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From gloomy manufacturing figures to a more promising picture for real estate, M&A looks at the UK economy by industry sector.

Finance

An era came to an end when Wall Street bank J.P. Morgan and its London partner of five years, blue-blooded, powerful and discreet stockbroker Cazenove, agreed the terms of a £1 billion takeover. Morgan is paying 535p a share for the half of Cazenove it does not already own in a deal that enshrines David Mayhew as Cazenove chairman, with a £19 million windfall to enjoy.

Lawyers representing the estate of collapsed US investment bank Lehman Brothers launched transatlantic proceedings of a less amicable variety by filing a suit against Barclays Capital, seeking to claw back up to £5.9 billion allegedly transferred to the UK bank in the wake of Lehman’s bankruptcy last year. More welcome was the move by Banco Santander, owner of Abbey, Alliance & Leicester and Bradford & Bingley, to offer customers who also have a mortgage with the bank accounts without penalties even if they exceed their overdraft limits.

In the insurance world, AIM-quoted run-off specialist Randall & Quilter completed the acquisition of 70 per cent of US reinsurer Goldstreet.   

Manufacturing

Manufacturing and engineering employers’ body the EEF has issued a call for the government to provide secure investment in its forthcoming Pre-Budget Report.

Public finances need to be restored and support for the UK’s productive sectors should continue, insisted the EEF, which represents engineering, manufacturing and tech-based businesses and whose policy director Steve Radley argues that ‘failure to do this risks pulling the rug out from under companies’.

Furthermore, the organisation, warning that business should not have to shoulder the burden of higher taxes, recommends extending the 40 per cent capital allowances for another 12 months and freezing small companies’ corporation tax rate until April 2011.

That the manufacturing sector remains under huge recessionary pressures is evidenced by recent gloomy results issued by its smaller quoted company constituents.

One struggling AIM counter is Turbotec Products, which designs and makes high-performance heat exchangers and heat transfer tubing and reported reduced sales and pre-tax profits of $9.7 million (H1 2008: $14.9 million) and $900,000 (H1 2008: $1.5 million) respectively for the half to September, not helped by the weak US housing market. Nevertheless, management insist that the company is well placed to capitalise on ‘the long-term market opportunities for highly energy-efficient heating and cooling devices’, once the economy begins to recover.

Pharmaceuticals & Biotechnology

The biotechnology industry is waiting expectantly after the National Institute for Health and Clinical Excellence (NICE), the body determining which drugs should be available on the NHS, launched the Innovation Pass, a pilot scheme enabling drug developers to bring innovative medicines for rarer diseases to market sooner.

First mooted as part of the ‘Blueprint’ report from the government’s Office for Life Sciences in July, the Innovation Pass is designed to provide patients with unmet medical needs with access to the innovative treatments being developed by biotech ventures. Patients with rare conditions will, the theory goes, be allowed to receive certain innovative drugs for a period of three years on the NHS, which in turn both allows the biotech companies to collect plenty of crucial medical data and provides NICE with a better opportunity to assess the cost-effectiveness of the treatments.

NICE and the Department of Health will conduct a ten-week consultation on the scheme, which, once launched, is to be funded by a ring-fenced £25 million budget in 2010/11, with funding for future years to be discussed in the consultation.

‘The introduction of an Innovation Pass signals to the investment community that the government understands and supports the innovative life science sector in the UK,’ says Clive Dix, chairman of the BioIndustry Association.

Property

In an encouraging sign for the bowed property sector, the number of new mortgages approved by banks rose slightly in October compared with September.

Latest figures unveiled by the British Bankers’ Association (BBA) reveal a rise in mortgage approvals from 42,073 in September to 42,238 in October, reflecting the continuing, albeit modest, activity increase in the housebuying market since the start of the year.

Support for the trend arrived in the form of statistics unveiled by HM Revenue & Customs that revealed a further rise in house sales to 90,000 in October, some 10,000 north of the September figure and more than double the 41,000 low recorded in January.

