As leading shares recorded their second week of gains, supermarket group
Reports that members of the founding family had approached private equity firms with a view to buying back the business sent
Analysts at Exane BNP Paribas issued an underperform recommendation on
Morrison is haemorrhaging market share and has a pricing problem requiring painful margin cuts to fix. The dividend no longer looks secure...management is pressured and bid speculation is rising but a leveraged buyout or carve-up look unlikely.
Morrison's Christmas trading was a shock but to deliver a -7% like for like in January against a -6% comparison (based on Kantar data), suggests sales are unravelling. The consumer's embrace of the discounters has hurt all of the mainstream grocers, but Morrison's geographic and demographic positioning has left it exposed and its value credentials have been most tarnished, we think. Hoping for a better consumption backdrop looks futile – trust needs winning back which means price cuts and investment in customer loyalty/insights.
To deliver a successful leveraged buyout realistically requires the stock market to accept an implicit low property worth in Morrison, and for property investors then to accept high rents and low yields on the subsequent property carve-out. Basing an LBO assessment on the 'greater fool' argument lacks credibility, to us.
Overall though, the market was in a brighter mood. The
Positive European data, including a 0.3% rise in eurozone GDP in the last quarter, also helped sentiment while the market took political turmoil in
Better than expected Chinese trade data supported the mining sector throughout the week.
Helped by a recovery in the gold price as the dollar weakened, Mexican precious metals miner
Recent incoming on IAG has been focused on when the right time is to get out of the stock. There seem to be four main concerns; (1) Summer trans-Atlantic capacity growth, (2) whether increased capital expenditure will swallow increased cashflow, (3) whether share performance of 2013 can recur and (4) whether market expectations are now too far ahead of company guidance. Whilst some of these concerns are valid, we think the big picture is unchanged; IAG is successfully going through its restructuring and its valuation, most importantly, is still compelling. Clearly one needs to keep the risk/reward under review but for us it is simply too early to bail out.
Oilfield services suppler
The week saw a number of shock profit warnings, notably from
But Shire added 77p to £32.19 following a better than expected 36% rise in fourth quarter earnings, helped by growing demand for its rare disease drugs.
Although any potential transaction would be dilutive we think it would be well received. We think any proceeds would support the existing shareholder returns programme and clearly free up management to focus on driving through the current organisational change programmes. Whilst it would be positive, in our view, the scale of the transaction isn't really sufficient to change our overall view on Imperial and we maintain our hold recommendation and 2300p target price.
The bank reporting season continued but with as much focus on paypackets as profits.
Finally a stellar performance came from
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