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Seven days: 13 July 2018

Our take on the biggest business stories of the past week
July 12, 2018

Cabinet unity collapses

The political world can be a fast-moving environment at the best of times, but the Brexit situation has turbo charged events in the UK. Thankfully equity investors seem to be almost immune to political upheaval at the moment with London markets barely batting an eyelid on Monday as first Brexit secretary David Davis and then foreign secretary Boris Johnson both resigned from the cabinet within hours of each other saying they could not back the compromise Brexit strategy cooked up over a weekend of cabinet wrangling at Chequers. Brexiteers are up in arms at what they perceive to be a watered down ‘soft’ Brexit but the reaction from Brussels has been luke warm so far too.

Mothercare's contingency

Store closures announced

Beleaguered retail chain Mothercare (MTC) provided further detail on its rescue mission this week. As well as an equity placing to raise £32.5m on 27 July, the group has also revised its debt facilities, which now provide an additional £67.5m in financial headroom. Furthermore, the completion of the group’s company voluntary arrangement (CVA) means that 60 UK-based stores will close their doors. That will leave the group with 77 trading stores, of which 19 have achieved lower rent. As for current trading, bosses say conditions remain consistently challenging, both in the UK and abroad.

 

Barratt surprises

Belies share slump

Whether housebuilders have reached the peak of the cycle has been a topic of intense speculation by investors. That could explain the fact that shares in Barratt Developments (BDEV) have fallen by around a quarter since the start of the year and now trade on 1.29 times net assets. That belies continued strong trading from the housebuilder, which surprised critics by increasing margins to 17.7 per cent during the first-half. Forward sales are up on a year earlier, and pre-tax profits are expected to be up at £835m.

 

Trade war escalates

Further tariffs planned

Donald Trump fired another shot in the escalating trade war with China, issuing a list of tariffs on $200bn (£150.94bn) of Chinese goods. The list includes more than 6,000 items including minerals, food products and consumer goods such as handbags, upon which levies of up to 10 per cent would be imposed. Proposals for fresh tariffs come just five days after charges on $34bn of Chinese imports came into force. The US public has until the end of August to deliver its feedback on the proposals. Unsurprisingly, Beijing said it would take “the necessary counter-measures”.

 

Water groups scolded

Pollution failings 

The Environment Agency has criticised the UK’s water utilities companies for “not doing enough to reduce serious pollution incidents”, noting the number of incidents that fall into the most serious category rose to 11 in 2017, from 9 in 2016 and just 4 annually in the two preceding years. The regulator’s report follows calls from chair Emma Howard Boyd in February for fines related to more serious incidents to be proportionate to companies’ overall revenue. Ms Howard Boyd singled out Pennon’s (PNN) South West Water, which was significantly below target on pollution incidents.

 

Facebook fined

Data breach faults

In what some may call another example of toothless regulators, the UK Information Commissioner’s Office has fined Facebook (US:FB) £500,000 for data breaches relating to the Cambridge Analytica scandal. That’s the maximum allowed, but it will take the US tech giant just over seven minutes to generate enough revenue to pay back. The regulator found that the social network had broken data protection laws on two counts – allowing apps to access the data of users’ friends who had not given consent and by not policing developers to prevent the unlawful processing of data.

 

Sorrell makes his move 

S4 makes 

acquisition

Martin Sorrell’s new venture S4 Capital made its much-anticipated first acquisition since the marketing mogul left WPP (WPP) in April. Mr Sorrell snapped up Netherlands-based digital production company MediaMonks – reportedly beating his former employer to the chase – for up to €300m (£265m). S4 was launched with backing from investors including London-based hedge fund manager Crispin Odey and RIT Capital Partners Jacob Rothschild. MediaMonks, which generated €100m in adjusted cash profits last year, has clients including Audi and Mercedes Benz.

 

Chart of the week

The price for copper fell by 3 per cent to a near one-year low on the day the Trump administration announced fresh tariffs on Chinese imports. 

The metal is widely used in consumer goods such as refrigerators and air conditioners, which have been targeted by the proposed levies.

The price for zinc and nickel also dropped 6 per cent and 3 per cent, respectively, on the London Metals Exchange. 

News of the additional tariffs also sent shares in mining companies such as Glencore (GLEN) and Anglo American (AAL.) down on the day.