News Column

Daily Mail, London, market report column

January 28, 2014

By Roger Baird, Daily Mail, London

Jan. 28 -- UK -based investors are not impressed by plans being hatched by US hedge funds to break up the property empires of British supermarkets. Weekend reports said Wall Street investors are preparing to put pressure on three of the country's biggest grocery giants Tesco, J Sainsbury and Morrisons to spin off their property portfolios. New York -based fund Elliott, led by billionaire Paul Singer , is among a number of US investors who want the supermarkets to realise the value of their property portfolios worth nearly pounds sterling 50bn . By comparison the combined market values of the three firms is pounds sterling 38.7bn . The US hedge funds, who picked up small stakes in the three supermarkets last year, want the grocers to float their stores into separate listed firms, and sell off minority stakes to investors, which they believe would allow the value of property to rise to more realistic levels. This model was used by Canadian supermarket group Loblaw , which sold of 20pc of its properties to investors after floating their buildings in a real estate investment trust last year. However, analyst Clive Black at Shore Capital , says there are a number of reasons why the management at each supermarket would resist such a move. And he believes they would be right to do so. Firstly, Black says the sector 'for the first time in a generation' is trading at industry low margins of around 3.5pc to 5.5pc. On top of this all three supermarkets have to turnaround poor Christmas trading figures. Morrisons , up 0.6p at 245.7p, posted a 5.6pc drop in same store sales over the festive period. Tesco, down 2.05p at 324.6p, saw a 2.4pc sales fall. Sainsbury's, which slipped 4.7p at 357.4p, reported a rise in turnover of just 0.2pc. Black notes that in this environment managements will be 'considerably more focused on the day job rather than balance sheet engineering'. In the UK the top four supermarkets feed three-quarters of the country's households. Black says that politicians and regulators may well want a say in any major move that cuts in to the reserves and operational leverage of these businesses. Morrisons , because it had such a bad Christmas, is looking to generate cash by selling and leasing back around 10pc of its estate, which could raise as much as pounds sterling 800m . But it says it plans to 'overwhelmingly' remain a freehold owner of its stores. Ultimately, Black thinks much will depend on how determined these US funds are on forcing through their plans. The Shore Capital broker said: 'We will watch with interest to see if current activist shareholders have the depth of pockets and conviction to see through their purported plans.' Britain's FTSE 100 fell 113.08 points to a five-week low of 6,550.66 on the back turmoil in emerging markets and steep slumps in oil and gas firm BG Group and telecom provider Vodafone . On Wall Street , the Dow Jones Industrial Average lost 41.23 points to 15,837.88, as industrial stocks rose higher while technology shares declined. Back in London the main Footsie index is now down 3.1pc for the year, with the latest decline beginning when the index was less than 100 points from an all-time high. Emerging-market currencies from Turkey's lira to Argentina's peso and South Africa's rand tumbled last week amid concern the US Federal Reserve will continue slowing its pace of monthly bond purchases. Analysts said this continued weakness in emerging market currencies would potentially hurt the profits of companies that report in sterling.BG shares fell 173p to 1,082p posting their worst day since 1987 after the company warned that production this year and next would fall short of expectations, calling its guidance for 2014 'disappointing' due to ongoing problems in Egypt . BG Group contributed 22.7 points to the index's drop. Vodafone , the third biggest company in the FTSE 100, fell 9p to 223.55p after US mobile rival AT&T said it was not planning to take over the British-listed firm, putting an end to months of speculation. While separate reports surfaced that Vodafone may be preparing a pounds sterling 7bn bid of its own for Spanish rival Grupo Corporative. Vodafone's fall shaved a further 16.8 points off the FTSE 100. Imperial Tobacco fell 10p to 2,252p despite Credit Suisse earmarking the company as a takeover target. Among the small caps, specialist savings provider Hansard Global declined 7.25p to 85.5p, after it said new business growth slowed in the second half of 2013, due to the loss of a distributor in the Far East. ___ Luxury wallpaper and fabrics firm Colefax will buy up around pounds sterling 4.4m of the firm's shares in a move to return cash to investors. The business will buy up around 9pc of the firm's shares next month. The AIM-listed firm said it has reserves of pounds sterling 7.2m , and wanted to distribute some of this to investors. The company added its half-year pre-tax profit jumped 72pc to pounds sterling 3.1m , on recovering sales in Britain and the US. Shares leapt 52.5p to 405p. ___ (c)2014 Daily Mail (London, ) Visit the Daily Mail (London, ) at Distributed by MCT Information Services

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Source: Daily Mail (London, England)

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