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Seven days: 10 August 2018

A round-up of the biggest business stories of the past week
August 9, 2018

Tesla tweets

Elon Musk has never been one to play by the rules, but announcing his intention to take Tesla private via Twitter was one of his most unorthodox moves to date. The entrepreneur – who founded the electric car maker in 2003 – said he would pay $420 per share or $70bn for the company because he thinks Tesla will do better without the distractions of a stock market listing. Mr Musk’s tweet came just hours after the Financial Times reported that Saudi Arabia’s Public Investment Fund had amassed a stake of between 3 and 5 per cent this year.

Iran in cross-hairs

Sanctions issued

Donald Trump attempted to pull rank this week, threatening via Twitter that any company trading with Iran would not be doing be doing business with the US. The warning came on the same day the US president signed an executive order establishing sanctions against the Middle Eastern country, which targeted activities including the purchase or acquisition of US banknotes by Iran’s government, the automotive sector and Iran’s trade in gold and other precious metals. The US had waived sanctions in 2015, as part of the nuclear deal Mr Trump withdrew from in May. The European Union issued a ‘blocking statute’ to protect European counties doing business with Iran.  

 

False start

Pendragon stutters

Just a day after data from the Society of Motor Manufacturers and Traders (SMMT) suggested the UK car industry might be stabilising, motor retailer Pendragon (PDG) revealed a 42 per cent crash in underlying pre-tax profits to £27.3m for the six months ended June 2018. The company blamed its UK motor division for the slump, although software and leasing continue to do well. The UK motor division continues to undergo a fundamental change however, as the company shifts all used car sales online. Management hopes sales of second-hand vehicles will double by 2021 as a result.

 

Retail exhaustion

Spending falters

The summer heatwave and World Cup may have increased purchases of food and drink in July, but it failed to stop a decline in overall consumer spending, according to data from the British Retail Consortium and KPMG. Last month’s like for-like retail sales grew 0.5 per cent on July 2017, when sales were up 0.9 per cent on the prior year. That was despite a 4.5 per cent increase in food and drink spending, making last month the strongest July for the grocery sector in five years. However, that was dampened by a 1 per cent dip in non-food sales.   

Alarm bells ring

Funding shortfall

Countrywide (CWD) plunged on news of a heavily discounted capital raise and a poor set of results at the half-year mark. The real estate group swung to a pre-tax loss of £242.8m over the six months to June 30 compared with a profit of £192,000 a year earlier. On top of that it announced that it was raising around £111m from a firm placing, with another £29m or so coming by way of an open offer. However, an auditor’s note in the half-year results highlighted a “material uncertainty” surrounding the completion of the placing – which could theoretically impact on the status of the business as a going concern.

 

Casino's high stakes

Accounting questioned

Shares in French grocery retailer Casino (EPA:CO) fell to a two-decade low this week after Bernstein, a New York-based brokerage, downgraded the stock due to concerns over how the business has accounted for transactions with related parties, specifically French franchisees. Analysts are concerned that this, combined with high levels of debt and limited cash flows could affect the company’s valuation going forward. The group signed a deal with online grocery group Ocado (OCDO) late last year to build robotic warehouses and facilitate online growth. Ocado shares also fell slightly after the concerns over Casino emerged. 

 

Wholesale pressures

Centrica hikes

Just a day after energy regulator Ofgem announced a rise in the safeguard tariff for vulnerable customers due to rising wholesale prices, Centrica (CNA)-owned British Gas unveiled a 3.8 per cent rise in its standard variable tariff (SVT) from October. That will increase the average SVT dual-fuel customer bill by £44 to £1,205 a year. The increase – the second this year – will affect around 3.5m customers, with the SVT withdrawn for new customers in March. The energy provider said it has protected customers from price rises in the wholesale markets until now, since it buys its supplies in advance.

 

Chart of the week

A sharp rise in dividends from the mining sector drove a 7.1 per cent increase in underlying dividends – excluding specials – during the second quarter, according to data by Link Asset Services. 

Mining groups listed on the UK main market grew underlying dividends by 82 per cent, or 95 per cent including special payments, compared with same time last year.

Conversely, motor manufacturers posted a 94 per cent decline in average ordinary dividends paid, followed by an 85 per cent reduction from domestic utilities. 

Yet main market headline returns declined 2.1 per cent, following a sharp reduction in special dividends.