Stock Exchange demands too high a premium
Grundig deal makes ambitious Alba a hold: Crest Nicholson's rise built on firm foundations
Friday 30 January 2004
Taking heart that the economy is looking up, many in the City have had a spring in their step in the past few months, and that has been reflected in the flurry of companies bursting on to the stock market.
Some 81 companies braved public ownership in the three months to December - almost twice the number to list in the same period in 2002. That is good news for the London Stock Exchange, which saw turnover from its issuer services department, which handles IPOs, rise 23 per cent to £10.7m for the period, according to figures out yesterday.
The Exchange has also made good progress in the services it offers brokers, through its electronic trading platform, SETS. The number of transactions that passed through the platform rose 26 per cent in the third quarter compared with 2002.
Clara Furse, the chief executive of the LSE, has also focused on shunting the tradition-loving Exchange into the twenty-first century, modernising the once archaic institution and cutting its costs. In the past six months she has built up derivatives trading, launching EDX, a derivatives and equity trading platform in the summer. But all that activity cannot disguise the fact that growth prospects for the LSE look slim. Its turnover from information services - which provides data for terminals used by analysts and other City employees - continued its downward trend. While IPOs were up in the run up to Christmas, January blues seem to have taken over, with the Exchange warning that appetite has been subdued in recent weeks, and below last year's levels. The LSE's shares fell 5p to 363p.
The prices the Exchange charges are also coming under ever more competitive pressure. The UK's competition authorities have also waded into the arcane world of the cost of trading, forcing the LSE to cut prices for new listings.
An upturn in the economy would alleviate some of these pressures, though it would probably take the long-awaited bid for the LSE from the likes of Deutsche Börse to inject real life into the shares. However, as the Exchange already trades on 18 times future earnings, there may not be much of a premium to be gained. Avoid.Grundig deal makes ambitious Alba a hold
The consumer electronics business Alba - best known, perhaps, for buying up flagging but well-known brand names and turning them around - has snapped up another. This time it is buying the Grundig brand - albeit in a 50-50 joint venture with Beko of Turkey - from the administrator for a maximum of €80m (£54m).
The deal is key for Alba. About 85 per cent of its total turnover comes from the UK - where it owns brands including Bush and Goodmans.
With Grundig on board, assuming the deal goes through, the company reckons half of its turnover could come from overseas in three years' time - making Alba a truly pan-European business.
Grundig is a well known brand, with TVs, video recorders, DVD players and cordless phones among its range. It currently trades under the Roadstar name in Europe.
The advantage of buying from the administrator is that much of the cost-cutting has already been done. Staff levels have been cut to about 350 compared with a peak of 2,700.
Nor does Alba expect that investment costs will shoot up. Its best guess is that Grundig will be at a break-even position in the year to April 2005 but enhancing thereafter. Analysts' early estimates are that the deal could lift earnings by as much as 7 per cent in the 2006 financial year.
Unsurprisingly, Alba shares shot up 14 per cent yesterday to close at 765p, reflecting the potential upside from the deal. Given that sharp rally, the shares are a hold.Crest Nicholson's rise built on firm foundations
Crest Nicholson is the sort of housebuilder that John Prescott, the deputy prime minister, should love. This government has outsourced much of the delivery of social policy to the private sector and housing is no exception.
The company, which reported full-year results yesterday ahead of expectations, has shifted its strategy to become an urban regenerator. It has moved increasingly into the area of affordable housing and social (housing association) housing. It has moved into the lower priced end of the market more generally and away from the inflated South-east.
It has done this not for reasons of philanthropy but because it sees opportunity. Crest Nicholson has tuned into government policy, which manifests itself through the planning system, and also to demographic pressures - we need more homes at the bottom of the market. The company has already established itself as a favourite among local authorities - it is doing up a sink estate in Birmingham, for instance.
The change in strategy did hit margins initially but yesterday it reported a healthy 15.9 per cent operating margin. Pre-tax profit for the year ended October were up 18 per cent at £74.6m. The shares eased 5p at 318p yesterday.
With low interest rates and high employment, the housing market should be resting on firm foundations. Add to that Crest Nicholson's less risky positioning in the market and the fact that it is seen as a takeover target. Buy.
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