11 May 2018

@scottreid1992

11 May 2018

Good morning,

After a whirlwind of headline-grabbing corporate takeover activity over the past few weeks, it may help to pause for breath.

On one front in particular, an interesting contrast is taking shape. Taken together, the two big telecoms stories this week – Vodafone’s €10.8 billion acquisition of Liberty Global’s European cable assets and BT’s decision to make a break with history by axing 13,000 jobs and move its HQ out of central London – paint a picture of a sector in flux, but ultimately on the up. The entry of 5G into the market and the need for state-of-the-art fibre connectivity have changed the playing field for telecoms providers, and the fact that both companies have chosen to invest handsomely in both should cheer investors and keep the critics at bay.

But looked at separately, the companies tell a rather different story. Despite the lack of any profit growth since 2014, Vodafone’s deal with Liberty signals significant expansion plans for what is already the world’s second largest mobile operator by subscribers, behind China Mobile. Vodafone believes that the EU wants to see a pan-European telecom, and its acquisition of Liberty’s European assets shows that it’s seeking to be a helpful partner of government in achieving that.

But for BT, it may be a case of too little too late. BT faces a crippling £11.3 billion funding deficit in its pension scheme, which planned savings of £1.5 billion by cutting 12% of its workforce show little sign of denting in the short-term. BT is also still haunted by its decision to invest £5 billion in its ailing BT Sport TV venture over fibre in 2014, which revealed a company behind the pace of technological change required to keep ahead in the sector.

Early indications may have already shown which strategy is likely to succeed. After the dust had settled on their respective days of announcement, shares in Vodafone were trading higher by 1%. BT’s were down by more than 7%.

So, if we can take anything from the up-and-downs of the telecoms sector this week, it may be that takeover and tech investment chart the way forward.

News

Leave.EU has been fined £70,000 for breaches of electoral law during the referendum campaign, with its chief Liz Bilney being reported to the police. The investigation by the Electoral Commission found that the group had failed to include at least £77,380 in its spending return and delivered incomplete spending and transaction returns. The errors mean Leave.EU exceeded spending limits by 10%, although the Electoral Commission has indicated that this may have been considerably higher.

President Trump has said he will meet Kim Jong-un on June 12 for a summit in Singapore where he will push for full denuclearization in North Korea. The announcement follows the return of three Americans to the US yesterday from detention in North Korea, where they have been held since April 2017 on charges of subversion against the state. Trump said that their release meant the US’s relationship with North Korea was “starting off on a new footing... That was a big thing. Very important to me.”

Theresa May has postponed key Brexit legislation on the single market and customs union until the autumn due to fears the that government will be defeated. (£) Following a breakdown in cabinet discussions last week, the government is now reported to believe that the issues are unlikely to be settled before a summit with the EU next month. The Times also reports that two rival “working groups” have now been set up an in attempt to break the deadlock, exploring the so-called “customs partnership” and “max-fac” options. (£)

Business & Economy

The Bank of England Monetary Policy Committee has voted 7-2 to hold interest rates at 0.5%, with an increase expected later in 2018 depending on strengthening economic data. Speaking at the Bank’s headquarters on Threadneedle St yesterday, Governor Mark Carney also said that the Bank expects unemployment to fall further, inflation to drop below 2% over the next two years and that growth will remain at 1.7% during 2019 and 2020.

Sainsbury’s-Asda may have to sell “at least 73 stores” in order for their proposed merger to go ahead, an industry expert has claimed. David Haywood, founder of Maximise UK who worked on the takeover of Safeway by Morrisons in 2004, has said that the Competition and Markets Authority (CMA) will be concerned at the proximity of the two chains’ local stores, and speculated that the south-east and north-west of England will be most at risk to store closures.

Investors in SIG have overwhelmingly rejected the reappointment of Deloitte as its auditor only months after it was revealed that SIG had exaggerated its profits for years. More than 78% of votes cast by the shareholders of the insulation provider at SIG’s annual meeting yesterday call for Deloitte to be sacked. The Financial Reporting Council has speculated that it could now open an investigation into Deloitte’s role in the misreporting of SIG’s accounts, which amounted to an overstatement of £6.2 million between 2016 and 2017.

Markets

What happened yesterday?
Sterling’s weakness following the Bank of England put the FTSE 100 on course for its seventh straight weekly gain yesterday, which if continued would mark the longest winning streak for the index since 2005. Following an active afternoon for investors on the market, the FTSE 100 stood at 7,700.97 points, or 0.5% higher.

The pound slipped to its lowest level in 2018 after the Bank of England left interest rates unchanged, and warned that inflation would cool quicker than anticipated. By the close of play, the pound was trading down 0.37% against the dollar at $1.35, and down 0.87% against the euro at €1.13. Although the Bank signaled that a hike was likely later in the year, analysts described the stance as “confused”, which they attributed to increasing market uncertainty over the government’s Brexit negotiations and the unexpected sensitivity of sterling to recent UK economic data.

In corporate news, television provider ITV (up 6.05%) jumped after reporting quarterly advertising growth up 3%, as online advertising and sponsorship income offset TV weakness. In a year already marked by several high-profile takeovers, Exane BNP Paribas yesterday earmarked the television provider as the next possible target, with Discovery and Liberty Global named as possible bidders.

Royal Bank of Scotland was also on the front foot (up 3.77%) as it agreed to pay $4.9 billion to settle a long-running investigation by the US Dept of Justice into the bank’s dealing of mortgage-backed securities before the financial crisis. The agreed settlement was lower than analysts had expected, which now paves the way for a full government sale of the bank back into private ownership.

