Hold on to Royal Dutch Shell, said Questor in the Sunday Telegraph, B-shares in particular for UK investors to avoid double taxation. Shell’s acquisition of BG Group is very logical but if the price of oil wallows for much longer it could see the end of Shell’s long-running dividend history, with dilution for investors too. Shell’s reserves need topping up and BG’s stake in the massive gas field offshore Brazil will fix this and comes at a time when gas is becoming preferred to coal.
Compelling as the rationale is, the price £47bn price agreed for the deal earlier this year requires Shell to sell $30bn (£19m) of assets from next year and launch a share buy-back of $25m in 2017. But even though the purchase only really makes sense if oil recovers to at least $80 per barrel, everyone still seems keen, even Shell’s management team. But Shell’s shareholders are paying for the deal and now that oil prices are expected to stay lower for longer the message is clear: at current prices this deal destroys value and puts investors at greater risk.
If shares in United Utilities leak lower after interim results on Wednesday then they could present a good opportunity to buy. The water company will be taking a financial hit from paying compensation to customers for the water bug that struck for a few weeks this summer. Analysts calculate the company will have paid around £30m in total, which will knock pre-tax profits around 6% lower.
This is not ideal but it takes a lot more than that to derail UK water companies in the longer term as they are regional monopolies, with UU having around 7m customers in Cheshire, Cumbria, Greater Manchester, Lancashire and Merseyside. Water regulator Ofwat recently forced the company to reduce prices for the next five years, which will also be reflected in this week’s results for the first time. But despite this and the microbe compensation, a water company like UU can still squeeze out more profits and it offers a dividend yield of not far from 4%.
Shares in ScS Group are worth buying, wrote Midas in the Mail on Sunday. The sofa and carpet group re-floated at the start of the year but slipped under their issue price after a rather early profit warning. Recent weeks have seen a slight bounce for the generously dividend-yielding shares. Some investors may remember the company’s previous guise fell into administration in the peak of the financial crisis.
A private equity turnaround has seen flooring and new sofa brands and own-brands added to the offer, as well as white label sofas for House of Fraser. From around a hundred stores and a burgeoning website, the company is forecast to grow sales 4.5% to £305m in the year to July and plump profits up 24% to £7.7m, with a plush dividend yield of 7.5% also adding attraction to the shares.
Home Retail Group, the owner of Argos and Homebase, is being circled by potential private equity buyers after its recent profit warning sparked by Black Friday uncertainty. With the shares having halved in 2015, the Sunday Times reported that several retail industry figures have been asked to advise on £1bn bids for the group, including from US-based Apollo Global Management.
US hedge fund Third Point has set up a major short position on Morrisons, joining a group of funds betting against the supermarket’s shares. The $17.5bn fund, run by Daniel Loeb, has this week built a short position worth almost £20m, or more than 0.5% of Morrisons’ market cap, the Sunday Telegraph reported, as the grocer becomes one of the most shorted FTSE 100 stocks.
Morrisons chief executive will remain in line to pocket a multi-million pound bonus – even though the company is expecting sales to fall, the Mail on Sunday added. Under new objectives that major shareholders have been consulted about, David Potts and his fellow directors will not be expected to increase grocery sales over the next three years from the £13bn achieved in the year to February.
Insurance giant Axa has begun to plan an exit from several of its British businesses, including its wealth management arm, offshore bond provider Axa Isle of Man and parts of its Sun Life insurance business. Bankers at Barclays and Fenchurch Advisory Partners have been brought in to advise on the sale of the units, the Sunday Times reported.
Deutsche Bank will make 1,000 job cuts in the City of London in the new year as directors look to slimline the investment bank, the Sunday Times said. The London cuts are part of an overhaul announced by new boss John Cryan last month, where 15,000 staff will be axed worldwide in the next two years.
Dermot Desmond, the Irish billionaire and owner of 2% of Ladbrokes, will lose out in his attempt to derail the £2bn merger between the UK bookmaker and its smaller rival Gala Coral. Desmond’s open letter urging shareholders to block the deal is understood, said the Sunday Times, to have fallen on deaf ears ahead of Tuesday’s vote.
Three North Sea oil producers are in danger due to the low price of oil. Two of these, explorer PA Resources and Toronto-listed Iona Energy are going bust and a third, Copenhagen-listed Atlantic Petroleum is looking for a cash-rich saviour, the Sunday Times reported.
Nisa Retail, the convenience store mutual, has asked members to approve measures to raise its defences against a predatory takeover deal. Members of the 2,500-shop chain, which last year made £1.6bn of sales, will vote on plans to increase in the shareholding threshold a predator would have to cross to gain control, as part of reforms being proposed by chairman Christopher Baker and former City minister Lord Myners, the Sunday Times said.
City of London stockbroker Cenkos Securities has suspended biotech analyst Navid Malik after accusations made by the anonymous team at UK-based research house, Phase Five Research. The Sunday Times reported that Malik had been suspended with pay while the allegations about his connections with former AIM company Northwest Biotherapeutics are investigated
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