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Seven days: 10 November 2017

Our take on the most important business stories of the past week
November 9, 2017

SSE buckles 

Years of political grandstanding around clamping down on household energy prices has finally taken its toll on one of the big six suppliers. SSE (SSE) has announced plans to merge its household energy supply operations with German-based Npower to form an independent UK-listed company, majority-owned by SSE shareholders. Subject to regulatory approval, the deal is expected to complete in the last quarter of 2018 or early 2019 and is hoped to generate significant savings in capital expenditure and cost efficiencies. Last month the government published a draft bill designed to cap the most common rate in the market – the standard variable tariff. If enacted, this would put considerable pressure on retail earnings for the UK’s major suppliers. See page 72.

Aviva in on the action

Reit launched

Aviva’s (AV.) asset management arm announced plans to launch its own closed-ended retail investment trust. Aviva Investors Secure Income Reit is hoping to raise gross proceeds of £200m by listing on the main market. The company plans to invest in UK long-lease commercial real estate assets, typically with a minimum lease length of 10 years. It is aiming for an invested portfolio of £85m in the near term. Dividends will be paid quarterly, with management targeting a yield of 5 per cent on the offer price. The prospectus is due for release within the next two weeks, with the offer open to retail investors via intermediaries.

 

 

IPOs scrapped

Market uncertainty cited

Despite a plethora of smaller companies coming to London’s markets this year, two UK heavyweights pulled their flotations on the same day. Broadcasting masts operator Arqiva cited IPO market uncertainty for its withdrawal, while prepared food supplier Bakkavor said volatility in the IPO market meant proceeding with the offer would not be in the interests of the company or its shareholders. The former would have been the largest London IPO so far this year, expected to have a market valuation of £4.5bn.   

 

Oil bulls

Demand forecasts upgraded

Following a rally in the oil price to a near-two-year high, Opec raised its oil demand expectations. Brent Crude reached $64 a barrel as the market speculated on potential production disruption caused by Saudi Arabia’s anti-corruption drive. In its World Oil Outlook, the cartel forecast world oil consumption would reach 102.3m barrels per day (bpd) in 2022 – an upgrade of almost 2.3m bpd – from 95.4m bpd in 2016. However, it anticipates a decline in the demand growth rate to 810,000 bpd in 2022, from 1.5m bpd in 2017. Despite demand for renewable energy sources growing at a faster rate, Opec reckons oil will remain the fuel with the largest global share of the energy mix until 2040.

 

Aim's darling

Profits upgraded

How long can Fevertree’s (FEVR) stratospheric growth continue? It has space left to run, judging by its latest trading update. Shares in the Alternative Investment Market darling jumped 14 per cent on the day management said it expected full-year profits would be “materially ahead” of market expectations. Mixers have become the fastest-growing product type across the UK soft drink sector, with Fevertree responsible for 97 per cent of the value growth in retail during the past 12 months. Shares in the premium mixer specialist have more than doubled in value during that time.   

  

Murdoch's next move

Uncertain future for News

As part of the seemingly never ending saga that is Sky’s (SKY) bid for Twenty First Century Fox, the former has threatened to shut its news channel if it were to impede the deal’s completion. Sky has written to the Competition and Markets Authority, which is scrutinising the takeover, asserting that the continued operation of Sky News should not be assumed, in light of concerns that the Fox deal could harm media plurality. That followed speculation that the Murdoch family had held talks with Walt Disney over a sale of most of Fox’s assets, which would have included a 39 per cent stake in Sky.

 

Insurers split

Divergent fortunes

It was a mixed week for the major UK-listed insurers. Esure (ESUR) delivered a record third quarter, boosting gross written premiums by a quarter. Profits for the full year are expected to be higher than previously forecast, pushing the shares up 4 per cent on the day of its update. By contrast, Direct Line (DIR) announced a review of capital expenditure already incurred, in an effort to ensure its growth initiatives produce the required results. That is likely to result in a further impairment charge for the full year, somewhat higher than that incurred in 2016.