Finals
HarbourVEst Global Private Equity Limited A Shs
TalkTalk Telecom Group

AGMS
Alpha Fx Group
BBA Aviation
Man Group
GLI Finance Limited
Morgan Advanced Material
Mobeus Income & Growth 4 Vct
RSA Insurance Group
Wood Group (John)
Trading Announcements
BBA Aviation

Int. Economic Announcements
(13.30) Import and Export Price Indices (US)
(15.00) U. of Michigan Confidence (Prelim) (US)

Columns of Note

The FT’s Lex column suggests that RBS’s $4.9 billion settlement with the US Dept of Justice is worthy of a celebrity tabloid story. Despite having come out of ‘rehab’ and heading towards a government sale of its shares, Lex comments that the bank’s lack of economic capital might leave it overstretched by the ambition of an equally shaky government seeking to gain political capital. Lex speculates this could lead to a discount in RBS’s public share offering price or a plan to feed shares via sequenced placings. (£)

Philip Collins writes in The Times that Theresa May should sack “grandstanding” Boris Johnson from the cabinet. Collins points out that the prime minister’s repeated deference to the foreign secretary’s public mishaps has not led to a change in behaviour, whilst the UK’s international reputation has suffered as a result. (£)

Did you know?

The town of Salem, New Jersey, once held a trial against tomatoes in 1820 because of a widespread belief that they were poisonous. The case ended after Colonel Robert Gibbon Johnson ate a basket of tomatoes without ill consequence.

Parliamentary highlights

TODAY

House of Commons

Legislation

Parental Bereavement (Leave and Pay) Bill - remaining stages - Kevin Hollinrake
Representation of the People (Young People's Enfranchisement) Bill - 2nd reading - Peter Kyle
National Health Service (Co-Funding and Co-Payment) Bill - 2nd reading - Sir Christopher Chope
Import Tariff (Reduction) Bill - 2nd reading - Sir Christopher Chope
Schools Bill - 2nd reading - Sir Christopher Chope
Public Services (Availability) Bill - 2nd reading - Sir Christopher Chope
Electoral Commission (Duties) Bill - 2nd reading - Sir Christopher Chope
Armed Forces (Volunteer Reserve) Bill - 2nd reading - Sir Christopher Chope
Manufactured Goods (Trade) Bill - 2nd reading - Sir Christopher Chope
Local Authorities (Borrowing and Investment) Bill - 2nd reading - Sir Christopher Chope
Public Sector Exit Payments (Limitation) Bill - 2nd reading - Sir Christopher Chope
Principal Local Authorities (Grounds for Abolition) Bill - 2nd reading - Sir Christopher Chope
Coastal Path (Definition) Bill - 2nd reading - Sir Christopher Chope
Judicial Appointments and Retirements (Age Limits) - 2nd reading - Sir Christopher Chope
Representation of the People (Young People's Enfranchisement and Education) Bill - 2nd reading - Jim McMahon
Voyeurism (Offences) Bill - 2nd reading - Wera Hobhouse
Housing and Planning (Local Decision-making) Bill - 2nd reading - John Mann
Hospital Car Parking Charges (Abolition) Bill - 2nd reading - Robert Halfon
Universal Credit (Application, Advice and Assistance) Bill - 2nd reading - Dr Philippa Whitford
Marriage (Same Sex Couples) (Northern Ireland) (No.2) Bill - 2nd reading - Conor McGinn
International Payments (Audit) Bill - 2nd reading - Sir Christopher Chope
Criminal Fraud (Private Prosecutions) Bill - 2nd reading - Sir Christopher Chope
Affordable Home Ownership Bill - 2nd reading - Sir Christopher Chope
Clean Air Bill - 2nd reading - Geraint Davies
Terms of Withdrawal from EU (Referendum) Bill - 2nd reading - Geraint Davies
Supervised Drug Consumption Facilities Bill - 2nd reading - Alison Thewliss
Hospital (Parking Charges and Business Rates) Bill - 2nd reading - Mr Peter Bone
House of Lords (Exclusion of Hereditary Peers) Bill - 2nd reading - David Hanson
Private Landlords (Registration) Bill - 2nd reading - Phil Wilson
BBC Licence Fee (Civil Penalty) Bill - 2nd reading - Sir Christopher Chope
International Development Assistance (Definition) Bill - 2nd reading - Sir Christopher Chope
Benefits and Public Services (Restriction) Bill - 2nd reading - Sir Christopher Chope
Electronic Cigarettes (Regulation) Bill - 2nd reading - Sir Christopher Chope
Pedicabs (London) Bill - 2nd reading - Paul Scully
Voter Registration (No. 2) Bill - 2nd reading - Mr Peter Bone
Kew Gardens (Leases) (No.2) Bill - 2nd reading - Zac Goldsmith
Rivers Authorities and Land Drainage Bill - 2nd reading - David Warburton
Wild Animals in Circuses Bill - 2nd reading - Trudy Harrison
Forensic Science Regulator Bill - 2nd reading - Chris Green
Road Traffic Offenders (Surrender of Driving Licences etc) (No.2) Bill - 2nd reading - Mr Alister Jack

Adjournment: Funding for Helen and Douglas House Hospice in Oxford - Layla Moran

House of Lords

Legislation

Creditworthiness Assessment Bill [HL] - Committee stage - Lord Bird
Refugees (Family Reunion) Bill [HL] - Committee stage - Baroness Hamwee
Divorce (Financial Provision) Bill [HL] - Second reading - Baroness Deech

Scottish Parliament

No business scheduled