December, a leading artificial intelligence researcher who said she was fired over her work to fight bias - although Google maintains that she resigned. But with only around 200 members out of more than 100,000 employees, the union must grow in size if it wants to tackle senior management on the big issues. LA


QinetiQ wins £127m contract with UK Ministry of Defence

Defence contractor QinetiQ (QQ.) has won a five-year contract with the UK Ministry of Defence (MoD) to provide engineering services for the Typhoon jet. The agreement is worth £127m and has been secured as part of the group’s ‘engineering delivery partnership’ (EDP) with the MoD.

QinetiQ has now amassed more than £500m-worth of orders through the EDP since it was established two years ago. The MoD is the group’s largest customer, and these long-term contracts help underpin earnings stability and visibility. QinetiQ’s testing, training and evaluation service should remain in demand as the MoD shifts towards newer capabilities on the back of the UK’s £16.5bn defence spending boost

With the new Typhoon contract marking a strong start to the second half of its financial year, QinetiQ continues to expect low -double digit revenue growth for the full year, up from £1.1bn in 2020. NK


Ferguson offloads Wolseley to private equity

Plumbing and heating products specialist Ferguson (FERG) has struck a deal to sell its UK business, Wolseley, to private investment firm Clayton, Dubilier and Rice for £308m. The transaction is expected to complete at the end of this month. 

Ferguson announced plans to hive off Wolseley last year. The move followed pressure from US activist investor Nelson Peltz, whose firm Trian Fund Management built up more than a 5 per cent stake in the group and pushed for it to sell the weaker UK arm. Ferguson had originally intended to spin off Wolseley as a separate UK-listed company, but amid the pandemic uncertainty, the group said it was “assessing other separation options.” 

In the end, Ferguson has opted for a disposal, although it will retain responsibility for Wolseley’s pension scheme whose net liability stood at $27m (£20m) at the end of July. People familiar with the matter had previously told media outlets that Wolseley could fetch anywhere between £400m -600m, although analysts at Jefferies say that the actual price tag “appears a bit light.” But the broker believes that investors may be persuaded by the fact that Ferguson has locked in a quick sale. Following the divestment, the group will be fully focused on its larger North America business which chief executive Kevin Murphy says offers “the greatest opportunities for profitable growth.”

Ferguson is planning a secondary  listing in the US later this year and its ultimate aim is to shift its primary listing there at some point. In the meantime, shareholders can look forward to a special dividend  from the proceeds of the Wolseley sale. NK


Russia likely behind cyber espionage 

US security bodies said that Russia was likely behind a huge cyber espionage campaign that was discovered late last year, which breached the likes of Microsoft (US:MSFT), as well as multiple federal agencies. The FBI and the National Security Agency (NSA), among others, described the attacks as an intelligence gathering effort. The hackers gained access to various systems by manipulating software from SolarWinds, a cybersecurity company. Microsoft said that the attack did not put its services or any consumer data at risk, but the hackers were able to view the source code for some of its products. LA