Market Report: Hope of European unit sale boosts DSG
Saturday 09 August 2008
DSG International was the main feature in the retail sector yesterday after rumours suggested a disposal may be in the offing.
Traders cited speculation that the owner of PC World was seeking to offload a European division in a bid to cut costs. DSG, the rumours suggested, had appointed Citigroup for advice on the sale.
The talk bore no clues about which division may be sold, but analysts said that Electro World, DSG's chain of electrical superstores across Hungary, the Czech Republic, Poland, Greece and Turkey, and UniEuro, its Italian business, were the most likely candidates for disposal.
If DSG puts Electro World on the auction block, analysts said, it may find a buyer in the German electrical retail group Media Markt, Kesa Electricals or possibly Best Buy, the American retailer which recently entered into a retail joint venture with the Carphone Warehouse. It will be harder to sell the underperforming UniEuro chain, they added.
The speculation was supplemented by the news that the non-executive director Andrew Lynch had picked up 20,000 shares in the company, which suggested that a significant transaction was not imminent.
By close, DSG was up more than 11 per cent, or 5.5p, at 55p. Carphone Warehouse was up 3.25p at 206p.
Overall, the FTSE 100 was up 11.7 points at 5,489.2 as the consumer stocks rallied thanks to renewed weakness in the price of oil.
British Airways, which also benefited from a positive Citigroup note, was the strongest, up 8.14 per cent, 20.75p, at 275.75p. Thomas Cook and TUI Travel, both of which are to publish updates next week, gained 17p each to 237.25p and 237.5p respectively.
The push in consumer stocks helped offset a bad day for the oil, gas and mining sectors, which tracked commodities prices. Kazakhmys claimed first place on the loser board, down 86p at 1,248p, while Ferrexpo, at second place, was down 15.75p at 260.25p. Among oil & gas companies, Tullow Oil lost 35p to 706p and Cairn Energy eased to 2,626p, down 102p.
British American Tobacco was down 38p at 1,838p after it said it was seeking a secondary listing in South Africa following plans by Richemont, the Swiss luxury goods maker, and Remgro, the South African investment group, to spin of their combined 27 per cent stake in BAT. About 90 per cent the share holding will be distributed to Remgro and Richemont share holders. The remaining 10 per cent of the combined holding (which equates to 3 per cent of BAT's issued share capital) will go to Reinet, a new Luxembourg investment vehicle.
Evolution Securities said that while in the short term the news will have some technical implications for the BAT share price and would encourage some investors to switch to Imperial Tobacco, it has "no fundamental investment implications".
Royal Bank of Scotland was up 7.5p at 240.5p after posting a lower-than-expected first-half loss of £691m – its first loss as a public company. Reacting to the news, Citigroup reiterated its "buy" advice. Pali International also stuck to its advice, maintaining a "neutral" rating on the stock. "Initial reaction is that these are better than expected, with a lower loss and higher core tier 1 capital," said the broker.
Banking was generally unsettled and HBOS was down 3.25p at 331.5p, while Barclays eased back to 366.5p, down 8.5p.
The FTSE 250 was up 113.2 points at 9,201.9 as consumer-related stocks rallied. The H Samuel-owner Signet was up 7.24 per cent, 4p, at 59.25p, while pubs group Punch Taverns advanced to 3,58.75p, stronger by 7.01 per cent or 23.5p.
Goldman Sachs moved M&S supplier Northern Foods, up 8.6 per cent at 60p, to "buy" from "neutral". The broker said that while the market will need to adjust to a lower level of profitability as the consumer continues to weaken and cost inflation recovery becomes harder, "the shares offer value to investors with a longer-term perspective".
Debenhams edged lower, down 6.19 per cent, or 3.5p, at 53p, as another broker poured scorn on the recent takeover rumours. "There isn't going to be a bid ... financial/debt worries haven't gone away and trading will worsen this autumn," said Pali International's analyst Nick Bubb, downgrading the stock to "sell" from "neutral".
Among smaller companies, New Star Asset Management was down 3.75p at 100.75p after Altium Securities moved the stock to "sell" following interim results from Schroders, the FTSE 100-listed asset manager which revealed a 27 per cent drop in pre-tax profits for the first half.
"We took the statement as negative as regards the outlook for retail funds and therefore the read across for New Star," said the broker, pointing out that New Star was the most indebted company among the asset mangers under its coverage.
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