While representing a positive sign, it should be noted that sales for the third quarter of 2009 were still less than half the level of the comparable quarter in 2007, before the credit crunch began. And although the value of all mortgage lending is growing, other forms of personal bank lending are declining, and the outlook remains relatively weak.

As Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, explains, the lack of supply of property coming onto the market ‘is proving to be an increasingly important obstacle to a more meaningful pick-up in transaction levels’. He adds that ‘the number of new instructions will remain fairly subdued into the year-end’.

Resources

While gold breached $1,210 an ounce on fears about inflation, the US dollar and international instability, Chinese interest helped revive copper prices, which have been testing 14-month highs at nearly $7,000 a tonne. However, concern about stockpiles in the People’s Republic and signs of slowing demand later shaved the gains, though Chinese buying has seen gains in corn, wheat and soya beans.

Eastern Europe-focused Aurelian Oil & Gas claims that Romania’s Voitinel-1 well could hold between 50 and 100 billion cubic feet of gas. The London-based company says the latest evaluation of the well, in the onshore Brodina concession, shows 15 metres out of 17.6 million perforated are productive. AIM-quoted Aurelian, which has 33.75 per cent of Voitinel-1, adds that its new estimate of potential ‘gas in place’ does not include any contribution from another part of the project.

Technology

In some buoyant news for the technology sector, computer maker Hewlett-Packard (HP) has announced an 18 per cent profits rise for the three months to September, with cost cutting more than offsetting declining sales.

The US giant, the globe’s largest producer of personal computers, made a net profit of $2.4 billion (£1.4 billion) during the aforementioned quarter, up from $2.1 billion a year earlier, despite revenues declining by 8 per cent to $30.8 billion.

This reflected some serious recent restructuring – the company has culled 6,700 jobs this year in order to pare its cost base – as well as its 2008 takeover of Electronic Data Systems, the technology services specialist acquired for just shy of £14 billion last year.

Predicting that its top line will move higher next year, HP is in acquisitive mood, having recently announced the takeover of 3Com, a network systems maker, in a $2.7 billion transaction it expects to complete in the first half of 2010.

Meanwhile, amid London’s quoted company scene, shares in fully listed small-cap Phoenix IT rose 28p to 248p in one solitary trading session, on news of an 11.5 per cent rise in pre-tax profits to £14.8 million for the six months to September.

Encouragingly, the technology services outfit flagged up improving demand and said it hoped to clinch some large deals over the coming months. The shares then flew higher still to 270.25p on the feel-good factor, to value the company at £203 million.

Travel & Leisure

A bit of froth has returned to the depressed pub sector of late, following strong results from ‘pubcos’ Mitchells & Butlers (MAB) and Greene King (GNK).

Although MAB is still having problems with its major shareholders – heavyweight investor Joe Lewis in particular, whose boardroom representative has been axed after acting in a way that could ‘potentially undermine’ the board – recent results outstripped City expectations.

On sales up 2.6 per cent to £1.96 billion in the year to September, the owner of the All Bar One, O’Neill’s and other bar chains produced a £134 million profit before tax, 24 per cent down year-on-year, though 8 per cent ahead of consensus forecasts.

While MAB has withdrawn from the dividend list, FTSE 250 peer GNK held dividends at 5.9p per share at the interim stage. Half-year results to October were more in line with analysts’ figures, showing 2.8 per cent growth in pre-tax profits to £62.4 million, on sales up 4.3 per cent to £464.5 million. The Suffolk-based brewer, which cut debt levels by £211.5 million to £1.35 billion, also flagged up strong trading across its businesses since the period end, with like-for-like beer sales outperforming the market despite slowing.

Over at MAB, where net debts were down £135 million to £2.3 billion, CEO Adam Fowle was in high spirits, pointing out that like-for-like sales were 3.2 per cent ahead in the new financial year as a result of ‘a recent small upturn in consumer confidence’.

However, he cautioned that the external outlook for the second half is uncertain and was already thinking of the next government Budget: ‘The outlook for disposable income and consumer confidence could be dampened if VAT and other taxes were to rise.’

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