Print
	Email
	Text size
	Comment

From car scrappage schemes to e-commerce, M&A looks at the UK economy by industry sector

Automotive

Economically up-against-it carmakers, including Ford and Toyota, are calling on European governments to continue with their car ‘scrappage’ schemes.

Germany and the UK are among those major economic powers to have introduced so-called ‘cash for clunkers’ programmes, which have provided ailing car sales with a much-needed shot in the arm. However, now, with recessionary forces receding, the worry is that automotive car sales will dip sharply without such incentives as existing schemes come to an end.

Thus far, the US, UK and German governments have splashed out more than e8 billion (around £7 billion) on car scrappage, but funding for these schemes is starting to run out and carmakers are now calling for extensions.

Germany’s sizeable €5 billion scheme, which recently ended, was credited with a key role in its economy’s emergence from the recession in the second quarter. Over here, the UK scheme is expected to end either in February or when the £300 million set aside by the government runs out.

While the automotive sector’s major manufacturers liaise with legislators, investors have witnessed a rally in the hitherto bombed-out share prices of UK-quoted car sellers. Pendragon has perked up to 38.75p, versus a 52-week low of 1.4p, Lookers has accelerated to 64.5p of late, up from a year’s trough of 15.23p. On AIM, Vertu Motors, now the ninth-largest UK motor retailer, recently reported a continuance of recent positive trading trends and its shares have motored to 42p, up from their recent 10p low and valuing the group at £82.5 million.

Finance

As the debate wore on about whether banks did a ‘socially useful’ job, Barclays intrigued the market by agreeing to sell £7.5 billion of toxic assets to a new company, Protium Finance, managed by C12 Capital Management, a company headed by two former executives from its Barclays Capital arm. Barclays is lending Protium the value of the purchase and will keep the risky assets on its own balance sheet, while paying C12 a £25 million annual management fee.

Some companies reckon they are benefiting from the banking shake-out. Among them is factoring and invoice discounting specialist Ultimate Finance, which recently reported annual profits up 196 per cent to £406,000 pre-tax.

The Bristol-based company, which provides trade finance to small and medium-sized companies, increased the client turnover it financed by 24 per cent to £213 million and increased its back-to-back funding from Lloyds Banking Group by £7 million to £25 million, with a term lengthened from two to a minimum of three years.

Resources

Inflation fears, kindled by anti-recessionary monetary easing, helped gold rise through the $1,000 an ounce barrier. Some analysts attribute this as much to technical factors, related to hedging moves by mining companies and other market players, while others argue that, adjusted for inflation, the price has gone nowhere since its early 1980s highs. However, the feeling that Chinese and other investors were losing patience with the US dollar cheered the gold bugs.

This sentiment extended to the small company arena, too. AIM-quoted Oxus Gold, with operations in Uzbekistan, became the focus of speculation about possible acquisitive interest from Chinese concerns.  

Oil giant BP stirred the market with the discovery of the Tiber Prospect in the US Gulf of Mexico, containing a potential three billion barrels of crude, while BG Group suggested that its Guara field find in Brazil, holding a possible two billion barrels, could be larger in terms of recoverable barrels of oil.     

Retail

Growth in the e-commerce space is speeding ahead of other sectors. According to figures from the IMRG Capgemini e-Retail Sales Index, online sales grew by 16 per cent in August compared with the same month last year, but fell 10 per cent month-on-month, in line with seasonal trends seen in previous years.

Only the footwear, gifts and electrical sectors show resistance on the month-by-month basis, with online sales of shoes proving particularly strong, rising 3 per cent. In July, growth had been driven by the clothing, footwear and accessories sector, which saw an 18 per cent month-on-month increase, and electricals, which grew 11 per cent.

IMRG director of information Tina Spooner notes that this seasonal dip is ‘in line with similar trends seen in recent years for the month of August’. She believes that ‘retailers that continue to expand and improve their online presence will no doubt reap the benefits during the festive trading period’. Colleague Mike Petevinos, head of consulting, adds, ‘It is no coincidence that in these [successful] sectors, retailers are making the greatest strides to improve their online offer, with improved visuals, enhanced product information, more convenient delivery and return models and an increasing use of Web 2.0 techniques.'

