Tensions build
Chinese and US stocks were pulled lower at the start of the week following President Trump’s threats to increase tariffs on Chinese imports. The US president said Beijing was attempting to renegotiate previously agreed terms of the trade deal in the hope of gaining better terms with the Democrats. Mr Trump tweeted: “The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to “negotiate” with Joe Biden or one of the very weak Democrats”. Chinese vice-premier Liu He arrived in Washington for an abbreviated round of talks on 9 May.
Samarco action
Legal claim filed
BHP (BHP) said it would fight a $5bn (£3.84bn) compensation claim filed in a Liverpool court on behalf of 235,000 people hit by the 2015 Samarco tailings dam disaster. The legal filing says the major miner built up the iron ore operation’s dam against the advice of engineers, to keep increasing production. BHP, which has a month to respond to the 125-page statement of claim, said it would defend the claim. There are also ongoing court cases in Brazil, and Australian shareholders have launched a class-action suit in relation to Samarco. BHP’s share price was flat on the news in London and Australia, with the prospect of a major UK lawsuit already priced in.
Audit fine
KPMG reprimanded
KPMG was fined £5m by the UK accountancy watchdog over its audit of the Co-Op bank, relating to the belated discovery of a £1.5bn capital hole after the lender’s acquisition of Britannia Building Society in 2009. The Financial Reporting Council (FRC) said that KPMG and partner Andrew Walker “both admitted that their conduct fell significantly short of the standards reasonably to be expected of an audit firm and an audit partner”. The FRC said the audit of Britannia’s commercial loan book and a series of securities knows as Leek Notes acquired from Britannia fell below standards expected.
Lyft disappoints
Ahead of Uber IPO
Ride-hailing group Lyft (US:LYFT) has released its first set of quarterly numbers as a public entity, after floating across the pond in March 2019. While revenues soared 95 per cent year over year to $776m, net losses widened considerably from $234m to $1.14bn – dampened by $894m of stock-based compensation and related payroll tax expenses. For the second quarter, Lyft expects revenues of $800m-$810m and adjusted cash losses of $270m-$280m. For FY2019, it expects revenues of $3.28bn-$3.3bn with adjusted cash losses of $1.15bn-$1.18bn. These results arrived days before Uber’s much-anticipated stateside IPO, which has a price range of $44-$50 – potentially valuing it at around $90bn.
Lufthansa eyes Cook
Potential bidder
Lufthansa chief executive Carsten Spohr announced the carrier had made an offer for Thomas Cook’s (TCG) German airline business, as the UK group battles online competition and discounting by rivals. Mr Spohr said while the European Commission would likely require some remedies if the airline agreed a deal, it would be the only potential purchaser not to break up the business, which trades under the name Condor. Earlier this month, Thomas Cook sought to reassure investors by disclosing that it was in discussions with its lenders to ensure it had “the financial flexibility necessary to maintain an appropriate liquidity buffer through the winter”.
Risers and fallers (%)
| BROWN GROUP | +36.02 |
| PETRA DIAMONDS | +18.03 |
| VECTURA GROUP | +12.12 |
| XAAR | +11.34 |
| REACH | +10.41 |
| METRO BANK | -15.6 |
| CARPETRIGHT | -14.44 |
| THOMAS COOK GROUP | -13.76 |
| FUNDING CIRCLE HOLDINGS | -12.45 |
| MCBRIDE | -12.41 |
Week to 7 May 2019
GardaWorld drops bid
Outside interest remains
Canada-based security company GardaWorld revealed that it did not intend to make a bid for outsourcer G4S (GFS). According to G4S, it “received no proposals from GardaWorld, nor any requests for information” during the offer period. However, G4S will continue to review options for the separation of its cash solutions business, noting that it has received “additional expressions of interest” for the division since GardaWorld’s approach.
Sales slowdown
Margins challenged
Wetherspoons (JDW) was punished by investors after reporting slowing spring sales, at 7.6 per cent during the 13 weeks to 28 April, compared with 9.6 per cent announced for the six weeks to 10 March. Analysts at Liberum said the figures implied an increase of just 5.9 per cent over the final seven weeks of the first quarter. That is especially bad news for the pub group as it contends with rising labour costs, which have squeezed margins. However, chief executive Tim Martin said he expected trading for the year to be in line with previous guidance.
