3 September 2015
Week in Brief :BUSINESS AND THE CITY
PESTS: One of British commerce’s less known success stories is Rentokil Initial, a FTSE 250 company which specialises in office services of all types – from paper towel supply to rat catching to full facilities management. It had a long record, over 25 years, of increasing earnings growth, broken in the 2008 -12 recession, but it is now back to growth mode. Being a mature business in the UK it has looked for growth overseas, mainly in the USA where, although the market is advanced and sophisticated, there are a large number of smaller operators. Rentokil has been hoovering up some of those regional specialists, and its latest acquisition is Steritech, based in North Carolina, a very similar business to Rentikil, with similar values – not surprisingly as its boss and founder, John Whitley, used to run Rentokil’s USA operations. The purchase price is US$425m. Rentokil’s has bought some 40 other businesses, smaller and mostly in the USA, but its other ambition is to build new businesses in developing markets. Here it sees little competition and strong organic growth, and it is busy looking for suitable platforms and operators to acquire.
NEW BOY: Meets old boy, you might say. Following Martin Wheatley’s defenestration at the Financial Conduct Authority (the UK’s financial and banking regulator), after his brusque talk and heavy hand on the collars of bankers got just a bit too brutal even for George Osborne, the Treasury has started looking for a replacement. The rumour mill has instantly produced a strong front runner, Andy Haldane, chief economist of the Bank of England. He is an intelligent and subtle operator who could surely do the job very well, and would be acceptable to the banks and to the Treasury. But he might be regarded as too much of an insider at a time when the public would still like to see bankers punished for their perceived role in the crash.
IT’S A GAS: The search for oil reserves originally provoked by the high price of oil (remember that?) keeps producing new discoveries. The latest is a massive gas field off the coast of Egypt, under the Mediterranean. Early speculation is that the basin could hold 30 trillion cubic feet of gas, which would meet all of Egypt’s energy reserves for many years and potentially transform Egypt’s struggling economy. The government of Egypt has announced that opening of the field will be made a top priority, and, in partnership with the Italian oil company Eni, expects to begin production late next year. This follows on from discovery of a large Atlantic oil field near the Falkland Islands in May, technically and politically challenging; further shale finds in northern California, environmentally tricky; and even apparently large reserves near Gatwick Airport, though the true extent of these is shrouded in mystery. Certainly we don’t look like running out of carbon energy any time soon.
CRANE HIGHER: Anybody who has been up a tall building in London recently will know that there is a construction boom going on. It is not just the massive programme of office construction in the City of London which is populating the skyline. Whole new business districts are appearing at King’s Cross, at Paddington, and even at Stratford, north of Canary Wharf. But that is far from all. The huge number of residential towers appearing all over town are adding to the forest of gently swinging steel. The numbers confirm what we already knew – construction growth is up again in July, as it has been every month since May 2013. That is good news for employment – construction provides relatively well paid jobs in a sector that has needed them – though now the supply of skilled labour is running out, and the lack of training and apprentices since 2008 is starting to show. There is a desperate shortage of employees in some trades – bricklaying is an especial problem, though less so on steel and glass towers – and pay levels are going up quickly. But it’s not all bad news for the contractors; construction is a big user of energy in both building and component and the low oil price is helping maintain their profitability.
ROAD BLOCK: It may have been a rotten summer but hope springs eternal in the British holiday trade. Two large caravan park operators are to merge -Park Resorts with 49 locations, mainly in the North West and North East, is merging with Parkdean which has 24, mainly in the South West, to form the largest mobile holiday group in the UK. Their sites do not just consist of a sloping field with a wooden hut in the corner, but are large facilities with tarmac roads, power and wifi to the pitches, on site shopping, vans to be hired, and all the luxuries of modern caravanning. Combined profits should be £100m next year and the value of the business is estimated at close to £1bn. The bankers certainly believe in the business – they are providing a £550m debt facility to the merged entity which will release some cash to the vendors, Electra and Alchemy, two equity funds who will remain, with management, the principal shareholders.
FERRY INTERESTING: At the beginning of the C20th twenty per cent of all ships in the world were built in shipyards on the Clyde (and a lot more on the Tyne and the Tees). Now only one civil building yard, Ferguson Marine Engineering, remains in Scotland’s industrial heartland, and that only exists because it was saved by Jim McColl, an industrial entrepreneur who specialises in buying, and turning around, heavy engineering businesses. Mr McColl bought the yard from an insolvency Administrator last year but it has been struggling to find work – it has no background in the lucrative and expanding luxury yacht construction business. Now things are looking up; as well as progressing design work for the marine oil extraction business, the yard has won a contract from the Scottish Nationalist government to build two ferries for Caledonian, the former Caledonian MacBrayne, which operates the Scottish island ferries network and now government owned. Most of its routes are on the choppy, not to say stormy, western seaboard and have to operate all the year round to provide vital communications to the isolated island communities. The government has decided to upgrade the fleet which is ageing and carryings are increasing, at least in the summer. The contract is worth £97m and will be for delivery in 2018. It will enable the yard to retain vital specialist skills whilst it casts around for further work.
KEY MARKET INDICES: (at 2nd Sept 2015; comments refer to change on week; $ is US$)
Interest Rates:
UK£ Base rate: 0.5%, unchanged: 3 month 0.58% (steady); 5 year 1.47% (rising).
Europe€: 1 mth -0.12% (fall); 3 mth -0.6% (falling); 5 year 0.34% (rising)
US$: 1 mth 0.25% (fall); 3 mth 0.43% (rising); 5 year 1.57% (rising)
Currency Exchanges:
£/Euro: 1.36, £ falling
£/$: 1.54, £ falling
Euro/$: 1.13, € steady
Gold, oz: $1135, slight fall
Oil, Brent Crude barrel: $54.15, 18% rise on the week.
Wheat, tonne: £113.65, 5% down, reflecting impact of new harvest
London Stock Exchange: FTSE 100: 6,057. FTSE 350: 3,389
Briefly: After the excitements of the previous week and so called “Black Monday” (more light grey, in truth) the markets have settled down again. The stock markets remain subdued and prices seem to have settled into a new band but remain nervous.
The oil price remains unstable – after hitting recent lows last week it recovered rapidly to be back to $54 a barrel this morning.
