February 21, 2017

Pegler’s market report – 21.02.17: Some bid activity excites the market

As published in the Brighton Argus (21.02.17) Business on page 21 under the title Pegler’s Market Report:

Some bid activity excites the market

There was a bit of excitement at the end of last week when Unilever became a bid target for The Kraft Heinz company. Their proposal represented a premium of 18pc to Unilever’s share price and added approx. $19bn. in market cap within 80 mins of the announcement. Unilever rejected the proposal as it saw no merit, either financial or strategic, for Unilever’s shareholders and it felt that Kraft Heinz had fundamentally undervalued their business. Unilever does not see the basis for any further discussions. This is just round one and we expect that Kraft Heinz, which is controlled by Warren Buffett and the giant Brazilian 3G outfit, will want to keep talking, suggesting they could be prepared to raise their bid.

British Steel is back – the company reborn when Tata sold off its Scunthorpe plant – has now appointed a chief executive officer to head the business. The British Steel name disappeared almost 20 years ago when the business merged with a Dutch peer to form Corus, which was then bought by Tata a decade ago.

Greybull emerged to offer a £400m investment package that was intended to turn around the troubled business, which Tata had been trying to sell for several years. The deal saved about 4,000 jobs, which had been hanging in the balance amid fears the plant could be shut down if no buyer was found.

A senior economic adviser at PwC, highlighted that recent retail figures have provided the clearest evidence yet that rising prices will squeeze consumer spending throughout this year and into 2018.

Inflation is the buzzword on everyone’s lips, and cost and pricing considerations are now justifiably the focus of attention for retailers. The current inflation growth is being driven by fuel and food price increases, which is eating into the level of disposable income available to consumers for other purchases. Last year retailers largely resisted passing on costs to their customers, but we are now also observing smaller price rises right across the retail sector.

Some commentators are already worried this is having an impact on retail sales and last week’s data showed a downward trend.

But it is not all gloom and doom, house builder Cala Homes has forecast a record year of profits and revenues. The UK’s largest private house builder, said that reservations were up 24pc in the second half of 2016, compared to the same period last year. The average selling price for one of its properties was £504,000 compared with £529,000 the previous year. But it boosted the rate of sales per week, selling more of slightly less expensive homes. Cala said it was on the way to meeting its target of producing a turnover of £1bn per year, and building 2,500 homes annually within four years.

By David Pegler, Brighton Capital Management