7 may 2015
Week in brief: BUSINESS AND THE CITY
J SAINSBURY: Sainsbury followed the other UK major supermarket chains in reporting weakness in 2014 trading with a 15% fall in trading profits, to £681m. As with Tesco, who shocked the market with record losses last month, Sainsbury took large one-off special charges and write downs, principally on its property portfolio, totalling £753m, creating an overall loss of £72m. This is Sainsbury’s worst result for ten years. Sainsbury management see grounds for some optimism, with footfall in the stores now steady, but reported that customers remain extremely focussed on value. Which should be good news for shoppers, if not for shareholders.
MILLER HOMES: The major Scottish based regional housebuilder which last year built 1918 homes, mostly at the value end of the market, published strong results for 2014; turnover rising 19% to £392m, and profits nearly doubled to £44.3m. Outlook is good with reservations strong, and Miller forecasts sales of circa 3000 units per annum in the next few years. Miller abandoned plans to float last autumn and remains owned by the Miller family.
TECHNOLOGY: One of Britain’s leading successes in software design and production, Sage Group, founded and still based in Newcastle on Tyne, announced good performance for the half year ending 31st March 2015, with profits up to £192m, on revenues of £682m. Sage sells accounting software worldwide, but has recently begun to diversify into other software, acquiring American payroll management business PayChoice last year as part of its efforts to push into the USA – ironically, its weakest performing area.
MORE TECHNOLOGY: The British Government has been highly praised by techno businesses for its promotion of the Old Street area, on the fringe of the City of London, as a technology hub. However, the Financial Times reports growing disquiet among businesses located there, due partly to slow broadband speeds, but more to rapidly rising rents which are making occupational costs too heavy for start-up enterprises. The cause of this is the boom in the City – core rents have risen some 40% in the last 18 months. The smaller service businesses which provide back-up services to City banks and lawyers are now starting to relocate to Old Street – forcing the techies further east.
BANKING: HSBC reported a 4% rise in first quarter profits, to US$7bn, mainly driven by improved returns in its investment banking operations. However, staff costs were significantly up due to larger costs in regulation and compliance. In discussion of the little noticed UK requirement for full service banks to separate by 2019 their retail (branch, public deposit taking) networks from their investment banking activities, HSBC’s chief executive, Stuart Gulliver, said that HSBC (which has begun the restructuring and will move the headquarters of its retail business to Birmingham) had to seriously consider whether it could be a 100% owner of a business over which it had no management or financial control. The right structure might be for HSBC to float off this part of its business and be a much smaller shareholder in it.
FRAUD: British market trader Navinder Singh Sarao, charged by NY regulatory authorities with market manipulation, remains in custody in the UK pending extradition to New York following his arrest in Hounslow. Although Singh Sarao is said to have “fraudulently” made $27m over several years by alleged manipulation he is apparently unable to raise the £5m bail set by a UK judge.
AIRPORTS: Docklands Aviation Group, which owns London City Airport, reported revenues up 10% to £103m and pre-tax earnings of £45.8m. The airport operates public short-haul flights to many European destinations (and a daily business class flight to New York), and also a remunerative private jet handling operation. It is now operating at pretty much full capacity and a recent application to increase throughput was rejected by Mayor Boris Johnson on grounds of potential noise nuisance.
KEY MARKET INDICES: (comments refer to change on week; $ is US$)
Bank rate: 0.5%, continues unchanged. 3 month rate 0.59%, (steady) 5 year rate 1.52% – longer rates are now moving out quite rapidly, reflecting a general worldwide trend.
£/Euro: 1.36349, steady
£/$: 1.5110, slight recovery for sterling
Euro/$: 1.1089, slight strengthening for €
Gold oz: $1175.9, trending down
Oil, Brent Crude: $67.65, rising (finer crudes such as Libyan have now risen to $68+)
London Stock Exchange: FTSE 100: 6942. FTSE 350: 3816
In spite of the continuing uncertainty as to the result of the UK General Election on Thursday this week the LSE (and other key indicators) continue to perform steadily, the LSE moving in the new (and record high) trading patterns set at the beginning of the year.