Over on the high street, the summer revival appeared to hit the wall in August, with sales lower than analysts were expecting.

While a rise of at least 0.1 per cent was predicted, figures from the Office for National Statistics showed that shop takings were flat, meaning the annual rate of growth has fallen from 2.9 per cent in July to 2.1 per cent in August. Grocers continued to thrive, however, with William Morrison (up 9.5 per cent in the month) the winner out of the ‘big four’.

Technology

A slow-burning trend of hardware sellers buying IT services businesses has gathered momentum, with troubled computer maker Dell following the 2008 move by Hewlett-Packard (HP) into services with its own proposed multi-billion acquisition of global IT services company Perot Systems, the vehicle of former US presidential candidate Ross Perot.

Dell has announced its intention to acquire Perot for $3.9 billion (£2.4 billion), cementing the analysis that global hardware manufacturing businesses are unable to prosper without a significant IT services capability.

The announcement arrives shortly after Dell’s revelation of yet another disastrous set of financial results, with second-quarter revenues down 22 per cent to $12.8 billion, compared with an already wavering performance in the second quarter of last year. Roughly 16 per cent of Dell’s revenue in that quarter was derived from its services division, which provides customer support and some infrastructure consultancy.

Perot Systems, meanwhile, grew its revenues by 11 per cent to $628 million in its most recent financial quarter, typifying the easier ride – compared with the rest of the IT industry – that services companies have enjoyed in recent times. One explanation for this is that while hardware and software procurement, for example, can be easily halted, businesses that have outsourced IT operations have little option but to retain their suppliers’ services.

Dell hopes that the proposed acquisition will help it to sell more hardware through Perot’s services operations. ‘This significantly expands Dell’s enterprise solutions capabilities and makes Perot Systems’ strengths available to even more customers around the world,’ said Michael Dell in a statement.

The deal echoes HP’s 2008 acquisition of EDS, the company founded by Perot before he went on to form Perot Systems. Whether or not HP’s EDS acquisition has gone according to plan has been somewhat obscured by the recession. While the addition of EDS’s revenue to its own helped to conceal what would otherwise have been a precipitous fall in revenue for its most recent quarter, HP’s hardware sales – like those of all its competitors – have nevertheless declined since the credit crunch struck.  

Property

With commentators claiming the sector is on the mend, a number of larger quoted players are seeking to capitalise on more benevolent sentiment by raising cash.

City institutions are being called upon by housebuilding pair Barratt Developments and Redrow, both FTSE 250-listed and which have been rumoured to be merging, with each looking to separately strengthen their balance sheets and drum up the firepower for opportunistic acquisitions. Barratt plans to raise £720.5 million, through an underwritten placing and a discounted rights issue, while Redrow is after a more modest £150 million via its rights issue.

Amid the blue-chips, shopping centre owner Liberty International has raised £280.5 million, not long after a £592 million placing in April, while small-cap shopping centre player Capital & Regional has drummed up £69.2 million in a discounted placing and open offer.

The background to this microeconomic action is mixed news about the level of mortgage approvals by banks. The number of mortgages approved by banks for house purchases remained steady in August, according to the British Bankers’ Association (BBA). Gross mortgage lending, at £8.6 billion, grew £100 million on the previous month but this represents a 33 per cent fall from the already low figures recorded this time last year.  

However, approvals for house purchases, at £5.2 billion, were up 89 per cent on the same month last year, though the number of mortgages approved for house buying was still down a whopping 40 per cent from pre-crunch levels.

BBA statistics director David Dooks observes, ‘The main high street banks’ mortgage lending has stabilised in a market where other lenders are largely inactive. Loans approved for house purchase have recovered to early 2008 levels, but low levels of customer demand and a limited number of properties coming onto the market will continue to moderate lending. In reaction to the economic conditions, consumers appear to be building up their savings and controlling their appetite for unsecured borrowing.’

Comments [1]